Monday, December 10, 2012

Arguments Against Freegold

Someone suggested a post on arguments against Freegold. I thought it was a great idea, but then I couldn't think of any arguments that hadn't already failed. I've been at this task for four and a half years now, and I've read almost all of the 12 years' worth of archived debates and arguments (now missing) at USAGOLD as well as the random debates that pop up elsewhere and someone inevitably links them here or brings them to my attention via email. And yes, I feel like I've seen it all, but maybe I haven't. So here's your opportunity to present your best argument against Freegold.

A reader and supporter of mine, an American medical doctor and surgeon named Jeff Allen, once commented on his view of what it is that I do here and why this blog is "so striking to so many people." I wanted to mention this in the context of this post not only because I loved the way he explained my logical approach to Freegold and its necessary conclusions, but also because I think this is the only way you're likely to succeed at debunking Freegold if that's even possible—by presenting a competing premise through principles, expressed in precisely defined, non-contradictory concepts that are grounded in reality, which lead to inevitable conclusions that necessarily exclude those of Freegold even when viewed from a variety of perspectives.

So good luck with that!

I'm combining a couple of different comments here, but what Jeff Allen said was that "the defining attribute of an objective manner of thinking is the ability to--more deeply, the recognition of the necessity to--think in principles. To see reality as it is, then to grasp reality in non-contradictory conceptual form.

But thinking in principles will not succeed unless its elements--the conceptual terms in which the principles are expressed--are solidly grounded in reality. This is where the term "objectivity" arises. You best reveal your own appreciation for this fact by the manner in which you validate your unwinding of the concept "money."

This is not the way most people think, and this is why your blog is so striking to so many people. But it is only your fellow thinkers-in-principles who possess the capacity to respond in this way. Those who don't get it, including those commentators to which you refer, lack that capacity. Ayn Rand called these the "anti-conceptual mentalities." The anti-conceptual mentality has been fostered and nourished by Pragmatism, the philosophy which dominated U.S. academia the first half of the 20th century, and dominates our educational and political systems still today. We swim in a sea of Pragmatism.

All new knowledge is inductive. Deduction is secondary, and depends on the validity of one's prior inductions.

From whence comes your syllogism's major premise, "All fiat currencies are eventually worth no more than toilet paper?" Was it deduced from a prior generalization, or was it induced?

The answer, of course, is that it was induced. Your deduction merely applies that general knowledge to the specific case of the dollar. If your inductively generated major premise is not necessarily true, then neither is your deductively generated conclusion.

From what prior principle did Newton deduce universal gravitation? Newton's theory is the product of a grand induction, an integration of prior inductions made by Kepler and Galileo, based on observations of planetary orbits, and of the behavior of physical bodies on earth.

Freegold, too, is a grand induction. Your method of approaching the issue from a variety of perspectives, all leading to the same necessary conclusion, after precisely defining your concepts, is essential to a proper inductive process (which, by the way, the mere enumeration of swans is not)."

It occurs to me that TA-based and GSR-based gold and silver trading is probably an example of Pragmatism. I'm no expert on Pragmatism, but Wikipedia says it "describes a process where theory is extracted from practice, and applied back to practice to form what is called intelligent practice."

The "grand induction" (Jeff's term) that we like to call Freegold was not my grand induction. Nor do I think it was Another's. Another merely shared it with us along with some of its "necessary conclusions". Why did he do that? I don't know, but I have a few ideas.

As for the "grand induction" itself, I think it was a European group effort that teased it out in the 1960s and 70s leading up to and also following—and as a result of—the abrupt and predictable end to the Bretton Woods monetary system in 1971. I won't go into the details here because I want to keep this post under 100 pages, but the main point is that I didn't come up with it.

Freegold is just a name. I didn't come up with the name either. But if you don't understand what we're discussing and extrapolating upon here at a conceptual level, ignoring the convenient name, you're going to have a really hard time debunking it. In fact, I don't think you can, even if you do understand it. That's one of the most remarkable things I've observed about Freegold—that those who make the effort to really understand it on a conceptual level not only fall in love with its elegant simplicity and obvious inevitability, but they also start buying physical gold hand over fist. And again, that's only because of one of the "necessary conclusions" that are (IMO) irrefutably drawn from it.

I will temporarily and conditionally lift the ban on the five commenters that have been banished from this blog over the last four years so that anyone is free to take their best shot. But only for this one thread, and only if they behave. I will not put up with abuse, hate, spam or personal insults. In other words, Art, AD and anyone else are all welcome in this thread only, unless and until they abuse it.

But don't expect me to personally debate each and every argument. I'm not going to waste my time on arguments that miss the mark like poor Skippy, our "'A' for effort" dog at the top, or on those arguments that have already been dealt with. There is one argument, however, that I hope shows up to the party. And if anything worthy comes out of this thread, I'll add it below in the space between the lines for the permanent record.

Just beware that Freegold is much easier to dismiss on superficial grounds than to defeat on deep, logically-consistent conceptual ground. So if you really want to avoid becoming another evil gold hoarder, jerk, time misallocator and brainwashed cult member, you should consider simply dismissing Freegold on the surface-level ridiculousness of its necessary conclusions rather than taking up the challenge in this post. Forewarned is forearmed.

And finally, you can't judge the worthiness of your own argument. That judgment, like credibility, can only be made by others. As for what ends up below in the space between the lines, that judgment is reserved for me, but I will consider the opinions of others who I think understand what I think I understand in making any decision. ;D





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Indenture said...

duggo: "I think you are hinting that I should have morphed Dorothy's "Over the Rainbow" into "Follow the Yellow Brick Road"

I'm hinting that when you have a youtube channel you should let us know and this is my favorite rainbow morph.

Michael H said...

Catching up on the comments after a few days away; it might take me a while to get back to athrone and Tyrannyofthepresent.

In the meantime, for AD:

FOA (1/19/00; 8:53:32MDT - Msg ID:23197)


This has been the fundamental thrust of this news. The dollar system is failing as we move into another stronger (relative to fiat currencies) money system. I support, use and promote the new Euro simply because it is and will create the next trend for the future. Not because it's a gold currency of extra hard value. This (Euro) future will see us all using digital currencies, for better or worse. Therefore, by logical extension if I must use a reserve currency of account, I move into one that has the best strategic ability to survive and denominate my assets. In addition, it's creators are restructuring the gold market to the physical bullion holders advantage. This is the only reason I "Walk In The Footsteps Of Giants". They created this bullion path and the world will follow in due time. Therefore, my position of Euro assets and physical gold. Mostly (because I am American), I lean to gold for this transition.


Your main hangup seems to be that you see a $55k price target for gold as unobtainable. But that price target is a consequence of freegold, not freegold itself. I think the passage I quoted above sums up the essence of freegold: the $IMFS is ending and a new world monetary structure will take its place, with gold at its center. Do you agree or disagree?



I’ll re-read some of your posts but the discussion was centering around the gold stock’s “capitalization”. Here is some relevant material:

From Wikipedia, supply and demand curves:

Notice that the supply curve is upward sloping. The simple calculation of “today’s price times total volume outstanding” does not give a true account of what people think gold is worth, because, on the supply-demand graph, it is the equivalent of drawing a horizontal line left from the current price, all the way to the total amount of the gold in the world. This says, effectively, that the newly-mined gold that a mining company must sell in order to stay in business is worth the same as the gold in King Tut’s tomb.

But it should be intuitively obvious that if you bid $1700 / oz right now, you won’t even be able to purchase all of this year’s newly-mined gold, never mind all of the gold that has previously been mined. There are others out there willing to pay more for this gold, as the demand curve shows. It slopes downward, meaning that less gold will be bid for, but the bids will be there.

As an aside, the supply-demand curves of gold do not necessarily conform to standard textbook shapes as shown on the Wikipedia page. I was only illustrating the concept.

Further, while the ‘market capitalization’ of company ABC is said to be (price ABC shares times total ABC shares outstanding), when a merger or a buyout occurs, the ABC stock jumps in price. Why? Because the bidding entity knows that only the marginal buyers and sellers are trading at the current price of ABC, and if the bidder wants to draw a large percentage of sellers into the market then a premium must be paid.

Likewise, for gold, once its function changes two things will happen: first, more gold will need to flow to fulfill this new function, and second, the shape of the supply-demand curves will change as this new function is recognized.

Michael H said...

Here are some quotes from the archives to illustrate the point with regards to gold:

FOA (12/13/99; 19:15:01MDT - Msg ID:20954)

Ever been to a high priced auction. They bring out the "Strad" violin and start bidding at $500,000. After a while it goes for $1 million flat and it's over. After that we listen to the perceptions around the room.

One guy in the back, who has 10 million cash, thinks the Strad was cheap at one mill and will pick one up next year. In fact he may get ten if they are offered. Some rich woman has 3 million and she figures her wealth is equal to three "violins" if she ever wanted them.

All around the room the feelings are the same as perhaps 100 million in assets are represented. They all equate their buying power to this one auction. Even though only one walked away with physical, everyone knows they are "strad rich" in wealth. Each goes home for the evening cognac and relishes in this knowledge. Their lifelong effort of hard work and shrewd investing has positioned them to own the wealth of many rare violins. Life is good, very good.

The one problem with all of this is that they based their "wealth holdings" on the outcome of just one auction. Truly, had they all bid, the violin would have gone for much more and their wealth would seem "not so much".

In much the same way our world of dollar assets carries the same risk. All of us stand in the same world auction room and watch the daily bidding for goods and services. We watch the prices of cars, gas, houses, clothes, etc. and conclude our wealth balances based on what we could acquire at this auction should we choose to bid. We see our economy in a light of infinite goods and services but fail to balance this with the potential of others to bid, "in mass". In this light, few have a valid perception of just how many dollar assets are out there. Indeed, without this grasp of "dollar inflation" we blindly consider out wealth and position in life using the present price structure of "things". A system in which we trade paper IOUs of infinite number for real things of finite number.

So, our belief that life is good, largely rest not on the confidence in the dollar. Nor is it in the confidence that others will value and accept our dollars. Life is good, because all of us do not "bid" at the same time! If we did, our life would not be as good as our dollar wealth says it is!

This is the deception in our Western grasp of what wealth is. Our life savings are valued at what they can buy today, even though, in reality it is based on an unknown purchase price in the future. Just as all of the wealth at the violin auction was a phantom in self delusion, so too is our present good life and bank account numbers. The evolution of a people that once griped gold for the real wealth money it was, has proceeded to the hoarding of bookkeeping entries of account credits. History has proven that once humans begin to question the value of this dollar "wealth owed them at a future unknown price" they run a race to outspend their loved brothers. Buying goods now at the "known" price quickly balances the books so no one is any longer fooled. The currency equivalents remain as a trading medium, even as real things are held in the background for value proof.

No, a high price of gold will not rob us of our wealth. It will rob us of this perception of money value that was but an illusion in the clouds. Wealth for tomorrow is found in this context for today; one cannot lose something they never owned. Buying physical gold at today's prices ($200 to $500) will not help you maintain this modern illusion of wealth we never had. But will allow us to later spend the true value of gold that presently exists today. A value few will accept or believe.

Thank you all,,,,,,,,,,,,,,,FOA


Michael H said...

5/3/98 Friend of ANOTHER

Gold is valued by the number of outstanding claims against it. Kind of like a house for sale with ten bidders. Each bidder thinks the house is, in the bag because they have a valid bid ticket. Each one thinks he can have the house at any time,even thought nine others want it to, because all I have to do is bid alittle higher and take it! Insane, but that's what is going on! Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!


Robert said...

I have a question for our host, which I do not think anyone else has asked yet: FOFOA, what do YOU think are the best arguments against Freegold? You have said before that your approach is to keep testing your the thesis against what you see unfolding, so I am sure you are not surprised by the question. As someone who has spent a lot of time thinking about the issues, you could probably play Devil's Advocate and make a stronger case against Freegold than most of us!

AdvocatusDiaboli said...


I really have to laugh, when I see the cult followers throwing FO(FO(A)) quotes at the unbelievers to show whatever.

Can we therefore also put a big FAIL on that FO(FO(A))-stuff?:
Because, none, absolutely NOTHING, of ANY of the predictions have become true the last 14yrs. Absolutely nothing, that BS FO(A) wrote about Norway, the Euro,.... he did not mention China, Greece, GS running Europe, Hussein, Gaddafi.... NOTHING!!!!
All nice la-la-lyrics they wrote, but hard facts on reality? NADA!!!

Greets, AD

Michael H said...


