Wednesday, April 10, 2013

Open (Window?) Forum



Hello, and sorry I've been gone so long. I've been taking a little time away from the blog to get a few things done around the house. You know, Spring cleaning and stuff like that! ;D

So let's see what's been going on… ah, yes… Cyprus! I consumed a lot of popcorn watching that blockbuster! It sure seems like something big changed in the Eurozone; almost like they're now willing to let the chips fall where they may. And, of course, we had another Snapshot day and MTM Party. Here's the result, and here are the last five snapshots to put it into context:

3/29/13 - €1,251.464
1/4/13 - €1,261.179
9/28/12 - €1,377.417
6/29/12 - €1,246.624
3/30/12 - €1,243.449

That's right, we're back where we were a year ago! In fact, we're currently at €1,213, well below a year ago, and we even dipped below €1,200 for a few hours on MTM Party day.

Meanwhile, GLD has been spilling its guts. Down to just 1,200.37 tonnes from its peak of 1,353.35 exactly four months ago. I wonder where those 153 tonnes went. Remember: for every seller there is also a buyer. And for every sale, there must be a purchase. So when you hear someone saying "sale", think "purchase", and if they're trying to say that the sale of physical from GLD explains (or is explained by) the price decline, just remember that there's much more paper being sold than physical. ;D

This is an open forum, but I'm going to give you a couple of recent discussions that I had in private to set the mood. These are topics that came up in the last thread of comments, which is why I decided to publish them here. The first one is my personal view of GLD, and the second one is about the GOR or the gold:oil ratio.

Do you remember this lead-in from FOA on 10/10/01?

"(pulling a cloth from my pocket and cleaning my glasses while talking)

On most parts of this Trail, I could walk with my eyes closed; while in other areas I would need six maps and two GPSs units just to know north! Right now, I can tell ya what's most likely out there, but in those strange areas; not really sure?"


That's kind of what this post is. While the two topics below will seem like they could each be their own post, there's a good reason why I dumped them here in an open forum. My blog is a tribute to the thoughts of Another and FOA, and these discussions fall a little bit outside the scope of the archives they left behind. So they are a little more speculative, more like my view, as opposed to theirs, but still my view as it has developed with a constant focus on their view. So take it for what it is, and that means with a grain of salt. ;D

In this first discussion, I attempted to explain my view of GLD to a friend. I am well aware of the consensus view or standard explanation of how GLD operates. I am also aware that it is considered indisputable and even fact by most industry professionals. The consensus view is basically that GLD buys and sells bullion based on an arb that the Authorized Participants (APs) take advantage of. If sellers beat GLD so hard that it trades below spot (i.e., below its Net Asset Value or NAV), the APs will buy GLD shares and redeem them for metal which they then sell and make the spread between the GLD price and the spot price. The same works in reverse when GLD trades above spot and the AP buys physical, puts it in GLD and sells the shares earning the spread. This is how GLD "tracks" the metal over time, or at least that's the consensus view assumed by most everyone to be indisputable fact.

My view is a little different. It is not a conspiracy theory, simply a different view. If you can entertain it, even without accepting it, then perhaps you can judge for yourself which of the two views does a better job explaining what we see happening in reality, what actually is indisputable fact.

GLD – The Coat-Check Room View

Hello Michael,

Re: "I currently have a gap in my understanding of how the BBs would acquire the shares of GLD necessary to drain the fund's inventory when they are in need of physical gold."

It looks like the pukes all fit comfortably inside their day's trading volume. So if the BBs need some physical fast, they should be able to just buy the shares as long as they are OK paying above the NAV to get it. But perhaps they don't even need to. Here's a paragraph taken right out of the GLD prospectus. Read it carefully and then tell me what you think. Seems to me that any AP can withdraw any amount of physical up to that which its own clients are holding in GLD shares:

BOOK ENTRY FORM

Individual certificates will not be issued for the Shares. Instead, global certificates are deposited by the Trustee with DTC and registered in the name of Cede & Co., as nominee for DTC. The global certificates evidence all of the Shares outstanding at any time. Under the Trust Indenture, Shareholders are limited to: (1) DTC Participants; (2) those who maintain, either directly or indirectly, a custodial relationship with a DTC Participant, or Indirect Participants; and (3) those banks, brokers, dealers, trust companies and others who hold interests in the Shares through DTC Participants or Indirect Participants. The Shares are only transferable through the book-entry system of DTC. Shareholders who are not DTC Participants may transfer their Shares through DTC by instructing the DTC Participant holding their Shares (or by instructing the Indirect Participant or other entity through which their Shares are held) to transfer the Shares. Transfers are made in accordance with standard securities industry practice.

As far as the Trustee is concerned, all of the GLD shares are registered "in street name" which means "Cede & Co.", the nominee for DTC. And as far as DTC is concerned, the shares are shuffled around electronically on the DTC "books" between the banks and broker dealers, many of whom are also Authorized Participants in GLD.

Now please just think about this for a while. And then think about it in light of what Randy Strauss wrote, which I quoted in Who is Draining GLD:

"These are NOT actively managed funds whose gold inventory is tweaked to ebb and flow based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market — for example, to meet the demands emerging from Asia."

That post was a popular one, but even to this day, more than two years later, I don't think that 99% of the people that read it understood my main point. It requires a slight shift in perspective, and I think that with this shift, a lot of what we've been discussing recently will come into focus. And after you've given this "coat check room perspective" some thought, consider these emails from Ari which I used in The View: A Classic Bank Run. I think they will help tie it all together in a comprehensive view of the BBs and their unique position at the center of the universe for all things forex, XAU, "gold", Gold and even GLD:

"A bank can be "populated" with unallocated gold accounts in two primary ways. It can either be done as a physical deposit by a silly person or by another corporate entity, or else it can occur completely in the non-physical realm as a cashflow event whereby a customer with a surplus account of forex calls up and requests to exchange some or all of it for gold units, whereupon the bank acts as a broker/dealer to cover the deal – occurring and residing on the books as an accounting event among counterparties rather than as any sort of physical purchase. No bread, no breadcrumbs, only a paper trail and metal of the mind. This is how the LBMA can report its mere subset of clearing volumes averaging in the neighborhood of 18 million ounces PER DAY. Just a whole lot of "unallocated gold" digital activity as an ongoing counterparty-squaring exercise.

It is here that I offer the eurodollar market as a very good parallel to the bullion sector of banking. While not a perfect parallel (for all the most obvious reasons) it provides a remarkably good bridge to help anyone who has a good footing on modern commercial banking to successfully cross over to that seemingly unfamiliar territory of "bullion banking". In fact, they need do little more to successfully cross over than to simply think of bullion banking ops as though they were eurodollar banking ops – the difference being that whereas eurodollar banking makes extra-sovereign use of the U.S. dollar as its accounting basis in international banking activities (thus outflanking New York's purview and restrictions), bullion banking engages in similar "extra-sovereign" use of gold ounces within its operational/accounting basis (thus outflanking and overrunning Mother Earth's domain and tangible restrictions).

And just to be sure we're on the same page, the eurodollar is not to be in any way confused with the euro, but rather stands to mean the artificial supply of "U.S. dollars" that "exist" as accounting units in off-shore banks, having originally been authentic deposits of New York's finest export, but which were then subsequently lent on – fractionalized and derivatized into a vast amorphous mass as only a network of cooperating banks can do best."

I'd like to draw your attention to two phrases Ari used in those emails I posted:

"…an ongoing counterparty-squaring exercise…

…a vast amorphous mass as only a network of cooperating banks can do best."


I think it's best to think of the banks' primary job as being that of a middleman, bringing buyers and sellers together, more so than to think of the banks as the direct counterparty their customers. And like banks do maturity transformation in traditional banking, these banks can also do "other kinds of" transformation in their "ongoing counterparty-squaring exercise" which, if you could see it all laid bare, would look like "a vast amorphous mass as only a network of cooperating banks can do best."

-------

The APs are market makers. Your "ownership" of a GLD share is recorded in their books (or your broker's books and then your broker is listed in the AP's book). It is your credit and their liability. As far as the GLD Trust is concerned, the APs own the baskets which means they own the gold. Kind of like saying a bank "owns" its reserves. It's not a scam. It's not a conspiracy. It's just the way it is. If you can adjust your view, this will all start to make sense. I'll send you more as time allows, because this is one of those things that has been bugging me for two years… that no one seemed to understand the implication of that post.

---------

Re: "They do need the shares to redeem the basket right?"

They already have the shares. The shares are already in their name at the DTC. So they can put in physical or take it out as needed. It is a choice they make. And it is not a choice based on the gold price, the discount or premium to the NAV or the popularity of GLD as is the common explanation for pukes and additions.

"These are NOT actively managed funds whose gold inventory is tweaked to ebb and flow based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories…"

---------

Underneath this "amorphous mass" the BBs have a second job—managing the flow of physical gold. This flow has incoming and outgoing. Incoming includes supply from refineries, mints, mines and scrap supply as well as any physical gold deposits. Physical deposits are what Ari referred to as "a physical deposit by a silly person or by another corporate entity." ANOTHER put it like this: "In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion." So physical deposits are essentially someone giving up their allocated in exchange for unallocated (tradable) credits. That's the incoming.

The outgoing is the allocation and shipments of real physical gold. Here's how I clumsily explained it two years ago in The View: A Classic Bank Run:

"So, imagine two "gold windows" at the Bullion Bank. One is marked "incoming" and the other is marked "outgoing." At the "incoming window" you have "the West" lined up to turn in their physical gold for exchange-tradable paper liabilities. And right around the corner you have "oil" lined up taking delivery or allocation. It is this flow that allowed the oil for gold deal to go on as long as it did. But then something happened.

The thing was, the incoming flow from the mines was not exploding as hoped and expected. And the overall flow from the mines combined with the Western gold bugs puking up their private stashes was nothing compared to the sheer volume of the "oil" wealth in line around the corner. At the current price there was literally unlimited demand at the "outgoing" window and a limited supply coming in. This is what Another meant when he wrote that the oil states had already (almost inadvertently) cornered the gold market by 1997."

The BB's "second job" of managing this flow is not unlike a regular commercial bank in 1933 managing its gold coin reserves. If the reserves get too low, it needs to find more. Normally it does this by borrowing them from its central bank. But in a general bank run, even the central bank doesn't have enough reserves, which is when the people get a "bank holiday". At least that was the case before 1934.

The idea of central banking grew out of the need to pool excess reserves to avoid the unnecessary hassle of having to shop around for reserves when they are needed. A central bank is a kind of a gentleman's club or trade union in which the member banks are actually the owners and users. And in this way, GLD is very much like the central bank of the BBs in a pre-1934 sort of environment.

Unlike the physical gold that I like to buy which has a subjective value, GLD shares have a decidedly objective value. That objective value is the NAV (net asset value) ÷ the number of shares outstanding as reported (and revised) by the Trustee. The NAV is simple. It is the dollar price of an ounce of paper gold times the number of ounces held in the Trust. So if I, as a bullion bank, remove some physical from the Trust, this reduces both the number of ounces in there and the number of shares outstanding as reported by the Trustee. The market price or value of a share doesn't change. But the real value of a share changes because I have some inside information that the shareholders don't have.

Do I need to report any new short sales of these shares? Nope. No one has short sold any shares. And yet I now know that there are more shared on my books than I have in reserve. So the price isn't too high, just the number of shares believed to be held by my clients is too high. And those "shares" are actually my liabilities of GLD shares to my clients. In other words, my GLD share liabilities to my clients now exceed my GLD share reserves.

What I have to do now is buy back those excess liabilities and, as a market maker supplying a bid and offer spread to my clients, I might just be able to accomplish my goal entirely in-house simply by accommodating more sales than buys over a few days. In the meantime, I can offset my price exposure by incorporating it into my hedging operations for my much larger OTC (FOREX/XAU) side of the business.

Here's how I clumsily explained the objective value of GLD two years ago in Who is Draining GLD:

"GLD is designed to track the price of gold. It is not actively managed to track the price of gold. Instead, it does so through opportunities that arise whenever it doesn't. Imagine GLD as a big lump of gold just sitting there in Town Square. The price of gold is "discovered" elsewhere and shares in this big lump just trade based on that elsewhere-discovered price. If the share price is too high, then an opportunity exists to sell your share and buy "gold" elsewhere. Likewise, if it is too low, there is an opportunity to sell elsewhere and buy into this lump on display."

I find it useful to think of the flow of physical gold (i.e., the physical portion of the overall gold market) as separate from the paper gold market. Not that it's a separate market with a separate price—parity must be maintained—but that it's simply a flow that must be maintained and it is not an integral part of the price discovery mechanism that we call the overall gold market.

The reason price parity must be maintained is because without it the paper gold market won't function for its majority users, the "FDIC sticker" crowd. Here's where that reference comes from:

FOA: "What doesn't seem to be obvious is the "why for" the paper market grew so large. It grew to dominate because worldwide dollar expansion reached its "non-hedged" peak. In other words, the dollar's timeline was ending as its ability to produce non price inflationary economic gains came into sight.

In order to push dollar holdings further, international players needed and purchased "paper financial hedges" to balance their risk. Within their total mix of derivative hedges were found "paper gold price hedges"; modern gold derivatives. The important thing to remember is that these positions are not and never will be used to demand physical gold. They are held to buffer financial and currency risk associated with holding any form of dollar based asset. To work these items don't need to really perform "dollar price movements" in the holders favor as much as they are present in the portfolio to act as insurance stickers.

In that truth, these paper gold positions act like FDIC insurance at our banks. It can and will manage only a small determined portion of bank runs,,,,, not a full scale failure of the banking system. In a real full banking failure we would all get, perhaps, 80% of our covered $100,000 and 10% of the rest.

The same is true for these gold position's performance; real gold delivery along with true price performance, matching real bullion trading, would be only for the very few. For that matter, an actual functioning paper gold marketplace would be for the very few, too! But, in the same way a bank account owner understands the credibility of FDIC insurance when times are good; the international dollar asset owner will not grasp that modern paper gold hedges cannot be allowed to work until after a real serious price inflationary run begins."

The reason I view the physical portion of the gold market as something separate from the overall gold market is because demand for physical exerts the opposite effect on the overall market as demand for paper gold. Demand for paper gold supports the cohesion of the overall gold market and demand for physical stresses it, IMO.

What I picture in my mind is like a subterranean stream. This stream is the flow of physical gold from the mines and refiners (and all other physical gold inputs combined) into the BBs and then on to the East, "oil" and the old world Giants. With the BBs in the middle, there is always some flow coming in and some going out. And during whatever time the gold spends (or "eddies") in the possession of the BBs on its journey, it could be considered the BB's reserves (the slack in their rope). The rest of us trading paper gold look at that swirling "eddy" of BB gold and believe we have a valid bid ticket for our portion of it, even though 20 others believe the same thing. We think, "all I have to do is bid a little higher and take it! Insane, but that's what is going on! Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!" (FOA)

Over time (say, through the 80s and 90s), the size of the BBs' eddy of gold will stabilize, and then it will appear to just sit there. Everyone can look at it and say, "wow, look at all the gold those BBs have!" In fact, the very same pieces (bars) may lie very still in the same place for years and decades even, creating the illusion that they are no longer part of the subterranean flow. Once stabilized, the incoming gold is simply matched up with the outgoing and the eddy appears almost separate from the stream. But it is not.

Now picture this eddy bubbling up to a surface pool, visible to all. From the paper gold surface it appears to be a pool of still water (a hoard of physical gold lying still), but what is unseen is that the pool is actually connected to a subterranean stream deep below the surface. From time to time the level of the pool rises and falls, revealing that there's something going on under the surface, though few understand what is actually happening down there.

To most eyes, this is simply a large hoard of gold just sitting there. And there is a time value to such a hoard. Gold bars don't generate offspring, but dollars do. Enter the "coat check room idea" c.2004.

That gold "hoard" wasn't "sold to the public" as it wasn't actually owned by the BBs in the first place. It was simply their reserves, the slack in the flow, that portion of the flow of physical from one owner to its next owner that is in the temporary possession of the BBs at any given time. If enough of the global flow passes through the BBs, and if that flow is big enough, and if the portion in their possession can be stabilized, then it can appear to lie still and be "owned" by GLD investors even as it is really only an illusion of the management of the slack in the flow. This is the "coat check room" view.

I think the utility of a view or a perspective is in how it explains or clarifies what we see, and how it helps us understand events as they unfold. It is like a lens that we can look through, and it is possible to have multiple lenses in order to check the focus and field of view of one versus the other. Yet most people simply pick one lens, usually one that was handed to them or the one that everyone else seems to be using, and stick with it and it alone. It's like buying an SLR camera with an interchangeable lens and only ever using the lens that came in the box, never trying a wide angle or a really long lens.

FOA: "I (we) expect none of you to consider anything said here as credible. Everything is given as I understand it. If you came with a notion that I am someone who sees the future, grab the children and run far away. For these Thoughts, and my ongoing commentary, are meant to impact exactly as the "gentleman" said they would. People hear them, and whether believed or not, the words leave a mark. A mental mark on the trail, if you will. And later, after the world turns, our little "stacks of rocks" will be easier to understand next time you are passing this way. In fact, your ability to find your own way will forever be enhanced for having seen this path in a different light."

I just love that quote because it explains this concept of the lens in a way that disarms the critics. It's like, "here's a lens, stick it in your bag, and then maybe someday when you can't make sense of what you are seeing you'll try it on again and everything will suddenly come into focus." He's not saying, "here's the right lens for all situations, so you might as well throw away yours and superglue this one onto your camera." But like I said, it's tough to get some people to even understand that the lens that came with the camera is even removable/interchangeable.

