Wednesday, February 27, 2013

Checkmate


After my last post, Think like a Giant 2, another gold writer who I consider a friend sent me an email that included a question. I had a thorough answer to his question in mind, but at the same time he said he thought it was basically unanswerable. After considering this conundrum, I concluded that the perspective reflected in the email completely missed the point and was so loaded with hard money preconceptions that the best way for me to frame my answer was by painting a whole new picture starting with a blank canvas. A big task, I know. And he may very well reject my answer, but perhaps it will be of use to someone. Anyway, here's his email followed by my reply:

FOFOA,

I enjoyed reading your post today and agree with its premise, though it raised a question in my mind: if one size buyer is able to expose the paper fraud, let’s say by steadfastly trying to take delivery of 25% of open interest on the COMEX one random settlement and then going to the press when the exchange fails to deliver, AND YET, to your point, size buyers do not have incentive to expose the fraud because it’s only a hedge – not a wealth creator – then why should we expect fiat to ever be reconciled with gold? It would seem size holdings of physical that may represent only, say, 6% of a portfolio’s wealth (e.g. Saudi), would much prefer keeping the fiat game going?

Are you implying reconciliation ultimately relies on the disaggregated global masses knowing enough to exchange their paper claims for physical?

Your post raised an issue we've struggled with. I don't know if it's a question with a definite answer. Spontaneous social reactions against power are always possible and have long precedent. My thoughts are it requires general hunger and oppression. I'm sure you'd agree that's where unreserved fiat ultimately leads. As you may know our particular view is that power will preempt that, 1) because they can and 2) because they'll get rich in the process.

XXXX

Hello XXXX,

First, and for the record, I don't expect anyone to intentionally break the system or "expose the fraud" as you say. I don't think that was ever A/FOA's message. Those who dream of blowing up the system simply aren't capable of doing it, and those who are capable wouldn't dream of actually doing it.

In your COMEX example you imagine someone trying to buy more of something than is obviously available at that time and then crying foul (or fraud) when the market can't deliver more than it has. Giants know that the best way to accumulate something at their level is slowly, over time, and within the volume offered on the market. And they also know what happens if they use their oversized weight to rock the boat:

FOA: While so many of our gold bulls salivate at the prospects of some player calling for delivery and driving the gold derivatives market to the moon; it ain't gona happen! Our world of dollar based gold derivatives has grown so large and become so integrated into supporting (hedging) international dollar assets, the central banks will band together to crush any delivery drive.

This is in the ECBs interest as I will explain in a moment.

If some big player said he was going to take 100 million ozs out of the paper gold market, the Central Bank systems would just order him to trade out for liquidation only and go to the cash market to buy his gold. Don't think I'm confusing Comex positions and their rules as being different from the rest of the world gold market. What works on comex works everywhere when the system is at risk. The controlling governments, who's domain Bullion Banks reside in, would, could and will force those holders of bank busting positions to simply cash out for the good of their system.

By the way; not only does a liquidation market send baby gold bulls running to sell, also, the BBs would be selling enough additional paper to temporally send gold down $100 bucks so our boy would trade out with a little less cash (smile). Then he would find an opposite "premium" spike in the cash markets, waiting for his order.

I hope my little dose of reality drives some sense into our gold community. This is the reason Another says only fools try to buy their gold all at once on the paper markets. "NOONE" is going to exercise their "corner" until the dollar based gold system is changed.


That said, it is an important distinction to keep in mind that aggressively attacking a system in that way and defensively withdrawing your support for an outdated system are two different things. Any Giant who has "done the math" as FOA said, and therefore understands change to be "a political certainty", would be properly positioned for change and would therefore be indifferent to the timing as opposed to trying to influence it.

I do think, however, that there have been massive efforts to influence the timing, but I think that they were efforts to support the old system rather than to quicken its demise. And this view reveals a fragile system in need of support as opposed to a resilient system impervious to attack. This is my view which I gained from A/FOA, and I'd like to take this opportunity to try and explain the big picture as I see it.

I plan to turn this into a post, so my apologies for the length and I'm not necessarily writing all of this specifically for you. But I would like to challenge you to temporarily set aside everything you think you know about the gold market while you read the following. That's not to say I'm trying to change your mind, but I'd like you to see the picture I'm painting as separate and different from the picture you already have in mind. I think it might just be that different. So rather than trying to reconcile the ideas below with what you already know, like morphing two pictures into one, I'd rather have you walk away with two distinct pictures that you can then compare and contrast to one another.

Another Big Picture View

Let's think about all of the physical gold in the world. If we include above and below ground gold, we can imagine a fixed amount, every ounce already owned by someone in extremis. Even undiscovered deposits are owned by the sovereign if push comes to shove. This is a handy view because it's like poker chips on a table. There are a fixed amount of chips and they simply get moved around the table, changing ownership, location and value from time to time. We could even think of the gold in the ground as a reserve of chips locked away in the dealer's tray.

But the thing about physical gold is that it very rarely moves. Let's switch to thinking only about all of the above-ground gold in the world. Perhaps 95% of it lies very still for very long periods of time, often spanning generations. Some may wonder how this is possible. It is possible in the same way that any piece of physical property, be it real estate or an old piece of jewelry, can stay in the possession of a wealthy family for generations, even centuries in some cases.

As long as a family (or country or any unit in aggregate) is producing more than it consumes, or at least receiving an income greater than its expenses, it can accumulate property without the need to ever sell it. Physical gold, in this case, is accumulated and held for the possibility of resale at some point in the unknown future which could be decades, generations or even centuries from now. It has always been this way, but for the last century or so it has not been this way so much in the West. As Another said, it is mostly the "third world no ones" who keep the physical market "bought up." "The Western public," he said, "will not hold an asset that is going nowhere, at least in currency terms."

So we have (very roughly) 95% of the world's physical gold lying very still, but what about the other 5%? Perhaps half of that is recycling plus new supply coming out of the mines that "moves" (i.e., changes ownership and/or changes physical location) on its way to its final (long-term) resting place, and the other half, perhaps, is us shrimps trading coins and jewelry along with a few "big" changes of ownership. Like chips on the poker table, 95% is sitting very still in the big stacks while maybe 2.5% new chips are added each year and, perhaps, another 2.5% are moved around (churned) "in play" each year.

Again, I'm only talking about physical here, and I'm only guesstimating the numbers while allowing for a large margin of error. The gold market is so opaque that it's the best I can do in order to explain the big picture.

Now as you know, we have our (in very general terms) "developed economies" in the West, and the "developing" or "emerging" economies of the East. And the status quo (net-consumption) of the West, at least for the last 40 years, relies on the net-production of the East as is clearly evident in the balance of trade and capital accounts over that period. The only problem is that "the East" still likes physical gold even as "the West" lost its taste for "dead assets". So while Eastern products (including oil) flowed west, some amount of physical gold had to flow east. Here's the second line from the first post in ANOTHER (THOUGHTS!):

It was once said that "gold and oil can never flow in the same direction". If the current price of oil doesn't change soon we will no doubt run out of gold.

I wonder if he was talking about the price of oil in dollar terms or gold terms there.

An interesting question is why the dollar reserve-based IMFS (international monetary and financial system) didn't fall apart at some point after 1971, and how it miraculously stabilized in the early 80s. In fact, the European central bankers feared that the $IMFS was on the brink of collapse by 1979, and what I've learned from A/FOA is that there were basically two things that held it together. We could call these things the "two legs of support" for the dollar system. One was organic or natural, and the other was inorganic and intentional, for a purpose and to an end.

The first leg of support, the organic one, was what FOA called "a new era of efficiency" brought on by technological advances, leaps and bounds really, throughout the 70s, 80s and 90s. As long as productivity expansion (a natural deflationary force) was keeping up with or exceeding monetary inflation, it acted as a leg of support for a dying monetary system. Here is FOA in January of 2000:

FOA: This system balanced, as the value received from oil by the goods producing world outran the loss from price inflation initially created from rising oil prices. This does not explain everything, by any means. But, it does at least give us a handle on the dollar transition throughout the 70s and 80s. Looking back one can see that "money theory" wasn't thrown out the window, only reworked a great deal.

It wasn't by pure chance that this "new era of efficiency" coincided with the end of the gold standard and thereby acted as a leg of support for continuing the dollar system. In fact, the "new era" was partially responsible for the 1971 monetary transition from a gold-backed dollar to an oil-backed (or productivity gain-backed) dollar.

FOA: The old system was built on a much slower creation of production efficiencies and couldn't accommodate this modern surge of wealth (and debt). Let's face it, the world has no precedent for the last 30 years of growth. By adhering to the fixed money supply, currencies would have risen in value creating a deflationary effect on the debt created from this growth.

But the East, and especially the Saudis, still liked their physical gold. And they still got it, even with the gold window closed. These guys in the East don't care about the currency price of gold, they just want physical gold at whatever price in exchange for their net-production to hold for the unknown future. Only the West cares about the currency price and won't hold it if the currency price is going nowhere, but will scoop it all up if the currency price takes off.

So the second leg of support for the troubled $IMFS, the inorganic and intentional one that began around 1980, was a two-pronged effort by the European central banks to give both the Americans and the East what they wanted in order to buy the time needed to launch the euro. The two prongs of the approach were 1) supporting US debt and 2) promoting and supporting changes to the gold market that would allow the physical to flow where it needed to go without a premature gold revaluation that would have blown up the current fiat system and disrupted international trade as it reverted back to a hard gold standard. And it worked, for the most part.

FOA: In practical theory, oil now backed the dollar as world oil payments were settled in dollars. In return, gold now backed oil from a US guarantee of an open market for the metal. Over time, a portion of oil dollars could be replaced with real gold through actual physical purchases or in participation with evolving world gold banking (paper gold). Even though the dollar gold price had surged, the higher oil prices were allowing a percentage of those dollars to be converted back into gold at the old gold/oil rate.

Now here's an interesting concept. If the price of gold and oil rise in tandem, then the oil producers who like their physical can still take the same volume of gold (by weight) out of circulation even though the currency price is rising. No revaluation of gold versus oil has occurred. But there are a couple of problems with that. In a gold bull market (rising price), Western traders will snatch it up in order to stick it to "those who like their physical" in currency terms. And the more physical the market is, the more this feeds back upon itself leading to an upward spiral of all prices like we saw in the 70s, something that is avoided in a revaluation.

In fact, the US Treasury could have revalued its gold in 1971 like it did in 1934 rather than closing its gold window, but it didn't. And more to the point, the other CBs (BIS) didn't lobby them to do so because they thought the system needed to change more broadly than a simple dollar devaluation in order to accommodate the "new era of efficiency".

FOA: By adhering to the fixed money supply, currencies would have risen in value creating a deflationary effect on the debt created from this growth… This is the reason the BIS did not lobby the US to officially devalue the dollar in gold (raise the dollar gold rate from $42 to say $200) and continue the system. Even though many people were hurt from this, the system was failing and had to change. The tactic was not to stop using dollars if the gold was not delivered, but rather for the US to just stop shipping the gold. In reality the dollar is still a receipt for $42 in gold, but it will never be connected to gold again. Ever!

There are a few big differences between a gold revaluation and a gold bull market (rising price). The first one that I already mentioned is that in a bull market Western traders will hoard gold in order to stick it to those in the East who really want it (stick it to them in currency terms). A revaluation, on the other hand, happens by surprise and overnight so there's no bull market for Western traders to take advantage of those who want the gold for long term reasons. Plus, if revaluation had happened in 1971, then we would have still been on the gold standard, at least throughout the 70s. So once again, the price would have gone nowhere during that time and, as Another said, "the Western public will not hold an asset that is going nowhere, at least in currency terms."

The second big difference, also already mentioned, is that the volume (by weight) required by those in the East who like their physical would have been reduced by a revaluation whereas it stayed mostly the same for the next 30-40 years with no revaluation in oil terms. The third difference is that normal correlations hold during a bull run because it is gradual which allows the time necessary for arbitrage to prevent any revaluation in real terms. The instantaneous nature of a revaluation denies arbitrageurs the time they need to react. This applies for both planned and unplanned revaluations. For an idea of what unplanned revaluations look like, check out some of the bubble collapses of the last 300 odd years.

The fourth difference relates specifically to 1971 since the choice to not revalue also meant the end of the gold standard. In a gold standard, surplus currency used to redeem gold from the gold window was taken out of circulation. But in the "free market" that resulted from closing the gold window, those same dollars continue to circulate even after being traded for gold.

So here we have a slightly different picture emerging than the one I read about most places. While the US certainly had self-serving reasons for closing the gold window (for one, a higher oil price without too much inflation made strategically valuable but more costly North and South American oil reserves more viable), the European CBs went along with it in order to get off the gold standard. "Even though many people were hurt from this, the system was failing and had to change." And a simple revaluation of the gold within the gold standard was apparently not the change they thought was needed. But the 70s were still a turbulent time, as transitions (and feedback spirals) can sometimes be.

FOA: Initially this created instability in the financial system. Throughout the 70s players ran into gold, trying to regain the monetary security the dollar had lost without it. Soon, everyone realized that no amount of conversion would ever replace all the foreign dollars outstanding—the dollars stayed in circulation even as they were traded for gold. Further, the dollars were still being received by ME oil producers in return for oil. Dollar price inflation was bad, but in no means did we see the "runaway price inflation" that should have come from a reserve currency without gold backing.

Getting back to the two-pronged approach of the second leg of support for the troubled $IMFS which began around 1980, I said that the first prong was support for US debt. In essence, the European central banks recycled all those foreign dollars that continued to circulate by soaking them up and then lending them back to the US. Much like the PBOC has done for the last decade, Europe did all throughout the 80s and 90s until they finally launched the euro in 1999. This had the effect of keeping global dollar-denominated inflation in check while allowing the Americans to keep on spending a seemingly unlimited flow of magical (inflation-resistant) dollars.


The second prong was the creation and promotion of a new type of gold market in the early 80s. To understand the goal of this new market, let's go back to my guesstimate of the stock and flow of physical gold. Remember that I am guessing that about 5% of all of the physical gold in the world moves (changes ownership and/or changes physical location) each year. In fact, that guess may even be high. Today about half of that, 2.5%, is coming from recycling and new mine production. The other half would be one owner selling and a new owner buying. So let's think about this in terms of gross aggregates that we'll call the West and the East.

In general, we should expect to see a net flow of physical gold from the West to the East, especially during times when the currency price of gold is flat (i.e., "going nowhere"). This flow could be achieved in two ways. One way is Westerner owners dishoarding and the other way is from the Western mines/recycling. But if the price of gold is rising, as it does during a bull market, then the Western traders will be hoarding rather than dishoarding, and may even be taking some of that Western mine supply. This would tend to put stress on the flow needed to keep the East happily net-producing especially without a gold revaluation in oil (real) terms.

Imagine now, if you will, that "the West" (or more specifically Western goldbugs aka Western gold traders, so as to exclude Western mines, scrap recycling, governments, CBs, and perhaps even Western old money Giants who appear to share the same long term taste for physical as "the East") is always, in aggregate, in one of three states of physical gold ownership. It is either accumulating, dishoarding, or simply churning amongst itself some amount of physical gold. Ignore paper gold, mining shares and whatever else here, I'm only talking about physical gold.

Now imagine that you are a European central banker in 1980, or at least a Giant-sized mover/shaker in consultation with them, considering and discussing this view of the East and the West, the gold market, the troubled $IMFS and the future prospects of a "euro" currency and how to buy enough time (thought to be one decade at that time but it turned out to be two) to get there. This group, of which you are a part, consists of (in my estimation) between 30 and 300 souls. You are one of them. And the fact that they confronted Volcker with fears of a dollar collapse in 1979, and that a few days later Volker took bold action, is not in doubt. Both sides confirm this confrontation, so there is no question about the level of influence this group possessed.

What would you do to secure the necessary flow of gold from the West to the East? Well, here's what they came up with:

ANOTHER: It truly started with Barrick, in Canada in the 80s. It was a "thin market", but grew big in oil.

FOA: One of the first signs that a new gold market was being created was when bullion banks were allowed to sell Central Bank gold "ownership invoices", for cash to the benefit of Barrick. The CBs got only a very small rate of return for this risk. The money set in a bank account and interest was made. The new owners of the gold paid cash but let the gold set in the CB vault. All that happened was that Barrick could earn interest on its unmined reserves and call it "the higher price they were getting for gold"! In addition, the CBs said they could roll it forward for ten years +/-, if the price of gold rose! Really clear eyes could see that the CBs were paying mines interest on unmined reserves if they would replace the CB real gold with mine collateral. Because the gold didn't really leave the vault, the new securities were used to match the mine future assets against the new owners of the gold! Neat trick. After the public bought it as "the CBs earning interest on a nonpaying asset", the gates were opened. It wasn't long before gold was lent without any gold at all! No different than "fractional reserve" banking. The mines were (are) being used to expand the gold trading arena and they don't even know what is happening. Now, as the price has fallen, all mines must earn interest on reserves, just to survive. The dollar bears are, in effect, nationalizing the mines gold reserves at ever lower prices. Tell me the CBs are dumb???

[…]

One of the reasons this trend worked so well is because the US went for it, early on. A falling gold price encouraged a strong dollar and offered Western dollar holders an avenue to hold gold in leverage form. An action they will, no doubt regret, later, as it has taken the form of stripping gold from western hands. For them, this new allocation allowed for free dollars to earn a return. Do not confuse these entities with non-western dollar reserve holders, as they (mostly) purchased straight gold future certificates (with CB backing) using resources as the leverage, not gold. Usually, this was the actual gold in the CB vaults as it was leased out, but never moved. Truly, this was the source of the same money that went into mine forward sales (barrick?). The gold and the money stayed in the CB house and control. The entire above outline is why some analysts (Ted Butler?) cannot understand why the gold doesn't physically move, yet physical demand is being supplied. This conversion process was accounted for in the LBMA volume, as it became evident after gold fell below $360US. It was then, and only then that LBMA announced these huge monthly transactions.


So here we have a genuine "central bank gold price suppression scheme" beginning in the 80s. Only the collaborators, motives, purpose, mechanism and end game are all different from the ones I normally read about from Western gold writers. It's not the Fed or the ESF/PPT meddling in the paper markets or dumping physical like the Treasury auctions in the 70s. In fact, the suppression mechanism is the popularity of the gold market itself, including the mines! The irony here, which Another pointed out, is that Western gold trader enthusiasm caused the very effect about which those same traders incessantly complained and concocted conspiracy theories to explain. Brilliant irony I must say, if one can step back and view it from afar.

The purpose of the scheme was so that the physical coming out of the Western mines could flow to those in the East who really like their physical while the Western gold trader taste for physical was held in check by a price that went nowhere for two decades. But we didn't hear those in the East complaining about the price, only the Western traders who were unwittingly complicit in their own frustration as they bought into this new gold market hand over fist.

The end game of the scheme was to make it to the launch of the euro, at which point the central bank leasing could be capped and unwound, and the costly support of US debt expansion ended. Gold would then be free to rise and/or be revalued against oil which was long overdue. It was never a sustainable scheme meant to last forever as these European CBs had to put their own gold on the line in order to support the fragile dollar system to keep it from self-destructing prematurely. Apparently, according to Another, even all of the new gold coming out of the mines each year was not enough to satisfy the East's taste for physical without an eventual revaluation.

ANOTHER: The Western governments needed to keep the price of gold down so it could flow where they needed it to flow. The key to free up gold was simple. The Western public will not hold an asset that going nowhere, at least in currency terms. […]

To avoid a spiking oil price the CBs first freed up the public's gold thru the issuance of various types of "paper future gold". As that selling dried up they did the only thing they could, become primary suppliers! […]

The BIS and other various governments that developed this trade ( notice I didn't use conspiracy as it was good business, as the world gained a lot ) , thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don't ask where they got this, as they are the same people that bring us government finance and such. But, without a major increase in gold supply, the paper created by this "gold control operation" will either be paid by, 1. new supply. 2. the central banks. 3. rollover existing. 4. cash? 5. or total default! As the Asians started buying up everything last year ( 97 ) , number 5 and 5 started looking like the answer! When the CBs started selling into this black hole of demand, the discussion of #5 started in their rooms also. […]

People wondered how the physical gold market could be "cornered" when its currency price wasn't rising and no shortages were showing up? The CBs were becoming the primary suppliers by replacing openly held gold with CB certificates. This action has helped keep gold flowing during a time that trading would have locked up. Westerners should not be too upset with the CBs actions, they are buying you time!


Let's try accepting Another's words at face value and see where they lead. Barrick switched from oil to gold mining in 1983/84. Annual global gold mine production in 1985 was just under 50 million ounces. If technology and the new paper market could have helped expand that "five times over" it would have eventually reached 250 million ounces per year. But that didn't happen. In 1990 annual production had increased 20% to about 60 million ounces, 72 million ounces per year by 1995 and about 82 million ounces in 2000 where the growth cycle ended. A total increase of 64% rather than the 500% increase they had hoped for. But even that should be enough gold for the East, right? I mean, how much useless metal do they need?