If the Gold market is actually much larger, I am not sure how much larger, but I have seen it said on this blog perhaps 10:1 paper to physical that implies there are not 165k mt but effetively 1650k mt of "Gold" in existence. That is to say, the real market cap of Gold is actually $100T not $10T. That is a $90T discrepancy!

It is not the entire gold stock that is fractionalized, but rather the reserves of the bullion banks. So the amount of ‘paper gold’ outstanding is not 1650k mt, but rather ~10-30k mt (from memory that is the best estimate, but others may be free to correct me).

If I am following you, the idea is not that money will flow from other assets, but rather the paper and physical price will diverge (unplugging the matrix) and the resulting physical price will shoot up 20-30x.

It’s not just the ‘paper’ of ‘paper gold’ that will burn, but rather the paper of ‘contracts for future delivery of goods’, including currency and bonds.

Granted, ANOTHER started writing before the launch of the Euro, and if the Euro did not succeed then indeed all paper would have burned. Now the Euro provides a bit of a life raft for some paper, but what kind and in what amount may not be exactly clear.

Well capital that "burns in a fire" cannot purchase physical Gold, so from what source will the massive inflow stem from if not other assets [real capital that actually exists]?

I think it is better to look at this from the other direction. Gold will buy (real) capital.

Think of a standard portfolio. Let me just make one up:

5% Gold
20% Real Estate
30% Bonds
35% Stocks
10% Cash

Under a freegold and hyperinflation event, I’d expect: gold x 20, RE x 0.5 (due to unavailability of easy credit), Bonds x 0.000, Stocks x 0.5 (hyperinflation and chaos is bad for business), cash x 0.000. Now the portfolio looks like:

0.05 x 20 = 1.00 Gold
0.2 x 0.5 = 0.1 RE
0.3 x 0.0 = 0 Bonds
0.35 x 0.5 = 0.175 Stocks
0.1 x 0.0 = 0 Cash

Rebalancing for percentages (total value is now 1.275; the gold revaluation more than offset the destruction of wealth for this particular individual), the portfolio now looks like:

78% Gold
8% Real Estate
0% Bonds
14% Stocks
0% Cash

What rebalancing will this individual do? If it was me, I wouldn’t jump into bonds. I would sell some gold for cash on an as-needed basis unless by other investments were providing enough cash to sustain my lifestyle (I would even cut back on some expenses in the interim). I would consider selling some gold to buy real estate and stocks.

On the other side, for someone who was not holding gold before the transition, what would the portfolio now look like? Take the same starting portfolio but assign the 5% from Gold to Stocks instead. The new portfolio value would be:

0.2 x 0.5 = 0.1 RE
0.3 x 0.0 = 0 Bonds
0.4 x 0.5 = 0.2 Stocks
0.1 x 0.0 = 0 Cash


0% Gold
33% Real Estate
0% Bonds
67% Stocks
0% Cash

And a total portfolio value of only 30% the starting amount. Would this person rebalance by buying some gold? What are the alternatives, bonds and cash?


Michael H said...

From the IMF website there are currently $10T in foreign reserves worldwide. If the central banks/governments all switch their reserve allocation to 100% Gold this would double the Gold share from $10T to $20T, correct?

In this example I was considering only the Big Giants as described by Victor. Currently the Central Banks of the world have $10T with which to purchase Gold. If they go [at maximum] 100% into Gold their cash reserves are now zero.

Other people in the world still have money, yes, but for them their cash has run out.

Remember what central banks do: they print money! So they can never run out of cash to buy gold. They can, however, mismanage their currency to make it lose its value, but that is a different story.

And again, see my earlier post today about the fallacy of multiplying today’s price by the total supply to calculate an effect. In this case, if CB’s and governments liquidated their reserves en masse they would crash the value of said reserves and not really be able to buy much with the proceeds.

Again, what is the mechanism for a real gain which does not involve shifting assets (devaluation / inflow) or real production?

The mechanism is that the assets you are lumping in with ‘total world wealth’ are not really assets but rather promises of goods in the future. The mechanism is, if you remove these promises, what is the ratio of actual, tangible wealth in the world today?


Anonymous said...


I would be curious to know whether, back when Fofoa wrote Credibility Inflation, he knew of the Enders/Kissinger meeting, and the political dimension to the decision not to enable the European states to have a liquidity mechanism which their gold would have provided them. A revaluation to $200, a figure that could later be increased, would have given them that power.

This meeting was in 1974 (25 April), well after the decision of 1971 to go off international gold convertibility without raising the official price.

In the 1970s, the Europeans were a bit 'slow' in getting independent of the U.S. But the differing European position that can be seen from this meeting, must have lead to the 'failure' of the Jamaica conference. From the U.S./IMF point of view it must have been a failure because it did not remove gold from the international reserves. The only leftover from that conference was the statement that each country is free to decide on what to use as reserves. This made official what France had already been doing: Hold gold as a reserve and account for it at market price (not U.S. official price).


Unknown said...

There will always be a person who values a Sradivarius at a higher value than what has been paid - generally, the winning bidder. He may see the example as priceless, even though as only priceless to him.

I have observed this dynamic over many years as a rare collectibles dealer. As the item collected / bought / traded is more "niche" in nature, the divergence in "pricing" is often wider.

For example, in recent years I have accumulated items I had never dreamed of owning because they are now suddenly available at relatively depressed prices of between 100-200 dollars each, whereas only a few years ago these items could not be had at any price ... but a reasonable estimate of value would fall between say $500-600. In the high end of the hobby records are set every quarter in the $100,000.00 arena per item.

This is merely a reflection of middle class "wealth" destruction, vs, elite "fiat" (cash) needing to find a home.

Gold acts differently due to its essential monetary function. Thos who would deny this need only to look at any gold coin and find it's "denomination" in fiat terms, not something incribed upon rare violins.

But the lifestyle of a collector/dealer in rarities and the wisdom of a life of trading and accumulating such things does prepare at least some western minds for the shift in perception that accompanies all such dynamics.

To this day, I am asked on a consistent basius to place a value on a particular rarity, and such value is seen as "authentic" when "coming from me".

Yet in nearly every instance I point out that value is subjective and the true "price" being sought out is determined solely by the negotion between someone willing to part / accept at a price another is willing to pay.

This seems to be the hardest concept to understand about rarities. The western mind does not grasp the subjectivity of the matter at hand. Items which are priceless to me are worthless to another.

If gold was just another "collectible" these wild swings in valuation could be explained, but it is not.

Just a 2c worth point of view from one collector / dealer in items of early Americana.

Michael H said...


My Californian trumps your Texan simply because he is a millionaire and not a billionaire.

Did you see the link in that comment? Just in case I will reproduce it:

In the case of your Californian, recall that he is in a position to buy lots of silver precisely because he held gold through the transition. What would have happened if he held silver instead?

Personally, this is how I see the gold-silver story playing out:

Stage 1 (current): Gold and silver rising in a stair-step pattern, correlated price action, silver outperforms gold.

Stage 2: Gold is revalued due to its new function at the heart of the world’s monetary system. Silver could do one of two things:

2a: Silver jumps in empathy with gold due to previously-held associations, but then falls again as the lack of new function for silver makes much of its investment demand go elsewhere.

2b: Silver doesn’t even jump with gold, but rather falls as people who previously held silver sell it en masse to try to acquire gold.

Stage 3: Silver, after ending stage 2 as a grossly undervalued commodity, regains some investment demand, but since it does not share the monetary function of gold its value is much lower and closer to a commodity. Holding silver becomes akin to hoarding copper US nickels as their melt value increases beyond their face value.

It is wrong to characterise silver as easier now, since despite huge volatility, demonetisation and remonetisation, the ratio has been tending in the opposite direction for over 50 years. The perception of silver as "easy money" based on the momentum a hundred years ago is wrong. Until the two metals reach a new balance, silver is even harder money than gold.

I don’t really think it matters whether the price of silver has been rising faster than the price of gold in the past fifty years. Even if this makes silver ‘harder’ (which is debatable), it doesn’t change the other arguments in favor of gold being the preferred center of the monetary system.

Beer Holiday said...


Great points, and central banks hold gold. Not silver, not diamonds...

Anonymous said...


adding to Beer Holiday's remark:

Conventional precious metals' bugs claim that all CBs hate gold and silver because they want to expropriate savers using fiat money. If this were true, then you could hold either gold or silver, but they would be no more than an inflation hedge, no more than platinum, iridium, copper, crude oil, canned food, perhaps plus a panic factor.

Truth is (and there is plenty of evidence, for example here and here) that some CBs are rather gold friendly and have the intention of using their gold again as an international reserve at some point in the future. And they will not use copper nor canned food (nor silver). You can see this on their balance sheets (and in their vaults) today.


DP said...

2.2. Revaluation accounts

Revaluation accounts on the ECB’s balance sheet represent balances arising from unrealised gains on assets and liabilities, including gold, foreign currency, securities and other instruments. These gains stood at €19.6bn at the end of 2010. Figure 3 shows that gold accounts for the bulk of the revaluation accounts (almost exactly two thirds of the total in 2010). ECB/Eurosystem accounting conventions imply that
reductions in the value of securities, foreign exchange holdings and gold (except
securities held for monetary policy purposes which include the Securities Markets
Programme purchases) are marked to market at the end of each quarter. Unrealised gains arising from the quarterly revaluation are not recognised as income, but credited to the revaluation account, while unrealised losses are taken to the profit and loss account at the end of the year if they exceed previous revaluation gains for the same class of securities. These revaluation gains are registered on the liability side of the balance sheet in the revaluation accounts. The balance on the revaluation account is therefore clearly potentially loss-absorbing. A mere plausible change of the accounting convention used could see the revaluation gains included in the capital entry (effectively treating increases and decreases in market value symmetrically). At most, what it would take for the revaluation gains to be treated as fully loss-absorbing would be to sell and immediately repurchase some of these assets, with the gain being realised as profit and added to the capital balance on the liability side, with the repurchased assets accounting for the matching increase in
the value of the assets.

Tyrannyofthepresent said...

Michael H,

Absolutely loved your portfolio scenarios (quite aware that they were not really directed at me).

Yes, I knew exactly which billionaire you were referring to without following the link (I have read that post several times anyway). My point was that the B came to grief due to being noticed, while the M would do fine.

On your silver scenarios I like 2a but don't know how much higher the GSR may be due to the boost from 1. I am also concerned that 1 may just continue all the way to the top. I also have a 4 in about a generation when the silver runs out.

On hardness, I have enjoyed debated this with Motley Fool and am waiting to hear about this "other" kind of hardness that does not mean relative appreciation.


Many thanks for yours, don't worry: I am not expecting any succour for silver from CBs at all, never have, unless just possibly Mexico does the wild thing, which I doubt.

Both (others?),

I would be grateful if you could suggest what you perceive as highest and lowest GSRs in respective pre, peri and post FG scenarios. I have no wish to contest these, I am just interested in different views and am formulating my own.

Many thanks to both for responding.

burningfiat said...


For all I know, GSR could possibly go as low as 1:1 when paper gold / paper dollar ratio goes to ~ 200, but who would care? Real physical gold wouldn't be for sale, but all the fine paper exchanges would no doubt display this gold price and hence a GSR in this area.

Wil, Nice account of the pricing mechanism on "the floor".

I second the requests for FOFOA coming out of the bush regarding his understanding of the most credible threats to Freegold!

Also, I'm deeply disturbed by FOFOA's silence on the whole food/health discussion. What is the sanctioned diet for a full time cult member? Until FOFOA speaks out, we have a to fumble around in the dark (right now, in lack of better cult leader advice I eat things that taste good!!!)!!!???


Motley Fool said...


I thought I had made that clear in private conversation.

I did not disagree with your definition of hardness, just noted that perception plays a huge role.

At present there is a 'silver shortage' as well as the 'protection from hyper/inflation' meme, plus the 'crash the evil banks' meme, plus being a smaller market(ito nominal cash flows), etc, all of which contributes to silver being relatively overvalued.

I simply pointed out that one should be cognizant of the actual physical flows, and uses for such, and that we expect some of those reasons to dissapear which will affect the relative hardness.

Hence my comment that when considering relative hardness, one must take the drivers at that time into account, as well as your future projection of whether those will continue or perhaps escalate to determine future 'hardness'.

Your definition is fine imo, and at present silver is harder money than gold, but circumstances may change on short notice.


Tyrannyofthepresent said...

