Monday, April 22, 2013

Euro Conversion

One of the things I often do with this blog is to attempt to decipher some of the tougher concepts expressed by Another and FOA. I try to get into their heads and figure out what they really meant so that I can rephrase it in a way that (to me at least) is easier to understand.  This is one of those posts. 

The following question came to me via email from "Solitary Monk" who took his name from a comment left by Woland referring to the fact that he had "preserved our 'Library of Alexandria' from destruction" with the AFTER (THOUGHTS!)  archive. Another contribution from SM was the "threshold levels of understanding" concept which first appeared in this post and seems to be more relevant with each passing day:

I think that there are "threshold levels of understanding" required to 1) buy, 2) hold until the transition begins, and 3) hold through the transition. Each requires a greater level of understanding. I can see from your writings that you know some people will make it through 1) and 2), but not 3). I've been working for a long time to prepare myself to get through 3). Your blog posts are one way to help with that.

Even though he has not commented on the blog, Solitary Monk has been on the Gold Trail since 1998 (15 years now) and he obviously enjoys quiet contemplation followed by insightful emails which he leaves up to me to decide whether or not to use them on the blog. So I figured I'd go ahead and answer his email with a post.  I'm sure he won't mind.  ;D  His words are in red, FOA is in blue and I am in black:

There is one part of the gold trail that I have never fully understood. I do understand it conceptually, which is all that is really necessary, but it’s been bugging me for years. And now, it might not be that far away.

As we already clearly understand, paper gold markets tank, paper gold loses credibility, there is a rush for physical, and then there is no more physical available.

Next comes the part where I don’t completely understand the details. But conceptually it goes like this:

With no more physical available, there is a rush to exchange remaining dollar gold loans for euro gold loans which puts downward pressure on the dollar, upward pressure on the euro. The dollar exchange rate tanks. Hyperinflation here we come.

Perhaps you can enlighten me? And I’m sure your readers would find an FOFOA-style explanation of all this of value as well since it’s what’s coming right after gold goes into hiding.

Following are quotes from the trail regarding this. I have bolded certain parts and added some questions in red.
Solitary Monk

== == == ==
FOA: Perhaps, "this new gold supply", it was for the purchase of "time".

If oil was about to go off the "dollar reserve standard" and allow pricing in all currencies, and "the physical gold currency" was to be the most economical way to purchase, then I would say, "time was a valued purchase", yes? It is in this "purchased time", the world finds the creation of a "new reserve currency". The dollar, is today, strong in nature of a low gold price. Tomorrow, it will be the Euro that will find strength in a low gold price! Perhaps, these dollar "gold loans" will be called in to become "Euro gold loans"? "Gold priced in the thousands of USDs does not change this currency, it changes your perception of wealth"

SM: What makes a gold loan a dollar gold loan or a euro gold loan? My understanding is that you are owed gold. So, where do dollars and euros come in? As best I can figure it out, it means nothing other than the jurisdiction in which the loan was made. If it was initiated within a euro country, it’s a euro gold loan. Otherwise, it’s a dollar gold loan.
Also, note the use of “will be called in.” It’s not entirely clear to me who is demanding what. As best I can figure out, the holder is demanding gold, and the counterparty, aided by the powers that be in the US at least are saying “No, you cannot have gold and, in fact, we are going to force you to take dollars.”

Hello SM,

Great question for a post!  "Will be called in" tells me that the lender is calling in the loan to force immediate repayment, or in the impossibility of repayment, perhaps restructuring the terms of repayment.  Yes, the loans were denominated in gold ounces, that is to say that one troy ounce of gold (XAU) was the unit of account.  But what was actually lent was dollars, and what must be paid back in extremis is dollars.  It is a basic principle that you cannot force repayment of a physical item, just like the tractor analogy with the shuttered tractor factory.  Suppose a mine is destroyed by collapse or landslide, or it simply goes bankrupt.  Which brings us to who most of these gold-denominated debtors were. 

It was mostly the mines. The second largest group was hedge funds. But most of these loans are closed out now, while they were very common when FOA wrote the above. Even so, I think this "euro conversion" is worth exploring because it may still be applicable to the LBMA paper gold market, at least to its European customers. ;D 

The loans were from the BBs to the mines and the hedgefunds, and, on a much smaller scale, to the gold fabricators and industrial users. But in order to resell these notes to the East and to Oil who like their physical, the CBs stood behind them with their gold leases to the BBs. That guarantee gave the paper the credibility it needed for buyers who actually wanted the physical from the mines. A lot of those CB leases have been unwound now as well, although some do remain on the books.  So those could certainly be restructured with euro as the ultimate payment instead of dollars. 

Imagine we have the collapse of the paper gold market and the BBs still owe X tonnes to the CBs. In extremis, they can only pay back those loans at the cash equivalent of the price of gold.  But they were the ones who set that price of gold in their now-failed paper gold market. Do you think they can get away with paying back the CBs at the defunct low price of $200/oz. now that their market has failed to deliver? 

I don't think so. I think the CBs would reestablish a physical-only market pretty quickly and that market would establish the cash price at which the BBs could retire their obligation to the CBs.  Meanwhile, the dollar would be collapsing which, in reality, means an extreme shortage of dollars.  No matter how many dollars the BBs could get a hold of, the FPOG (Freegold price of gold) would be outrunning them, making repayment impossible and restructure or default the only remaining options. And with their creditor being their new overlord, restructure becomes the only option if they want to keep operating. 

So how is this good for the euro and bad for the dollar?  Well, if you need dollars to buy something or service a debt, this is usage demand, and this adds strength to the dollar, no?  Think of poor countries with IMF loans, and the effect of having oil and other commodities priced in dollars. These are both dollar-positive, are they not? And so through conversion, dollar demand is reduced while supply remains, which will be dollar-negative and euro-positive as the outward flow of dollars (from the US) turns inward. 

This will also be good for the BBs, because euro will be in plentiful supply while dollars will be in short supply (which is the case when a currency is collapsing in value), and gold will be stable in euros while it is anything but stable in dollars.  And the UoA for the loans is gold ounces, so that means the amount owed will be stable in euro while it was previously skyrocketing in scarce dollars.  A win-win for everyone involved.  Well, almost everyone.  ;D

== == == ==

One day soon, this "paper gold item" may lose it's "integrity from oil" by way of "competition" from a new reserve currency! In that day, "paper gold" will rush to become "physical gold" as "dollar gold contracts" rush to become "Euro gold contracts". You see, the value of the gold lost from the Euro CB sales will return in the form of a "Euro strong in gold". The "gold reserves" held for the EURO will offer strength, but it will be the total destruction of the dollar gold market that does make " this currency go home"!

I assume, but don’t know for sure, that “paper gold” means unallocated gold, and “gold contract” means a gold loan and a right to future delivery.

This paragraph seems to imply that this will lead to dollar spending in the US, but the mechanism isn’t clear to me.

I think that "integrity from oil" means that the GOR (gold oil ratio) will depart its 67-year range (of between 9 and 29) in dramatic fashion.  If we look back over 67 years, "paper gold" was simply dollars before 1971 and today it's mostly LBMA unallocated gold-ounce-denominated accounts.  And it is the convertability of this "paper gold" that has kept the GOR in its range. 

With convertibility gone, "this "paper gold item" may lose it's "integrity from oil" by way of "competition" from a new reserve currency [that offers the reestablishment of credible convertibility]."  Does that first sentence make more sense now? 

"In that day, "paper gold" will rush to become "physical gold"..."  This part is pretty self-explanatory.

" "dollar gold contracts" rush to become "Euro gold contracts"."  Just like I said above, if you are either party (creditor or debtor), you would rather have your loan payable in extremis in a stable, knowable amount than a crazily rising, impossible to achieve amount, no? 

And, once again, all of these dollar-denominated trading accounts outside of the US do require actual Realdollars (US base money, either cash or liabilities tied directly to the Fed or through a US bank with an account at the Fed) for clearing, even if not for every single transaction.  This principle lends strength to the flow that can be described as Realdollars heading outward from the US while real goods and services head inward, aka the trade deficit.  So the conversion of this need for dollars to, instead, a need for euros for clearing, will contribute to the reversal of that flow I just described. 

Think of every transaction as one side being the traded commodity and the other side being the money.  Even in currency trading, one currency is the traded commodity and the other is the money.  Today, the USD is the "money" (or the denominator) in most of the global markets.  This requires real US dollars for clearing.  So imagine the simple change of using a different money, and what impact that change will have on the flow I described above.  It will make the current glut of homeless dollars want to "go home" as FOA said.

Here's a short paragraph I found in a
tutorial that explains how the dollar is the main axis of most transactions today. This adds demand for dollars everywhere in the world:
In EUR-USD, the first currency which is Euro is the commodity and the second currency which is USD is the money. When you buy EUR-USD, in fact you pay USD to buy Euro. No matter in what currency your forex trading account is. You can have a trading account in USD, GBP, CAD or any other currency. When you want to buy EUR-USD, your broker changes your trading account capital into USD and then pays that USD to buy Euro. This is how it works. Any trade in forex market has to be done through USD. US dollar is the main currency and is the axis of all transactions in the forex market. Any currency pair that you buy or sell has to be done through USD. However, all of these process will be done automatically and you just need to click on the buy or sell buttons.

 == == == ==

Initially, they built the Euro with little talk of gold, all the while building a paper gold market that is dollar settlement based. By increasing the Gold Trading Market with paper gold, it not only drove the gold price down, but gave these contracts credibility as they could be settled in a strong dollar via gold. The hook came when they suddenly wanted gold as part of the reserves for the Euro! Now the BIS just stops supporting the London market with Central Bank gold loans and sales. By the time for the Euro to debut , gold starts to rise through the $360 area, there by breaking the entire dollar based paper gold market! Every oil state, and anyone else that is holding paper gold, will try to first exchange it for physical. After that guess who will be waiting with a brand new hard world reserve currency, ready made for converting dollar gold loans into Euro gold loans!

So, it sounds as if the euro block will facilitate / encourage this conversion. Just trying to be helpful?

Yes, it does sound like that's the plan!  Helpful?  Sure!  Why not?  To me, being "strong in gold" means being relatively stable in gold such that physical redemption/convertibility is possible anywhere, at any time, by anyone.  And, once again, most of these "dollar gold loans" are already closed out.  So now I'm thinking more about the massive amount of paper gold, backed by complex derivatives held by the BBs. 

Let's look at that last sentence a different way:

After that guess who will be waiting with a brand new hard world reserve currency, ready made for converting dollar gold liabilities/credits into Euro gold liabilities/credits!

As the paper gold market fails, the derivatives backing the BB's gold-ounce-denominated liabilities will fail to be able to bring in (buy) the metal required for redemption. Say the paper market stops trading at $250 per ounce.  There will be ounce-denominated liabilities that still exist, and they can now be settled for $250 instead of a real ounce because, like I said, in extremis you cannot force repayment of a physical item.  But will they all be closed out in exchange for USD250?  Perhaps not. 

Here's a better alternative for everyone involved.  Remember that if repayment becomes impossible, then the alternatives are restructuring or default.  And if the banks want to keep operating in the new system, restructuring becomes the only option.  So, even as the paper market dies at $250 per ounce, the real price of physical gold will be much higher, and the operators of the new system know this.  So perhaps they would rather not let the BBs cash everyone in a currency that gold is running away from when they could be cashed out in a currency that is "strong" (stable) in physical gold. 

The new gold price in dollar terms will be soaring as the USG is printing like mad, but the euro price for an ounce will be stable.  So even in the time it takes to cash everyone out in dollars, the amount of real gold each cashed-out customer could buy on the physical market is diminishing quickly. That's what happens when a currency collapses/hyperinflates.  On the other hand, you could lock in everyone's physical Freegold purchasing power on a moment's notice by converting all of those USD250 liabilities into EUR liabilities at the going exchange rate of that moment. 

Think of it like this:  The moment the paper market stops trading, physical gold is now $55,000 and you have 220 "ounces" in your BB trading account.  Each of those "ounces" is only worth $250 now.  If you could get that cash fast enough, you could buy one single ounce on the new physical market. But it takes time for them to cash everyone out and for everyone to go buy that physical. And during that time, the dollar is collapsing.  So your physical gold-denominated purchasing power is going to decline rapidly from a single ounce, to 3/4 of an ounce, to half an ounce and so on. 

If, on the other hand, the BIS/ECB and the BBs agreed to do the euro conversion, there would be no rush. You (as a BB customer) would still only get a single ounce of physical for your 220 "ounces" of BB credits, but at least you would now be locked into that full ounce and the BBs could cash everyone out at a more leisurely pace since I'm sure there will be plenty more pressing concerns at that moment. 

How could this conversion be facilitated by the ECB?  Easy!  Print the new euro for the banks in exchange for their derivative "assets" which are mostly dollar-denominated. The next step, I guess, would be to unwind and liquidate the derivatives.  The banks are getting a great deal here, so the ECB could easily instruct them to liquidate them on behalf of the ECB and return the proceeds in EUR. This would put further downward pressure on the dollar and upward pressure on the euro. 

Of course there would be some loss and the result would be a net-increase in euro base money.  But the ECB could easily mop that up with a small sale of Eurosystem gold.  Like I said, I have no idea what the actual stock of these BB ounce-denominated credits is, but let's say it's 10,000 "tonnes".  Divide that by 220 and you get 45 tonnes, and let's say the derivative loss is 50% from the time of the euro conversion until liquidation.  Divide 45 tonnes by 2 and the Eurosystem would have to sell about 23 tonnes to mop up the extra euro that were created by the conversion. 

Today the Eurosystem has about 10,800 tonnes, so the cost of the conversion would be about 0.2% of its gold, wholly absorbed in real terms by the revaluation.
== == == ==

Euro Zone based derivatives will be supported through limited gold delivery or with Euro cash. Both will be seen as a mountain of credibility in the storm that is coming. Let's face it, if you held a Euro gold contract for 100 ounces and only ten ounces plus Euro cash are delivered, that settlement will be worth a fortune in today's terms compared to a hyper dollar world.

I think I basically explained this one above.  But he does say "limited gold delivery" is an option in addition to Euro cash.  "Limited gold delivery" would mean paying off the BB liabilities in ounces rather than euro at the new Freegold rate, so in my back-of-the-envelope calculation above, that would mean 45 tonnes, half of which could hopefully be recouped by the liquidation of (what was previously) 10,000 "tonnes" of correlated derivatives. So it's essentially the same thing.

== == == ==

The modern financing tool we call the "gold carry trade" is now becoming the poison that will kill this market. The demands of gold lenders to return their "at risk" positions are creating an atmosphere where no amount of physical gold exists that can supply the outstanding paper claims. Great blocks of gold are now lent into the markets at 4% or greater, where once 1% was considered a good return. As each new group of lenders enter the market they are followed close behind by former lenders demanding their gold return. Fear begins to grip those who were once bullion owners as they now became paper pawns. Each new demand for "full allocation" creates yet further demands to borrow. The supply of new lenders grows smaller and smaller as the possibility of default increases.

