Friday, October 18, 2013

Gold as a FOREX Currency

Another gold writer emailed me the other day with a few questions about my take on the apparent disconnect between the gold price action this year and "physical gold's obvious fundamentals." I explained to him how the POG (price of gold) is thoroughly and utterly disconnected from the physical segment of the gold market today. I said that any increase in physical demand (due to physical gold's obvious fundamentals) does not, cannot, drive the price higher today. It does one thing and one thing only, it stresses the current gold market structure.

The reason, I said, is that physical gold's fundamentals have nothing to do with "today's gold market." Today's gold market is "majority-owned" by gold trading as an electronic FOREX currency, which has almost nothing to do with the physical side of the market. That exchange by itself would probably make a good post, but this one is all about his primary follow-up question, which was:

"The area where I’m still hazy is the gold as a FOREX currency."

The following was my reply to his question, which I wrote in great detail with the intention of turning it into a post because it's something I haven't seen any other gold writers even acknowledge, let alone factor into their POG analysis:

As you well know, the POG rose in the 70s, but then in the 80s and 90s it fell from about $500 down to $250. During the 80s and 90s is when the CBs started leasing gold, or at least lending in gold-ounce-denominated units (lending their good name as Another put it: "Understand, they only lend their good name on paper, not the gold itself"), so that the bullion banks could help the mines hedge against the declining POG and not only keep producing, but actually increase production. From 1985 to 2000, global gold mine production increased from 50 million ounces to 82 million ounces per year, even as the POG was halved.

Checkmate is a good post for this wide view, or just watch this video by Freegoldtube, from the bottom of Checkmate, which has some relevant quotes from FOA:


This gold leasing/forward hedging started around the same time as Barrick switched focus from oil and gas to gold, around 1983, but by the mid- to late-90s it was more than mines taking these gold-ounce-denominated loans. Hedge funds wanted in on the gold carry trade too.

Meanwhile, following the closing of the gold window in 1971, gold received its official ISO 4217 currency code: XAU. This happened in either 1973 or 1981 (I'll explain the uncertainty in a moment, but I assume it was 1973 although I don't have the 1973 list). Silver received its own currency code, XAG, in 1983, platinum (XPT) in 1989 and palladium (XPD) in 1993. I mention these dates to show you how new all of this is. Mine forward hedging, CB gold lending, gold carry trade and metals trading alongside currencies on the FOREX. All very new.

Last year I emailed the currency ISO office in Switzerland to obtain this information. Here was my email and the reply I received:

Dear Sir,

I have a question about XAU (and the other commodity codes XAG, XPD, XPT). I understand that ISO 4217 was developed in 1973 and adopted a few years later. I also understand that SIX periodically publishes updates to the list, the latest being in 2008.

My question is: Was XAU on the list from the beginning in the 1970s, or was it added in one of the later published updates? And if so, what year was XAU added as a currency code for gold (as well as the other commodity codes)?

Lastly, if you could direct me to a copy of that historic publication in which XAU was added, that would be much appreciated!

Sincerely,
FOFOA

Dear Mr. FOFOA,

Thank you for your mail. Unfortunately we do not have a copy of the 1st edition of ISO 4217:1973. XAU was added either from the beginning in 1973 or later to the 2nd version in 1981. I attach the 2nd version for your information. [Click here to download the 2nd edition of ISO 4217:1981]

For the other commodities please see the following amendments:

XPD (Palladium): Amendment number 65: http://www.currency-iso.org/dl_currency_iso_amendment_65.pdf issued: October 1993
XPT (Platinum): Amendment number 25 and 36: http://www.currency-iso.org/dl_currency_iso_amendment_25.pdf issued: 8 March 1989 and http://www.currency-iso.org/dl_currency_iso_amendment_36.pdf issued: 29 January 1991
XAG (Silver): Amendment number 8: http://www.currency-iso.org/dl_currency_iso_amendment_8.pdf issued: 21 October 1983

I try to get the first edition of ISO 4217:1973 from ISO and if successful I will forward it to you.

Yours faithfully,

Marianne Nikles
Secretariat of the Maintenance Agency
for ISO 4217
c/o SIX Interbank Clearing Ltd
P.O. Box
Hardturmstrasse 201
CH-8021 Zurich
Switzerland

office@currency-iso.org
www.currency-iso.org

Everyone knows about the mine and hedge fund involvement in the gold carry trade in the 90s, but much less attention has been paid to gold's use as a currency in the foreign exchange market (the FOREX), which continues to this day. I'm sure you are aware of the massive size of the FOREX market compared to other markets, but here's what Wikipedia says about its size:

According to the Bank for International Settlements,[4] as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.

"Daily volume" and "daily turnover" are confusing terms, because there are different ways they are estimated in different markets. Double counting, for example, is one potentially confusing factor. But I think that the sheer size of this market is what is most amazing, whether it is $2T, $4T or $8T per day changing hands, it still dwarfs other markets.

In January of 1997, the LBMA released its "daily clearing volume" for the gold market which was an astounding 30 million ounces or 930 tonnes per day. At the price of that time, that was about $10B per day. Today, thanks to the 2011 LBMA survey, we know that "total daily turnover" is about ten times "daily clearing volume", and that "spot" (as opposed to forwards, swaps, options and other derivatives) makes up 90% of that volume. That's the "gold spot market" today! About $100B daily turnover in January 1997, and $240B per day in 2011, the equivalent of 5,400 tonnes total, or 2,700 tonnes changing hands every day! And that's from 64% of the LBMA members reporting, so it's likely higher, especially once you add in non-LBMA (retail) FOREX trading.


For comparison, the annual flow from mining and scrap recycling is about 4,000 tonnes. That's annual. So the physical flow from mines and recycling compares to the LBMA spot market like this. About 16 tonnes per day in physical versus 2,700 tonnes per day in the "spot market". Now what could possibly constitute such an enormous "spot market"? FOREX trading.

The FOREX market is a $4T per day market including all currencies, and it looks like the "gold trading as a FOREX currency" portion of that market could be $240B at a minimum, possibly higher. That would make "paper gold" a full 6% of all currency trading in the world, including dollars, pounds, yen, euro and the rest of the 178 "currencies" with their own ISO 4217 codes. Think about that.

Amazingly, this was clear to some even in 1997. That's what spawned the Red Baron series, and I think the LBMA revelation was at least partly responsible for A/FOA showing up on the scene. Who knows, maybe Another was the one who leaked it to the London Financial Times! Here's a bit from My Candid View – Part 4:

Back during the London Gold Pool years (late 60s), physical demand did drive the price of gold up. And, perhaps in the late 70s and 80s and even into the mid-90s, Comex futures were more than just a side show in driving the price. But today I think it is clear that there's much more money chasing gold in the FOREX market than anywhere else. How else can we explain the volume in the LBMA survey? And I didn't come up with that explanation. It first appeared in 1997 right after the LBMA first revealed its tremendous clearing volume. Note that clearing volume was still shocking then, but it's also much smaller than total volume. From the Red Baron series circa Sept. 1997:

"The formidable volume of daily trading strongly resembles that of currency trading."

"This suggests (at least to me) the trades are non-Central Bank transactions - and more probably commercial operations related to CURRENCY TRADING."

Now, currencies trade in pairs, like USDJPY or XAUEUR. The first in the pair is the "commodity" you are trading, and the second one is the "money" it is priced in—the denominator. So if you are long USDJPY, you are essentially long dollars and short yen. Earlier, you mentioned how it's easier to play the market from the short side when the price is falling, and I mentioned a conversation I had with FOREX Trader back in early June, which you hadn't seen.

Here is that conversation. It was about the implicit carry (interest rate differential) built into currency pairs and cleared overnight, possibly giving institutional money (like pension funds) a built-in "yield" as an additional incentive to short FOREX "gold" around May of this year. It was unusual enough that it caught his attention and he sent me an email:
FT: Hey FOFOA,

Nothing new on the wire to report from my end. But I did have an interesting note for you which I've been meaning to email about, unfortunately been very busy.

The note is that carry is kind of screwed up in the FX market. As a simple example, EURUSD shorts are paying carry. Also, XAUUSD and XAUEUR shorts are as well, at least for the last couple of weeks since we noticed here in the office. Relative to the other G10 carries available, especially if you don't include the comdolls (NZD/AUD/CAD), the rate available is pretty good ($16/$1,000,000/night) on a relative basis. About a quarter of what you get for an AUDUSD long and about 4 times what you'd get on a USDCHF long.

I am very certain that this carry (combined with the technical position of the charts) is incentive for a lot of traders to short the FX pairs on leverage, carry can be a major consideration when trading a levered position. For example, we pretty much never hold overnight positions in AUDUSD or AUDJPY.


FOFOA: Can you explain this a little more? Are you saying you earn a small "interest rate" when you short the euro or gold?

FT: Surely you have heard of the "carry trade" before? Let me explain it. Basically, the original investment thesis was essentially: given two "risk free" instruments, yielding differing interest rates, a trader purchases the instrument with the higher rate on leverage, and funds that position by shorting the instrument with the lower rate, at the same amount of leverage. This allows the trader to collect the "carry" or "swap", which is the overnight interest rate differential between the two instruments.

This concept is the cornerstone of almost all financial activity which occurs, as long as there is margin to borrow. Obviously a simple example would be the "bank spread", i.e. short 1-3Y Treasuries and long 10-30Y Treasuries.

Same applies, implicitly, in spot FX. If I am long $1,000,000 AUD and short $1,000,000 USD (i.e. long 1 AUDUSD contract) then each night as the banks roll over their intraday positions (squaring the books), I earn the interest rate differential (e.g. AUD LIBOR minus USD LIBOR divided by the number of trading days in that year) from whoever is on the short side of my long (through the broker). If I am short 1 AUDUSD contract then I must pay the differential to whoever is on the long side of my short.

Currently, both XAUUSD and XAUEUR shorts are paying carry. During a technical uptrend in an instrument like AUDUSD, this is a strong disincentive to short the instrument, as the trader must pay the differential to hold the position. A technical downtrend which pays carry on the other hand, gives incentive to the trader to short, the more leverage applied the higher the multiple applied to differential earned.


FOFOA: Thanks. Yes, I understand the basic carry trade (borrow one currency and sell it short to invest in a different, higher-yielding currency). Like the yen carry trade – borrow yen, sell them for dollars, use the dollars to buy Treasuries. Or the gold carry trade. Borrow in gold units, sell them for dollars, invest the dollars. You not only earn the interest differential but you also profit even more if the borrowed unit falls in value relative to the invested unit. And if enough people are doing this, the very act of doing it pushes down the borrowed unit. It's all great until it's not and everyone rushes to unwind the trade first. Sound right?

I just need to wrap my head around it in FOREX terms since I've never traded currency pairs.


FT: Yep that is exactly right, the only difference is that in spot FX, all of it is implicit, i.e. you don't need to go out and borrow to short, or invest the dollars in Treasuries, your short is part of the pair and you can earn the overnight rate directly.

FOFOA: One thing that was confusing me was your trader lingo: "the shorts are paying carry." To a non-trader who doesn't know the lingo, that could be taken both ways. As in "the short traders are having to pay the interest rate differential," or "short positions are now being paid the interest rate differential."

FT: Sorry about that! Never even occurred to me :P

I'm not sure I remember the last time trading XAUUSD paid carry in either direction, so I thought it was quite interesting. Obviously interest rates have had a jump over the last month, but I doubt if that's enough to account for this. It seems possible that the "interbank/overnight rate" for XAU has gone down significantly, driving up the rate differential?

The way I like to think of it is, if the US 10Y yield goes from 5% to 2.5%, then this indicates there has been strong demand from the market to lend 10Y money to the US Government.

So if the XAU "interbank/overnight rate" goes down, this indicates there is strong demand from the market to lend overnight money to ...???


FOFOA: Just to be clear on this "the shorts are paying carry", if I hold a $1M short position in XAUUSD overnight (I'm shorting gold because I think the $POG is going down), do I get paid $16? Or do I have to pay $16?

FT: Haha sorry, yes, to be clear, if you short XAUUSD then you get paid $16.

FOFOA: Thanks! And now who is paying me? Is it someone who holds a $1M long position in XAUUSD overnight? Does it now cost $16/night to bet on gold in the FOREX market?

FT: The person paying you is nominally your broker, but what's happening is everyone that has a long on XAUUSD is paying the broker and the broker is disbursing that accordingly to the shorts.

The differential is not nominally symmetrical because FX contracts are denominated in the "right hand" currency in the pair (in this case USD). So it actually costs $21 to bet on XAUUSD longs. Although I believe the differential expressed in percent should be symmetrical.


FOFOA: So it sounds like this is a big incentive to be short gold on the FOREX. How do you read this?

FT: I think it could potentially be a big incentive in the same way as I've been using AUDUSD as an example. Following a trend is nice because of the potential for capital gains. Following a trend which pays cashflow is obviously nicer. Leveraging a trend which pays cashflow, nicest of all, back up the truck.

MY SUMMARY: There is an unusual incentive right now to short gold on the FOREX. You get paid to do so, and it's the longs that are paying the shorts. This is separate from the capital gains made when gold actually goes down. So if/when gold goes down, the longs are not only taking capital losses, but they are paying the shorts an interest rate differential for the "privilege" of being long paper gold (overnight).
[Note: The above exchange was back in June, and it related roughly to the April-June timeframe. FOREX Trader brought this to my attention because he thought it was an unusual situation. He couldn't recall seeing the XAU shorts getting paid the carry before, although it's not something he normally pays attention to. Another FOREX trader also brought it to my attention that this would not necessarily be available to retail traders because fees, spreads and rates are often less-friendly to the traders at retail brokerages. That's why I specified institutional money at the top.]