Motley Fool,

Thanks, I think that is clear... so relative hardness is indeed the gradient of relative value. I thought there was no other real meaning of the term (it is a very specific one in relation to "hard" money).

Separately, one can discuss the various drivers of relative hardness, as you suggest.

Tyrannyofthepresent said...

Michael H,

Sorry, I forgot to explain the rationale for my Californian, which was rather oblique.

The point was: this little dude (heck, maybe even I) can buy up too big a chunk of the silver market if freegold hits.

My point:

1) If it hits gradually, he will rebalance along the way and even if gold/other stuff goes up to the ratios anticipated, gold/silver won't and may even continue to sink.

2) If it hits suddenly, he and people like him will try to rebalance (because they haven't built their stable Freegold risk-free philosophy yet). Result: silver goes no offer just like gold did during the Freegold transition. Secondary result: who knows what the GSR will be. Not necessarily lower than now, but not necessarily higher either. Assuming that the sudden-revaluation thesis has any weight, it is precisely the nature, timing and extent of *this* silver pop (in gold terms) that I want to know about. It will be too late to buy silver (since silver will be no offer).

People like this exist and they are planning to rebalance if and when Freegold happens. So physical silver can reliably be expected to go no offer either before, during or immediately after the Freegold transition. All this is established in my mind.

So all I need to know is - will a meaningful proportion of people rebalance, and can a GSR close to current levels allow them to? And will the subsequent ratios tend to be stable?

And this is quite apart from the old "if gold is risk free, inflation-proof cash, will people still want to diversify into other physical non-real estate assets?"

And so far my answers are still yes, no, yes and yes. Hence the Californian and hence the continuing slow oscillation in my thinking towards a sustainable optimum weight ratio that I can believe in, rather than a move towards 100% liquid allocation into gold.

I could even try to tentatively quantify scenario probabilities:

1) Stair step just continues until both markets clear and the paper/physical game is eliminated, without significant force majeure or geopolitical disturbance: 25%

1a) As above but significantly challenged by the USA in some way (most probably economic): 25%

2) Spike in GSR followed by immediate larger collapse in GSR (hyperinflationary context): 25%

3) Genuine sudden Freegold transition, with instantaneous transformation of investor psychology: small

3a) Genuine, rapid, messy Freegold transition with accompanying mania for other storable assets immune to counterparty risk; very volatile GSR, difficult to predict destination but probably higher than present: remainder of last 25%

These will adjust. I am learning.

Tyrannyofthepresent said...

PS Michael H

Not forgetting, my scenario 4: Gold is established as cash; fairly stable economy; silver primarily from landfill and energy problem not yet resolved; very low GSR. Not in time for me to enjoy it much, but you have to think like a Giant, i.e. long term.

and maybe even scenario 5: Gold established as cash, energy plentiful, silver still useful but recycled, stock larger than gold. GSR: anybody's guess. But I will leave that for my grandchildren to worry about.

Woland said...

Just wanted to say thanks for the "violin lesson", since I
had never seen it before. It makes a perfect complement
to the last section of #3351, while its greater elaboration
enables a much clearer understanding of those passages,
particularly for someone new to the Freeegold view. I'm
adding it to my private HOF. Cheers.

Tyrannyofthepresent said...


Thanks for your ratios. As for me I will be trying not even to look at the paper ratios.

burningfiat said...


All right, regarding real GSR ratios I humbly think you have to ask poopyjim for real gnosis, but perhaps I'm a bit more conservative and will have to guess on something like 2000:1 as a stable ratio in a Freegold environment...

Max De Niro said...


Don't forget that Freegold would likely be coming to fruition against the backdrop of a hyperinflationary depression, so masses of silverware, coins, scrap etc will be hitting the market. The majority of silver is held by those that will need to sell it in order to eat, whereas the majority of gold is held by strong hands who will be clutching it tight.

You are assuming silver will go no bid, I think that assumption needs looking at.

Personally, I have a very small amount of silver, for the purpose of selling during HI to meet need for incidental purchases. I am considering selling this now and replacing it with euros. I live in the UK.

The overwhelming majority of silverbugs that I know are very weak hands indeed.

Tyrannyofthepresent said...


I expect silver to go no offer because its failure to do so would require the overwhelming majority of existing balanced gold/silver portfolios to refrain from attempting to rebalance.

For me, the expectation that everyone will refrain from doing something that they always do has a low probability. Until someone explains to me why they will *all* refrain from doing so.

As for silver in weak hands, my primary end-point is probably the time when silver is coming predominantly from landfill and I am not necessarily even expecting to be the one doing the selling. When I need cash, I sell gold, not silver. How weak is that? And I have heard a lot of similar talk from others, perhaps all bluster, who knows. I always assume there are others like me, perhaps wrongly but am often proved right. One is rarely as unique as one thinks.

Tyrannyofthepresent said...

PS Max,

Why sell gold, not silver? Because I perceive silver as harder money (always have). Interpretation: I am just a bog standard economic actor with a slightly unusual perspective, displaying Gresham's law.

Tyrannyofthepresent said...


Wonderful, marvellous. 2000:1. Now there is something I can work with. Where is my calculator?

Max De Niro said...

Of those people that you mention having a balanced gold/silver portfolio, how many of them are holding real metal, in their possession? How many people who think they hold gold will find themselves cashed out a very low price, in a market where CBs are sucking up every available ounce of gold as it takes its place at the centre of international finance with effectively unlimited demand, but silver is piling up at dealers as weak hands sell in order to eat, with only speculators who have managed to engineer liquidity at this time of liquidity scarcity (Yes, HI is characterised by a lack money, hence the printing) taking a punt on silver?

Why would you want to buy silver in a market flooded with physical?

Tyrannyofthepresent said...

Valued responders,

I am going to shut up for a bit (still lurking) so please don't think I am being rude. You can all have the last word on our little threads if you wish. I did say to Costata that I wasn't into making assertions and have caught myself doing so in response to your responses etc. etc.

He has kindly agreed to put up some well researched GSR thoughts, and I don't want to miss the opportunity to read those. Although yours were all hugely valuable. So you can all consider yourselves to have provided unanswerable answers and stunned me into silence until Costata speaks.

Many thanks for your genuinely valued input.

Anonymous said...


You seem to be exerting a lot of energy trying to justify silver's role in our future financial system. I don't understand why. It's quite simple In my understanding. When central banks and governments start hoarding silver, you should have a good 10 - 30 years? Maybe longer to position yourself:)

They do not consider silver as anything but a commodity! It's so obvious it's not even funny. At this point in time it's hardly worth the energy to even discuss it. The choice was made loooong ago, my friend, doesn't matter what fancy scenario you might work out... the scenario to focus on is the one that is happening right now here on earth. Gold won a long time ago...

Yes, silver is slightly harder than gold;) That's about as close to "hard money" as I'm going, hehehe.

You mentioned that silver will be gone in a generation or something... Where's it going? Does it just disappear? I'm a little confused with that assumption you're making.

What is it the greenies say?


I'm not trying to insult you or block your efforts here, but I just don't get it.

Nobody's Hand to Hold

Max De Niro said...


"So you can all consider yourselves to have provided unanswerable answers and stunned me into silence until Costata speaks."

How very generous of you.

I'm glad, though - I was getting serious commenter's remorse after experiencing massive regret, sensing I was getting drawn into a discussion on a topic I've come to detest with a passion.

I tell you what, you can have the win, I'll just retire to my leprechaun shack.

Ken_C said...

There was a post above from ART that indicated that he considered that "Freegold" had been with us since 1971 when the gold window was closed by Nixon. I am fairly new to this but it appears from my reading that freegold is not possible when there is tax on gold or any restriction for holding, buying or selling gold. Therefore, I must conclude that ART is mistaken.

I also wonder why someone would come onto a site to comment when he thinks the members there are all morons.

costata said...


Silver Mythology: No.1 - Silver will be the first industrial metal to become extinct in the "wild".

If true, why have the proven reserves risen even as demand (and supply) have increased?

2000 - 420,000 (tons)
2005 - 570,000
2009 - 400,000
2010 - 510,000
2011 - 530,000

No point in quoting this particular source. Estimates vary widely but the one consistent trend in all of the estimates that I have seen is that they are rising not falling.

The ratio of silver to gold in the earth's crust is not 15:1 or 16:1 as claimed by silver advocates. According to the British Geological Survey (as reported by Bron below) the ratio is 42.3:1.

Do I need to provide evidence that the GSR has been volatile? Ranging from 15:1 to around 100:1+ in various places at various times. Conclusion: There is no definitive GSR.

I'm hoping this mini-series might avoid some time wasting chit chat later on. I'm pushed for time at the moment. I'll address the bigger issues as promised Tyrannyofthepresent.

Biju said...

Anyone sensing a medium term bottom is in for paper Gold and along with Euro going to go higher starting now ?

Woland said...

Hi Will;

Nice to find a fellow (I'm an ex) antiquarian! Just out of
curiosity, would your "specialty" be found among the artifacts
of Elektra Havemeyer Webb's museum in Shelburne, Vermont.
Playing treasure hunt was always great fun, even if my recent
search has come up empty, at least to date.

Phil: "Out of the crooked timber of humanity, nothing straight
was ever made". Some timbers are just a little more twisted......

Biju said...

Govt mulls tax breaks for equity investment

"NEW DELHI: The government and regulators are discussing fresh tax benefits for investment in equities in an attempt to wean away individuals from parking funds in gold.

The proposal is to take subscription into equity-linked savings schemes (ELSS) out of the Rs 1 lakh deduction limit provided under Section 80C of the Income Tax Act and create a separate window like the one for infrastructure bonds.

ELSS is a mutual fund scheme that invests in equities and comes with a three-year lock-in period, aimed at de-risking the exposure of retail investors who are not equipped to deal with direct investments into the market. The instrument gets investors exemption from payment of long-term capital gains tax.

A source familiar with the discussions on boosting investments in financial products said "there have been preliminary talks" and they may form part of the steps to discourage individuals from parking funds in gold that is expected to be finalized in time for the next Budget. A final decision is yet to be taken.

In fact, in the mid-term review tabled in Parliament on Monday, the finance ministry listed four options being discussed to reduce the demand for precious metals — a modified gold deposit scheme, gold accumulation plans, besides gold-linked accounts and pension products linked with the precious metals.

But these instruments come with the risk of the demand for the metal remaining high, something that the government acknowledged. "Any rollout of gold-linked instruments will have to be monitored carefully to see whether the overall demand for gold actually falls. More generally, however, the demand from the public for financial investments that retain their real value needs to be addressed," the report said.

The finance ministry is also discussing ways to make exchange traded funds (ETFs) in gold more attractive for individuals so that the government is not saddled with a situation where heavy import of the precious metal widens the trade and current account deficits and puts pressure on the rupee. ETFs are also like mutual funds but have gold as the underlying asset.

Those backing sops for ELSS suggested that the move may result in investors reducing their exposure to gold and instead moving to equities.

"Earlier as well, there was a window to encourage investment into equities and equity-linked schemes. As such, implementing an incentive for equity investment will encourage individuals to channel savings into the market provided its is not volatile," said Rahul Garg, head of direct tax practice at consulting firm PricewaterhouseCoopers India.

Even in the last budget, through the Rajiv Gandhi Equity Scheme, Pranab Mukherjee had created a window for retail investors to enter the stock market but the benefit was limited to small investors who were investing in equities for the first time.

Subsequently, Securities & Exchange Board of India got the government to include equity schemes of mutual funds as well as ETFs that invest in index stocks and blue chip public sector companies eligible for tax breaks. They come with the rider that the first-time investor has a taxable income of Rs 10 lakh or less and invests up to Rs 50,000 either directly or via MFs or ETFs. "

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

@silverbugs Think about this. If something has industrial uses, that makes it LESS desired as a wealth asset to those that matter. The GIANTS of this world have no desire to hoard something that the world wants to use. That typically draws attention to their wealth and gets them killed. The beautiful, rare, durable precious metal of choice will be the one that is as useless as possible to the rest of the world for anything but keeping score.

Sam said...

@Phil gold is not free as long as there is paper gold. I like "Victor's summary" (found in the links section) as the easiest and fastest way to understanding this concept. The theory put forth by Another was that the paper gold market will and must default at some point. A theory backed up nicely by history, since the paper gold known as the dollar defaulted once before.

Dante_Eu said...