-------

So back to our "coat check room" lens. When I put this lens on my camera, some funny-looking things come into focus. For example, if this view is correct, then one implication is that these pukes or redemptions could actually be happening in the exact opposite direction or chain of events than the standard explanation implies (e.g., physical delivery or allocation in excess of the incoming flow is promised to someone, then it is "removed" from the Trust through a technical basket redemption, then the BB's GLD share liabilities are bought back from the public). You see this. I can tell from your replies. And yet you are still looking for some arb mechanism or some link that maintains the parity between paper and physical. What I see is that none is necessary. What I see is all that is necessary to maintain parity on the surface is that the subterranean stream doesn't run dry.

Now there are two separate things here. There is what the view reveals, the picture I see, and then there are the unseen things going on behind the scene that I can only speculate about. For those things unseen, I try to come up with a plausible explanation that fits. That doesn't necessarily mean the unseen is happening exactly that way, but it lends its plausibility to the picture and to the lens. Above, I said that redemptions could be happening in the opposite direction. But that doesn't mean that ALL redemptions MUST be happening that way for the view to be correct. Some could be happening in the standard explanation direction as well. So with this view we could say that the lens that came with your camera is not necessarily lying to you, it just isn't showing you the whole picture [if the "coat check room" view is correct].

My blog is a tribute to A/FOA, so they are my primary lens for all things within their field of view. Unfortunately GLD didn't even exist when they were writing, so I can't claim that this "coat check room" lens is precisely the same lens. In fact, it would be a mistake to assume that I give the "coat check room" view equal weighting to the A/FOA view. I certainly try to avoid giving that impression. So if I seem a little hesitant to write more extensively about the GLD pukes, or if I seem to hold back a bit of my view when I do, that is why.

Ari is my closest proxy to A/FOA, and I know through email exchanges that he shares this view of GLD which gives me additional confidence in it. Plus, of all the competing GLD lenses (I can think of two or three others if I count the ones that say there's no actual physical in the ETF), I think this one fits best with the A/FOA view, and I think it explains what we are seeing better than the others.

Anyway, the point I'm trying to get to is that fitting this view with the A/FOA view and the big picture of what we see happening today leaves me with two primary mysteries. The first is why and how a trend developed such that Lance Lewis picked up on it and even gave it a name. And the second mystery is how and why the subterranean stream hasn't frozen up yet, seeing as it was essentially cornered by the East back in 1997.

The best, simplest and most fitting explanations that I have found for these two mysteries come from Ari and Another respectively. When I add them to the big picture, I have a full view (perspective) on what is happening today that suddenly makes more sense than anything else I've seen. Whether it is exactly what is happening today is uncertain, but I have yet to see another view that even comes close to explaining everything we see.

The first mystery is why and how the price of gold tends to rise for a period after large GLD redemptions. Lance labeled it as an indication of a "significant bottom" in gold. But I'm not sure that is correct. As you pointed out, we had some large redemptions (pukes) in August 2011 near the peak. So if it's not a bottom symptom, what is it? Could it be a stress symptom? Could it simply be the visible symptom that the outgoing flow of physical suddenly overwhelmed the incoming supply?

Now it generally happens after a drop in the price of gold, even though that's not what happened in 2011. So, with my view, that would indicate a lack of demand for paper gold. In Aug. 2011 there was plenty of demand for paper gold, and then it suddenly dropped off a cliff. One explanation for that could be that the tremendous build-up of XAU paper we saw in Q1 of 2011 on the survey had to be unwound when the demand suddenly fell. Perhaps too much paper was created in Q1, preventing the price from exploding during that quarter, then when paper demand suddenly fell, the price rise seen in July and August couldn't (and didn't need to be) maintained (levitated) artificially.

But, perhaps, when the price drops in the absence of a prior large paper expansion and a subsequent (almost parabolic) price run-up, a drop in XAU paper demand (like we saw in May 2012) is more threatening to the physical flow and some sort of official support is needed at that point to prevent it from spiraling out of control. I'm talking about the combination of overwhelming physical demand which stresses the cohesion of the overall gold market combined with low paper demand giving it no support. See my posts The Two-Legged Dog and Legs for more of my thoughts about "official support" for paper gold.

As I mentioned earlier, I think that the BBs can manage "too much paper demand" on their own. They can normally keep the price from rising too fast in the face of more buy orders than sell orders by simply expanding the paper supply and delta hedging their exposure in another part of the gold market or even in correlated markets. But I think they have less control when the bottom drops out of the demand for their paper (more sell orders and very few or no buy orders). When that happens, if "artificial support" is required (for whatever reason), I think it must come from an external source with a motivation other than profit from the trade, like a CB.

And this is where Ari's "Snapshot day" theory comes into play. If that view is correct, then why not on pukes too? Perhaps (and this is just a guess), ever since late 2008 there have been two main times when the CBs step in and buy up some paper XAU on the exchanges to fill in the lack of public demand: for Snapshot days (but only when needed) and for GLD Pukes (when needed). We could call this the "official support" explanation. And, if you can accept it as plausible, I think it explains the trend better, more simply and more completely than the other explanations.

Now back to that subterranean stream. Even with the pukes, there must be some explanation as to how and why it's still flowing. If the demand was as high as Another says it was in the late 90s, and now the mine supply is roughly the same while the mines are no longer hedging 10 years out and the CBs are no longer "primary suppliers" then where is all the gold coming from to keep it flowing? This is the second mystery, and I believe that Another gave us the answer. It may be just as hard to swallow as "official support", "coat check room" and "snapshot day" for mainstream analysts who can't afford to utilize these lens, but if you accept it as plausible then it becomes the final missing piece of the puzzle. And that answer is gold *IN SIZE* being traded at a huge premium to spot and a discount to the expected revaluation price.

When Another said that the flow of physical gold was cornered, the attribution of the corner went to the Giants, both Asian (Big Trader) and Middle Eastern oil (the Saudis). If you can just satisfy these two players then the flow from the mines must be enough, as evidenced by the fact that the LBMA continues functioning today.

Earlier I mentioned that I like to think of the banks as middlemen, pairing buyers with sellers (buyers and sellers who may never meet each other), rather than the banks being the direct counterparty to each of their clients. And this view extends to the BIS brokering these *IN SIZE* deals as far as I'm concerned.

So imagine that the CBs (aka the BIS), working through a "third party" who would be the broker, finds people with gold *IN SIZE* who would be willing to part with it at a HUGE premium to the LBMA price, and they match these sellers with the Giant buyers on the other side. Both sides are getting a deal in the present, but the Giant buy side would have to be given some assurance of an inevitable revaluation. That's the catch that I can see. There must be a credible promise given. The alternative is that the Eastern Giant simply buys paper gold, as much as he wants, but for a Giant that wants physical, there must be an assurance of some kind.

Or maybe they didn't need to find Giant sellers. Maybe the ~2,100 tonnes sold by the European CBs (including the BOE) since 1999 was enough at the right price. I don't know and I don't even pretend to know. But that only takes care of the supply side. The demand side, if Another was right about gold being cornered, must have received a credible promise of some kind. And this implies a plan which implies a target date for "assertively rolling forth the freegold paradigm" as Ari wrote in 2010.

When I put all of these pieces together, they fit together like a puzzle and present a clear picture even in the absence of A/FOA's guidance for the last 11 years. The fact that it all fits together while remaining logically consistent, as well as consistent with A/FOA and what we see happening, is the best evidence I have that it is the correct view. That, and also the fact that I have yet to see another lens that explains everything plausibly and comprehensively.

Everything fits, especially Ari's read of the central bank discussions around 2005 that seemed to be pointing to 2010 as the next window. And then pushing it back after the financial crisis in 2008. And assuming that no one wants to intentionally crash the current system, which I do assume, then they must be confident that the removal of support is all it will take. And they would know this because they would also know the level of support they had been providing. The more support necessary to prop something up, the more confidence you'd have that the mere removal of support would bring it down, enough confidence, perhaps, to make assurances that would be credible enough that they would actually work to prolong the system until your targeted window. Which brings us to today.

In addition to Ari's intuition and the January 4th snapshot day, we now also have a significant string of GLD redemptions without the timely (mysterious) levitation we've grown used to seeing in the past. As Victor has been pointing out, if this time was to follow the pattern of last time (March 2012), then we should have seen a $100 increase in the $PoG by March 4. That would have been at least $1,675, instead it went nowhere. I'm not making a prediction here, just pointing out the obvious signs.

Michael, you wrote:

"My gut feeling is that 60 tonnes/week is stressful but not at the limit, and that the limit would be more like 150 tonnes in a week, and that would about hold whether it occurs in a day or evenly distributed through 5 days. But another sign of stress would be if GLD gets drained at a slow but steady and continuous rate such that its inventory drops below the 1200-1300 range. Below 1070 would be my first level to watch, and below 700 would be trouble."

I view the pukes as a visible symptom of stress under the surface. I doubt that we can accurately judge the level of stress by what we see. I think we can only know that there is stress.

Unlike a well-made, good quality glass lens, a crystal ball provides only a highly distorted, bubbly-looking image. When I look through my crystal ball right now, what I see is that we won't get to see GLD whittled down even to those ranges you mentioned. As I said above, these redemptions could be happening in a chain of events that is the reverse of what you'd normally expect. First the gold is promised to someone, then it is taken out. And if this is the case, then I'd expect at some point it all gets "promised" at once and then the music stops, the "price" is frozen and the shareholders cashed out. From my old post, The Waterfall Effect:

"The Waterfall Effect describes the "overnight" collapse of a complex system, without even the forewarning of a run up (like gold in 1980 or the dot com run up). The following two graphs demonstrate this effect as seen in the collapse of Roman money in the 3rd century AD…"

"…Entropy is the amount of chaos, disorder or unknowable elements in any system. A system has low entropy when it is highly organized, ordered, controlled, contained, and all the elements are known. A system has high entropy when it is disordered, chaotic, out of control, and many elements cannot be known. Science teaches us that everything in the universe ultimately ends in absolute entropy (chaos) through the passage of time. In other words, ashes to ashes and dust to dust.

One thing that can affect the natural progression of entropy along the way is adding energy into a system. In certain closed systems with a high degree of order and control, adding energy can actually reduce entropy, increasing organization and order. This can be seen in the wonders of life and reproduction. In the closed system of a baby, we add energy (food) and watch it grow. Ultimately, though, entropy wins out and we return to dust.

But adding energy to a system usually has the opposite effect. It speeds up the journey to absolute entropy. This can be seen in an explosion. A bomb can take an entire building from low entropy to high entropy in a fraction of a second…"

The point of mentioning this concept from an old post is that I imagine the graph of GLD inventory will ultimately look more like a waterfall than a gently-sloping stream.

You also wrote:

"FOFOA, if I understand you correctly, you are saying that GLD will always track the XAU price, and only the XAU price. Thus, GLD would be entirely drained of gold before the gold-XAU parity is broken."

A few things here… First, why is there any discussion about GLD tracking the price of gold? It tracks the price of gold because it has an objective value that includes the price of gold in its calculation formula. It tracks the price of gold because an arbitrage opportunity arises when it doesn't. An arbitrage opportunity arises because arbitrageurs believe an arbitrage opportunity arises, simple as that. It is either an actively managed fund or it is not. I think it is not. And I think the arb that keeps it close to the Comex POG is an all-paper arb simply because people (arbitrageurs) believe the opportunity is real and therefore make it real.

Second, yes, I think GLD would be de facto drained and trading stopped before parity is broken. And I expect that would all happen while you are asleep. From Unambiguous Wealth 2:

"And this is a key difference between the average guy and the big money. Big money isn't used to being kept waiting. Big money owns the "bus company". They know the buses aren't going to run before the little guy. They panic early. There was an electronic bank run around the time of the Lehman collapse. That was one of the reasons why governments around the world stepped in with fresh deposit guarantees. But there were no lines outside the banks to alert the average guy to what the Giants were up to…

There's only one way to beat the Giants to the gold, and that is to run in front of them."

Lastly, keep in mind that the price you see is a derivative (the product) of sales that already happened in the past. To us shrimps it appears to be the price of the immediate future, that is, it is the price we'll pay right now if we choose to execute our purchase. But this is only a shrimp illusion. In reality the quoted price (bid and offer—it's actually a spread and not one price) is the result of sales that already transpired.

Imagine you are a hypothetical Giant with a few billion in your briefcase and you want a lot of gold. So you fly to London and somehow get yourself in to observe the daily fix. You are waiting, calculator in hand, to hear them quote you the price you will pay for your gold, since the fix is supposedly the cash price of physical. So they call out the AM fix and you immediately step up with your cash to take advantage of this awesome deal. What do you think happens next?

Or let's say you don't care to fly to London, so you just phone up the bullion desk at JP Morgan where you've got $5B cash sitting in your account after you just liquidated your APPL shares and BTC. Let's assume you get the bullion desk on the phone just based on your name without the guy actually looking at what's in your cash account. You ask him to quote you a price for gold. He asks, "are you buying or selling." You're a clever guy so you ask, "what does it matter?" He says, "OK" and proceeds to quote you two prices, one for buying and one for selling. You immediately say, "I'll take 100 tonnes, allocated." What do you think happens next?

Let's say you're really clever and figure out how to get a lot of physical all at a good price, rather than buying over time as most Giants do. You're a little late to the big game and you need to play catch-up! Let's say you read FOFOA, you understand Freegold, and you believe my bellwether who says the technicals suggest the $PoG is heading to somewhere between $1,050 and $1,250 by the end of 2013 (he actually predicted that). Just to be safe, you figure that a price of $1,450 for all of it will make you happy!! So how would you do it?

Well, the way to do it is to lock in your price on the FOREX. If you can buy paper gold at $1,450, then you can take your time buying physical wherever you can get it, at any price, and then sell off your XAUUSD position in bits and pieces concurrent with your physical acquisitions. Even if the price skyrockets to $2K you'll still be getting it for $1,450 because the paper you'll sell will be $2K at the time you sell it. You've locked in your price!

The first problem you will encounter is that your "footprint" is too large, even for the FOREX. Your limit order of 100 tonnes at $1,450 will only be partially filled and then the price will skyrocket. You see, as the price hits $1,450 it is only a reflection of past sales. Sure, it is an offer price, but all you will get is whatever has already been offered by sellers on that exchange at $1,450. And that's just paper!

Anyway, enough hypotheticals. But I will note that it seems paper gold is used in this way to accumulate some physical. Once you own paper gold, even XAUUSD, you can either ask to have it allocated by the bullion bank and find out what they say, or you can simply use it as a locked-in price and sell it off as you buy your physical closer to home, on a slower timeline, without worrying about price changes.

I guess my point is that the price we see is always the price of the past, it is never the price of the future. And also that there are many ways the physical flow can be stressed even if the BIS has the biggest Giants in check. If enough "clever" small giants were doing this, I could imagine it would tug on the LBMA through the dealers' network. Then again, I'm sure that none of these "small giants" read FOFOA or understand Freegold, so it's probably just something else that's stressing the subterranean flow right now. Perhaps official support has been withdrawn.

Alright, I think that's enough of "my view" for today. ;D

Sincerely,
FOFOA
_____________________________________

GOR – The Gold Oil Ratio



Two years ago I started thinking about the GOR (gold oil ratio) and how it has been relatively constant ever since an American oil company first struck oil in Saudi Arabia. (Read more here. See also US Mints ‘Gold Disks’ for Oil Payments to Saudi Arabia.) Then about a year ago, while I was working on Peak Exorbitant Privilege, I noticed a correlation between the GOR and "the privilege". (Important: Always keep in mind that correlation does not necessarily imply causation.)

I don't pretend to know if the USG "wants" oil prices higher or lower. There's an argument that high oil prices support the strong dollar and the perpetual US(G) deficit, but it's a double-edged sword. What I do know is that the dollar reserve system needs oil and gold to remain correlated commodities as they have been for the last 67 years. So I think the $PoG is kind of stuck where it is right now. If gold rises, oil needs to rise in tandem or else it's curtains for the dollar reserve system. But if oil rises too much, then it's probably curtains for the dollar anyway. And if paper gold falls, well, you know what I think about that. It's what I call a Catch-22. A no-win situation for the dollar at present. It can't afford a big movement of either in either direction, IMO.

The GOR ranged from 9 up to 29 for the last 67 years. What I noticed while writing Peak Exorbitant Privilege was that the extremes of that GOR range correlated with times when the US exorbitant privilege apparently retreated quite a bit. It seems that somewhere around 15 in the GOR is the sweet spot for the $IMFS, and dropping below 9 or up to almost 30 was somehow stressful on the $IMFS (or at least indicative of stress) and something had to give. Of course, if you understand ANOTHER (which I think I do), the GOR will gap up or phase shift from this range to around 1,000 when gold is revalued in real terms. But maybe we should call that the FGOR since comparing it to the GOR is like comparing apples to oranges. Anyway, I guess I am expecting the GOR to plunge from 16 down to around 9 in the final moments before revaluation. That could either be the paper gold price falling below $900 or the oil price rising to $200. Either way, I think it will portend imminent transition to the new Freegold paradigm.