Also in my last email, I mentioned that with "only" 3X leverage institutional money could turn that carry into a reasonable yield in a no-yield environment, to which you raised an eyebrow. Apparently, leverage is quite common in FOREX trading. Here is my comment about leverage back in June under my "Black Gold" post:

Hello MdV,

I mentioned your comment to FOREX Trader because he doesn't really follow the comments.

Regarding 50:1 leverage, he said that retail brokers usually offer up to as high as 400:1 leverage to would-be currency traders. But he said that you'll rarely see professional FX traders using more than 20:1 leverage, and even then it's usually only the day-traders using that much leverage. He said at his office it's generally more like 3:1 or 2:1.

When you increase the leverage, there is a massive increase in the "cash flow" of the invested capital, but it also increases the potential for a margin call, which he says is obviously why retail brokers offer such high margin. For example, at 50:1, you'd only have to deposit $20,000 to hold that $1M XAUUSD short overnight and earn the $16. That equates to an annual interest rate of 21% which is HUGE. But the downside is that a 2% adverse move in the underlying is going to mean a margin call, which means you could lose the whole $20K if gold goes up 28 bucks and you don't have more cash to wire to your broker.

At 400:1 leverage (just for fun), you'd be earning a "carry" (interest rate differential) of 170% annualized. But the bad news is that gold would only have to move up $3.47 before you would either lose your whole wad or have to deposit more. Imagine having to deposit another $20K each time gold moved up $3.50 and you've only got $100K. If gold goes up $18 you'll lose the whole $100K, even if it then goes into free fall right after you went broke.

My point is, the high leverage offered by retail FOREX brokers is probably a cash cow for them (not you). But the real pros (like FT) are only using 2:1 or 3:1 leverage.

With lower leverage, he says: "This is where the technical trend comes in, allowing you to run your carry position with a tight "stoploss" that should stick unless the trend reverses. If you're a large investor with cashflow requirements (think pension funds and whatnot) then positions like this can be a moderately attractive way of earning a 5% "yield" in an otherwise yieldless market."

Sincerely,
FOFOA

How many other gold writers have you seen that have even mentioned this $240B+ per day segment of the gold market, let alone analyzed its impact on the price of gold? In my last email, I told you how I answered someone who asked, "Can you point me somewhere (or perhaps you have written about it - and it has escaped me) what determines the daily (paper) Spot price. Does anyone know the factors involved?" Think about the relative weight of this $240B+ paper gold market as you read the bolded part at the end:

Have you ever noticed that the spot price is often slightly different depending on where you look? I just opened Kitco and APMEX simultaneously and the ask is $1,295.70 on Kitco and $1,296.20 on APMEX. The answer is that there is no official spot price. Everywhere you look for it the price you see quoted will either be from a live trading platform and, therefore, the opinion of thousands of traders who are looking elsewhere for reference, or else, as with Kitco and APMEX, it will simply be reporting the going price on some active trading platform. So there is no official spot price. There is only the opinion of thousands of traders who are all cross-referencing thousands of different correlated items, charts and other active trading platforms in search of an opportunity at any given point in time.

Which segment of the gold market do you think carries the most weight when it comes to determining the spot price of gold at any moment in time? GLD daily volume is around $2B. What is COMEX daily volume? Isn't it somewhere around $20B? And the LBMA reports a daily volume of $240B, 90% of which is "spot gold" or about $216B per day. So COMEX is about 10 times the volume of GLD, and LBMA "spot" is around 10 times COMEX and 100 times GLD. Does that sound about right, or am I getting something wrong here? I realize that I'm comparing "daily volume" to "daily volume" and there may be a margin of error due to differing methods of reporting "daily volume", but with an order of magnitude difference between LBMA "spot" and anything else, it's pretty safe to say that LBMA "spot" carries the most weight when it comes to determining the POG.

Here's a screen shot of a FOREX trading platform that "a big physical dealer out of the mid-east" provided to another gold writer. He said he uses this platform to purchase gold, and that he also takes delivery from the platform provider (FOREX Trader said that would be called a "physical ECN" if true). As this particular story went, he was able to buy and sell as much as he wanted, but was, on occasion, limited as to how much he could take immediate delivery on. Here's a quote from the story as it was told: "…physical orders were getting partially filled. If they ordered say 10 Kilo's they would get 5 or 4 as confirmation, and would have to wait for delivery of the balance."


I asked FOREX Trader if this screenshot looked like a physical ECN to him and here's what he said:

"There is no way I can verify based on the screenshot whether or not his access is to any physical ECN. But from my personal experience, it doesn't look like it. To me it looks more like any regular bucketshop CFD brokerage account. First of all, the spread (60c) is 10c higher than most CFD brokers offer, and definitely way higher than what you get on the interbank at 3:30PM London, 30 mins after the fix! Secondly, all you can see is the spread, you can't see the market depth even 1 level down. For example, I link a screenshot of MB Trading (which is an ECN -not interbank- broker that I do have an account with) http://www.onestepremoved.com/wp-content/uploads/2012/02/sampleMarketDepth.png, thirdly it only seems to show the ability to buy/sell at market (as opposed to limit orders), which is another very big red flag that it's a CFD account.

However, while all three of these points trigger my skeptical side, like I said I have no real way to confirm or deny whether he is trading a physical ECN, there are a million software packages out there, each broker often provided support for at least two and there is no standard on how they should look."

I mention this FOREX Trader email for a couple of reasons. First, notice the term "interbank". Here's what Wikipedia says about the interbank:

The interbank market is the top-level foreign exchange market where banks exchange different currencies.[1] The banks can either deal with one another directly, or through electronic brokering platforms. The Electronic Broking Services (EBS) and Thomson Reuters Dealing are the two competitors in the electronic brokering platform business and together connect over 1000 banks.

The point I want to make here is that there seems to be a kind of pyramid structure to the FOREX market, with the interbank at the top tier of the pyramid. Down at the bottom of the pyramid you have the retail FOREX trading platforms available to you and me. You have to be a bank or a pretty big player, a wholesaler or a middleman to deal directly with the LBMA bullion banks as evidenced by the number of trades reported in the LBMA survey. The daily average reported was 6,125 trades totaling $240B. That breaks down to about $39M per trade, or 9/10ths of a tonne.


And that's why I think that this segment of the "gold" market could be larger than $240B per day. So what's the dog, and what's the tail? Remember that Another said, way back in 1997, "And Comex is nothing, if "only a silly game". Worldwide trading in gold could be cut in half and still equal all the metal in existence!" He also said, "Comex is a side show!"

It would be interesting to see how the LBMA would explain those 6,125 trades averaging $39M per trade, which over 36 reporting members averages out to 170 trades per LBMA member per day, each at almost 1 tonne. It's a stretch to imagine even a top tier FOREX ECN (electronic communications network) in which the average trade is $39M. So I imagine the LBMA would simply say they were OTC spot unallocated transfers between clients. But then who are those clients? I imagine they could include FOREX trading brokerages, some of which are owned by the bullion banks themselves, and each of which would carry a gold-ounce-denominated balance, directly or indirectly, with a real bullion bank that also deals in physical. A kind of FOREX brokers' gold-ounce-denominated liability clearing system for the various ECNs.

I suppose you could say that gold trading as a currency is, to an extent, "backed" by the much smaller physical segment of the market. In other words, "gold trading as a currency" requires, needs, depends upon a functioning physical market which trades at parity to paper gold. But the physical portion of the market does not require, need or depend upon the paper side. It's not a symbiotic or mutually beneficial relationship. It's more like a parasitic relationship, where the parasite cannot survive without the host, but the host will be just fine, even better, without the parasite.

How does this tie back into everything else I write about? Well, I think it should help you understand how the price of gold is not driven by the physical segment of the market, and therefore parity between the two is not as solid as it seems.

Of course there is no ironclad proof that the majority of LBMA volume in that survey is FOREX trading, but I have yet to see a better explanation, or any other explanation for that matter. As far as I'm concerned, that is the explanation until I see another contender. Can you think of any other activity the bullion banks are involved in that could account for $240B daily volume in gold trading?

I'm sure that some of that volume is straight-up unallocated gold savings (as opposed to trading) accounts, and some is probably physical changing hands, but the vast majority must be gold trading as a FOREX currency. And tell me, what would be the difference between a plain-vanilla unallocated gold account at a BB and an XAUUSD trading account balance at that same bank? The answer is absolutely nothing! Those gold-ounce-denominated credits are essentially the same thing. You can even ask for physical delivery from a FOREX trading account if it is with a bullion bank that deals in physical, which is why I mentioned that screen shot and the story from the large Mid-East gold dealer.

This astounding volume has been known since 1997, but have you seen anyone talk about it relative to COMEX or GLD? Today the LBMA "daily clearing volume" is $29.9B, and from that survey we know that total volume is roughly ten times clearing volume, so that means total volume could be up to $300B per day now. Here is the average daily clearing volume from Oct. 1996 through present, in ounces, $ value and number of transfers. The 2011 survey is the only thing concrete that we have to show how "total volume" relates to "clearing volume", but even with a margin of error, how else can you possibly explain these volumes?

We know the FOREX market is huge. We know that gold (XAU---) is part of that market. And we know the LBMA released its astounding volume data for the purpose of demonstrating that gold is a deep and liquid market. 2+2=4. I think it's really that simple, even if no other gold writer mentions it. But if anyone has a better explanation for that volume, I'm all ears! ;D

Today, any paper gold is just as good as real physical gold for the purpose for which people buy gold, which is to buy it today and sell it later, or as a hedge. Any paper is just as good as physical as long as they trade at parity!

You brought up the argument that "the people playing this game don't want gold, they just want to trade its volatility." True, and also some want it as a hedge or insurance for other investments. But what they all want is provided by paper gold as long as paper and physical trade at parity. They don't want physical because, today, there's no functional difference between paper and physical except that physical costs more to store. But when paper gold fails to perform that function for which everyone buys "gold", they'll want what the physical holders got. So it doesn't matter that they don't want delivery today. They still do want the same thing from "gold" that everybody else does, which is exposure to the price action in physical gold. But today they are only getting exposure to the price action in their massive paper gold market, which has a tenuous parity relationship with the much smaller physical market.

Here is FOA talking about how the paper gold holders think they are betting on what's happening in the physical segment of the market when, in reality, the physical segment is struggling to trade at prices determined in the oversized paper segment of the market:

FOA (7/4/99; 11:01:14MDT - Msg ID:8384)
Gold: Saving Real Money In A Time Of Transition

Clearly, the intent of this paper market, is to bet on the price of gold as it is determined by the buying and selling of other physical traders. The western public should take these trades for the concept they truly represent. ""I (the long side) bet on the "price" of gold not because we need or want the physical metal. Rather, my wager is that others will need real gold to protect themselves from bad monetary systems. In fulfilling that "need to own", these others will drive up the dollar price and I will make money while working within the confines of our good monetary system.""" The shorts make the opposite bet, in that they think the world monetary system will work itself out and induce "the others" to sell all their gold. That is, gold they bought in the first place, because they did not know that our money managers could repair the world financial system.

Yes, today Western longs and shorts are playing out these two views of the gold market. Yet, both sides are using paper gold bets to represent their beliefs. Truly, the major majority of this market does not buy or sell physical gold to represent their investment concepts. There are a few that buy coins and bullion, but, even in their large amounts, it is only a drop in the paper gold bucket.

This, my friends, is the very nature of western trading of gold. The mindset is to treat it as a concept for making currency, not protecting existing wealth. […]

There are many mental angles and philosophical side steps one can take when understanding the above. But, in this concept lies the very basis of the flaw in the current gold market. A paper market, built upon world misconceptions of currency values and the historical reasons for owning gold. The present deployment of world assets into a paper system of valuations is likened to traveling a trail of no return. History has shown that the assets accumulated in this way will never be transformed into "the things of life"! The paper wealth you currently own is nowhere near the real value your currency says it is. With the above introduction, we have begun close to the end of this journey. In the upcoming chapter one, we return several miles to walk ground already well traveled. We will observe concepts on the right and the left, not discussed by other guides. The very sights that make such a trip, "worth wile".

"You will see this trail thru the eyes of history and feel old ways as new Thoughts!" Another

I dug out a few more quotes from FOA for you, to hopefully encourage you (and others) to dig into the archives yourself. Here FOA mentions how the paper price of gold can fall even in the face of high physical demand:

FOA (8/10/99; 19:56:56MDT - Msg ID:10858)
Comment

"Another" counseled later that the gold market, as we know it was in danger of failing. In this case, failing means less and less major players are offering bids for future paper in the top tier markets because the gold can't be supplied. This loss of bids allows the paper price to fall further as present paper holders also attempt to sell. This is the "EXACT" reason that gold does not respond to the major financial events of today! Believe it! Local downstream physical dealers, because they use the Comex and LBMA paper market as a price creator, continue to sell gold at lower prices even as buyers come in droves.

FOA (8/23/99; 21:10:00MDT - Msg ID:11896)
Comment

The large funds don't want the trouble of real gold so they continue to play this game of "let's bet on the gold price and see who is right"! Today, they are learning a painful lesson that the stated price for gold is established by the same derivatives that they don't want to exercise. In their world, they are convinced that massive physical gold is but a phone call away for shipment into certified warehouses, so the derivatives price must truly reflect the real market.