My best argument against Freegold (ie. sudden near-term, revaluation (x10-x30 ) of physical gold) is:

Amusing ourselves to death by Stuart McMillen, May 2009

The critical mass needed for Freegold and the stable high price after the paradigm shift may never be there. Today, and more so in the future, we live in increasingly more virtual world. You have people working for virtual currency, I mean not virtual (digital) fiat, but virtual virtual currency. Zynga comes to my mind.

So, confidence in the current system may well be there for a long, long time. Not to say that physical gold will be bad if you are in for a long hole, just not becoming focal point as described in Freegold.

Just my 2c.

Edwardo said...


There are some crosscurrents presently that lend to uncertainty- what's new- but, broadly speaking, PM shares, as represented by the like of GDX and GDXJ, seem, technically speaking, washed out.

Beer Holiday said...


I'm no expert, but this talk of silver "running out" has some serious reality to overcome.

Silver occurs in (e.g) base metal VMS deposits and mines - so as long as humans like zinc, lead, and copper (the other cornerstones of our civilization to oil), then some silver will come out of the ground as a by-product. There are abandoned silver mines, they stopped producing as silver was demonetized, not because they ran out.

Which element may be extinct guessed it Helium.

Dante Eu,

Huxley's Brave new world is often misinterpreted as a sci fi vision of the future.

I was really a manual describing the future that fabian socialism hoped to achieve. Huxley was a founder of the movement, every character in the book is named after other members. So I find it funny when people go - look Huxley guessed the future :-) No, his movement are largely responsible for it for better or worse.

This is all in our past, the fabians lost to the progressive movement.

But the fabians had their day in the sun! Every left Prime Minister for 70 years in this part of the world has been a member of the Australian Fabians (except K Rudd, who got kicked out). Same goes for all the UK (former) colonies, fabianism spread from the UK.

And to be honest I think they did an good job.

Hitp-up Mencius Moldbug's link to the right if interested :-)

costata said...


Thanks for the extract at December 17, 2012 4:44 PM. This passage below caught my eye and I have three questions for you about it (my emphasis):

The finance ministry is also discussing ways to make exchange traded funds (ETFs) in gold more attractive for individuals so that the government is not saddled with a situation where heavy import of the precious metal widens the trade and current account deficits and puts pressure on the rupee. ETFs are also like mutual funds but have gold as the underlying asset.

1. Why would encouraging people to hold their gold via an ETF reduce the impact of gold on India's current account deficit?

2. Has there been any further discussion about the accounting treatment of gold by the Indian government in its BOP/national accounting?

3. Does the Indian government classify LBMA good delivery 400 oz bars differently to other types of gold imports in its trade accounts?

Thanking you in advance if you can shed any light on these issues.

Beer Holiday said...

Links for the above:



Australian fabians

Beer Holiday said...

Here's a lecture from my favourite HMS Peter Schiff. I always need to wash down talk of socialism with some Peter Schiff, anyone else find that?

PS DAE think Schiff is a lot smarter than he lets on? I think the HMS talk appeals to his target audience, I don't doubt he see's the bigger picture IMHO.

I have a shirtless Schiff poster in my room of course, like all good gold bugs :-)

costata said...

Preventing The Hyper-Inflationary Collapse Of The Russian Ruble

Part 1/3

The extracts below are from Pages 378-380 of a book called “Gold – The Once And Future Money” by Nathan Lewis. I tried to shorten it by providing some background notes. Lewis is no Rothbard or Ron Paul. The gold exchange standard he describes is in close accord with the policy prescriptions of one of the father’s of the Euro - Robert Mundell.

The ruble had been relatively stable for several decades prior to the 1970s and “remained relatively sound through the 1980s”. In early 1989 the official rate [peg] was 0.65 rubles per dollar and the black market rate was 4:1. By September 1989 “the black market rate was 10 to 15 rubles per [US] dollar.

The Soviets were following the “advice of the IMF and the Harvard Institute for International Development”. They were heading for a disaster which Lewis claims could have been easily averted. Here’s how (my emphasis):

A group led by Wayne Angell. A governor of the Federal Reserve’s policy board, made a trip to Moscow in September 1989 to recommend a gold peg for the ruble. At the time, the Soviets had about $26 billion of gold bullion, more than enough to purchase every ruble in existence at rate of four rubles per dollar. The Soviet Union was one of the world’s foremost gold producers.

Angell’s group suggested that the ruble should be pegged to gold at somewhere between one and three roubles per dollar (350 to 1,050 rubles per ounce of gold), near its official exchange rate, which would minimize the amount of adjustment that would have to take place in prices as they were liberalized.

Instead the currency would be adjusted to match existing prices. Since the Russian people had no debts, but only savings in the state bank, there would be little deflationary pain associated with the move. Instead, Russian citizens would receive a very large windfall, in effect a transfer of wealth from the state hands to private hands, which of course was the whole point of the transition from communism to a market economy.


costata said...


Part 2/3

(my emphasis)

Citizens had savings of 350 billion rubles, steadily accumulated through hard work, which would become worthless under hyper-inflation. But if the ruble’s value were fixed at a generously high rate, the savings would form the seed capital for a new wave of grassroots enterprises. With a gold peg in place the demand for rubles would skyrocket, and the supply of rubles would not have to be contracted very much, if at all.

The Soviet government could then issue long-term debt to its own citizens at 5 to 6 per cent annually, the rate at which the fledgling U.S. government issued debt in the early nineteenth century rather than using the printing press to simply print more money. In 1989, the market rate on a one year gold loan was abut 2.0 per cent.

The presence of ruble-denominated debt would create a political interest group committed to a stable currency to offset the dollar-based exporters who favored devaluation. The Soviet Union, which owned virtually everything in 11 time zones, a sixth of the worlds land mass, would be able to capitalize on its enormous wealth.

It was, needless to say, a proposal of towering ambition and cutting-edge sophistication. In 1920, as European governments discussed reestablishing gold standards broken in World War 1, such a proposal would not have been far from the mainstream. In 1989 it was simply bewildering. Many Soviet politicians listened with great interest and inherently understood the argument. It was obvious to them that the economy was on the brink of a hyperinflationary collapse.

The Soviet economists were baffled that these Westerners would advocate – a governor of the Fed, no less – would advocate something they had never seen in the Western textbooks. In the end, the Soviets took the advice of the IMF and the Harvard Institute for International Development, preferring the certainty of economic disaster to the unknowns of a gold standard.


costata said...


Part 3/3

The idea of a bond payable in gold was too uncomfortable at the time, but as confidence in the ruble imploded, the government was forced down a similar path. By April 1990, only seven months later, the government had issued bonds payable in cars, television sets and refrigerators.

To their credit the Western advisers did recommend, intermittently, that the government attempt to slow the hyperinflation by reducing the supply of ruble notes. But the problem was not the supply per se, but the fears that the government was not committed to protecting the ruble’s value. This line of thinking led to a decree in January 1991 that ordered all higher-denomination ruble notes to be turned into the state bank for smaller denominations, but with a maximum of 1,000 rubles per person. Note holdings in excess of 1,000 rubles were rendered worthless.

The plan incinerated the value of huge swathes of banknotes (held by the people who, quite rightly, had little faith in banks), proof positive that the government was not concerned with maintaining the value of the currency. Why hold rubles when the government was going to declare them worthless? The end result was a lower value of the ruble and more inflation. In August 1991, the ruble traded at 77 per dollar.

If the problem of ruble collapse wasn’t enough, the government was also pushed by the Western intelligentsia into attempting to deal with its large deficits through the imposition of new taxes. The Soviet system had no taxes. They were implicit within the centrally planned system. Beginning in 1990, the government essentially imposed a West German tax system upon the already-crumbling economy.

The extract from this book that discusses Mexico will follow later.

Beer Holiday said...

Costata, Thanks!

Do you think that perhaps HI is a perception management tool for governments to teach a population that the currency is now worthless?

That's where I'm ATM hope I'm not straying from the trail (again).


Wendy said...

It seems that this blog post has evolved into a silver vs gold thingy AGAIN????

What started as a nice friendly discussion of the (dis)merits of freegold has boiled down to the usual crap!

I'm scrolling!!

Feel free to be rude, I'm scrolling ;)


Ken_C said...

Yes I did read the information about paper gold. My thought was that in order for Freegold to happen there must also be no "restriction" on gold like taxes. If gold transactions are taxed it certainly limits the ability to freely move from fiat to gold and back.

Beer Holiday said...


Now I'm in trouble again

Thanks for helping some of us primates establish our boundaries.

The interlock on the laptop is saying this is my last post for at least 12 hours :-)

Wendy said...


I changed my mind. I went away, smoked a cigarette, and decided...manners matters. I will continue my politeness monitoring ;)

Beer Holiday said...

OK thanks, but I'm only here for links and substantiating my previous points. Hope to meet you one day :-)

I don't have the Churchill gene like Mr Hitchens

costata said...


A crop of colourful comments flowered in my mind, I read this and they withered:

I will continue my politeness monitoring ;)

Wendy said...

costata ;)


jeb said...

Reading David Graebers book "Debt- The First 5000 years", amongst the many interesting thoughts was this passage
"Perhaps the reason is because what was true in 1710 is still true.
Presented with the prospect of its own eternity, capitalism-or anyway,
financial capitalism-simply explodes . Because if there's no end
to it, there's absolutely no reason not to generate credit-that is, future
money-infinitely . Recent events would certainly seem to confirm this.
The period leading up to 2oo8 was one in which many began to believe
that capitalism really was going to be around forever; at the very least,
no one seemed any longer to be able to imagine an alternative. The immediate
effect was a series of increasingly reckless bubbles that brought
the whole apparatus crashing down."

I love the human nature aspect the author brings to the table.

Rui said...

@H. M. Socialist

Sure, the great concept of separating MOE from SOV b/c there's a dilemma when we transact in the same medium that we save in, right?

There are 24 hours a day. We have to sleep during the same 24 hrs that we also have to work. Is it a dilemma? Must be hard to manage, huh? Perhaps we need a free-clock or sth to separate the time to sleep from the time to work. HOHOHO

This idea of separating MOE from SOV ain't exactly fly. I have already shown gold as SOV cannot prevent paper from looting your wealth. Now let's look this "separation" thing.

Separation, really? Aren't you still paid in the same FIAT that debtors want to dilute? Sure you could buy gold to get out, but it only means the fool selling you his gold now holds the FIAT for you. As you get out he gets in. It's a zero-sum so how is it separation?

Truth is it neither really separates anything nor offers a SOV safe enough to fend paper looting off. Despite all the "Eastern" sound bites floating around here, you are still of Western easy money mindset, which is why you attempt FG.

Truth is easy money and fiscal prudence (and other FG promises) are like ice and fire. They cannot co-exist. Fiscal prudence means by default no money for irresponsible people such as B/G or those simply borrow beyond their means. And what does FG do? It gives B/G FIAT control and lets irresponsible debtors get their debt. Ain't gonna work. Cannot have the cake and eat it.

costata said...


Let me answer your question on HI in a roundabout way. I think that the quantity theory of money has been discredited as an indicator of inflation over short time periods. Ultimately currency should obey the law of supply and demand but it frequently doesn't do so in an observable way for quite long time periods.

Gregor Macdonald tried to argue on a couple of threads here in the past that HI had specific triggers. I've argued that there were certain factors which created the right climate for HI.

I think we were both wrong - falling into the correlation vs causation trap. That's very easy to do if the writers you are studying are presenting historical events with a pet theory in mind or a set of assumptions about causation (e.g. wheelbarrows = HI).

I think the argument comes down to this: What are various economic actors doing to either engender or weaken confidence in the currency? If the forces attempting to weaken it are stronger it tips the odds in favour of HI.

I think HI happens because people who are in a position to undermine confidence in a currency do so. We can argue about their motivation but as Jim Rickards points out you can target HI quite well and select the winners and losers.

And as I said upfront I'm answering your question in a roundabout way. IMHO the catastrophic loss of confidence in the currency comes first and this produces HI. I don't think HI is used to "manage perceptions". It's the result of a process of eroding confidence. What we need is a reliable confidence indicator in my opinion.

costata said...


I'm going to have a T-shirt printed that says:
No THIS is not Capitalism!

Beer Holiday said...


So correlation doesn't = causation (again)?

costata said...


That's my thinking. I also think it is noteworthy that the HI events I have studied all ended suddenly. I don't know if that was the case with all HI events in the past 100 years. If it is the case then I think it argues that confidence is the key (only?) factor.

Anonymous said...

Interesting piece over at Corbett Report about 3D Printers that can print titanium parts for jet engines.

Won't be long before we can print our very own Gold coated tungsten coins at home.