Here's the GOR data going back to 1946, the very time the world's largest oil refinery first went into production as a joint operation between the Saudis and the American oil companies (Saudi Aramco):

Annual Average

Gold and Crude Price

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

Consider that the GOR peaked at 29.388 in 1988. That peak correlates with a dramatic drop-off in the US trade deficit from more than 30% of total trade in 1987 down to only 5% by 1991:


Here's the data from that exorbitant privilege chart which was explained in Peak Exorbitant Privilege as the percentage of US imports paid for with paper promises rather than actual exports:

1970 -4.14%
19712.14%
19727.49%
1973-2.13%
19743.43%
1975 -10.32%
19764.09%
197715.17%
197814.30%
19799.88%
19806.66%
19815.21%
19828.07%
198317.84%

198427.26%
198529.66%
198630.88%
198730.31%
198820.99%
198916.05%
199013.13%
19915.11%
19925.98%
19939.86%
199412.28%
199510.82%
199610.89%
199710.38%

199815.11%
199921.39%
200025.99%
200126.42%
200229.85%
200332.42%
200434.23%
200535.50%
200634.04%
200729.63%
200827.48%
200919.49%
201021.39%
201120.97%

What drew this correlation to my attention was that there is also a dramatic drop-off in the US trade deficit that corresponds with the two times the GOR hit the bottom of its range as well. So I’m considering whether both extremes might be somehow tough on the $IMFS (or at least indicative of stress—an effect or a cause of the stress?). In 1976 the GOR hit 9.522, its lowest point in 30 years, and the US trade deficit subsequently fell from 15% in 1977 down to 5% in 1981. And then in 2005 the GOR hit its lowest point ever at 8.888 which preceded a drop in the trade deficit from 35% in 2005 to 19% in 2009:


Is it possible that the correlation may have something to do with the ability of our trading partners to save their surplus production revenue? If you think about the oil price as, in general, a representation of or proxy for the general price level of goods flowing to the West, and the (paper) gold price as the determinant of the eastward flow of physical relative to the westward flow of gold, it starts to make a little sense.

With a low GOR, general prices are relatively high providing a high income to the producers, but with a low paper price for gold, the underlying physical flow might be relatively tight. So while the net-producer can get more gold by weight with his relatively higher surpluses, the Superproducer finds it difficult to get the larger quantities of physical his currency profits are telling him that he should be able to get. Notice I'm not talking just about oil Superproducers. With a low GOR everyone will have higher profits in real (gold) terms.

Look at the prices of oil and gold in 1976 and 2005 above. Oil was very high relative to gold, so oil currency profits should have brought in massive amounts of gold (by weight). But if that massive tonnage of physical gold was not readily available, this would stress the system and something might have to give, like, say, the US exorbitant privilege.

With a high GOR, on the other hand, the general price level is relatively low and, presumably, paper profits are also relatively smaller (at least relative to gold by weight). So while the Superproducers face no problem getting all the physical their paper profits say they should be able to get, they are also concerned that they are getting relatively less gold (by weight) and that, *once the (paper) GOR reverts back down to its mean*, their foregone purchasing power during that high GOR period will have been cut in half. So, perhaps, they spend more of those overseas dollars in the present which then make their way back to the US, raising the general price level and decreasing the US trade deficit.

The bottom line is that our international monetary system has needed a revaluation in the real price of gold (not just the nominal price) ever since WWI (see Once Upon a Time for more on what happened in the 1920s). That’s a monetary revaluation of gold and a monetary devaluation of the dollar (as opposed to devaluing the dollar against everything else). In 1971 they opted instead to raise the price of oil and everything else for reasons we now know (thanks to ANOTHER). But today the problem is a bit more complicated. Today they really need a gold revaluation (only physical gold revalues and nothing else).

As I have said in the past, every ounce of physical gold in the world is owned by somebody. Even the gold in the ground is ultimately owned by the sovereign of that land (in extremis). So, in essence, every last bit of physical gold in the world represents a counterpartyless asset. What this means is that a revaluation of physical does not increase anyone's liabilities. Paper gold is another story.

If paper gold were to be revalued along with physical, the increase in the nominal (meaning in terms of dollars) liabilities of the bullion banks would break the system. But what about a gradual rise in paper gold to, say, $3,500 per ounce? At a GOR of 15 that means an oil price of $233 per barrel. At a GOR of 30, oil would still be almost $20 higher than it is today and then something would have to give.


This view fits with everything else that I expect to ultimately unfold. So it seems like today's (quote-unquote) "gold" can't go much higher or lower without ushering in the new financial architecture. Sometimes I wonder if that's why we've been stuck here at $1,600 for a year and a half now. If I was supporting the current system, that's where I'd want it to stay, since any big move in either direction will be very stressful.

FOA (08/09/01; 10:27:19MT - usagold.com msg#93)
"everything to do with a gold bull market"

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

Sincerely,
FOFOA

The first time I used this song was more than three years ago, and I still feel it, more now than ever! ;)

641 comments:

«Oldest   ‹Older   201 – 400 of 641   Newer›   Newest»
Anonymous said...

Hello all,

over the years I have popped into Fofoa from time to time in order to get up to speed with the proponents of holding the physical and its various utility as currency, trade, barter a store of wealth... fill in the blank here.

While I don't want to comment on gold per se, I still feel that it is currently being priced as a commodity and not as "currency" which puts it in the same boat as silver. So anyone who wishes to poo on AG might want to take a closer look at where they sling stones. anyway,

The real purpose of my post is to clue anyone who is interested into how events have affected prices here in Japan. Since newspaper articles and whatnot are often translated it can be tough to draw the proper conclusion based upon a limited and therefore flawed set of data.

Prices are up across the board. Food prices especially, but energy as well. Gold & diamond jewelry are moving up 10% in price tomorrow. Stores are calling households to sell their gold but they have been doing that for decades so this is nothing new. The 10% across the board increase in prices haven't occurred in a long time.

Mr Abe and his LDP have a political districting to thank for their current job status. The rural districts are promised pork while the heavily settled urban dwellers get the shaft. How long that will be remain to be the case is anyone's guess but if I am hearing rumbling about the subject it means its on the menu here. Granted the menu has quite a lot on it but rural urban redistricting is moving up the list.

Japanese are NOT lining up to sell their gold or other precious metals. That is a lie. The Japanese that are selling their metals are doing so for a specific purpose, such as their grandson wants a new car for uni or its time to replace the bathroom fixtures. They are not profit "taking" nor is there panic. So do not believe anyone who says there is. That is of course assuming you believe me :)

I would expect things to become interesting around Summer when electric prices will really start to crimp excess spending. My guess is that the LDP will then authorize the nukes to be turned back on.

Mr Kuroda and Abe have chosen their path. They are going to walk down it hand in hand too. As long as rural districts control the political process the LDP will have carte blanche to play with the system however they choose.

The band continues to play and the other shoe is still firmly on the foot.

Finally a comment on gold miners. I saw a comment from someone saying that gold can be mined for $1500. I found this quite surprising because I had "heard" gold can be mined at about $1000.

would love to hear what the other commentators feel about mining costs.
Sayonara minasan

Nickelsaver said...

http://youtu.be/q7vtWB4owdE

Dante_Eu said...

@Biju:

This could go on for months even years.

I would like to see it drop as low as possible without bouncing back. Under 1.000$ for sure, hopefully a lot lower.

That would be perfect to test the theory. If physical gold in-size is then avaiable for extended period of time, the test has failed. And €-fraction would probably loose the war with US$.

It would not be the first time for Europeans to screw things up. Also, remember that the price of gold is arbitrary, ie. it can go as high or low as the superorganism (market) needs it to go.

Until then:
"We watch this new gold market together, yes?" :-)


PS The biggest scandinavian dealer has now corrected its prices:

100g goldbar:

Buy: 29.602 SEK
Sell: 30.837 SEK

Anonymous said...

sub $1000 is a very interesting number

Dr Faber said $1300 is a very real possibility

exciting times and Chris Hedges tells it like it is

http://youtu.be/7zotYU21qcU

J said...

It's amazing to see the price of gold dropping so fast. It's certainly got me thinking about how to recognize THE 'correction' that marks the beginning of the end of the current way of things working, vs a temporary thing that might continue for a while. I am feverishly trying to decide how much of my remaining paper to convert to gold NOW versus waiting to see how much farther things slide (and risking missing out on converting some paper). Fun and games...

Dante_Eu said...

TNT - Now We`re Talkin`:

Gold down 100$ as I speak (77€)...

Only 300$ to go...come on boys and gals...don't disappoint us now! :-)

J said...

Dante Eu, why the focus on $400? I must have missed the significance of that size drop...

Dante_Eu said...

@J(the new one):

Just a feeling I have. We'll be closer to 1.000$ and then 999$.

999$ would be symbolic and maybe "all bets are off"... :-)

J said...

Ah... It's not that long ago that we saw that price though, in earlyish 2009? It didn't seem symbolic then, except in an upward sense. Not trying to be smart, just thinking aloud.

DP said...

The psychology of down is quite unlike the euphoria of up?

Polly Metallic said...

It may not have to drop as far as some suppose. My pet scenario is that all markets will be in turmoil and the gold market will be one of many markets that shuts down while the new financial architecture is put into place and then presented to the public.

Dante_Eu said...

@J (not the old one):

Neither do I.

I just think that you can throw all charts out of the window. Together with all support/resistance levels, up or down.

If this is "the one", it will be one for the history books.

@DP:

Suomi Rules!

"Perkele satan, "gold is falling" för lite procent!" :-)

Anonymous said...

Independent of whether Cyprus will or will not (be forced to) sell some of its gold, has anyone read a definitive account of whether the amount up for discussion is in terms of Euros or tons? Every article I've seen, including the dozens of zerohedge posts, equates the two, but clearly there is a substantial difference.

Edwardo said...

I agree with Dante_Eu that charts are only applicable here if the old paper gold system is still intact. It's too early to make the call on that one, and, unfortunately, it will likely be impossible to make such a determination until it is too late to take advantage of it which, of course, is why one needs to be positioned early.

To my eye, the bounces that are occurring amidst the waves of selling seem, so far, like classic short covering reactions, indicative of nothing else but short covering. There is no sign of capitulation as yet, and, again, if "this is it, and it is now" there won't be capitulation as that implies a market that, while roiled by panic, is still extant. "If this is it and it is now" is manifesting there will simply be a cessation of trading.

Anonymous said...

Friends,

FWIW, Gijsbert Groenewegen is reporting at 321Gold that ABN AMRO defaulted on physical delivery, and will be paying the customers in cash instead.

"Let me give you a taste of how reliable and safe banks are and the counter party risk they represent! The largest Dutch bank, ABN AMRO, defaults on physical gold deliveries to customers!!

A couple of days ago, an important milestone was reached in the precious metals market as one of the largest banks in Europe, ABN AMRO, defaulted on their gold delivery contracts, and informed their customers there was no physical gold “available” for delivery. What does that tell you about the physical shortages in the market and manipulation of the gold market, do you need any other evidence!! Goldman just brought out a forecast that targeted a gold price of $1,300/oz!?"

Link here: http://www.321gold.com/editorials/groenewegen/groenewegen041513.html

The default is also reported here:
http://forexmagnates.com/abn-amro-halts-physical-gold-delivery-another-sign-all-trading-is-simply-for-pieces-of-paper/

I obviously don't know how close any others are to defaulting on deliveries, but certainly the lower the paper price before the announcement is made the better.

Anonymous said...

Could we be witnessing the collapse of the paper gold and silver markets?

I’m already seeing even higher spreads and ship dates for physical than just last week. FOFOA has always maintained that the separation between the paper and physical markets were a precondition for the emergence of Freegold.

I’m just wondering if the recent collapse in the paper price is the beginning of that process?

Goatmug said...

Yes, I've said for a while that gold and silver will be worth zero (in the paper market), but you won't be able to buy at any price. Bring it on.

$1350 and $1200 seem to be well within reach -
http://scharts.co/SMzQiE

Unknown said...

When we consider the outrageous moves by Japan and The ECB's promotion of the "depositor bail-in template", there may be a certain relative strength in the dollar, reflected in the weakening $PoG, but FX followers would see that clearly ("... at first Gold and the dollar rise together...").

Moreover the "volatility" of "100 dollar intraday swings" is not present, though we have seen a $200 plus drop in 30 days, which is relatively novel considering the prior range bound levels of nearly two years.

There have been numerous plausible explanations offered for the downward price trend of paper gold, and some of them may impact the fall as described, some not quite, and some not at all. But the price has dropped further than needed by the plunge protection conspiratorists, so we have to consider that a fundamental change is taking place beyond the control of the GATA "suppression" theories.

In summation, though we have always known paper gold is going to ZERO, the path it takes to that destination is not really as interesting to me as the destination.

I have stated here many times that we will watch paper gold fall to 1700, 1600 1500, 1400, 1300, 1200, 1100 (and right about here is where I was considering buying more if available, because this is getting lower than my starting point and I can always stand a few more rands if I can afford them).

But we are seeing (with much interest on my part) a tightening of even shrimp supply at much higher present numbers and perhaps bigger premiums already.

I simply LOVE the reports of "what is going on" at the "local coin shops" because these little seemingly anachronistic and umimportant trading venues represent the REAL WORLD, up front and personal, of buying gold with NO PAPER TRAIL and with interpersonal contact among buyers and sellers of physical gold.

That said, I may have to dig into the cash one more time, even though I'm going into paper debt to pay income taxes, property taxes (up 30% again) hazard insurance (up 30% again) and some collectibles that are coming out of the woodwork that I have always said I'd go into debt for if they ever becoame available (now is the time to BUY not sell, and those are giant footsteps that everyone can relate to - blood is in the streets my friends).

I have gone my entire net worth into debt and climbed back again twice, it's all just paper folks and this time it's gonna BURN !!!

Consider: If you can buy assets with paper, including gold, NOW is the time to do it.

Dante_Eu said...

Now down 132 $...

Or 103 €...I don't recall seeing 100 moves in € before ...

Fasten your seatbelts... :-)

Pat said...

FOFOA, methinks you need a bigger window.
2013- The Year of Fahrenheit 451

Nickelsaver said...

NOTICE: We are experiencing extremely high order volumes and our servers are being strained. As a result, the website is slower than normal and we are unable to process orders over the phone. Please continue trying to place your order online. We are working to resolve the issue and appreciate your patience. Thank you for choosing Provident Metals!

ForLiberty said...

ON A DIFFERENT NOTE: someone here gave me a california gold dealer that had only 2% markup, or something like that. I lost the dealer info and can't find it now. Do u mind sharing that dealer again? Thanks in advance.

PA said...

LOLOLOL there is a lot of hate here for anyone providing good advice or a reality check. When gold was 1800 and 1700 I came in here and ALL I said was - "Anyone who cannot afford to lose money in gold or silver should consider selling now because I could see it at 1400 or worse". And I got attacked. Then I came in here Friday and said that I could see the end of the drop coming and that I actually thought it was a buy after the selling was done. And I got attacked for that too. This place is really a nice home for a bunch of foul mouthed hate spewing morons. If you are watching this crash and thinking how great it is for your gold holdings, I suggest a visit to a shrink.You need help

Nickelsaver said...

"Anyone who cannot afford to lose money in gold or silver should consider selling now because I could see it at 1400 or worse"

good advice for anyone in gold etf's or the miners, but for anyone here that is long physical gold with an eye towards the coming reset, not so much.

weak hands sell physical now

Unknown said...

I think the world needs help. We're all just fine.
Sorry if you were attacked PA, but you don't really need to be here any more than we need to be on YOUR blog providing YOU a reality check or "good advice".
My advice to YOU. Be haapy and have a NICE DAY :)

AT said...

@ForLiberty: You may be thinking of DBS Coins: http://www.dbscoins.com/

They have the lowest margin on small quantities that I've found and their service has been impeccable. They were still selling through the weekend, but as of about 11 AM EST today they are showing just about all products out of stock.

Anonymous said...

PA,
Do you really think people will - or should - listen to you just because you show up and make a price prediction? Pretty delusional, if you think that's how people's minds work. What was the supporting analysis you offered at the time? I ask only because your blogger profile is a blank, so the readers of this blog would not be able to rely on your reputation, track record or experience as "support" for your prediction.
However, glad to see you are enjoying your "goldenfreude" moment and that you are winning in the Big Game. May the Odds Be Ever in Your Favor, dude.

Anand Srivastava said...

PA:

Welcome to the madhouse. The home to Evil gold hoarders, jerks, time misallocators and brainwashed cult members. I guess you didn't read the Tag line.

Unknown said...

Someone once said, "noone wants gold, that's why the US$ price keeps falling". Many thinking ones laugh at such foolish chatter. They know that the price of gold is dropping precisely because "too many people are buying it"! Think now, if you are a person of "great worth" is it not better for you to acquire gold over years, at better prices? If you are one of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow! An experienced guide is not needed for this trail, look around you and see. The real money is selling ALL FORMS of paper gold and buying physical! Why? Because any form of paper gold is loosing value much, much faster than metal. Some paper will disappear all together in a fire of epic proportions! The massive trading continues at LBMA, but something is now missing? The CBs are no longer lending! They will not anymore! We have reached production costs. Oil will have nothing of "gold paper" if gold must stay in the ground! And a CB values the wishes of oil far above it's return of leased gold! Hear me now, "if gold tries to go lower than US$ ($???.??) the BIS will buy it OUTRIGHT in the OPEN for all to see"! They must! They will! I know. For no currency system could stand if "Oil" were to bid for gold!

Anyone care to fill in the missing ($???.??) ??

Jeff said...

You're John Paulson, with 21 million shares of GLD. Hold, sell, or redeem. What do you do?

Dante_Eu said...

@Jeff:

Is that a trick question?

You redeem!

Unknown said...

Shrimp frontrun the FED
Giants frontrun the BIS

BEHOLD !!

Tony said...

Could help but check out Turd's site after seeing Matrix's link in the commentary. Today he lays out two possible scenarios, the second of which is starting to resemble the trail. Yes, some of his logic may be riddled with holes when contrasted to the freegold view, but it's starting to look like maybe he's starting to see the light:

http://www.tfmetalsreport.com/blog/4643/history-making

Unknown said...

Jim Willie votes for scenario 2 (as he has for some time). Not to be TOO obvious, but if we see below 1000 $SPoG before end of April, I'd say time will have proven All.

http://sherriequestioningall.blogspot.com/2013/04/jim-willie-golden-jackass-email-to-me.html

Biju said...

called up my local dealer.. No shortage of Gold coins or bullion.