ANOTHER: Gold is cornered. Plain and simple. No complicated theories, no options problems. The commodity value of gold was forced so low in paper currency terms that all of the new mined gold, going out some 10 years is spoken for.

Now the CBs will have to sell 1/3 to 1/2 of their gold just to cover what's out there. To use the Queen's English "it ain't gona happen dude"!

If the current price of oil doesn't change soon we will no doubt run out of gold.


That was in 1997. "All of the new mined gold, going out some 10 years is spoken for." You can do the math. So how much useless metal do those barbarians in the East really need? I mean, this sounds crazy, doesn't it? Well, apparently it got so bad around the time of the first Gulf War that they had to cut a deal with the biggest or at least most important player (threat) at that time if they wanted to make it to their goal of a clean euro launch party.

ANOTHER: Ever notice how many important middle eastern people keep a residence in London? It's not because of the climate. The most powerful banks in the world today are the ones that trade oil and gold. It is in the "city" that the deals are done by people who understand "value"! Westerners should be happy that they do because the free flow of oil and gold has allowed this economic expansion to continue this past few years. […]

What quantity of GOLD, paper or physical, has OIL traditionally purchased on an annual basis? From 1991, appx. 20m/oz./yr., now it is more.


This was the gold for oil deal in 1991, 20 million ounces per year. For that to be a deal, it must have been a decrease from what otherwise would have been sought. Why would "we" get a deal? Perhaps someone explained the plan/scheme (or "gold control operation") as I have done so far. You blow it up now, what do you get? A lot less in real terms. But if you play ball, you still get a good percentage of the annual mine supply. And 20 million ounces per year would have been about a third of annual global (not just Western) mining supply in 1991, all going to just one single player in the barbaric East where, for some reason, they like their useless metal.

But by 1997, the cost of maintaining this deal had apparently tripled!

ANOTHER: For the monthly amount to be taken off the market has changed from $10 in gold ( valued at $1,000 ) /per barrel to the current $30 in gold /per barrel still valued at $1,000! Much of this gold was in the form of deals in London to launder its movement. Because of some Asians, these deals are no longer being rolled over as paper!

Oh no, you mean it's not just the Arabs that like useless metal in the East? We've got to worry about the Asians too?

ANOTHER: Asia put an end to a sweet deal for the West! From the early 90s it was working very well.

[…]

The Asians are the problem, by buying up bullion worldwide and thru South Africa they created a default situation on all the paper for the oil / gold trade! Now the CBs are selling in the open to calm nerves but it's known that they will never sell enough. It was never their intent to provide the gold, only the backing until new mining technology could increase production. Over time the forward sales, such as ABX's should have worked. But LBMA went nuts with the game and the whole mess has now accelerated. […]

The oil "understanding" was broken by the Asians. More gold has been sold than can ever be covered!


Damn. First the Arabs, now the Asians… who's next? And what the heck do these Eastern barbarians do with all of that useless metal anyway??? What if they do nothing with it other than stick it in a vault somewhere where it will sit as long as they keep net-producing until some unknown time in the future when they are forced to net-consume? If that's the case, then maybe the actual weight-volume they receive in exchange for their surplus currency doesn't matter. In fact, the greater the weight, the larger the vaults they need to build or rent. I wonder if they would be just as happy receiving a lower weight-volume of revalued gold. Here's an appropriate quote from my 2010 post It's the Flow, Stupid:

[T]he price of gold does not matter to the [East], only the flow of gold matters. I'll say it again. The [East] doesn't care about the price of gold, only the flow. To the [East] the price doesn't matter because it is a straight currency exchange, like exchanging dollars for euros.

Did you see it in the article? Aramco owed the Saudis $3 million a year, but it had to be paid in gold. They didn't owe 2.67 tonnes of gold per year, but that's what they had to pay because the US fixed the price of gold at $35 per ounce. The US could have raised the price of gold to $100/ounce and then it would have only had to ship .93 tonnes of gold to the Saudis! Would the Saudis have been displeased with such a move? No. The guaranteed price of gold only matters to the printer of paper gold. To the producer/savers, all that matters is the guaranteed flow of physical!

Let's now jump forward to 1999 and look at three important events that happened that year. The first and most important one happened on January 1st when the European central banks successfully launched their new euro currency. Then, in May, Gordon Brown pledged to sell half (~400 tonnes) of England's physical gold over the next three years. Some say this was a move meant to suppress the price of gold. Others say it was simply a mistake of bad timing. But perhaps it was neither. Perhaps it was necessary to feed the flow a little while longer. Then, in September, the European central banks collectively and publicly announced their intention "not to expand their gold leasings and their use of gold futures and options" for the next five years at which time the agreement would be reviewed.

Bull Run versus Revaluation

I want to discuss the significant differences between a bull run and a revaluation because we got one and not the other after the euro was finally launched and European CB support was removed. As I already mentioned, in general, revaluations are usually quick and surprising while bull runs are gradual which allows more and more people to get onboard at different points in the run. With a revaluation, you're either onboard or not when it happens.

Another big difference is that the singular nature of a revaluation (one single item revalued/devalued) means that the item is revalued in real terms vis-à-vis everything else while a bull run is often merely a rise in nominal terms because other related (or correlated) items, more or less, usually go along for the ride. We could say that the whole group of correlated items (e.g., commodities) is revalued in real terms vis-à-vis another group (e.g., S&P500) during a run, but I hope that you can see the difference between the "gold bull market" of the last decade and a gold revaluation in real terms that is long overdue. It is the latter that Another and FOA explained.

Even though we've seen orders of magnitude swings in the nominal price of gold, from $35 up to $850, back down to $250 and then up to $1,900, the price of gold in oil terms (the "gold/oil rate" that FOA mentioned above) is the same today as it was in 1947, 1974 and 1999 at the launch of the euro. In other words, there has been no revaluation… yet. So when we think about the incredible bull market run we've had in gold since 2001, I think it is also important to keep in mind how little has actually changed in real terms. Here is the GOR (gold oil ratio) data going back to 1946, from inflationdata.com:

Annual Average
Gold and Crude Price
1946-Present
# of bbl Oil 1 OZ Gold will buy
Year Average $/bbl Average $/oz Ave bbl / oz
1946 $1.63 $34.71 21.294
1947 $2.16 $34.71 16.069
1948 $2.77 $34.71 12.531
1949 $2.77 $31.69 11.440
1950 $2.77 $34.72 12.534
1951 $2.77 $34.72 12.534
1952 $2.77 $34.60 12.491
1953 $2.92 $34.84 11.932
1954 $2.99 $35.04 11.719
1955 $2.93 $35.03 11.956
1956 $2.94 $34.99 11.901
1957 $3.00 $34.95 11.650
1958 $3.01 $35.10 11.661
1959 $3.00 $35.10 11.700
1960 $2.91 $35.27 12.120
1961 $2.85 $35.25 12.368
1962 $2.85 $35.23 12.361
1963 $3.00 $35.09 11.697
1964 $2.88 $35.10 12.188
1965 $3.01 $35.12 11.668
1966 $3.10 $35.13 11.332
1967 $3.12 $34.95 11.202
1968 $3.18 $39.31 12.362
1969 $3.32 $41.28 12.434
1970 $3.39 $36.02 10.625
1971 $3.60 $40.62 11.283
1972 $3.60 $58.42 16.228
1973 $4.75 $97.39 20.503
1974 $9.35 $154.00 16.471
1975 $7.67 $160.86 20.973
1976 $13.10 $124.74 9.522
1977 $14.40 $147.84 10.267
1978 $14.95 $193.40 12.936
1979 $25.10 $306.00 12.191
1980 $37.42 $615.00 16.435
1981 $35.75 $460.00 12.867
1982 $31.83 $376.00 11.813
1983 $29.08 $424.00 14.580
1984 $28.75 $361.00 12.557
1985 $26.92 $317.00 11.776
1986 $14.64 $368.00 25.137
1987 $17.50 $447.00 25.543
1988 $14.87 $437.00 29.388
1989 $18.33 $381.00 20.786
1990 $23.19 $383.51 16.538
1991 $20.19 $362.11 17.935
1992 $19.25 $343.82 17.861
1993 $16.74 $359.77 21.492
1994 $15.66 $384.00 24.521
1995 $16.75 $383.79 22.913
1996 $20.46 $387.81 18.955
1997 $18.97 $331.02 17.450
1998 $11.91 $294.24 24.705
1999 $16.55 $278.98 16.857
2000 $27.40 $279.11 10.186
2001 $23.00 $271.04 11.784
2002 $22.81 $309.73 13.579
2003 $27.69 $363.38 13.123
2004 $37.41 $409.72 10.952
2005 $50.04 $444.74 8.888
2006 $58.30 $603.46 10.351
2007 $64.20 $695.39 10.832
2008 $91.48 $871.96 9.532
2009 $53.48 $972.35 18.180
2010 $71.21 $1,224.53 17.196
2011 $87.04 $1,571.52 18.055
Average 14.771


Another big difference between a bull run and a revaluation is the absolute impossibility of the paper market or the structure of contractual obligations and liabilities going along for the ride. Think about the 1934 gold revaluation. The dollar at that time was the paper proxy for physical gold, and the revaluation was vis-à-vis that paper proxy. Today, the paper gold market is analogous to the dollar in 1934.

A bull run certainly puts stress on the paper edifice, but because it is gradual and drawn out and because other items that may have been used to hedge exposure generally remain correlated during a run, the various counterparties do have the advantage of time to make adjustments. Here is FOA in 1999 when gold was $280 an ounce talking about Barrick trying to get out of its paper commitments if gold rose past $600 (oh, the foresight!):

FOA: As the physical price rises well past the paper price, every miner and user in the world will be trying to get out of their commitments. Even Barrick now admits (finally) that above $600 they have to start supplying margin. After all this time of telling everyone that they could defer their contracts for 10 or 15 years. This goes back to my post about "Westerners" not thinking that gold will rise. Because investors thought it was impossible for it to go above $600, to consider that long term gold lenders would not ask for margin was nuts. If gold hit $5,000 does a lender just depend on ABX's good word?? It shows the beautiful evolution of "Western investment thought". Again, LBMA will not be in a position to advise anyone as this plays out. Truly, this relic of London's past will be put on a shelf.

Here's a short article from AEP in 2009 that I'll post in full as it is relevant to this discussion in several ways:

Barrick shuts hedge book as world gold supply runs out
By Ambrose Evans-Pritchard
11 Nov 2009

Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold.

Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.

"There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London.

"Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.

The supply crunch has helped push gold to an all-time high, reaching $1,118 an ounce at one stage yesterday. The key driver over recent days has been the move by India's central bank to soak up half of the gold being sold by the International Monetary Fund. It is the latest sign that the rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.

Now think back to the view I presented of the period from, say, 1985 through 1999 regarding the flow of physical from West to East. During this period we had a number of factors which combined to "supply the demand". We had a price that "went nowhere" along with a new paper market that encouraged Westerners to give up their physical gold in exchange for leveraged trading paper. When that ran out, we had the European CBs becoming the "primary suppliers". We had a deal in place with one of the larger "Eastern barbarians". We had a gradual increase in mining supply from 50 million ounces up to 82 million ounces per year, and we also had the mines selling their "future assets" up to ten years out backed by CB gold. And finally, we had almost 400 tonnes of physical from Her Majesty's Treasury "given to the cause" at the tail end of this period. All of these factors are gone today.

What we have instead today is a stagnant mining supply, a declining scrap supply, CBs adding to their gold in aggregate, Westerner traders hoarding physical in places like GLD and PHYS and a price that rose more than "five times over". You'd think that would "stretch" the available supply relative to demand some five times over, but you'd be wrong. Only a revaluation in real terms can "stretch" the flow sufficiently and sustainably.

Just like FOA said about the 70s, "the higher oil prices were allowing a percentage of those dollars to be converted back into gold at the old gold/oil rate." The old gold/oil rate has fluctuated narrowly but hasn't changed in 67 years. Another said, "Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises." One more piece of data to support this point. The LBMA publishes its clearing volume monthly. If we go back to the beginning of the bull run, around mid-2001 when the price of gold was in the $260s, and compare it with the clearing volume today, we see that demand in currency terms rose right along with the price. So much for "stretching".

Also, I am still operating under the assumption that the East didn't lose its taste for gold just because the currency price started rising. And in case you thought "oil" was a bigger player than "the Asians", that's not the picture Another painted:

ANOTHER: This whole game was not lost on some very large buyers WHO WANTED GOLD BUT DIDN'T WANT IT'S MOVEMENT TO BE SEEN! Why not move a little closer to the action by offering cash directly to the broker/bank ( to be lent out ) in return for a future gold note that was indirectly backed by the CBs. That "paper gold" was just like gold in the bank. The CBs liked it because no one had to move gold and it took BIG buying power off the market that would have gunned the price! It also worked well as a vehicle to cycle oil wealth for gold as a complete paper deal.

Are you with me?

Well a funny thing happened right after the Gulf war ended. What looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered. The rub was that they only bought low, and lower and cheaper. They never ran the price and they never ran out of money. Seeing this, some people ( middle east ) started to exchange their existing paper gold for the real stuff. From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer.


That was the 90s. I don't think "the game" is the same today. In fact, I think that "the game" needed to change in 1997, and that may be why Another took his story public in the only way he could. Ari once told me that he thought Another's reason for going public with this story was to telegraph a message to certain people. I won't expand this thought any further because I would only be speculating, but I will tell you that my speculation makes perfect sense to me. And check this out, from FOA in 2000 when one of the regulars on the forum questioned the credibility of what he was saying. I'll post Cavan Man's message in full because I think it reflects a lot of the skepticism we see today right here on this blog, and then FOA's reply. Notice the highlighted sentence:

Cavan Man: Dear FOA,

I am not certain how many visitors here carefully read and digest what you write. Furthermore, I am even less sure how many of us really believe what you write. With my simple mind, I see the common cents of it all. Perhaps my mind is simple because I have not the formal education nor experience level of many, consequently my simple mind is also very open to new Thoughts; it is not so encumbered with preconceived notions. I'm a long ways back but still following you on the trail

I have read your posts from this morning which filled in some blanks for me generated by my reading and re-reading of Aristotle's five part series of last summer. I have just taken the time to read Aristotle once more. Each reading provides keener insight. Each reading gives me a greater sense of concern for future events as you seem to project them.

Here is my question:

Can the international monetary system transition to a new form; can ME oil be satisfied; can the international currency value of gold be reconciled with even the modest expectations of traditional (western)thinking gold market analysts; can individual, sovereign economies remain "whole" and healthy; can the paper gold market leverage be unwound; etc. without the advent of violence and aggression? How so?

Perhaps I should stop reading USAGOLD and go back to the comic section of our local and very poor newpaper?

Thank you.....Cavan Man


FOA: Cavan Man, Yes, I think you are right. There really is no point in going back so far. Nor is there any gain in diving so deep to explain political strategy just ahead. Mostly we want to understand the short term. Another warned me about this once before. Saying I should stay on the surface and discuss events as they apply. Looking back I see why he doesn't send me anything now. The point has been made and the correct people have seen it. Now wait for events and discuss the market response. So be it. I'll ride the soft river and stay off the hard trail. Thanks Cavan Man, your words have helped, I presume too much, FOA

As you can imagine, the forum begged FOA not to stop "diving so deep." You can read the responses to FOA's comment here. But the point is that something changed. "The game" today is not the same as it was in the 90s. To be honest, without the guidance of an "insider" like Another and his confidant FOA "discussing events as they apply" "to explain political strategy just ahead," I struggle to understand how the gold market has gone on without a revaluation in real terms as long as it has. But I do have a theory that I think fits what we've seen so far.

Incidentally, my theory comes from a 2010 email exchange with the only person I know of who had direct email contact with FOA, and who I believe gleaned more insight from Another and FOA than anyone else, Aristotle. But don't judge it on that; judge it on how it fits into the big picture painted above.

I will repeat what I said at the top. I don't expect anyone to intentionally break the system. I don't think that anyone with a big enough footprint capable of breaking the system would ever dream of actually doing it and then living with the stigma that would come from such an act. Instead, I think that the system is fragile, in need of support, and without that support it will crumble on its own. It is not just "their" system. It is your system, my system, everyone's system. It is a global system, and yet it is an old, fragile and failing system. But as FOA said, "everyone that is positioned in physical gold will carry this storm in fantastic shape."

Why did he write "physical gold" and not just gold? Because he wasn't just talking about a bull run, he was talking about the inevitable revaluation that'll come when the old and fragile system crumbles under its own weight. But today there's a new system already in place, functioning under the old system, but built to withstand the failure of the old gold market. Nothing need rise from the ashes. It is already here. And it is "anti-fragile" meaning that it will not only withstand the shock, but be improved by it.

This is checkmate. And it is not a gold standard. But even so, to use your words at the top of the post, we can "expect fiat to be reconciled with gold." Not just once, but on an ongoing basis. Here is the rest of what FOA said:

FOA: This not only has "everything to do with a gold bull market", it has everything to do with a changing world financial architecture. And I have to admit: if you hated our last one, you will no doubt hate this new one, too. However, everyone that is positioned in physical gold will carry this storm in fantastic shape. This is because the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve. None of the other metals will play a part in this.

Now let's look at what we know has happened since Another and FOA stopped writing. First, the "Brown's Bottom" UK gold auctions ended in early 2002. From that point, the rest of the European CBs sold some 1,650 tonnes, which ended in early 2009:


The time period of the sales in that chart includes the addition of four new Eurosystem members, along with their gold, so the total sold by the European CBs is actually higher than 1,650 tonnes. And whether these sales went to fulfill past obligations or to satisfy new customers is an interesting question, but I doubt if it really matters much because we know the general direction of the necessary flow.

I suppose it is somehow possible that the output from Western mines and scrap recycling, topped off by a few Western central bank sales, supplied GLD, PHYS and other toys of Western traders while also satisfying the insatiable demand for useless metal from our Eastern barbarian trading partners on whom we rely for their continued and selfless net-production, these last 14 or so years. Meanwhile, we more physically inclined Western shrimps traded (churned) our coins while our Western CBs punched one tonne at a time into new discs giving us the illusion that it's business as usual.

If not, then perhaps the above was supplemented by the discreet (and discrete) "pairing up" of buyers and sellers of a more, shall we say, Giant size, those whose footprint would have left a distinct mark, perhaps even a trail of destruction, if it had landed in our gold marketplace. If this was the case, as was (at the very least) implied by Another, then it would have included some sort of a promise of inevitable revaluation, backed not only by logic, but also by history, a long-term plan of action, and some measure of past success. In other words, the checkmate scenario.

In any case, we now know that the European CB gold sales have ended, Western mine/scrap supply is in decline, and the USG is still spending like there's no tomorrow, even as it has to print up new dollars! ;D And, thankfully for the West, the songbirds are singing the end of the bull run, gagging GLD into puking up a hairball or two for the cause. All is well in Oz, right?

Checkmate

The game of chess ends before it is over. It ends when a player can legally declare checkmate because the losing player is destined to lose on the next move. But good players know when a game becomes "hopeless" much earlier, and so these "expert" games often end before checkmate can even be legally declared. They end when checkmate is inevitable, when the losing player acknowledges defeat.

In practice, most strong players resign an inevitably lost game before being checkmated, and it is considered bad etiquette to continue playing in a completely hopeless position. But there is some small hope for those players who haplessly continue playing rather than resigning. The hope lies in the remote possibility of a mistake by the other player.

Weak players, on the other hand, seldom resign. At a competent level it is considered discourteous to play on in a clearly lost position. But while it is bad etiquette to refuse to resign in a completely hopeless position, if you are ignorant as to whether your position is hopeless you should play on.

The dollar game was lost on 1/1/99 and we're just playing out the remaining moves right now. I think this is the correct perspective, even if it doesn't give us any actionable timing information other than "yesterday was the best time to buy physical gold, today is the second best and tomorrow is a distant third."

The gist of my theory (for those who haven't been following my blog closely) is that at some point support for the old edifice will be withdrawn, and then it will crumble under its own weight. But it is so big and heavy that, when it finally gives way, it will come down faster than you can react. There will be no warning. The only warning you can hope for is to look for signs that support has been withdrawn. And I should add that those whose only net-production is of the paper variety (e.g., the US, UK and Japan) cannot offer structural support to this failing edifice.

So that's basically the big picture as I see it for the last 40 years or so. But before I wrap this up, I want to briefly recap this view within the larger context of a 100-year time frame in order to add a little more perspective and grounding.