FOA (9/1/99; 21:12:43MDT - Msg ID:12639)
Reply

The end work of this process has found the 3,000 or 5,000 ton per year real bullion market, is little more that a sea shell on a fifty mile beach. Everyone on the "gold net" already knows how much LBMA trades and that is small stuff compared to the other unseen world markets. The debth and liquidity of the paper market moved the bullion trade into the "pink sheets". Needless to say, today, the famed "closing bullion price" is set by the cash commitments that bid for derivatives, not the cash that bids for bullion. In the old days, really big traders would arbitrage any such paper overhang against bullion by calling for delivery. Today, with the paper market so large, any such power play would find most traders taking delivery of gold as the market is sold out from under him. Besides, this new market perspective works against any long traders because none of the present "derivative gold demand" wants delivery! They only want to settle in cash, because taking delivery would require selling their other "better performing" investments. The mindset today is that gold is only an insurance hedge, as such "an increase in its price will settle up in a cash delivery to me, to offset my other risk of cash impairment to my portfolio"! To further develop: "I don't need physical gold, I only need to participate in its price movements"!

In complete satisfaction of the current trend, derivatives fill the bill for this current gold market. Clearly, we can see that this new market is not "fraudulent". There is nothing wrong with players pouring margin money into the short side to create a demanded product! It's has evolved into a cash game. This is where GATA is fighting a war they cannot win. Gold bugs (of the last few years) were viewing the present market using 70s eyes. Indeed, they were investing in an industry that was losing primary demand for its product, even as "the need" for that product was exploding. This new gold market found a way to channel the "modern need" for gold's attributes away from physical demand and into paper supply. You simply can't create a short covering run if none of the current (insurance) longs want to take delivery. Even worse, as this trend was further developed, more and more old private physical holders were selling their gold and holding paper instead. Add to that Western dollar supporters wanting their currency to look good, and we have paper gold supply that's also used as a form of positive currency intervention. Anyone investing in the gold industry, expecting bullion to explode from all the new demand was truly disappointed. For every new Western gold bug that wanted gold for insurance, there were five paper sellers to supply him with all the gold insurance he needed, at a fraction of the cash commitment. Peter, (if you are still with me) this is only the end of this act, not the end of the play. We have been standing on the trail and looking at where we have just travelled. Now, let's turn around and look forward.

[…]

Once again, the needs of investors will redirect the method of using gold. As the wealth effect of the Dollar/IMF system goes into reverse, the process of receiving your gold hedge insurance in dollars will be perceived as a risk. At this stage, all of the past demand for gold that was channeled into cash settled paper derivatives will suddenly reverse its trend. Slowly, more and more of a percentage of settlement will be asked for in real gold. As delivery fails from increased demand, existing derivatives will be dumped upon the market place in an attempt to cash out. This very process will: First dry up all gold supply and lock down any existing private stocks. Second, cash biding on the dealer market will become convoluted and reflect only gold's currency value. It's economic / industrial use will be priced totally out of the market. Third, what was once the world price making market for gold, will become useless for delivery as its contracts are defaulted on and discounted in price. What price could the world gold price be set at, using these defaulted, bond like securities? How low does russian debt trade?

I pulled these quotes by searching the term "paper market" and, yes, there were lots of hits. Here's one quote I'm including because it could almost explain what we saw over the next 14 years up until today in the gold market:

FOA (09/06/99; 20:56:39MDT - Msg ID:12946)

Remember, the present financial system has a need for new mined gold to flow into derivatives at a low price to support the paper market. The same paper market that keeps oil behind the dollar also holds the dollar together. As of today; To further pull existing "old gold" from portfolios by forcing the street price down now invites a run from the dollar. A high physical "street price" will at least keep the dollar in play when price inflation begins. If the paper gold price rises from its present level, will gold stocks follow? Probably! But what if that rise ends quickly as the gold market begins its next "official" failure run?

Is that where we are in 2013, in the gold market's next official failure run?

Here's a little bit of the "wide view" I mentioned above:

FOA (10/31/99; 18:56:22MDT - Msg ID:17990)
Comment

Slowly, everyone is coming around to understanding how our gold markets got so far off track. The official determination of what constitutes "buying and selling gold" never started this way. In the beginning gold was wealth and people traded it as money. Jump ahead to the US timeline and we see currency a gold loan that didn't pay interest as it was the US dollar. You loaned your gold to the treasury and they gave you a contract stating that your metal was held until asked for. Your contract stated that 1/35 ounce of gold was owed you, on demand. Because no one asked for their loan to be repaid, the treasury just kept creating more loan contracts even though there was not enough gold to repay with.

After this "gold loan scam" went bust around 1971, they went back to using real gold again. The government allowed trading in physical in the US just as it was done in the rest of the world prior to this event. Then someone used the gold fabrication industry as evidence of a "need" to create a US futures market so suppliers could paper hedge risk. No need to make the point that this paper market was of little need as the gold industry had worked well for thousands of years without it. Indeed, another form of gold derivatives was just born. The gold market was destine to evolve again as the distinction between trading real bullion and betting against someone on the direction of the metal's price movements became one and the same. People accepted that a gold derivative was just as good as gold as the pre-1971 dollar was. We came full circle.

Pulling these quotes is actually fun for me, so I could keep doing this all day, but then this email/post would be 40 pages long. So I'll leave it at this for now. But there's much more in the archives. I only scanned less than 25% of FOA's posts to pull these quotes.

The point is that the paper gold portion of the gold market is where the price of gold is discovered, and it appears that gold trading as a FOREX currency is the largest portion of the paper gold market, by an order of magnitude even. The daily physical flow from mining and recycling is around 16 tonnes while the LBMA tells us that their spot unallocated flow is in excess of 2,400 tonnes per day. Here's one last quote from FOA:

5/3/98 Friend of ANOTHER

Gold is valued by the number of outstanding claims against it. Kind of like a house for sale with ten bidders. Each bidder thinks the house is in the bag because they have a valid bid ticket. Each one thinks he can have the house at any time, even though nine others want it too, because 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.

Total loco London gold turnover in the first quarter of 2011, as reported by 36 LBMA members, was $15 TRILLION. Total turnover as reported in ounces was 10.9 BILLION ounces, or 340,402 tonnes over 63 trading days. That's a lot of trading! I wonder which market that includes "gold" has the depth and liquidity to entertain such volume, since it's obviously not the physical market, GLD or even the futures markets.

"The area where I’m still hazy is the gold as a FOREX currency."

Is it still hazy? ;D

Sincerely,
FOFOA

And the light bulb goes on!

Awesome, thanks for this. I’ll re-read again and get back to you in a few days… got a bit going on right now.

Thanks again FOFOA.
______________________


580 comments:

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Phat Expat said...

ampmfix
Thanks for the link; I think I will try the Lepanto to start as I too like nice bottles for presentation purposes. Salud!

Bjorn said...

Phat.
If youre going to explore Spanish brandy I think you should try a Carlos I Imperial first. Wouldn´t say it´s a favourite, but the best I´ve tried at that price level (which is 50-ish Euro if I remember correctly). Here is a link but I´m pretty sure Ive paid less than that for it...http://en.drinkology.de/brandy/brandy/909/carlos-i-imperial-brandy-0-7-l-38

I also have a thing for Luis Felipe. Just don´t expect it to taste like cognac. That thing is something else and not for everyone I´ve found to my surprise. :-)

http://www.decanterwines.co.uk/product/91/1/luis_felipe_brandy_gran_reserva__60_years__70cl

DP said...

Something else after dinner

Jeff said...

Some folks just don't learn.

MatrixSentry said...

Well at least he is done for Oct 25th.

Trolls are mentally disturbed, and this one is no different. He will test his leash and will be banned.

Thank you FOFOA.

Issas Ekeret said...

Well, that was a great lesson in how to squander your one-a-day.

Warm-up

Franco said...

Grumps LaBastard:

I didn't quite understand your last post. Could you re-state your argument but in a slightly different manner? Thanks.

DP said...

The reason behind any propensity to underperform CPI, is the real crux of the matter.

Roacheforque said...

The crux of the biscuit being the apostrophe ...

Sam said...

Great comment FOFOA

Lol Franco.

Well said DP

Phat Expat said...

Bjorn
Excellent; I have saved the links and, since I will be visiting Germany, it will be fun to buy and share with my family there. I didn't see, but do they have a brick-and-mortar location as well? Thanks for sharing.

Dante_Eu said...

Grumps,

Risk-free (real) rate is an oxymoron. Risk-attached (real) rate is not.

Can't get simpler than that. That's the crux of the matter.

burningfiat said...

Dante, true!

http://www.youtube.com/watch?v=CS9EvBZ_UOc

No more risk free signatures possible! No more aces up the sleeve!

Everyone with a set of ears knows this now. Only the slowest mopeds on the pier (like the Gimp) refuses to take note...

Bjorn said...

Phat
Youre welcome! I´m not at all sure about the places I linked to, just googled to find pics of the bottles, but I know you can find those two brandys in most any liquor store in Spain. Not quite as sure about Germany, but the more well stocked ones should have them.

ampmfix said...

Phat, if you ever come to Spain let me know. Maybe you can find some in the duty free shop at the airport...

John said...

Thank you for all the comments and links concerning bitcons. I haven't had time to go through them all but will try and do so this weekend.

Also just want to say I'm not a troll and that I was just askng some questions I'd been thinkng about. Between gold and bitcoins I'm currently 20:1

Also I'm not another John someone asked about. Have always posted under John2

Thanks

John2

Sam said...

+1 Dante

The current paradigm has blurred the lines between savers and investors. We are all manipulated into investing when 97% of us are wired to save. Investment = return for risk. Humans are emotional creatures. Emotions make us buy at the top, sell at the bottom, abandon long term strategy, find short term patterns that don't exist, forget our losses and over emphasize our gains. The greatest emotion is fear; every great con is built on it. The fear of missing out on something kicks these irrational emotions into full gear. It makes investors out of the unfit. A sad phenomenon soon to be set right with the emergence of Freegold

Motley Fool said...

Grumps

While you contemplate your next I have a question.

What makes you think 5% or 7% is a reasonable rate of return for a CD?

I certainly doubt we will see such under FG, in the absence of a quadrillion dollar derivates market, splicing and dicing of packages and no risk of loss or moral hazard for the banks who play with other people's money.

Perhaps while you are doing historical research, you should go look at historical rates of return for CD's in less messed up times.

Lastly, a CD is not a risk free investment, so it's yield should reflect that.

TF

Franco said...

Commence banhammer countdown.

Aaron said...

Thank you LaBastard. You just made my day and weekend. Bye bye!

FOFOA said...

Congratulations, Grumps. You have joined an elite confederacy! Though I can't say I was either surprised or disappointed by your second comment today, I'm sure that many here thought it was your best comment ever, simply by the fact that it was the one that got you banished for good.

I didn't delete Art's, Gary's or AD's pre-ban comments, and I won't delete yours either. They stand as a reminder that no one gets banned for content, only for intentional disruption. I must point out, though, that you were the first troll who got caught with his pants down on another forum, describing how and why you were trolling my blog. Again, congratulations.

Indenture said...

and......... it's gone.

RJPadavona said...

Reminds me of that satisfying sensation you get right after you've taken a much needed crap. Sometimes it feels even better than an orgasm, but don't tell my wife I said that.

Michael Martin said...

Just wanted to chime in and say thank you to our host.
Thank you FOFOA!

Michael dV said...

Franco
you are a horrible tease!!!
funny though...

Franco said...

Question (and I'm sorry if it's a stupid one, as I never traded futures): let's say that I open a contract at COMEX to receive one "good delivery" bar next month for $1400/oz. Does that bar *have* to be delivered, or can the contract be closed or somehow settled without the physical delivery taking place?

Motley Fool said...

Franco

It can be settled with a short contract. No delivery needs to take place. Most contracts are not delivered upon.

TF

Phat Expat said...

Bjorn
Sure, will take a look when settled. I'm sure family would enjoy it as well (and since they imbibe, moderately (lol), they just may know it).

ampmfix
That would be fun; thank you. I believe the itinerary for this visit, aside from Germany is, France, The Netherlands, and Switzerland. Friends are in Oviedo; just might have to look them up.

Franco said...

So, the forex trading that FOFOA referred to, if you buy a "unit" of XAU with USD, your account ledger will show that you have 1 XAU, along with whatever amounts in other currencies, but it's all digital, right? Your 1 XAU can never be converted to 1 ounce of physical gold, yes?

Luke said...

If I went long XAUUSD, where would this original swap, contract, whatever, originate? Who can originally sell the XAU units?

S P said...

I revisited Another's thoughts. Amazing isn't it, that he was writing in 1998.

So what delayed freegold all these years? We are approaching the end of 2013 folks. 15 years since that time, and 5-6 years since the financial crisis. And no freegold. In my opinion this needs to be the focus of a post.

My initial speculation is that Another was right about gold. The production statistics bear this out.

But he was somewhat wrong about oil. He thought that oil production would need to stabilize through gold, and then we would have a cheap supply for many years into the future.

But then something happened. We simultaneously got both rising oil prices and rising supply. Admittedly we had some fortuitous (or planned, depending on your point of view) geopolitical events. But then we also got some heavier oil like tar sands coming into play. And China's economy was driven by increased coal consumption, which dampened the rise in demand for oil.

Ok, so this explains why freegold was delayed until the financial crisis. So why has it been delayed relentlessly since then? This is much harder to answer. Now, part of it is that the drop in oil prices didn't last long, and the system was reflated enough for shale oil to come online and contribute to the mix. But still this doesn't explain it. Billions of minds connected to the internet, witnessing events, and they still don't make the move into gold?