Tyrannyofthepresent said...


First of all, my reference to silver "running out" was sloppy language in a more relaxed conversation; it refers to factors such as the < 10 year half life of ore grades referenced here

The fact that this blogger has not yet moved out of the silver blogosphere is of no consequence to me; it is his numbers that I wanted and those were sorely lacking until he published them late last year. I realise that there will always be silver in the ground. What interests me is the price and volume of what is extracted, and drivers of those factors.

In recent USGS appendices there have been recalculations of reserves from places like Poland and the former Soviet Union. On my own reading I have concluded that the "rise" in reserves - which themselves mostly refer to poor ore grades - has been in part due to this phenomenon. The latest is here but the changes have been made over the last five years or so:

I just want to shake off any comfortable ideas people may have that my belief in *economically* inextricable silver from ores a generation from now is based on that silly assertion based on the USGS a few years ago.

It is shorthand and is in fact used in other online environments where these facts are frequently discussed, said facts standing independent of said environments, as long as they verify.

On GSR, almost no need to say this to you but clearly I have no interest whatsoever in any absolute value, although I will follow up your BGS reference since the discrepancy is significant.

I may do some more work on the geological aspect, mostly for my own benefit, but first I want to listen and learn from you and others on *plausible drivers of plausible paths of physical GSR*. I tend to think not in terms of laws or absolutes but in terms of rocks, hydrocarbons, landfills and human nature.

costata said...



This post you linked:

Submitted by SRSrocco

This gentleman's name is Steve St Angelo. I'm familiar with his work. I understand that he is an associate of Jason Hommel and he is also a friend of a gent named Shelby Moore III.

The fact that this blogger has not yet moved out of the silver blogosphere is of no consequence to me; it is his numbers that I wanted and those were sorely lacking until he published them late last year.

It's up to you to decide whose data you are going to trust. I would suggest you examine Steve St Angelo's data with a powerful microscope (and his premises and assumptions even more so).

I think you are misreading where I am going with this:

*plausible drivers of plausible paths of physical GSR*

I'm saying the GSR is a figment of TA followers imagination. You can derive a ratio between any two things. IMHO the GSR is an artifact from the historical state-imposed exchange ratio between gold and silver. It's also a useful myth for market manipulators to exploit.

With regard to silver I'm actually focusing on issues such as prices, substitution, technology, industrial demand, market manipulation and so on. If you are going to talk to silver advocates then you are forced to talk in language they can relate to (at least to some degree). So I refer to GSR from time to time.

Just out of interest, what figure would you put on the above ground silver stock?

Tyrannyofthepresent said...


I know Steve is easy to knock, but he provides sources. I don't trust either him or his data, but I will follow links and I can tell the difference between cut-and-paste and pure invention.

I just had a look at the BGS figure; it comes from Rudnick and Gao (2003), who make this admission:

For the remaining moderately soluble elements silver, cadmium, and bismuth, there are no
data for sedimentary composites. Taylor and
McLennan (1985) adopted values from Heinrichs
et al. (1980) for cadmium and bismuth and from
the Handbook of Geochemistry (Wedepohl,
1969–1978) for silver. The only other data come
from the study of Gao et al. (1998a). So essentially
there are only two studies that address the
concentrations of these elements in the upper
crust: Gao et al. (1998a) and Wedepohl (1995)
(which incorporates data from the Handbook of
Geochemistry and Heinrichs et al. (1980)).

Their intro clarifies that two methods are used; absolute surface and sedimentary analysis. Sedimentary analysis averages from a much thicker crust which is roughly relevant to mining. Surface analysis fails to do so completely. They have no sedimentary data. That ratio is a minority figure in the geological world - hardly any references to it exist and I have no idea why the BGS chose to follow Rudnick and Gao.

As for the above ground silver stock, after hundreds of hours over the past five years trying to find anything meaningful, I still have no idea. What I have noted, however, is that in Freegold circles, high figures for silver stocks tend to elicit discussion of scarcity dynamics while low figures tend to elicit discussion of the importance of stocks vs. flow. This is creates a clear double bind for silver in people's minds, which I doubt represents the true market dynamics.

As to terminology, the language is of no consequence to me. GSR is used a lot in market-type discussions of the metals' past in all contexts. I actually think in terms of a silver price expressed in mg per gram. I can work happily with dirhams. The market drivers are what it is about, not the unit of measurement.

As for silver advocates, my own perception is that I still have an open mind on these assets/classes. But metacognition is notoriously unreliable.

Tyrannyofthepresent said...

PS Costata,

On state-imposed ratios I am rather skeptical before the British Empire. For example you no doubt know that there was a huge arbitrage trade in C18 when China was on around 8:1 and recapitalising, while the West was on 15:1. Japan was on 6:1 at one point. I don't think you could whack these things around in the preindustrial context and prefer to see it as more a manifestation of the history of local commodity-type supply and demand.

Tyrannyofthepresent said...

PPS Costata,

Perhaps the clearest terminology - if you are truly willing to give any time to this speculative discussion of the future - is to refer to a "silver price" expressed as a weight of gold, e.g. mg per gram or suchlike. When gold is the investment denominator, there will have to be some kind of silver price. That price will have drivers and those drivers are my focus.

Beer Holiday said...

Here is Peter Schiff laughing at us - what do the Freegolders make of it...

Motley Fool said...

Beer Holiday

Who is 'us'?

Beer Holiday said...

point taken :-)

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

This is us BTW

Beer Holiday said...

The answer is us - the savers. There comes a times when we sober up - remember the first steps of the gold trail?

"There comes a time

There comes a time in all things when one must do nothing and simply wait"

Woland said...

For those with an interest in the granular details, Via Reuters:

"Insight; Marathon talks set Europe on path to banking union."
Reviews the procedures, the compromises and the politics that
led to the final vote.

Kid Salami said...

One thing I don't understand is this:

A gold standard is rejected not in and of itself, but because the rules are always broken it always turns into something else. OK.

But taking one comment as representative of the party line ie. "@Phil gold is not free as long as there is paper gold." then I am completely bemused, because I would similarly say that paper gold will also disappear for a time but then be reintroduced slowly as the memory of the mechanism of the previous breakdown is lost.

(So I think we are condemned to cycles between different systems and are in the cycle into a freegold-ish scenario in the next year or two).

But why is the first argument deemed a killer for a gold standard but the second argument never mentioned. Is it because:
a) freegold theory says I'm wrong and that paper gold will never exist again
b) it will, but the timescales are different. That is, the gold standard is destroyed very quickly compared to the time it will take to reintroduce paper gold.
c) something else?

Motley Fool said...

Kid Salami

The answer is 'a'.


Motley Fool said...

ps. 'b' is possible if somewhere the knowledge of why unambiguous ownership is good, is lost. That seems unlikely though, so 'in theory' 'a' is correct.

Anonymous said...

@Kid Salami

A gold standard is rejected not in and of itself, but because the rules are always broken it always turns into something else.

This is part of why it is bad, not why it is impossible to move to at this juncture.

IMHO the answer is certainly B. Nothing lasts forever, and surely in the millennia to come the monetary system will change again and some form of paper gold may be introduced again. However, I think everyone here will be long dead by the time that happens.

Woland said...

Something will not be lent if it cannot be returned. Paper
gold promises the delivery of a specific WEIGHT of gold. It
is this practice which, according to A/FOA, will have to be
made non enforceable via international law. If ONLY the
fiat value of the loan of gold (at the time it was made) is
recoverable by law, holders of gold will, in general, no
longer risk lending it. If I am wrong in this understanding,
please correct me. Thanks.

ChrisF said...

Motley Fool,

What exactly is this 'paper gold' that will never exist again? .... because after FG I have a major need to hedge my diverse global assets against that ultimate SoV and UoA, gold. So, I will go long gold futures versus all the relevant MoEs that my businesses are involved with. Clearly there must be a market post FG in these instruments. Since we are talking futures, by definition they will be on margin @(say)10%.
My counter-party is then short gold vs. MoEs on margin.
Should these hedges prove successful, and on close-out of the contracts, I would take the MoE cash profits and simply buy gold from the friendly central bank or their agents.

Are these the type of paper positions that will not be allowed? I can't believe it.... because of the legitimate business need.
Please help me here. This may be an argument against FG.

Motley Fool said...


Define your 'legitimate business need'.


Motley Fool said...

Ps. If your defining of such is not sufficient to make it clear I will continue the conversation.

Franco said...

I have a question: what is the mechanism by which the paper price of gold goes to zero?

Motley Fool said...


The Shoeshine boy explains it nicely imo.

The short answer is a recognition that gold and paper-gold is not the same thing and does not have the same function, specifically that the latter cannot fulfill the function of the former.


Anonymous said...

+1 @TF

@Franco - when none of that paper can be redeemed for physical gold it is worthless and its price will reflect that.

milamber said...

Wow Just worked through the comments. Sorry I wasn't able to participate live :(
A couple of observations:

1. @ Woland. Happy Belated Birthday! Also, Just because I don't comment on what you post, doesn't mean I (and I bet others) don't find it interesting. So please keep posting! And this applies to all other RELEVANT submissions: Although, I must admit I prefer my Art to hang quietly on the wall.

2. @ Costata. Thank you for your list of Anti-FG arguments and very succinct description of the big picture. Please continue your discussion with Tyranny. It is very interesting (to me at least) to watch a new commenter work through the arguments here. I do hope you and Tyranny (and of course the others) are able to continue your discussions.

3. @Pat. That F*ck Me aliens comment absolutely cracked me up!


Indenture said...

Tyrannyofthepresent: "Perhaps the clearest terminology - if you are truly willing to give any time to this speculative discussion of the future - is to refer to a "silver price" expressed as a weight of gold, e.g. mg per gram or suchlike. When gold is the investment denominator, there will have to be some kind of silver price. That price will have drivers and those drivers are my focus."

This is the second time you have asked for this equation to be used. Can you give me an example? I'm trying to learn.

Michael H said...

Kid Salami and others,

Paper gold is a relic of a past system while freegold is the next evolutionary step.

In other words, paper gold came about for specific historical reasons that will not apply after freegold. For example, as a replacement for the defaulted paper gold that was the US dollar, and as a way to free up private gold stocks so that they could flow and keep the oil price low.

(That is not to disagree that, over time, the new system will likely develop in unanticipated ways, and 'contain the seeds of its own destruction' as Woland said)

Tyrannyofthepresent said...


Select "ratios", "silver/gold". It is stated like for like, 0.019049. I find that unhelpfully small so multiply by a thousand to give mg per gram or grams per kilo: 19.049.

I think that is what you wanted?

ChrisF said...

Motley Fool,

Re. my business need to hedge MoEs vs. gold.
My factory in Nigeria produces widgets which we also export to L.America invoicing in US$.
My shareholders (owners) only care about gold as a UoA and the Nigerian MoE and US$ are both weak and unstable vs. gold. I perceive a need to hedge my 6 month forward income stream and the original capital investment against further MoE weakening vs. gold. Thus a legitimate business need for a paper position as described above.

Biju said...

Costata said :
1. Why would encouraging people to hold their gold via an ETF reduce the impact of gold on India's current account deficit?

I do not think people buying ETF will reduce Gold imports. Some of the people who write these articles are either misinformed or ignorant compared to an average reader here.

I believe there is Gold in these ETF and not a paper claim and also think that a lot of corporates are hedging their Rupee currency risk using these ETF's( I read this somewhere and it looks possible, because common folks are definitely not enamored with ETF's because (1) it is paper Gold (2) there is severe tax on profits and (3) you cannot place these ETF's as collateral for short term, reduced interest rate loan.

Indians still prefer physical ornaments(22K) over even bars/coins.

2. Has there been any further discussion about the accounting treatment of gold by the Indian government in its BOP/national accounting?

No, I am not aware of any Govt discussion to remove Gold imports in their BOP calculation.

I think the only way Govt can discourage Gold imports is by increasing import tax duties on Gold. They jumped from Rs.100 for 10 grams 5 years ago to currently 4% now. But still this is not fool proof because jewelers/Smuggling nexus gets Gold bars via boats from Dubai and sell it in their stores for cash(no bill). This "under the table" transaction forms the majority(think 90%) of Gold buying by folks. This entire transaction is not recorded anywhere and so I think this unrecorded transactions will gallop as Govt increases the import duty. So if duty increases, India's official imports may show decline, but unofficial imports will increases as it was in the 70's, 80's and early 90's.