The ECB moved to block any further erosion of the Euroland position.
[This was written just after the Washington Agreement. I think that is what this refers to but I’m not sure.] Most certainly, all world gold contracts denominated in dollars [denominated in dollars???????????????] would have gravitated towards Euro conversion to best advantage the EMCB gold stocks. Indeed, in a brilliant move they have blocked that escape and doomed the dollar gold market to collapse from non delivery. The ECB can now effectively support its gold commitments thru either bullion allocation or Euro settlement. By marking to the market their gold reserves they will contrast the advantage of a dollar gold market collapse no matter what form it takes. Weather discounting of paper gold from non delivery as derivatives are sold in mass (plunging dollar gold price) or a complete run for delivery (what we are seeing now) that leaves 95% of the market shut down and still holding paper demands ( paper gold priced in the many thousands. prior to lock up), the Euro will gain reserve backing.

Yes, I'd say he was definitely referring to the WAG.  He's talking about a chain reaction where, as one paper gold holder (creditor to the BBs, remember, paper gold is a BB liability) demands allocation, the BBs have to borrow physical from someone else, creating a new paper gold holder.  The CBs were the ultimate "lender of last resort" in this chain until the WAG. 
I think I explained well enough above what he meant by "denominated in dollars".  In extremis, cash is paid.  But what cash?  Any cash?  No, I think it is probably legally limited to the "money" that priced the commodity that was bought, sold, lent or borrowed.  This is no problem as long as all the various currencies are stable and freely tradable, just like the tutorial I quoted above said:
Any currency pair that you buy or sell has to be done through USD. However, all of these process will be done automatically and you just need to click on the buy or sell buttons.
But in a crisis where the markets aren't functioning properly, this ease of exchange will break down. At that point, if you don't have the physical gold, you're better off being owed "gold-ounces" to be paid out in euros rather than than in dollars, because the euro will be in full supply and stable in gold while the dollar will be in short supply and rapidly declining in gold. 
Now when he says they "doomed the dollar gold market to collapse from non delivery" he's talking about cutting off the lender of last resort.  So the chain reaction will simply continue until there's no more gold to be allocated.  And then he says that by marking their gold reserves to market they positioned themselves for the collapse of the dollar gold market.  The collapse being from non delivery.  Once it collapses, its price is no longer real.  So at that very moment, because of the ECB's MTM rule, the ECB's price of gold will be the physical price, whatever they say it is, because they can make that market! 
He says, at this point, "The ECB can now effectively support its gold commitments thru either bullion allocation or Euro settlement."  Of course this happens at the new physical price, because that's now the price!  And any "dollar gold liabilities" can be converted to "euro gold liabilities" at the current exchange rate between the currencies at that time which will lock these liabilities back into gold in real terms.  Sure, they will have devalued, but they won't continue falling in real terms along with the dollar. 
And finally, when he says "the Euro will gain reserve backing", I think he's simply referring to the natural strength and stability the euro will have versus both the dollar and gold.  Yes, the euro will devalue against gold, but that's not really a devaluation of the euro.  It's simply a revaluation of the gold reserves, and that is another way in which the euro will gain reserve backing.  Its reserves will have been revalued. 
Additionally, as I mentioned above, the Eurosystem will probably sell some gold into the market as part of this euro conversion process, and that will put downward pressure on the (newly revalued) price of gold which will make the euro stronger in gold. 

== == == ==

What of all the gold contracts being settled in Euros? You bet! And the DRAW here, is that the ECB marks its gold market to market with the process, later, extending to using "official" gold deals as the market price, not the paper LBMA. When push comes to shove, they will settle
Euroland gold notes at the official gold price, "in EUROS"! They can do this because their currency holds exchange reserves in gold that adds value as gold rises. The extra Euros printed to supply this demand will only fill the dollar void and be represented with gold reserves. When the dollar "paper" price starts it's "final" dive into the pits by discounting it's present credibility, it will drag every contract holder with it. This risk is real and will fuel the drive that demands a new Euroland physical marketplace.

Here he mentions the "official gold deals" that will be used to MTM gold once the paper gold market fails to deliver.  And I think the most important thing to keep in mind is that, when he talks about paper gold that was formerly traded in dollars being settled in euros or physical, he's talking about the new Freegold price.  If you had paper gold of any kind, you will still lose due to the revaluation.  But with the euro conversion you will not lose any more than the amount of the revaluation, whereas if you are (in the US?) holding dollar paper gold it could easily go to near zero by the time you are cashed out in dollars and try to buy some gold with those dollars. 

Perhaps the LBMA will fail to deliver on demand at $1,200, or $907 instead of $250, and that becomes the settlement price.  Say it happens at $1,200 and the revaluation takes it to $55K in real terms.  If you thought you had 46 ounces, you'll be cashed out at about 1 ounce.  So why would the ECB want to do this rather than letting all Euroland paper gold holders suffer the fate of the dollar?  Well, gold is to be an important part of the new system, yes?  Need I say more?

== == == ==

This first run will be a benefit to Euroland as they will be called to cover the needs of many other nations that once depended on dollar based assets. But later, the world will have a reserve currency and gold to trade with and against each other. The Swiss must free up their gold by selling it for Euro reserves (in a round about way, I'm sure). In the end, weather they join the EMU or not, the ECB will eventually absorb most of the "need to sell gold" as stress becomes apparent. This settlement of many of the Euroland gold loans in Euros, will not in any way make gold less valuable. Indeed, it will keep gold liquid in the face of an initial "lock up" in contract settlement.

Perhaps this is why Euroland will facilitate conversion to euro gold loans?
Sure! Perhaps the "gold in hiding" period will be less than a day, at least in Euroland!  ;D

== == == ==

If you read my recent reply to Strad Master, then it should become apparent that William F. is not declaring war. Rather he is continuing a policy that will allow the US dollar to destroy itself. By inflating the paper gold markets into uselessness, the US has removed the only vehicle that added enough value to our dollar currency to keep oil prices in check. Now that the Euro is clearly separated from our dollar system and able to make good on its physical portion (convertible) of gold debt, we are off to the races. Oil will rise until one of the currency systems fail! With the weak nature of the US debt situation, real world price inflation will break the dollar economy first. It will also break the dollar gold system through physical demand. It will force a dollar cash settlement for failing gold banking contracts in place of physical delivery. This process will create a cascading default that literally shuts down all paper gold markets. In the meantime any perceived weakness in the Euro will be countered in a soaring physical gold price. This sudden strength in Euros will allow settlement of all optional (physical or non- physical) gold loans in Euro cash instead of dollar cash.

No question was included with this quote, so I'll just let it stand, except to remind you that this "optional" settlement in euros rather than dollars will be at the new Freegold price after converting  from gold to dollars at the crashed LBMA price, then from dollars to euros at the euro-dollar exchange rate at that time, then back to gold at the new Freegold price in euros. 

== == == ==

Your position is based on current context. This drama will appear different as it unfolds. US inflation will be driving upward, its economy slowing and our Fed printing like mad. This very trend is currently on track as we and others have been pointing out. No one thought that Allan would embark on such a confidence killing rout and it is the bankruptcy of American financial policy that is driving this. The dollar is at the end of its timeline and our expansion of derivatives was but an effort to save the system for a while.

Let's see; you have a gold loan on the books, physical supply dries up forcing a premium on metal over contract gold, the contract and futures markets freeze up and your asset in the form of loan paper is worth zero. Then the ECB in conjunction with the Euro faction of the BIS offers to restate the now worthless gold loans into Euro denominations and you are going to walk? Where? To the US?

In this context, the next reserve system is saving a portion of assets that were already destroyed by US special interest. US policy destroyed before the fact as much as the US printing presses destroyed the dollar gold ratios in 71. Think again, my friend.

Again, no question came with this quote, so I'll just make a comment.  I think it is unlikely that the paper gold market will trade all the way to zero.  Trading will have to be halted at some point and cash settlment executed to wind it all down.  We obviously don't know when or at what price this will occur.  But there are three main exchange rates that will come into play here. 

The first is the $POG at which trading is halted.  The second is the EUR-USD exchange rate at the time of any euro conversion of Euroland-based claims.  And the third is the new Freegold (revalued) price of physical in euros.  We could play with various guesses here and see how you Eurolander paper gold players will fare versus the ones elsewhere who'll be left dangling with dollars.  But if we just use my back-of-the-envelope calculations above, you Europeans could get somewhere between 1/40th and 1/220th of what you thought you had, as opposed to getting close to zero.  Not so great either way, which is why it's best to stick with physical, even in Europe! ;D

== == == ==
A process is in the works to change our dollar / gold relationship again, after derivatives were inflated beyond use. Now, even the price of gold can no longer be captured on a par basis between derivative gold paper and real physical gold as the preceived value of gold is soaring. Once a super currency inflation breeds super price inflation; the derivative markets will begin to fail their hedge purpose and their trading value. These asset themselves will become the real risk.

Dollar supporters have no choice but to "NET OUT" at even any derivative hedge that may risk the system. That is, "Net Out" in a way that completely voids their risk transferring purpose as they are settled in dollar cash "no matter what effect inflation is having on the currency's value or your other dollar assets! Remember, the financial world today turns on dollar assets that are hedged; not just pure bare holdings! Block the hedge markets from performing and the dollar itself is unseated.

Make no mistake, every official rule and regulation ever written for currency crisis management involves not only currency profile assets, but also gold profile assets. With this concept in grasp; it's easy to see, with gold derivatives so widely used in current dollar support functions today, why they will be impacted as part of the paper mass.

Modern derivative usage involves gold derivatives and a new evolving crisis policy management will function somewhat the same as in 1971. It will arrive as some "net out" policy directive and universally abrogate all gold delivery options as part of the package. Any gold derivative that is used to support dollar currency exchange rates will be reworked to implement cash settlement against all claims for international currency derivatives written for gold.

What is a “gold derivative that is used to support dollar currency exchange rates”? Any liability of a US bank, perhaps?

It seems to me like he's talking about gold derivatives used to hedge non-gold investments, perhaps even bonds whose value is tied to interest rates, as it has long been assumed that gold moves in the opposite direction.  If you buy a bunch of Treasury bonds at today's low interest rates (which supports the dollar exchange rate like when China buys Treasuries), you might be worried that interest rates could rise destroying the present value of your bonds. If that were to happen, you'd expect gold to rise, so you might hedge your large position in bonds with gold derivatives like COMEX futures options or something with a low cost and a high payout if the low-probability event happens. 

The problem is that those hedges can only perform like an FDIC sticker that gives you confidence in your position, but cannot perform in real terms if what you worry about actually happens.


Is it no wonder that Euro Banks have no fear from writing short gold paper. Because the entire Euro money profile is in the background for them. Running in parallel to and not in conjunction with the current dollar system. Any Fed policy that must break the risk transferring dynamic of derivatives, to protect our US banks, will open the door to the ECB's dumping IMF protocols and using the Euro alone as their sole reserve currency. This will immediately shift all dollar derivative plays onto the market, dynamically devaluing our dollar in the process. The ECB would then be cashing out holders of their gold loans in Euros as dollar physical gold prices spike and paper gold prices plunge.

I guess the "IMF protocols" must be at least part of the reason that dollars are the axis of most transactions today. So what he's saying is that if the Fed is forced to do anything that jeopardizes the hedging functionality of the derivative structure, the ECB will be forced to abandon this protocol and allow its banks to start using euros as the axis of transactions. And if this happens, then it would cause the unwinding and liquidation of all dollar derivatives as the banks frantically scramble to switch them to euros. As I already mentioned above, this would not only put downward pressure on the dollar, sending dollars "home", but it would do so "dynamically" as FOA so brilliantly put it.

Higher still; we climb

Of course, the big difference is that Euroland will encourage a physical only market price that, in turn, also floats Euro gold values to the sky. All in an well balanced effort to replace the massive dollar asset base it lost. In this; the Euro will become the first currency block that functions as a local reserve, yet under scores its image with huge non- monetary gold assets. Is it no wonder that EuroLand citizens will be buying gold as much for its prospects to rise as for its ability to be a wealth savings. In this it will hedge the future remains of a dollar failure and its impact on the world system.
Great paragraph!  I hope someone in particular is paying attention. ;D  

If Mr. Huge EuroLand bank owes the ECB system gold worth 100 million in current gold deals;
[why does the bank owe these to the ECB system?] with each 1,000 euro rise in gold he finds himself able to settle in less received physical gold. In a true "cashed out" transition of currency reserve hedges, each ounce of contracted gold owed could be reduced many times. Every player in the gold system, that is caught with their pants down, will rush to be a part of any Euro workout. Indeed, for every major player that was long the gold loan system, for the purpose of buying gold, cash outs in Euros will offer the only return. Official players in the oil sector would eventually be receiving American gold (but that is Another story).

SM asked why the bank would owe gold to the ECB system.  This would be a bullion bank that had leased gold from one of the Eurosystem CBs.  As I mentioned earlier, there are probably less of these leases outstanding today than there were when FOA wrote that, but we can't know for sure since they removed the lease cap from the 2009 WAG renewal.

And here, in this last paragraph, he makes it clear that "any Euro workout," any "cashouts in Euros will offer the only return."  It won't be a great return, because you will have missed out on a once-in-a-thousand-years revaluation and the opportunity of a lifetime, but it will still be better than holding a "dollar gold contract" while the dollar circles the drain.  ;D



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Michael dV said...

I finally get the FDIC sticker thingy.

Aaron said...

Well said, Michael dV. To complete that thought:

The problem is that those hedges can only perform like an FDIC sticker that gives you confidence in your position, but cannot perform in real terms if what you worry about actually happens.

Unknown said...

It is good that you are examining in more detail the mechanics of events that are about to transpire.

The world is turning to gold once again, and those who live by the paper sword will die by it.

tintin said...

Hi Fofoa, have you given any thoughts to the RMB denominated Shanghai Gold Exchange? What role would they play, where do they fit into the new Euro FG world?



kobajashi said...

excellent post once again!



Niftytrader said...

Does this mean that for a person who is gradually accumulating physical gold, he could wait for the market to come down significantly (before it shuts off) ?

Nickelsaver said...


Those of us who have come to an understanding of the perspective presented by FOFOA, FOA, and Another are in fact anticipating a collapse of the paper gold market. And the establishment of a physical gold only market.

We are all buyers and holders of physical waiting for this to happen.

So yes, accumulate as much gold as you understand, hold it thru the rough times ahead. And when you see a physical gold market that is made in a stable currency, then you may decide to take advantage of the greater value you find in your gold at that time.

You will not find anyone here to recommend playing the market. Rather, we see gold as the means of opting out of the current monetary system with regard to savings.

We see gold as savings, not as an imvestment.

But, currency regimes change perhaps once in ones lifetime. And so we are upon one of those times. When the dollar-denominate system comes to an end, there will be a massive transfer of wealth. And that transfer will occur via the focal point wealth reserve asset - GOLD!

milamber said...


Absolutely. Provided that there is physical available locally and that said person will be able to intellectually buy gold at $250 or $500 /oz that he was just seeing over $1300/oz.

You want to talk about cognitive dissonance!

Everyone, and I mean everyone will be saying it is a falling broadsword and not to buy gold. Will that person be able to withstand that pressure?