The Big, Big Picture in a Nutshell

If we look back to the monetary conference in Genoa (1922), I'd say that conference really set the finite timeline of the dollar in motion, much more so than the creation of the Federal Reserve System in 1913. The creation of the Fed simply put the US on equal footing with the rest of the world in terms of the ability to have a flexible monetary base, which helped make the international move in Genoa possible. From Peak Exorbitant Privilege:

And so even though the U.S. wasn't directly involved in the European monetary negotiations that took place in Brussels in 1920 and Genoa in 1922, it was acknowledged that any new monetary order was likely to be a U.S. centered system. […]

The Roaring Twenties was not just a short-lived period of superficial prosperity in America, it was also a time when a great privilege was unwittingly granted to the United States that would last for the next 90 years. And I say "unwittingly granted" because the U.S. did not even participate in the negotiations that led to its privilege. As Jacques Rueff wrote in his 1972 book, The Monetary Sin of the West:

"The situation I am going to analyze was neither brought about nor specifically wanted by the United States. It was the outcome of an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal."

The next thing I look at is the evolution of thought that transpired after 1922, mainly through Jacques Rueff who wrote a Freegold-sounding piece decades earlier than anyone else. It's chapter 2 in The Age of Inflation and, while it's not perfect Freegold, it sounds a lot more "Freegoldish" to me than his contemporaries in the more formal economic schools of the time. And by "Freegoldish" I mean realistic and practical with a focus on the balance of trade and how the flow of gold is an integral part of its monetary adjustment mechanism as opposed to some sort of theoretical economic idealism.

I always thought that Freegold (free market gold) thought originated with French thinkers like Jacques Rueff and then took hold with a wider European contingent throughout the 70s as part of "the road to the euro". After all, it was the French that ran on the gold window in the 60s, and then they were the first to mark their official gold reserves to the market price in the mid-70s.

Following the evolution of thought beyond France, from 1969 I have a speech by Alexandre Lamfalussy, a European central banker from Hungary, that fits quite well. And then in the 70s we can add Jelle Zijlstra, a Dutch central banker who really gets it early on. So we can see signs of an evolution of thought that spread throughout the European CB community in, perhaps, the late 60s and 70s. The ECB itself marks the beginning of "the road to the euro" in 1962.

That doesn't mean that everyone involved in creating the euro understood Freegold, particularly those who had spent more time in America, like Robert Mundell and Robert Triffin. But you've got to understand how big of a project this was, creating a new international currency in just a few decades. A lot of people were involved in the effort in many different capacities, and not everyone would have been privy to the discussions that resulted in the CBs leasing their gold to buy time for others involved to complete their part.

In terms of the dollar's finite timeline, I think we can view the point at which the US had about 20,000 tonnes of gold as the top of the hill. That was 1950 through 1957, the period directly following Bretton Woods, a monetary conference in which the US not only participated, but ran the show. From 1957 to 1961, the US gold stockpile lost more than 25%, dropping from 20,000 tonnes down to 15,000. Having peaked, it would be natural for those who could see the end far off in the distance to start thinking about what would come next. And as if a kind of natural selection or survival of the fittest ideas took place, perhaps Rueff's ideas took hold in the early 60s among some who could actually make a move.

We do know that Rueff was one of de Gaulle's economic advisors during the 60s. So I think it is fair to imagine the "Nixon shock" as a move forced by the French. It forced the creation of a "free market" for gold by the same entity that had been running (controlling) the previous fixed market. Perhaps getting the gold wasn't the French goal as much as it was to force the creation of a new "free gold marketplace" in which CBs could openly (rather than covertly as in the London gold pool) participate.

What better way to force a permanent bank holiday on the old system than for a giant (like France) to run on its own bank (the US Treasury) while holding a press conference about it? Incredibly, France demanded its gold from the US while it was still covertly involved in the London gold pool. And then France was the first to back out of the gold pool. And then France was the first to mark its gold to the market price in 1974. From Once Upon a Time:

From 1965 through late 1967 the gold pool was expending more and more of its own gold just to keep the price in its range. Seeing this, France (who was one of the insiders and knew of the price fixing operation) began demanding more and more gold from the US Treasury for its dollars.

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

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

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

I think it's fair to say that today's particular game of chess began around 1962, and by 1968 the French, following Jacques Rueff's advice (who was probably already writing The Monetary Sin of the West which he would publish four years later), put the dollar in check. Not checkmate, mind you, but just check which forced Nixon to make his "shocking" move in 1971 (a move that would have been fully predictable by any competent player).

Then, in early 1979, the European central bankers created the ECU (European currency unit-currency code XEU) which was to be eventually replaced with the euro. But by late 1979, they feared the current system was on the verge of collapse which, they thought, would send the world right back onto a hard gold standard. So, what to do? I guess you'd quickly figure out a way to support the failing system long enough to complete your mission. And guess what, it worked!

So I think we can view 1971 as an important inflection point in the finite timeline of the dollar that began in 1922. How long could the Bretton Woods gold standard have continued if the French hadn't demanded their gold and backed out of the London gold pool? We'll never know, because that wasn't how this game was played. And then, I think we can say that the dollar's gameplay has been on life support ever since 1980 when it would have otherwise ended. Kind of like when an expert poker player lets a "fish" win once in a while just to keep his money in the big game.

The real question is, at what point did checkmate become inevitable. At what point could an expert player have called the game over? That point was the launch of the euro. As FOA said, everyone was betting 10 to 1 against the euro right up until launch day! Even Another was apparently worried that the gold market was going to blow up and ruin it just a year or two too early. I think that's why he started contributing to the Kitco forum. Can you imagine the tension in the room? You're on the final stretch of a 37 year project, with less than two years to go, and something as stupid as the Eastern barbarian's love for physical gold is threatening the completion of your project. This puts the whole ANOTHER (THOUGHTS!) in a bit of a different light, does it not?

Perhaps the initial message Another wanted to telegraph was this: "ALL PAPER WILL BURN" and "the CBs will never cover all of the paper gold that's out there. To use the Queen's English, ain't gonna happen dude."

Remember, he said that the Asians broke the deal and were the big new threat, and he said that they "never ran out of money", yet they were buying up all of this CB-backed paper that was being offered by the BBs run amok. So was the intended recipient of the message the Asians, or just Giants in general (who tend to have lots of paper kindling of all kinds), or was it the BBs? Whoever it was, FOA said they got the message and, as we now know, they made it to launch day so it must have worked.

So why not push for checkmate once the game is already won? Well, just because you expect and want something doesn't mean you want all of the negative side effects that go along with it. If the dollar had collapsed in 1999 then the euro would have forever carried that stigma, which might have been less than preferable to its parents. Furthermore, it was a brand new currency system in its infancy. Exactly how much confidence did they have in its resilience, its "anti-fragility", especially if the US currency collapsed immediately in its wake?

They had the base money, inflation and the MTM gold under control, but some elements of the 1993 Maastricht treaty, namely government finance through the private banking system, were still flapping in the wind. This is something that the ECB would have known earlier than the rest of us. Yet as of 2013, that part is mostly secured.

On top of that, we had 9/11 in 2001 and the GFC in 2008. I can accept that Europe decided to support the US for a period after 9/11. That fits and it is about the time that the European CB gold sales began, ending in 2009. This goes against the theory that those sales were simply booking the physical loss of previously leased gold. But I never liked that theory much because it goes against what Another and FOA wrote about the leases, and the mines should have been able to fulfill those obligations since more than 10 years have now passed.

Then again, if the mining supply of the last decade went mostly to those who purchased it in the 90s, what physical supplied the East (in addition to GLD/PHYS) over the last decade? And therein lies a mystery that can only be solved, as far as I can figure, by some sort of discreet (and discrete) deal-making that would have included a promise of inevitable revaluation. Also, Ari told me that from at least 2005, according to his readings of the CB journal, it seemed that 2010 was being targeted to be the new transition window:

"For the past half-decade, many international policy stirrings gave every indication to me that 2010 was to be the targeted year for assertively rolling forth the freegold paradigm. But as I've said previously, I feel that the ongoing financial crisis that began with the subprime fiasco has caused instability of such magnitude that the central bankers have been forced to delay briefly and "play it safe" -- one does not dare rock the boat (if there remains any choice in deciding the matter) when the financial waters have become so turbulent and choppy. As for the new timeframe, I'd say that the reported EU plan "to make private bond holders shoulder some of the pain from any sovereign debt restructuring after mid-2013" is as good an indication of a benchmark as any I've seen."

I imagine that the "official support" from 2009 onward could have been more derivative oriented than physical because I imagine they realized in Oct./Nov. of 2008 that the greatest threat now is a falling price for paper gold. The East doesn't care if the price falls, in fact that's when they like to back up the truck because they get more bang (tonnes) for their buck when that happens.

I think that the "gold" market today is largely driven by the currency trade (XAUEUR, XAUUSD, etc…) which dwarfs the physical side. It's so big that the BBs can control the price of gold by controlling the extent to which they hedge on COMEX/GLD/etc. versus how much they hedge in correlated derivatives. That is, they can easily control the price whenever there is too much demand, but not so much if the demand for their paper evaporates. They'd be buying their own paper and going short in the physical market or correlated markets, a suicidal exercise.

So official support could have been as simple as the CBs entering the FOREX markets and buying up XAUWHATEVER when needed. This makes sense because in the 2009 CBGA they excluded the line about leasing, futures and options. This could have opened the door for them to engage in the derivatives market.

Note also that John Paulson was rumored to have sold a large XAUEUR position (paper gold hedge that allowed him to denominate his fund in gold ounces) back in December. That was reported as him simply selling "gold", and it was cited as one of the reasons for the decline in price which led to my Dec. 26th post and question about whether "someone" would step in just before Snapshot day. Soros was also rumored to have sold half of his "gold" around the same time.

The point is that no one stepped in. The BBs would have then had to remove their long hedges which would take the price down. And that's roughly how I think the much larger paper market runs the "gold" price these days, through the selective hedging activities of the BBs. But there's nothing they can do if the price falls too fast like it did in 2008. They can't buy their own paper and the Eastern demand for physical (by weight) explodes when that happens.

Lastly, I will leave you with a puzzle. I predict that, upon revaluation, global gold mining supply will undergo a sudden and dramatic contraction. But why would that be? If the value and price of gold is suddenly so much higher, wouldn't the mines run at full steam? I don't think so, and there's the puzzle.

So there you have it. The game is already won, has been since 1/1/99, but checkmate has not yet been declared so it continues. And that's why I named 2013 the year of the window. What do you think so far? Have you seen any signs yet that this is not the year of the window? I haven't. And no, I'm not expecting the "disaggregated global masses" to suddenly wake up and exchange their paper claims for physical. Nor am I expecting some kind of "spontaneous social reaction against power" that will "expose the paper fraud" and bring down the house, forcing the reconciliation between fiat and gold. I do, however, expect reconciliation, just not in one of the ways described in the email at the top of this post. ;D

Oh, and I expect it soon.

Sincerely,
FOFOA

PS. If you appreciate and enjoy what I do with this blog, then please read Defending the Precious and support my efforts here. I won't be selling any of my barbarous relics at the worst time to sell in all of human history. So it's either your support or I take another offer. And I do have another offer, but I'd prefer to keep doing this. ;D






419 comments:

«Oldest   ‹Older   201 – 400 of 419   Newer›   Newest»
milamber said...

@ Börjesson

I think you asked and answered your own question.

Also, probably not a good idea (assuming one is interested in honest debate) to write on a blog set up as "A Tribute to the Thoughts of Another and his Friend", that their comments are "absurd".

Disagree with them?
Fine.

Argue the points strenuously?
Absolutely.

But if I was going to make that type of comment, I would back it up with something more than "superficial" support and a questionable Dune analogy.

Milamber

KnallGold said...

@Bjorn: agreed, not irrelevant. But it is not an actor, just an observer!
And the little bit heat it might absorb is NOT enough to cool it below ~25.5° (thermometer is not so accurate to show 25.3 or 25.7°. And to get a more effective cooling bath with NaCl/Ice will take too much time, I know this from personal experience :-( . Ergo, I have left the building!

MatrixSentry said...

Kudos Lisa! Excellent reading of The Debtors and the Savers!

ein anderer said...

@FOFOA:

Found an astonishing description of your beliefs here:

I do believe that we are in the process of returning to honest money. I believe this transition is necessary, natural and inevitable (unstoppable). And that last part is why I sit back as an observer, rather than getting all worked up as an activist. To my way of thinking, all you can do now is take action to preserve your own wealth as we roll onward into this brave new world.

What is so astonishing for me is not the-take-action- and the sit-back-and-observe-advice. What is so astonishing is your firm belief that Orwell’s brave new world is awaiting us.

Do you belief that FG and Orwell are tied together in the sense of two sides of a coin?
Or do you see Orwell’s vision becoming real but at least we will have honest money also?

Thanks a lot about some dwelling on this …

Tommy2Tone said...

nitpic...it was Huxley's Brave New WOrld.

Reality Show said...

Hey all.

Just been ringing around UK dealers getting quotes for swaps, having decided to roll out of silver in tranches to improve my own GSR.
Had an interesting chat with one large dealer who tells me that a big silver bug, you all know of him, has been trying to sell them his silver. Oh yeah?
Brought up Freegold with him, he had not heard of the floating reference point solution, but seemed to like the sound of it, or he was just being polite. I sent him in the direction of Another and FOFOA.

TF - yes indeed. It's a kind of intellectual relief that I have been feeling, but it is heavily tempered by the human suffering that is likely to ensue.

Pat said...

As an aside, I think both Huxley and Orwell got a lot right. It used to be said that religion is the opiate of the masses, and that is still true but to a much lower percentage than historically. Now, sports, movies, TV, social networking, video games- heck, no end to shiny objects to distract Joe Public. Huxley was right.
But I would point out also that MSM "news" is pretty much all state sponsored propoganda- Orwell was right; luckily we have the internet for those souls that seek to ferret out the truth.
As someone in some comment stated, FG gives us hope for a better world. I may hate the new one too, but I am absolutely sick to fuck of this one.
2013- The Year of Fahrenheit 451 ( please oh please oh please )

burningfiat said...

ein anderer,

First of all: I think FOFOA's link tells us that "A brave new world" was Huxleys vision, not Orwells!

My humble interpretation of that FOFOA paragraph: This is not 1984, where we need armed resistance (activism) against some external oppressor who tries to rob us of our savings. Instead this world is better represented by "A brave new world"! The biggest enemy to our wealth are our own complacent selves. The only action required for the salvation of our wealth is that we enlighten ourselves on the subject matter and buy physical gold.

In other words, a variation over the Hard money socialist vs. Freegold theme. "Let's fight the evil FED/TPTB" vs. "Wake up and realize what wealth is!"

ein anderer said...

@jojo, you’re right. Huxley’s horror vision. Until now I have always seen FOFOA as someone who is looking forward for a better world …
Or am I overlooking here his subtle humor?

ein anderer said...

@burningfiat: You are right too. Was only a kind of mix-up of me. Nevertheless: Orwell was (could be) a horror (again), and Huxley could become a horror too. As far as I understood some writings of A, FOA and their friends the onset of FG will have some very strong and positive influences on economics and therefore society.

Lord Sidcup said...

freegoldtube .

Excellent work and intent, but it would be better without the background music, which evoked a love-scene imagery from Hollywood of yore, like the beach scene 'From Here to Eternity'.
Totally distracting.

THX

burningfiat said...

ea, I think you're right! FG will have a positive impact on society. Proper perception of value will be a lot easier for all (also for the ones who unfortunately will not wake up before Freegold). Needless to say, commerce should benefit from that! Malinvestment should diminish!

Unlike you, I read the "Brave new world"-sentence as a reference to our current deteriorating situation in paper-land, not as a clue to the post-FG situation...

Lisa said...

MatrixSentry

Thanks. My pleasure to do something which is of value to FOFOA and the blog!

I downloaded all your compendiums to my phone, and have been using a "text to voice" app to listen to them while driving to and from work, and during my workouts.

I am getting very good comprehension from listening to the posts. However, the computer voices have a few disadvantages - they read things like acronyms, punctuation and page numbers.

Perhaps if other followers of the blog would do voice-overs of other posts, FreeGoldTube could make MP3 files which could be downloaded to iPods or phones.

I think this is a nice option for people who are short on time for reading, or who don't have the attention span to read an entire post.

If we could get a good assortment of voice-over posts - perhaps the beginners list you and Aquilus are working on (or a list from FOFOA) it would be an alternate way to introduce newcomers to the blog. Or a quick way to review a post you have not read in a while.

Regarding the voice-over procedure, FreeGoldTube gave me a link for free software which was easy to download and use for the recording. The built in microphone in my laptop worked well.

In fact, the only problem I had was our older dog who was asleep in the room I was using to record. She started snoring while I was reading so I had to move her to another room for her nap, so i could record in a quiet place.

DP said...

Brave New World? Debt for equity swap. #FreepeopleFTW!

Lord Sidcup said...

Thanks Lisa.
I feel FOFOA's words and your voice are all that's needed.

FOFOA
Perhaps you should put key posts into audiobook format?
http://castify.co/ does this with professional actors and you can charge for it.
It might even help keep the wolf from yr door.

Like many people, my brain processes the aural word better than the written.

milamber said...

@EA,

In regards to your thoughts about a brave new world & TM, have you read this
one?

Specifically the exchange between Costata & FOFOA in the comments?

I don’t think that Freegold is going to usher in a world peace or Nirvana or a new consciousness. I think that as it continues to unfold, we will simply see the US’s exorbitant privilege as it relates to trade imbalances in the IMS change.

How it happens is the question.

Milamber

Lord Sidcup said...

... cont.

The problem with volunteer/amateur narrators is that many are poor at reading, breathing or have voices that distract from the content. It would be a pity if this was an obstacle on the trail.

F,eks; I can only bear to listen to a small percentage of Librivox recordings – bad readers can destroy great prose.

ampmfix said...

Agree on the music LordS (noting more irritating than music trying to help conveying an idea, like love story or star wars...). The WORD should be enough! (joke).
Another great thing to have a "voiced post", is for the visually impaired, I have 2 blind friends and usually the world seldom remember they exist.

Tommy2Tone said...

New to this blog???

Freegold??? WTF???

This is from an earlier post by FOFOA


"There is a disease in our system today that has many visible symptoms. Most everyone (including you) is obsessively focused on eliminating the various symptoms. But as any good doctor knows, removing symptoms will not cure the disease.

The disease is gold used as a currency, one that can be lent (which always leads to fractional reserves and a synthetic, unstable supply), rather than merely being a tradable physical asset. All the problems (symptoms) that you are referring to flow from this disease.

The disease allows for the growth of debt beyond economically sustainable levels. It is the choice that savers make that enables the unhealthy growth of debt. They choose to save in debt because there is no floating monetary alternative.

If you use gold as a currency it will be lent, and through that process it will be automatically expanded in volume suppressing the value of physical gold held by the savers. You cannot get around this problem. Gold systems have been tried time and time again, and man always borrows money, which expands its supply.

You must have a savings medium in relatively fixed supply, separate from the currency, so that borrowing dilutes only the transactional currency and not also the savings medium. When savers lend to debtors through saving in debt they are diluting their own savings automatically. Remove this one disease and all the other symptoms will disappear.

Freegold does not make borrowing easy, nor does it make it hard. If it is easy in one country then the currency will self-dilute and fall in value relative to other currencies, and gold will rise priced in that currency. Simple as that. But if you have gold lending, you automatically eliminate this counterbalance and reintroduce the disease. The disease that removes stability from the gold market by creating a synthetic supply and sending savers back into debt financing.

So this one little tweak, removing the synthetic supply of gold so that gold becomes a stable alternative to bonds for the savers, will set us back on a course away from debt-driven consumerism and living beyond our means. Not by creating a change in the minds of the debtors -- they will always live beyond their means if you (the saver) make it cheap enough for them. But by creating a change in the minds of the savers, on all scales from the individual on up to Sovereign Wealth Funds and Central Banks.

It is this one little flaw, not having a monetary store of value in stable quantity, separate from the currency, that created all the problems since the conception of the dollar, from the Triffin paradox to the US exorbitant privilege to the Greek debt crisis. That's right, all those debt problems in Europe are 100% attributable to the $IMFS, not the eurosystem.

Sincerely,
FOFOA
February 8, 2011 at 8:24 PM"

Biju said...

@ Michael H
Didn't the dollars go to the treasury, and not to the Fed?

As per my event chart, US Treasury Gets Dollars from Primary Dealers and FED vacuums the same amount of Dollars from Japan/suplus country in a roundabout way. Treasury spends the dollars and FED destroys the dollar. So net - no extra supply of dollars.

Anonymous said...

jojo,

What is capital/savings then? If gold can't be lent out, then how is a long term enterprise that won't payoff for years to be financed? Are we to rely solely on national bank credit to finance projects private lenders won't be confident of a real return? Is this a command economy we want?

RevolutionOfNations said...