MnMark said...

Remember this?

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700
Thursday, August 18, 2011 - GOLD ABOVE $1800

Maybe now as we watch the freegold scenario play out we need the reverse - a listing GOLD BACK BELOW dates as the $POG crashes down through the 100-dollar intervals.

Pat said...

Biju,

"No shortage of shrimpety-dimpety quantity of gold coins or bullion"
FIFY

burningfiat said...

I made an order at tavex.dk today at around 5 pm local time. I could tell from the invoice number that I was the first customer today! Scandinavians: Belief in paper are strong in us!

ein anderer said...

Today evening one of the two Freiburg PM sellers reduced his offers by 60 per cent: No Philharmoniker (gold) anymore. No Maple Leaf 1/4 oz anymore. No small Krügerrands anymore.

M said...

PA et all

Did you miss the prediction by FOFOA that COMEX gold would go to $200 an oz ? Of course you did because you haven't read the blog and you don't have a clue as to what the fuck is going on. The whole alternative point to freegold and this blog is the crash in COMEX gold which we are seeing today. This makes your schoolyard nananabooboo bullshit all the more annoying. Go to some COMEX forum if you want to talk paper.

We could be hours away from a $500 crash in COMEX gold and at that time, physical gold stops.

I am not chancing it so I will exchange some CAD for gold tomorrow. The only reason Im not now is because I am in Mexico drunk at a swim up bar.

Knotty Pine said...

I just put another bullion order in (second in the last week) about an hour ago (1:00 PM EST) with no issues and no discernible premium increase.

Any contributors care to opine as to the price where gold starts to hide? At what price do premiums skyrocket or dealers start hiding their inventory?

Happy shopping!

Knotty Pine said...

Remember, don't feed the trolls!

http://www.youtube.com/watch?v=HyophYBP_w4

Unknown said...

The large institutional stop-loss orders are on auto-pilot, whether they were triggered by commercial naked shorts or not, but keep in mind, there's a dichotomy here.

It is CONfidence in the FUTURE price of PAPER GOLD that is collapsing. What players in that game equate physical metal with that paper is now irrelevant, as it is the confidence in the futures market that is collapsing.

Because of systemic interdependence, we could have a related derivatives failure of epic proportions if the trend continues (I say related because the current gold market is the epic derivatives market that Freegold hinges upon).

When COMEX defaults thouse who deal in derivatives (paper gold) will be paid in derivatives (currencies, i.e. "paper gold").

But with the massive positions of the bullion banks in FRAs (interest rate derivatives) a bond market collapse or an interest rate derivative collapse could be interconnected to the current gold market collapse.

It's ALL paper and it ALL will BURN !!

I hate throwing up too but at least the nausea's gone for a while after ...

Anonymous said...

I picked up some gold at provident. Had to hit the "submit" order button about 20 times before their system was functional enough to go through.

Dante_Eu said...

@burningfiat:

You Danes are lost souls, no news there. :-)

Danskjävlar! :-)

burningfiat said...

Dante,

LOL :D Excellent humor, Danish produced (tm)! ;-)

Dante_Eu said...

Danish movies are awesome!

Pusher 1 is a classic: Pusher - Trailer

PS German dubbing in the trailer sucks, yeah I know. :-)

Anonymous said...

If paper is burning wouldn't it go no-bid. Somebody is buying. The commercials? After convincing the muppet specs to net short and covering themselves?

burningfiat said...

Dante, What? I love German dubbed movies!!! xD

http://www.youtube.com/watch?v=4y4VOLv-2DU

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

Short covering is buying.

ein anderer said...

Tried to sum up FG in the commentary section of the german SPIEGEL.

Jeff said...

Jim Sinclair will go into hiding before gold does. :)

M said...

@ Grumps

"If paper is burning wouldn't it go no-bid. Somebody is buying. "

Yeah, hard money socialists and traders which make up the majority of the players in the market.

Maybe PA is buying because he has a chart showing that there will be a rebound at $1327,510 US dollars. Pitch fork frabanicctie Hindenberg Oman that shit.

Sam said...

If you come on a freegold blog and tell people to sell their gold you don't understand freegold. We hold physical gold and wouldn't sell at any where near the current prices. Had you said to short paper gold you may have earned the respect of some, though I question the validity of most paper gold based trading fundamentals, and will still just call you a lucky gambler at best.

Anonymous said...

Jeff,

You're John Paulson, with 21 million shares of GLD. Hold, sell, or redeem. What do you do?

You're f***ed because even if you understand everything and even if you can afford to be patient, your investors are unlikely to be. So they'll pull their money out and force you to sell.

Institutional investors have a huge difficulty holding any asset that's volatile in dollar terms.

Victor

Unknown said...

At 1350 SPoG, many paper see-saw riders will provide temporary long support, always hoping to somehow "net-positive" (and gloat again) but they could be quickly taken out as soon as tomorrow and certain players, having gloated gleefully, will finally then go into "hiding".

I do believe the smart (inside) money has now the EXPECTATION that paper gold will no longer be supported by the mechanisms that can and have held it up in the past. They appear ready for the next chapter.

Ever notice how the FED views inflation EXPECTATIONS as the forerunner of actual inflation? In a world of futures betting it is expectation that precedes reality.

But the world of futures betting and hedging expectations is about to be shocked by the reality of the unstoppable HERE and NOW.

Though they will TRY to stop it, by halting all trading.

Jeff, Jim Sinclair needs to go into hiding, he seems to have lost a loose wingnut.

Grumps the paper isn't burning yet, when it does you'll know it by the day traders jumping out of windows as their see-saw bounces are taken out, again, and again, and again ... until they go into hiding deep in the flat-land of sidewalk stains.

Unknown said...

Victor,
So true, I call it "institutional auto-pilot".

Pat said...

Sinclair: boldly calls the bottom on or before his birthday March 27. Oops.
FOFOA: gently, subtlety opines there may be a few signs the window has opened, and so lets watch closely and see what unfolds.

Timing, like karma, is a bitch.

ein anderer said...

Very interesting german articles:
David could win over Goliath
and
All hell is breaking loose
(via Twitter, @JilNik)

unknown said...

well its almost that time of the day. how much will gld lose?
my guess it will go below 1100 mt.

Polly Metallic said...

Watching the Boston news. Mayhem. So sad.

unknown said...

ein anderer

good 2nd article you posted.

"The market seems to position themselves and to draw a line: paper against the physical market," says Hartmann. "At the moment dictated the paper. But if this demand continues, there will be shortages. If the price falls, but the shelves are empty, then to me is the question: Is the price wrong"

like another says, you will find a problem with computer screens.

Jeff said...

Victor,

Agreed. He could redeem shares that represent his own money, but I doubt his investors would take allow him to take bullion for them with the price dropping. So it was kind of a trick question, Dante.

Pat said...

Well the bombing in Boston will completely ( and breathlessly )dominate all mainstream TV, radio, and print outlets for next few days. Just sayin...

Anonymous said...

I though division 5 would wait until April 20th.

ein anderer said...

Thanks, Mike, for your translation. You definitely highlighted the most important phrase (which I hesitated to translate because of my broken English ;) ).
Thx to the author and german Freegold-writer Nikolaus Jilch who covered this quote.

DP said...

I suspect Victor's point was more along the line that Paulson's own fund investors would be redeeming their units in the fund. He needs cash to satisfy those demands. #ForcedLiquidation

Dante_Eu said...

@burningfiat:

Oh man, that's gonna give me nightmares! :-)

ForLiberty said...

@Ashley: Ashley, thanks for sharing but http://www.dbscoins.com/
is not the one I meant. The other one has something california in it's name and all markups were literally 2.smth %. DBS coins has higher markups, but that may be just today.

Does anyone else know of a great californian gold dealer? I don't live in cali, but those prices were unmatched. Again, help will be much appreciated

unknown said...

gld down to 1154 mt, loses about 4mt. something tells me this is lagging.

Tommy2Tone said...

ForLiberty-

Can you recall about when you saw it on here?

Funny, your first post ever (9/27/11)was in defence of PA and here you both show up again :)

Anonymous said...

What do you all make of the fact that most major online bullion dealers seem materially shorter of physical silver than physical gold?
For example, Tulving has gold eagles, buffaloes, maples, kangaroos, including most fractionals, but not silver eagles, maples, philharmonics or or junk. Other major dealers (provident, gainesville etc) look the same, very little if any silver (no monster boxes, no bags of junk), but adequate gold. Per freegold, we should expect the opposite (physical vs paper disconnect in gold, not silver), or am I misunderstanding?

Pat said...

Every woman will tell you, ae44ad infinitum,
Size does matter.
Yes you completely misunderstand everything, with that question. You don't go to Shrimptown to understand what El Gigante is doing.

One Bad Adder said...

GOLD (24k) has NO Future ...or Past. It has ONLY a "Present"....rendering it monetarily immortal.
What happens next?
this (inverted) DX : $PoG Chart is indicative of a PaperGold rout via-a-vis PaperAlt-currencies, which has diverged again today. I'd expect DX to ratchet up from here.
Over at the Treasury $IRX is driving down to Zero again (where it ultimately needs to go) and in so doing, bestowing monetary immortality on 'ol buck.
...the absurdity of which will not be lost on the Market.
...FWIW!

Anonymous said...

APMEX still has 3415 2013 Gold Eagles in Stock. Earlier today it was about ~4400 I believe. Their servers were pretty slow this morning but looks like they got their act together and orders are going through just fine.

Gold is now sitting at -22% from the peak. Almost as bad as 2008.

One Bad Adder said...

ae: -
Fuzzy math has the G:S Ratio (currently) at 59. Given Ag's superior "utility" one could expect this ratio to begin moving downward (I'm "hoping" it does anyway) in time to transition from Ag to Au at (say) $1200 : $60.

Not for the faint-hearted tho ;-)

Anonymous said...

Sorry correction there, -28.86% from the peak as of the end of trading today.

One Bad Adder said...

athone: -
One of the advantages of being a Dungbeetle (aka shrimp) ...as opposed to an Elephant (Giant) is that there will always be shit to eat ;-)

Lord Sidcup said...

burningfiat said...

"Belief in paper are strong in us!

Maybe it's normalcy bias, but then again Scandinavia has generally had well-managed currencies and not too much experience (yet!) of how destructive a CB can become when a government gets hold of it.

Anonymous said...

Pat, I recognize that 'Giants' don't shop at Tulving, but the point of the transition to freegold is when everyone, not just giants, see things as freegold and there is a disconnect when everything paper burns and the physical is recognized as far more valuable. It does not look like that is happening in gold, but it does look ilke it is in silver. Physical gold is still available at paper prices, but physical silver has effectively disappeared at paper prices. That is not what I would expect from freegold theory. Thus my question.

The dismissive 'you're not a giant' is generally not a useful response. None of us are, but we are all trying to figure out the truth as best we can determine it.

Daedalus Mugged

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

aeghagsfhghghgslHGLGfJalsuhf,

RTFB.

When you are done ask yourself if everyone, not just giants, will see things as freegold?

LOL!

burningfiat said...

Lord S,

I agree we have been lucky that way (for approx. 200 years. Yeah, we made a wrong bet before that in the Napoleonic wars) and perhaps unlucky now because we (the 99%) just can't see what is coming!

Like I said yesterday on twitter:
Hardest currency in the world: Danish krone (DKK)! DKK hard-pegged to EUR irregardless of its own HICP! Think about it!

This will be true until it isn't. Then DKK will be one-time devalued against EUR at some point (and then we will join). That is my prediction!

Danes (all 5.5 million of you!), wake up and save in gold! (good luck to myself saying that, while likely being the only customer at the biggest online danish gold shop today, LOL!)

/Burning

Dante_Eu said...

burningfiat,

Well, look it at the bright side. At least, you have 100% track record, of convincing others to buy at the biggest online danish gold shop!

:-)

Franek said...

California Numismatic Investments out of Los Angeles www.golddealer.com seems very good.

Nickelsaver said...

"Does anyone else know of a great californian gold dealer?"

<a href="https://legalmarijuanadispensary.com>Find your California gold</a>

Roacheforque said...

First of the hundred dollar intraday swings for paper gold. If I was a betting man I'd have to bet against Another, that it won't swing back up to 1450 by end of day tomorrow. If it does swing further down to $1250, I'd see we are in for one wild ride.

byiamBYoung said...

“We have seen massive liquidation from all quarters – ETFs, funds, CTAs, specs and even Chinese and Indian physical buyers. This is a market that has only got one thing on its mind … get me out,” David Govett, head of precious metals at Marex Spectron in London, told Reuters."

Gold selloff biggest in 30 years

So strange to watch the world arrive at the opposite conclusion to yours.

Anonymous said...

This is looking more and more like a false flag, but rushed-- no patsy, no legend.

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

$POG Still falling on the Globex...down $25. I'm with Wil, I don't anticipate breaking $1450 or even $1400 tomorrow. $1250 seems more likely.

As for silver shortages...sounds more like wishful thinking. My LCS had plenty of silver, including the 60 oz. I sold them today ;)

said...

I am thinking about pulling the trigger on some Maple Leafs from Apmex on ebay. Anyone have any good sites that take Am Ex?

Roacheforque said...

Parting thoughts from FOA, September 01:
"What if me and a thousand others came up with a 1 trillion in cash and used it to lock down paper contracts to deliver us 1 billion ounces of gold. The paper gold market has the means to match our commitments dollar for dollar. I mean, they could put the money up, not gold in a vault, and get on the other side of us, margin to margin.

OK, now we stand face to face. Even if we had enough free cash to pay for delivery, what jurisdiction would let us settle; England, US, South Africa, Canada,who? No, we would be told to cash out and buy our gold on the tiny physical markets. In a Hunt like joke, close out would come and we would eat it, big time. Even if we broke even, how exactly would we exchange our cash for metal in the tiny bullion markets without driving the price to the moon?

The reason I play this out, in text, is for others to understand that there ain't gona be a run up in paper gold. That market is a derivative style currency support and it was never set up to be a big time deliver machine. Its control will end when the currency system, it's built on, fails and takes the "virtual" gold market price with it, to the floor! But, long before that plays out, the real bullion markets will get extremely thin and build up a huge premium to contract settlement. It will do this because some financial disorder will invalidate, and most likely, force an official deferral in physical delivery; indefinitely. From there the show will proceed.

The big dollar gold shorts in Euroland have real market exposure but no political exposure. Their political house would just as soon settle this at whatever level the paper prices sink to; this is their real market exposure and it will most likely be profitable. There will be no political exposure, forcing them to settle in physical delivery; because the US system will opt out first because of inflationary preasures! Very simple political logic, right? Try asking someone that is hip deep in gold stocks or futures if they grasp it? Hard thing, that political perception is, especially when your pocket book controls your brains. (smile)"

Tomorrow promises to be another interesting day.

Anonymous said...

Matrix Sentry,I have RTFB, every post at least once, most twice or more, although I haven't read most of the comments. And, yes, I think freegold is when the man in the street is aware of freegold. When ordinary shrimp savers recognize gold as an ideal SOV. When ordinary people save in physical rather than speculative investments to try to carry purchasing power over time. That is what freegold is, when it is not just the giants, but the whole market. When the Wall St Journal publishes a physical gold price that is transactible in volume, when the london fix can clear any volume. If you think A/FOA/FOFOA disagree, point me to a post that clarifies the point. Or maybe I should tell you to just RTFB, but I wouldn't be so rudely dismissive.

The comment threads used to much more friendly, cooperative and helpful. Elaborating on and expanding ideas and understanding, now it seems to have devolved mostly into obnoxious dismissiveness of RTFB (not meaning to call out MS specifically or personally, more general).

No one has any sort of interesting reaction to the fact that at retail sizes silver paper vs physical is dissociating while gold is not?

Daedalus Mugged

Anonymous said...

And by the way...thank you for the pdfs Matrix Sentry. The majority of my RTFB was on your printed pdfs rather than online.

Motley Fool said...

Daedelus

Yes, the comment quality seems to have degraded significantly.

I think it is too early to come to conclusions based on this current move.

I could speculate, but for now I would prefer to simply wait and see a bit.

Yours is an interesting observation, though not perhaps conclusive, I have seen annecdotal reports both ways by now.

TF

Nickelsaver said...

Daedalus Mugged,

I won't tell you to RTFB. But I will say you're full of baloney on your silver shortage/paper vs physical price separation assertion.

I can go on APMEX right now and buy 1oz rounds for $1.29 over spot.

Also, I can go into my LCS and buy all the silver I want at 5% over spot. Maybe I can't get a particular coin, but I can load up on silver.

So take that schtick elsewhere friend.

Anonymous said...

I don't know about the rest of you but I took some cash and bought metals today. That was the reason I had it in the bank in the first place. It certainly wasn't paying much if any interest so there wasn't much point in keeping there.

If the price drops again manana, I will do the same thing again. $100 drop in gold is welcome in my house. Physical metal checks in and doesn't check out.

Yes I bought AG as well at $1 over spot. Laugh if you will aubugs but physical silver is sold out at most of the reputable dealers.

On another note it appears the North Korea is now out of the news cycle. So much for global thermonuclear war yeh ?

Bjorn said...

Rickards chirping again.
https://twitter.com/JamesGRickards/status/323859117292797953

Dante_Eu said...

@battleshipyamato:

I am with you. If there is one thing I learned from this blog, it is this: My stash of yellow useless rocks is for my retirement. So, I ain't selling for a long, long, looooong time. In fact I am adding.

@Daedalus Mugged

Regarding Ag:

If there is silver shortage, so what?

If there is BitCoin shortage, so what?

Are Giants and CB's adding silver or BitCoins to their vaults? That's a bottom line for me.