But even if one can, do you really want hold off on purchasing now & take that chance that there may not be phys available to buy?

I think that if you are looking at it from an odds perspective, probably better to definitively acquire now pre revaluation, than trying to time it just right to get the best price right before gold goes no bid in the paper market. What if gold goes into hiding before you are able to execute?

And really, assuming the revaluation happens like A/FOA/FOFOA are predicting, what does it matter if your cost per oz at acquisition was $250 or $1900. It is still a significant windfall going from $2K to $50K (2009 nominal $).



milamber said...

Sorry FOFOA, forgot to mention, FANTASTIC POST!!

And hats off to Solitary Monk. I think that a lot of people that follow the trail are going to benefit greatly by your thresholds of understanding comment (Not to mention preserving the archives for all).

KUDOS to BOTH of you!


Anyone else notice the psychosis that seems to be infecting Jim Sinclair? It is like he has heard of Freegold, but doesn't understand it in the least, but then somehow latches on to FOFOA's estimated number for a post reval price.

If I was a CIGA right now, I would be seriously confused.

Maybe Solitary Monks admonition at the top will help them (and Jim) out as Jim learns about this new (15 yr old) gold market.

and Jim if you are reading this, don't take it personally. Freegold is an acquired taste :)


Kieran O B said...

Beautiful FOFOA, really drove this concept home for me. That said I will have to read again, a little bit groggy this morning.

Anonymous said...


Its my understanding that the gold exchange is in Kunming.

Michael dV said... opinion is that it is very risky to put off physical gold purchases. We anticipate a sudden end to trading. It could come at any time. The risk is that you may wait for $900 gold but trading could stop at $1100. We see the signs of a troubled market. GLD continues to be drained. That does not mean GLD will gradually loose gold. Tomorrow a few big entities could demand allocation and when that happens it could trigger a collapse as other demand the same. The LMBA is opaque. We do not know if they are good for another few months as you acquire your gold at falling prices. I got mine and paid more than current prices for most of regrets.

Re: failing derivatives
During the first Greek crisis there were derivatives that were declared void. It was declared that 'no default' had occurred because the arrangement was 'voluntary'. Right!
FOA suggests this could become more common to save US Banks. Meanwhile European banks can short gold with impunity. How have we made it this far?

KindofBlue said...


Amusing thought on Sinclair and his followers. A very knowledgeable man awakening -- like all of us have at some point along the Trail -- to the new paradigm. He's had much success in a field in which he's had few peers, so I say it's a credit to him to be able to continue evolving his thinking. Think of Munger or Buffet or Dent by, contrast.


Great post. Would you posit then that the derivatives were absolutely necessary to try and maintain the dollar system (which might explain why Greenspan et al, vigorously shut down Brooksley Borne's attempt to regulate them)?

Pete T said...

As ever, genius insight and wisdom... thank you.

tintin said...

hi battleshipyamato,
The Kunming gold exchange was to be physical only market but did not get its start.

To my knowledge the Shanghai Gold Exchange is the only official gold exchange in China.

the bushman said...

Sorry if you have answered this before -- So the Euro system unaudited and unassayed physical gold is all in the USA and London or perhaps all lent out/ hypothecated numerous times - the vaunted Euro reserves are merely more paper dollar claims??? Or will be settled in dollars while they keep whatever physical gold is left - he who has the gold makes the rules

Anonymous said...

To expand on bushman's question above, how much euro CB gold is physically in London or the US vs physically in Europe?

Anand Srivastava said...

7 Dec - 1353
20 Feb - 1299
9 Apr - 1200
22 Apr - 1104

First 50Tons took 75 days
Next 100Tons took 48 days
Next 100Tons took 13 days

Next 100tons should be within 7 days, and rapidly reducing time for the rest. At this rate it will not survive for more than 2 months.

Anand Srivastava said...


As VTC has explained before. It doesn't matter.

USA or UK cannot afford to steal other people's gold.

After the crisis they will have to get back on their feet. They do need oil, notwithstanding their claims of oil production. They will have to buy oil from international market. If they tried to steal the gold, they will be excommunicated from the rest of the world. They will then only be able to import anything after paying back the gold they owe.

Anonymous said...

Great article, Fofoa! I second the comment above that appreciates these articles that focus on details of the implementation of FG. Also, love your analogy of derivatives to FDIC stickers.

In other news, Yanis Varoufakis has a great article up at Naked Capitalism on the fatal flaws of Bitcoin and the dangerous illusion of an apolitical money.
I'm not sure he has the deflation argument right because in theory the value of the coins should expand as it is used by more people for greater purchases of goods and services, so that, as with gold, there are always enough bitcoins. However, the article provides a lot of good food for thought.

Unknown said...

I think the Shanghai exchange is one of many naturally evolving markets that will support freegold.

Another naturally evolving market is this incredible shrimp demand we are seeing, the exact opposite of the expected response by some.

You see, Shrimp did not appear to become so fanatical as gold climbed from 900 to 1000 to 1100 to 1200 (about where I came in) to 1300 to 1400 and so on ....

But now as it steps downward from 1800 to 1700 to 1600 to 1500 to 1400 to 13XX to ...?? the demand is OVERWHELMING. How does Goldman explain that? Oh, with the usual dosage of TA bullshit, talking their own fantasy paradigm as they short the market for all the wrong reasons for us, all the right reasons for them.

These disparaging remarks about gold's uselessness in our brave new recovering world is not being bought by the depositors of Cyprus, nor the Pensioners of Ireland, and all the while this massive systemic global "bail-in" is coming to a bank where your paper is parked, as sure as the $PoG is divorcing itself from the real thing like Ivana Trump on CRACK!!

It's funny how reality works (as Sinclair seems to prove in his new state of confused enlightenment). It's contagous, even on Fantasy island.

Yes Anand, this paper gold market does seems to swallow it's own tail and keep on gulping. This newly emerging FREE gold market is like TIMEX, it takes a licking and keeps on ticking.

Anonymous said...

Anand, they won't steal it, any more than greek bond holders were defaulted upon (not according to ISDA) or cypriot depositors were stolen from (they weren't robbed, they were 'bailed in').
Crisis, emergency, force majeure, legal mumbo jumbo, here is your last $US traded paper price in settlement, can't force physical settlement, sorry about the inconvenience old chap. And while the Chinese and Arabs might have the power of turning off the spigot of trade, I don't think they will do so because the Germans got shafted. So long as the Chinese and Arabs are kept intact and are promised to be kept intact, (which quite possibly requires stealing europe's gold) they will be fine with it if not glad of it.

At the end of the day, the question is not how much of Europe's gold is in the US, it is how much is already really in Dubai, Mumbai or Shanghai through the $IMFs.

If I ever found a city and get to name it, it will end in 'ai' Maybe Aurai?

But since you pointed to it, was this a post at VtCs blog or a comment here? Can you point me to wherehe has talked about it, I have often found his commentary quite helpful. I don't think this is vital to FG itself, but I have less faith in the Euro than many including our host, and this is one of many reasons.

Daedalus Mugged

Unknown said...

Bitcoin will not be supported by Giants.
End of story ...

Beer Holiday said...

But how will the giants buy weed Wil?

Pat said...

As a recovering "goldbug", I have great empathy for them today as the "gold price" re-enters the down elevator. Had I not found this blog, and the insight it provides, I'd be curled up in the fetal position cursing the gods.
My gut instinct is we are accelerating into Matrix's home stretch, I actually believe it will be this year.
I have been between jobs and doing all I can to hold on, I hope I make it, I hope all here make it. The wife and I have downsized pretty much everything ( quick aside- what peace of mind that brings!) and I still have my silver buffer, so hope springs eternal. We keep the larder fairly full as well.
2103- The Year of Fahrenheit 451

Unknown said...

Beer Holiday,
They will trade gold for it. I stand ready at the helm. We are "going further back in time than many will accept". Perhaps to a time when gold had prespositions like Acapulco??

Meanwhile, interesting duplicity around the hedge from GoldCore.

"The Shanghai Gold Exchange’s cash contract hit a new record high yesterday (43 metric tonnes, up from 30.4 on April 19th) while gold coin sales at the U.S. Mint have nearly tripled in April against last month’s figures.

Joni Teves of UBS research said, “Physical markets have responded to the much cheaper gold price levels,” and “our physical flows to Asia have been particularly elevated this week.”

Asian investors demand for the physical yellow metal has supported the gold price, rallying it up 8.1% from last week’s low."

How can "investor's" demand physical. Paper is for investing (read "betting") whereas physical is for holding (read "wealth accumulation").

But still, the old semantics are gradually wasting away. As the paradigm shifts, so changes the language of our medium. Interesting to watch the self-correction unfold "Japanese investors and store of wealth buyers are seeking refuge in gold bullion due to currency devaluation and inflation concerns." ... more butter please.

Unknown said...

Sound Familiar?? I know it's KWN but isn't Maguire channeling Sir Another here?

What’s happened now is they are in a position where that leased gold is being asked for and they don’t have it. I know of a very large client who actually turned up for his bullion, was refused his bullion, and told he would be settled in cash. I felt I should go public with that (on KWN).

...(ABN AMRO) really was the tip of the iceberg. What happened was that we saw that first bullion bank create the first visible default of the LBMA fractional reserve system. I hear of other clients who are now panicking, and what happens? You get an official intervention. That’s what it (the takedown in gold and silver) was all about.”

Sometimes all it takes is a whisper...

ein anderer said...

»take some Popcorn« and enjoy – instead of waiting outside for a better movie. The movie you were waiting for has started!
See, when the first upper floors of one of the towers there behind start to collaps it will be too late. Then the whole scenery switches in the catastrophic modus. And we all know how long it takes until the dust dies away.

Dante_Eu said...

FPOG => Freegold price of gold

New abbreviation to learn. Nice!

PS How about that "dead cat bounce"? It wasn't even a bounce, it was more like...dead cat...

MatrixSentry said...


How's this for "home stretch", we are in the last 10% of the lifespan of the $IMFS. Will that work for you?

Anand Srivastava said...


They are a net importer. They cannot afford to steal other people's gold, unless they want to live without those important imports.

You think they have sold all their gold and other's gold also. Because their gold will be useless if they have sold off other people's gold. They cannot use it.

I cannot help with your conspiracy theories.

Niftytrader said...

Thanks for all your comments. My current allocation of assets is 30% gold , 50% real estate and 20% includes equities bonds and cash. I want to reach 50% gold . My 30% cost is under $400.

What i fail to understand is why we need to see the paper mkt go to 200-400$ before trading is stopped. why the system cant fail at current $1500 (in terms of failed settlement in physical) and a hurriedly imposed cash settlement on the exchanges to bail out the shorting BB and CBs.

I am sorry if my queries are naive. I am yet to go through the FOA/A archives.

Motley Fool said...


There is no reason it can't fail at these prices.

I suspect mining cost is the lower limit. That figure of $200-$400 may have been true in the late 90's...nowadays I think the limit is at perhaps $1200....or a very short period of time spent below that.


Nickelsaver said...


We don't to see the peper market get to any number before it locks up. We are just observers.

You have 30% physical gold holdings? You are already holding more gold than most understand. And if you understand that the current price is irrelevant such that you will hold your gold whether the price goes up or down, with and eye towards that time that a real physical price is discovered, then you have "strong hands".

But there are many who hold gold, both paper and physical that look to the current market for cues as to when to get in and out. The strength of those folks hands will be tested, because they only see golds value in terms of this current market. There are many weak handed holders who will dishoard at precisely the worst time.

Nickelsaver said...


We don't need to see the paper market get to any number before it locks up.

milamber said...


Not a problem. That is what the comment section is for.

And you will find lots of people here who will help point you in the right direction with your queries.

To amplify the fool's answer, it has had several close calls, but keeps trucking on.

Will it fail today?
This year?

Who knows. All we can do is speculate.

Sometimes it can seem that it won't fail. Other times it will seem like


The problem is that action to preserve (and hopefully grow) your wealth/savings has to be taken BEFORE it happens.

This transition will truly be a "better to be 10 years early, than one day late scenario".

That's why you will see a lot of old timers who will tell you to meet your needs first & live your life the way you want to.

Then and only then, put your savings (that stuff left over after the 1st two are met {smiles}) into physical gold that you control.

Good luck on the trail,


Michael dV said...

With regard to the question of 'who really has physical gold in the CB world'.
I wonder if it makes a difference. If handled properly governments could get their citizens to 'spend' theirs. That could leave the question of 'is there really gold in Ft. Knox' moot. As long as gold flows in adequate quantities the governments may never have to reveal their stocks.
This has been discussed by our host in the past.

ein anderer said...

am 100% physical. After first transition from 100% paper ⤑100% silver phys.
At first I learned: All paper is threatened now. Isn’t it? Therefore ⤑100% silver (phys.). Heavy stuff! But very small units for all catastrophic things which could happen, I thought. And I didn’t want to manage paper anymore. And you have to manage it! Professionally.
Down on this nice silver trail I’ve found somewhere FOFOA. (I am sad not to remember this special moment anymore.) And felt more than I understood: Here’s the real thing. And so changed AG⤑AU.
Learning curve! Apprentice's due!
Now I can sit back and watch things as they unfold. Still reading FOFOA, FOA and ANOTHER for deepening my understanding.

this is the first post I understood almost completely during first reading! Not because it’s the easiest one to digest. But because you managed to teach. Thanks!

Anonymous said...

Echoing the bushman's question. Can someone actually answer this?

Victory said...

FOFOA, Marvelous simply Marvelous!

On another note, it's one thing when an uniformed reporter conflates $PoG weakness with ETF outflows but it really makes one wonder when a Goldman analyst says it


Anonymous said...

Anand, it would be less a theory than a possibility. So your take on FG is that everyone should be very careful about hidden counterparty risks embedded in the gold they think they own but don't actually control because they have a real possibility of being burned in the conflagration at the collapse of the $IMFs. Everyone that is, except the Euro central banks?

And while the US is a net importer, it will probably have to be materially less so post FG transition, and if you don't have the physical to satisfy all of your counterparties, it is probably more important for post FG America to keep the oil exporters and the Asian mfg exporters happy compared to europe where trade is more balanced, and with far more replacement goods. America has very little current capability to replace either gulf oil or chinese clothing, but a relatively high capability or replacing Euro imports like Airbus with Boeing and BMWs with Fords or Siemens with GE. Especially in a world where America is poorer and has to import far less. America may well end up a net exporter to Europe while still being a net importer overall.


Jeff said...

Someone probably could, athrone. But those answers would only be assertions, and we all know you unassailable proof. In blood. From Giants. You're a dreary fellow with no imagination, so find those assertions yourself. They are in the blog, I promise.

Unknown said...

I'm curious, the comments by A and FOA were a decade ago when Europe was a different place than it is today. The idea that the dollar is going to massively depreciate is compelling and makes much more sense in the context of losing reserve status which pushes the dollars back home. However, I think it makes for good reading but misses some economic reality here. The US is the largest manufacturer in the world (still). If the dollar depreciates materially, especially against the euro, you will see a horrifying scenario globally. China will be in a lot of trouble as US real wages have declined for over a decade making US workers far more competitive. Knock the currency down and China won't export us nearly as much.