So my opinion is that we basically went into the brain dead, zombie, sheer inertia stage. Only few are making big moves, which tells me that "thoughts" of currency worth are not unraveled easily. Still people save massive sums of currency! Still they speculate in stocks and bonds! Incredible.

However, if you follow Steve from Virginia, you might posit that we are getting close now. The "triangle of doom" in oil prices suggest we are fast reaching the point where a falling consumption price meets a rising production price. Then it's game over. This marks the choke point, the financial system will truly begin to burn.

But here's the point: we may have gone too far for a smooth transition to freegold. Think on this...would you rather party for 20 years then die, or live for 70 years?

The world chose to party for 20 years. It is what it is, it's very unfortunate.

FOFOA said...

Hello Luke and Franco,

Any broker can offer you XAU-denominated credits. It's just another denominator that references some external spot price to account for its value, just like anything else you buy from your dealer. The broker who sells you this position will cover himself in a couple of ways. Firstly, he sets the spread (the cost you pay to buy and sell which gives him an extra margin of padding), and secondly, he can hedge his net exposure to you plus other clients for a cost that amounts to a small fraction of his actual exposure. He can do this in futures or other derivatives of the underlying commodity itself, or even in a mathematical combination of other correlated commodities and/or currencies. And yes, some currencies are more positively correlated with gold, like the Australian dollar, while others, like the US dollar, are more negatively correlated. So based on past performance, the mathematicians can come up with a very specific fractional combination of correlated assets that should offset any exposure for a minimal cost to the dealer, as long as the markets remain "normal".

In fact, you can buy exposure to just about anything your heart desires, as long as your bank or broker can hedge his exposure and charge you a poor-enough spread that he'll make a profit regardless. This is their bread and butter in the age of derivatives. Here's how FOREX Trader answered me when I asked him a similar question:

"Hey FOFOA,

On the bigdog end of the scale, you can get whatever you want OTC from the banks! Especially if it would be something easy for the risk guys to hedge out. Since the "great financialisation/derivitisation", these sort of deals are their bread and butter. As the bank, you sell the OTC product at a premium (liquidity risk etc) and hedge it off in the futs and spot. Right? On the retail end of the scale, spreadbet/bucketshop/CFD type brokers provide these products on the exact same basis (but executed as a wider spread). For example, I have a few CFD accounts from my younger years, I can get EURAUD at a 4pt spread (to give you an idea, my current brokers do interbank EURAUD at 0.3pts spread + commission) but the CFD accounts also provide AUDEUR, for a 7pt spread! There are plenty of European, UK and Russian retail FX brokers who will provide XAGEUR or whatever. To them it's about attracting speculative demand. Same applies, they sell a commissionless product at a wide spread and hedge their risk off by matching the order against someone who wants EURAUD. A lot of those retail trades never leave the broker's book. They just match them and make the spread.

On the interbank itself, I think generally the pairs listed are ones where economic demand dictates. It's hard to say what's what because of geography. I am sure there is probably a XAUHKD, but most of my brokers don't list it because they don't do a lot of Asia business. Make sense? I have attached the weekend listing (wide spreads cos it's the weekend) for my one of my interbank accounts, to satisfy your curiosity. None of my lines of credit extend to plat or palladium. Might need an account with the banks that loan money to the companies that mine those metals?"


This is all quite normal, and very much a mere side note to the main point that physical gold is fundamentally different from everything else. My post above was only to show how gold has been systemically integrated into everything else and, probably due to its true fundamental differences, its volume (but not price) has exploded beyond any rational level. Contemplating the practical implications of this divergence between two very different realities, before it is finally resolved, and in light of what Another and FOA wrote, is, IMO, priceless.

Sincerely,
FOFOA

byiamBYoung said...

@S_P

"Billions of minds connected to the internet, witnessing events, and they still don't make the move into gold?"

How many different times have we seen masses of people ignore facts that are screaming in their face? It seems to be very easy for otherwise rational people to do. Bear in mind that it is very hard for someone to reach a conclusion that challenges everything they trust as part of their world view.

"Believing is easier than thinking. Hence so many more believers than thinkers."
-Bruce Calvert

The interconnections of oil, paper, gold, and power are too complicated (and too well obscured) for me to understand the system with complete clarity. I accept that, even as I struggle to fit more pieces together to expand the view.

But the bigger picture is quite clear to me. It's like a gigantic ship coming ashore. Watching it intently, its movement is nearly imperceptible.

But look away for a bit, and then look back, and the ship is much closer... and its course is obvious.

Cheers!

Franco said...

This is fascinating. It's like the paper gold market is a cargo ship and the physical gold market is a raft that is floating on the water but tethered to the ship. So the raft (physical side) can pull all it wants in any direction, but that will not affect the ship (paper side) at all. So what happens if the raft sinks?

byiamBYoung said...

Another boating accident? :D

Edwardo said...

Franco asked,

So what happens if the raft sinks?

The raft can't sink, because, any and all appearances to the contrary, it is actually far more seaworthy than the cargo ship which, unbeknownst to all those aboard, has, planted deep within itself, a massive explosive charge that will take the ship down shortly after detonation. That charge will be detonated when the "upper level" of the "gold" market, aka the arena in which super producers acquire physical, is no longer functioning as it is intended to.

Ultimately, paper needs physical, and that fact finds its firmest footing from the condition that the paper gold market was created (and sustained through a near death experience in the late 1990s) to insure that physical in size would be available for giants on demand. The minute the paper gold market is shown to either no longer facilitate that process, and/or interfere with it, the tether between the two water vessels is automatically broken, and the cargo ship's internal bomb detonates.

Edwardo said...

I hasten to add that the consensus out here, which you may be a part of, is that the paper gold market is no longer supported. Now, that does not mean that we should have expected things to come apart instantly.

Gravity does seems to be exerting its inexorable force, but, in the absence, of tying a rock to the falling paper gold feather, which no one wants to be seen to do, the feather is working its way to the ground at a less than furious pace. In the meantime, that premiere paper gold instrument, GLD, has lost over a third of its inventory and looks to be well on its way to becoming what it always was for the vast majority of shareholders, not the real thing.

Bjorn said...

Nice analogy. Let me just tweak the ending a bit: The tether will be blown to smithereens in the explosion and the golden raft will be catapulted into orbit.

Sam said...

Attention please, Calling Wil the roachforqe!!!

We are doing metaphores and analogies. I believe you are the undisputed master. We look forward to your contribution

Michael dV said...

Forex trading:
Having lost a few grand in these markets I present myself as an xprt...
Trades are done in pairs the pairs are always stated one and only one way...ie for the Euro dollar trade it is EUR/USD it is never USD/EUR. In this trade you are saying (regardless of how you funded your account) I want to buy euros with dollars.
If you want to buy dollars with euros you tell your broker to 'sell EUR/USD' It is EXACTLY the same thing.
That can be a little hard to wrap your brain around at first but after the first thou you lose you begin to understand.
Now say the AUD pays 5% per year and the USD pays 0.5% per year interest.
When you do a trade involving these currencies if you are long AUD you will receive 5% per year (but it is paid daily) and if you are short the AUD you will pay (lose) 5% per year.
This 'interest' is independent of any change in the relative values of the currencies.
One play is to use low leverage (decreasing the risk of a margin call should there be a sudden adverse change in currency values) and simply hold your trade for long periods. You can make multiples of the interest you'd make just keeping money in a CD.
I had a very bad experience in Forex. I had an account with Deutsche Bank in New York. They got out of the market in 2010 and gave you a month to transfer your funds to another broker. I missed the deadline and in spite of numerous letters and call I never got my balance (a couple of thousand dollars) back. This is DB were talking about. I got scammed by Europe's biggest bank!
This was a real wake up call for me. It made me realize that these big banks are completely removed from consumers and beyond regulation.
Jim Willie is floating a story that DB officers are being offered a deal to 'talk' and turn state witness to prosecute DB for illegal activities. I will believe that when I see the handcuffs. Until the I will continue to believe they are untouchable as they do god's work in resetting the system.

Phil Champagne said...

http://www.silverseek.com/article/correcting-antal-fekete%E2%80%99s-historical-silver-errors-9666

Franco said...

Edwardo:

Thanks for the response. I should say that in my poor analogy of the ship and the raft, when I asked "what happens if the raft sinks?", what I had in mind was a hypothetical situation in which the Comex vault has no more bars to deliver. "Sorry, you wanted delivery but you will be settled in cash". What happens to XAU/USD at that point? Does it continue trading for a while, like the severed head that kept blinking?

FOFOA said...

This is a curious way to describe paper gold, don't you think? From yesterday in the FT:

"This could turn into a very violent wake-up for (screen-traded gold). People talk about ‘fiat currencies’, but we also have fiat gold."

Phat Expat said...

FOFOA
Interestingly enough, it would appear that "very violent wake-up", is pointing to the upside. And, though Monday will be GAU (games as usual), it appears that a subtle shift has taken place; at least by my indicators (as I mentioned by my observation of the weekly, these 'indicators' could of course change suddenly, so obviously Caveat Emptor).

Or are you, and the article, implying something else? Though I am up 45% on GLD calls (and normally take that off the table before the weekend) I have an uneasy feeling. ;-) Danke.

Gary (not the evil one!) said...

Interesting points in this "Gold Wars" article:

One very strange lacuna in our civilization is the lack of monetary knowledge. In a well-educated system which prides itself on fundamental capitalist values, a knowledge of money would seem to be de rigeur. America lives and breathes money: it “makes the world go ’round.” Yet mysteriously, almost no one understands this most basic and essential fact of our lives. What is money? Where does it come from? The old saw that money does not grow on trees is no longer true – money is paper. Gold has been de-monitized. It is less than paper in the case of electronic money – it is just a number in a computer.

Indenture said...

Lacuna (pl. lacunas or lacunae) may refer to: Lacuna (manuscripts), a missing section of text; Lacuna (music), an extended silence in a piece of music

$100 says Edwardo has used this word in a sentence.

Biju said...

FOFOA : good FT article.

I noted the collapse in premium in Indian market in August and gold price in Indian street was same as international market then. I also commented on it here. At that time I attributed it to smuggler compressing the premium caused by govt import duty.

But in the past month, we are seeing something reverse. Gold is being sold at a premium above the Govt duty. And it has persisted for more than a month. Is a premium of 20% approx. if india is importing 1000 tonnes this year, smuggler should be raking a lot of money.

Biju said...

Something might be brewing. Of all the market - London, NY, Swiss, Singapore, Shanghai, or India(no city here), If I am to believe any market it will be the Indian market and it will be the canary in a mine. Indian market is street level physical only market.

Motley Fool said...

Indenture

lacuna
ləˈkjuːnə/
noun
noun: lacuna; plural noun: lacunae; plural noun: lacunas

1.
an unfilled space; a gap.
"the journal has filled a lacuna in Middle Eastern studies"

Oh and you are prolly right about Edwardo. ^^

TF

Biju said...

Keeping an eye on the premiums in Dubai market will also give a pulse to the Indian market, Dubai is at the next level above street level transaction.

Woland said...

Following FT, MK of USA GOLD (Oct 26 essay) extends the
theme. Rumblings from many sources. {;<)>>

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

Yes, it's true. I do possess a pronounced tendency to employ esoteric vocabulary. Lacuna is a marvelous word, apparently from the Latin word lake/cavity.

Dante_Eu said...

FOFOA angle to Freegold is a Top-down approach. Ender, on the other hand, believes (I think) in a Bottom-up approach.

Maybe we will get both, some kind of hybrid. Top-down in West and Bottom-up in East.
With India leading the way in the East. It sure would be great to see hard working people in East get some slack and benefit.

Now, I don't think people in India are any smarter than people in West. They practice Freegold (savings in physical gold) the hard way, out of necessity. Don't need to read single line from GoldTrail, or any of FOFOAs posts.

For the Westerners, it's a different story... :-)

Edwardo said...

Dante,

If one is so inclined to try and reconcile the top down view with the bottom up one, the best way to do it is to simply be aware of the theoretical possibility that the non-giant levels of the physical gold market can, if they are experiencing acute shortages, or even chronic ones, stress the upper level of the market to a degree that meaningfully contributes to the upper level's inability to function.

From where I sit, to a greater or lesser degree, that condition is in play now. Physical supply does appear to be in the process of being chronically squeezed at these lower levels, but, because the upper level of the market is opaque, it's very difficult to say to what degree that level's breathing is being effected. In the meantime, the mining space appears to be well on its way to producing much less physical. And all this is taking place even as CBs are, in the main, and as far as we know, in acquisition mode.

Phil_O_Dendron said...

Indenture said...
Lacuna (pl. lacunas or lacunae) may refer to: Lacuna (manuscripts), a missing section of text; Lacuna (music), an extended silence in a piece of music

$100 says Edwardo has used this word in a sentence.



well I for one did not even know that it was a word until you brought it up. You learn something every day..

Lisa said...

Woland

link to article above

Michael Kosares October 26, 2013 article

Blake said...

The premise is that increasing physical demand cannot drive the paper price higher; only that it puts further stress on the current gold market structure. The takeaway here from the FT and Kosares pieces for me is the growing divergence of paper and physical gold. According to FOFOA's premise, we should not expect the paper price to shoot violently upwards based solely on increasing physical demand from the East.

ampmfix said...

Pity youngsters today do not study some Greek and Latin as an integral part of their study plans. It gives a great overview on the etymology of words and helps understand many unknown ones. In a nutshell: culture.