3. Does the Indian government classify LBMA good delivery 400 oz bars differently to other types of gold imports in its trade accounts?

I don't know. I think most of Indian imports will be raw Gold Bullion and not Jewellery.

Motley Fool said...


Think of the function of gold under FG. It is to, at a specific time, store a nominal amount of purchasing power, for future use.

Under FG the dollar, and all other currencies will be stable. Other methods for hedging a known and small amount of inflation is possible.

You are trying to hedge both currency risk, and gains made in gold via paper contract simultaneously.

This contradicts the function of gold under FG.

You are in essence thinking of both keeping all gains accrued to physical gold ownership, as well as hedging currency risk. This is not a legitimate business need afaics...I would go so far as to say it is simply a manifestation of greed.

You can either hedge the currency risk, via currency futures, or buy physical gold with excess currency(more than operational need), perhaps allocated storage in Switzerland if holding such in Nigeria does not appeal to you(I know it wouldn't to me).

The latter uses the function of gold for excess currency, the former would hedge currency risk.


Motley Fool said...

Correction : 'nominal' should be 'real'...I made this mistake the other day too when simplifying a number of transactions in discussion with VtC?...ugh.

Anonymous said...

I don't think there is any other community who can debate the Arguments against Freegold. It would be nice to see this community actually do it though :)

Silver vs. Gold is kind of putting the cart before the horse.

My argument about Supply/Demand curves from Market Caps may have been weak, but what about some of the other assumptions I mentioned? If these are not strong points to attack, maybe someone else can raise some and we can discuss those instead?

I think more focus should be on the emergence of Free Gold as opposed to what happens after. What happens after is impossible to really refute as there is no evidence and only theory.

1. US treasuries are currently the global reserve asset. If this is not true, then the transition from the US as a reserve currency is already complete and/or the impact will be small enough that it does not require a complete re-work of the global perception of Gold. Is the world different today than when Another was posting?

2. World trade requires a singular, global reserve asset. Freegold theory seems to suggest that there needs to be a world reserve currency. It seems that if currencies are mostly stable and there are a handful of commonly held currencies available, then a singular asset is not required.

3. The medium for settlement of trade balances drives the sentiment for the medium used in private stores of wealth. Even if a singular asset is required for world trade, what evidence is there that this will spark a run from paper assets? In a US hyperinflation why would investors flock to Gold as opposed to Euros or New dollars? Why would Europeans fear Euros if the USD collapses (and rush into Gold). Same for Asia, etc.

4. The world will choose Gold as the next global reserve asset over all alternatives. Is there any evidence of Gold being chosen over other alternatives? It seems that Euro holdings are still rising faster than Gold holdings by central banks. Is there any evidence that private investors hold more than 5% of their wealth in Gold? Or would want to?

Again, if these arguments are not very strong/worth discussing maybe there are some additional assumptions critical to Freegold that can be discussed.

KnallGold said...

As for the second coming, at least that question has been solved ;-)

Wondering what the peak Helium will solve as its almost impossible to recycle. Guess its just about finding more natural gas reserves.

Best Regards,

Motley Fool said...


1. It is rather about government debt serving as reserve asset, and the dollar being foremost of these. The whole, rather than the subset, is the problem.

2. A single reserve asset is required, a single currency for invoicing purposes I am not certain I agree with.

3. Wrong questions. Rather asks what happens in today's interconnected global markets when a single large currency fails due to loss of confidence.

Ever played domino's? :P

4. Refer to 3. Gold being the board that we are playing domino's on. ^^


Motley Fool said...

Ps. Under point 2. Not strictly required...but optimal for Everyone involved..hence evolutionary..hence inevitable...hence 'required'.

Franco said...

OK, so let me see if I'm understanding this correctly about the paper gold market. Currently, the paper market is comprised mostly of traders who are speculating on price movements. Most of these traders don't have and don't want any gold bars. A few of them do, and there are enough bars to go around, so to speak. However, if enough players wanted to get their hands on actual bars, they would painfully discover that there aren't enough anymore. So after a few incidents of "sorry, delivery not possible, we'll just give you cash", then there will be an exodus of people seeking physical. This could (or would) be exacerbated by participants WITH physical also withdrawing because they now realize that they don't want to part with the physical anymore. Did I get it more or less right so far?

Is it possible that an entity interested in preserving the status quo, say, the US government, might step in when the paper market sputters and throw some physical at it in order to keep it going, at least for a while?

Motley Fool said...


If we reach that point, the game is up, and the USA knows it.

What would be the point of throwing away physical gold at that point? They would not be able to stop that deluge even if they threw all 8k tonnes they have at it.


Edgar said...

Looks like no freegold anytime soon: POG and Dollar down big today, while e.g. APMEX has lots of bullion in stock. Maybe we get "freeeuro"?


Unknown said...

Yeah, they pretty much told ya the answer to this in 71.

Wouldn't pay out gold on their own commitments, but they'll make good on private bullion bank commitments today?

Shur. Voters would pretty much love it.

Motley Fool said...


Been wanting to ask.

You recently mentioned mining costs of roughly $1700, which included a hefty premium for replacing stocks.

I was just curious if the bottom of gold in 1999, and the mention at the time of mines also being pushed to production costs, also had included in those production costs, the same stock replacement cost.

Just wanna be sure we are comparing apples with apples.


Anonymous said...

Taking #1 one step further.

Short-term the collapse of any major currency/market will cause worldwide disruption, I think that is undeniable given the global interconnectedness of modern markets.

Long-term/steady-state, isn't it true that other countries have had quite some time to diversify away from the dollar (13+ years and counting since Another appeared)? Is there any evidence that the real impact would not be primarily localized to those living in the US?

If it was localized to the US, how would it drive a change in the worldwide perception of Gold? AKA the idea that you should not just own 5% but some much larger percent.

If it is not the perception that changes, but merely the value, wouldn't people just sell back down to 5% allocation and Freegold would be over as quick as it began?

These are not polished ideas, I am just trying to brainstorm through some of the assumptions and conclusions Freegold seems to require.

Tyrannyofthepresent said...


Colour me a clueless newbie, but I thought POG and USDX both down big - a lot bigger than this of course - was just the kind of freegold signal everyone was looking for.

Edgar said...


no, because €POG down too. ECB does not want that as it implies euro becoming savings vehicle and not gold.

Tyrannyofthepresent said...


On not debating, I mentioned above what appears to be a "double bind" approach in relation to silver inventories. If these are high it means silver is a plentiful commodity and the shortage story is rubbish. If they are low it means there is not enough silver for the coveted "high stock to flow useless asset" status that allows only gold to be the premium store of value.

This "damned if there is, damned if there isn't" approach may reveal prejudice or a view that is no longer up for true discussion.


It may point to the existence of more than one driver of the values of these assets; for example silver and gold may both be displaying Giffen, Veblen and commodity-type responses to price changes, to hugely different extents, over differing time-frames and at differing inventory levels and price levels.

For example, there appeared to be positive feedback loop crazes for both in 2011, especially in China.

In other years there have been signs (especially from India) that gold buying is price sensitive in a more commodity way.

Gold was out of fashion at one point in my local jewellers (anecdotal I know); silver was popular this year in India, amid high gold prices in Rupee.

When you have drivers that work opposite ways, you can highlight first one driver and then the other and make a point against silver whatever the situation. However, in the real world the interplay between these forces may turn out to explain quite a lot, if only we could understand them better.

I wonder whether there are other "double bind" attitudes as well, for example in relation to moneyness: if people treat silver as money they are silverbugs in the crazy subculture, but if they don't it demonstrates that it is not money. If people hoard both physical gold and silver (as in Turdville) they are crazies, but if they don't there are no balanced bimetallic investors to rebalance and threaten the high ratios. The poor are expected to buy invisibly small milligrams of gold in preference to tangible pieces of silver, while the rich and sedentary in their mansions are expected to be incapable of storing a cubic meter of metal.


I would also suggest that they could be right - perhaps under certain circumstances silver could simultaneously lose both its scarcity appeal and its moneyness appeal, in a dull spot on the graph between sweet scarcity (platinum) and sweet moneyness (gold). I think that is rather unlikely, but people here seem to like the idea. And I suppose it could happen.

There could also be overlapping sweet spots for silver, where it is scarce and useful enough to be in short supply but hoarded enough to be a SoV, which is perhaps the view in the extreme pro-silver communities.

It may come down to an argument over how far apart and how wide these bimodal peaks of possible popularity in the inventory and value scales truly are.

Tyrannyofthepresent said...


Thanks. I knew I couldn't have got it yet.

Indenture said...

So at what point/price does the 'euro price of gold' disconnect from the 'dollar price of gold' the way the 'paper price of gold' has to disconnect from the 'physical price of gold'?

Edwardo said...

"Looks like no freegold anytime soon: POG and Dollar down big today, while e.g. APMEX has lots of bullion in stock."

Bonds are being sold, equities, for the most part, are being bought, and "gold" is getting crushed. I surmise, that most of this action can be attributed to the expectation of an imminent fiscal cliff deal that, for a spell, will be seen/spun as constructive in addressing that which it is supposed to address. And, last but not necessarily least it's down to end of the year/quarter window dressing shenanigans.

Jeff said...

Hi Franco,

Yes, someone is keeping the game going. Probably not the US of course, as was said upthread. Tick tock.

[FOFOA]Yes, this is possible. It would require a cost/benefit analysis at the highest level of international central banking as to how much physical gold to "spend" in order to buy a little more time. And we are talking about supplying physical during a run, not certificates, so this would be a new and different undertaking. And as I have speculated in previous posts, there comes a time when the cost of "more time" rises exponentially.

Jeff said...

Athrone, your question sounds like 'after freegold, why won't everyone go on as before'? Because the old system is dead, and after freegold everyone will see it.

FOFOA: You are looking at one small thing, the "windfall", because that will be a big part of Freegold to you personally, but I suspect that you are still missing the bigger picture. It's like a guy who just won the lottery walking around paranoid that everyone knows he's rich. But that's just in his head as long as he keeps his mouth shut and doesn't go crazy with the bling. In any case, let's look at this "windfall". Who do you think are going to be all these new multi-millionaires the left will go after in the name of fairness? How many are there in your neighborhood?

If someone has 1% in gold, will that be a windfall? What if he has 5% of his savings in gold today? What if he's only in miners and paper gold? How many people are "all in" with physical? 10? 20? 100? 1,000? I know a guy who is very wealthy and he was actually about 20% in physical, to the tune of about 1,800 ounces. He panicked out last month and sold all of his physical. I wonder how many more will do the same before this is all over. I wonder how many "goldbugs" and "gold investors" will actually report a capital loss to the IRS because they were either in the wrong metal, the wrong kind of gold or they panicked out at the wrong time.

So tell me, how many people total do you imagine will go deep enough into physical to get this huge windfall you are describing, and not panic out at a bad time? Will it be more than the amount of "new millionaires" created by the Facebook IPO? I heard that the janitor at Facebook became a millionaire on his stock options. Fortunes are won and lost all the time, all around us. So one last time, how many people in total, within the 300 million here in the US, do you think will be deep enough into actual physical bullion and not panic out so that they receive the huge windfall you are talking about? And out of that number, how many will be stupid enough to sell it all right away just to book the paper profit? Enough to become a viable target for the political left? Is it possible that the other parts of the big picture you seem to be missing will greatly outweigh trying to go after an unknown and tiny group when considering that "self-preservation instinct" I mentioned above? I think the answer is a resounding and obvious yes.

Silverbugs need to shift their paradigm too. They will after the fact.

FOFOA: You see, the Freegold paradigm doesn't bode well for silver. Paper silver has brought in some pretty big money chasing the volatility trade, driving the price of paper silver way up, imputing that price onto physical investment pieces. But without that pricing (gambling) arena, where will all that big money flee? Will it flee into heavy silver bars (those suckers that the big money buys weigh 68 lbs. each) to support the legion of toy soldiers?

FOA: "…at the very least, the first $10,000 of that figure would represent the current purchasing power of the dollar today. We will most likely get there long before price inflation jumps way up. Once the current dollar gold market fails and gives way to a free physical price, we will see that figure even as our economic function drives all other hard money metals into the toilet. I talking about .50 cent silver. while gold races past its first grand. When we see it we will understand it." (April, 2001 – Gold was at $260)

costata said...


Just wanna be sure we are comparing apples with apples

Hard to find out given the length of time that has elapsed. Mining accounting is a lot like "Hollywood accounting".