The Euroland economy is terrifyingly bad and a strong euro would make it worse, on par with the economic beating England received in the 30s when it put itself back on the gold standard at the old rate.

Its fun trashing on the US, and there must be a revaluation to get the inflation needed to fix the debts, but be careful. Things have changed in the last decade and the balance of power and capital has shifted.

The derivatives and BB actions remain ever the same and I don't dispute the idea of freegold at all, but I think this endgame suggested with euro conversion may have once made a lot of sense, but would now be a disaster. The ECB would never want this to happen and the Chinese would be second to freak out. In the current zero sum game of global trade, why let the US get a major leg up??

Finally, let's finish playing out the argument. Dollar crashes, Euro spikes, gold revalues to 55k. US GDP will take an inflationary nosedive as real wealth evaporates. If you look at German GDP and industrial production post Schact's new money system, the growth was meteoric in its recovery and German Industrial Production regained its old heights after only a few years as the productive stock of assets never disappeared. The US will then be sitting on a cheap currency, very low level of debt/GDP, enough oil production to give it a chance of a flat budget, an extremely cheap well-educated labor force (save the puns, US productivity is impressive) and some amount of physical gold. Even if Sprott is right, there is some gold left. Take all of those factors and there is no way the USD would remain depressed for that long.

Unknown said...

As a clarifcation on the oil production, I'm not saying the US would be a net exporter, but if the dollar tanks gas consumption will decline and domestic drilling will accelerate to offset some of the imbalance. Consider a deficit of say $200 billion vs today's deficit. Then add on increased exports and decreased imports from the dramatic currency revaluation. The US, unlike Japan, has enough natural resources it would likely mitigate some of the import inflation components of production in the early days, allowing it to continue generating reasonable margins. (The Kyle Bass argument against Japanese equities short term).

Jeff said...

AE said 'But since you pointed to it, was this a post at VtCs blog or a comment here?'

Yes, it was a post on Victor's blog. Did you go there and look for it? His blog isn't as long as this one, so for someone who has read and considered this one carefully (as you claim) you should have no problem finding it.

AE, I'm interested to hear your view of FOFOA's post Synthesis. And Dilemma. I think those posts answered the question which you ask repeatedly. What part of those posts gives you trouble? Thanks.

Anonymous said...

Matrix Sentry,
I was actually less interested in the date than the specifics of why you appeared to think it was imminent (home stretch). If home stretch is broad enough to cover something between 4 years (10% from closing gold window) to 10 years (10% from founding of USFed) to 15 years (completion of 4th turning crisis cycle), I am not sure you're actually signed up for enough imminence to have a productive discussion as to why you think that.

Even more specifically, I am less interested in the imminence of the $IMFs collapse, than in the confidence that Freegold will be the first effort to replace it rather than any possible alternative less optimal system...that there is not another kick the can effort outside the $IMFs rather than another one inside it.

Tommy2Tone said...

"Even more specifically, I am less interested in the imminence of the $IMFs collapse, than in the confidence that Freegold will be the first effort to replace it rather than any possible alternative less optimal system...that there is not another kick the can effort outside the $IMFs rather than another one inside it. "

Read The Fucking Blog. Geeze man, that shit has been asked and answered a hundred times. GO read and shut up for a few months.

enough said...

After some consideration regarding Sinclair's upcoming "chicken little" tour. I can't help thinking, it couldn't hurt.....

Even if he is mixed up, running around, screaming, take physical possession of your gold, is a good thing :-)

I remember FOFOA writing something about Giants not sleeping well.....


Anonymous said...

As of late it seems the more time I spend away from comments the more imminent the collapse of the Gold market seems. Yet ironically, the more time I spend in the comments the more light is shone on issues which are not self-consistent, and the more of a mirage Free-gold becomes.

AE said: "So your take on FG is that everyone should be very careful about hidden counterparty risks embedded in the gold they think they own but don't actually control because they have a real possibility of being burned in the conflagration at the collapse of the $IMFs. Everyone that is, except the Euro central banks?"

A good question indeed....

If the theory here is that the designers of the Euro are also the architects of Freegold, shouldn't they be practicing what they assume to preach? If not, then how can any of this make sense?

It is possible that the Gold market collapses for reasons other than the ones specified here. In the end the result is the same, so I suppose it does not matter.

Tommy2Tone said...

Athorn said: "A good question indeed...."

ok...waiting...when are you gonna spring this good question?
Quit teasing and ask it already.

Tommy2Tone said...


Dante_Eu said...

If there is going to be some in between system, between $IMFS and Freegold, so what?

How will that change things? Will physical gold be of less importance than today, or more?

The only thing that threatens Freegold is alchemy, financial alchemy notwithstanding.


I miss your old avatar! :-)

Unknown said...

In other words, what if things have changed in ways that weren't envisioned? What if the ECB architected Freegold in a brilliant manuever to cement the Euro. How could any member country protest the euro if it provided the financial stability when even the almighty dollar failed? But the EU project hasn't gone as planned and it wouldn't be building a currency on a strong economy like it hoped.

I don't know the answer. This site has done a fantastic job so far given the plunge in paper prices leading to a massive increase in physical demand. The next steps we take are either pre-meditated, inevitable or random.

The world has had numerous financial and monetary systems, but unrest has a way of getting out of hand. Its pretty hard to be convinced a small group of elites can manage a global monetary transfer in the face of massive youth unemployment.

Jeff said...


The future is in flux? I'll agree with that. Don't tell athrone, but the future doesn't come with guarantees. Anyone who tells you otherwise is lying to you. What we discuss here is what we believe to be the most likely outcome. That's it. If things turn out differently, then they will be different. Better hope for the euro though, or things could be worse.

FOFOA: Freegold is our destination with or without the euro. Even on the outside chance that an SDR or a similar super-sovereign currency is accepted as the new global reserve currency, it would have to contain gold at Freegold valuations in order to be viable, accepted and trusted, in the same vein as Randy's comment about an EMF. So any way you cut it, the future comes to us with really high value gold by today's standards.

JR: See that - the euro is a reserve currency for trade that is not also trying to be a wealth reserve. It solved the Triffin dilemma by not trying to be as good as gold - its juts a trade currency -check out Dilemma. The Euro is a product that the marketplace will freely choose to conduct trade (not to store wealth), because:


If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will hoard all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does come, no paper asset of world economic system will survive, nothing! Not a good thought, no? Thank You

Indenture said...

DM: I'm sure smarter men than me can tell of the 'effort' to keep the Euro functioning.

Anonymous said...

Tallying up the official CB reserves of Euro members, there are ~10,270 tonnes in the Eurozone. Taking just three that I have some information on off the top of my head:

Germany: 3391 tonnes (Recently asked to repatriate, known 59% outside Eurozone)
Netherlands: 612 (Recently asked to repatriate, 100% outside Eurozone?)
France: 2435 (Shipments to NY/Canada during WWII, 75% outside Eurozone?)

Using these numbers knocks 4438 tonnes off the ECB physical holdings. That is 45% just off three datapoints. A quick search didn't dig up much info on the NY fed holdings, but I believe many of the other Euro countries have gold held in NY or London? So I wouldn't be surprised if less than 25% of their official holdings were actually physically held by those member countries.

Maybe others have better data...

Anand Srivastava said...


The things are not the same. You are saying that US has spent all the gold, and now have none. This requires a big conspiracy. An almost impossible conspiracy, because the gold must be taken out without the information of anybody, and keep it hidden for long.

This is not the same as having two markets for gold. The giants will be discrete, and the people will see gold moving, the only think unknown is the price, which is known to the BIS and the giant only.

In the stolen gold case, people have to move the gold out. You need security, and somebody will talk. This would have gone for several years, so the conspiracy must be a lot longer.

Do you realize the level of conspiracy required?

Another thing that I wanted to mention but is not really pertinent to the question. US will handle the crisis much better if it has the gold to sell in the initial phases till the US builds up production capacity. Without it US will be in a very horrible situation.

milamber said...


This may pique your interest,


[USAGOLD questions in italics]

Mr. Kosares,

A few thoughts for you, as the questions are asked?

** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **


I would say, "Old World Order" to return. To understand/explain better: " A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.

New world order, regionalism and tribalism are but modern phases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mind set, that people buy the best value for the lowest price (Japan cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. Because we are speaking of currencies here, the transition will be brutal!

As you ponder these thoughts, consider that; all economies today are truly equal in production as the exchange rates are the manufactures of profit!"


**Who does BIS really represent?

"old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".

Happy Walking,


Anonymous said...

So if the idea behind this whole Euro Freegold thesis is that they have 10,000 tonnes strong to back their currency, what does that mean if they have < 3,000 tonnes physically in their possession?

If you were the Architect of Freegold, would you want the majority of your holdings to be thousands of miles away in someone else's hands?

Dante_Eu said...

Change is the only constant.

And with free floating physical gold one embraces the change instead of fighting it.

That's why $IMFS is going down, it lives by the sword (US$ supremacy) and will die by the sword (US$ supremacy). It refuses change, thus it will change big time when the time comes.

Don't get me wrong, US will still be mighty and US$ one of the most used currencies, BUT it will not be *THE* currency (for storing value).

It really is simple, so simple, that is hard to belive I guess. :-)

Anand Srivastava said...


The gold is not there to back the currency. Its just reserve. It balances their balance sheet. If they have more worth in gold, they can print more Euros. That is all.

After revaluation they will probably need to print a whole lot of Euros to balance. That is probably how it will become the world currency.

If US confiscates the gold, its not the end of the world for Europe. But it is for US. It will be dead, with no recourse to come back up, as nobody will trade with them.

Michael dV said...

If JS can't enunciate the possibility of a collapse in the POG and the concept of 'reset' then his folks could abandon physical at the worst possible moment. That is the problem with understanding 'a little bit of' freegold.

Anonymous said...

Still misses the point...if the whole point of Freegold is that paper burns and physical is everything, shouldn't the person driving that change actually own physical?

I don't see how the U.S. being "dead" is any consolation to the Eurozone losing 70% of their gold reserves. I say 70% but it could be even higher...

milamber said...

@ Athrone,

Does it mean that AD took the other 7000 Tonnes since he is a GIANT Super Producer (who has no use for yellow rocks, but collects them anyways)?



Anonymous said...

Euroland does not need 10,000 tons for FG to work, and the fact, if fact it be, that the US has 8,000 tons won't help it for too long if all the gold is going to flow out to pay for oil and other goodies if we don't start producing things the world wants. This has been discussed by fofoa and others in several places throughout the years. Primarily the ECB needs to make and maintain a market in physical gold at phys only prices. For your own sake please spend some time reading the blog. I know it is a big undertaking but it is worth it.

Anonymous said...

I think AD is so bent out of shape because Germany only holds 1300 tonnes out of the 3400 they "worked so far for."

Either this gold has an single owner, and there is nothing to "burn" or it has multiple owners and nobody knows where or whose it really is. That 7000 tonnes could have been leased, swapped, sold 10 times over and the ECB has no control over it.

How are these two concepts self-consistent? It seems they are directly in opposition.

Anonymous said...

As a thought experiment, does the Euro function as described in the Freegold thesis if the Eurozone has zero (or near zero) Gold reserves?

Anand Srivastava said...


Remember ECB only has about 500tons of gold. That is all the EZ needs. The rest of the gold is of individual countries. It doesn't really matter for the Euro, except for printing more :-). The printing is not really required as the EZ is already balanced. There is older deficit that will be balanced by printing Euros after gold revaluation.

I also think that the banks of Cyprus will also be made whole after the revaluation. And the people will get their money back. They have the shares of the banks now.

I think the gold confiscation problem is hypothetical. Anyway the value of gold is due to the available gold. If those 20000Tons disappear from the face of earth it wouldn't really matter. It may make gold slightly more expensive :-).

Anonymous said...


The ECB lists the gold of all the member countries on their reserve sheet, aka 10,000 tonnes...

So the gold of the member countries and the Gold of the ECB/Eurozone are one in the same with respect to the Freegold thesis...

It's not a hypothetical problem it's a conceptual problem.

How can you on one hand claim paper will burn and physical possession is all that matters, and on the other claim the Euro, a futuristic currency melding soft MOE and hard SOV, having nothing but paper claims "is no big deal."

A theory can assert anything, but it must be self-consistent.

The Dork of Cork said...

Its the euro system which is failing.

There is a shortage of Euros from where I am sitting.
As said above this is a sign of currency failure.
I hold a different view from yee guys.

The Euro area is a extreme entrepot economy , indeed the most extreme.
It does not really produce much primary goods.
It "adds value" to primary stuff.
There resides its weakness , now exposed for all to see.

this enetrepot character means its much more vulnerable to a oil price shock.

The US UK & Pegged China don't really need added value BMWs with all the bells and whistles .......but if Europeans are stupid enough to drive their systems into surplus until breakdown then why not take some free goods while they are available ?

Europe is breaking down folks.
Italy was a big economy once not so much.
The manic push of the banking system to push resources beyond nation state frontiers means a very nasty end for us poor euro commies.

Hill C said...

GLD sub-1100; Now at 1097.

milamber said...

OK Athrone, you get points from me for that answer :)

But in reality, I think that you are barking up the wrong tree.

The fear by the Americans is that the Europeans will openly bid for physical gold. Go spend some time at Victors blog & twitter stream & see what would actually happen if the US actually absconded with Germany's gold. Or maybe it is in the comments here.


Anonymous said...

There are major exchanges for Gold in Shanghai, London, New York, Tokyo, Istanbul, Dubai, Mumbai...which all have one thing in common: none are in the Eurozone.

So here's another question: If the designers of the Euro are also the architects of Freegold, why isn't there a major Gold exchange anywhere under ECB control?

byiamBYoung said...

Hi Athrone,

I understand why you make the connection between gold exchanges and the freegold concept (hint-gold).

But why would ECB need to control a gold exchange? The current exchanges you listed seem to be functioning well, right? What's the benefit of one in the Eurozone? It wouldn't be bad, but what's the benefit?

If the Ezone has gold reserves and MTM its currency, do you suggest that there would be a problem with the Euro gold flowing through the other exchanges?

Do they need a pile of gold mining operations, too? Refineries?

I don't see the rub. Maybe you can clear it up for me...


enough said...

Hi MdV,

I don't read anything into JS's garbled message to the efffect that one should sell their physical gold. On the contrary, it seems to me the only lucid point he makes is to take possession of and hold tight to your physical.

Others might read it differently of course....

best, E

FOFOA said...

FOA in 2000: "If Euroland is talking with the ME about anything, gold is somewhere in that discussion. (smile) If the paper gold market gets clocked in the middle of all this, expect them to convert the gold trading center in Dubai into a physical arena settled in Euros. Hong Kong and Zurich will be hot on that trail.
= = = =

The loss of such credibility will eventually come as trading just stops, virtually closing the dollar contract markets as we know them. Opening the door to an ECB sponsored physical market.