Victor, I don't think "the dollar" is of interest to the US. The dollar is just one tool to exert power and influence through its world reserve currency status(again, the spoils of war). That status is now gone, everyone and his dog knows this. What the US 'IS' interested in is keeping its power and influence, using whatever tools at its disposal. Military might is one of them. Assuming gold was flowing from the US to the gulf states in return for oil, does it not make sense to station troops there to keep an eye on things and prevent that gold from ending up in the "wrong" hands? After all it is 'US' gold they are getting and I don't think those in power see it as anything but 'US' gold. Certainly they have not declared any reduction in gold stock, and as long as it remains in places under its control there is no need to.

You think staging an uprising in Saudi Arabia would create trouble in the world.. Yes, of course! But WHO will suffer?? China, Japan, Europe, India and South Korea. The US buys very little oil from the gulf states compared to its competitor nations. And with fracking and natural gas infrastructure being built at breakneck pace, the hit to the US will be minimal, while the impact on its competitors will be devastating. If they manage to get enough supply online before pulling the plug on the Saudis they may even be able to export oil and gas to make up for some of the lost supply from the gulf, albeit for much higher prices, tilting the US trade balance back into positive territory. If the US gold is still under US control, there is no need for the US to fear gold as a new reference point for currencies in world trade as they have more of it than anyone else.. Providing it's still under US control, that is.

The south east Asians are a problem as they continue taking delivery of physical gold. As mining supply has contracted and there's not enough scrap metal to satisfy their demand, central banks were sometimes forced to sell some of their gold into the market in order to prevent a bullion market default. Enough physical always needs to be delivered in order to keep the illusion that a paper claim on gold is as good as the real thing. But look at which nations were forced to sell their gold in order to prop that illusion up... -Only those under the US thumb, not the US itself!! -No?

What could possibly be a better excuse for military intervention than supporting "democracy"? A great way to sell the war to the masses... No? How long before the Saudi people rise up against their oppressive medieval regime? What side do you think the US will back when they "let" that happen?

Maybe now you see the need to have those military bases in place? It's an investment for the future... Will it work? -How clear is your crystal ball?

Tommy2Tone said...

Grumps, you just demonstrated a severe lack of understanding what this blog is about.
You would really be better of to read some of the hundreds of posts and discussion that has occurred prior to your arrival.

Tommy2Tone said...
This comment has been removed by the author.
ein anderer said...

@jojo,

sure, still quite new to FOFOA, but eager to learn. For the case you adressed your comment to me.
What I’ve found important for me so far until now is seen here.

I understand your quote of FOFOA’s comment very well, and I agree. I was only a bit vexed by FOFOA’s remark (which I count now for me to be kind of ironic/humorous one).
Actually my belief is that the onset of FG will be only one symptom out of many for a better time coming (now).

@milamber:

Thanks for the link. No, this is one of the many posts I could not yet study. But I will definitly do :D - I did not have had any esoteric thoughts in my mind when I asked this Huxley question today. It was only wondering: What is FOFOA’s outlook for the future beyond the FG theme? For me Huxleys vision was never anything desirable.
At least some positive influence from FG to our society should be seen. The new quotes given today show me that it probably does.

ein anderer said...
This comment has been removed by the author.
Anonymous said...

If gold is to be savings external to the monetary system, then what does the lender bring to the table? Just a claim on the collateral in case of loan default? Isn't this the problem we have now? The lender needs to have skin in the game. Real capital must be at risk. This is how we got in this nightmare in the first place. The USG and PD's have access to infinite capital.
I have suffered from this reckless credit personally. With Sallie Mae to backstop and guarantee student loans what does the loan originator care if the kids can find a job to pay back the debt--it's off his books. So all these kids flood the professions supersaturating the market so that veterans can't find a job either.

tintin said...

Pat,
"This chart if accurate shows China FX reserves at 3.3T, not 1.1."

Correct. Total FX reserve 3.3T, total reserve in USD 1.1T.

milamber,
"And if Beijing stops this, then they stop the engine of growth (infrastructure development) that accounts for close to 50% of their GDP."

The plan has been to adjust growth toward more consumption. So less savings/income spent on housing, then more available to be spent on other stuff.

Also, the central government policy is to curb this special interest group which is property developer/land/local governments.

Affordable housing projects will move in to develop the land. This is a project promoted by the new premier Li Keqiang who is also in charge of.




Anonymous said...

Jonas,

I don't think "the dollar" is of interest to the US.

I do. Many actions of the US authorities over the past decades are explained perfectly well if you think about the international role of the dollar. If you don't, you see senseless budget deficits, money printing that doesn't improve bank lending, bank bailouts that help nobody, Fed officials talking gibberish, diplomatic and military actions in the ROW that don't make sense to you. And people complain about a thousand different things, not realizing that there is a superior goal which all these items were subordinate to.

Secondly, once the dollar does not buy oil any longer, what will happen to all the military machinery? When the USSR collapsed around 1990, they had the second most powerful army in the world, and they controlled a land mass much larger than the U.S. ever have, and even with more resources. And what help was their military? None. It was a liability, simply because they had to feed unproductive soldiers for whom they couldn't create productive jobs quickly enough. The value of a bloated standing army will rapidly diminish once the new world order (gold rather than dollar based international financial system) has arrived.

Victor

burningfiat said...

Grumps,

The lender needs to have skin in the game.

You're almost there with this kind of thinking!

What greater skin in the game for lender/printer, than the threat of savers withdrawing from your paper to an asset with no counter-party? I'd say you'd better make sure your paper stays honest if you want to hypothecate that paper. OTOH if no-one wants to own your paper "investment" you have to carry the risk yourself. I'm also sure that'll straighten you up such that you'll make wise lending decisions in aggregate!

But as the others said, do some more RTFB. You're close.

milamber said...

”The value of a bloated standing army will rapidly diminish once the new world order (gold rather than dollar based international financial system) has arrived.

All the more reason for the masters of said army (which is actually not that bloated in people terms) to use it (or through threat of use) to ensure that the current $IMS stays functional for as long as possible.

Milamber

ein anderer said...

@jojo, thx for your quotes and link. Piece for piece the puzzle's details become clear.

Aquilus said...

@Biju

Your question:
"One Question. If Eurodollar market is based on credit, why did FED do a dollar swap with ECB during the depth of financial crisis ?"

You almost answered it yourself when you considered the credit possibility.

What was one of the consequences of the financial crisis? Credit dried up because no one trusted anyone else's collateral valuation or even viability.

Remember the enormous raise of the dollar in the FX market? That was the demand for short-term save assets: Treasuries. And they are bought in dollars.

So since not enough foreign dollars were available from the private credit market, the Fed arranged the swap to ensure dollar liquidity existed for that demand outside of the FX market. That removed the dollar demand crunch and ensured that the dollar demand does not "blow up" the FX market.

As soon as things normalized, the swap line was eliminated since credit and demand came back to normal parameters.

Makes sense?

-------------


Two more things:

1. The main thing about Japan is not so much the FX side that we were discussing, but rather the fact that the policy is unsustainable. It takes purchasing power away from an economy that already imports more than it exports: the BoJ ensures the japanese imports are more and more expensive at a time that they must import...

2. I don't mind answering your questions, you obviously think about things and try to read up. I just don't have that much time to answer. I actually had the same reaction as you when understanding the credit involvement the first time ;D I'm glad to see others like Michael H getting into the conversation.

Best,
Aquilus

Tony said...

Sinclair quoting FOA again:

"Debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationist get their WRONG direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! Worthless dollars, of course, but no deflation in dollar terms!"

http://www.jsmineset.com/2013/03/04/jims-mailbox-1193/

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

Burning Fiat,

It seems to me that Freegold is a wish to freeze the Longwave in winter. Savings can't be kept external from the system immune from risk. What good is gold if the civilization collapses due to lack of investment? Gold has to have skin in the game and be involved in the economy.
The value of gold should not be constant, otherwise you risk stagnation.

Nickelsaver said...

Grumps,

Peruse this in its entirety please:
http://fofoa.blogspot.com/2012/02/glimpsing-hereafter.html

Here are a few snips:

There is no "fiat management" solution for the problem Bill describes. The savers simply cannot lend their savings to debtors anymore in a way that is beneficial to both the economy and the savers. Even the King of the bonds himself is sounding this alarm. But there's another trend in this new normal that should be even more alarming to savers still holding longer dated debt. Whenever and wherever push comes to shove, the savers will be and are being forced to take losses while the system protects itself on a nominal basis.

[...]

I'm not here to cast judgment on this systemic inequity between banks and savers. I have long followed in FOA's (and ARI's) footsteps in pointing out that this is simply the way it has always been. That's a pretty good reason to not save within the system, wouldn't you say? When push comes to shove, the system will protect itself and force losses onto the savers. Ultimately, inevitably, today's dollar will lose so much real value that it will save the banks nominally while putting all systemic losses onto everyone holding dollars, regardless of the default of debtors.

[...]

One of the things I have found that people have a hard time grasping is that ALL savers will want to be in gold after the transition, even though it won't deliver ANY real gains like we've had over the past decade. This is a difficult concept to wrap one's head around. People seem to think that they are in gold only for the big 30-bagger revaluation and then they'll want to find something else in which to put their little dollar soldiers to work earning a yield. Either that or they imagine that Freegold will be an environment of perpetual real gains for gold holders. It will not.

Freegold will be simple purchasing power preservation, and you'll love it! No gain, but also no risk and no loss. That's what savers need and want. And most of us are savers whether we admit it or not. This is a really big idea we need to contemplate if we don't want to be run over in the end.

[...]

Currency’s main purpose is to lubricate the flow of value. Gold’s main purpose is to store or stockpile value. Stock and flow. Gold and currency. Currency will also store value for periods of time, but that is not its main purpose. If currency happens to behave as a temporary store of value, that’s only a secondary effect created by its suitability to its primary role.

[...]

So that whole gold section of the top pyramid is like an exclusive country club for savers, like the men-only clubs of yesteryear, where we savers all sit around smoking cigars, practicing secret handshakes and agreeing that we'll only buy gold with the excess left over from our net-production and deferred consumption. And if there was an actual club, the savings medium could theoretically be anything we agreed on, like baseball cards. But because there’s not an actual club nor a secret handshake, we rely on the focal point and network effect principles to identify and optimize that singular item.

All gold transactions are essentially from saver to saver. The debtors need not be involved nor concern themselves with our exclusive club interactions. When a saver produces some excess and leaves it on the proverbial table at the economic fair, he buys gold from another saver (either inside or outside of his zone) who has decided to dishoard some of his gold in favor of consumption. It is the changing purchasing power of gold that determines how much gold (by weight) changes hands. (Please review my post The Debtors and the Savers if you are unclear about my novel demarcation.)

Sam said...

The way I understand it if Gold is going up and up in currency price in your neck of the world (post freegold) it means you are net-consuming. The gold is going up in value because it is flowing off your shores in exchange for real goods and becoming more regionally scarce. The ever increasing gold price will both force and make it easier for net-consumers to transition to becoming net-producers via a weak currency. On the other hand net producers will find less and less benefit in producing and saving as gold becomes cheaper and cheaper in their neck of the woods and their currency becomes stronger and stronger.. This will drive them to become net-consumers and the world will enjoy balance of trade. This monetary system could be ran just as easily with poker chips……however fofoa never wrote a blog post called focal point poker chip, so I’m guessing it will be gold. 5000 years of the people’s choice can’t be wrong.

There is also no need for additional gold for this systems to work. Any amount including the current above ground amount will work. Below ground gold is just as useful and accountable as vaulted gold with today’s technology. Remember 95% of the stuff stays very still. Perhaps it will prove most economical in many areas that the gold in the ground be part of the very still portion.

Indenture said...

Grumps: "Gold has to have skin in the game and be involved in the economy." Really? "the ECB has no intentions of backing their currency with gold and every intention of using gold as a "free trading" financial reserve." FOA

Is that skin in the game?

Aaron said...

Well put, Sam. I agree.

Anonymous said...

I have a question. I need some feedback. Under Freegold is gold still at the bottom of Exter's pyramid? Is it in the pyramid?

Is gold outside the pyramid to be used as a cudgel to punish credit creation?

If a country prints too much ( lowers interest rates) then gold price rises in that currency causing gold to flow there to sop up the easy money and forcing interest rates back up to combat this?

Please tell me this is wrong for the implications are horrifying.

Sam said...

This one's easy. Grumps you are wrong. Your mind is so clouded with currency and printing. Gold will flow towards production

Aaron said...

Grumpy said:

"I have a question. I need some feedback."

"Please tell me this is wrong for the implications are horrifying."

Calm down, Grumpy. It's going to be ok. Take a deep breath, let it out slowly, count to 10, and RRTFB.

One Bad Adder said...

This Chart takes a look at (my favourite squiggle) $IRX compared with DX and would suggest the Dollar is set to correct a little here ...and by association we could expect $PoG to look a bit uppetie as this transpires. The thing ($PoG) HAS been soft vis-a-vis the alt-currencies lately, so don't expect too much of an uptick FWIW.

Nickelsaver said...

Grumps,

Had you actually opened up and read the post that I suggested , you would have found the answer to the question you just asked.

"I have a question. I need some feedback. Under Freegold is gold still at the bottom of Exter's pyramid? Is it in the pyramid?"

But I am in a good mood so I will short you a lil more from that post.


My long-time readers are aware that, beginning with All Paper is STILL a short position on gold in March of '09, I have been refining a conceptual model of the $IMFS stasis and punctuation periods based on the inverted pyramid developed by the deflationist economist John Exter in the 1970s.

Exter put gold at the bottom of the liquidity pyramid, just below the dollar. He said that gold was the most liquid asset. And in the end, he envisaged a rush down the pyramid to liquidity in which we would see the dollar and gold rise together for a time. As Gary North wrote in 2009, "So far, his theory has yet to be tested. We have not seen a rising dollar and a rising price of gold."

[...]

8 months after the "All Paper" post I wrote Gold is Wealth in which I built an upright pyramid under Exter's, representing the physical plane of goods and services, and forming a kind of hourglass shape:

http://4.bp.blogspot.com/_cvdgPlEKW9k/Swhu9b60zoI/AAAAAAAAA5w/Wf5OLd-66KI/s400/Dual_Pyramids.jpg

10 months later, in Just Another Hyperinflation Post - Part 3 I used this model to illustrate the flow of capital during a currency collapse:

http://3.bp.blogspot.com/_cvdgPlEKW9k/TI7tP3FnqaI/AAAAAAAABZ8/htV95DrL_E0/s400/Capital_Flow.jpg

And now, what I'd like to do is to take a stab at modeling what this might look like after the transition to Freegold. All modeling up until now has been before and during transition. But presumably things will look a little different hereafter, don't you think? Costata and I have been discussing where gold should go in the "after" model for a while now. Should it be in the monetary plane or the physical plane? Should it be parallel but off to the side of the currency, or what?

While we have not come to an agreement on the nitty gritty details of the "after model", I'd like to put my general thoughts out there because I think that you will find them useful (and my crystal ball says so too). So here's the very basic before and after. I have put gold up where the financial system collapsed in the old $IMFS. But don't worry, I'm not going to leave it there:

http://2.bp.blogspot.com/-ZmY43anTRvk/TyucYFisqmI/AAAAAAAACIU/BmmDbMqW0J0/s400/Dual_Pyramids_After.jpg

The placement of gold in the "before" really doesn’t matter for our purposes right now. It could be in either plane or both. But in the "after" it has filled and replaced the arena formerly occupied by derivatives, securities and paper trading wealth in general (securitized debt).

So what’s the purpose of this exercise? Here’s what I’m thinking. Everyone uses the bottom pyramid, both debtors and savers. And everyone uses the currency portion of the monetary pyramid. But only the savers utilize the top portion of the monetary pyramid. The debtors are no longer the counterparty to the savers so they have no business up there. The only way to get up there is to produce more than you consume so that you have some excess capital with which to buy gold. Then you are a saver. So it looks something like this:

http://4.bp.blogspot.com/-Lbs6NIUapiM/Tyudy9CDOCI/AAAAAAAACIg/K3AEKTJdg1s/s400/Dual_Pyramids_Zones.jpg


Now you're going to have to OTFBP (open the FB post) and read the rest to see how the story ends.

ein anderer said...

@Grumps,

also the newbie tries to help the newbie a bit.
You are asking:

It seems to me that Freegold is a wish to freeze the Longwave in winter.

One of my insights after beginning to study this blog was: FG is not a wish. It is not a call for action. It is not a political party kind of "this we should work for".

May be some contributors still see FG like this. Or they have another view of FG and use it as a kind of party program. But those who started to talk about FG - esp. Another, FOA, FOFOA - used a different definition of what FG is (my displays):

Freegold is a way to view unfolding events as they happen. (...) It is not a description of what should be. (FOFOA)

FG is a theory, a framework for understanding grounded on a thesis that there is existing a manmade plan for forthcoming events:

From ten or perhaps twenty [now, 2013: 25 or 35] years ago a political will, a concept was being formed that would today change the economic architecture and power structure of the world. (FOA)

This political will was not a decision of some idealistic thinking wellwishers to do something sometime in some distant future. This political will did act already. What we see today is the result of this action. More about this "will" in FOA’s Gold Trail (have a look into the sidebar ;D ).

Most of FOFOA’s posts can be looked as trials to falsify this theory. So it would be best to behave like a scientist:

Try thinking in terms of the principles and concepts I will present, and then you can apply that view to both my conclusions as well as your own established beliefs. This is the proper way to take in a new view, and then you can decide to either accept or reject it, but at least you will have seen it. (FOFOA)

This demands a clear understanding what this theory is all about. Unfortunately it does not seem to be possible to outline this theory in one single post. Therefore (and not because of some cultish beliefs) it is necessary to read first: at least the most important posts. (There was some years ago a post with FOFOA’s link list to the "main posts", but I do not remember in the moment which post this was.)

IMHO the reason because the theory seems to be so complex (for FOFOA and some others it seems as it is not :D ) is: It describes, first, one of the hidden background elements of economy. And second this hidden element seems to be combined to almost every other aspect of (modern) economy.

Like the blue sky in Polynesia: It is so self-evident that it is not looked as something worthwhile to talk about.

May be a longer and wel structured Wikipedia like post from FOFOA would be fine "for beginners". Although there are some nutshell links at the sidebar already … And, last but not least: Almost every FOFOA post can be looked at like this: as the trial to explain FG from one angle or the other.

Anand Srivastava said...

@grumps
If gold is to be savings external to the monetary system, then what does the lender bring to the table? Just a claim on the collateral in case of loan default? Isn't this the problem we have now? The lender needs to have skin in the game. Real capital must be at risk. This is how we got in this nightmare in the first place.

You think currency is not real? Why do you think gold is real? They are very similar. The only difference between them, is the control. Gold is not in their control and fiat is. Create a gold standard and gold is backing the fiat and both are in govt control.

People provide value and get currency. They lend that currency to other people. The problem is when banks get too much money, so that it essentially becomes free to them. They become too big and then they don't know what to do with the money. They start lending it recklessly.

Understand they are not creating money from thin air. They are lending the money you gave to them. They will lend your money, even if we had gold standard. The currency will be devalued, or the govt will remove the gold standard when you are the most vulnerable.

Get out of their game. Get control of gold. Stop saving in Banks. Save in gold.

Stop thinking like a trader. This website is not for traders.

The dilemma for traders is, if they believe in freegold, what do they do for their living. Because trading is a loss making proposition, in the present age. Because the gold has too much value. And trying to time the revaluation is not possible. The only solution for traders is to encash, get into gold, and find something else to do.

ein anderer said...

On the eve (Spain) …

One Bad Adder said...

anand: Au-contraire my friend - A Freegold regime would be a mecca for Traders.
In fact there are Traders the world over (self incl) who have abandoned "trading" due to current market circumstances.
Trade this arena (across-the-board) at your peril ...whereas in a freegold system the "spoils-of-trade" can and will be able to be unequivocally removed from the table ...IMHO.

Anand Srivastava said...

OBA

That is why I said "present age".

Yes After the revaluation, trading will again be profitable.

But in the meantime a trader must stop trading and sit very still with his gold, like you are doing. Possibly doing something else.

Also after revaluation, equations will be different, so the intuitions and algorithms will have to be rebuilt.

Bjorn said...

@Knallgold
Then we are in agreement it seems. :-) I have never thought of TA as anything other then a thermometer (or perhaps more apt, a barometer) of the market. But then my TA is Old skool

Anonymous said...

FOFOA: Aug 23, 2008
Quote:

I don't believe that anyone knows what the future holds with certainty. Heisenberg's Uncertainty principle applies in life as it does in Quantum Physics. And just like in physics, the future of life is determined by the playing out of various probabilities. So when I appear to be predicting the future I am simply assigning higher probabilities to certain outcomes.... There are many paths to get us from here to “there”, and in most cases the various paths have very similar probabilities while the final destination has a much higher probability. So by focusing on the endgame, I believe I can predict the outcome of our current crisis with greater certainty than many of the false prophets who are attempting to predict the exact road that will take us “there”. Does this make any sense?