Yes, you may make a killing in silver or BitCoin market, good for you. I am a saver, not a trader. Simpleton as I am, I follow in the footsteps of Giants and hope for the best.

Take care\Dante

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

There is no shortage of large-format silver (as evidenced by the lack of SLV inventory drawdown).

Localised shortages of prefab shrimp morsels? Sure. Did the Rand Refinery really run out of gold, or it simply ran out of Krugs and/or coin blanks?

Some report shortages of silver and a glut of gold, others report the opposite… I'm sure we could also drum up someone to say there is a shortage of both, plus a fourth to complete our set who says neither — perhaps a refiner who has all the spoons, coffee pots and Number One Mom pendants they can handle for now?

It's all about context.

ein anderer said...

Robert Hartmann, CEO of Pro Aurum, Germany’s biggest PM dealer, summarizes the current situation. Demand still 30-35% under 2008/2010. No shortages yet. Buy-sell-ratio 9:1.

ein anderer said...

John Hathaway, Tocqueville Asset Management L.P.:
Gold bullion prices have been subjected to a cleverly orchestrated bear raid in our opinion. Selling of paper Comex contracts on Friday, April 12th, and Monday, April 15th, totaled 1 million contracts, exceeding global annual gold production by 12%. The attack succeeded when the technical support in the low $1500’s/oz. easily gave way and led to waves of forced selling. The volume is without precedent and has all the characteristics of a panic liquidation driven by naked short selling ...
(…)
All in all, it appears to us that this gold sell off was made in America, based on an assessment of technical weakness by a large number of opportunistic players, and supported by dubious macroeconomic speculations.
(…)
Market panics often present great opportunity. We believe that the current sell off in gold and gold mining shares provide a very inexpensive call option on the possibility that the next few years may not turn out to be as rosy as widely anticipated.

Dante_Eu said...

@byiamBYoung:

Funny video popped up while reading that article:

Diving for Gold in Icy Bering Sea

Interesting remark at the end:
"...gold miners always die broke."

ein anderer said...

Nice description: What happend April 13-15, 2013.

byiamBYoung said...

@Dante_Eu:

Hopefully gold stackers fare a little better, eh?

Dante_Eu said...

byiamBYoung,

Hopefully gold stackers let it lie very still and doing nothing, especially in turbulent times. Instead of passing it on as soon as they get theirs hands on it.

ampmfix said...

Why weren't the Chinese or Indians buying hand over fist last night? Wasn't that the mother of all dips? hmmm...

Anonymous said...

ampmfix: Who says they weren't?

"In that chaotic one hour time frame where we saw a remarkable 155 tons of paper gold sold, central banks stepped in and bought a staggering 55 tons of gold. You have to remember that is just what the central banks were buying here in London."
- Source: KingWorldNews (Yes, I know. But still...)

Anonymous said...

1/2
MF, I would be interested in your speculation, acknowledging that it is speculation and time will reveal all. Unfortunately, by the time time shows all, it will be too late to benefit from the understanding of it.

You made the valid point that my observation is not conclusive (which I agree with, and never claimed otherwise, and it seems to me a lot of the hostility was the falsely perceived attack on the ideas of this blog).

Nickelsaver, when I go here:
http://www.apmex.com/Product/23/1_oz_Silver_Round_Secondary_Market_999_Fine.aspx
to APMEX generic rounds for $1.29 over spot, I note two things: First premiums have more than doubled, they were usually 59 cents over spot, and second, there is bright blue 'Hot Item' out of stock and an 'alert me' where the buy button is supposed to be. They don't have it at least when I went there.

To your point, there is occasional dribs and drabs of less desirable product out there at higher margins. But essentially no one has monster boxes of eagles except at price gouging margins, junk margins have exploded from below spot to well above it. The next most recognized alternatives such as silver maples, philharmonics, and aussie coins also have had margins expand and then supply either disappear or near enough to it. Tulving has the website where this is easiest to see, but I observe the same thing at gainesville, APMEX, provident etc. Something is up in silver, the physical is not really available at these paper prices, and I asked the community about it.

Anecdotally, the two LCS I frequent both had Au but no non-numismatic Ag. But that is 'just' anecdote, but when all the major online dealers exhibit the same, that is more than anecdote.

continued...
Daedalus Mugged

Anonymous said...

2/2
Dante, 'So what' was exactly my question, "what do you all make of this' I can accept that you have faith in freegold, ignoring everything else, and have nothing to add that silver is currently exhibiting exactly the behavior freegold posits for gold at the transition point. I hoped someone, not everyone, would have an interesting take on the current facts. I am not sure what it means; I don't think it means what the 'crash JPM buy silver' crowd thinks it means. I hoped this community could share an alternate hypothesis or understanding. Guess not.

You asked if giants or CBs were adding silver to their vaults. For giants, I cannot speak, nor can anyone else. For western CBs, looks like no. But perhaps the most important CB in the near future, China, the answer is yes. For both gold and silver they are simultaneously the largest miner, and largest importer. All that silver isn't leaving the middle kingdom in iphones. Russia is in a similar situation.

I don't think that fact contradicts freegold theory, I think it likely that something akin to history repeats, with gold being the money of kings and international merchants (CBs, settling international trade balances, giants) and silver being the money of local merchants (transactional currency, MoE rather than SOV). Gold will settle international flows. Some internal flows will be with fiat MoE, some fiat will be unreliable enough that a silver MoE will be demanded.

Leads to an interesting question...CBs generally muddle their gold holding with gold and gold receivables type nonsense. Does the fact western banks do not report silver holdings actually mean they have none, or is it possible they bury it somewhere in their balance sheets? Not suggesting they have material amounts, but if they did have any, would they actually report it clearly?

DP, my understanding of the 'calm pool above the underground river' does not comport with SLV being used to raid for large format silver supply. Unless you are in the 'there is no metal in the ETFs' camp, the lack of draw down means the current owners of that metal are not selling it. They are sitting tight, their metal still, like giants with their gold. Most of the shrimp dealers do not do much volume in 1000 oz comex deliverable bars, but the exception is Tulving, and I note he is sold out. (about halfway down the bullion page, in the 'sold out' silver section). The reported comex vault silver inventory is certainly plunging, although not at zero yet. The BBs seemed to use their GLD holdings as a way to park inventory in the coat room; I don't think the BBs had as much interest or holdings in silver to play the same manipulation games.

I apologize in advance if my tone is perceived as attacking...it is disappointed, not antagonistic. Thank you to those who responded, even if I didn't find the response satisfying.

Daedalus Mugged

Robert said...

Martin Sibileu had an interesting comment on Sunday:

"Why did bitcoin and gold collapse? (And make no mistake, because gold did collapse). Because they are not redeemable. In the first case, it is easier to accept this. In the second, most will disagree with me. To those, I answer that as long as the US government can refuse (or get away with refusing) to deliver the physical gold to a central bank the sorts of the Bundesbank, one can safely say that regardless of the marginal bullion held by retail in safety boxes or bullion banks in vaults, for all practical purposes, gold shall be negated. I am deeply disappointed with myself, for not having understood this fact earlier, of course."

To the extent that "retail" is a reference to the shrimps, I doubt anyone here would disagree with his analysis or conclusion. To the extent that Giants hold allocated gold within the LBMA, perhaps some may disagree. But the key point is his suggestion that nothing else matters as long as the U.S. can deny the Bundesbank its gold. Is that true?

To recap, most German gold is held abroad. About 33% is in Germany, 11% in France, 13% in the U.K. and 43% in New York. After the repatriation is completed in 2020, 50% will be in Germany, 13% in the U.K. and 37% in New York. So the Germans are only moving about 1% per year for the next 7 years from New York to Germany.

With the stakes this high, can the Germans allow freegold to happen? As a practical matter, can they ignore Washington and take policy steps that put us on the path to freegold (whetehr through action or inaction)? If you are Merkel, do you have any concern about your gold in New York if the USD collapses and Washington declares "It's all your fault!" Does 1% per year (maxing out at 6%) push the timeline way out there?

tEON said...

Hi Daedalus Mugged!
With respect I suspect you are viewing things in a short-term fashion. It is within the realm of possibility that AG has some violent, and positive reaction... but in the long run it is not part of Freegold revaluation. So, instead it is looked at as a trade. Will Silver make $200? I have no idea but I do know where Gold is going... all $ you put into AG essentially aren't going into AU - and that is a gamble you may not want to take - short term or long term.

Best,

ampmfix said...

Börjesson, exactly, if 1/3 of the volume sold is bought back shouldn't the price retrace a 1/3 up?

Indenture said...

Daedalus: "and silver being the money of local merchants (transactional currency, MoE rather than SOV)"
But if you have read the blog you know that 'we need currency' as the Medium of Exchange. Silver cannot fill the roll of Medium of Exchange. Why would you say this?

"...gold miners always die broke." Love it!

MnMark said...

@Robert: But the key point is his suggestion that nothing else matters as long as the U.S. can deny the Bundesbank its gold. Is that true?

The U.S. gov't (theoretically) holds 8,000 tons of its own gold and some smaller amount of other countries' gold.

Meanwhile there is something like 160,000 tons of gold in existence.

I don't see how an entity controlling only on the order of 5% of the gold in existence could prevent freegold by refusing to redeem it for fiat.

Robert said...

MnMark, I think the concern is that the Bundesbank will fall into line rather than put 37-43% of its gold reserves at risk -- though you could say that the reserves are already at risk because they are in New York. Although overseas German reserves may be a small percentage of the total worldwide stock, they could have a disproportionally large impact on policy decisions because of who owns that gold.

If the U.S. will not agree to repatriate more than 6% of German reserves over a 7 year period in a pre-Freegold environment, why would the U.S. permit repatriation in a post-Freegold environment? The U.S. seems very reluctant to recognize all the rights of German ownership (including the all-important right to claim possession). That would be the question I would be concerned about if I was a German politician.

I do not think the concern is redemption for fiat. I do not think the Germans would want to redeem their gold for fiat.

Motley Fool said...

Daedelus

You want speculation...alright.

I do not think there is a shortage of physical silver, however there is limits in terms of fabrication.

It would seem the HMS crowd has bought most of the coin fabrication part of the market, and current supply in this area is strained.

Coin manufacture is a more industry intensive use than bar manufacture.

The postulation of giant gold buyers also invariably assumes them to buy large amounts, hence bars, hence easily manufactured items (if not easily obtained).

From my knowledge of the HMS goldbug sphere I know that most view silver as a leveraged play on gold, and expect it to outperform gold on the upside. Due to this they allocate most of their capital towards silver...in extreme cases 95% plus of it, or in moderate cases 50-50 in terms of nominal expediture. However given the GSR at 50-odd and silver mining supply not nearly exceeding gold by this ratio, it means they are taking more of that market off it.

So yeah. Sure, bullion coinage may be scarce, but bars seem plentiful. This is simply indicative of fabrication limitations, and the HMS capital allocation.

(Bear in mind that fabrication choice industrially ito coinage is determined solely by the hard money crowd, and despite recent surges in interest for such, brining new facilities online are capital costly AND need to make sense in the long run. SO it has not been expanded enough to meet current elevated demand levels, and definitely shows shortage when a 'sale' aka plunge occurs.)

My 2c.

TF

DP said...

Yes, all the hands holding SLV are strong and will not part with their precious. That is why there is never any offer quoted, just a bid.

If there was truly a shortage of physical silver — the banksterz were over the barrel, desperate to find it and cover all their evil naked shorts — don't you think they would be hitting the offers anywhere it wasn't nailed down?

Polly Metallic said...

The shrimp truly are buying more silver than gold and this does periodically create bottlenecks and shortages. Some dealers simply refuse to sell their inventory at a loss if they think there is any chance of a rebound. These are small dealers who primarily buy and sell whatever comes into their shops. They don't order much inventory from government mints.

I talked to two coin wholesalers lately. One told me that a couple shops had bags of silver put away and Eagles and rounds but they weren't going to sell till the price was higher. Others sell what they have to local customers during a price decline and don't have a surplus to ship to larger wholesalers like Tulving, so it's available locally but not from the big companies like Tulving or Apmex.

Regardless of the short term dynamics I don't foresee any need for silver coinage to reenter the monetary system either pre or post Freegold.It might be useful to hold rather than dollars during a hyperinflation as would copper or steel or any tangible asset. Once the new financial architecture is instituted and the silver holders discover that the new system revolves around gold and there is no "and silver" what do you think they will do with their silver? Buy more? Keep hoarding? Not likely. I would not want to hold a significant part of my net worth in silver since we don't know when the day will come that it is apparent that gold and only gold is part of the new monetary system.

Nickelsaver said...

DP,

LOL. Love the kid nailed to the wall. Although I have 3 boys and can tell you - they would rip the shirt! Then I guess I would have to dress them in TOGA's!!

_____

Daedalus,

This will be my last response to your position. A .70 cent increase in the premium and a shortage of on hand stock on the heels of a HUGE price drop does not constitute a separation of paper/physical price. It is simply good business. The real question should be - why did the premium ONLY go up that much?

Eat all you want. We'll make more

DP said...

Well, something must be holding them back from scooping up all that trusty SLV during this dire shortage of physical silver, right?

There is no other logical explanation. Well, except if they are, after all, exceptionally polite evil banksterz.

Attitude_Check said...

Interesting take on the dynamics of decoupling physical and futures market -- linked to MF Global fallout. Not a free-golder as far as I know.
http://www.barnhardt.biz/


Originally penned and posted on December 15, AD 2011, seven weeks after MF Global.

3. Finally, a very simplistic explanation of how the cash commodity markets are soon going to decouple from the futures markets. This is a little complex, but stay with me. I think this is important to understand because none of us who have lived our whole lives in the U.S. have ever seen a market disintegrate.

The threat (or promise) of delivery upon expiration is what keeps the futures markets tethered to the cash markets. Up until now, if an unreasonably wide spread between the futures price and the underlying physical commodity market got too out of whack, a process called “arbitrage” would kick in. Arbitrage is when a party simultaneously buys and sells on two separate but related markets in order to capture an inefficient spread between those two markets.

.....

The lynchpin that is holding this dynamic together and keeping the futures markets tied to the underlying cash market is the fact that the futures contracts are deliverable, and a trader can either deliver or take delivery of actual physical silver via his futures position.

Are we seeing a problem yet? The futures markets have lost their viability and trustworthiness because of the MF collapse and theft. At some point in the not-too-distant future, people everywhere are going to realize that the delivery mechanism is not reliable. Heck, just holding cash and/or positions in a futures account is no longer reliable. The the market itself is not reliable, traders will no longer attempt to arbitrage these basis spreads because the risk to the trader that the rug will be pulled out from underneath them is simply too great.

...

When the arbitrageurs finally lose all confidence in the markets, the cash market will decouple from the futures because no one will be willing to take the risk of having their money, positions and/or physical metals stolen/confiscated. If no arbitrageurs are willing to trade these spreads – no matter how wide they may become – and thus there is no force causing the cash and futures to converge, we will see the basis spreads become extremely wide. As people flee the futures markets, the futures prices will drop, while the cash markets hold steady or even diverge and actually rise as all of the former paper players realize that physicals are the only remaining game to be played.

Watch for this. Watch for the gold and silver futures to sell off as people walk away from paper while the online cash dealers, seeing that market demand for their physical inventory is robust, begin to ignore the futures prices and hold their prices steady or even raise them. When you see this basis decoupling and absence of arbitrage, lo, the end is nigh. A parabolic spike is coming.

Anonymous said...

Chris Martenson has an interesting blow by blow description of the gold takedown up at Zerohedge.
http://www.zerohedge.com/news/2013-04-16/guest-post-gold-slam-massive-wealth-transfer-our-pockets-banks

Anonymous said...

@ ae44bf5a-2cce-11e2-94ad-000bcdcb8a73 said...

“except at price gouging margins”

Better known as the ‘true’ market price in my book.

If a dealer won’t give me a price and firm near term delivery date for physical then it isn’t by definition the ‘market’ price which is the ‘only’ price I track or really care about. The paper price could go to $10/oz for all I care, the only price that counts is the price at which physical metal exchanges for paper.
There is even a spread between the online guys and your local coin shop but that is due to the potential default risk associated even within the narrow delivery window of an online company even if it has a solid track record. After all even they have counter parties such as the US mint. So even that price savings Online vs. Local Dealer for physical is part of the price vs. default trade off on the physical market price. When buy from a Local Dealer they are taking that risk in order to replenish their supplies using your paper.

The real ‘price’ gougers are the ones selling you paper. All you ever have is an IOU that tracks the price of other IOUs and is payable only in……… you guessed it IOUs, if you are lucky and the don’t default taking even your IOUs. The whole purpose of own gold and silver is to get rid of IOUs not to go even deeper into the IOU counterparty risk hair ball. Duh.

On Silver vs. Gold. Every time I receive physical Gold Eagles they can have any number of minting years, with Silver Eagles it has always been the year that I bought them. So from my limited experience Gold is actually in weaker hands apparently. Unlike Gold, Silver has a very high industrial consumption rate and its stock above ground in all forms is only 4x that of gold. When limited to monetary forms of physical silver its closer to 1 to 1.

Regardless, my silver protects my gold and will be primarily used in monetary crisis to generate the paper I need to keep my fixed rate secured debts current as they are being dissolved away in terms of purchasing power via inflation.

The possibility of exchanging Silver for Gold due to a compression in the GSR ratio is admittedly a side bet but one that has historically happened in past PM buying panics. I fully expect gold to go into hiding at some point leaving the PM field to silver until gold reemerges like a butterfly in the Freegold era.