Edwardo said...

Blake said,

According to FOFOA's premise, we should not expect the paper price to shoot violently upwards based solely on increasing physical demand from the East.

Consider that, at its inception, paper gold was created to siphon off interest in the real thing. It is a beast whose very existence serves to systemically suppress physical gold, since, as we know, there is no shortage of physical that, at the right price, can not fill global demand of every demographic.

Conversely, if paper gold falls out of favor, for whatever reason, physical supply is effected in prospect because whatever interest there is in gold tends to be far in favor of physical ownership. This is simply because savers are delighted to buy a prized asset that is falling in price, since, as savers they have have a much longer expanse of time that they are concerned about with respect to gold's performance. Specs and investors, on the other hand, are concerned with hours, days, weeks, months, and, occasionally, a few years, at most.

Physical supply is also effected by a falling paper gold price when that price falls below production costs.

Paper will not shoot up dramatically in price-that thesis is successfully being tested now it, or so it seems to me- because the only thing that can drive paper higher is demand for...more paper.

michael3c2000 said...

Edwardo, it's true that the mining companies have been producing less. In Robert Ian's latest contribution to Goldseek's weekly radio show, he shows why mining companes as a whole are not a good investment. Says state sponsored mining companies are in the works due to poor financing, a global economic event, national security directives and other causes Another, FOFOA, FOA etc already know of.
http://www.youtube.com/watch?v=qoT2x8dmZXM&list=UUPCuj3uLssCgbQ7Q7lx1jhQ ( 6 minutes audio )

Michael dV said...

When considering China's importation of gold it seems likely that a freegold tenet is true; that gold trades at higher prices among the elite. If China is at all nervous about it's treasury holdings (and they simply must be) then they would want to acquire gold. As they have enough (1.28 trillion dollars) in treasuries they could easily buy all the gold on the planet that is thought to be available for sale. In 2 years of increasing importation they have not (scooped up all the gold). This suggests that they either cannot get it or they have decided not to pursue that goal. If gold is selling at much higher reset values this could explain China's actions. They have been convinced or bribed into restraint.
Another freegold thought is that gold in a currency zone is as good as gold in the central bank. China does encourage citizens to buy gold (been there and can verify, gold shops are a frequent sight). Perhaps the Chinese authorities know this, in fact we here at this site should be surprised if they don't know it.
I think we are simply seeing the roll out of freegold as we have expected and it is just surprising because deep down there is (in the heart of every rational person) the possibility that everything we believe to be right is not.
In this irrational world the rational can cause quite the shock.

Indenture said...

The non-evil Gary pointed us to "One very strange lacuna in our civilization is the lack of monetary knowledge."

What a fantastic sentence just based on it's structure and anytime the word civilization is used I generally perk up because of the magnitude of the thought, but alas, my banal vocabulary couldn't place the word lacuna and therefore I had to look it up. I figure if I need help someone else just might also. Knowing that our current linguist uses such words in conversation is my healthy form of envy. Perhaps it's not too late to learn Latin.

Michael dV said...

Wow!
I just listened to a Marc Faber interview with Barrons.
He states that China has (or will have by year end) imported 2600 tons of gold. This is more than twice the highest estimate I have seen and, as Marc states 'more than the annual production' of the metal.

Phat Expat said...

Not that I'm a fan but this bitcoin thing appears to be gaining momentum: Canada to get world's first Bitcoin ATM next week

Phat Expat said...

Blake
Nice synopsis; good to see such compact and succinct prose (now that's a lost art).

Franco said...

Michael dV said:

"If China is at all nervous about it's treasury holdings (and they simply must be)..."

You know, I don't think that China (the PBoC specifically) would be nervous. I don't think central banks get nervous about their balance sheets. If that $1.3T in China were in the hands of speculators seeking a return, then yes, but the PBoC owning that $1.3T...I just don't see it, just like the Fed doesn't seem to care at all that the $45B/month it is acquiring in MBS is absolute shit. Just a hunch, though, I really don't know anything about central banking.

michael3c2000 said...

http://gata.org/node/13178
Can anyone vouch for Voice of Russia's predictive track record? Russia's petro interests would gain if this Saudi threat of retaliation severs the petrodollar. But the mere threat may be contributing to a dollar breakdown, barring another sex change reversal or panic global flight to safety. Saudi Arabia alone has enough skeletons in the closet to rattle it's cage, but stars may not be aligned for a betrayal until the next anniversary of the Great Blackout.

michael3c2000 said...

Indenture, semantics was a great course I took in high school 40+ yrs ago. Was all about roots ("root words"), prefixes and suffixes: http://en.wikipedia.org/wiki/List_of_Greek_and_Latin_roots_in_English

michael3c2000 said...

This one's pretty good too: http://www.learnthat.org/pages/view/roots.html

Robert said...

Michael dV, I do not see China in any way shape or form being nervous about their $1.3T. I do not think they ever expected those dollars to be paid back in real terms. The policies that led to the $1.3T also allowed gold and technology to flow to China. With a major gold revaluation nobody in China will be shedding tears over that lost $1.3T.

Grinners said...

I was reading back from FOFOA's very first post and read his comment:

"And transactional mediums possibly carry the lowest, because velocity of circulation lowers their value."

Can someone please explain this to me? Should it instead be that credit lowers their value?

From my understanding, the velocity of money can increase during falling OR rising prices ( http://mises.org/daily/2916 ).

Grinners

FOFOA said...

Here's a funny story that just made it onto national TV news:

Bitter husband claims he threw $500,000 worth of gold in the trash to stop his wife getting it in divorce

Yeah, my gold is in a landfill too! No, wait, sorry, mine was lost in an unfortunate boating accident. ;D

Disgruntled Husband Converts Life Savings To Gold, Dumps It In Landfill

"Jones supplied bank records to prove that the money was indeed converted into gold by a Phoenix, Arizona precious metals dealer.

But whether or not Jones really has relieved himself of the gold has not yet been established."


Moral of the story is this. If you are planning a messy divorce, don't leave your partner with the opportunity to claim he/she lost or otherwise disposed of the physical gold. Or am I missing something bigger?

Phat Expat said...

Or perhaps, "Loose Lips Sink Ships."

FOFOA said...

Hello Grinners,

Velocity, in monetary terms, all else being considered hypothetically constant, is the inverse of demand. V = 1/d, or D = 1/v. Mises wrote about primary and secondary media of exchange. The primary is the current transactional medium while the secondary is the present systemic wealth reserve. And everything else is the useful commodities that money can buy.

All else being equal, the higher the velocity of the primary medium of exchange, the lower its value. And the silver argument I was disputing in that comment claimed that silver has a historic role as a primary medium of exchange which should keep it tracking gold even as gold transitions from commodity to focal point secondary medium par excellence: "While Ag does not currently occupy the public interest as Au does, it has also functioned as a monetary unit since before the time of Christ."

To that argument I replied (and you quoted in part):

"Understand that things like gold and silver will have vastly different values, differing by orders of magnitude, depending on if they are viewed as 1) commodities, 2) transactional mediums, or 3) wealth reserves. Wealth reserve carries the highest value. And transactional mediums possibly carry the lowest, because velocity of circulation lowers their value. Commodities can be the lowest as well depending on supply and demand and economic considerations.

So when you say that silver should follow gold proportionally wherever it goes, you are saying that it will also follow its phase transition to wealth reserve. This is a subject that Ted Butler does not discuss. He simply sees them both exploding on the commodity markets once the leverage is shaken out."


Sincerely,
FOFOA

Roacheforque said...

Ahhhh, FOFOA,
I much prefer your comments to Cramps LaBeast-tard's one way assault of stubbornosity, now to be eschewed.

As for the slow motion trainwreck that is greegold I think the last paragraph here probably sums up the present day momentum of the can, as it rolls ever so slowly to it's next kicking point.

In theory, Saudi Arabia can crash the US bond market through a "fire sale" of its bond portfolio. The impact on the US economy will be devastating, but House of Saud will have to pay a steep price for the crash. The value of its currency reserves will be wiped out and its main military ally will turn hostile. It is unlikely that the Saudis will take such risks. A more likely scenario is that the Saudis will start a slow diversification of their currency reserves and will invest more in Chinese and European assets. Such a move will not produce an instant crash but will surely damage the dollar over the long term. If the "petrodollars" disappear from the world oil trade, the dollar is likely to lose its status of the world's main currency.
Read more here.


It would take a 2008 style debt crisis to force freegold's hand before the inevitable giving out of support legs slowly turns the screws. Clearly not off the table, especially with China not playing this game of musical derivative chairs.

Roacheforque said...

That would be FREEGOLD of course (the G being so proximate to the F and Roacheforque's fingers being destabilized by double strength morning java) but perhaps GREEGOLD could be changed to GREENGOLD and now we have the current commoditized dollar-traded derivative.

MatrixSentry said...

Michael dV, Robert,

Just happened to be reading RRTFB this morning and lookie here:

Of course, over time some of these producers have also become hoarders of US dollars in the form of Treasury debt! These dollar stockpiles are now stored in the central banks and sovereign wealth funds of some powerful judges. And based on this knowledge, we silly Americans tend to think, A-HA, we've got them! They are caught in our paper trap! They are in a Catch-22! They HAVE to keep shipping us their real stuff in exchange for our worthless paper! But do they? Is there really no escape from this "trap"?

There is no way these powerful judges could ever sell or unload all of those dollars they hold as US debt. But remember, it is held by their central banks, not private interests. So, the CB's would not be looking to "spend" these reserves in the usual way. They obtained them as their local economy generated excess sales to the US (for them a trade surplus) and their private citizens wanted to hold local currency assets, not dollars. So the CB's printed local currency and traded it with their citizens for these excess dollars. Then they traded the dollars for US debt so as to earn interest.

Now, exactly what good are these debt holdings as long as their country continues to run a trade surplus? Not much if the locals don't want to hold dollar Ponzi pyramids. In the end, if the CB's were to sell these Treasury holdings it would crater the US debt markets long before any real value was obtained. And, to further their problem, the real value could only come after spending the dollars to buy something real. Now what does a CB spend its reserves on, cars, TVs, other currencies?

No, the way CB's balance paper currency Ponzi value risk is through the age old asset of gold. Indeed, if a CB already has enough gold, all it needs to do to secure its net value is to use the medium in jeopardy, the dollar, to bid on its counterbalancing asset, gold. Then as dollar assets crash, gold rises in value to fill any void left by the dollars... and then some!

CB's deal in paper and gold. When the value of one starts to fail, they transfer that value to the other. This is what they do.

They certainly aren't done yet. But they have definitely started.


It is clear China never intended to be "paid" with UST. They will be paid when they accumulate enough gold and when that gold becomes Freegold.

MatrixSentry said...

BTW, that beauty came from Dollar Repudiation from back in August 2009.

Dante_Eu said...

No wife, no boss, no problem. :-)

Robert said...

Matrix, I remember reading that, but for me the "aha" moment came on in the "fulcrum" post. If the dollar and all its fiat derivatives go to zero, that means that something else goes to the stratosphere. That "something else" is the only non-fiat item on central banks balance sheets. If you have gold on your balance sheet, the gold goes up and everything else goes down. Maybe its a wash. Maybe you come out ahead. If you hold a lot of gold, maybe you come out way ahead. The Chinese had a lot of catching up to do back in 1999. From their perspective, maybe they still think they can milk this current system for a little bit more.

byiamBYoung said...

@Matrixsentry,

Thanks for that. It lit another bulb.

@RoacheWilForque,

Maybe it should be Gangreengold?

Cheers!

Franco said...

Looking at the table "Major Foreign Holders of Treasury Securities" from March of this year (peak foreign ownership) until the last month available, I would have to conclude that the rest of the world is ready to move on, and is acting on it, with two glaring exceptions: Japan and the Caribbean banking centers. Now, the Caribbean banking centers could probably be considered an extension of the US banking machine, which leaves us with Japan as the only other central bank in the world that is trying to delay the change. So, why Japan? Is it because it is furiously trying to generate inflation domestically?

Phil_O_Dendron said...

Matrix

Thanks for the excerpt from Dollar Repudiation. I got a late start on Freegold and I am trying to read the old stuff but it helps some to have important snippets highlighted.

Rocheforque - You are not trying to use the "Fat Finger" excuse are you?

Jeff said...

Franco, Japan has been tied to the US for a long time.

ANOTHER: Japan is a story of "no happy ending" as they are seen as "not aligned with Europe" or the BIS way of things. The EURO may send Japan down with the USA dollar! Asia will be lead by China, as they do understand a "Euro world". The ECB does know that "all holes in earth, lead to china"!

Robert said...

Interesting historical perspective on the History of the European Union 1944-1971 and 1971-Present. The whole post is worth a read, but the historical analysis starts about mid way through. There is some overlap with the themes here, but there is also a lot that is probably new an unfamiliar to U.S. readers.

http://www.nakedcapitalism.com/2013/10/yanis-varoufakis-the-dirty-war-for-europes-integrity-and-soul.html

The familiar:

Despite the flimsy foundations, the Eurozone was, all things considered, doing reasonable well. Until 2008 that is. How come? The answer, yet again, is: Because of the United States of America! You see, as the American authorities were dismantling the Bretton Woods system in 1971, they were adopting an audacious strategic move: instead of tackling the nation’s burgeoning twin deficits, America’s top policy makers decided to do the opposite: to boost deficits. And who would pay for them? The rest of the world! How? By means of a permanent transfer of capital that rushed ceaselessly across the two great oceans to finance America’s deficits. The deficits of the US economy, thus, operated for decades like a giant vacuum cleaner, absorbing other people’s surplus goods and surplus capital. In turn, powered by America’s deficits, the world’s leading surplus economies, Germany, Japan and, later, China, kept churning out the goods that America absorbed. Almost 70% of European profits were being transferred back to the United States, in the form of capital flows to Wall Street. And what did Wall Street do with it? It financed the rise of financialisation; a process which the French and German banks joined in enthusiastically.