Well, yes it does. The apparent misread of Heisenberg notwithstanding, FOFOA makes perfect sense.

He goes on...
Quote:

When will we get “there”? In my view it could be as soon as a year from now or as long as four years from now.

When one includes the rest of the post, I don't think it's unfair to summarize FOFOA's opening position in his first blog on Aug 23 2008 as:
That a certain outcome (later: "Freegold"), whereby Gold gets re-priced to a much higher level "has a much higher probability" than any other "outcome of our current crisis", and will occur between Aug 2009 and Aug 2012.
A sensible start to be sure. However...

"The outcome", apparently emboldened by its new monicker, morphs on Sept 21, 2008. FOFOA says:
Quote:

FreeGold...is the inevitable end to our current situation. And it will either come by natural forces after America has been brought to her knees, or it will be "allowed" to happen..."

One looks in vain for a post between Aug 23 and Sept 21 that contains the Road-to-Damascus moment bridging the logical abyss between "probable" and "inevitable". I guess it happened off stage. Before it was a month old the newborn FOFOA blog had "got religion". Reality-based Freegold had been replaced by Teleological Freegold.
The rest is history.

http://neuralnetwriter.cylo42.com/node/4014?page=1

For those whose mind is open....

Anonymous said...

http://neuralnetwriter.cylo42.com/node/4014

Read it if you still have a mind that is open.
This link will deleted, but will reappear regularly, in the interests of freedom of thought.

FOFOA said...

Get a life, ManuelB aka Gary. You think you are exposing something about me that is hidden, but you are only exposing your own mental instability trolling me for nine months after your meltdown. Have you ever asked yourself why I leave my whole blog up when I could just as easily edit it to make myself look better? And when are you going to forgive yourself for falling for my big blogging scam for a whole year and donating hundreds of your hard earned dollars to me for six months straight? You have Trolled me here under at least nine different names and emailed me under a half dozen more, including idiotic blackmail threats, for nine months now. Gary, counseling would normally be advisable under these circumstances, but in this case, just fuck off.

ein anderer said...

From "Greece is the Word":

What we are about to experience today is a natural Jubilee of sorts, a hundred-year reset, only this one will happen at the point when the debt mountain is at its all-time peak, and right when nobody expects it to happen. A grand surprise. An ultimate shock. This will be catastrophic for the savers of debt and will be so traumatic to the system that total systemic entropy will be achieved. And a new system will have no choice but to emerge naturally from an absolute void of confidence. — FOFOA

Anonymous said...

http://neuralnetwriter.cylo42.com/node/4014

Dante_Eu said...

Well, how this current system could survive without Debt Jubilee is beyond me. I mean, it's already started...it's called QE!

And, like that italian comedian says, who the *uck do we owe all this debt to? Who in his right mind would lend money, knowing it can never be repayed? So, we can conclude that whoever did it, is either stupid beyond comprehension or had some purpose behind it.

So, when Clinton met Lavror in 2009, she didn't spelled wrong:

Button gaffe embarrasses Clinton

This system is overcharged and needs reset! Right here, right now... :-)

The Dow Theorist said...

One Bad Adder

your comment 12:38 am: you are right IMHO.

Regards

DASK said...


FOFOA, one of your best! I will try to scrape up some free cash to donate.

Grumps, not sure what you are on about with lack of investment and skin in the game.

Lenders will have more skin in the game then than they do now, and investment will not cease; it will just be better rationalized. Interest will have to be sufficient to coax savings out of safety, and this will mean that only productive projects will be able to be debt funded, e.g. a return to Minsky's hedge financing instead of speculative or ponzi finance.

If a loan fails, it will come out of the lender's capital. If a loan succeeds, it will increase capital. Just like it should be today. The capital of a successful lender should be able to buy an increasing amount of gold. For this, lenders will need to put their interest rate high enough to allow a real gain. In a well managed currency this will not be too much of a problem. If the currency is a bit unstable, there are other finance solutions, such as loans convertible for equity. The incentives for proper currency management in Freegold will be extremely powerful however.

Tommy2Tone said...

Biju and Aquilus,

I just came across this, not sure if this helps or does anything:

"Think about it this way. Think about Eurodollars. Think about European banks outside of the Federal Reserve System making dollar denominated loans or simply issuing dollar liabilities to FX traders. Sure they have a few physical dollars in reserve. But they don't have direct access to the Fed lending facilities. So if they find themselves short on reserves, they will have to go into the market to buy some dollars, just as you say. Which, in aggregate, could drive up the price of the dollar versus the euro. Which is why Ben arranged a $500B currency swap in 2009. To keep the dollar from spiking. Unfortunately, though, Mother Nature is not quite as accommodating as the Bernank."

from here

ein anderer said...

Friends (may I say so?):
Those who are new here and still wondering why and how the revaluation of Freegold would happen there are--I am sure--dozens of beautiful posts. But if I would have found Greece is the World earlier then quite some questions of mine would not have been necessary. Big advice: read it! For non English natives quite easy to understand too :D

Still on the very interesting commentaries there. But: If the scenario has only the probaility of 10 percent then it would be wise to incorporate it into one’s private strategy today.

Beautiful: FOFOA’s not so mysterious hints to the BIS, and beautiful his hints how much one should invest in shelter and preparation besides investment into Gold. Quote (my display):

This whole "gold thing" is really just for those people that have more money than they will need to live on for about a year. And it is for those that would like to store that excess wealth in the most universally liquid vehicle since they don't know exactly what they will be needing a year from now.

Anonymous said...

http://xltweet.com/show/?id=53535E595040

Certain aspects of reality are off-limits here it would seem, as they don't fit the 'script'.

Hee hee, both funny and pathetic. Cerberus proved what a lightweight some writers really are.

michael3c2000 said...

This week China's new leaders are seated and there are two annual meetings of the Chinese Congress. The BRICS are meeting at the end of the month.
But this year's Asian news flows in many directions.
There was this interview with Jim Willie (and a similar, excellent one at TFmetalsreport.com) where he's made an almost incontrovertable assessment that 2013 ushers the end of dollar reserve status. Asia's gold tradenote and gold barter expansions led by China could involve the Yuan as a major treserve currency linked to gold.
As we've seen, this year also has large fund managers Ray Dalio, Bill Gross and Kyle Bass pledging allegiance to gold, sighting storm clouds and dangerous travel this year, joining FOFOA and others in outlook.
Similar forecasts were given in two interviews this year by gubmint econ stats vet John Williams(search for latest vids at Google or SGRreport) of Shadowstats, uncompromised and thoroughly peering into the malaise.
John W. sees specific weaknesses in the dollar and bond markets, a fiscal crisis this spring, and by May, halting crisis and explains why.
Returning to Asia (and the Middle East)I've come upon many Asian preps, like the Yen trade, spreadtrades, and cross trades, hairs and words.
With that, some news (no paid subscriptions were necessary) I must share with the alert gold knights and warriors nearing the end of the long trail. Soon I take leave again, returning if necessary.
China Well-Prepared For Currency War: Official
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130302000110&cid=1102

Foreign-Currency Settlement Platform Kicks Off In Taiwan
http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130301000107&cid=1201

Dubai Gold And Commodities Exchange To Introduce Physical Gold Trading
http://www.dubaichronicle.com/2013/02/10/dubai-gold-and-commodities-exchange-to-introduce-physical-gold-trading/

michael3c2000 said...

Jim Willie's interviews linked here also:
http://www.goldenjackass.com

Unknown said...

Chavez is dead ... but he got the gold first.

Sam said...

"Who in his right mind would lend money, knowing it can never be repayed"

JP Morgan answered that question once. Very few people understood his answer. I can think of several reasons why I would lend currency to someone that may seemingly have a hard time paying it back in the near future. However I would never lend gold to someone that couldn't pay it back. I guess it depends on what you meant by "money"

milamber said...

GLD lost 9 tons today...

If my records are accurate:

- this brings the total to.... 1244.86 Tons. It hasn't been at this level since... November 3rd 2011.

Its highpoint (In tons) was 1353.25 tons on Dec 7 2012.

Still plenty of gold for AP's to grab as needed, but definitely worth watching.

Also this is day 17 in a row (counting trading days only) for GLD to either decrease or stay the same. Not a record, but still pretty impressive.

Milamber

Biju said...

@Aqulius

I agree that if Japan or even China tries to do that buy UST for ever, it is not sustainable, unlike say Saudi Arabia/Qatar/Kuwait who have small population and are "unlimited" super producers.

MnMark said...

FOFOA, you should set up that mechanism that allows readers to make purchases at Amazon, with a percentage going to you. Ann Althouse does that on her blog and she seems to be getting a pretty good load of money each day from people buying dozens of things on Amazon via the link on her site. It costs the reader nothing.

Anonymous said...


Yes, milamber, another GLD buy signal. And still no sudden increase in the price of paper gold. If the timing of May 2012 were any guide, it should have happened on Friday or yesterday. So we are a little overdue now.

michael3c2000,

The renminbi will not be a reserve currency in the same way as the dollar has been. I remember this comment but there was probably more discussion on that topic.

Victor

Michael dV said...

Victor I agree with your comment referenced above. The new dollar could be a competitor for MoE but I see perhaps several currencies vying for that role. Each of them (styled on the Euro) 'behaving' by keeping the POG low in their zone.
But I also suspect that trade imbalances will never again be allowed to get so far out of balance that a global MoE as the dollar has become will be needed. Perhaps peak oil also brings the dawn of shrinking growth. A world forced to adjust to limited energy...and all that might mean....countries only consuming equal to hat they produce. . Perhaps a few ambitious projects assembled with global approval (to stop huge malinvestment of energy as well as capital.)

Beer Holiday said...

VtC,

I remember those comments, they really explain why the Yuan won't be the next reserve currency well.

FWIW my perspective has changed a lot since then.

I'm now convinced the yuan won't be the next reserve currency for many reasons, not limited too:

1. The People's Bank of China don't want it because they understand the Triffin dilemma.
2. An exorbitant privilege doesn't help China's industrialization or fit with their culture.
3. The ROW doesn't want a sovereign reserve currency.
4. They don't have enough gold.
5. Their financial system is not developed enough.

My old Yuan reserve currency stumbling block was really about understanding that the world doesn't need or want one country to have the reserve currency again, but rather a focal point reserve asset, gold. Of course there will still be different currencies circulating, and they can bid for gold at different prices.

Hope I get "gold star" for effort from the teachers this time around.

One Bad Adder said...

anand: Touche Sire, my speed-reading isn't what it used to be ;-)
Dask: FreeGold represents Skin "out of" the Game.
Free-Gold (24K) represents a Zero interest point (not borrowed, not lent)Spot - Cash settled ...everything else (the Fiat Realm) becomes subservient. Gold "Investments" will cease to exist ...Gold "Futures"? ...Ditto

IMHO!

One Bad Adder said...

Michael dV - Vic:
In my small mind, there is (under FG) no specific need for a pre-eminent MoE ...as the various currencies will co-exist as Fiat Media-of-exchange (I think??)
The concept of a Global Fiat co-operation approach fits well MdV ..fully inclusive of and supported by Sovereign Individuals.

Bring it!

M said...

@ Jonas

Fracing is not going to turn the US independent of oil or gas. I work in the industry. We are fracing wells in manitoba Canada that deplete so fast that they are only online for 1 year. I cant believe the money these oil companies spend on a well that will produce for 1 year.

But it makes sense. Because these oil companies are borrowing and getting capital for nothing.

Unknown said...

OBA,
I agree with this current thought-stream.

The bad example set by the existing "pre-eminent MoE" will leave an indelible impression when it finally and completely collapses, much as WWII had an impact on the thinking in that time (which in fact led to this current dollar experiment).

I feel that freegold is the naturally evolving "gold standard" that "should have been" all along, and I would add that the old "gold standard" causes much confusion today because it worked so well for a time, yet was doomed to failure as it always had a built-in self-destruct mechanism - the artificial "price fixing" to fiat, which eventually became its undoing.

As we view the world today, all dollar faction economies are failing through the mis-valuation of debt. And because of its viral nature, nearly all economies fall under this category whether they might wish to be seen as "dollar faction" or not.

We do live in an incredible "information age", but for all the availability of widespread information access, we are left with an abundance of misdirection, misinformation and propaganda, which supports the fantasy of fiat.

For example, we here are a select few on the planet actually discussing reality, while the vast majority live in an eternally optimistic alter-reality perpetuated by the idea that "if we focus on the positive, and our inner strengths, there is nothing we cannot accomplish." (as long as we dutifully increase our energy output on the debt-hamster wheel perpetuated by the corporatist culture-spin).

Just go on any "dating site" and read the profiles of how we "advertise ourselves to one another" to see the spectacle of mass delusion and "group retreat from reality". It is a fascinating and introspective window into the thinking of the masses as "how we want to be viewed" becoming "how we are".

But I do place my chips on reality's eventual intervention. I feel it is a safe bet, though whether we live to see the house fold remains to be seen.

There will be no "dollar substitute". And gold will be seen as the antidote to man's failure of fiat management.

Beyond that, the unforseen wild cards will be the ultimate game-changer.

M said...

I was just wondering... What will happen to all these socialist welfare police states in Scandinavia post freegold ?

Norway is the only major oil player there. Freegold is supposed to reverse the trend toward socialism which makes sense in the west because all of these governments are selling bonds to pay for it. But these socialist hell holes up north claim that they have no debt. The government has no debt but I am assuming they have student debt, mortgage debt, muni debt and corporate debt just like everyone else.

These hell holes do a lot of damage to the case against socialism.

Lord Sidcup said...

Well Done M.
That is the dumbest comment I have ever seen on this blog.

I guess ZeroHedge doesn't provide a complete education after all.

KnallGold said...

Bjorn, yeah old sKOOL AID rulez :-)))

Dante_Eu said...

Yes M,

Student debt, mortgage debt, car debt, credit card debt, SMS debt...you name it. The question is not if but how much. And I would not call it hell hole...au contraire mon frère Scandinavia is the best there is today. As far as I can see on this planet. :-)

If and when Debt Jubilee comes, it will be seen as best thing since sliced bread. Yes, SMS lending may be restricted after the fact and you aren't going to use your home as a piggy banka as easy as today. Nevertheless, it's still going to be a good (best?) place to be around. Maybe one will actually be forced to work more if one want to buy stuff one really don't need. :-)

Acctualy, the only ones who may loose something in real terms are Norways oil fund. But they do not need to spend that wealth for foreseeable future and even if everything vanishes (highly unlikely), they still would be fine. There is enough oil and gas for another couple of centuries.

In Norways case, like FOA said, if I remember correctly:

"The only ones who don't need to worry are oil producers, for us others Real Gold."

Cheers!\Dante aus Scandinavia

ein anderer said...

(( OT

@Wil

Yet also many candid friends of reality are blending out one huge aspect of reality: consciousness. They even do not think about what consciousness is.

So I am with you regarding all this "positive retreat of reality" wish-wash, yes. But in the same stroke I am absolutely convinced: Very soon* consciousness will be seen as THE prime mover of society—after understanding and revaluating its ever implicit role in every feeling, thinking and action of man.

Very parallel—but not competing!—with FG. The other way ’round: Both reactions of the Superorganism—setting free FG as the main SoV and setting free Consciousness as the main modelling force of human action—will support each other (although not dependent on each other).

*Very soon because it is the need of our time. In short: World became to complex as to be handled by intellectual analysis alone furthermore.

))

Unknown said...

ein anderer,
I agree, but feel reality will be harshly introduced rather than through a gradual awakening. And upon that introduction those already gradually awakening will be in a better position if they have acted upon that awakening before it is too late.

Here is an interesting (if not entertaining, as usual) discussion regarding an energy backed currency" which comes in around the 18 or 19 minute mark.

These kinds of discussions are part of that "awakening", but my day to day observations of the slumbering US debt-lotus eaters leaves me with more and more certainty that a politically managed solution will never transpire.

There simply is too much faith in "creative destruction".

KnallGold said...

POG at 1575 currently...

Yes, Julian is fundamental in our research, particularly some mCH3O NMDA antagnists.

Off watching POG again.

Best RegardC Und Kisses,
KnallGold



ein anderer said...

Agree again, Wil, and thx for the Keiser link. Yes, for creative destruction it’s too late. Should have startet late in the sixties. But for creative construction = building up a new financial / economic / political system system = new civilization we need kind of a new seed: at the core of the theatre :D

Pat said...

The mass unconsciousness is so deep and profound I fear nothing less than major pain and suffering will get the sheeple to pull their collective heads out of their asses. Of course pain and suffering has a bad rap; it is nature's best teaching tool. Modern day societies have made molly-coddling not only acceptable but the only "proper" choice. God forbid little Johnny has his self esteem injured by losing in kickball; go into a normal recession, heaven forbid, kick the can oh please make it stop!; out of work, no worries nanny state to the rescue; I swear if they could get rid of winter they would. Of curse all this avoidance of pain has severe consequences down the road, worse much worse than if we let nature be nature.

ChrisF said...

Re: Norway

I guess they will simply rock up at the Gold window and convert at least half their MoEs / bonds etc... into gold, ship it to Norway and bury it.
Just like our favourite Kingdom in the Sand. I do wish they would start this swop right now! .... rather than waiting for FreeGold to arrive.

Indenture said...

Will: "I agree, but feel reality will be harshly introduced rather than through a gradual awakening."
I remember reading Big Gap in Understanding Weakens Deflationist Argument and thinking if there is no way the spigot can be turned off then engine will feed until it 'snaps'. Just a far off snap, a ping that cascades violently. I see a 'blank stare' on peoples faces because it happens so suddenly and without warning and the empty feeling will need to be filled with something to blame.

Indenture said...

My machine analogy perhaps not the best since FOFOA wrote "Deflationists like to view the economy as a machine. They think "this money here must reach this quantity and then flow there and only then that will happen." But the economy isn't a machine. Machines don't have emotions like greed and fear, but the economy does."

ein anderer said...

Very positive Frankfurter Allgemeine Zeitung review February 25th on Harold James, Making the European Monetary Union (Cambridge 2012).

They say that the book is using ECB and BIS sources which are not yet opened to public.

Harold James wrote this book by attorny of BIS and ECB. He is discussing the history of the Euro just from its earliest beginnings (European Community’s Committee of Central Bank Governors, 1964-1993)

The publisher:

"Here is an account that helps readers understand the European monetary crisis in depth, by tracing behind-the-scenes negotiations using an array of sources unavailable until now, notably from the European Community’s Committee of Central Bank Governors and the Delors Committee of 1988–89, which set out the plan for how Europe could reach its goal of monetary union. As this foundational study makes clear, it was the constant friction between politicians and technocrats that shaped the Euro. And, Euro or no Euro, this clash will continue into the future.

Woland said...

Something y'all might enjoy, from John Hussman's "Out on a Limb-
An Investor's Guide to Xtreme Monetary and Financial Conditions".

"Accordingly, the Fed recently indicated that it will create a new line
(item) called a "deferred asset" on its balance sheet. This "deferred asset" is a phantom accounting entry that represents the
anticipation of FUTURE interest on the Treasury securities held by
the Fed. This interest will not be paid back to the Treasury for the benefit of the public, as the Fed has historically done.........

"Let's be clear about what Bernanke is saying: "it is an asset
in the sense that it embodies a future benefit (to the Fed) that
will be realized as a reduction of future cash outflows (to the public)"

Soooooo, these are some of the "tools" he has in mind when his
planned "exit" from the $3 or $4 trillion balance sheet begins.


tEON said...

Coffee Break Dialogue With A Freegold Dilettante Part 1 + 2
Part 1 Paper Gold
Part 2 - Freegold Origins
http://youtu.be/CCE8_lPqoCU
Best,
Good Gary

M said...

@ Lord

I know some people that live there. It is out of control. It is unlivable if you have a modicum of understanding of liberty. Canada is bad too.

In Norway, they passed a law that 50% of CEO's in the country have to be female. So a bunch of male CEO's got fired. The government provides heroin for addicts. If its so great, go live there and pay 40% income tax. Or come here to Canada. I pay almost 40%.

Anonymous said...

Dask, Anand, ein anderer, Nickelsaver, and anyone else that I missed, thank you for the feedback. I have been going through the old posts to follow the construction of this theory of Freegold. As the years have passed, I may have conflated the Freegold concept with Sinclair's Revitalized and Modernized Federal Reserve Gold Certificate Ratio.

http://www.jsmineset.com/2009/01/27/jims-mailbox-68/

http://www.jsmineset.com/2008/10/27/jims-mailbox-15/

We need to really hack this Freegold and run some thought experiments, taking a good look at the boundary conditions such as this static gold supply. My gut tells me we've missed something. I wonder where Blondie went. His posts were penetrating. He was hacking the theory,did he have find a flaw? Why did he title his blog towards the end "The Flow of Value"?