At which point for chance to dream I can reacquire silver at a 500/1 ratio for the long haul to retirement many decades from now in which the double whammy of diminishing ore grades and lower EROI world produces well above ‘real’ inflation growth rates in silver and gold independent of the what the monetary system does decades from now. As long as silver has superior electrical properties and electronics are important silver will be in demand.

milamber said...

Been gone for a few days...

What'd I miss? :)

Oh I see, DM is back asking insightful questions about alternative futures to FG again. It's a shame that topic hasn't been debated on this blog at all. Come on FOFOA, get with it!

HI HO SILVER AWAY!!!!!!!

Bravo DM!

Milamber

p.s How'd your wicked awesome business plan work out?

http://fofoa.blogspot.com/2013/03/checkmate-2-slow-history.html?showComment=1364303806939#c71578465826443154

milamber said...

If you remember the post I made about the LGFV lending system in China, then you might find this of interest.

"China's banking regulator has banned the country's lenders from creating new loans via local government financing vehicles (LGFV) as it tries to rein in ballooning risks with rising defaults."

I believe it is called,

"Closing the barn door after all the horses are out."

http://english.caijing.com.cn/2013-04-15/112677124.html

Gotta get some more popcorn made!

Milamber

Roacheforque said...

As long as the paperheads have cash to lose and are willing to be endlessly fleeced, the bullion banks can continue this process ad nauseum.

Someone needs to take a HARD look at the size of the paper market as compared to physical. 100 to 1 went out the window in Another's time, 200 to 1 perhaps a decade ago? I would not be surprised if there are 1000 times the nominal value of all physical gold above ground floating around out there in paper form, hedged by other forms of paper.

How can anyone expect physical buying in any amount to have ANY impact on the paper price?

We see that several pundits proclaim Cyprus' "sale" of sovereign gold as bearish for physical?? Really? Here again we have the diametrically opposite way of thinking about reality seeded by the perception managers so much so that even the goldbugs can't think straight about their own positions.

How can 13 tons of sovereign gold changing possession to bail-in derivative losses be understood as anything other than UBER BULLISH?

Same with Libya. Gold and oil rights politically changing in plain view, yet no "bullish buying" takes place. For every seller there is a waiting buyer, so how can "sales" of "gold" be bearish??

Anyone with an 8th grade understanding of mathematics knows that an ounce of finite, systemically important GOLD cannot POSSIBLY be worth only 1400 of the 1.5 QUADRILLION dollars floating about in the cybersystem.

Such a valuation flies in the face of all rational thinking, logic, mathematics and finance.

But until such things once again govern our existence here on planet fantasy island, we will continue to slog through the extend and pretend existence of debt robot slaves, cowering to the dry, blunt end that rapes us, hands gripping our ankles, as the status quo soldiers on.

They will protect the status quo at all costs until it simply costs too much to protect it any longer.

Anand Srivastava said...

Daedalus Mugged

You may be missing the point that for China Silver is a very important industrial metal. It is also stacking up copper and iron, you don't think they are looking to use them for MoE?

Anonymous said...

Indenture, I agree with that the blog highlights that gold is the SOV function of money, and will not usually serve as the daily MOE. I am not sure why 'currency' in the freegold MoE concept must be fiat as opposed to silver. Could you please link to where this idea is elaborated on? So long as the price floats in gold, I think freegold is indifferent. To be clear, I don't think silver will be the universal MoE...I think dollars and euros and yuan or their successors will be common, but I think in certain situations where the currency is even more poorly managed from an inflation perspective people may will either use a foreign major currency, or if a local gov't is trying to re-establish credibility (zimbabwe), may link to something more tangible like silver or even oil (for an exporter). They won't be able to link to gold for what I hope are obvious reasons.

And for the record, I meant the silver as transactional currency was mostly a historical reference. For the last 2k years or more, when a carpenter or soldier bought a pint in a pub, he probably paid in silver. When there is a shrimp transaction it was settled in silver, but whether you sent a fleet of sailing ships to the orient to buy spices, or a containter ship to China to pick up LCD TVs, you pay in gold.

MF, thank you. That is an interesting framework to think about the observed facts in. I am pondering. It begs the question of how and when and what causes the HMS camp to come around.

Polly Metallic (nice handle) seems to think much like me, silver to get through transition, gold for the other side.

Motley Fool said...

DM

"For the last 2k years or more, when a carpenter or soldier bought a pint in a pub, he probably paid in silver."

Actually....he put it on his tab..and settled that at the end of the month, or so.

"It begs the question of how and when and what causes the HMS camp to come around."

Why do you think they will come around pre-FG? I certainly don't expect it.

TF

Dante_Eu said...

Peter Schiff discovers that the "the gold must flow" at 10m:09s:

The Gold Bull Market is Dead -- Long Live the Bull Market

Now, can someone point Peter to this article: The Gold Must Flow

Maybe also, a follow up question:

"Peter, at what price, will gold flow?"

Thanks in advance\Dante

Tommy2Tone said...

DM, who hasn't RTFB, said:

"And, yes, I think freegold is when the man in the street is aware of freegold."

"There are two schools of thought on the organic emergence of Freegold. The one that I don't subscribe to is that it will be demand-driven… from the ground up. This school of thought says that we will only see Freegold once the average man on the street understands how precious physical gold really is. It says that the demand for physical gold will someday undergo a phase transition thereby overwhelming the supply flow and bringing us to a new, physical-only price range (in real terms).

The other school of thought, the one that I do subscribe to, is that it will be supply-driven… from the top down. My school of thought says that the average man on the street will only understand how precious physical gold really is after Freegold is revealed in stark relief. It says that the supply flow of physical gold will someday undergo a phase transition whereby it goes into hiding due to the crashing price of its paper proxies. It says that physical gold, during this phase-shift, will further consolidate in the hands of only those who understand it as wealth and nothing else, bringing us to a new, physical-only price range (in real terms)."

http://fofoa.blogspot.com/2012/12/what-is-gold.html?

Anonymous said...

Fascinating comment on Jesse's Cafe Americain about the lesson to be learned from the recent smackdown in the paper gold market. The writer thinks that the central banks ahve shot themselves in the foot because they can only control the market if investors use leverage, and they have just taught the market that they can't use leverage without being destroyed:

"This is from Phil Byrne:

"The best thing about yesterday is that the Fed gave us a glimpse of the future. Those people who owned gold with leverage were waiting to have their throats cut – almost begging for it.. The best part is that this market operation has created instability where they once had stability. Nobody will take a levered position against them anymore – not on the stocks short side and not on the levered long gold side.

Here’s what I wrote to clients a couple of weeks ago:


Market Manipulation

The price of gold is a good segue into explaining how the markets are being manipulated.

Anyone who has read about the Japanese martial art known as Judo knows that the basic tenet of the art is to use the attackers leverage against him. Instead of picking up one’s opponent and throwing them down, Judo experts redirect the force created in their opponent’s attacks to knock them down. It’s the same in the markets.

We’re not the only investment firm that understands the problems in our economy and markets. Since 2008, a lot of work has been done to understand the problems in the world and this work has led to bets on the market – oftentimes with leverage such as selling short a stock, buying a put option, or borrowing money and buying gold.

Whenever investors use leverage, they leave themselves vulnerable because leverage turns small losses into big losses – it’s the reason why Lehman Brothers is no longer around. Knowing this, the Fed and its agents wait for these traders to place leveraged bets, and then the Fed’s agents forcefully take the other side of the trade. This is why we include charts of the VIX – they represent leveraged option trades.

A year ago, US corporate earnings growth was slowing meaningfully, Japan was recovering from a nuclear disaster worse than Chernobyl – one that continues to get worse – and at the same time, southern Europe was at the point where nobody would buy their debt and traders were making extreme bets against European markets and the European currency.

All it took was a promise by Europe’s central bank to “do whatever it takes” to prevent bankruptcy and the markets reversed in a huge way. Anyone betting against the European central bank incurred heavy losses. Later in the year, the Fed, then the Bank of Japan did the same thing with similar rallies.

The market has figured out this strategy which is why nobody is willing to bet against the world’s central banks in a meaningful way any longer. It’s the reason why markets are going up despite the tremors we face such as Cyprus, Italy, Spain, Portugal, North Korea, China, Japan, Argentina, and economic stagnation in the US.

Without speculators to crush, the Fed’s ability to keep the markets moving higher is seriously compromised.

Gold was the final bet against the Fed – they’ve won and by winning, they’ve lost!"

Philip M. Byrne, CFA
Chief Investment Officer
GeoVest Advisors Inc."


Lisa said...

DM

Aquilus has lived through a hyperinflation. You should watch his debriefing (October 5, 2012). He has great analysis which is easy to understand, and gives his thoughts on the use of silver during a hyperinflation

Sherlock said...

"…Entropy is the amount of chaos, disorder or unknowable elements in any system. A system has low entropy when it is highly organized, ordered, controlled, contained, and all the elements are known. A system has high entropy when it is disordered, chaotic, out of control, and many elements cannot be known. Science teaches us that everything in the universe ultimately ends in absolute entropy (chaos) through the passage of time. In other words, ashes to ashes and dust to dust.

One thing that can affect the natural progression of entropy along the way is adding energy into a system. In certain closed systems with a high degree of order and control, adding energy can actually reduce entropy, increasing organization and order. This can be seen in the wonders of life and reproduction. In the closed system of a baby, we add energy (food) and watch it grow. Ultimately, though, entropy wins out and we return to dust.

But adding energy to a system usually has the opposite effect. It speeds up the journey to absolute entropy. This can be seen in an explosion. A bomb can take an entire building from low entropy to high entropy in a fraction of a second…"

In light of the above passage from "The Waterfall Effect," allow me to provide a little musical interpretation complements of MUSE:


"All natural and technological processes proceed in such a way that the availability of the remaining energy decreases.
In all energy exchanges, if no energy enters or leaves an isolated system, the entropy of that system increases.

Energy continuously flows from being concentrated, to becoming dispersed, spread out, wasted and useless.
New energy cannot be created and high grade energy is being destroyed. An economy based on endless growth is...
Un-sus-tain-able!
Un-sus...

Unsustain, unsustain-able
Unsustainable, unsustainable

Unsustainable, unsustainable

Unsustain, unsustain-able

You're un-sus-tain-able!

Unsustainable, unsustainable, unsustainable

Ooh ooh
Ooh Uuuh
Uuuh Ouhh


The fundamental laws of thermodynamics will place fixed limits on technological innovation and human advancement.
In an isolated system the entropy can only increase. A species set on endless growth is... Un-sus-tain-able!

Unsustain, unsustain-able
Unsustainable, unsustainable
Un-sus...
Unsustainable, unsustainable
You're un-sus-tain-able!"

MUSE - "UNSUSTAINABLE"

http://www.youtube.com/watch?v=EF_xdvn52As

M said...


All this talk about COMEX, silver, GLD, manipulation is all noise to me. Even I have been caught up in this.

Why should anyone care what is going on in any gold market, paper or physical until something happens in the US and Japanese 33 year bubble bull markets ?

I still maintain as I said 2 years ago, that the onset of freegold happens when there is selling/trouble in the BOND markets mainly in the US and Japan.

$1000 dollar gold, $2000 gold , what is the difference ? Who cares ? I have paid close to both. As long as BOND prices keep rising and the FED can do no wrong, nothing matters. As long as BONDS are the premier store of value for shrimps and giants alike, long or short term, nothing matters.

Nothing matters in GLD, nothing matters at the coin dealers, nothing matters at the bullion banks, nothing matters at King World News et al.

This is like being in late 60's and early 70's yaking about the price of gold as it bounces between $35 and $60. It didn't matter if you bought at $35 or $80 then until there was trouble in the BOND market and it doesn't matter now as it bounces between $1000 and $2000 now.

M said...

@ Dante_Eu

Peter might be onto something.. This could be how the bond bubble gets pricked. (because that is all that matters anyway)

Creditor nations buy gold with dollars (bonds) from debtor Euro nations, and then the debtor nations spend the dollars they receive. Not only does this put gold in strong hands, it also puts bonds in weak hands because the Euro nations are not going to buy hold the bonds like the creditor nations did. They are going to use the proceeds to fund their their needs.

How can the US government spend the money they get from bond sales while another government in Europe spends it at the same time ?



The Dork of Cork said...

How about this.

Gold price movements explained…..
Before euro , before 1980 /86.

Before EMU :Euro countries internal goods cheap / external (China ,oil ?) goods expensive.

During euro bliss years : Internal goods expensive / external goods cheap…..

Euro 9th circle years : both internal and external goods too expensive for now limited level of cash flow….

Italian or Spanish family can no longer buy day to day goods with present cashflow.
They sell their assets…..

Gold moves back to London.
Price falls…..
The UK maintains its real goods trade deficit.

Its a failure of globalization.

Gold might move up in Euro countries which go back to national currencies but the $ & £ maintain their supremacy.

Freegoldtube said...

Sherlock

+1 use Muse

;-)

Dante_Eu said...

@M:

Yeah, I also think Peter is onto something. I just can't imagine Europeans giving up their precious at this prices. Not even close.

That would equal capitulation in real terms.

Anonymous said...

Anand, I don't think China will use silver as a MoE, as a net producer, their money will be relatively strong and easily accepted. I think they are accumulating silver as a way to get stored value out of the $IMFs system...they are trying to diversify out of US Treasuries. I think a country like Zimbabwe (no trust in fiat) or Peru (major producer) would be more likely to have a silver linked or backed fiat as a MoE. And I see no reason for that to be incompatible with FG so long as the gold price floated in both fiat and silver terms. Through most of history, silver has been a monetary metal, and I am not sure it is completely done, although I think it has been permanently marginalized by the yellow.

Milamber, I did not offer any particular challenge to freegold. I asked how the currently observed facts should be viewed through a freegold prism. I didn't understand how the silver paper vs physical price breaking down (as opposed to gold) should be viewed...I've certainly never seen the observed phenomenon predicted in any FG blogs. My understanding of freegold had no way to digest how the phenomenon predicted for gold showing up in the other metal should be interpreted. Thank you to Motley Fool for helping bridge that with at least plausible speculation. The question wasn't a heresy, and there is no need for so many to react as if it was.

As for the 'business plan' (thought experiment, network of shrimps buying at retail, selling to anonymous giant at 3x paper, doubling in size every iteration) I think it is still unanswered, and one of the reasons I am questioning rather than fully convinced of the freegold hypothesis. Every challenge to the question resolved down to 'why you' (response...it doesn't have to be me, why isn't someone already known and trusted by the giant doing it?) and 'not enough' (response...doubling with every iteration will quickly get to giant size...at least until the major dealers are bought out and physical is no longer available to shrimps at paper prices, which has not happened). If the freegold hypothesis that giants will currently pay something between paper and future freegold prices, why is physical still available at paper, even at shrimp sizes? There were many mocking dismissals of the idea, but I haven't seen something which logically answered why it is not happening. I would expect to observe something like what we are currently witnessing in silver in gold if giants are paying something multiples of paper price for physical. In an attempt to keep it light hearted I offered my services (including seting up a network) to any giants who happened by...an offer that stands. But the point is that if the FG hypothesis that giants think in FG terms, there is room for a 'crowd sourced' ability to tap into physical at paper prices for volume even a giant would benefit from.

For those that don't think physical and paper silver prices have at least currently diverged (and MF's speculation explains why it may be temporary), please point me where I can get a shrimp sized order of only 6 monster boxes of silver eagles (the most common retail silver format) for something under $3 spot. If I can't turn fiat into metal at the price, the price is not the price. That order could have been easily accomplished at at least a dozen places at any point in the last decade, but can't be done today (to my knowledge, please correct me). That is a physical metal vs paper price divergence.

And I am pretty sure if it was a tube of gold eagles rather than a monster box of silver eagles, most people here would consider it as physical vs paper divergence. How high do margins on retail gold (%) have to go before it is seen as evidence of divergence?

Daedalus Mugged



MatrixSentry said...

Interesting comments.

Thank you M, Sherlock, Lisa Sir Tagio, Wil, etc.

jojo,

DM, who hasn't RTFB, said:

LOL! don't you know DM has read the entire blog, a couple of times. Must be a comprehension issue. I have RTFB a few times myself and somehow I came away with the notion that Freegold was a top-down process. A healthy dose of OCD has allowed me to overcome my rather pedestrian IQ, I am not the brightest bulb on the tree, and I get it.

Somebody is blowing smoke.

Nickelsaver said...

MS,

Not blowing Bro, inhaling!"

Roacheforque said...

Tagio quoted Byrne with,
"Nobody will take a levered position against them anymore – not on the stocks short side and not on the levered long gold side."

... one should add, "if only they could think straight."
But it is a salient point. Too bad only 1 in 100 will get it.

Anonymous said...

JoJo and Matrix sentry,
DM, who has read the blog, understands that what FOFOA was talking about in the quoted section was what triggers the transition to freegold. I did not say that the man in the street triggers freegold, what I said was that once freegold is apparent, it will be apparent to everyone. Say well into (two years?) into/post the freegold transition, does anyone think that the average middle manager won't be aware of freegold?

Matrix Sentry, I won't tell you to RTFB, but I am shocked that you don't appreciate that difference, after your reading the blog a few times. I would have expected better than mocking.

Still think I haven't read the blog?

byiamBYoung said...

ae44bfYadaYadaYadaYada (who appears after all to have rtfb),

The most troubling concept about silver for me is the (others have mentioned) idea that there are a butt load of people out there with impressive stacks of silver, waiting to turn the corner into gold at the right moment.

As someone who has always been aware of timing, but who has seldom gotten timing right, I am seriously uncomfortable with this plan. There are a lot of ways to miss this boat. Once everyone is cashing in, you might as well be holding scratched off lotto tickets.

Just my two cents (at present value)

Cheers


said...

Though this was interesting.