A retailer who pretended that they didn't need to replace their inventory in order to remain in business would be treated rather harshly by a vigilant auditor.

Biju said...

The price of Gold in Euro's

June 30, 2012 end of Quarter - approx E1250

Current price is E1265

I don't think a half yearly price in Euro has dipped below previous half yearly price. If I have $100K, I will be buying Gold now.

costata said...


It may point to the existence of more than one driver of the values of these assets

It may point to completely different drivers for the value of these assets.

Art said...

As long as we have Freegold,

And the bankers are free to issue fiat "worthless tokens" and fund with them the shorting of gold and silver in the paper markets,

Which is what FOFOA wants by proscribing the use of gold as money,

Then the bankers will always be able to suppress the price of gold and dissuade people from investing in gold.

That's why all those who follow FOFOA are


costata said...


Thanks for the response on my questions about India.


Art said...

FREEGOLD = Paper Gold

Read above.


I mean Freegolders.

Michael dV said...

OK Art
I have not replied to you ever as I feel it is useless....but here goes:
when gold is a currency what is there to keep the government from manipulating it? They had no problem in the past. So you want the government to stamp each coin and tell us....this coin is $100. Ok. Say they do that. The next day they have a piece of paper that says 'this paper is worth one gold coin.' Now we have 2 gold coins, one made of gold and one made of paper. Soon we have tons more 'gold' than exist because the government says so. No one will pay a high price for gold because some can get it for $100. How does this help the saver who wanted his gold to protect him from inflation?
You don't have an answer. You just like to gripe. You are not able to grasp the issue so yo mock it and those who do see that HUGE problem. So we mock you back and call you a hard money you understand that insult?...did not think so....will not miss you when you are re-banished...bye

Art said...

Michael dV,

1. By virtue of gold's limited supply, the government could NEVER manipulate gold to the extent they can fiat currencies.

2. There should never be EQUIVALENCY between a gold dollar and a paper dollar. Allow them to coexist for the sake of free markets but NEVER EVER pretend or legislate that they are the SAME thing.

a)ALWAYS prefer physical gold and ask to get paid in such. b)ALWAYS discount paper currency and get rid of it quickly. c)This pattern of behavior will bring down corrupt governments because they will be unable to fund their corrupt schemes with fiat money. d)With a responsible government in place, fiat money will become a more acceptable short-term medium of exchange as you advocate.


Indenture said...

53.7 oz. per gram
Pretending of course gold trades for $55,000 and silver maintains it's $33 price. Some would argue that silver will go lower.

Art said...

Doesn't that tell you something about FOFOA's ulterior motives that he started censoring and deleting my posts

BEFORE (as in years ago)

I started calling a spade a spade

By referring to Freegolders as


DP said...

Michael dV,

I wonder if your new friend, and all his "OMG teh precious metals naked short suppression!!!" HMS friends, have ever considered that perhaps gold's price might be… MANAGED?

(I know, " ! :-O ", right?)

Meaning it is sometimes suppressed, and at other times supported.

For the good of all.

Art said...

DP is another banker type as you can tell from what he said above.

Max De Niro said...

ART ought to be careful... FOFOA might get some of his evil banking friends or CIA contacts to send their goons round to have a little chat. ART's comments are obviously getting a little too close to the truth and powerful people are most likely getting nervous.

DP is not to be fvcked with either, he'll have you all trussed up in his wine cellar, drowning you in cheap plonk from Asda that the more pikey secret police brought round at his last shindig.

DP said...


The plebs.

Indenture said...

Multitasking and Metrics
should have read 1.664 kilo per gram

Anonymous said...


Is it possible that an entity interested in preserving the status quo, say, the US government, might step in when the paper market sputters and throw some physical at it in order to keep it going, at least for a while?

When you take a look at the inventory of the gold held by the Fed on behalf of foreign countries and international institutions, you can indeed speculate that the 2007/8 crisis was 'fixed' by the IMF leasing some 400 tonnes into the market. Well, the entire crisis was impossible to fix, of course, but the paper gold market perhaps was.

This could (or would) be exacerbated by participants WITH physical also withdrawing

Jeff Christian said that gold leasing by central banks has meanwhile been replaced by leasing by private parties. I wonder who would count as a 'private investor' in London and have lots of allocated gold to lease? Roll-over.


Woland said...

I'm kinda bored this p.m, but not bored enough to attempt
a simple but dreadful task; that would be to explain, to him
who must not be named (---) what it would be like in his
paradise of money exclusively confined to gold coins, where
banks could not re lend the deposits of a loan, and where all
government borrowing was fully paid in gold coin - the day
that a powerful neighbor declared war against his homeland.
The story of what happens, when eventually the hard money
of the participants runs out, but the fighting must continue,
and rationing and austerity have done their utmost, ought to
be familiar to an educated person. Does anyone feel up to
"Mission Impossible?" I'm just too lazy......

H. M. Socialist said...

Doesn't that tell you something about FOFOA's ulterior motives that he started censoring and deleting my posts

BEFORE (as in years ago)

I started calling a spade a spade

By referring to Freegolders as


OMG yes! What is FOFOA hiding? He clearly has shown a pattern of deleting posts wherein he and the readership of his blog are revealed to be unintelligent, malicious banker shills! What can we deduce from this? The answer is obvious: FOFOA and his cultist scum are in fact (1) unintelligent and (2) malicious bankster shills. Q.E.D.

So you see, since the insult is TRUE, it is no longer an ad hominem fallacy, but instead valuable information being maliciously suppressed by FOFOA! Just ask somanyroadsinvesting, he thinks the same thing!


Michael dV said...

the last time the US promised to defend the dollar 'down to the last bar' we lasted a week or so. I can't recall the Sec Treas then but I do recall it was in the 60s.
I agree that they won't even bring up the subject of gold. The word gold will never leave the lips of any one responsible for the currency. They do not want attention focused on gold, except for days like today when it gets beaten down. 'Treasuries is where you should save your money' will be the answer until it all comes down.

Beer Holiday said...

Lol, this is the funniest stuff I've ever read.

BTW Art, where do you normally hang out..... the zerohedge comment section :-)

Hello BTW after years, and take care of yourself, friend. We follow this gold trial together yes?

Michael dV said...

Art! congrats you finally 'get it'
fiat circulates but when the corrupt government over spends their fiat dies. Gold is held as savings only by those who need a savings vehicle.
When bad governments see their efforts to use the power of fiat failing they will learn to behave. Until then gold holders only exchange what gold they need for short term use. I am serious you seem to have expressed a sentiment very close to freegold.
I doubt this will make you happy but still...

DP said...

+1 for too lazy

+1 for OMG so close it's not even funny

Art said...

Michael dV,

As long as ONLY fiat is money, fiat will never die. Don't YOU get it?

Beer Holiday,

Yes, we do, whether we wanted to or not. ;o)

Art said...

Max de Niro,

Actually I'm kind of envious of the bankers. They got the best food, the best booze and the best women.

So just tell them, if they wanted me to shut up, they could just throw me some crumbs now and then. No need for violence. Just corrupt me ever so gently with the pleasures of life. I'm no Robin Hood.

Max De Niro said...

You can't pussy out now ART. Once you've exposed them, they get angry. If you're gonna talk the talk, you gotta walk the walk.

Art said...

Max de Niro,

God made me do it. Can't you understand that?

Cut me some slack please. That may be in your best interest as well. After all, what if He exists and turns out not to be a Freegolder?

All I'm asking for is some fiat. ("some" = a number with at least six zeros after it.)

Max De Niro said...

No mercy

Woland said...

Hello Art;

I know you are rather busy replying to all these Freegolders,
but I'd like to know, if you have a minute, what your thoughts
are regarding Godel's 2 incompleteness theorems. Are they
valid? Or did he miss something?
Also, do +you think Wiles' proof of the Taniyama Shimura
conjecture definitevely proves Fermat's last theorem, or are
there still some "loose ends" which remain unaddressed. I
know this may take some time, but being a patient soul, I
can wait. Cheerz.
require a little time. I can wait. Cheers.

Art said...

Hi Woland,

That'll be another class.

Here we teach Freegold.

Please do not disturb the flow.

Anonymous said...


Apparently I AM a moron:) Seems someone else has been licking the Toad. ART really is a play/fake character.

Well played. Now, who is it...?

Art said...

…et ait ei tibi dabo potestatem hanc universam et gloriam illorum quia mihi tradita sunt et cui volo do illa...

Jeff said...

HMS ninjas attack?

Anonymous said...


It doesn't seem like you are understanding what I wrote, maybe I am being unclear or maybe you disagree it is worthwhile to discuss. Either way you don't seem to be making much of a challenge on it other than mostly just dismissing it outright. Maybe you can come up with some better ideas for playing Devil's Advocate?

When I said:

"If it was localized to the US, how would it drive a change in the worldwide perception of Gold? AKA the idea that you should not just own 5% but some much larger percent.

If it is not the perception that changes, but merely the value, wouldn't people just sell back down to 5% allocation and Freegold would be over as quick as it began?"

The point of that is: a 20-30x revaluation has to be driven by SOMETHING. The two paragraphs above are asking: is it the change in perception that causes an increase in price, or the increase in price that causes a change in perception? I ask because I have heard it both ways on this blog.


Does a US hyperinflation scare people worldwide into buying Gold instead of Bonds (change in perception). If so what is supporting this idea? To me this is not plausible. So I am asking, what is the evidence?


Does a collapsed paper market severely alter the supply/demand curves, causing a large increase in price? Is the idea that the resulting increase in price of 20-30x would make Gold allocations go from 5% to 90% in terms of value, and THAT is what is causing Gold to become a reference point?

This to me is also not plausible because to me it is not likely to cause a change in perception, just a change in value. It will not lead to people maintaining that 90% allocation as a "new era of 90% Gold allocations" but rather just re-balance back down to 5% where we are today. That is just a transfer of wealth, not a new reference point for the medium of savings.

Is it as clear as mud yet?

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

@Michael dV

Quote:""When bad governments see their efforts to use the power of fiat failing they will learn to behave.".

So why has Argentina government NOT LEARNED after so many PESO failures already? Their citizens have already saved outside of PESO for a long time, mind you.

If GOVT can force you to transact in FIAT, which you FGers endorse, they can always print to loot so why would they care to behave? In Argentina if one PESO gets too out of shape they just reset and restart a new PESO to resume the same abuse.

The way to thwart it is therefore transacting in a currency other than FIAT. A competing currency would truly force govt to behave. But no! You FGers are so hooked up with FIAT you even come up with these anti-deflation \ needing to separate MOE from SOV theories (and flawed ones at it may I add) to justify a FIAT monopoly.

You are telling us a theory that falls flat on its face in the real world. Do you still wonder why many people outside here don't believe it?

Art said...

Rui is right.

But Rui,

Many of these creatures are merely paid actors BSing in a public trial balloon known as Freegold to see whether they can fool the populace with another fiat scheme after the present Euro/Dollar/Yen scheme collapses.

Most of the Freegolders don't believe what they are saying. They just want to see if YOU are stupid and gullible enough to believe in them.

It was already common knowledge that this is a minor covert operation by the usual suspects when the whole Freegold nonsense started in the late '90s with the advent of Another and then FOA at the USAGold Forum.

I'm only occasionally posting here to save newbies from being unduly influenced by these manipulators.

Michael dV said...

In a perfect world the government would behave. In our world they steal from some and give to others. If the government can seize all power and ride rough shod over all then we are all screwed but in your version of things you have some how forced the government to accept gold currency. In fact you have forced the entire fiat loving world to see things your way.
If you got the votes or whatever it takes to get a world full of debtors to accept a hard(est) currency then I am going to quit my job and buy a years supply of popcorn and watch in awe and amazement. I will cheer you on. Oh at the end of your hard money regime usually comes the guillotine. But I will watch and cheer (maybe towards the end I'll just cheer quietly to myself).
Fofoa's observation is far more passive. He is apparently not as energetic as you. He hasn't even come up with a plan yet to take over the world and cram anything down anyone's throat. All he is doing is waiting and holding physical gold.
I believe most people are frustrated by what they see in the monetary world. Most people are not going to do one thing about it however. We have supported politicians who promised small and less but they all failed to deliver. So for me I give up. I believe this currency will collapse. I plan to be standing in a safe spot when it does.
But good luck with your efforts.

Michael dV said...

ad deum qui latificat
that some serious altar boy shit you got goin there.

Rui said...

@ Art

The pro-FIAT and pro-fractional-reserve-lending tune here does make me to think some posters are probably from the finance field so they want the paper game to go one.