For now here's an experiment: Under Freegold what happens to a Japan after a Fukishima-like event with no trade surplus, no fiscal surplus, and a capital account deficit (money fleeing country)? It has to deficit spend if not QE outright. How does Freegold function in this situation?

milamber said...

1/3

Now that I have finished reading the book I had mentioned previously, I wanted to share some quotes that may be of interest here.

Quotes from the book are in italics
All emphasis mine.

The CDB is not one of the big four banks, but it is probably the most important. It is the main bank where the State policy & commercial interests intersect. It is also explicitly backed by the Chinese govt so its bonds and ability to fund loans are orders of magnitude better/cheaper than anyone else. It is also run by one of the princelings, Chen Yuan . Chen has extensive experience with western banking and is credited with making the CDB into a world class international infrastructure bank. Lots of high praise in the book from western bankers about how successful CDB is. Also lots of talk in the book about how they can’t lose money. :)

Anyhoo for those that are interested…

CDB had been helped by the collapse of the Western financial system, which created an opening for the bank to redefine itself as a policy bank that still had important uses to the country. For China, the crisis was a once-in-a-lifetime opportunity to increase its global financial power. And luckily for Chen, at that precise moment, it needed a convenient vehicle to provide the requisite funds…

The West had given China an opportunity for its state-owned financial system to flourish….

China was in a stage of production and construction and shouldn’t use a financial system suited to America’s consumption stage, he said. His words sounded much like his ideas from the early 1990s…

The country’s oil consumption had doubled in the previous decade to 8 million barrels a day by 2008, and China was importing about 45 percent of its needs. As Chen told Rui: “When we buy oil we don’t need to go to Chicago and New York futures exchanges, and to buy minerals and metals we don’t need to go to the London metals exchanges; we can negotiate directly, and directly cooperate. This kind of cooperation has better results.”…

Western banks weren’t going to be expanding into Africa and Latin America without capital and with little risk appetite especially when their governments wanted them to lend at home.

China’s foreign direct investment hit $ 54 billion in 2008, more than triple the 2007 figure. And CDB was behind many of the transactions and could still sell bonds to overseas investors, who saw China’s sovereign credit as becoming the safest in the world. What other bank could lend such large amounts for long maturities?...

In September 2009, CDB gave China National Petroleum Corp., parent of PetroChina Co., then the largest company by market value in the world, a $ 30 billion loan to fund overseas acquisitions. China had already spent $ 12 billion in 2009 on oil fields and refining assets. The five-year loan would be provided at a “discounted interest rate,” the announcement said. “The credit agreement is of great importance for CNPC to speed up its overseas expansion strategy and secure the nation’s energy supplies,” the corporation’s president, Jiang Jiemin, said in the statement.


Continued…

milamber said...

2/3

CDB also found a role for itself in helping the country’s currency, the yuan, start to displace the US dollar in trade. A drying up of US dollars during the financial crisis had an impact on world trade, as a majority of Chinese companies settled their bills in dollars.

China was fed up with the world’s entrapment to the dollar.

CDB was the first bank to sell so-called dim sum bonds in Hong Kong in 2007; it was the first time a bond had been sold in China’s currency outside its borders. CDB was the perfect vehicle for the experiment: It got the sovereign credit rating by foreigners, yet it could take all the risk, and foreigners’ liabilities could be isolated in one vehicle. By September 2011, the bank could claim that it had lent the most cross-border loans in China’s yuan, worth 61.5 billion yuan, including to Venezuela, which could then buy Chinese equipment and services in the currency.

In July 2012, CDB reached another milestone: It sold the longest-maturity yuan bonds in Hong Kong to international investors, with a maturity of 20 years.

At the same time it sold three-year notes to central banks in Africa who could shift their reserves away from the US dollar, the first time they had bought yuan bonds. European, African, and Middle Eastern investors made up 60 percent of the buyers, the bank said.

It was the beginning of the Chinese government’s ability to sell debt in its own currency internationally at low interest rates, a privilege the United States had enjoyed since the end of World War II…

China had kept its financial system closed to foreign competition to build it up, and now it was using it to expand its currency overseas. China had easily quashed the view that it could be just an extension of the developed world’s currency or subject to the whims of J.P. Morgan or Goldman Sachs as Chen had once feared…




Other items of interest that I found…

In the roughly 20 year history of its bond market, China has yet to experience a default of any bond ever issued. Ever.

The China Development Bank (CDB) is a policy bank (just like the World Bank). The only difference is that the CDB loans money to secure resources for China as well as crush foreign competition. And it works. (No telling if the CDB is more or less corrupt than the World Bank)
At $980 Billion, CDB’s loan book is larger than J.P. Morgan Chase’s.
To put this into perspective, CDB’s loan book is as large as the next 8 global Policy banks combined. And one of those is the Chinese ExIm Policy Bank.

China itself is a CLIENT of the world bank with various loans made to it totaling $40BillionUSD.

Roughly 50 million Chinese farmers have lost their land w/o meaningful compensation. That land is then used as the basis for the LGFV which in turn then do all the infrastructure development (including the Ghost cities). These farmers are the ones that they have to urbanize.

Internationally, CDB has extended loans to Venezuela for around $40Billion USD, collaterized/oaid for with oil. This accounts for about 1/3rd CDB international loan portfolio. Those loans are also tied to make sure that Chinese firms do the work. Total CDB loan book in Venezuela alone is $96Billion USD

continued...

milamber said...

3/3

My main takeaways after reading:

Book does a great job of laying out the mechanics of how China Inc works both domestically (LGFV) and internationally (Venezuela, Ghana, Ecuador).

I also have a better understanding for how Chinese firms are just able to absolutely crush others. When you have to pay 6% for a loan and your competition is paying 2-3%, it matters.

I see parallels to the western TBTF policy evidenced by not one single bond default in the history of the Chinese bond market. The only difference is that the Chinese philosophy on this is more transparent. A bond default would be negative for the state, therefore bonds will not be allowed to default. Time will tell how expensive this policy is going to be.

China is playing the western $IMF currency game to its advantage to acquire physical resources (in addition to gold). As STFU has shown no Chinese(LGDB) gold is found outside of Chinese borders. While this book made no mention of gold, it did draw out the point that China is doing a lot of these loans in dollars. If I understand it correctly, they can use excess dollars for these loans as yet another way to diversify their dollar holdings. Since these loans are collaterized by the oil flow from the various countries national oil companies, they are turning their lines in the sand into items in the physical world. And since Venezuela now has the largest proved oil reserves, not a bad strategy. The risk as I see it (and the book mentions this ) is debt repudiation (odorous debt) if a new govt comes in and doesn’t like the loan, or if debt is defaulted on for financial reasons.

I think that the big fear that keeps China leadership up at night is social instability brought on by some type of economic collapse or social class conflict. Housing bust, tensions between rural Chinese migrant workers coming to the city versus established city Chinese, quality of life (pollution).

This book makes me think that China is working within the parameters of the current IMS to get what they want without rocking the boat. As long as they are able to acquire assets that they want (Gold, oil, etc) using dollars as the MoE, I think they will continue to do so & will not purposefully blow up the current IMS in order to usher in RPG-Freegold.

All in all a very interesting read. I recommend others give it a look see.

Milamber

KnallGold said...

Smells like a bull market in Peace has begun

M said...

@ Grumps

"For now here's an experiment: Under Freegold what happens to a Japan after a Fukishima-like event with no trade surplus, no fiscal surplus, and a capital account deficit (money fleeing country)? It has to deficit spend if not QE outright. How does Freegold function in this situation? "

Under freegold, there would be nowhere near the imbalance in the first place so a Fukishima event wouldn't be that big of deal.

Why wouldn't the Japanese have a slush fund (savings) to use in the event of a natural disaster ?

And maybe they would sell F-U_shima bonds. But they would be legit bonds that would be scrutinized by the free market. That is different then the "deficit spending" that we know now.

And QE would just have the same old banana republic result and it would not even be tried.

The Dow Theorist said...

Jim Sinclair becoming more fofoaish...now he says paper gold markets to disappear... Step by step adopting free gold tenets:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/6_Jim_Sinclair_-_Paper_Markets_To_Disappear_As_Gold_War_Rages.html

Edwardo said...

FWIW, folks, I think today's action was promising with respect to establishing a low of some degree in paper gold. As always, we'll see.

Reality Show said...

Ein Anderer,

Thanks for the recommendation of Greece Is The Word, fantastic post. I know that feeling of wishing you'd seen a post earlier. I only just recently read Blondie's Intro and wished I'd have read it early on, how much easier it would all have been!

In reality it seems that Blondie's Intro was easy to understand because I'd read so much previously, I'd already put lots of the pieces together and understood (to a degree) the language.
So now I see why FOFOA hasn't made any effort to direct newcomers down a specific trail of posts, it would limit your understanding. Damn smart. You have to build your own understanding and it doesn't really matter where you begin, as long as you keep thinking.

Much fun eh?

costata said...

Milamber,

Thanks for the extracts from the book you read recently and your observations about China. It was a lot of effort on your part and I'm sure the discussants appreciate it.

Cheers

Anand Srivastava said...

TDT

I am not sure how is Jim trying to get the disappearance of Paper gold at prices of 3500$. I would think that paper gold will be very robust at those levels. Yes we could have a major sell off with paper traders trying to cash in the peak.

The end game has to be at very low price levels because at that level you have a glut of paper gold and an acute shortage of physical. This is the only position where the tug of war can break the fix. So that physical rises while the paper collapses. And we have the paper gold just becoming worthless.

The following link is very interesting as we are seeing the same thing happening. Its only a matter of degree and duration.

http://www.24hgold.com/english/news-gold-silver--tug-of-war-in-gold-as-asians-buy-physical-and-etf-investors-sell.aspx?article=4271169984G10020

Freegoldtube said...

Reality Show,

"So now I see why FOFOA hasn't made any effort to direct newcomers down a specific trail of posts, it would limit your understanding. Damn smart. You have to build your own understanding and it doesn't really matter where you begin, as long as you keep thinking."

A very wise and healthy approach!

Speaking of Blondie - This video got its inspiration from a Blondie post titled "Freegold: The Basic Mechanism". In fact the words are almost verbatim, and an excellent synthesis of Freegold and FOFOA's "Freegold Monetary Quadrangle" (which I believe first appeared in Gold is Money - Part 3 (someone will correct me if I am wrong).

Unfortunately, Blondie's blog [forafistfulofdollars.blogspot.com] was taken down.

Motley Fool said...

beer holiday

Nice summary as to why the yuan won't become a reserve. Less baggage to carry is also always a relief in retrospect. :)

TF

KnaveChild said...

I'd like to take a moment and harness the mental computing power of the FOFOA community to determine the answer to a question that has long perplexed me.

Are institutions such as GoldMoney, which hold allocated gold for members and tie the value of the holdings to the spot gold price, subject to the paper price during the transition to freegold?

Will Goldmoney holders be left weeping during the eclipse of the paper and physical market?

Peter said...

Yes.

Where do GoldMoney's computers get their price data feed from?

If I had to guess (since they're not telling), I'd say LBMA?

FOA: Looking down the trail we can see the end of our paper gold markets. This same market place that evolved from 1971 into a "contract gold currency" is now being politically forced into hyperinflation in much the same way fiat currencies are. Just as the dollar has been inflated to unimaginable extremes to protect the US banking system, so to will this gold currency be inflated until suddenly it's credibility is shaken. I think a large gold default is directly ahead and it will be forced by the BIS / ECB. Right up until that default, contract gold currency will be printed as never before. Indeed, they are printing now for all they are worth! Literally!

If contract gold prices stop around here, be assured that the US dollar supporting faction has truly hit the end of that printing "worth"! If the prices start to rise now, a canceling of the BOE gold sales will confirm a large default in the pipeline. There would be no reason to sell into their LBMA if the marketplace is lost.


FOA: England was not only part of the dollar faction, it was the dollar faction and is clearly becoming a "run a way" nation. They are moving towards the Euro and leaving our dollar world. But, unlike many other first tier Euroland nations that joined and quietly sold gold into private accounts, Britain is selling it's gold in an obvious "retreating action" from the dollar. Truly, their government has a long history with the "who's who" in LBMA and I suspect owes more than a few favors. Their little gold sales are specifically designed to allow some "backing out" room before the dollar based contract gold markets fail. Once in the Euro, England will enjoy the shelter of a free gold market that supports the Euro system. Still, after saying this, I would not be surprised to find that a good portion of those bullion bars ended up filling contracts owed to BIS accounts.

Peter said...

FOA: The game we should be watching (instead of the ball), has been changing from the spring of 1999. The early joint manipulations of contract gold has broken apart and left only the US standing alone in the wind. As I said further back on the trail, the US dollar faction is now hyper inflating contract gold in a last ditch effort to block a dollar destroying rise in "physical prices". Many people (Cavan Man, USAGOLD poster?) do not understand why the Euro/BIS group just stands there and allow this to happen. The fact is that they (Euroland) have the gold in the BIS system (never really sold it outside) and do not care what happens to the prices of contract gold expressed by the US or LBMA marketplace. Those contracts (as the gold currency they represent) (SDRs?) will eventually fail.

This is a simple concept that so confounds and hurts investors and traders in the "gold industry" today. They are mostly on the "failing" side of the war as their purpose remains to bet too large an amount of their hard portfolio on the price movement of contract gold, not own physical gold itself! I would say that the opinions expressed on most of the internet come from traders trying to time a paper trade in a failing marketplace. Even those buying gold mines can be compared to my "Paper deeds for Roman Gold" analogy. Betting on a rise in the price of real estate then selling it for Roman gold coins before the city (gold marketplace) falls.

"Truly, the ECB / BIS have made sure that there will not be enough Roman Gold to cover the property sales before the city falls"! Physical gold will not follow the same ratio to mine equity it did in the 70s. If a mine goes from $10 to $300, bullion will have gone from $300 to $15,000++.

The contract marketplace for gold has for years given the illusion to Western investors that enough gold exists to maintain the old ratios. So they continue to follow this mistaken precedent and follow their chart points. Points that can only represent the trading realities of paper. All the while planing their move that will make them some retirement money. Sadly however, once the paper gold system is broken, we will all experience an evolution in the true value of physical gold as it is expressed against mine equity, currencies, all real things and most certainly paper gold equity. Something this dollar world of investors have never seen before.

Lord Sidcup said...
This comment has been removed by the author.
Lord Sidcup said...

KnaveChild
Obviously there are no specific provisions for a Freegold transition in GM's customer agreement.

I have had a GM account for years, but am trading out. In the event of FG/a break in the gold market , it seems logical and legal for them to simply declare they are winding down the business and return fiat money to their customers at the last quoted spot price for gold. Not a risk I would want to take.

Plus their 400 oz bars might cause problems, unless you own a whole one.

byiamBYoung said...

"The volume of holding held to back shares in the SPDR Gold Trust (ticker GLD), the world's biggest gold exchange traded fund, fell for the tenth straight session yesterday, the first time this has happened since the GLD was launched in 2004.

This makes the current run of outflows twice as long as the previous highest, with the GLD seeing its bullion holdings fall for five straight sessions on two previous occasions – in October 2010 and May 2011."

http://www.24hgold.com/english/news-gold-silver-spdr-gold-trust-gld-sees-longest-ever-run-of-gold-outflows.aspx?contributor=Bullion+Vault&article=4270744206G10020&redirect=False

Unknown said...

Pat said "I swear if they could get rid of winter they would." After LMAO I thought .. "global warming??" Great insights on China from Milamber, really confirms some of the thouyghts I had there.
Anand I too wondered about Sinclair's $3500 price point. I think he realizes we are getting close enough to the end to channel Another, yet still seeks to "reach" the deluded masses with concepts they cling to. I don't think he truly believes all that he says, but that's just my "swag".
Still cold here in NW Florida, but there's something in the air, maybe a golden Spring ?

MatrixSentry said...

As far as GoldMoney goes, I think everything that is gold and "gold" will suffer as we transition to Freegold. I think "allocated like" products such as GM, Central Gold Trust, Sprott's Physical Gold Trust, etc, will be no exception. If someone is silly enough to sell their physical during the transition he will lose his shirt.

The key in my mind is whether the "gold" product can survive the transition intact. If so, then the gold that it is based on will have a new Freegold evaluation. The problem is that when the product is vulnerable during the transition, the physical gold will be the focus of intense demand and the temptation will definitely be there for an entity to cash out pool participants and grab the gold.

I have looked at the structure of all these products and the only one that I think has a decent chance of surviving the transition is the Central Gold Trust (GTU). First, unlike Sprotts Physical Gold Trust (PHYS) there are no provisions to remove gold from the Trust. GTU has a board comprised of Trustees, who are in turn elected by the shareholders. Sprott retains 100% control of PHYS and can fold the Fund at anytime for any reason. I would assume GM has similar provisions where the company can be liquidated by the owners.

The only way I would consider anything "gold", including GTU, would be if I had no other way of gaining exposure to physical gold. This would include people who have money trapped in a 401K. I stopped voluntary contributions to my 401K many years ago, however my employer contributes 14% of my pay into it. So if I want to utilize this 401k to gain exposure to gold, I am limited to mining stocks, ETFs, and close ended trusts like GTU and PHYS.

If a designated gold proxy does not survive transition and is closed out at dead paper gold prices, it would appear that a good stock allocation might actually perform better. I have seriously considered this. I am sticking with GTU for now and I see it as a gamble that may pay off, but not without a healthy dose of risk. I view my physical gold in possession as risk free, that will pay off in a very big way. I have acquired enough physical in possession to hedge my GTU more than a few times over. For now it is the best I can come up with.

Michael dV said...

Matrix
I agree. I even worry about allocated specific coins my plan holds at a Fidelity designee. It is like I own them in a safe deposit box....right? After MFGlobal I think everyone should be more than cautious. They should be outright paranoid. As soon as I scrape the extra dollars together to ransom them (I will owe taxes when I retrieve them) I will do so. Until then I consider even this gold to be at risk.
I am aware of your uses of an LLC to get them out tax free but I don't think that will be worth it at this point.

Hobgoblin said...

The wife and I are leaving a little gold in GM to have some spending cash after reval. We have no intention of taking possession of this but wish to have a kind of savings account outside our home country. There are risks to this, of course and we may change our minds. Amazing how sweaty palms can focus one.

One Bad Adder said...

MatrixSentry: You may well be "singing-to-the-choir" Sir ...but you are (IMHO) on-song!

Tommy2Tone said...
This comment has been removed by the author.
Edgar said...

@byiamBYoung

"...the first time this has happened since the GLD was launched in 2004."

I guess we are witnessing the beginning of the end of GLD.

KnallGold said...

Yeah green is not turquoise ;-)...from their best album "Love"

http://www.youtube.com/watch?v=KH4I0vdIuNE

Best Regards,
KG

Pat said...

Hoping to hear more from FOFOA, on how he forsees the reconciliation of gold value actually occuring( mentioned in second to last paragraph of post , as well as his answer to puzzle. I thought more on my answer, and while I'm sure gold will be used to pay off any future trade imbalances, it has since occured to me that after revaluation it will be held most dear. Rather unlike paper promises thrown around the world willy-nilly, to support ridiculous sized armies, malinvestment, and year after year after year trade deficits. My US-centric view is that after the loss of the exhoribant privilege, that allows all those things without losing gold ( or as much otherwise ), the USG and US citizens will quickly find religion and want to save the precious. Having no alternative, lose their gold savings or balance trade, I suspect things will change ( to the betterment of all parties concerned in the end ). As to mining, I still suspect actors will want to keep their above ground stash intact, so may opt to mine just enough to pay trade deficits until they get their act together. But just enough and no more.

The Dow Theorist said...

Anand, Wil,

I agree with you two that under FG tenets it is quite unlikely that we will see paper gold at 3500 (oil priced at ???). Sinclair is little by little becoming FGoldish and it wouldn’t surprise me to see him proclaim in the future that it was clear from the start that paper gold was doomed.

Personally, I stick to FG.

Matrix: great explanation

ein anderer said...

@KnaveChild:
Look, what do you really HAVE? You have nothing than paper. A contract. Their debt. Because you have loaned them your money. And they gave you some paper.
In normal times contracts MAY get fulfilled. In THESE times and espacially in collapse and Freegold times NOone knows.
Time will tell also this.
So better get out of risk.

milamber said...

@byiamBYoung

Hmm. I think that article is wrong*.

March 6, 2013 the tonnage was 1244.86. That is also the tonnage reported the day before.

The 11 previous days Feb 19-March 5th, each day the tonnage decreased.

So it has actually been 11 days of consecutive decreases (Not 10 as claimed in the article).

However, one has to also decide how one counts days where the tonnage stays the same. That is, no gain and no loss. For my record keeping, I chose to go with the previous days direction.

For example, GLD has not reported an increase in tonnage since since Feb 7th 2013. That includes 4 days where the tonnage stayed the same. Clearly the trends is that GLD tonnage is shrinking, even though technically speaking it didn’t shrink on 4 of those days. That is how I arrive at my current 18 day string.