If I had to guess, we will see Shanghai, Johannesburg and Dubai all joining with major internal Euroland financial centers to form the EBES (Euro Bullion Exchange System). By this time, the ECB quarterly reports will be seen as a scorecard of Dollar vs Euro values. We shall see!
= = = =

One big difference will be that Michael will most likely be part of a physical gold dealers group. Perhaps called the EGBE (Euro Gold Bullion Exchange). An organization of world physical dealers that buy and sell gold for their customers. MK would, instead of checking the comex price, simply call a nearby (in denver) member and deal the metal or get a going price.

From South Africa to Shanghai,,,,,, from Berlin to Dubai,,,,,, the new physical exchange will change the dynamics of gold as never before. "

SM: "And look what’s happened since then:

January 1, 2002: Euro notes and coins begin to circulate

2002: Shanghai Gold Exchange (SGE)
2003: Multi Commodity Exchange of India Ltd (MCX)
2005: Dubai Gold and Commodities Exchange (DGCX)
2010: Singapore Mercantile Exchange (SMX)
2010: ABX Global (previously Australian Bullion Exchange) (ABX)
2011: Hong Kong Mercantile Exchange (HKMEx)

One would think these exchanges might already have prepared for handling physical gold at the necessary prices and volumes when the time comes.

Solitary Monk"

Michael dV said...

What he is not saying is that the POG could fall and that that occurrence would just be normal. Can you imagine him declaring 'gold to 50,000' all the way down to 300? It makes sense to us but to his followers it won't. They will loose faith and some will panic and sell. He is a man who does not have the understanding we have yet says the same 'crazy' things. Fofoa started this even before the year end mark to market event. Here we watched in anticipation. At JSMinset it must seem like Jim got a new religion.

Anonymous said...

Those are all cities with large physical Gold demand. If the ECB is to be the center of it all, why not Frankfurt, why not somewhere in the Eurozone?

There's not much physical actually possessed in that zone, and there's no trading center. Doesn't that seem strange?

Tommy2Tone said...

What's the count up to now?Carl,AD,Gary,Ash,BaronSilverBaron,Athrone...

byiamBYoung said...


What FOFOA said!


Nickelsaver said...

Come on folks. Let's all sing along with athrone

Unknown said...

Most of what is being discussed here lately will either be decided by the BIS or not.

If the BIS consumates the role which Another has explained, the Euro will prevail due to the prevailing Giants that make up it's collective thought-structure and "old world order" mindset (which has been covered here well--unless that mindset has somehow changed?).

In times of impending systemic crisis, as now approaches, the BIS acts as financial referee, otherwise we have all out chaos, world war and worse. I for one would prefer Freegold, but no one can predict the unknown. If the BIS cannot place gold where it needs to be then of course all bets are off.

If Another has somehow missed the mark, he certainly has been an incredibly influential lone ranger to have made so many fantastic yet accurate predictions, as they continually unfold year after year.

What an amazing rise from obscurity that would represent for one person who decided to share his thoughts on this new Kitco forum thingy.

Can any of us here today, who have been following these thoughts at least since 2008, truly say that only 5 years after Lehman we would see a comment like this below:

We, for one, can only hope that the idiotic smashdown of spot paper gold continue and the price is sent to $0 or negative, while the last remaining physical ounce in inventory disappears at any price.

At that point the exchanges will have quite a few anxious people to answer to, the second someone demands even one bar in delivery.

Also, learn the words: "forced cash settlement."

My friends, 5 years ago when we were all thinking this, we were all marked wingnuts, just a few raisins short of a fruitcake, and yet today we see this printed on a media outlet as relatively mainstream as Zero Hedge.

I say "relatively" because people like Sinclair and "Tyler" (and QUITE a few others) have come around quite a ways lately to the viewpoint of Evil gold hoarders, jerks, time misallocators and brainwashed cult members, all of which were transfixed by this one guy who made sense back then ... and does so now more than ever...

byiamBYoung said...

Brother Wil,

Technical nit- ALL of what is being discussed here lately will either be decided by the BIS or not.

Carry on....


Can someone direct me to FOFOA's article where he explains the different commodity paper markets, and why gold is different. He explains how all other markets are used to suppress shocks via hedging, but gold hedging is not needed due to the stock vs industrial usage.



Hill, where do you see the NAV of the GLD so fast? Thanks

Nickelsaver said...


TY Nickel

Nickelsaver said...

Luke - URVW

M said...

ScotiaBank still has nothing. They told me to wait till May.

One Bad Adder said...

Great effort FoFoA usual - the green paragraphs particularly salient.
It seems however that the $US which was destined for EU-thanasia c2001 has, by accident or design been able to runout it's timeline for 12 odd years - attendant warts and all.
Was trolling the 'net this week and from a contrarian perspective stumbled upon Rio's Kennecott Mine Utah landslide. This "Act-of-God" might well have had an impact on $PoS/G last week sufficient to cause the price(s) collapse ...particularly if "Force-Majeure" now prevents hedge-book delivery of a swag of Metal in a very tight Physical Market.

Just a thought.

Dante_Eu said...

Hello silverfuturist AKA freegoldfuturist,

I saw you last video where you mention Centralbanks, gold and backup plans. Good stuff! BUT, man, don't take down all your videos! I've seen every one starting from late 2009 up to present. Those videos are part of history and really educational so I hope you bring them back. Even if people misinterpret them, you can't be responsible for that, you just give your own opinion and don't promise anything.

Also, Freegold is not completely anti silver. Personally I have 1:1 ratio between gold and silver. For every ounce of gold 1 ounce of physical silver. It's not much silver, but still, it's there and lies still. :-)

It's been mentioned several times on this blog that 5% of net worth in physical gold is enough for probably 90% of savers. Everything above that, only as understanding grows. I think it was victorthecleaner who mentioned 25% stocks, 25% real estate, 25% cash\bonds and 25% physical gold. That way you would be covered no matter what happens. Personally I don't have that kind of money and are little bit lazy, thus I'm most in physical gold. :-)

Take care now and I hope you keep up the good work!\Dante_Eu

PS I don't post on YouTube and I know silverfuturist reads FOFOA so that is the reason I post here. If you are bored just skip the comment with "futurist" in the header. :-)

Anonymous said...

The idea of "threshold levels of understanding" got me thinking about what to do next after Freegold is established.

There has been discussion about the price of gold post-transition, with numbers like $13K or $30K or $55K being quoted. Victor the Cleaner wrote a great article recently about how for gold to fulfil its role in international settlement, it's price must fluctuate (wildly!). That was new to me. I'd thought about gold "floating" before but that sounds peaceful. Wildly fluctuating doesn't sound peaceful. Especially not if its your retirement funds that are fluctuating wildly.

Perhaps after Freegold arrives diversification will again be applicable.

Indenture said...

anthron: I believe the word you are looking for is 'credibility'. If the US steals gold it loses credibility. Why would it matter where the EU gold is traded as long as they, the EU have credibility.

Credibility, got some?

Unknown said...

I everybody ! I am just finishing to read again the 2009 et 2010 posts. There's something I am not sure about it. It’s the possibility that the gold paper market has to go really lower before the break, about the physical vs the paper gold arrives. I was thinking instead that the price in paper gold should increase a lot. At the same time, the volume of the contracts sells would increase in response to the demand. It’s just when the LONG realise that the physical gold is not there for delivery that they panic and try to get out. At this time, the only thing that they can have is cash (cash settlement). Whit their cash, they try to buy physical gold at the market that is not there. When it’s arriving, they have to close the gold window. During the 2011 TOP, the LONG contract owner was not panicking to try to convert the paper for the physical. The panic that we are seeing right now is brand new but after 20 months of consolidation. I was thinking that the panic would arrive only after a big rally like FOA seems to say in REFLEXION:
"The economic game is ending! Watch closely as the world currencies and markets fall one by one. Watch in absolute wonder as the demand for oil plunges and its price goes through the roof. Yes, oil stocks will crash with the markets. And gold? You will never know its price. It will stop all trading as it slices thru $10,000+."
In this
In his words, he seems to say that the gold paper price could go to 10 000$/Oz before the break. So right now, when I see FOFOA say that the paper gold price can go to 1000$/Oz after touch only 1920$/Oz in 2011, I am really confused. Somebody has an idea about that.

PS : sorry for my poor English. My first language is french. I try really hard to write the best I can in English !!!!!

Motley Fool said...

Hi Fred

The concept is quite simple.

It is the idea that physical gold is not the same thing as a piece of paper (or electronic entry) promising to give you gold.

The market price you see is this paper promise price....and more such promises exist than actual physical gold. some point the market will realize the paper promise does not have the same value as the physical.

So...the value of real physical gold will soar past $10,000 easily while the paper promise price collapses.


Unknown said...

But I was thinking that when the price of physical start to rise and disconnect from the paper gold price, it could be a one night reevaluation. Not an increase in price visible from everybody. So, are you saying that first, the price of physical will disconnect from the paper, at the same time, the paper gold market will implode, second, the price of physical gold will explode in front the visible eyes of everybody, and it's only at the end, maybe around 10 000$/Oz that the market will be close and reopen later at a significant higher price ?

Motley Fool said...

"But I was thinking that when the price of physical start to rise and disconnect from the paper gold price, it could be a one night reevaluation."


It might take longer.

"Not an increase in price visible from everybody."


"So, are you saying that first, the price of physical will disconnect from the paper, at the same time, the paper gold market will implode, second, the price of physical gold will explode in front the visible eyes of everybody,"

No, I doubt it will be visible.

"and it's only at the end, maybe around 10 000$/Oz that the market will be close and reopen later at a significant higher price ?"

The market paper price is more likely to close at $1000 or below. I doubt we will ever see $10,000 in the paper markets.


Unknown said...

I'm 100% with you here. The Euroland doesn't seem to structurally have the economic power or physical gold to become a new reserve currency.

Sir Tagio - The US needs to make stuff? The US remains the largest producer in the world. Further, it produces at an economic margin, unlike China which is a 0% margin economy (maybe a bit higher, but the return on capital is non-existant in aggregate).

In the last post I had a comment with some factual data about oil consumption for the US and overall supply. The point was the Americas as a region is net importing about 50% less than a few years ago due to declining oil consumption and rising supply via US shale oil. It isn't a cure all, and the US still imports a lot. I chose the Americas as a way to evaluate the flow of capital from the US to the Middle East. That flow is down a lot.

Further, the Middle East has changed a lot too. It used to be generating a major budget surplus, but that has changed. For example, Saudi Arabia's budget is far greater as it spends heavily on social programs and economic stimulus. Let's follow the argument here and assume the US buys oil with gold. Ok, fine. But, you can't pay poor people in Saudi with gold (you can, but they're not). So you need to either sell the gold or sell reserves to fund your budget.

Certainly there are continued profits made that are recycled into the budget, but it is a long-term headwind that did not exist before.

Finally as for the argument that keeps getting thrown around about the US stealing everyone's gold and then losing credibility so no one will trade with them, this is absurd on several levels. First, credibility. Nazi Germany stole huge amounts of wealth and murdered millions. We trade plenty with Germany today and did so after the war to rebuild it. The US economy is too big to ignore. Frankly, the US did quite well in 1800s and even in the early 1900s under the Monroe Doctrine. The country would be ok if it didn't trade as much (not killing it, but much better able to weather a trade war than Europe, China or Japan).

Second, is the US really stealing it? If Germany stores its gold at the NY Fed then leases that gold to HSBC, who then sells it off, what has the US done wrong? There are too many claims on too little physical metal, so who really owns it if technically everyone does? I have no clue. There is probably a negotiated political settlement where everyone gets some depending on your economic clout (Cyprus clearly doesn't get its share). The gold settles with cash payments just as described in this post, for retail investors as well as sovereigns. That is my best guess.


Woland said...

When Fofoa posted AFTER (THOUGHTS) in Dec 22, 2012, Aquilus
provided a transcript, in his comment, of FOA 9/26/98 Msg ID 1200.
It certainly is worth reading again, for its relevance to this post. Or
perhaps someone would care to re: post it in this comment thread?

Anonymous said...

A. Storm,
The dollar is currently the world's reserve currency and the Fed and the banks that create dollars with a push of the button don't have ANY gold. The U. S. Treasury has the gold, and its gold does NOT back the dollar. This doesn't prove that the Euro will become a world reserve currency, but apparently it is possible to be a world currency despite having no gold backing the currency.

I am not sure what you meant by the European Union's insufficiency as a powehouse, but according to IMF figures, the EU's GDP in 2012 was approx. $16.6 trillion and the U.S.'s was approx. $15.7 trillion.

And unlike the U.S., which has long had a huge trade deficit, the EU typically runs at a trade surplus, i.e., more exports than imports.

So while I do not claim that the Euro WILL become the next world's reserve currency, fer shure, your arguments do not convince me that it won't or can't.

Indenture said...

Andrew: "The Euroland doesn't seem to structurally have the economic power or physical gold to become a new reserve currency."

Any currency after Freegold could be held as reserves by any Central Bank if the bank felt confident it could exchange the currency for gold. But the main reserves of the Central Banks will be gold and currencies will flow in and out to counter trade imbalances until gold is needed at perhaps the end of the fiscal year.

There will be no need for a World Reserve Currency because that Exorbitant Privilege will have been destroyed under it's own weight.

Unknown said...

Sir Tag,
Fair point. I get mad when people don't take a step back to look at aggregate data, then I do the same myself! I think the two primary reasons I don't see Europe as a stable economic zone is demographics and banking. EU demographics are poor with little growth and a fairly strong anti-immigration stance, vs the US with ~1% population growth expected. The banking system in Europe is also much more precarious. In the US, JPM is the largest bank by assets with $2.34 trillion in total assets (equal at 15% of US GDP) including $195 billion in equity. Deutche Bank has $2.8 trillion in assets (78% of German GDP) and listed equity of $71 billion (I converted everything to dollars). This is a similar story across Europe with the top 2-3 banks well in excess of GDP and with a far lower book Shareholders Equity.

Given the poor global growth outlook including recession in most of Europe, loan impairment is to be expected impacting bank balance sheets. While Europe is roughly as indebted as a % of GDP as the Us (who really knows with all the adjustments) the risk of dramatically increasing euro debt via bank bailouts is far greater than in the US going forward. Further, with Basel 3 mandating material increases in tangible equity ratios, its hard to see much credit creation in Europe for the next few years, and thus likely a more stagnant economy.

All that said, to your point, the EU is likely big enough to satisfy the reserve currency status, or be a large part of a block of currencies. To my point, if the dollar does implode, Europe will be in for a world of hurt competitively.

milamber said...


"A very knowledgeable man awakening -- like all of us have at some point along the Trail -- to the new paradigm."

I agree on all counts. But the problem is right now the man is a menace. And what's worse is he is more than likely leading his followers to the slaughter.

What's the saying?

A little knowledge is a dangerous thing?

Well, he has very little FG knowledge. And from my perspective he has become even more dangerous to his community, because he is not (at least not right now) equipping his CIGA's with the knowledge to get through this difficult transition. SM's edited threshold quote:

...There are "threshold levels of understanding" required to:

1) buy
2) hold until the transition begins
3) hold through the transition

Each requires a greater level of understanding...