"The two-day crash in the price of gold is one of the most devastating asset sell-offs ever witnessed on Wall Street, right up there with the stock market crash of 1987. What makes it that much worse is no one is exactly sure why it happened."

http://finance.yahoo.com/news/scariest-part-2-day-gold-193249103.html

Anonymous said...

@byiamBYoung

If you plot GSR vs. the price of silver you can clearly see a compression in the GSR when the price of silver gets higher. As long as you can sell silver for paper and buy gold with paper the exchange of silver for gold at a lower GSR will happen.

Once paper for physical gold shuts down then you are correct that silver will only get you paper and not gold. But as I wrote early having a source of ever increasing paper is not a bad SoV to have prior to Freegold. The very worst time to sell gold for paper is just prior to freegold, use your silver instead.

Likewise should gold go to 50K/oz and silver back down to $5/oz then count me in for exchange my gold for silver. Twenty monster boxes for one oz of gold? count me in, I’ll find the room. While gold is the king of SoV it isn’t the only SoV out there, thus it will anchored to reality at some point, in particular energy.

For example say post Freegold that the oil/gold ratio is now 200/1 and yet it takes a lot of oil to bring new silver onto the market. Silver would then by definition be priced at some ratio to oil and thus would also have a ratio with gold by association; Gold, Oil, Silver, Wheat, etc. all being SoV of one degree or the other in the physical realm with cross associations largely driven by energy content of the supply chain.

ein anderer said...

@DM
"For the last 2k years or more, when a carpenter or soldier bought a pint in a pub, he probably paid in silver."
Yes. Silver was medium of exchange. Sailing ships where medium of trade. Swords were medium of aggression. Petroleum lamps were medium of light.
Be sure that noone would like to step back to those archaic institutions. Look how heavy silver is in your pocket. How easily they could merge it with other metals (as they did in all those centuries).

"Could you please link to where this idea is elaborated on?"
Use Google!

Oliver said...

Perth Mint sees large increase in demand for physical as price drops.


“The volume of business that we’re putting through is way in excess of double what we did last week,” Treasurer Nigel Moffatt said, without giving precise figures.

full article here

http://www.smh.com.au/business/markets/golden-times-for-perth-mint-20130417-2hzv7.html

Regards,

Oliver

ein anderer said...

@all
System’s waiting …

Jim Puplava’s thesis is: They left Gold because FED’s printing has not (yet) inflationary effects. Money supply is still potential energy (look at the first picture). Time will come when FED’s money is turned into kinetic energy …
The Waterfall Effect …

@Luke:
How the Gold Market was crashed

Anonymous said...

I don't accept for a second the logic that gold has historical precedent while silver does not. History would back up that fact. People can choose to ignore it if they want, they can also make up reasons to justify their erroneous conclusions but there is little point in arguing the record.

Claims for $5 silver are simply trolls looking for a chuckle. At 60:1 GSR that would put gold at 300 USD at the "modern" exchange rate (cough cough)

At the historical rate that puts gold at 80 USD.

Obviously the buying power is subject to revision but essentially over time a silver piece equals a nice dinner and a gold piece a nice suit.

Since I don't discriminate when it comes to physical I like to think I have all my bases covered. Do you ?

Motley Fool said...

battleship

"I don't accept for a second the logic that gold has historical precedent while silver does not."

Nice strawman. The logic we used is based on history, but rather a historic understanding of what money is, what its function is, and what has served as money. This is why we do not own silver.

"Obviously the buying power is subject to revision but essentially over time a silver piece equals a nice dinner and a gold piece a nice suit."

This is another common HMS fantasy. The buying power of gold is not constant. History bears this out.

TF

Anonymous said...

@BBY

If silver troubles you then don't stack it.

Problem solved unless you are arguing the hypothetical.

People keep all sorts of things for all sorts of purposes. My friends neighbor has a garage full of TP, and its not a bad plan I reckon.

If those who worship AG are wrong and all try to tumble into gold at the "perfect" GSR then the market will adjust for it.

If the conditions existed for such an exchange to occur, surely those conditions will once again prevail upon the market. Its the nature of human cyclical patterns...

Timing is a bitch I completely agree with you there which is why I stack different metals. Perhaps others feel differently.

Don't confuse the feeling of having to be right on ones call versus having made the call and accepting a less than perfect outcome.

Anonymous said...

@TF

You make a fair point but it doesn't change the fact that both were money.

Yes the value varies as all things do.

Don't stack AG. More power to you for making the call you feel is right.

As I stated I have both and sleep fine.

I suppose if gold is the final solution endgame and I regret my silver I will consider it a lesson well earned as even at todays price I am still very much in the black.

The main issue I see with the strawman position is that it cuts both ways. You do not know what will happen and neither do I. The difference "sir" is that I have hedged my bets BIMETALLY

Motley Fool said...

Battleshipyamato

We must each make our own choices. It doesn't matter to me what you choose to do. If it helps you sleep at night, then good.

However, since you do not seem to grasp our position, you shouldn't mind my pointing out I think you are wrong. You are of course free to ignore this warning.

As you said, both were money, and going forward we expect neither to be.

TF

Ps I am fairly certain of what will happen as regards this, hence my allocation. :P

Dante_Eu said...

@battleshipyamato:

Well, you could hedge threemetally also: Silver, Gold, Copper.

Like this: Ag +Au+ Cu

I'll take the middle one, it's more then enough. ;-)

Anand Srivastava said...

DM

Silver MoE is pretty much incompatible with Freegold.

Freegold is the realization that you need two currencies, one for saving and the other for exchange. The one for saving can be anything that is not used in any other way. Since Silver is an industrial metal, it does not fit the bill. The currency used for MoE must be paper, because nothing else can be created or destroyed based in need. Yes Silver again does not fit the bill, you cannot create it out of a printer.

Actually MoE is not the function that requires easy printing. UoA is the function that absolutely requires it. If you cannot print the currency you can not increase or decrease the supply as required, and so you cannot manage the value very well. You will have higher inflations and deflations. The easy printing gives the Currency a stable value.

ein anderer said...

@battleship

You make a fair point but it doesn't change the fact that both were money.
Yes. But:
You make a fair point but it doesn’t change the fact that both were money. History does not repeat (neither in this regard nor in many others).
See, we are on a path of (painful) evolution. World knows itself now, from the north to the south, from the west to the east. Unrestricted selfreference gives birth of something new.
"Freegold" theory (yep) is stating that money and currency history aims at the most practical, most lasting, most short asset Planet III Solar System Milky Way is offering.

BTW:
Take 2 bn in €.
1 bn in Gold coins.
1 bn in Silver coins.
What do you get?
An Euro palette Gold (about 1 cubic meter).
An 53 square meter room filled of Silver, 2.50 meter high!
Silver needs 103 times more room for storing (at today’s prices)!
(Source: Hans Albers, 28. März 2013, Comments (12:23:26))
How silly would be any really rich man/institution to store in Silver as long there is a "similar" but MUCH cheaper alternative ("cheap" in regard of storing costs)?
Have you ever seen any silver line in the balance sheets of CB?
They will never do it (again). They never have substantially and for longer times.
Yes. We don’t know what will happen.
But then: Expect the probable.
That’s what this blog is all about: to calculate the most probable. Not the least.
Step in the Footsteps of the Giants!

Anonymous said...

1/3
Lisa, I didn't re-watch Aquilas's (Aquili?) interview, but going off memory, his experience was that everyone just referenced prices to a major foreign stable currency, and then translated to the current rapidly changing local fiat price via exchange rate. Which would be my expection if there were a relatively stable reference currency. It won't be the dollar or yen. I am not sure the yuan can do it, and while I appreciate the freegold compatibility aspects of the Euro, I am not sure it can politically survive the disconnect between the supra-national monetary policy with national fiscal and regulatory policies. If the euro survives, it may serve that reference MoE role in what might be a very awkward, dynamic and difficult transition. But if the euro does not survive, what does serve that role? This will be the first major monetary transition where the whole globe is simultaneously on fiat currency. I think there is a possibility, if the euro breaks politically (not inherently due to the FG transition), silver could fill that role during transition. Because many seem to want to brand me a heretic, let me be clear, I am only talking about during the transition, not after. During the transition, I think the smart money will sit tight on their gold...it will not flow in volume until post transition at post transition value. I don't know whether the euro or silver would serve as the bridge 'reference MoE price' in a global hyperinflationary situation, if there is a simulataneous global hyperinflation. Thank you for the reference...did I miss something else you got out of Aquilus's interview?
continued...

Anonymous said...

2/3
Ein Anderer, I prefaced the excerpt you quoted with the 'mostly a historical reference' for exactly the reason you mention. I followed your google search links and perused (not close enough to say re-read) the four fofoa posts google thinks most closely related to the point. I didn't see the nuance I was discussing addressed. FOFOA makes the case strongly why it is freegold and not freegoldandsilver. He makes the point neither a fixed gold standard, nor a bimetallic standard can work. He makes the point that freegold (floating, can't be fixed in fiat) needs fiat. I don't see anywhere in any of the linked posts why fiat has to be digital or printed paper fiat. Another made the point that anyone can have a gold standard, all they need is a supply of gold and a willingness to sell it. I was very careful in my posts in silver on this thread to make sure to reference that the silver had to float, and I don't see anything to say that a country like Peru with large supply and willingness to sell, or a country like Zimbabwe with no paper credibility at all could not link their fiat to a (floating in gold terms) silver price, or even have it be physical silver fiat (stamp a hunk of silver worth 1 future peruvian made up wampum currency with '2 future peruvian wampum currency units' and make their people pay taxes with it. So long as the fiat (and the silver) float in gold terms (or the reciprocal, gold floats in the fiat terms) I think it is compatible with freegold. Not required, not necessary, but not inherently forbidden by or incompatible with Freegold. Silver may or may not still have a floating in gold terms MoE monetary future. If anyone can point me more specifically to where A/FOA/FOFOA have said something incompatible with this, or a commenter discussed the specific idea, please point me to it (more specifically than dismissingly telling me to google it or RTFB) By the same token, if some south pacific island wants sea shell fiat, or even lines in the sand, so long as it floats in gold exchange, I think it could be compatible with FG.
continued...

ein anderer said...

Wow. Almost perfect Freegold in a german News Blog.
Besides that they think that CBs could install a new Gold Standard, confiscating and forbidding the ownership of Gold (phys.).
How lucky those can be who stand on a sound theory about what is happening now? Very, very lucky indeed. Thanks to FOFOA.

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

@DM
(…) don't see anywhere in any of the linked posts why fiat has to be digital or printed paper fiat. (…)
Yes. No conceptional need to be digital, no conceptional need to be printed. But every structural need! Peru’s, Zimbabwe’s, pacific islands’ banks need to get adressed via Germany’s, Canada’s, Australia’s banks electronically – as long they do not shut down their frontiers and stay away from global industry, global tourisme, global delivery of goods and, yes, global internet!
So sea shells, lines in sand or silver coins as means of exchange/currency may be possible – theoretically. Out of practical reasons they never will. Not >2013. And with all respect: For realizing this simple truth at least me I do not need Another or FOA or FOFOA.
(Things may change if we would head into a global thermonuclear war or some long lasting EMP effects created by our dear sun. But I am not a Gaul who fears the heaven falling on my head.)

ein anderer said...

Another hint to Obama’s meeting with 15 top bankers April 12th, the day before the "crash".
Ok, source is SilverDoctors. But why not?

Jeff said...

Here's a reference. Read Focal Point.

FOFOA: Today silver would be "harder" money than cotton-pulp. This is why there will NEVER be a big enough political movement of the people that will bring back a silver standard. We have now discovered easier money than silver!!!

If you want harder money, it's gold. If you want easier money, it's cotton-pulp. So where does silver fit in? Well, it's just another industrial commodity with a lingering sentimental mystique as the old "easy money."

And where does gold fit in? Freegold of course! The monetary wealth reserve as demonstrated by the Central Banks of the world!

So what if gold really is the wealth reserve of choice for the giants that A/FOA said it was? That means silver is nothing but an industrial commodity today, being somewhat levitated by the lingering hype. What if silver is just a commodity, like copper or oil?

Monetary value is a self-supporting, self-sustaining levitation. Money is the bubble that doesn't pop. The price of money is arbitrary. Not so with commodities.

Motley Fool said...

Dante

Idk, with that as reference I prefer copper. :P

Anonymous said...

Less anyone be confused, the fact that I think silver may (not will) have temporary, during transition only, shrimp transactional reference price role or a MoE only currency role post FG transition does not mean I would recommend the 'buy silver now, swap for gold at a better ratio later' strategy. I would rather not talk more about silver here or now...too much inherent hostility, and it is ultimately a tangential issue to freegold subject of this blog. This thread has more important, more current and interesting ideas (at least to me) to explore.

I am curious if anyone either agrees or disagrees with or can expand on Motley Fools much appreciated speculation about the reason or implications of the observed physical/paper price divergence in silver. Or if anyone has a different theory/impication/speculation. I have the distinct, but still unreasoned, unrationalized, sub-verbalized, impression that what we are seeing in silver is important, and am struggling to understand it and its implications. I am curious if anyone would put down a marker where observed retail shrimp supply margins and magnitude of shortages have to go to call it a paper/physical divergence. I am curious if anyone has a better explination as to why my thought experiment about why shrimp gold is still at paper prices if giants are willing to pay something between paper and freegold....why we are not seeing in gold what we are currently seeing in silver.

Daedalus Mugged

Anonymous said...

PS Anand, there is some overlap with how I just responded to Ein Anderer, but I saw your post after I wrote the above and wanted to answer you more specifically, hopefully to improve either my, your or both of our understanding through the interaction. When you say a silver MoE is incompatible with freegold, I would add the nuance that a 'silver only' MoE is incompatible with Freegold (effectively, I think, the bimetallic standard with or without a floating exchange between them). However, I don't think freegold requires 'paper' specifically...it requires them to be 'not gold, but priced in gold' and probably a wide variety of 'them' some funny pieces of paper with green ink, some slightly different sized pieces of paper with multicolor ink, some may be seashells, some may even be silver. They have to float in gold terms to be compatible with freegold, but so long as they float and the net supply and demand for the fiat is balanced by buying or selling the reference point gold at the market clearing exchange price for that particular form of wampum, I think it is compatible. To your point, if a country said, "My form of fiat, the unz, is equal to one troy ounce of silver" they would have no control over their monetary policy or exchange rates, and they would have to stand ready to either hand out unzes in exchange for ounces, or hand out ounces in exchange for unzes. Most 'normal' countries would be loathe to give up that control of their currency, but I think some would consider it either because they have the silver to back it up (peru) or because they have so little paper credibility they have little choice (zimbabwe) but to link their fiat to something tangible in order to get a bid in gold. But if I were a small country without a real independent monetary policy (a dollar peg for example) I couldn't peg to gold without being destroyed one way or the other in FG, but I would rather be pegged to something tangible like an ounce of silver or a gallon of gasoline rather than a USD. I am not sure I see the requirement for the fiat MoE currency to be able to be created from thin air, could you please point me to where you read it or explain how you came to it in more detail? In your last paragraph, I would even say the reverse...being able to create fiat out of thin air would make it less stable, and less useful as a UoA. Brings an interesting thought, to your point, FG is essentially the seperation of SoV (gold) from MoE (fiat). Which will be more used as a UoA? The default existing systems are all fiat, but I would think using gold as a UoA would be more useful given the dynamic nature of the fiat. In a post freegold transition world, would it be more useful to think 100 shares of IBM as worth $5000 or one tenth of an ounce of gold? I think the statement from the broker will likely be in USD, but it might be more useful to think in SoV terms.


Motley Fool, still digesting implications of your hypothesis. If I understand correctly, that would imply the 'physical shortage' be pretty short lived...the HMS camp should only be able to create a temporary divergence. Is that correct? If shrimp silver supply shows up tomorrow, that would seem to support that understanding, how long would it have to be absent before it would be evidence (not proof) against that understanding?
Daedalus Mugged

Dante_Eu said...

@ae44bf5a-2cce-11e2...:

Haven't read all you write, just a glance, but I will tell you this:

I spend currency and save in physical gold.

I don't care about silver or any other commodity for that matter! I don't care if it would work as MoE or SoV or anything else for that matter. Really. I don't.

In fact, I would LOVE to see silver go down to 50 cents per ounce! Just to prove the point...even if it would mean 25$ per ounce Au.

Take care now\Dante

Motley Fool said...

DM

From memory, about two weeks should suffice, perhaps three at the outside...assuming gold stays at this level.

TF

Dante_Eu said...

@MF:

Well, here up north, we use to say:

"Smaken är som baken - delad."

Or in google english:

"The taste is like the butt - split."

:-)

ein anderer said...

@DM
(…) silver may (not will) have temporary, during transition only, shrimp transactional reference price role (…)

Yes, probably. Somewhere FOFOA said that he is hedging Gold 1:1 with Silver (in weight). Sounds reasonable, at least for US-Americans facing a thorough social and economical crisis ahead.

Roacheforque said...

The true medium of exchange today are as expressed by Another, "thoughts in the minds of men". Said another way for our times: CONfidence.

Think about it. It is CONfidence that moves the price of paper gold, that which shakes it, that which restores it.

As such, in the great betting arena where CONfidence reigns supreme as a means to WIN or LOSE there is ZERO hard money socialism, be it silver, gold or OIL.

There is only paper, and the digital "thoughts of men" supporting the system.

Someone asked about the paper smashdown and why aren't the Chinese and Indians buying furiously. They are, but like us, they pause for a further smash down, and like them, the cntrollers know this and are holding off.

Where we are at odds with the system, and its supporters, is that we here hope for a return to an organic, FREE market, free from manipulation and constant intervention, and free from being steered into a direction that will incite conflict through war.