Michael dV said...

My comment about Central Bankers being worried about their treasury holdings still has some validity. True, they won't be spending them on TVs and cars but they still must have some worry that a panic might happen in which their bonds become worthless while a rival country, who panicked first got the gold.
Obviously this whole transition could be a coordinated effort of all worldwide holders of paper in which all were proportionately discounted (you know 'fair') but I just do not see that ever happening. I believe it must be a messy scramble with eye gouging (like at Walmart on the day after Thanksgiving) and a few punches thrown.
I think a crash is the only likely way this ends and everyone gets worried in one of those.

byiamBYoung said...

Is that a black swan floating around dow there in Puerto Rico?

Biju said...

Good article by a German professor "Tom Fischer", pointed by Bron Suchecki.

Prof. Tom basically says that the Backwardation of Gold is the norm. Gold is held in Contango for the past decades is only because of Gold leasing. Read the article, it gives a different perspective.


http://www.statistik-mathematik.uni-wuerzburg.de/fileadmin/10040800/user_upload/Fischer/Gold_contango.pdf

Edwardo said...

File the following comment from the pdf, courtesy of Biju, under comical understatements:

The recent backwardation in the short maturities could be a first sign that the tide is changing.

A few points: The recent backwardation isn't so recent, and if The good Professor read the blog he'd know that this not so recent development isn't a first sign in any case.

michael3c2000 said...

http://www.jsmineset.com/2013/10/27/jims-mailbox-1387/
More doom and gloom rolled out from Jim Seligman. Maybe he's on a roll, not a bankroll, but I say you can't turn back the clock. The people are ready to roll as it is; how does he roll out of bed in the morning forgetting politics make strange bedfellows?

Excerpt from link: "Dear DMS,

History indicates that loans will be reset to equal the depreciation in the dollar thereby leaving the debt at a similar value to what is was before the hyperinflation during the "Great Leveling," leading to the "Great Reset." The idea is that you will pay off your $50,000 mortgage with one maple leaf is historically fallacious.

This economic trick has the same chance of working as does your deposits of $250,000 in ten banks, and your expectation of being repaid by the FDIC $2,500,000 in a banking systemic failure. You will not be.

Respectfully,
Jim"

BaronSilverBaron said...

I just don't get how currency, which is just debt owed by the taxpayer and Gold which is real wealth owned by private individuals comes together on Forex.
Isn't it just like oil and water.?

Edwardo said...

Mr. Airport Hilton/Comb over is just a an atavistic old fart who has nothing better to do than disseminate misunderstanding to the credulous.

burningfiat said...

BaronSilverBaron,

You're totally right! It's unnatural!
The financial wizards made an unnatural emulsion of real and virtual by creating all this gold denominated paper debt...
Now, we're just waiting for the temperature to rise and the mayonnaise to separate...

MatrixSentry said...

BaronSilverBaron,

Yes, physical gold and currency is oil and water. The gold coming to together with currency on the Forex is not physical gold. It is gold credit. Therefore we have a perfect marriage for the Forex exchange.

Franco said...

It's paper gold at Forex, not real gold. It's like playing one of those role-playing games on the computer, where your avatar looks like Arnold Schwarzenegger in the 1970s. It's fake.

MatrixSentry said...

More from that post on JSMineset:

I have worked in the gold and silver industry since 1983. I own a well-respected and successful precious metals firm. I am very well versed in most areas related to my industry. I have followed you for the last 11 years.

I doubt this guy is telling the truth. Either that or he just got lucky and somehow finds himself owning a "well respected and successful precious metal firm". He certainly doesn't understand how banks operate.

Banks care not about the strength of the currency it lends and receives in payment. They care only that they receive the units lent plus interest. Banks make their chops on the spread. They rely on nominal performance. This guy doesn't understand how banks function. Apparently Jim Sinclair is also confused.

Very sad Jim. I am embarrassed to say that I once valued your "insights".

MatrixSentry said...

BTW, I read it right here on this very blog that currency is for earning, consuming, borrowing, and lending. You do not need a long term store of value for those pursuits. Saving requires real performance, and therefore something "more robust" than currency.

Banks are all about easy money. That puts them in the Debtors camp. They want to earn by creating money from nothing. Nice work if you can get it.

Roacheforque said...

I have always saved in certain rarities, as for me, the beauty and rarity of them gives me much more daily pleasure than an unemotional stack of wealth (my apologies to those who see gold that way, and I do like certain coin designs).

But now that the shitstem is crapping its debt panties, I unfortunately must guide some value over to that stack that has more universal appeal, and a monetary reset function.

We may have to admit that some of what is fashionable today we owe to the House of Sauf indeirectly, if we are to at least grow acconstomed to the beauty of various incarnations of the yellow metal as we wait for it's monetary reset function to restore some of our personal freedoms.

Roacheforque said...

Yes the fat, flowery finger of fate has fibrilated my keystroke-focus ....

MatrixSentry said...

Banks as owners or en-slavers is a popular meme. But really, who is in charge and drives the production of credit?

Banks emerge in economies because man has the innate desire for a credit-based system in which he can engage his own economic folly at someone else's risk. Given pure equity, the individual man will not lend, but still demands to borrow. And as a society, we (rightly or wrongly) end up demanding that the risk of loss is spread far and wide. We say, "don't mind borrowing it, but damned if I'm gonna lose it!" (See: FDIC)

And with the recent bailout of the banks, it is repelling to think that we are responsible. It is true. We are all, as a society, responsible for the actions taken. It was a foregone conclusion a long time ago. That if losses ever loomed large enough to bring down the system, society at large would end up covering the losses. This is the very nature of the system we have built as a society. A system that sprung up from man's desire to borrow, not from man's desire to lend or steal. That came later.
Say Goodbye to Wall Street

Our solution is a human one. We innately understand that it is better to socialize the big loss than to live with the consequences of forcing impossible performance. We do this by diminishing our unit of account.

Redefining our debt so that it is impossible to service is a silly idea and not compatible with our very nature. Redefining our money so it is again possible to service our debt on the other hand is quite rational and completely compatible with our nature.

This blog is freaking gold mine. RTFB and then RRTFB.

One Bad Adder said...

They just can't seem to get Mr Market on the front (future) foot here despite providing every incentive.
...accordingly we're seeing "things" again commencing to deteriorate into the present ie: DX /$IRX on the up ...and SM's, $PoG etc (futures) all under the pump.
Lets see how the week pans out.

Zebedee said...

Took a visit up to the Perth Mint earlier today to offload some silver bars. According to the cashier lots of people coming in to sell silver bars, particularly 10oz ones, over the last couple of days. Gold was neutral.

I had a mental chuckle when she told me about the silver, me sitting there thinking there must be other FOFOA evil gold hoarders, jerks, time misallocators and brain washed cult members out there quitting their silver!

I also noticed that me selling my phys had no impact on that spot price. hehe

FOFOA said...

Hello Zebedee,

Congratulations! Now that you have relieved yourself of that heavy burden, you can enjoy this video of the good ol' days, back when buying silver meant that you were part of a vibrant activist movement, led by, and full of, real geniuses on par with Newton and Einstein etc… ;D

Sincerely,
FOFOA

Zebedee said...

Too right about the heavy burden FOFOA.

I was walking like a robot into that place with loaded pockets. Had to keep pulling me dacks up even though I'd gone to the next hole in my belt. I was paranoid the security guard was going to bale me up for something. LOL!

Nice vid by the way!

Cheers!

Dante_Eu said...

FOFOA,

That video was painful to watch. At that time, as a brainwashed Freegolder, I swapped ca. 4,8 kg (ca. 150 oz.) Maple Leafs for gold. Got a pretty good deal. :-)

Virtually no silver left. The only thing defending my stash now is fiat currency along with some fractional gold bars and coins.

Roacheforque said...

Roacheforque still holds silver. It is but one layer of a diversified hedge. All commodities will do well through the coming changes. Silver is recognized, weighed and denominated. Eggs do not keep very long though it is wondrous to acquire a dozen of them for less than 2 measly dollars (that will change).

What I need to bulk up on is scotch. Problem is I have a hard time holding it, as when it is in my possession it is dispatched quite neatly and rather quickly.

Scotch, at Roacheforque Manor, does not tend to lie "very still".
Yet it has its utility. It makes the waiting bearable.

Jeff said...

That video is gold, FOFOA. Gold! I mean, silver. Did I see Wil in it, laughing maniacally and rubbing two silver rounds together? At least there's whiskey to ease the pain. :)

https://www.youtube.com/watch?v=lyByCDRX6gw

Peter said...

My silvershakes bring all the boys to the yard

Meheheh

adel thabet said...

موضوع رائع واكثر من ممتاز اسمح لى ارشح لك هذه المواضيع ايضا لأنها على نفس مستوى موضوعك القيم
http://www.al-ashom.com/%D8%A7%D9%84%D9%85%D8%AC%D9%85%D9%88%D8%B9%D9%87-%D8%A7%D9%84%D8%B3%D8%B9%D9%88%D8%AF%D9%8A%D9%87-%D8%A7%D8%AF%D8%A7%D8%A1-%D9%85%D8%A7%D9%84%D9%8A-%D9%88%D9%81%D9%86%D9%8A-%D9%85%D8%B3%D8%AA%D9%82/

Edwardo said...

Perhaps my favorite vignette in that silvertard video was The Terminator clip.

Phil_O_Dendron said...

Dante
I recently unloaded 600 oz of silver (coins and rounds). Indeed it was quite a load in the bag that I had to carry into the local dealer. I made out ok though and got some gold. I still have a little silver as a hedge.

Silver Eagles do make nice gifts for the grandchildren.

They will get the gold eventually.

Woland said...

from Voltaire, we have the "lettres" (over 20,000 in 102 vols)
from Pascal, the "Pensees" (924)
from La Rochefoucalud, the "Maximes" (504), and
from Le Roachforque, the "sensimillatudes", (of a number
yet to be determined).
( sorry- couldn't resist temptation- Oscar Wilde was right)



One Bad Adder said...

At some point in the future, it may well be appropriate to poo-poo Silver - but here, in the present ...with the System-du-jour in place - I'd not be TOO cynical.
Ag will ...(in all probability) well and truly "price" outperform Au before and during any anticipated transition to FreeGold - IMHO.

michael3c2000 said...

http://www.youtube.com/watch?v=PIOpc8ejBAo&feature=c4-overview&list=UUPCuj3uLssCgbQ7Q7lx1jhQ
Short segment from Chris Waltzak's weekend radio interview of Steven Leeb where he gives his reasons for preferring gold over silver (about middle of interview).

Franco said...

Silver and Gold walk into a bar. Bartender says “‘ey you, get outta here!”. Gold leaves the bar.

Michael dV said...

Franco
The punnier they are the harder punsters are pun-ished...you bout to get a beatin' boy!!!

Tdfxman said...

I have a question. I have started reading FOFOA again as I feel we are near the end, where have I heard that before.

Anyway, I have a question for the group. Please be gentle, I have seem many come and get rude answers in reply.

I was kinda surprised by Jim Sinclair's post the other day and continuing today. I never really got the impression from here that debts would be reset up. I thought gold would extinguish debts. So a mortgage could be paid off in less coins, WAY less, than it would take now (as the poster asked JS yesterday).
JS didn't seem to say that it would.

Are FOFOA and JS not in agreement on this? More likely I am missing something but it doesn't seem like it to me. I always thought HI would inflate away debts. Guess not?

A FG believer but very skeptical something evil won't trump it.

Thanks for any help.

burningfiat said...

Tdfxman, welcome back, been a while since your last comment, eh? :)

I wouldn't pay much attention to Comb Over Santa if I were you. He seems confused and all over the place lately.
He hasn't really been able to fit this years $PoG drop into his world view so now he just makes shit up as he goes along. Merging some FG elements with predictions from Bo Polny and what not... A sad case really!


Are FOFOA and JS not in agreement on this?

I could be wrong, but I don't think FOFOA (or "the group") cares too much whether his views are in agreement with Santa.

A true evilhoarder just doesn’t lose sleep over the opinion of failed has-been "gold analysts".
XD

byiamBYoung said...

Tdfxman,

When gold revalues, a couple of ounces would pay off your mortgage. IMHO.

Given enough time, I wouldn't doubt that banksters and lawgrifters will try anything (and these days, just about any shifty procedure is fair game) to reset loan values.

One might be smart to pay off debts when the revaluation is still fresh, and thus front run the whole spectacle, and be a bit more protected from debt adjustments.

Windows that open eventually close. Especially windows allowing drafts that make banksters shiver.

Cheers

Cheers

Edwardo said...

Adder, while silver may outperform gold during the interregnum between the end of the old system and the beginning of the new one, it won't do one much good if one can't swap one's silver out for physical. Recall that the thesis of this blog is that gold will go into hiding. In the meantime I note that in the here and now aka "before the transition" silver isn't looking too good.

byiamBYoung said...

interregnum |ˌintərˈregnəm| noun
a period when normal government is suspended, esp. between successive reigns or regimes.

Mad vocab props, Edwardo.

Cheers

Edwardo said...