JS (right now) is pretty much guaranteeing that anyone who listens to him will sell out at the most inopportune time.

Imagine if you are a CIGA and you have always followed his writings (and you have never heard of Freegold). So you get Alf's numbers pounded into your head. You read Jim calling bottom after bottom, after bottom.

And then, BAM Suddenly! $50K gold here we come!!!!

I mean if you are a GIGA, you've got to be thinking this guy is nutz now.

How do you get from top price of $3500 (or whatever Alf said) to $50K?

AND he also doesn't tell his followers that more than likely the POG is going to DROP before the reset????

Nor that the miners are toast?

I mean come on. I bet you his followers are going to think he has lost it and sell out once we get under $1000. SMH...

Anyways, I hope he either gets it real quick or STFU, because right now, IMO, he is doing more damage than good.

I will say it again:

Right now, the man is a menace.


Indenture said...

For Woland:

Aquilus said: "I think it's appropriate to post some A-HA! comments from FOA.

This next one compares the excess of dollars for the gold available (at that price) in the 70s and the subsequent default to today's excess of derivatives for the dollars in existence.

Of course, unlike gold where default was preferable, dollars can be created at will when the time comes to redeem any and all contract (and drive the price of the dollar to 0). But here's FOA from 1998:

Friend of Another (09/26/98; 18:31:32MDT - Msg ID:200)
Ph in LA (9/25/98; 10:09:42MST - Msg ID:175)

YOUR PARTIAL QUESTION: "Would it become impossible and/or difficult for citizens to repatriate funds/assets held outside the country? It seems hard to imagine the chilling effect "currency controls" would have saying that holding gold outside the country under such circumstances might be unwise, too."?????

Ph, The possibility of FXC (Foreign Exchange Controls) is very real. This topic has been discussed in several well written books spanning 25 years. In a way, the closing of the gold window in the early 70s was a form of FXC. Anyone outside the country could no longer get their gold because too many dollars had been printed to cover the gold in the US treasury.

Today, to many derivatives have been printed (paper gold is one of them) than can be covered by the outstanding dollars! The US Federal Reserve either prints a load of dollars to cover this contingent or the system falls apart. If the Fed prints, the Americans get inflation. If the Fed doesn't print, the world financial system, based on a dollar reserve currency, starts to implode and foreign holders of dollar assets try to exchange these for their local currency. To do this they must take the dollar home to the USA for exchange! During this exchange, if the dollar loses to much value in the exchange rate, these foreign holders just SPEND THEM in America!

Again, the US experiences price inflation, only this time it's during a global deflation in dollar assets. To stop this chain of events, this time the US Treasury closes the dollar window. It's usually a last effort to hold the banking system together. The gold window was closed by holding gold at a low price valuation and not selling any of it. The dollar window will be closed by buying dollar currency at a rate so low as to stop most major holders from exchanging. This usually brings a two tier market , dollars inside the country worth more than outside the country. For some time, all dollars outside the US were called Eurodollars! Will we see these Eurodollars exchanged for Gold ???? In some countries, the CBs already have. Thanks."

Anonymous said...

A. Storm,
Agreed that if the dollar implodes, any economy that depends in a meaningful way on selling to the US will also be in for a world of hurt and a rocky adjustment period. It's too facile to just say that countries that are export powerhouses have "safe" or "good" economies. If the dollar does implode, these interdependencies make it difficult to see or predict how it will all shake out. Maybe the FG revaluation will cure all EU bank balance sheet problems, and that would be a great boon to them, but that is still different from saying it will also save their economies or establish the EU economies as pre-eminent.

RevolutionOfNations said...

ECB's mark to market policy? If the market is imploded and gold has "lost its paper value", then how will a mark to market policy help the ECB? Their "reserves" will be almost worthless if they use current "market value". What market are they marking it to? A jewelry shop in India?

-Oh, EUR denominated gold is better off than USD denominated gold, but where's the EUR gold exchange located? In Dubai? Where is it? Will it emerge from the ashes of the USD paper gold collapse? As far as I know there's no EUR gold exchange anywhere on the planet right now.

The only country I know of doing something like this is Turkey, not exactly part of Euro-land. Turkey is a Dinar and Dirham, halal money country, like some of the oil states mentioned on this blog. And there's huge competition from China in the physical market. China is using media to push people into to buying gold, they're actively pushing gold buying through government propaganda! That's in addition to the government hoarding all local production.

The US is still officially by far the biggest hoarder of gold in the world, any monetary standard based on gold would mean the US it wealthier by far than any other country in the world. The question is.. -Who has the gold?? This is what I think we'll find out. The one who has the gold makes the rules. Who? I think, it's all up in the air at this point.

Also don't forget about the might of the US military. Stealing other people's gold has been working fine so far and I expect it to continue.

RevolutionOfNations said...

I am happy to see people starting to think outside of countries and their respective currencies. This is not a battle between nations, nor regions.

PS said...

Andrew Storm:

"Further, with Basel 3 mandating material increases in tangible equity ratios, its hard to see much credit creation in Europe for the next few years"

Baked into the cake long ago as part of a "shift away from USD / $-IMFS debt paradigm". Have you really studied this blog in any depth?

"and thus likely a more stagnant economy"

Yeah, I think you haven't really studied this whole FG thing all too deeply yet. Walk the trail some more!

Tony said...

Hey Nifty,

I love this little hypothetical story from FOFOA. Seems to help answer the question of whether or not to try and time a bottom:

ein anderer,
The post I just linked was the first and only post I understood completely upon first read ;)

RevolutionOfNations said...

Humans are exceptional beings. But they are limited by their bodies. Their bodies need food and water. If I control the needs of their bodies I can unleash human potential in my favor. When deprived of their bodily needs humans will seek any means of survival. Due to the exceptional nature of these creatures they will find a way. If I control the means by which they can supply their bodies with what they need I will also be able to direct human creative potential. By rewarding them with bodily satisfaction or punishment for their behaviour I decide the direction and fate of this planet.

-What is it that compells people to give away their labor and talent? Think about this? People work for something they assign value to(We spend 9 years or more in school learning what is "valuable"). If people value a piece of green paper or yellow metal does not matter. -What is it that makes you spend some of your life doing something? We are the real currency... Us, people of the world!

When the current system comes down, people will start to question their existance and what the heck they're spending their lives doing. Many will realize they were fooled. Some will know and take comfort in the fact that they knew(like some readers here). Nevertheless, we'll be forced to look into ourselves and ask ourselves what is the "right" thing to do? Are you willing to let your neighbors starve so you can have a better life?

A new player in this game is humanity itself. Through the internet we have acquired the ability to connect, and exchange thoughts and ideas with eachother. This exchange of ideas gave birth to something like bitcoin. A currency not "controlled" by anyone, a currency of the people. As humanity as a whole becomes more aware and interconnected on a global scale We'll seek to free ourselves from "slavery" one way or another as it is in our hearts to seek this freedom.

The battle is between those who want to control humanity and humanity itself. As long as people want to be controlled by others, through assigning value to objects, titles, promotions, status etc.. The Giants of this world will be more than happy to give you all of that... For a price..

JMan1959 said...


The ECB will not mark their reserves to paper, they will mark them to physical, and will have an entire quarter or so to prepare. Also, tanks and aircraft lose much of their "mightyness" when they have no fuel.


Many thanks for enlightening us on the mechanics of the "falling dominos" in such a clear, easy to understand format. I echo the comments of one of the above posters who said this was the first post he did not have to reread at least once to understand it. Fantastic post.

Butt-hurt MMT said...


The battle is between those who want to control humanity and humanity itself. As long as people want to be controlled by others, through assigning value to objects, titles, promotions, status etc.. The Giants of this world will be more than happy to give you all of that... For a price..

Yeah!!! Let's get rid of this whole hierarchy thing. Who needs it? It's not like any particular human is superior to any other human. And it's not like those who disproportionately produce should have greater access to resources & reproduction than lazy criminal sacks of dung who kill! Therefore there is no need for a unit of account. ALL ACCOUNTS SHOULD BE MADE EQUAL! We need to spread the love around. THANKS! :D

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

ECB's mark to market policy? If the market is imploded and gold has "lost its paper value", then how will a mark to market policy help the ECB? Their "reserves" will be almost worthless if they use current "market value". What market are they marking it to? A jewelry shop in India?

They are marking to a market that derives gold price from the trade of paper gold. If this paper gold market survives into perpetuity I suppose you would have a point. The power of their reserves is revealed in a cash market for physical gold. While paper gold and physical are both fungible at the paper gold price, their reserves are along for the ride. When the gold market splits into physical gold and undeliverable claims for physical gold, their reserves will mark to one and not the other.

The Euro was built for Freegold.

RevolutionOfNations said...

Phil S, Basel III is a red herring, as it allows for sovereigns to decide the reserve ratio of gold. So far no one has dared to give gold a tier 1 status. Turkey(non EUR) is alone in this, they are recapitalizing their banks with the gold of their citizens. And as an added extra they can purchase oil from Iran with gold.. Many western nations are envious of this arrangement...

RevolutionOfNations said...

Phil S, a new development has also added Iraq(against the will of the Iraqi "government") to countries selling oil for gold to Turkey.

RevolutionOfNations said...

"The Euro was built for Freegold."

-When is 'Someone' going to tell the people of Europe? The politics of Europe is becoming the Achilles heel of this endevour. EUR needs a 9/11 attack, or something of that scale for people to see the light at this point... Or else political bickering and nationalism will take over and ruin any EUR plans. Remember Hitler burned the Reichstag...

ein anderer said...

that’s ("this was the first post he did not have to reread at least once to understand it") exactly what I did not wanted to say: that this post is better then others. It’s a very good post, indeed. But the reason why I understood it more easily than others is my learning curve triggered by many (also older) posts of FOFOA.
I know many blogs. But I begin to believe that this one is, besides many other aspects, of exceptional pedagogical quality.

ein anderer said...


"The battle is between those who want to control humanity and humanity itself."
Try a second theory:
The battle is between two forces which want to control humanity:
(1) There are those who force man’s control over humanity.
(2) There are those who strengthen nature’s support of humanity.
This picture shows an eye height battle between man’s forces and nature’s force (supported by some very few).

Unknown said...

Do you really think these banks have trillions in "assets under management"? Would these consist of wildly inflated paper securities such as the Fed has been bailing out since FDR was shitting green? All TBTF banks in the world today are hopelessly insolvent. And what gold they "possess" belongs to the BIS.

Basel III allows for sovereigns to decide the reserve RATIO of gold?? I think more specifically it allows their CBs to decide, "at their discretion" whether their gold reserves can be claimed OUTSIDE OF THE BIS in a systemic bail-in. It specifically gives them the prerogative to withhold gold in the event of a dollar collapse (for example) from supporting the dollar's demise, as I read it (thanks to JR in the previous post).

MatrixSentry said...

On 10 Dec 2012: GLD gold inventory was 1353.35 tonnes.

On Apr 24 2013: GLD gold inventory is 1092.98 tonnes.

260.37 tonnes of gold lighter or a loss of 19.24% from the all time high inventory.

Lets see, that is 260 wooden pallets.

8,370,895.5 troy ounces.

20,927 LGD 400 troy ounce bars.

Today the tally was a loss of 4.21 tonnes, 4 pallets, or 338 bars.

A goodly allocation of gold I would say.

M said...

@ Andrew Storm

"he US remains the largest producer in the world. Further, it produces at an economic margin, unlike China which is a 0% margin economy"

Are you aware that the Eurozone is a net creditor with no trade deficit ?

What you are saying about the US economy is hogwash. The US economy is made up of 70% consumption. There is a reason why they have the biggest trade deficit ever. Sure they "produce " some aircraft carriers and some chemicals but the former is not anything that leads to more productivity and its not like they don't have any competition.

JMan1959 said...

My bad Ein. Misread your intent. When you said you had to read it only once because Fofoa "managed to teach", I thought you meant managed to teach via the current article. Still, it sunk in the first time for me, which is rare, but clearly due to prior readings as well.
On another note,even Apmex's supply chain is slowing down these days. Normally they will have a shipment out in a day or two, took over a week to get a delivery in my recent order. US mint reportedly out of some smaller (less than one ounce) coins as well. Still laughing at the quizzical looks people give me when they see me getting excited about a "falling market" for something I have bought.

byiamBYoung said...

Watching GLD drain day after day, I am struck by the idea that what we are watching is a systematic drawdown of a really-really large redemption request from some super giant entity.

GLD says, "Oh snap. You want THAT MUCH REDEEMED? Well, we can do that, but only at a controlled drizzle, which must mix unnoticed with normal daily redemption from all other players. We can't spook the rest of the clients!"

I, of course, know nothing, and am just guessing.

If anyone could bolster or torpedo this idea, I'd welcome the response.


Unknown said...

When people say gold will go to $50,000, do they mean that it will be worth the equivalent of what is $50,000 today or is it just an inflated value and the real value is, say, $5,000?

If the former, I was thinking it might be a good idea to seize upon that to buy a small bit of land and build a tiny (200 sq-ft cabin) as I have always wanted. It sounds like it would be a complete steal and too good to be true.

Michael dV said...

the estimate of $50k is in present (non-hyperinflated) dollars. The idea is that gold has to be reset to re-balance the world capital as the dollar fails. If the dollar fails the ECB (for instance) will only have gold on it's balance sheet. Exactly how we get there, whether hyperinflation or a new gold price comes first is a matter of speculation.

Michael dV said...

A/FOA said: 'the politics is just a sideshow'. I suspect when the dollars goes the folk in the EZ will view the Euro in a different light. Never the less they still have to deal with promises made that cannot be kept. Socialism just does not work and the entitled will find their promised retirement plans and other benefits just cannot be delivered.

Unknown said...

Thanks, Mike.

Unknown said...

Brother Young,
It could be one Giant or several, but the attempt to control the drainage is for certain.

Unknown said...

I believe what we are seeing are people from all walks of life, shrimp to Giant, losing CONfidence in the paper, and trading it for gold.

So the paper is flowing through the gold.

In the realm of Giants it is a game of "Chicken Little" as no Giant will dare to spook other giants that might further pressure the paper to gold flow.

But as Giants lose CONfidence in the paper gold scheme they will become nervous if they feel they will ultimately be cashed out.

They hasten the day that ALL are cashed out by "gunning" the flow. But they know that day is coming, and they each have a share of the redemption demand, and they will try to outrun each other as sure as you can say bank run when all confidence is lost.

Will "the system" rob the needed gold from sovereign stockpiles if needed to maintain that CONfidence?

Of course they will. Look at Libya, look at Cyprus, look at MF Global, look at what's coming next ...

As with any collapse of this magnitude, it will unfold slowly but accelerate quickly toward the end. As more "lose" their gold to paper, more shall the paper flow through the gold so that "winners" can be redeemed.

But they cannot ALL be redeemed, for the paper are like stars to the heavens, and the same gold of this earth is spoken for a thousand times.

I am not sure where we are in the timeline.

One must consult the flower of understanding to better sense the pulse of the system.

Nickelsaver said...


I've seen you make reference to that "flower of understand" on a number of occasions. What exactly do you mean by that?