If you don't like this system, you won't like the next, because the beligerant giant being turned into a 3rd world no-one will raise its sabers as sure as we can say that gold will be revalued.

This world we are entering into will have concerns far beyond your stacks, be they silver or be they gold.

You will enter a time soon when they will not so much represent only a "gain" but perhaps a means to save your life.

This paradign shift will be harsh, and the people detest are only doing their damnedest to try and save us all from it, by maintaining a system of "happy thoughts".

The sky will be blackened with Bernanke Blimps tossing not stacks of Benjamins, but rather boxes of happy meals.

This we grasp from the flower of understanding.

Roacheforque said...

(the people "we" detest)

Anand Srivastava said...

DM:
I am not sure I see the requirement for the fiat MoE currency to be able to be created from thin air, could you please point me to where you read it or explain how you came to it in more detail?

I haven't read the whole blog or even Another and FOA. So people who have done that will have to provide that.

But if you understand the concept of what the 3 functions of money and you take the requirements to the limit, you will realize that the requirement of UoA can only be fulfilled by paper.

We are not here to blindly follow the words of A/FOA/FOFOA. We are here to understand the concepts and see how it matches with the reality around us.

Sorry if I don't seem like the cultist we are made out to be. I think most here will agree that paper is absolutely required as the MoE, because they do understand the concept. You on the other hand have that silver baggage with you still.

Silver can be a good currency in a country where people had used silver/gold coins in recent memory, and have never used silver/gold as store of value.

In India, silver/gold currency had been too long ago, and we are used to using silver/gold as stores of value. We do not give them up, unless there is no other option. Using it like a currency will be unthinkable.

Roacheforque said...

DM,
It is not a requirement, but rather a self-evident fact that FIAT (as with the "thoughts of men") is created from thin air. Freegolders will tell you it is necessary for global lubrication of commerce (to which I agree, in a post freegold world).

Where we should be concerned is that FIAT represents pure debt, as a thought: "a credit that someone else may pay me in the future".

When such thoughts are produced in the quadrillions from thin air there is some trouble with those thoughts being "completed" as intended.

Gold, when revalued, will complete these thoughts.

This we grasp from the flower of understanding.

Anonymous said...

Look I’ll make it even easier for you “only” Gold guys.

Hypothesis 1; Gold and Oil never flow in the same direction, agreed.

Fact 1: Silver will require increasing amounts of increasingly expensive Oil to bring it into existence. BTW silver is not the only SoV that this is true for but silver is the closest to gold in terms of energy density per oz.

Therefore if gold trades for oil, and oil makes silver than silver and gold will trade based on this common relationship with oil, will they not?

To believe otherwise is to suggest that I would part with gold in order to buy oil and then promptly waste its value (as priced in gold) in producing and selling silver at a discount in terms of gold priced oil? Keep in mind that you are only able to read these words because there are tons of silver between you and me making this miracle of communications even possible. So silver must ‘also’ flow.

Are you beginning to the system level effects? I agree 100% that gold will be the trade clearing mechanism but gold will ultimately be tied to all other ‘lesser’ SoV via their respective energy contents. In short gold will be proxy for energy. In a world facing lower EROI this will be key in making sure that all lesser SoV are priced correctly ‘relative’ to gold.

If the world is foolish enough to allow me to trade one oz of gold for twenty monster boxes of silver, I say bring it on. I’ve have enough gold to fill a small house with silver.

Something tells me though this disparity between gold and silver even in Freegold world won’t happen.

What I do believe will happen is the use of any form of paper as a SoV will end and highly portable high energy density, durable SoV like gold and to a lesser extent like silver will fill this void.

Dante_Eu said...

@spaul67:

How many monster boxes of copper can you get for 1 ounce of Au? Today, without Freegold.

Why not fill a small house with copper?

I'm pretty sure there is copper in my PC...

ampmfix said...

As long as CBs and Giants are only interested in gold, silver's monetary role is just a shrimp delusion. After FG, silver's price will only depend on it's industrial demand, which will certainly grow on account of new and increasing applications, and IF there is a shortage one day (in 200 years maybe?) it's price will go very high (industrial demand only).
But given the FG scenario, once shrimps find out, it's price will drop from actual levels since nowadays the monetary perception still exists and investment demand makes part of the actual price. Nobody would buy silver for savings after FG. But the industrial play will always be there.
What i am trying to say is that the GSR will certainly go to the moon, but silver's price will NOT go to zero, it is still an irreplaceable metal widely used and one day will be exhausted.

Keeping a few hundred ounces for the great-grand kids is not a dumb idea.

Jeff said...

Spaul,

Silver is a commodity. So is oil. Gold isn't a commodity.

ANOTHER (THOUGHTS!) ID#60253: If you owned a commodity in the ground that had to be sold for paper currency in order to realize value what would do? Yes, the oil in the ground may last another 50+ years but will the bonds and currencies of other governments last that long? One thing you don't do is buy gold outright, it would cause it to stop trading as a commodity and start trading as money! You learned that in the late 70s. Nor do you acquire "real gold money" in any fashion that would allow a comparison of price trends ( graphs ) ! There must be a way to convert the true wealth of oil into the outright wealth of gold. We know that oil is a consumed wealth of a momentary value that is lost in the heat of fire.

The stars blink and it is oil wealth no more!

It has become "the debt of nations " now owed to you. Gold on the other hand is not a commodity as many assume, as it is truly "the wealth of nations " meant to last thru the ages! A wise oil nation can strike a deal with the paper printers and in doing so come out on top.

milamber said...

@ DM,

"Milamber, I did not offer any particular challenge to freegold/"

Agreed. I am still waiting for you to state your "challenge". I am curious as to what form it will take.My money is a combo SLA/HMS with a dash of NWO thrown in for flavor.

"I asked how the currently observed facts should be viewed through a freegold prism."

You presume a "fact" that is not in fact a "fact". Silver shortages at the retail level come primarily because it is not cost effective for the supply chain to keep a lot on hand. When it happens it is a manufacturing bottleneck, NOT a supply issue because (GASP) there is no silver left.

And to let you know how bizarre your comments are sounding (especially for someone that has RRTFB), why on Earth would you be arguing for a MoE that you think is in short supply?

Since the fool helped you out, why not read up on the post regarding his FOFOA's dilemma comment? Or better yet, since you have RTFB, just recall it from memory.

Again, your posts indicate a reasonable intelligence level. So why do you write comments that contradict your other comments? What are you getting at?

"I didn't understand how the silver paper vs physical price breaking down (as opposed to gold) should be viewed...I've certainly never seen the observed phenomenon predicted in any FG blogs."

Then maybe you should expand your reading list. I would rec that you add Bron & Screwtape to it. Not Freegold blogs, but definitely worth the time.

"My understanding of freegold had no way to digest how the phenomenon predicted for gold showing up in the other metal should be interpreted."

That is because your "understanding" is not accurate. What I am trying to determine is why.

What you are seeing with Silver is not "the phenomenon predicted for gold."

"Thank you to Motley Fool for helping bridge that with at least plausible speculation."

I am glad the fool could help you.

"The question wasn't a heresy, and there is no need for so many to react as if it was."

Your questions are just bizarre. Since you have RTFB, and you ask that question (and as I said, your past posts indicate a pretty good level of intelligence), I am going to say that you asked that question because you are fishing for a specific response. If you think you have found a hole in Freegold, by all means share it.

And who said that the question was a heresy? Oh that's right, it was you.


Milamber

Anand Srivastava said...

@Spaul67
BTW silver is not the only SoV that this is true for but silver is the closest to gold in terms of energy density per oz.

That sentence did not compute. Core dumped.

What the **** is energy density?

Are you sure Uranium does not have more of it? I guess that is a restricted material, otherwise it would be the best store of Value. The govt stops us from hoarding Uranium, otherwise we could kill all the nuclear power plants by hoarding Uranium.

Anand Srivastava said...

Silver can be a good currency in a country where people had used silver/gold coins in recent memory, and have never used silver/gold as store of value.

Realized that this sentence was wrong in my above message to DM.

Silver can be a good currency during the crisis, not AG (after gold, aka transition), in a country where silver/gold had been used as currency and has never been used as a store of value. I guess US people (except very few) have never used silver/gold as store of value.

Anand Srivastava said...

@spaul67

I hope you were not talking about some mystical energy. Because this blog is more about logic and physics, rather than faith and metaphysics. We don't trust easily, and we don't trust A/FOA/FOFOA either, we have to understand them before agreeing with them.

Anonymous said...

@ Jeff

I understand your point on gold and not silver becoming the focal point. As a focal point gold will enjoy a purchasing power value far higher than its manufacturing price. Amen. Silver may have a related rise with gold but will eventually fall short as gold achieves monetary orbit while silver splash down in the Atlantic. Amen again. The main reason this gold holder will diversify into silver (ie attempting maintain a 50/50 ratio after the dust settles) even after Freegold is because Freegold doesn’t exist now but it did in the past……… “before the dark times, before the empire”.

Thus one can assume that even if Freegold comes about it can also ‘go away’ as well apparently. In fact Freegold has come and gone away many times throughout human history. Thus being diversifying into the most value/energy dense ‘industrial’ precious metals (don’t forget platinum) one secures the Freegold purchasing power pop should we start back down the same road ‘all’ monetary resets have progressed down in the past, namely;

gold – gold backed paper – paper – paper/debt ponzi collapse – gold etc.

Silver and platinum on the other hand can be counted on maintaining their ‘industrial’ value while still being more portable, durable, fungible than say copper, wheat or oil. The King of ‘commodities’ meets the King of Money (Gold) if you will.

Now the next monetary cycle may take 100 years, but it also could take less time, perhaps well within the lifecycle of those alive now. Either way once the Freegold purchasing power pop has happened there is only risk in assuming it will last for all eternity. Further the ability to steal the savings of net producers the world over in a Freegold world will be shut down by definition. Thus the TPTB will want to restart the paper ponzi scheme ASAP after the reset as it is a key form of ‘stealth’ wealth confiscation needed to feed the beast that is Statism.

So for the Statists ‘allowing’ a brief reign of Freegold will only be seen as taking one step back in order to take two steps forward. One big debt jubilee setting us up for the next ponzi scheme cycle. A ponzi scheme that can’t happen with hard money by definition.

Now I know that FOFOA claims that Freegold is ‘not’ hard money in that we have just ‘innocently’ decoupled the SoV (gold) and MoE (Paper) functions of money but if ‘any’ SoV ‘outside’ the cycle of theft is allowed (could be moon dust for all it matters) then the reemergence of a new paper ponzi scheme that steals net production can’t happen. Like a global Switzerland you can put in your pocket. So what we fellow net producers rightly see/admire as a key feature/selling point of Freegold the Statist and the parasites that keep them in power see as a serious problem.

I mean how dare we attempt to enjoy the fruits of our own labor? Oh the horror, how unfair. It’s for the children after all. How heartless can you be?

byiamBYoung said...

@spaul67,

"In fact Freegold has come and gone away many times throughout human history."

No, it hasn't. If I'm wrong on this, I really need to RRTFB.

Anonymous said...

Took a couple hours off today to buy gold at the local coin shop. While there, I sold my last 20 oz. of silver, which tells you exactly how much credence I give to that JOKE of a position that silver is some kind of 'competing' store of value.

Anyway, there was only one other customer in the store. Looked like he was selling some old coins (not gold). No one was 'backing up da truck' nor did there appear to be any shortage of anything.

What was more interesting to me was the number of shuttered businesses I saw on the way there and back. Many restaurants had closed, others had very few patrons. The only places that seemed to be doing well were the likes of McDonald's, Chic-Fil-A, and burger king. They must accept EBT.

Motley Fool said...

"is because Freegold doesn’t exist now but it did in the past"

Just a small technicality. Nope. Never happened.

Anonymous said...

@ anand srivastava
“What the **** is energy density”

Answer…..The amount of energy required to produce a substance from its natural form. In the case of silver from ore to ingot.

A very key concept as mankind is forced into lower and lower net energy sources interacts with progressively lower ore grades in the case of silver but especially applicable to all non-renewable ‘commodities’ well beyond just silver.

It doesn’t get less meta-physical and more physics based than that my friend. Gold at a purchasing power 100x over its direct incremental production cost even though we have hundred year supply above ground? now that is meta-physical. Doesn’t mean it won’t happen; only that gold’s support basis is not based on physics that is all. Thus what human imagination has created can dissolve away just as quickly. Physics on the other hand remains.

Exhibit A; World monetary history in which gold has come and gone and come and gone and come and gone, you get the point.

Anonymous said...

@ byiamBYoung

Spaul67 - "In fact Freegold has come and gone away many times throughout human history."

byiamBYoung - "No, it hasn't. If I'm wrong on this, I really need to RRTFB."

RRTFB?

Anyway, read this concerning the last Freegold Era;

http://fofoa.blogspot.com/2011/09/once-upon-time.html

“Much that once was is lost; for none now live who remember it.”

Dante_Eu said...

spaul67,

"Gold at a purchasing power 100x over its direct incremental production cost even though we have hundred year supply above ground?"

How ironic, isn't it?

It's not called arbitrary for nothing.

I don't know why but, we have pointed out many, many times the fact that the price of gold is arbitrary. And yet, I don't know why, people have hard time to grasp that. They go completely crazy:

She Go Crazy

PS It's not total stock that matters, it's the flow: It's the Flow, Stupid

PS2 Where's JR when you need him? JR, get your lazy @ss from the couch! :-)

Anonymous said...

@ poopyjim

Must be nice to 100% self-sufficient? I mean no need to get paper once in a while to buy gasoline, or food, or whatever you don’t have for the next five years or so. Only cave men living off the land are so blessed.

If not then your gold is ‘now’ total exposed to what is likely coming. While you’re selling your gold for paper prior to Freegold I’ll be selling my silver for the same while100% of my gold is protected awaiting Freegold.

Actually come to think of it, I’ll be selling my silver to get paper in order to give you paper for your gold. So thanks in advance.

Hence the compression in the GSR during these ramp ups is brought to us by the 100% gold holders club that need to conduct commerce during the run up to Freegold.

Meanwhile the gold held by silver holders is stronger hands because we aren’t putting our survival at odds with Freegold.

Rather silver is how we survive until freegold, the most important parts of which are survival and gold and in that order.

Anonymous said...

LOL @spaul

Why yes I do have around 8 mo. worth of food stored as well as firearms, a tent, first aid supplies, etc. etc.

And no, silver is NO DEFENSE for your gold during the transition, ya joker. Around that time is when I expect we'll break through my target of 10000:1 GSR. If I wanted something which might serve to defend the precious during the transition, I would get EUROS. And in fact, I am thinking of doing just that.

M said...

@ PoopyJim

For what its worth, I just got back from ScotiaBank Millwoods here in Edmonton. They hold bullion at that location because of the big Indian population. They had nothing in stock. They were cleaned out yesterday. I only go to that branch because they are faster. So I asked what the main Edmonton branch had in stock. They said nothing. The branch manager who happened to be Indian himself heard the conversation so he walked over. I asked why I cant just buy now and pick up the gold in a couple weeks when it gets here like I have one other time.He said as of now, Toronto has nothing so they won't even take orders. Toronto will have nothing for 2 days and then Edmonton will receive their inventory 2 days after that. He said ScotiaMaccota might have some but their markups are higher.

So I had to cancel my bank draft and that was that..

In my opinion though, everything will muddle along until something happens in the bond bubbles.

Anonymous said...

Dante_Eu said...
“I don't know why but, we have pointed out many, many times the fact that the price of gold is arbitrary. And yet, I don't know why, people have hard time to grasp that. They go completely crazy”

Actually, I agree with you after all pieces of cotton/paper/ink have purchasing power values of a million times or more, depending on the numbers printed on them, above their manufacturing cost right now.

Even crazier still are promise to deliver these same notes many years in the future with a purchasing power TBD. Still not crazy enough? The supply of all the above can be increased at anytime based on the prerogative of parasites. Now that is what I call crazy.

So as crazy a concept as Freegold is it’s not nearly as crazy as what we have now.

My basic problem with Freegold isn’t the 100x factor. If gold is the primary means by which trade accounts are settled and trade flow is enabled/balanced then gold's incremental manufacturing cost is irrelevant just like it is with paper now at a 1,000,000x factor. It’s is merely a means to a greater end.

What is more troubling is how Freegold disrupts the ponzi schemes used by all nations of the Earth to fleece their local net producers. That in my mind is the bigger issue. A SoV outside the realm of the state to steal? ……….now that is some really wild and wacky stuff right there. Silly kids.

Nickelsaver said...

Look at the arguments the silverbugs use - historically money, historically narrower GSR, dwindling supply due to industrial demand.

Now look at what silverbugs would like to happen, for the silver price to skyrocket so that they can cash out at a huge profit.

Now let's enter the transition. Both paper silver and gold price crash. The dollar enters its hyperinflation feedback circuit. Gold has gone into hiding and silver comes out of hiding? Ok. Out of hiding into what? If you say as an SoV, that is counter to gresham's law, making it bad money. If it is as MoE, then you have to convince all those that are not holding it that it has value such that they will be willing to part with real goods and services in exchange. But these are the same ppl who want to measure value in dollars. So guess what, they will believe its value is little BECAUSE it isn't in hiding.

The best senario for silver is that it goes into hiding too. And then it is treated as a valuable barter item.

But if you're going to hold a barter item. Best to hold gold in small weights. And hold it right next to your gun.

I say this having come full circle in my thinking. For I used to believe that silver could and would be used as money during the transition. But I know now that, in the absence of a functioning and stable national currency, we will devolve back into barter. And if we go there, I want to be holding items that ppl will want, not items that other ppl have.

«Oldest ‹Older   201 – 400 of 641   Newer› Newest»

Post a Comment