I'd cut the others some slack tho as you too noticed they are newbies. They are drawn here by the "55K/oz" call but fail to see the flaws of the FG theory. We have such kinda posters at preaching FG as well but we offer good rehabilitation guide to (hopefully) help them get out of it. :-)

Edgar said...

Japanese trade deficit WIDENS to ¥953.4B in November after the ¥549.0B deficit in October.


Unknown said...

That measly dip today in fiat gold was hardly enough to whet my whistle. On the next dive I don't want to see the green line above the bottom of the black background.

And as it gets closer and closer to $900 will Capital Coin still be following his pricing screen? When will that "shift" be in play??

Who said gold took a bath today? What took a liesurely soak today is 199 parts paper and 1 part gold.

The value of gold is as constant as the rising sun. It is the paper that bathes in "hot" water :)

Unknown said...

The true power of fiat is 2-fold:

1) unlimited supply
2) perception management

I know I'm mostly preaching to the choir here, but it bears repeating that they are printing away the perceived "price" of gold.

Physical gold with it's finite supply is NO MATCH for the delusional bullshit of unlimited printing of paper gold.

The power of fiat lies in it's ability to create mass delusion, mass hallucination and mass distortion of reality.

Just read the headlines: What on earth is happening to the gold market? Why is gold defying all fundamentals?? Blah blah blah, hair pulling, teeth gnashing, fingernail biting and ALL OF THIS IS JUST ONE BIG FUCKING LIE, compliments of nothing more but reams of useless paper, GFC's, ETFs, cash, bonds and similar paper confidence toys.

When the so called Gold Market Commentators finally wake up to the fact the GOLD HAS NOTHING TO DO WITH ANY OF THIS ... then maybe freegold will stand a chance.

Until then, just plain ole STUPIDITY is the prevailing argument against it.

Art said...

You don't like fiat but you want to use ONLY fiat as money Mr. Wil Martindale?

Because you claim to be against fiat yet proscribe the use of anything but fiat as money,

You are a hypocrite,

A liar,

And otherwise,

Full of shit.

A bona fide FREEGOLDER, in other words.

byiamBYoung said...


Turn off your computer.


Art said...


I bet you only vote Democrat OR Republican.

Neither party thinks gold is money. Democrats and Republicans are Freegolders.

Freegold is here and now.

Michael dV said...
this is the HI talk by Hanke of the Cato institute that somanyroadsinvesting posted or wrote about at screwtape. It was well worth the 1:06 spend listening.
Hanke observes that while base money is up 3 fold that overall M3 is up only 15% and in his opinion is it is not risky until credit money begins to grow from the current multiplier of 5 to6 up to 10 or that point the Fed will have to step in and slow things down. He does not see (I should say he does discuss) a likelihood of continued base money printing causing a problem...but this was before QE4 so who knows. He was an adviser in several HI events.

Anonymous said...

@Max De Niro

Everything is transitionary, even the shape of language. Freegold will not emerge onto a plateau of immortality that lasts for the next thousand years. Hell, I doubt it the mania for gold will last longer than 5 years. As James Turk of has said, even the "strong hands" will be selling high, not keep for all of eternity, only whereas the poor in your eyes will sell silver for food the well to do will sell gold for more glamourous things.

Anonymous said...

The diffusion of the U.S.S.R and central banks are different versions of the same overall process vis a vis States, like the half-life of QE; the diminishing rates of return.

Harvard Business Review:
The Economically Out-of-Date Nation-State

costata said...

I note my old pal ART's comment at December 18, 2012 11:31 AM. I'm still catching up with the comments but I noticed that others have spotted that this dipshit has virtually described the Euro Freegold-RPG architecture in the extract (below) from his comment.

Gold is for saving and fiat currency is for spending. Now it's time to give the old caps lock a workout.

1. By virtue of gold's limited supply, the government could NEVER manipulate gold to the extent they can fiat currencies.


2. There should never be EQUIVALENCY between a gold dollar and a paper dollar. Allow them to coexist for the sake of free markets but NEVER EVER pretend or legislate that they are the SAME thing.


a)ALWAYS prefer physical gold and ask to get paid in such.


b)ALWAYS discount paper currency and get rid of it quickly.


c)This pattern of behavior will bring down corrupt governments because they will be unable to fund their corrupt schemes with fiat money.


d)With a responsible government in place, fiat money will become a more acceptable short-term medium of exchange as you advocate.


costata said...


Trade deficits, inflation targets and a Swiss- style printfest - interesting times for Japan.

Remarkably I'm reading reports which suggest this surge of QE from Japan will be positive for markets worldwide. A kind of "stimulous" program.

AdvocatusDiaboli said...

Michael dV,
"In a perfect world the government would behave. In our world they steal from some and give to others. If the government can seize all power and ride rough shod over all then we are all screwed"
...and what some freegolders (as well as HMSs) are just too stupid to understand: government does NOT care about those funny tokens, shall those be made out of gold or paper (except with golden tokens the working principle will show up more obvious).
For government it is NOT about the tokens, it is about the power to direct real resources. And due to the nature, that government attracts morrons, brown nosers and sociapaths, the resource allocation is the worst possible economically you can think of.

I personally see only one possibility: Moving to Galt's Gultch, either way: by living on social welfare or if you have enough by spending saved fiat. But as long as you work, you are part of the problem you're feeding the beast.
Greets, AD

AdvocatusDiaboli said...

and we are seeing this already now in France, where for some individuals total tax is now ABOVE 100%!!!

They are leaving, or have already left long time ago. Problem is they have not read Atlas shrugged, otherwise it would be a pleasure to see the vineyards, foundries and parisien villas being burnt down.
Greets, AD

P.S. That's the reason why Hollande is my hero to end the € BS experiment.

Kid Salami said...

Motley fool : “The short answer is a recognition that gold and paper-gold is not the same thing and does not have the same function, specifically that the latter cannot fulfill the function of the former.”

Poopyjim: “IMHO the answer is certainly B. Nothing lasts forever, and surely in the millennia to come the monetary system will change again and some form of paper gold may be introduced again. However, I think everyone here will be long dead by the time that happens.”

Michael H: “Paper gold is a relic of a past system while freegold is the next evolutionary step. In other words, paper gold came about for specific historical reasons that will not apply after freegold. For example, as a replacement for the defaulted paper gold that was the US dollar, and as a way to free up private gold stocks so that they could flow and keep the oil price low. (That is not to disagree that, over time, the new system will likely develop in unanticipated ways, and 'contain the seeds of its own destruction' as Woland said)”


It’s pretty clear that Freegold relies on the market for paper gold collapsing and people “realising” that there should be no such market and that they “should” deal in physical only.

I don’t think this “physical only” situation will persist for more than a reasonably short time – and this is not just a hunch but I think I can in fact prove that this requirement is nonsensical and illogical and will not persist.

Whilst I personally certainly agree that “gold and paper-gold is not the same thing and does not have the same function, specifically that the latter cannot fulfill the function of the former”, I don’t have much confidence that more than a small fraction of the population will ever get to grips with this (or at least not without hitting a rock bottom so low that it will surprise the silverbug Zerohedge posters). So I’m not really sure what Freegold is anymore.

byiamBYoung said...

Kid Salami,

I had similar thinking to yours for a long time, until I realized that Freegold really won't require everyone turning to physical gold in lockstep. We shrimps don't matter, and our opinions don't matter.

The world's giants already hold gold as a SOV. Those who are watching this transition play out will also. Some people will never get it. That's of little consequence, though.

Just like the many people who don't save anything right now in any form. It is meaningless.


byiamBYoung said...

Kid Salami,

One more thought, maybe more to your point.

When those that are hoping to sell their paper gold find that demand has dried up for it, and when the buyers of physical gold realize that supply has dried up, a lot of minds will change in a very short span of time.


Motley Fool said...

Kid salami

"I don’t have much confidence that more than a small fraction of the population will ever get to grips with this (or at least not without hitting a rock bottom so low that it will surprise the silverbug Zerohedge posters)."

I suspect the magnitude of the coming financial catastrophe perhaps escapes you.

I believe it will be sufficient to teach the masses.


AdvocatusDiaboli said...

The latest post of FOFOA "what is gold" includes a big FAIL also:

FOFOA makes up the whole post with his usual nice lyrics, so that everybody agrees, that gold is wealth (and therefore people will hold onto it).

Okay, nice for the cult follower. But the world has already chosen gold as an investment. Dont believe me?

According to almost all statistics available, the biggest holding of gold is in physical ETFs with 2300mt. Those exist since ~10yrs? Which pretty much says it all: The majority of gold purchases went there.
And I think it is obvious, that these very people buying physical ETF do NOT consider gold "wealth", but something where they can hit the "sell" button anytime. So it does not matter what FOFOAs shrimp-poll will show, that money already decided what gold is.
Greets, AD

Unknown said...

And sell they will.

To the APs, who will be waiting with open chequebooks and a hunger for baskets of the real thing.

Merry Christmas!

Indenture said...

AD: You empower the shrimps of the world! Unite! The majority of the gold purchases in the past ten years have been through GLD!

AdvocatusDiaboli said...

yea, right baby. I like that tune, sounds like CrashJPM :D

What I like even more are comments like these from Matrix:
"Does this mean the ban is once again in effect for our resident assholes AD and Art? The blog is too important to allow their sewage to be deposited in the comment section."

that basically nails the mental capacity on the head. :D
Greets, AD

P.S. Keep on stacking.

Kid Salami said...

Apologies for delay.

byiamBYoung: “I had similar thinking to yours for a long time, until I realized that Freegold really won't require everyone turning to physical gold in lockstep. We shrimps don't matter, and our opinions don't matter. The world's giants already hold gold as a SOV. Those who are watching this transition play out will also. Some people will never get it. That's of little consequence, though. Just like the many people who don't save anything right now in any form. It is meaningless.

One more thought, maybe more to your point. When those that are hoping to sell their paper gold find that demand has dried up for it, and when the buyers of physical gold realize that supply has dried up, a lot of minds will change in a very short span of time.”


Kid Salami: "I don’t have much confidence that more than a small fraction of the population will ever get to grips with this (or at least not without hitting a rock bottom so low that it will surprise the silverbug Zerohedge posters)."

Motley Fool : “I suspect the magnitude of the coming financial catastrophe perhaps escapes you. I believe it will be sufficient to teach the masses.”


Maybe I should have been clearer then with my “silverbug Zerohedge posters” comment. What I mean is, if the crisis is so bad (and the potential magnitude does not “escape me”, on the contrary I have only hope that it will not be as horrific as I think it will be, hope only, no evidence) that it does “teach” the masses, there will also be no futures market, no supply chain and just in time deliveries, no anything, we’re just all screwed. Gold and food stored at home won’t help anyone then. I have no interest in analysing this scenario, I hope it doesn’t happen and if it does suggest that only Giants and their hanger-ons will move through it unscathed, I’m screwed.

I’m asking: does Freegold imply that (after maybe a period of transition that is not as bad as Mad Max and feasting on the goo inside cracked open heads, one that will allow a move back to relative normalness) there will be futures markets and “paper” silver/corn/palladium etc. but no such market for gold?

This seems like a goldilocks issue to me. It can’t be too bad a crisis, as then all markets will be destroyed, and it can’t be too mild as then no’one will learn their lesson and many will willingly accept paper gold promises once again and allow the sheep shearing to begin again. And not only is it unlikely to be “just right” in magnitude even if such a magnitude exists, actually I don’t think this “just right” magnitude of crisis exists at all (there is no reason at all that it should exist).

Or am I wrong in some other way? Are the futures markets for silver/corn/pork bellies etc. not anticipated to break down no matter what happens, meaning that only the futures market for gold will collapse because of a run on physical gold but no runs on physical corn etc.? Can this happen and yet not also result in Mad Max? I'm not so sure.

Motley Fool said...


I am not sure what the scale of the crisis will be. I can also only hope that it won't be as bad as it can be.

But, as regards the lesson if everyone loses all paper savings, stock owners take a huge knock when more realistic prices are in the market, home valuations crash back down to earth, bond holders are wiped out, and only gold shines, I'd say the lesson will be learned by J6P.

Thereafter the current structures in place on the ECB books will likely drive the point home.

I do not know whether other futures markets will thrive during the crisis, I would guess not, but they will be re-established asap.

And yes, we don't think a gold futures market in it's current form will exist post-collapse..though there are perhaps reasons (eg. mining) that a different type of gold contract market will exist.


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