With that being said, here is why I am intrigued:

GLD has lost 85.04 Tonnes since Feb 8 2013.

This is a record tonnage lost between increases Both in percentage terms and total quantity.

Note: this doesn't mean that any one day is a leader loss wise, but that cumulatively between increases, it is a constant downward slope.

Also, since its highpoint back on Dec 10 2012 at 1353.25 tonnes, GLD has had 4 days where it has recorded an increase in tonnage compared with 54 days where it has lost tonnage.

It is also down 108.49 tonnes in that span (8% from its all time high)

Just for giggles, I created some charts last night that plot the delta’s both in percentage change and actual change going back to 2005. I threw out the 2004 data when GLD got started as it was very noisy because it was starting from zero.

I think that the Jan-Feb 2009 timeframe is particularly instructive because it shows that GLD was able to add 161.79 tonnes of gold in only 8 days. That is roughly 6% of TOTAL annual mine production(2500 Tonnes).

While I think this raises all sorts of interesting questions, I will simply ask the most pertinent in my mind:

If GLD is being used as the Bullion Banks CB (which I think is true as FOFOA posits), where does it go to source 6% of Total Annual mine production in 8 days?

Milamber

* Just like the article, I am not counting data from today –March 7 2013, which saw GLD lose 1.81 Tons or .15%.

byiamBYoung said...

More completely oblivious commentery. I wonder how they don't see the big picture, or maybe they do, and choose not to point it out?

"South Korea’s central bank bought 20 tons of gold in February, which sounds like a lot. But it’s less than one-fifth what exchange-traded fund investors sold over the same time frame, according to Commerzbank’sstrategists.

...

Meanwhile, the U.S. Mint’s sales of gold bullion coins — another proxy for smalltime investor sentiment — have been brisk in 2013."

http://blogs.barrons.com/focusonfunds/2013/03/06/etf-investors-are-dumping-gold-as-if-the-12-year-bull-is-dead/?mod=BOLBlog

Cheers

Polly Metallic said...

Total US mint sales of Gold Eagle coins year to date is already 247,500 ounces!

Anonymous said...

Hello,

Love the blog, great posters too.

Here a the Georgist View of what society could do.

https://libertyrevival.wordpress.com/2011/01/09/ending-poverty-and-political-turmoil/

Beyond Left and Right

http://www.henrygeorge.org/isms.htm

Bullion Baron said...

I think the view presented by Jeff Clark in this article is worth consideration:

http://www.caseyresearch.com/articles/hi-ho-silver-making-case-precious-metal

It very much reflects my opinion that when the rush to precious metals occurs the shrimps will pick Silver over Gold as it has the appearance of being affordable/cheaper. Shrimps may not have much influence on their own, but in numbers they can move markets.

Max De Niro said...

Bullion Baron,

Thanks so much for bringing that truly vapid and ersatz article to our attention.

Polly Metallic said...

Bullion Baron,
Short term silver can perform. Especially in view of the fact that it doesn't occur to newbies that they don't need to buy gold in full ounce increments. They can buy fractionals. When the silver buyers discover that their horde of silver does not participate in the new financial architecture, don't be standing in the path of the dishorded affordable silver avalanche!

ein anderer said...

"A new trade settlement system is coming, which works around the toxic USDollar. While the United States slips inexorably into the Third World, with several key traits already showing in glaring style, the rest of the world will follow the Eastern lead. The Chinese and Russians will show the way, with a hidden German hand, as the trade settlement is to be conducted with Gold Trade Notes based upon a core of gold, silver, and platinum. If nations wish to be benefit from supply routes, they must acquire the Gold Trade Notes. The entire system is ready for implementation, sure to shock the New York and London paper traders in the empty temples. The paper IOU rubbish will no longer be accepted. Great changes cometh, in a grand Paradigm Shift." (Jim Willie CB, "Raging Gold Bull & Disputed Propaganda", March 7th, 2013)

New nice summary of what’s going on in these days …
First emphasis by J.W.. second by me.

DP said...

Hi milamber,

If GLD is being used as the Bullion Banks CB (which I think is true as FOFOA posits), where does it go to source 6% of Total Annual mine production in 8 days?

The BB reserves? (i.e.: from stock, not mine flow)

If BB clients reduce their unallocated (credit) gold balances at the BB, this deleverages the BBs book. The BBs then can create more cash liquidity from more of their (now "under leveraged") physical reserves, by checking baskets of it into GLD and selling shares to GLD "investors" for cash. (AKA Checking their "unnecessary physical gold" into the GLD coat room, in FOFOA's analogy.) The BBs now have created cash liquidity from their "dead asset" physical gold.

They can do this knowing that almost none of the GLD "investors" could, and even fewer would, ever take the gold itself from the trust. If they ever need the physical reserves back to bolster their own balance sheet, they can easily recover control of as many baskets of shares as they need, to redeem the required gold.

Until they can't.

Oh, Kyle… That never happens!

DP said...

Guess that last comment confirms me as an unquestioning, unthinking acolyte of Pope Fofoa (he who is never wrong and must be obeyed)

Oooooorrrr… when I think about it, it all just makes perfect sense to me, bitch.

ciaoant1 said...

Don Coxe: "Central Banks Are Busy At Work Creating The Next Big Bull Market In Gold" (http://bullmarketthinking.com/don-coxe-central-banks-are-busy-at-work-creating-the-next-big-bull-market-in-gold/)

"Reflecting on the recent BMO Metals & Mining conference, Don explained that, “The new CEO of Barrick…promised that after they complete their last big project, which will be done in two years—they’re not going to be developing any new mines for a long time. You never once heard that kind of statement being made at a conference from 2003 to 2012…looking further out (because the commodity boom is still intact), we won’t be getting a new generation of mines being brought in 3-4 years from now. So the next shortages will probably develop later in this decade.”

Don further added that, “I have not seen such despair and cynicism like this before…I’ve been going to conferences for so long, and [in the past] there would be doubt expressed. But not the kind of throwing in of the towel which permeated this conference…

Unknown said...

I could definitely get used to slower and higher quality discourse!

Unknown said...

"Bitch"? :-O

Now now, DP.

Edwardo said...

It appears that Don didn't get the memo that supply (or, it you prefer, stock) isn't the issue. There's plenty of physical. The flow is another matter. Having said that, it is by no means inconsequential should prospective mining supply dwindle to a mere trickle.

Unknown said...

ein anderer,
Thanks for that Jim Willie link. I was LMFAO the whole way with his acerbic witticisms if only to assuage the horror of truth within.
I really cannot argue with any of the points made, apocalyptic as they may be.
The only remaining question to my mind is the BIS big poker hand - which "player" do they stake, and even so, might it really matter??

The world that Another envisioned has come to pass in certain ways, but in certain other ways may not unfold. I do feel that he represented old money, of European pedigree. And he did see the way ahead of the East and Middle East but there is still some murkiness behind the great and powerful Oz.

Pay no attention to that man behind the curtain.

KnallGold said...

Quite a "Chlapf" in Aarau last night:

http://www.blick.ch/news/schweiz/aargau/fliegen-sie-ueber-die-sprengung-id2229790.html

Btw "Chlapf" is Swissgerman for Knall. Yeah looks like there's a trend to use one's mother language. For the very first time, Nick Hayek from the Swatch Group published the 2012 report in Swissgeman, with "somewhat altered" symbols of the Cantons ;-). He definitively earned that well sized Cigar!

http://www.blick.ch/news/wirtschaft/gschaeftsbricht-uf-schwizerduetsch-id2227652.html

Happy Weekend,
KG

Tommy2Tone said...

Bullion Barron,

Have you met the Choir?

Now tell 'em what happens AFTER that rush.

milamber said...

@DP,

Thanks for helping me puzzle this out.

The BB reserves? (i.e.: from stock, not mine flow)

”If BB clients reduce their unallocated (credit) gold balances at the BB, this deleverages the BBs book.”

Don’t BB clients reduce unallocated in one of two ways? Closing their account or converting it to allocated?
If they simply close their account, then I can see that deleveraging the BB book. But if they are converting to allocated, then it would make the supply even tighter, correct? Because the gold in those allocated accounts can’t be traded in for GLD shares?

Here is where I am getting lost on the trail. Going back and rereading
fofoa.blogspot.com/2011/01/who-is-draining-gld.html

&
victorthecleaner.wordpress.com/2012/06/01/gld-the-central-bank-of-the-bullion-banks

& the comments, my takeaway is that GLD pukes indicate tight supply. I mean we know that gold in size has been cornered, so there aren’t too many places left to get some if you are a Giant.

So in a GLD puke, someone needs physical NOW and is willing to get it in the open from a regulated ETF, as opposed to buying it OTC via Bron’s Dark gold description. Would you agree that is a correct interpretation?

So, If the supply is getting tighter as evidenced by GLD pukes, why is the allocated inventory in GLD going up?
And why is the gold that is puked up always replenished?

FOFOA had mentioned a figure of 15000 TONS of unallocated gold floating around the BB’s back in 2008. Is that what is being used to replenish GLD?

Or am I missing the forest because I am fixated on a tree?

Many thanks,

Milamber

One Bad Adder said...

DP: Good points Sir. It's ALWAYS about the Phiz!

In this 6mthly $PoG-currency basket Chart we can see how $PoG, even though it's been "soft" (underperformed) relative to currencies over the time period - has now realigned and all is well in the Zombie-world.
Today they looked like losing it as DX put on a whole point (give or take) - $PoG taking a nose-dive in concert ...only to be "supported back up"
Toggling the timeframes on the above Chart make for some interesting comparisons BTW.

ein anderer said...

"On the one side soon there could be to much money in circulation. On the other side it seems as if the money does not get to those who are in need of. (…) During the financial crisis the ECB offered hundreds of billions Euro liquidity—in favor of the banks to survive and the Euro to bear up. This did the job until now. But the ECB offerend liquidity also in favour of banks borrowing money to companies—so that the corporations create jobs and pay tax. But this did not happen."

Frankfurter Allgemeine Zeitung, March 7th, 2013

The article’s headline "Dispokratie" could be translated into "Creditocrazy".

costata said...

Max De Niro,

Bullion Baron,

Thanks so much for bringing that truly vapid and ersatz article to our attention.


LOL

Edgar said...

Tonnes in the trust at GLD down AGAIN. By about 4 tonnes to 1239.74 tonnes.

Unknown said...

I may be hollering down a long dark hallway...

I just heard of your site through Fintan Dunne. Noticing blog archives back to '98 are there core concepts or blog entries you would highly suggest i read to catch up? or a book?

Could you finish this sentence..., core concepts in this blog you need to be familiar with are.......
Thankyou!

Michael dV said...

robert d
most here are trying to view the crazy monetary world in a way that preserves our wealth. If you look to the right side at the top of the page you will see a few summaries and suggested reading. Fofoa has been writing for 4+ years . I have been reading them for almost 3 years. What you will find here is a unique perspective...no one else anywhere gives the perspective he does. I am starting to believe that it is the correct way to view what is actually happening. There are a ton of contrarian writers, most have an 'evil banker' meme. What you get her is different. good luck...it takes a while to get the knack.

Anonymous said...

“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.” — Thomas Edison, New York Times, December 6, 1921

“Gold and money are separate things, you see. Gold is the trick mechanism by which you can control money.” — Thomas Edison, New York Times, December 6, 1921

“The gold standard has, in my opinion, the serious disadvantage that a shortage in the supply of gold automatically leads to a contraction of credit and also of the amount of currency in circulation, to which contraction prices and wages cannot adjust themselves sufficiently quickly.” — Einstein, The World As I See It, 1934

ein anderer said...

Newbie’s question:
I am living with the plain and simple understanding that the volume of paper gold is much bigger than the volume of available physical gold—and that this is THE or at least one of the most important driving forces in the direction to FG.
Frankfurter Allgemeine Zeitung wants to tell us today that partially the demand for gold ETFs was 20% of global gold demand: a high figure for them, an apparent low figure for an—certainly incomplete—understanding like mine. (According to this article the ETF stocks hold today about 2360 t.)
Who is Draining GLD? is now on my reading list. Is there any other link which could help me to understand / to distinguish the apparent contrasts of these pictures?

Indenture said...

robert demote: 'The Dollar is Paper Gold' => 'WWII' => World Reserve Currency => 'Mathematically must Hyperinflate' => 'Off Gold Standard' => 'Two Tier Gold System' => 'Oil' => 'Create Euro' => 'Central Banks have Gold Reserves' => Dollar Collapse' => Freegold => Euro is Unit of Account => 'Gold is Store of Value'

Indenture's Reading List .pdf

ein anderer: Don't forget, every Dollar is a promise/redemption for gold. Ask yourself not where the ETF's go for physical but where the holders of Dollars go for physical.

Jeff said...

ein,

Read Fallacies- paper gold is just like Paper Anything. Here's a taste:

FOFOA: Nobody is claiming there are more than 5 billion ounces of paper gold. In fact, there is probably far more physical in the world than paper gold. Enough physical gold to cover all of the paper a few times over perhaps. But that doesn't matter, it is only the flow that matters. It's the same with commodities that get produced and then consumed. It's the flow between production and consumption where the price is discovered in the paper markets. But gold doesn't get consumed at a rate anywhere close to its next closest competitor. It just accumulates.

byiamBYoung said...

Maybe someone could help me understand what is going on in this article from ZH:


fed-injects-record-100-billion-reserves-foreign-banks-operating-us-past-week


It's often hard to separate typical ZH snarkiness from actual information. Why is the fed stuffing Euro banks with cash?

Cheers

Knotty Pine said...

@robert demito,

A good starting point that cements the concept of "why gold?" is found here:
http://fofoa.blogspot.com/2010/12/focal-point-gold.html

http://fofoa.blogspot.com/2010/12/freegold-in-proper-perspective.html

For me the concept of the struggle between debtors and savers and the need for a Store of Value outside of the monetary system has been key:

http://fofoa.blogspot.com/2010/07/debtors-and-savers.html

also:

http://fofoa.blogspot.com/2012/11/moneyness-2-money-is-credit.html

Happy Trails! KP



Michael dV said...

liberty revival
That Einstein quote is great. I had not seen it before. Thanks.

DP said...

Hi milamber,

So in a GLD puke, someone needs physical NOW and is willing to get it in the open from a regulated ETF, as opposed to buying it OTC via Bron’s Dark gold description. Would you agree that is a correct interpretation?

Yes.

"Someone" = BB. They checked some of their allocated physical into the GLD "coat check room", so they could sell the shares they got in exchange, and then they could buy shares back from the market to redeem for the gold when they need it back.

Non-BB GLD "investors" are extremely unlikely to ever be able to touch that gold, and a motivated BB is unlikely to ever be outbid for GLD shares by a non-BB.

So, If the supply is getting tighter as evidenced by GLD pukes, why is the allocated inventory in GLD going up?

Up?

Do you mean over time (not recently, during these pukes) the trend is (was?) up?

And why is the gold that is puked up always replenished?

The Eastern barbarians only buy low, low and lower. In a "bull run", it's Western traders who are chasing the price up. Some of them even want to sell spot/physical and buy a future/option/whatever - whether that may be just to save on storage fees, pickup an arbitrage opportunity, or who knows even a leveraged speculation. They'll give up gold now, for the promise of "moar gold later!" (Or the same amount of gold but for no storage and insurance cost in the meantime.)

For every ounce of physical the BBs take in from those traders looking to pick up a little more later (or a little more cash in the meantime), they can sell... what? Perhaps a hundred ounces on paper? Much less than this, and their gold reserves are "underleveraged". So why not check that "dead asset" physical out to GLD and let some goldbug speculator, who wants ETF shares not gold, provide the BB with a little cash liquidity they can play with? The BB can always buy back as many shares as they need, if (when) they later find they have to recover some of the physical from the trust, in order to keep their capital adequacy in range.

FOFOA had mentioned a figure of 15000 TONS of unallocated gold floating around the BB’s back in 2008. Is that what is being used to replenish GLD?

You can't replenish GLD (which is 100% backed) with an unallocated credit gold balance - it needs to be allocated to the trust.




So, to sum up, the Eastern barbarians call the BBs to allocate when the price is weak and Western traders think gold is a sell. If Westerners persist in believing gold is a sell, the Easterners will drain out all there is to buy. Every "ounce" offered by the West will be eagerly bid by the East and become allocated. With the BB books leveraged to any significant degree, it wouldn't take too long for the Eastern run on the physical base to blow the credit up pretty good.

So let's hope the swarm of technical analysts telling the West that gold is a big, fat sell... doesn't persist too much longer?

I hope I did a better job of conveying it this time around... :-)

PS: A big 'Happy Weekend!' to all you #SpecialGeeks!

milamber said...

Costata,

I am just now seeing your comment from Mar 6th.

Thank you :)

Milamber

p.s. FOFOA, any way you can go take the internet away from the crazies so we can go back to real time posting? :) Maybe it is just me but when it goes to moderated, I lose email notifications for some posters. I understand why you have to do it, it just sucks. :(

Milamber

said...

Einstein was more of a socialist when it came to economics. Don't think I would be looking to him for advice on how to run a monetary system.

costata said...

Luke,

As it happens both Marx and Lenin were committed to sound money. In their day that meant a gold standard. Today, who knows?

It's also worth noting that the USSR was able to maintain a stable exchange rate against the US dollar up until the 1970s. As their economy became unstable in the period leading up to the collapse of the Soviet Union it became less stable but it wasn't, from what I have read, a result of monetary policy mismanagement.

Long story short, socialism and a sound currency aren't mutually exclusive. Socialism and a healthy economy? Now that's another matter altogether.

Michael dV said...

bBY
my take is that the entire system is the dollar system. The US Banks hold huge derivative positions. The entire system is a series of interrelated bets. If bonds fail or banks fail then derivatives begin to unravel is unpredictable ways. JPM is said to hold 70 trillion in derivatives. They are supposed to zero out but according to Rickards we should view them as cumulative and not as netting out to zero. I believe that is mostly true. If interest rates rise or if bonds fail the stress on American banks would likely be huge.
Thus Ben must protect the entire system. This kind os behavior suggests to me that fofoa is correct and the system is really fragile and in need of support. It is not really the NWO trying to take over the world.

Bullion Baron said...

jojo said... Now tell 'em what happens AFTER that rush.

Boom and bust, natural market reaction to human psychology.

I think another boom and bust in the metals is a lot more likely short term than a move to a Gold monetary system where countries are accountable for their actions. That time might come, but IMO a fair way down the track.

No point sticking to a single asset (Gold) to wait for a paradigm change which may or may not come.

said...

Costa, I agree they are not exclusive of one another. I would simply prefer to stay away from anyone who's economic logic as faulty as accepting socialism in any form.

Gary the Good said...

I think another boom and bust in the metals is a lot more likely short term than a move to a Gold monetary system where countries are accountable for their actions. That time might come, but IMO a fair way down the track.

No point sticking to a single asset (Gold) to wait for a paradigm change which may or may not come.


I can certainly appreciate that opinion, but even if you feel FG is inevitable and not imminent, then you have already passed through a stage of indifference to fiat. Used to pay bills and taxes... .The biggest reason I feel not to hedge out of gold is... into what? This current market is absurd. I have so many friends and family members (all male, btw) who attempt trading and timing and are left with handful of their own hair. The shiny metal for many of them will be as they exhaust all other possibilities. 'Behavioral economics' has sure worked as Gold rises 500% in the last 12 years and the AU community is only moderately larger. Those who 'stuck with the single asset of Gold' sure have done well in the past ten years. The risk/reward ratio if you see the light of a revaluation shining even only a bit brighter, doesn't accept any form of trading/speculation.

F.O.A.: "So there you have it. When you strive to master the all-important art of timing your investments, the most crucial time is every payday in which you are, in truth, selling yourself--selling your own time, labor, and productivity. Are you being paid-in-full on each payday, or are you accepting an empty paper promise of payment built upon the strength of and the continuation of the confidence of everyone in society. Are you worth payment-in-full? Have you ever received an ounce of honest money for a day in your life? You can perfect your investment timing by being paid in Gold--you would be paid-in-full at the very moment that you sold your productivity. But in an acknowledgement of the currency structure of the present realm, for your own convenience, take your dollar paycheck and first use it to pay your various bills to all of the others who have been duped into accepting dollars for the sale of their own products and services. Anything left over represents your excess production, and is almost suitable for saving. Since your employer probably paid you originally in dollars, it is up to your own discipline to convert this excess into Gold to effect your own immediate payment-in-full.

Gary the Good

said...

I should add, I would stay away from his economic advice. He was alright in the hard science world.

Edwardo said...

Michael dV, said, "if interest rates rise..." We had a technical breakout in rates across the curve last week. It's early days yet, but the market may have experienced a secular low in rates as of midsummer last year.

Michael dV said...