What a nifty way to deal with the debt ceiling, just remove five trillion in obligations (intra-governmental don't you know) from that which is counted.

I knew they'd think of something clever between the last debt ceiling crisis and the next one in three months time.

Michael dV said...

tdfxman
rude comments on this blog are reserved for trolls of the worst sort. I have never seen a newbie get a rude answer. I think if you followed the blog regularly you'd see that it takes a lot of very bad behavior to even get a nasty comment. In 5 years I think 5 trolls have been axed. That usually came when regular reader begged fofoa to do the deed.
Our last guy posted about half the comment material, did not respond to those trying to help him and had posted very negative comments on another blog about fofoa admitting he was trolling.
Even then he was given a last chance which he blew in a day.

Tdfxman said...

Thanks for the replies. They are as I was thinking. But in Mexico the bankers screwed everyone and it would be stupid to think they won't do it again, every chance they can get.

If I may then one more question I have thought of as I think of this blog, which is often. I can't prove FG to myself and I can't rule it out. Action speak louder than words though and my silver is being traded out as I speak. Did 600oz last week. lol

Anyway, I don't see gold being "allowed" to be freely circulated and pushed to the largest audience possible. This is a tenant FOFOA has held I do recall. But I don't see it happening, I see the opposite.

I see India throttling gold imports, I see other rules and regs that make it harder to get bullion. I see in the USA a hard core mass media push to get people out of gold. I see WE BUY GOLD every where I look.

I guess my last question as I catch up on 2 years of reading, and reading Another's archives is the most helpful, is what has been the real world event that this board has found the most difficult to explain to themselves.

What real world event has caused the most pause? Or does everything square as you see events unfolding? I do agree a LOT of things are pointing to FG. A lot.

Michael dV said...

Tdfx
One tenet that becomes more obvious with more exposure is: things will be different under freehold. The motives of all actors will change. Just as theUSG is almost compelled to be bad now, in the future there will be pressure to behave.
None of the regulars here drank the kool aid until we convinced ourselves it was OK too drink. Each point takes one or more good arguments to get compfy with.

Michael dV said...

tdfx
also...in hyperinflation debts are always gone in a poof. The French tried to save them in either the assignant or mandant era but failed. This thought is usually prefaced with...'they will never let us get away with that'... People fail to understand that when these events occur they do so because of overwhelming forces and crushing demands in the economy. It is a force way beyond the power of the government to resist. In fact it is largely do to a failure of government to begin with.
When waste baskets are full of old billion dollar notes to make way for the new trillion dollar notes it will make sense.

One Bad Adder said...

Yes, the deflationary millstone really is proving a burden too much to overcome these days.
This from EWI via ino.com "almost" gets it right - the salient point being: - There is historical evidence that the Fed does not control the markets but that the markets control the Fed.
Edwardo: - The here-n-now is one helluva moving target my friend. One can subscribe to the FreeGold Kumbaya-chorus ...or not. I choose the latter ...and I'm doubly-sure you'll remind me when (if ever!) I'm proven wrong ;-)

Motley Fool said...

TdFxman

The answer is that it is impossible to say in advance. It depends on governmental reaction at the time. Historically both have happened; one that debts have increased as monetary outflow increased, and two that debts have inflated away.

TF

Motley Fool said...

Ps. But I must echo burningfiat. I neither know nor care what JS's position on the matter is.

DP said...

#SantaSayz: "OMG teh all-powerful elitez!! They will never allow us to win by making our debts easier to repay!"

Even though the main benefit of a serious devaluation of the accounting unit, will be of most benefit to teh most evil elitez of them all, with their towering debts they can never repay.

Mirror, mirror… on the wall.
Who is the biggest beneficiary,
Of them all?

DP said...

But but but - Rentenmark redenomination!!

Yeah, if you cancel one system and institute a shiny new one… ya kiiiinda have to do something about all the current contracts.

But I don't expect the current USD to die, just be devalued.

What are the legals thinking about arbitrary redenomination of all contracts? (Except the ones of teh all-powerful, evil elitez, of course.)

Phat Expat said...

I like hearing anecdotal stories of people rushing to cash in all their silver; I'll always bet against that crowd. Gosh I'm gonna miss that under the 'new' system. ;-)

As much as I would like for FG to arrive, thinking of all the cognac, brandy, and whisky I could buy, I just don't see it happening within the next year or two. However, i hope this crowd of FG'ers is right; given my experience, that would be a rare occurrence indeed.

Roacheforque said...

There is more than one way to socialize losses at the level of sovereign debt. We can balance taxation with fines and the fines are a relatively small contribution to keep the system within the bounds of credibility.

Roacheforque said...

The link was:
http://dealbook.nytimes.com/2013/10/29/rabobank-to-pay-more-than-1-billion-in-libor-settlement-chairman-resigns/?_r=0
but it wouldn't render in my impeccable HTML

Jeff said...

tdfx,

FOFOA: When the hyperinflation hits in a reference point purely-symbolic fiat currency paradigm, the market will try to clear for the rising symbolic cash price while the hard currency price (denominated in gold) continues to drop like a stone. Deflationists do have one thing right. Real estate is not a very good investment when preparing for what's coming. That doesn't mean home loan debt won't be hyperinflated away though. It most likely will be.

(...)

Even if you accept that hyperinflation is 100% certain, real estate is still a poor investment choice to carry your wealth through. Gold is so much better that real estate shouldn't even be considered an investment choice (choice, as in a new investment) beyond your primary residence.

This is very important: Once hyperinflation commences it is characterized by a running shortage of cash.

How close to the business end of the printing press are these millions of North Americans? You guys seem to assume that, during hyperinflation, millions of American mortgage payers will have access to this river of cash early enough to benefit overall. By the time they get their hands on it they may be struggling to meet other skyrocketing expense like property taxes and, uh, food. Wages won't keep up. Most people simply won't be able to keep up. And most of those who do will find that their wealth relative to those closest to the printing press will be declining. Like I said this is about outrunning the next guy, not the bear.

This is why I wrote, "if you don't make the effort to understand what is actually unfolding, there's a good chance [hyperinflation] won't [deliver any windfall in your direction]." If you really want "to pay off a mortgage that would otherwise have taken twenty-five to thirty years to repay," then you'd be best equipped to do so by buying some physical gold right now!

FOA: ---- "Honey, I talked to Fred again, he can't sell his house! Poor guy, he has had it up for two years now and has to raise his asking price again. No takers, yet. The last couple was just about to close but took a month too long; they almost got the cash together, too. He backed out to raise the asking price, again. Oh well, that's not so bad, we had to jump ours up three times before selling." ----

Alex in Montana said...

Sinclair sounding like this forum - $50,000 an oz. prediction. Doesn't say "Freegold" but gets close. A lot of people here don't care for him, but many others do.

http://usawatchdog.com/jim-sinclair-50000-gold-us-dollar-collapse-hyperinflation-and-more/

Anonymous said...

Sorry, that range of $30-50-130k (MM-JS-FOFOA-TSP) idée fixe is just an utopia, clearly a sub-genre of free marketery, which never existed and never will without influence of some oligarchic players gaming and protecting the system.

It is in nobody's interest to generate such chaos in the streets, hording blame game against elites, widespread kidnappings, burglary, ad hoc mining etc. since large percentage of outstanding above ground phyz is in jewelry and art pieces.

The only possible option for such wilde spike occuring is under two or three tier market, i.e. only happening on the closed circuit level of interbank and super giant niveau, i.e. no access for the J6P. Therefore on the shrimp visible level lower estimates around $7-13k as per JGRickards, JButler, and others might be the feasible realistic maximum under any scenario.

For FG launch a huge megacycle type of crash-crises event is needed, which will utlimately wipe out lot of the current excess not only in the obvious derivatives, bonds, .. but also in large segments of the traditional productive capital and industrial capacity, which is a taboo subject to even mention here. Hence much lower incentive for any dramatic post FG/RPG level. And yes I've read that few "logical attempts" to refute this in the past to no avail.

Jeff said...

http://www.youtube.com/watch?v=_68ZdNmy_0E

ampmfix said...

interesting comment by Jeff Christian here:
http://forums.silverstackers.com/message-596517.html#p596517

Makes one think about the ratio of paper to physical flow, being modulated down from 100 to 11? what's your opinion, seems to make sense?

Robert said...

A watched pot never boils.

I grew up in Los Angeles. I remember feeling some of the earthquakes. Never gave it much thought when I was a kid. And then after I started working I remember hearing a speaker who showed the historical data of a major earthquake on the southern San Andreas fault every 140 years (average). The last big one was 1857. After that a became a believer. I started having dreams about earthquakes. I could feel it coming in the air. History was on my side. That was a couple decades ago.

I still think a big earthquake is coming to Southern California, but I completely stopped thinking about the timing after I left Los Angeles.

The FG thesis is the best I have heard. But for the sake of my sanity I have given up looking for it to happen any time in the near future. I wish I could quit checking the gold price every day. I wish I could "leave LA" and just forget about it. But here I am.

jojo said...

http://www.youtube.com/watch?v=Kid73-CxWnI

KnallGold said...

".. I see in the USA a hard core mass media push to get people out of gold. I see WE BUY GOLD every where I look..."

WE BUY GOLD sounds like robust demand ;-)

But now I've read mcmagicfly stating that FG is utopia! OK then my dear Forum, lets close the topic, it was nice while it lasted *shedding tears* - I declare the Cult officially dissolved! Official Black Swan song rings out...

http://www.youtube.com/watch?v=Y6ekwmA4vpE

Polly Metallic said...

Tdfxman,

I assure you there is no government/mass media attempt to get people in the US to sell their gold. It's called private enterprise, entrepreneurs who have a business model that makes money. They buy advertising and set up shop to capitalize on the increase in the value of unwanted out of style jewelry. The popularity of the Cash For Gold phenomenon was further augmented by the fact that we were in a recession and people were anxious to sell anything they had no use for in order to raise cash. My husband and I were active in the business from 2008-2012. We know many other people who also jumped on this trend. It was nothing other than business. No overarching master plan to get people to give up their gold. The same thing happens whenever gold is relatively high and people need money. Think the 80s. Think the Great Depression when people melted Grandpa's gold pocket watch because they needed money.

Anonymous said...

Robert> very nice story with broader reach there.. lot of people feel something is about to snap

KnallGold> who said FG is utopia, certainly not me, read it again.. I'm only saying the "aborted" or semi partial FG concept and appropriate reval as per e.g. JGRickards is in my view the more realistic outcome for todays cadre of humanity, i.e. for the first half of this century..

Jeff, jojo, .. > no arguments that's to be expected from you, but no profanity or ad hominem insults as of today?, I must acknowledge you are voluntarily starting to behave yourself, although I'm not sharing your taste of kiddie youtube videos, thanks for the links anyway..

jojo said...

http://www.youtube.com/watch?feature=player_detailpage&v=Rai9SiBRv50#t=44

jojo said...

http://www.youtube.com/watch?feature=player_detailpage&v=mf88XP_OXkA#t=88

jojo said...

http://www.youtube.com/watch?v=pp0cg91rK2o

KnallGold said...

mc, I'm known for occasionally going over the top with an intentional misunderstanding feeding a cynic-sarcastic ironic rant, nothing personal.

Where I have a difficulty is the partial FG concept, it sounds like "a bit pregnant". Where I disagree is the "chaos in the streets" doom, right now there's some resilience in the economy and market so FG could be done without much impact, which was not so in 2010, the initial time frame target (Ari). And since America is dismantling at a fast speed now, well...

Diamonds sell for millions and it didn't send the world in chaos either. But don't understand me wrong, we live in difficult times with many challenges ahead. Transitional times are always bumpy, difficult and proving one- its similar on the personal level, puberty, rites of passage, losing parents, menopause etc.

Ender recently suggested making a list with things being already achieved- I've made the checkmark on the multipolar world after the Syrian thing, contrary to the GEAB's 2015. But I'd like to suggest an "inverse-Ender" and ask what is still NOT in place. I'd say not much, it centers around 3 things, HI, eo$, implosion of paper Gold.

We already had very good discussions around those issues earlier in the month.

jojo said...

In summary,
http://www.youtube.com/watch?v=5hfYJsQAhl0&list=RD02pp0cg91rK2o

KnallGold said...

And now all behave :-) none can say it better than AP

http://www.youtube.com/watch?v=F1lJFlB-89Q

Franco said...

Polly Metallic:

There is something that I'm curious about, and you can probably answer this just as well as anybody: did the "cash for gold" wave subside, or is it still as strong as it was a few years ago? Thanks.

Motley Fool said...

MMFly

Let me do my good deed for the day.

Your objections are :

1) Since a lot of gold is in jewelry form, there would be more robberies.
2) It would require a huge market crash.
3) Such a high gold price would destroy (presumably actively) 'traditional productive capital and industry capacity'.

My questions are :

1) If gold is priced that high, do you think people would still be using and wearing it as jewelry as they do today? If such a change in price perhaps changes behavior how does that affect such risks?

2) Do you expect everything to hum along indefinitely? US debts to be increased or perhaps repaid to the satisfaction of its' creditors?

3) How exactly does such a high gold price destroy industry?

TF

Phil_O_Dendron said...

Concerning the "Cash for Gold" business: In the North Los Angeles area I notice that several of these business places have come and gone recently (last 1-2 Years). I know that this is anecdotal but it may be a trend showing that the small gold that people will part with is already gone.

Dante_Eu said...

@Phat Expat:

You should have been contrarian when the first BitCoin discussion went on here. And when we saw BitCoin crash in real-time.