That's not something you smoke is it?

tintin said...

hi brother Young, can you post link to your GLD inventory chart please? thanks

KindofBlue said...


Thanks for answering. I understand your solid reasoning and agree that Sinclair has as yet to turn the final corner on freegold. If and at what point he 'gets it' I do not know. I started buying before I was introduced to Sinclair and for awhile his cheer leading and encouragement reassured me that I was on the right track. Then in '09 I discovered FOFOA and it's never been the same. Through FOFOA's discussions I finally understood 'the money concept'.

Sinclair is missing the last, important and essential point, but he has often spoken of gold as 'insurance'. Not quite correct, as we know, but correct enough that I suspect his call to 'hold on' will still be heard even if at that time he has still not totally grasped freegold. So in that way he will still have helped at least some to the other side even if he's among the last to know why. He's catching on now to the folly of paper gold which was the price discovery that he's been accustomed to his whole trading life.

Think of a man who goes to church and listens to his pastor, priest, mullah or rabbi to stay on a right path; then one day he has the realization that God was ALWAYS RIGHT THERE and realizes for himself that he no longer needs the sermon. Was it his guides' responsibility to tell him that he wasn't needed? What if the guide (Sinclair) didn't know that he wasn't needed?

Where am I going with this? Just that 'menace' is a strong word and that people get it when they get it and not a day sooner.

Milamber, you write many comments that are spot on and instructive, perhaps you might consider making contact with Jim and sharing this last, important piece of the freegold puzzle? How would one phrase it? I know you care about those who will be spooked at exactly the wrong time.

Anyway, something to think about.


FOFOA said...

I caught this in my stats today because a lot of people were clicking on the link! ;D

Dante_Eu said...


I think it comes from a FOA passage but it might be something you smoke or chew on. :-)

Woland said...

My dear fellow CIGA's; please take a look at JS over at KWN. (No, don't
read the article, just look at the picture) bullish for sygmoidascopes!

KnallGold said...

JR, I think our baby is growing and is in the process of getting on solid ground. Guess the people are now following, there are just too many signs here to still ignore it. And I had to put aside quite some personal garbage first. Lastly had a car accident, fell upside down, total damage, hospital, but really had luck as no physical damage besides brain concussion. Just to explain off-times and current limited capacity here.

Seen other similar strange accidents/happenings, sinking-in of the reality and extreme high pressure in the system explains this clearly, I even forecasted it as one can feel it somehow when another round of pressure is being let off suddenly.

Some are in shame, people in shame don't express loudly. With others, the 3 stages denial/anger/acceptance can be clearly visibly, particularly the millionaires and billionaires are the latest to "come in". Hmm, their fear being the catalyst for the "first small giant to cry foul!, bank has no Gold"!?.

But reality HAS sunk in here broadly, no doubt. More reason to conclude "following" the path.

Apropos football, Bayern won 4:0 against Messy and Barca, I couldn't think of a more clear answer to the Hoeness case. Funnily that some Müller scored 2 goals and assisted in Another one ;-)

Why bringing this up? Guess the last think to write in the new paradigmas book is the tax thing, this where it stands and stucks a bit currently.

Got a couple of thoughts developing, well after traveling and observing through the social security systems I was again totally pissed off by the bureaucracy and waxing forms ad nauseaum. Knew this from private economy, guess I don't need to explain.

Its quite crossroads here for, well, lets put it this way, leviathan or efficiency, bloated administration or simply focusing on path and goal. Here lies this taxation thing, I can fully relate to the sweats of the big shots.

Where it matters on our particular cause is FG TF in its purest form or having to give off 1-2 promille or what when doing a Gold sale in the super high Gold price paradigma.

Seeing the kleptocrats in full steam again, with IMHO the OECD at its top, the automatic information exchange currently in discussion, hmm, does something grow out of this raw thinking? I know others touched it before, not too deeply, maybe for obvious reasons.

Just to say not to come to potentially false conclusions at this stage. Reducing bureaucracy surely is a long term project (but then?it can be changed fast.delivering important hope, giving good prospects), otoh feeding the leviathan by some wrong assumptions, hmm.

I think we all agree that SOME level of privacy must be maintained at all cost. Having FG totally taxfree, as good as it sounds, would it not attract too many "unwanted consequences"? Would feed the automatic info-exchange not feed the administration too much? Of course the latter is demanding FGTF in its purest forms, no compromise here.

On some level, to come back to the german tax thing, I get the feeling that the too obvious strength of the opposition rather smells sort of very small minded/bad losers and like a "Rohrkrepierer" (backfirer)? The whining about tax justice just a smoke screen on their unlimited greed to fund the admin? And how was that with the others candidate account at Deutsche, with the suspected, well, need for better returns on investments, ergo some sort of "financial product"? Hello mirror...

I just see they (the sick) are starting to wreck the whole productive establishment.

As for the developing of FG, most anticipated first the super high Gold prices and then a very bad/rough time. Now we had the very rough times here for the last 3-4 months, what if the SHGP part of FG - will now be merely discovering a faint signature of your merely low to medium valuable painting inherited from your grandparents, the faint signature being P uh - Picasso -! I leave the aha to yourself!

Anonymous said...

Jeff, perhaps I am missing the reference you make to VtC's blog. In his Central Bank Gold Leasing post (not sure if that is or is not what you were referencing on VtC's blog) he makes the point that America cannot steal Germany's gold because Germany could just take its large pool of dollars and bid for physical gold in those USD, effectively crashing the $IMFs system. That is a very credible reason why America can't steal Germany's gold while the $IMFs is limping along as a zombie, but once the $IMFs is done, Germany's threat is no longer if at the transition point, whatever of Germany's gold is still left in America is subject to theft. This seems to me to be consistent with otherwise very odd situation of Germany demanding its gold back later. The essence of the deal viewed through this paradigm is that Germanys demands its gold, the US essentially refuses, but agrees to ship it back a little at a time over a long duration as what amounts to a bribe for Germany not replacing the gold on the open market and crashing the $IMFs. Essentially Germany is being paid its own gold over time to help keep the fiction alive. I they play along, they get some of their gold back, if they tank the $IMFs, they get worthless (a least then) dollars.

With respect to your references to FOFOA's Dilemma and Synthesis posts, I think that is a pretty good example of exactly what I mean. Always difficult to map something as complex and nuanced as a FOFOA post into a simple bullet, but reduced to their very most basic essences, Dilemma is the '$IMFs will collapse' post and Synthesis is a 'Freegold' post (Euro-Freegold does not suffer from the fatal weakness which makes $IMFs collapse inevitable). There is no conversation about the transition mechanics in Dilemma, and very very little in Synthesis. Interestingly, something I got on the re-reading, was at the end of Synthesis was the Another comment "If the Euro does fail, gold will become the "world oil currency"." I take this to mean a fixed-exchange rate (gold dinar?) becomes the oil clearing currency. So not freegold, but fixed gold with its attendant problems. FOFOA described this Euro creation process as "to avoid being forced back 100 years into a physical gold-based economy which would have been very traumatic". So it seems that the Euro is key to FG working...otherwise we end up in Fixed gold, at least for a long while until the contradictions inherent to that blow it up, but I would think a superproducer oil exporting gulf could keep that system up almost as long as the oil reserves last...a material postponement, well beyond Matrix Sentry's timeframes we were talking about in these comments. However, at the end of the Synthesis post FOFOA says FG is our destination regardless of the Euro, can someone explain how he gets there from Another's point that if Euro fails, we end up back on a gold standard rather than a FG standard? Perhaps he means something along the lines of on an infinite timeframe, all systems other than FG will collapse, so eventually we will get there.

(Jeff, I wrote this offline, and when I went to post it, I see you posted longer versions of same excerpts...what is your take on them?) I look forward to catching up with the rest of the comments.

Daedalus Mugged

Woland said...

Latest "front lawn dump" / Stanley Fischer update - via Bloomberg:

"Central Banks load up on equities as low rates kill yields"

"In a survey of 60 central bankers this month by Central Banking
Publications and Royal Bank of Scotland Group Plc, 23 per cent
said they own shares or plan to buy them. The Bank of Japan, holder
of the second biggest reserves, said April 4 it will more than double
investments in equity exchange-traded funds to 3.5 trillion yen,
by 2014. The Bank of Israel bought stocks for the first time last
year, while the Swiss National Bank and the Czech National Bank
have boosted their holdings to at least 10% of reserves.

"In the last year or so, I have spoken with 103 central banks on
diversification", Gary Smith, London based global head of official
institutions at BNP Paribas Investment Partners, which oversees
$649 billion, said in a phone interview. If reserves are growing,
so are diversification pressures. Equities are not for every bank
tomorrow, but more are continuing down this path."

and the new risk free asset is................. Greetz!

Pat said...

JS knows his audience, and has made a number of Another/FOA/FOFOA references now. I conjecture he knows the more inquisitive among the flock will venture over and see wassup. I also conjecture he realizes most of the flock, well, its over their heads or too long for the ADHD crowd. Also, and heres the rub, he owns TRX and cannot be too happy with the drubbing it and all other miners have taken. Miners stock certificates can be construed to be a form of paper gold although that point is arguable. I doubt he would agree with the FG argument that all mines will become nationalized, or at least his. He believes he has a very special relationship with the Government of Tanzania.
Anyway, my point is that it is certainly possible JS gets FG completely, and even agrees, but has constraints to completely and publicly agree with all aspects.

byiamBYoung said...

Gold rapidly draining from JPMorgan's vault

Woland said...

Registered has remained steady, at about 3 million ounces (90+ tons)
while eligible (fully paid for metal stored at a warehouse, with no claim
against it on Comex) has been the category which has dropped sharply.
Is this a sign of owner mistrust? (and to what new storage facility has
it been moved??) dunno.

Michael H said...


I wouldn't get too worked up about that ZH piece on JPM's gold. Remember that it is COMEX gold they are talking about, and COMEX is a side-show. There could literally be 1000 tonnes of gold in JPM's vault that is not COMEX gold, and we would have no way of knowing.

Anonymous said...

Wil has not responded but my guess is that "flower of understanding" is just a metaphor indicating that understanding is a layered multi-faceted process that opens into fullness and beauty, and not always just an "a-ha!" moment. The old western philosophers refered to the latter as "perception," i.e,. you suddenly see something, and the process by which it occurs is mysterious but we all have experienced it. I suppose Heinlein would call the latter "grokking" something. My understanding of Fofoa's writings is definitely more akin to a process than a series of a-ha's.

Pat said...

Ah Sir T, Heinlein! A favorite book of his that may be appropos here:
Farnham's Freehold ( oh so very close! )

Dante_Eu said...


Nice to see you back and that the car accident went OK!

Although, I have to admit, your comments allways looked to me as if you have concussion. No change there. :D

On Another note:

On one european forum I've been fighting (literally) with a bunch of gold- and silverbugs and occasionally some HMS. I hold my ground pretty well, even though the ratio is 100:1 in their favor. Particularly some silverbugs have come to their senses. But hey, we all have been there, so it's good to point them to right direction.
And maybe I get some karma in return. :-)

JulesFlying said...
This comment has been removed by the author.
KindofBlue said...


Word gets around. When the product's good, you don't need to advertise!


Yes. Good points. Certainly possible.


Jeff said...


Stealing gold won't help the US when they need credibility the most. Who would take irredeemable paper dollars in trade when the US is stealing their gold? The US will need to trade with the world so they will embrace freegold, not fight it.


"Yes, the U.S. will ultimately mobilize its gold in defense of its failing transactional dollar, as I intimated in the post. But that will be at a much higher price of gold relative to "April 2011 constant dollars". So the gold will go a lot further than it would if we mobilized (physically sold) it today. But it will also be during a crash in the dollar relative to real necessities like food and oil. FOA wrote about this…

This will have a lot more to do with the failure of paper gold than paper Treasuries. Treasuries perform by running the printing press. Paper gold performs by delivering physical gold. Try to imagine international claims against the U.S. made up of a "basket" only containing gold and dollars. The dollar is collapsing in value while gold is skyrocketing, and the U.S. has to settle some of these "basket claims" during this dynamic time. Less and less physical gold will combine with more and more dollars to keep the basket even. Can you see the dynamic?"

Biju said...

Some funny stuff from daily show : Jon Stewart.

I used to buy Gold Jewelery as traditon before I heard Ads about buying Gold bars in between some hate filled conservative talk shows(if I remember Michael Savage), while driving from work in Chicago area.

I used to listen to these shows just for fun and I am bored driving 20 mins from Work. But when these Ads were running to buy Gold, it was around $600/oz. Now I am hearing these Gold Ads even in Mainstream Radio like CBS radio. is mainstream catching on about Gold ?

Sam said...

for an individual stealing gold would be a great windfall....immoral and I hope you are caught and prosecuted....but a windfall none the less. Stealing gold however just seems silly to me as a nation. The awfulness of the crime doesn't have the payoff I think many assume. In freegold lots of gold means you are a producer and the resulting strong currency (in gold because gold would be cheap and plentiful) would cause less production and competitiveness globally. Less gold means you are living beyond your means and the resulting weak currency (in gold because gold would be expensive) would cause more productivity and competitiveness globally. Since we all value gold it would seem there would be much incentive to get as much as you can as a nation but there really isn't. Nations want resources and healthy trade, employment for its people, and ever increasing quality of life. The goal will be to achieve balance. So you see stolen gold would only temporarily throw that balance off until the gold flowed from your shores, became scarce, weakened your currency, and turned your nation into a net producer. Only a fool would lose the trust of all their global trading partners and get so little in return.

Unknown said...

The flower of understanding is a metaphor for whatever it represents to the perceiver. Some will see it as an organic unfolding of the beauty of TRUTH.

Others will see it as an organic substance which when consumed effects neural pathways by psychotropically rerouting synaptic impulses such that the mind perceives things in a markedly different way.

Either way, like Another's metaphor's, it is open to interpretation. I like the ways it has been interpreted, though as I have comically alluded to the "pipe of understanding" in my earlier native Americam ramblings, there is as much an undertone reference to THC, as to the mystical ways of organic understanding in general.

Unknown said...

I think that you lost something in your learning. FOFOA is saying that gold is going to become again a store of value for the saver like it was in history. This function of the money will be transferred from fiat to physical gold. The fiat can keep the medium of exchange role of money. So at the end, the flat and the physical gold will share the 3 functions of money together. One for the daily transaction and the other one of the saving.

Anonymous said...


I don't think the U.S. can steal the German gold even after the dollar system has failed. The U.S. need to import some 4%-5% GDP worth of real goods and services, a good part of which is energy and resources. After the transition, international balances will no longer be settled in dollars, but rather in gold.

Unless they want to isolate the country and drop out of international trade entirely (except perhaps Canada and Mexico who have no choice), they better not cheat again.


Unknown said...

Art is a human who'd rather be a spambot. What can be more loathsome than a human being who actually aspires to be a spambot?

In this endeavor, you have sunk to depths that even paper gold in its final demise will tower over.

I pity the brain stem that causes you to defile the blog. Away with ye, boy who craves to spam, away with ye ....

Dante_Eu said...