Edwardo
I have to wonder....clearly, for many reasons the interest rates cannot rise without dire consequences. I agree there has been a change in direction but so far the amount of movement has been small. If it becomes significant I see great trouble, especially for debtors who hold short term loans (like the USG). My understanding is the derivatives are used to control interest rates (not sure exactly how that works). If they rise a lot it will mean that the mechanism of control has been lost. It would be a sign of great change in the near future.
I have had 'the feeling' of imminent change several times in the past 3 years so I don't trust my feelings. I keep going back to the 'earthquake' analogy...one is over due...but impossible to predict. I have become patient in my doomerism. I'm as prepared as I can get and still have a normal life. If I wake Monday and find a catastrophe in the markets I guess I'll still just go to work.

milamber said...

@ DP,

I am working through your answer, but can you clarify this statement for me,

"Someone" = BB. They checked some of their allocated physical into the GLD "coat check room",

I thought that any gold a BB is holding in an allocated account is the rightful property of the client that they are holding it for. Are you saying that BB’s are taking allocated gold from their clients and swapping it into GLD and buying shares of GLD? Or am I misreading this sentence?

Thanks for working with me on this.

Milamber

Motley Fool said...

The paper gold 'leverage' can be understood to mean that there is more paper gold in circulation, than marginal actual flow of gold.

Paper gold does not need to exceed the stock of gold to suppress price, it simply has to exceed flow.

My 2c.

Anonymous said...

milamber,

Are you saying that BB’s are taking allocated gold from their clients and swapping it into GLD and buying shares of GLD?

Answering for DP: No. Just as every ordinary bank has some cash in the vault (just in case some customer wants to withdraw a larger sum), every BB has some physical gold on their own account (just in case some holder of unallocated requests allocation). DP is talking about this physical gold, i.e. about the reserve that the BB is holding.

Victor

DP said...

What Victor said (#surrrrrpriiiiiiise!)

Edwardo said...

The move has, indeed, been small Michael dV, but, (sometimes) from small acorns do great oaks grow.

Unknown said...

MdV,
How derivatives control interest rates according to Rob Kirby.
I think I've been mildy chastised here in the past for seeming "Kirbyesque" ... but years ago when this was first coming to light the second time around (after Eric DeC revealed 1st time around) I had asked for thoughts about this, ideas, refutations, etc...
Having gotten no feedback I assumed the consensus was "irrelevant" - but I think not.

If the Freegold thesis is dependent upon the eventual collapse of the dollar, this U.S. dollar centric interest rate control grid (so intrinsic to the bond market) seems relevant to the dollar's continued sustenance (or immiment demise).

In the revolutionary article "just another hyperinflation (sic)" (one of the first I'd read here) it does seem to be a bond collapse (if memory serves) that is critical to the change that will usher in FG, i.e. complete and total lack of international US paper support.

Perhaps the irrelevance factor comes into play as we continue to see the FED monetizing all debt, buying all treasuries, ect... i.e. "that game is already over" and we have now moved into an era where the FRA's are basically meaningless, since the FED will be the wide open buyer of last resort until collapse.

But as far as "netting" is concerned, there is still @ 213 trillion in USD OTC interest rate derivative notional as of Q4 2012 among the top 5 US TBTFs. Foreign and re-insurer black holes not included.

Ultimately, it reminds me of the statement, "those who deal in derivatives will be paid in derivatives" to which I have added my own, "all financial paper is derivative" (ultimately, we hope, a derivative of gold)

DP said...

Guess we must BOTH be unthinking acolytes of Pope Fofoa, kneeling before his ring to kiss it in worship... but not really understanding what he is saying. Eh, Victor?

I mean, what other explanation could there possibly be for us both coming to the same understanding. Maybe it's all the haterz that really understand. We should get out more - so many other rings to enjoy... they might taste better.

One Bad Adder said...

...shaping up as an interesting week!
Firstly This Chart is implying $PoG might get softer as the US$ looks to continue on its merry way upward ...however This one would suggest a US$ retrace!
FWIW I think down she ($PoG) goes ...again!

There's a lot of confusion with IR's at present, not the least being the so-called "market abandonment" of US T-Bonds.
The MAIN reason investors are loath to invest in 10+ Yr T's is simply because they can't hedge their exposure.
Anywhere above $1.24 (L-Bond index) is a no-go zone from the PoV of Put-writers ergo no opportunity for an "investor" to cover their primary position.
...which currently leaves the Long end of the Bond market the exclusive domain of Market-makers and Sovereigns ...IMHO.

KnallGold said...

Good week ahead :-)

Their best song from Tyranny of Inaction, don't be distracted by the title, it has an irresistible drive!

http://www.youtube.com/watch?v=ke6i6bHcBeM

BR,
KG

KnallGold said...

Just throwing a couple of things in the air, I have no idea what will crystallize from it: Palladium, Krupp, Burma. I'm a bit puzzled by the recent rise in Palladiumprices ...

Anonymous said...


DP,

Someone is wrong on the internet

Victor

byiamBYoung said...

Victor,

Fixed it for you...

Someone is wrong

Cheers

milamber said...

@ DP & VtC,

Thanks for the clarification. I was hoping allocation meant something different in that context, than BB's taking clients allocated gold.

I will post again once I process through all of the answer.

Milamber

michael3c2000 said...

Shanghai Futures Exchange to Add After-Hours Trading
http://www.chinadaily.com.cn/china/2013-03/06/content_16280875.htm

Shanghai Futures Exchange moves closer to oil futures contract- report
http://www.reuters.com/article/2013/03/08/china-oil-futures-idUSL4N0C013S20130308

Mikehy said...

Hi All,

just wondering what the seeming unpopularity of the Euro within the Eurozone (25% of Germans apparently would vote for an anti Euro party, the comedian from Italy surely doesnt like it) would have on the 'trigger' for the freegold window. Would we think that would put pressure on the timeline? Do the people who set this in motion so long ago have to press it harder with the risk of Euro unpopularity?
(as i understand the philosophy freegold is not so much as an action, but a future state of being, so i am not sure my vocabulary is right here. But even if it is inevitable there will need to be some sort of trigger i would imagine).

Thanks for your thoughts in advance

Biju said...

Some comments from Bron of perth mint

http://bullmarketthinking.com/perth-mint-were-not-seeing-any-fear-or-selling-action-from-our-clients/

One of the more fascinating items Bron commented on, was the amazing perspective the Perth has, in terms of being in the “Asian corridor”, and being able to literally watch order flow coming into the mint from India and China.

In terms of what those Asian buyers are doing right now, Bron said, “The interesting thing about the Indian market particularly, is that they are very canny buyers. They will desert the market if prices move up, [but] will come back in when the prices correct…When they feel the gold price has formed a new base…they’ll see that as the new bottom, they’ll buy that bottom, and they’ll demand returns. [That's when] we have bullion banks calling us up desperate to get kilo bars.”

He further explained that with Asian buyers, “When the price spikes, the demand dries up quite quickly…that contrasts a lot with what we see as a retail client mentality—which is when the price is going up they buy, because they like to go with the trend and need to feel confident that the trend is in their favor, and when the price starts to fall—they sell…[So] the Indian and Asian buyers are more canny, and really operate in reverse.”

When asked about the current concerns of clients representing over $3.5B worth of vaulted metals, Bron said, “On the depository side of the business…across the board we’re not seeing any rush to buy with the price dropping down into the $1500 range—but nor are we seeing any selling. I think that’s quite positive. It tells me that [they're] very much strong hands, and are not selling on this price weakness. They’re not fazed by it…[so] from our clients we’re not seeing any fear or selling action.”

Bron also explained that while central banks fully comprehend the strategic importance of gold—they will never speak about it overtly: “I think that people underestimate that central bankers actually understand why they hold gold…no matter what they may say publicly—when Ron Paul asked Ben Bernanke, ‘Why do you hold gold?” and he said, ‘It’s tradition’…that was laughable. He couldn’t say why he really held it. He didn’t want to say, ‘This is the last asset, that in the case of war when nobody will accept our fiat currency, I can use this gold to buy xyz.’ He wasn’t going to say that, because he didn’t want to give gold that credibility…So I really don’t believe that a central bank or a government would be silly enough…to [sell or] encumber their metal.”

michael3c2000 said...

http://www.youtube.com/watch?feature=player_embedded&v=RhyfwjdYqzo#!
Jim Willie PHD interviewed by Greg Hunter

KnallGold said...

Yeah that Green Peace Rainbow Warrior

(searching for the best rainbow)

http://www.wallsave.com/wallpaper/1920x1200/rainbow-hearts-of-love-387677.html

Edwardo said...

With pardons to Bron, Bernanke's putative ability to effect gold's credibility is illusory. He and some of his ilk, when they choose to offer up rubbish about gold being held for tradition's sake, might influence the thinking of some cohort of saps, er, shrimps, but that doesn't matter since shrimps are of little to no consequence in this regard.

AT said...

Part 1 of 2

Here's an amusing description of a gold-sale by one of America's most popular authors. The excerpt is from John Grisham's The Racketeer, published Oct 23, 2012. (minor spoiler alert)

After two trips into the vault of the Palmetto Trust in south-central Miami, I still have in my possession, in the trunk of my rented Impala, exactly
forty-one of the precious little mini-bars, value of about $600,000. I need to convert some of them to cash, and to do so I am forced to enter the
shady world of gold trading, where rules are pliant and adjusted on the fly and all characters have shifty eyes and speak in double-talk.
The first two dealers, lifted from the Yellow Pages, suspect I’m an agent of some variety and promptly hang up. The third one, a gentleman with an
accent, which I’m quickly learning is not unusual in the trade, wants to know how I came to possess a ten-ounce bar of seemingly pure gold. “It’s a
long story,” I say, then hang up. Number four is a small fry who pawns appliances out front and buys jewelry in the back. Number five shows some
potential but, of course, will have to see what I’ve got. I explain that I do not want to walk into his store because I do not wish to be caught on video.
He pauses and I suspect he’s thinking about getting robbed of his cash at gunpoint. We eventually agree to meet at an ice cream shop two doors
down from his store, in a shopping center, in a good part of town. He’ll be wearing a black Marlins cap.
Thirty minutes later I’m sitting in front of a double pistachio gelato. Hassan, a large gray-bearded Syrian, is across from me and working on a
triple chocolate fudge. Twenty feet away is another swarthy gentleman who’s reading a newspaper, eating frozen yogurt, and probably ready to
shoot me if I show the slightest sign of causing trouble.
After we try and fail at small talk, I slide over a crumpled envelope. Inside is a single gold bar. Hassan glances around, but the only customers are
young moms and their five-year-olds, along with the other Syrian. He takes the mini-bar into his thick paw, squeezes it, smiles, taps it slightly on the
corner of the table, and mumbles, “Wow.” This he manages without the slightest hint of an accent.
I am amazed at how soothing that simple expression is. I have never thought about the gold being fake, but to have it legitimized by a pro is
suddenly refreshing. “You like, huh?” I say stupidly, just trying to get something out.
“Very nice,” he says, easing the bar into the envelope. I reach over and take it. He asks, “How many?”
“Let’s say five bars, fifty ounces. Gold closed yesterday at $1,520 an ounce, so—”
“I know the price of gold,” he interrupts.
“Of course you do. Do you want to buy five bars?”
A guy like this never says yes or no. Instead, he mumbles, talks in circles, hedges, and bluffs. He says, “It is possible, and it certainly depends on
the price.”

AT said...

Part 2 of 2


“What can you offer?” I ask, but not too eagerly. There are other gold dealers left in the Yellow Pages, though I’m running out of time and weary of
the cold-calling.
“Well, that depends, Mr. Baldwin, on several things. One must assume in a situation like this that the gold is of, shall we say, the black-market
variety. I don’t know where you got it, and don’t want to know, but there is a reasonable chance it was, shall we say, extracted from its previous
owner.”
“Does it really matter where—”
“Are you the registered owner of this gold, Mr. Baldwin?” he asks sharply.
I glance around. “No.”
“Of course not. Therefore, the black-market discount is 20 percent.” This guy doesn’t need a calculator. “I’ll pay $1,220 an ounce,” he says softly
but firmly as he leans forward. His beard partially covers his lips, but his accented words are clear.
“For five bars?” I ask. “Fifty ounces?”
“Assuming the other four are of the same quality.”
“They are identical.”
“And you have no registration, records, paperwork, nothing, correct, Mr. Baldwin?”
“That’s right, and I want no records now. A simple deal, gold for cash, no receipts, no paperwork, no videos, nothing. I came and went and
vanished in the night.”
Hassan smiles and offers his right hand. We shake, the deal is done, and we agree to meet at nine the following morning at a deli across the
street, one with booths where we can do our counting in private. I leave the ice cream parlor as if I’ve committed a crime and repeat to myself what
should be obvious; to wit, it is not against the law to buy and sell gold, at discounted prices or at inflated ones. This is not crack we’re peddling on
the street, nor is it inside information from a boardroom. It’s a perfectly legitimate transaction, right?
Anyone watching Hassan and me would swear they were observing two crooks negotiating a crooked deal. Who could blame them? At this
point, I am beyond caring.

Don't forget to register your gold!

Michael dV said...

Ashley
hilarious...Not sure how much research the author did. Obviously didn't check with online gold dealers....but his character didn't want his ID known so I guess he got the screwing he deserved.

Michael dV said...

Mikehy
I can't recall the exact reference but I recall A/FOA suggesting that politicians were just part of a side show. If push came to shove the BIS could initiate freegold buy establishing a physical only market. A/ was emphatic that the bankers would not allow the Euro to die.
I also recall that FOFOA has suggested that the troubles of the socialist would not be resolve by freegold. There would eventually have to be a reckoning of budgets.
My impression is that it is best to ignore what I read about 'Euro-death' on ZH and just wait.
The Euro was not going to make it through 2012 according to most writers at ZH.

jeb said...

When Ben Bernanke said Central Banks buy Gold because its "tradition" I thought that's true because tradition helps form a focal point.

Robert said...

Michael dV,
It seems to be orthodox A/FOA thinking that politicians are all part of a sideshow and that the bankers will not allow the Euro to die. But I think that is too superficial, and it comes from the mindset that the bankers will always be able to control the politicians and install their own technocrats when and if necessary. But is that still a safe assumption? The election in Italy may be a game changer. The bankers' candidate only got 10% of the vote, Beppe Grillo's website is now the most popular in Europe, and his election success could be contagious. It is not just ZH, but also informed bloggers like Raul Ilargi Meijer at The Automatic Earth and Yves Smith at Naked Capitalism who have been saying the Euro may be toast (at least in its current form).

As I understand Mikehy's question, I think he is asking whether the "political sideshow" might somehow become a catalyst for a gold revaluation. That is a different question than whether the Euro will survive in its current form. Can we see a scenario where central bankers usher in a freegold revaluation to thwart political rejection of the Euro? Does that make sense? How would it play out? If revaluation the "Plan B" if the bankers lose control over the political situation? Something to think about.

ein anderer said...

For those who don’t know Beppe Grillo please have a look into his activities 15 (!) years ago (YouTube video). German subtitles. Look: the HUGE auditorium! So Grillo may be everything. But what he is definitely not: a mayfly / nine day wonder / fleeting star …
The show’s theme: money …

ein anderer said...

"One final note – there has been increasing talk of a silver and gold shortage leading to a COMEX contract default of some type. I don’t know where this talk of a gold shortage comes from. Gold is not industrially consumed and that makes it virtually impossible for it to develop into an actual physical shortage. I understand that silver and gold are manipulated in price by virtue of COMEX game playing, but I think it’s important to distinguish between the two based upon the facts. Yes, gold can go higher, even much higher than I anticipate, but a physical shortage is a completely different animal. It is the prospect of a silver shortage that lies behind my switch from gold to silver mantra."
Ted Butler, "A Moment of Clarity" (24hGold)

Jeff said...

Robert, some of those informed bloggers must be misinformed. Maybe you are too. Something to think about. As for your other question...

FOFOA: The Nuclear Option

The ECB and the BIS have a secret weapon. They don't want to have to use it because they don't want to be seen as the instigators of the dollar's collapse. They would prefer the market to take care of it for them. But don't doubt for a second that they won't use it before sitting back and watching permanent damage come to the euro system.

Just imagine how Greece could deal with its problems if its gold were valued at $55,000 usd per ounce. In terms of current exchange rates that would raise Greece's liquid assets to 50% of its public debt. In other words, instead of being a "sub-prime" borrower, Greece would instantly become a PRIME borrower.

[...]

This nuclear option is A) for the BIS to begin operation of a public "physical only" market for gold to be used by the really giant participants, primarily sovereign entities and billionaires, and B) for the ECB to use the price discovered by the BIS in its quarterly reserve asset "marked to market" adjustments.

Such a move would put Greece, and all the PIIGS for that matter, in a much better position almost overnight.

One Bad Adder said...

When you stop to think about it, WE (the People) ...and THEY (The Politicians) are entirely separate to THEM (the Bureaucrats / Bankers)
WE ...ultimately blame THEY for the worlds woes ...but when push comes to shove, WE and THEY are products of each-other.
Ultimately, We and They are totally responsible for our own fate in any dealings with THEM.

Meanwhile, back to the Future:
WE will need to see a defined divergent pattern emerge in this and this before we get too excited about FG IMHO.

MatrixSentry said...

Robert,

Regardless, Freegold is not dependent on the existence of the Euro. Freegold results from the natural death of the $IMFS. Does the demise of the Euro somehow fix the $IMFS? I don't think so.

I think your read of A/FOA is a bit superficial. My read is that politicians will be politicians. In being what they are, they will take action that assures Freegold. They are as oblivious of Freegold as the average citizen. Nonetheless, they will take action to ensure all debt functions and is then deposited onto our lawns for proper disposition, regardless of whether the euro survives in its current form or not.

I have yet to find a paradox in the writings of Another, FOA, or FOFOA. Wish I could say the same about "informed bloggers" like Raul Ilargi Meijer and Yves Smith. In fact, I find the Automatic Earth blog to be quite paradoxical. So much so that I have long ago discounted it as a credible source and a valuable use of my time.

Robert said...

Jeff,
Of course I may be wrong, and I readily acknowledge that. We're talking about the future, aren't we? My point was that it's not just the ZH crowd, and other bloggers who do not share the ZH mindset have made better arguments, supported by better sources, that point to the same conclusions. Could they be wrong? Of course. Could you be wrong? I'll let you answer that one for yourself. Meanwhile, I think michaelhy has asked a very important question, one that you are free to ignore.

Pat said...

After re-reading this post, I have to say again this may stand as FOFOA's masterpiece, and I wouldn't want to be him. How do you follow this up? It's like a superb 10 page epilog from a 700 page tome explaining The Unification Theory; it's like a Springsteen encore of Glory Days, Born to Run, Born in the USA, the Detroit Medley, and Twist and Shout, pushing the show over 4 hours, but the fans are not tired and cry for more. It's like Mr. Creosote finishing a ten course , 20,000 calorie meal and demanding a thin mint ( and a bucket of course ).
This should be required reading in every school in the world. Ehh, but who cares about money and world energy politics, how does that affect me?
Anyway, looking forward nonetheless.

Dante_Eu said...

I saw on Youtube this interesting chart:

STOCKS 002 - Until Next Time

As in past, present and the future - wash, rinse and repeat - how long can it last?

ein anderer said...

"So hold your nerve. The reality is that we have been moving for several years to an informal Gold Standard in which gold takes its place once again as a central store of value – a currency of sorts – in the mix of sovereign reserves."
Ambrose Evans-Pritchard, "Gold’s Death Cross is a buy signal for China", The Telegraphh, February 21st, 2013
(My emphasis.)

One Bad Adder said...

From a FG analysis perspective, several who gather here are expecting to bear witness to a $PoG capitulation prior to or in conjunction with an emergent FG Architecture.
This Chart identifies three occasions where lately we've seen several $PoG "recoveries" to basically realign with it's "alt-currency" bretheren.
17 - 23 Jan, 23 - 28 Feb ...and 12 - 20 Mar.

If this prognosis is to come to pass, we'll see it first represented here sans the recovery / realignment ...IMHO.

Robert said...

Matrix,
Why do you think my read of A/FOA is superficial?

What does it mean to suggest that the politics of the Euro is a "sideshow"? I think there are a number of different ways to ponder that statement: (i) that regardless of grandstanding by politicians, the EU public will always support the Euro (whether for the sake of unity or because of the practical problems of trying to exit); (ii) that regardless of what the EU public wants or votes for, the politicians will always do what the banks want; (iii) that regardless of what the EU public wants or what nationalist politicians want, it doesn't matter because the EU technocracy trumps democracy; or (iv) the banks will create the circumstances to usher in freegold (and thereby reveal the superiority of the currency architecture they created) before the political situation deteriorates enough to threaten the currency.

In this last scenario, perhaps the politics are not a sideshow to be dismissed, but a signpost along the trail?

«Oldest ‹Older   201 – 400 of 419   Newer› Newest»

Post a Comment