Ah, good old Art:

"- This hotdog's been here since the silent era. You'd have to be insane to eat it."

"- No, no, no, no, no. This man is not insane. Now there's nothing wrong with it or you."

Jeff said...


Instead of the FOFOA view, try to work out what would happen in your scenario. USD collapses, HI, the US seizes some European gold. What's the next step? How does the US reboot the system?

milamber said...


"Sinclair is missing the last, important and essential point, but he has often spoken of gold as 'insurance'. Not quite correct, as we know, but correct enough that I suspect his call to 'hold on' will still be heard even if at that time he has still not totally grasped freegold."

I hope you are right. But if I was a CIGA and had been hearing $3500 as the sell target (not hold, mind you, but a sell price!), and then I am told that

$1600 is THE BOTTOM!

and now I hear, NOPE, NOW

ITS $50K (This is Eric King with the Legendary....)

I am wondering if JS is going to hand out peyote at the next seminar! I mean seriously, if I am a CIGA, I have a damn good product liability lawsuit against KWN & JS for whiplash! Them podcasts are dangerous!

If I am a CIGA, I am also going to be less than inclined to listen to any "hold on, its insurance" statements from JS as well.

I too believe that physical gold is insurance. Actually, since JS is a trader, I will put it in trader terms:

I look at physical gold in your possession as a seriously mispriced undated out of the money call option on going long the death of the current IMS, and the birth of one that uses gold as its wealth focal point for settling BOP imbalances between currency zones, as well as a reserve asset on CB balance sheets, marked to market.

That is why I hold it. In its physical form.

"Where am I going with this? Just that 'menace' is a strong word and that people get it when they get it and not a day sooner."

Agreed. But until they get it, they shouldn't hold seminars talking about $50K gold w/o understanding why it is going to happen. Even if they are a legendary trader and were called on by Paul Volcker in 1980.

"Milamber, you write many comments that are spot on and instructive, perhaps you might consider making contact with Jim and sharing this last, important piece of the freegold puzzle? How would one phrase it? I know you care about those who will be spooked at exactly the wrong time."

Up to this point, I have agreed with everything you wrote. But here is where we part ways :)

1. I find my comments kind of dull & long winded (like this one has turned out to be).
2. I don't think that JS would listen to an anonymous shrimp nobody like me. Plus there are people who get it a heck of a lot better than me. I understand Freegold enough to where I am comfortable with my decision to hold my own physical, but I also go about my life the best that I can, & not worry about things out of my control.

You had it 100% right when you wrote "people get it when they get it and not a day sooner".

And in any event, FOFOA's blog is publically accessible. I'm sure JS could contact FOFOA if he really wanted to "get it".

But I'm sure that bit about the miners might turn him off.

Just a tad :)


gold wires said...

First time I have posted here. I really value this blog and all the comments.

I am going to pose a question, please jump all over me to tell me why we should not be thinking of the following:

For those with physical gold in the U.S., if there is a major revaluation of gold "after the transition," let's say to $50-55k of current purchasing power, do you really think the USG and Wall Street banksters will let us get a way with a windfall of that size?

enough said...

you wrote.

"do you really think the USG and Wall Street banksters will let us get a way with a windfall of that size? "

Do you think USG will allow themselves, (congress persons, bankers, well connected, super wealthy etc) to "get away with it". Allow themselves a super windfall? Do you think they care if a few shrimps tag along? best E

MatrixSentry said...

Who is we? The one-tenth of one percent who actually own physical gold? We are as close to invisible as you can get.

Ender said...

Gold Wires, welcome!
If I could give advice for your exploration, keep your thoughts on the value and function of gold rather than the price. What is more valuable, 50k/ounce across the board or a functioning currency system?
We all get to do our part by dealing with physical metal. Every day we find that people are seeing more value in gold – today - than yesterday. The idea is getting around that gold is a wealth asset and it frees you from the risk of owning debt. Free someone; exchange your currency savings into metal.
Good day!

Nickelsaver said...

Gold wires,

I don't see how wall street has anything to say about. And USG, they get what the need thru taxes and their treasury ponzi scheme.

So there are a handful of richer Americans, standing along side of a mob of poorer ones. You think they might like to see gold flow from the hands of those few into the hands of many.

They could throw together a cap gains tax for gold. But that would encourage gold to leave US borders if it is too high, whereby weakening a young and fragile local freegold economy.

New game, new rules!

Anonymous said...

I guess Jim doesn't buy the whole FG thesis.

How is all this naked paper going to be honored if mining shuts down?

KindofBlue said...


Fair enough, though you had me giggling a few times there (not so dull)! One point I tried to make is that Sinclair doesn't know that he doesn't know so how can he know not to do seminars? There are many others. You do what you can.


byiamBYoung said...

I really thought we'd see GLD gain a bit today. The drain, in the face of the ramp in price, speaks volumes.


Wow! Great to see you reappear!


I for one, have refrained from fraternizing with the flower of understanding since I was repeatedly stung by the meandering bee of excessive munchies :/


byiamBYoung said...

Uhm, is this a problem?

gold wires said...

Thanks for the responses. All good points about USG-Wall Street after a revaluation. Trust me I am a micro shrimp, maybe I am making too much of it. My thoughts on Wall Street having anything to do with it relate to collaboration/cooperation with the Fed to achieve USG objectives etc.

I guess Cyprus really made me think that things can change with the stroke of a pen...yes Cyprus is far away from the U.S. in more ways than one, but USG-Wall Street leadership has not been inspiring confidence (without regard to any particular political party).

OK I'll stop being cynical. The responses helped me think about these things differently. BTW I am reading "The Power of Gold" by Bernstein. It is an easy read and traces history of gold back to biblical times. Copies are pretty cheap online. Monetary Sin of the West was good as well. And free. These might be old news to many here but thought I would share for what it's worth.

FOFOA please keep this going. Hopefully the community will help make you make this decision :)

Indenture said...

"do you really think the USG and Wall Street banksters will let us get a way with a windfall of that size? "

It is either that or gold bids directly for oil. We absolutely need currency and how ever many currency units is required to coax an ounce of gold from a strong hand is how much gold will cost. If it cost $50,000 then that is how much the Credibility of the Dollar is worth and after the paper markets burn the Dollar will need copious amounts of credibility.

Unknown said...

When the Great White Father appeared upon the plains, the golden eagle flew towaard the sun.

Sleeping bear stretched his haunches, and over time, the flower of understanding bloomed.

When the Cloud Father called for the Sun to come home, many yellow birds did follow the winds of that time ...

... but the sun remained the same, so all the corn of the harvest was ripe with wealth and goodness.

This we learn from the wisdom of the teepee of the happy pipe.

byiamBYoung said...


I'd like to book a party of four for the teepee of happy pipe for Saturday at 6:45.

Speaking for the group, we don't care where the sun is, but would prefer to be seated at a table that is not under the stretched haunches of sleeping bear.

Jus' Sayin'


Sam said...


your original conversation with FOFOA in the comments section on his blog in 2009 took me from a casual gold bug to a full blown trail walker. Thank you for that!


Michael dV said...

My experiences with the 'flower' ended, many, many moons ago, when I realized it made me a paranoid lunatic and that I much preferred being clear headed to being rolled in a ball in the closet listening for police sirens. I do enjoy the fruit of the flower at 80 proof however. Would that the calories of the flower were the same as the calories of the fruit however.

SC said...


your original conversation with FOFOA in the comments section on his blog in 2009 took me from a casual gold bug to a full blown trail walker. Thank you for that!


Agree completely with these sentiments.

Motley Fool said...

Gold wire


The posts confiscation anatomy part 1 and 2 come to mind.


I presume you making an appearance implies you find the current market dynamics to be of interest. ^^

Anyhow, welcome.


Motley Fool said...

Err Gold wires

That No should be a Yes. Oops. ;)


Ender said...

Sam, you’re welcome. When you’re ‘on the trail’ there is so much to see. It has been years, but it’s still exciting to know that those old words continue to help people take a second – deeper – look at how things work. The truth regarding how things work is unique for everyone, but the fundamental principles remain the same.

Intuitively, it feels like there is a wind of change blowing. Each time I’ve felt this before, the rules change. Fortunately, the further out of the system you are, the less of an impact the new rules have on you! My friends don’t fret your debt – take settlement.

For those of you that follow the great golden wizard (Sir Sinclair), keep in mind that he too is learning – yet he doesn’t appear to be actively looking - like all you are. We need people that are willing to teach about physical gold ownership and what it means. Looks strongly at this and keep in mind that many people must first go through the price in order to get to the value.

Be precious today, tomorrow will be better!

Ender said...

Sir Motley Fool,

A few years ago when I would talk to someone about gold, the first response that I would get would be something like – I can’t buy gold, that’s too expensive! Today, we find that the perception of expense is changing – ever so slightly. People are not ruling it out as fast as they did before. This, my friend, is a very interesting new dynamic!

As many of you might already know, my understanding of the Freegold Concept is rooted in the idea that physical gold is money for and – more importantly – of the people. People have to relearn how to value gold. As they do, they will learn to stand with one foot in and another out of the system. Keeping your financial balance will be easier to do as we learn to make settlement of the debt. In time, the full function of gold will organically come into play. But all of this hinges on people learning to value gold.

Stand strong and hold the hand of someone that is just starting to reach out. We are all in the same boat, let’s make the best of it.

Bright aurum said...

What is the meaning of this?

Nickelsaver said...


" understanding of the Freegold Concept is rooted in the idea that physical gold is money for and – more importantly – of the people."

You've been around these parts far longer than I, so I think I know what you mean when you say gold is money.

Yet "money" is one of those terms that always begs to be defined in its usage - especially around here.

In as much as gold is that particular item which completes or rather finishes the credit/debt cycle by means of its lack of a counter party, I would call it "monies end"

On the other hand, in its most common understanding, money is synonymous with currency. And in that sense, gold is not money. Rather, if it were to be treated as such, would merely be a wealth item against which to measure value of another item. And this because "gold" is the premier item of value within the physical plane.

But I think we know that money is synonymous with the monetary plane.

And so when you say that gold is the money for and of the people, I think what you are saying is, the "people" are part of the same physical plane in which gold resides - making it an idea item in which to extract value out of the monetary plane.


But as for gold being, in fact money? No sir.

Bjorn said...

More funds than GLD seem to have joined the
Biggest Looser

(From this article)

JulesFlying said...
This comment has been removed by the author.
FOFOA said...



JulesFlying said...

Thanks FOFOA! I'm reading Update#4 now :))

JulesFlying said...
This comment has been removed by the author.
Unknown said...

Now come the lions to fight over the remaining scraps.
A good time for small dogs and shrimp to hide with what's in their bellies? It seems they are like ants to spilled honey.

This bullion bank run, it is ell under way, and has been for a time.

This we grasp from the flower of understanding.

Indenture said...

By popular demand: The Original Ender FOFOA Conversation

Welcome Back Ender.

Woland said...


Dante_Eu said...

Yes, that FOFOA - Ender discussion is one of the best pieces on this blog.

I also like succeeding comments by Anonymous:

Anonymous said...

are you having a conversation with yourself? Seems a bit suspicious to a bystander!?.

September 26, 2008 at 7:59 PM

Anonymous said...

Ender FOFA same person?

September 26, 2008 at 8:04 PM


Agent98! said...

New to me. No FG, but FG unaware still Rushin' to the point (soon $10k/oz at least is mentioned in several places due to various cons), these guys, Max and Stacy, really rip into the CBs, BBs - all the cons. Entertaining :)

Abenomics oops!, and the Japanese housewife triple GDP savers, the Mrs Wattanabes' burning paper onto $10k phys:

Ronald Reagan's finance guy agrees:

Different - no gold, but some EZ background on other takes

KnallGold said...

-Dante, maybe the hit made a good reset here ;-)

-Just to reiterate what I posted yesterday, timely, before the Maybritt Illner show on German TV (where they fell into the moral trap). I know, the beast is starving, the leviathan is on withdrawal. But he never gave a number where the taxation will end.

We in Switzerland have a very good experience with tax competition amongst cantons, to keep things in check. A decades if not centuries long experience . So there lies the long term proven solution. And the reason why there will never ever be a European finance minister, as JR or costata already pointed out. I based my comments on the Gold and taxing issue also on early writings of FOA.

-About the counterproductive nature of the Swiss Gold Initiative, as SNB head Jordan described it today, I had the same conclusion when I read its text and didn't sign it. HMS stuff in the end. When will they ever learn, altough a freemarket idea versus a gubmint based one shouldn't make THAT much of a sell, don't you think?

And now when I keep thinking about it, it shouldn't either be in America with its freedom history.

One Bad Adder said...

Hi Bright aurum: - Not quite getting a correlation there with $IRX - GLD (proxy $PoG)...some might say "POXY" eh?
here we're seeing a much tighter fit ...suggesting the recent $PoG action was nothing more than a "currency" alignment.
This $PoG rout is IMHO not the "IT" we're awaiting IMHO ...and on that basis, I'd expect to see the "lower $PoG highs - lower $PoG lows" pattern continuing for a while yet - FWIW.

One Bad Adder said...

@Ba: - Now THIS Chart on the other hand, is a treasure-trove of subtle nuances sufficient to fill several minutes at least toggling through the timeframes - good luck!

farmersteveg said...

From the "Checkmate" post

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

Not sure what "paper claims" he is referring to, (us$$ ?), but appears global masses are buying physical for sure.

Wouldn't be any blame to cast about if "masses" were made out to be what brought the current USD system down.

One Bad Adder said...

...and whilst we're at it, This Currency:Silver Chart shows how "TIGHT" Ag is visa-vee alt currencies opposed to $PoG where the "relationship" is looser....but "attached" nonetheless.

Anonymous said...

Amazing! Just as Sean discusses the recent takedown and that the bull market is intact the paper price is violently attacked. Unlike any other CEO Boyd understands he's at the helm of a new CB.

Ender said...

Sir Nickelsaver,
Let’s replace money with wealth above and we’ll probably agree.
Sir Dante_Eu,
Ender and FOFOA are not the same person – similar path, but different points of view.
I would encourage you to not be to critical of the statistics that you find along the path. What we see and what is reality cannot easily be confirmed. The numbers build the foundation for the - belief - in the monetary system. That belief is being challenged.
If you find that someone comes to you in order to better understand the gold purchase they just made, be gentle and show them how they just settled or did not settle their debt. Only physical gold held by yourself is free of claims. Many still do not understand this fundamental concept.
Today is another good day.

Unknown said...

Ender's point is well taken. What the wizard reveals is far different than what lies behind the curtain.

Still we must take what is on the outside of the fishbowl and extrapolate to that which is within, if order to follow best the yellow brick road.

This is best facilitated through consultation with the flower of understanding.

Unknown said...

Paper gold is behaving as expected: see-sawing to separate the winners (the house) from the losers (the marks).

And real gold is also behaving as expected: revealing supply and demand dynamics.

What could be more divergent than these two totally incompatible behaviors?

Bright aurum said...

Thanks OBA,
The way I read this IRX/GLD correlation is that IRX fall precedes POG rise and vice versa ;) so it obviously works until it doesn't !

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