Something like this: From $27 To $886,000 In Four Years: Name The Investment

Not bad. :-)

jojo said...

C4G business in my neck of the USA has come and gone as well. Hard to find a store front now but 2 years ago they were still ubiquitous.

Polly Metallic said...

Franco,

The Cash For Gold business is essentially over. The largest shops, most of which were in business for years dealing in either jewlery or coins, are still going because Cash For Gold is only one segment of their business model. They're still getting a trickle of jewelry and coins. Most of the small shops that opened to jump on the momentum of this trend have closed. The bands of buyers that set up at area hotels have pretty much run their course and are gone. The in home "Gold Parties," which is what my husband and I were doing, dried up about a year ago. That format depended on a woman being able to assemble a group of 10-20 friends and relatives with gold, silver, and coins to sell. The parties ended because the "hostess" called around and virtually everyone she contacted had already sold whatever they were willing to sell. Most people said they had already sold everything two or three years ago.

We still get repeat business and referrals to buy jewelry and coin collections. We do individual house calls rather than meet with a whole group of people. Even that is fairly slow this year. During the spring/summer season we always hit hundreds of garage sales per week as we deal in a variety of antiques/collectibles and we always ask for gold, silver and coins. Virtually everyone we talked to this year said they had already sold.

If gold goes MUCH higher, the more recently purchased jewelry and some sentimental pieces might be cashed in, but there is not a lot left. Not enough to make a significant dent in Asian gold demand, for instance.

Franco said...

Polly Metallic:

Thanks for the response. This is very interesting. So most of the jewelry gold that was in weak hands has already gone (in the USA, that is). I wonder if the same thing has happened around the world as well.

ampmfix said...

Let's try it again:

What if the ratio of paper gold flow to physical gold flow is much smaller than what we thought (10 vs 100).
That obviously must affect downwards the revaluation target in a similar proportion, no?
Is JC making sense when he says that ratio is around 10?

Polly Metallic said...

Ampmfix

JC has always claimed the ratio was 10:1 rather than 100:1. Something about the velocity of transactions and trades being counted multiple times. Not sure. I have never deemed him an objective reliable source.

Aquilus said...

Ampmfix and Polly,

Jeff Christian is probably right about the 10 to 1 ratio of gold contracts to gold reserves.

The real multiplier comes from the fact that these reserves can be other bullion banks' gold contracts (which already have a 10 to 1 multiplier).

When the industry talks about physical gold as reserves it talks about a mix of physical and gold contracts as reserves.

From: The 21st Century Bank Run

"During the CFTC hearing Mr. Christian admitted that the CPM group uses the term "physical" in a very loose way. That "physical" actually means paper claims and physical combined. So these Bullion Banks are holding paper liabilities from other Bullion Banks and mining operations and calling them "physical reserves". Very circular, don't you think?

So under this loose definition of "physical gold", perhaps Mr. Christian was not lying. Perhaps the banks do constrain their naked shorting with at least 10% paper longs from "credible sources". And if so, I would guess that those credible sources also have 10% "reserves" behind their paper. And so on, and so forth."


Aquilus

Anonymous said...

MF> I'll have to refine, rephrase your assumed list of my objections if you don't mind, perhaps I wasn't clear enough in the post.

1) Since a lot of gold is in jewelry form, full spectrum FG, i.e. $30-50-130k reval, so visible and proudly available to ponder for everybody, especially in times around financial system reset and related societal pressures would likely make situation even more unstable, also in terms of security, blamegames street vs. elites etc.

2) FG onset would require at least a decent market crash 20-30% and or similar plausible veneer, perhaps much bigger tectonic shift like preceeding delay tactics such as "crazy period" of widespread bail-ins, wealth taxation ala IMF proposal and other schemes to delay as we see it now.
Perhaps in the sense don't blame us, "we tried it all, no effect, so the natural progress of things (FG) came to the light on its own volition."

3) MF: Such a high gold price would destroy (presumably actively) 'traditional productive capital and industry capacity'.

No, I was refering there to the FG launch precursor, e.g. financial meltdown and its likely effect on interlinked derivatives, bond structures and such. Simply, destruction of capital formation, no need to invest into productive things in the short/mid term. Plus there is the option of terminal material world availability decline with emphasis on maintaining status quo or some form of orderly retreat, that has been discussed previously.


Now, to your questions:

1) The point is clearly about the %share of above ground phyz in jewelry and artifacts. Look back what happened in Wiemar to people who moved wealth across HI. Other impoverished people are not blind, they noticed BIG TIME, if your distant relative or guy next door is suddenly catapulted to relatively different wealth strata, it's not hard to figure why then. It is highly disruptive situation for the society. While two or three tier system (full FG reval price hidden from J6P) might solve it, there won't be any arbitrage if managed well, you can't buy nuclear sub or reactor as individual either, only the big boys, so it can be diffused in similar manner.

2) Certainly I don't expect everything to hum along just fine. However, I do agree with the system analyst reasoning that these systems fail only when pushed to the upmost complexity point, and I regard the current ponzi as the biggest edifice of them all. Also as mentioned in previous post I suspect the tectonic shift will be very wild for this very reason. Perhaps playing some parts from the Orlov's scenario book as implosion of former empire to simpler footprint and other historical accounts of these events.

3) I didn't argue for that, explained already

Jeff said...

There is no partial freegold revaluation. Either you raise the price of everything along with gold or you raise the price of gold alone. Which is more destructive to real productive businesses?

Derivatives have nothing to do with productive goods, and everything to do with the dollar. They will burn.

How would you know if your neighbor suddenly had new wealth in a gold revaluation? Do you know if they have sudden new wealth in a GOOG revaluation? What difference would it make anyway, when we are talking about a new system? It doesn't matter whether they make some money.

This is a paradigm shift.

ampmfix said...

Thanks for the clarifications, that helps

Michael dV said...

Jewelry gold is common in the USA, in fact it is the only kind of gold typically held. In other countries, especially India it makes no sense to distinguish jewelry from bullion purchases.
In the USA one buys what is attractive and the mass of gold in the item is not disclosed. In India the quantity of gold in an item is disclosed and the gold is sold at bullion prices...with a markup for craftsmanship.
When I hear about 'jewelry demand' my first thought is that it is mostly being acquired as bullion and as a savings vehicle.
In the USA I'm sure there were many surprises at 'gold parties' when clients found out how much or how little gold was in a piece. I'll further wager that does not happen in the East.

Anonymous said...

Jeff> Do I have to repeat it again? You simply contradict yourself. Since paper, derivatives and dollar will burn in widespread fashion, the poverty will be brought in like with steam roller armada over night. And suddenly, in such environment stackers are somehow not visible? Give me a brake. Look at some first hand accounts (or arts) depicting the situation from and after Weimar and what came out of it..

So, you assume that in this day and age, owners of productive industries, ventures capitalists, and alike aren't cross-part of the paper system to a degree? That's preposterous. Yes, some could be diversified, but when suddenly getting hammered into double digit %loss in networth, they are not going to baby sit another great miracle of civilization the very next day. Clearly, they are going to hunker down (hoard) for a while and wait for the signs of clear sky.

Moreover, imagine you are the chinese guy sitting at the next "FG" world summit, while looking at the indian guy across the room. What to do, what card to play? Draw full FG with him, so the indian oz. per capita leverage goes ubercrazy. Or rather push the debate towards some resolution of limited hangout ala JGRickards of no more than say $12k for J6P.. and let the time work for your ascendent empire slowly anyway..

Jeff said...

Your view has been discussed many times, for example recently in the comments to FOFOA'S An American Horror Story.

Q: What advantage would it be to the Power Elite to destroy the dollar?

FOA: Wrong context. What advantage does the Power Elite gain by expending assets to save an already failed currency. Better to do what major players have done for centuries and are doing now, buy gold and evolve your power base to use the next reserve.

One Bad Adder said...

mcmagicfly: - ...if I may butt in?
Your point:Perhaps in the sense don't blame us, "we tried it all, no effect, so the natural progress of things (FG) came to the light on its own volition." ...is essentially the way I think it'll evolve, rather than the "FG by decree" solution.
...and in fact bandying about high $PoG's ($10k, $50K / Oz etc) doesn't help in trying to come to grips with a new Paradigm one iota IMHO.
In the future world of FG, Gold (24K) will be THE final destination - and all other things (Assets) will be subservient to it. FWIW.

Anonymous said...

Sorry, you are sidestepping my answer.

In resets it often so happens that those ubersmart major system players won't restart the system at the same operational level in the end. Yep, they will keep their power, perhaps in many instances, some might increase and consolidate the power into even more densly.

But does it operate your metro line or local hospital afterall?
That's my last point for today.

One Bad Adder said...

...whatsmore, divesting oneself of ones Gold to (say) pay off your mortgage, buy a JetSki, etc etc will be seen as an act of gross folly.
The HI most see as the cause in C and E is already baked in the Cake ....however it is and will probably remain locked up in the realm of those close to the spiggot.

Gold - Priceless or Worthless? ...is where this ends IMHO.

Roacheforque said...

Gold is not so much going to "skyrocket" as much as the dollar, and similarly hyperinflated FIAT currencies are going to plummet (not too many peers in that department, but the Yen is trying).

So the unfortunate inner-city little people, let's call them "Detroiters" would just as much slit your throat for one ounce of gold as they might for the Uhaul-able contents of your house.

In fact, the contents of a 10 oz gold bug's house today are probably worth quite a bit more in dollars (assuming they are paid for) than the gold, and probably will continue to be, post freegold.

Are 10 ounces of gold historically worth a modest middle class home? Close maybe (very modest). But the equity in your home will be worth much more than the debt. So if you're horribly upside down you'll be inflated out. A lot of sub prime Detroiters will be assuaged by this act of mercy, so social unrest will be contained to some degree.

Post Freegold most homeless Detroiters will not be looking for gold, and where the Detroiters are there won't likely be much found anyway, but food and stereos and licquor and flat screen TVs and I-gadgets will be.

That seems a more likely outcome than one which views 50K oz's in todays dollar terms as a disproportionate windfall.

Of course it is just one possible future. There can always be a wildcard event or action that changes everything.

Phat Expat said...

@Dante_Eu
"You should have been contrarian when the first BitCoin discussion went on here. And when we saw BitCoin crash in real-time."

Now that's a no-kidder. Yeah, I did look at it, but between them bit-mining machine ads from ZH and the involvement of those evil freakin twins from "The Social Network" (propaganda works), I decided to pass. Next time. ;-)

S P said...

Let me add a couple of broad points, forgive me if this has already been discussed.
1) Gold as jewelry is ridiculous, in my opinion. It's low class and doesn't really fit with the proper role of gold. There are many other metals that both look better and are just as easy to make and use as jewelry.
In the years ahead, would you really want to show your bling and announce to the world that you are nouveau riche?

2) Gold as bullion hidden away in hoards makes sense. It fulfills the proper role of gold as savings. Just keep it secret and hidden, don't announce to the world that you have it, and only dishoard when you need to, and quietly.
I don't think that under such a scenario you would be targeted, any more than people with substantial wealth are targeted now. Nobody goes around discussing how much wealth they have, and nobody has to go around discussing how much gold they have.

Sam said...

To be against freegold you have to either think that gold isn’t the mechanism that will be used (despite all the evidence) or that charity from other nations will go on forever (despite all the evidence). Other than that there is just normalcy bias.

I’m sure some said Yahoo and Google would never be a big deal because AOL has search with keywords. Others must have said nobody would pay 20 times their landline bill to have a mobile phone. Oh and I’m positive there was a little bit of normalcy bias fighting the business plan to sell a product almost anyone can get for free when bottled water was being floated around.

It sure is warm and fuzzy for us humans to think that things will always stay relatively close to the same. The arguments against big change always seem the most rational and reasonable don’t they? At least to those with a shallow level of understanding. Only those with the deepest understanding can confidently go against the reasonable and rational masses.

Freegold is not a future event that will be eventually “generated” by someone or some group. The framework is already in place and events moving us towards this are already upon us. Freegold is the planned transition from an old and flawed monetary system into a young and superior one. A monetary system well past its natural death and only breathing life today because those with the most to gain by FG have bought it a few extensions. We logically conclude that this was so that final preparations could be completed. The most important thing to understand is the $IMFS system still lives today not by power and control but by strategic charity. The extensive planning and time preparing for this has no doubt allowed for contingencies to be put in place by all major nations to ease the pain as much as possible and keep order. Things will still get a fairly ugly for a bit but it’s a pill that must be swallowed. The chaos would pale in comparison to the dollar dying and no mechanism for transferring wealth and keeping global economies from crashing wasn’t in place.

Sherlock said...

Great comment Sam. Logical. Articulate.

byiamBYoung said...

"The most important thing to understand is the $IMFS system still lives today not by power and control but by strategic charity."

Indeed.

Cheers

byiamBYoung said...

Enough to make your head explode.

"Finally, it is easy to forget that the U.S. budget deficit is shrinking very rapidly. In the current financial year, I expect it to be less than 3% of GDP, and it will likely be less than 2% of GDP in 2015."

Insane article on China holding US debt

We are so far down the rabbit hole, I doubt anything short of chaos is in our future.

I feel quite sorry for my friends and neighbors who are too numbed to see this storm coming.

Cheers (I suppose)

Daniel Yu said...

Part-1

FREEGOLD (FG) – IF or WHEN ?

The FG plan which includes a one-time gold price reset (as discussed by Another, FOA, and FOFOA) is not an Imposition (or Forcibly Imposed) on the world, but is simply an Offer To Buy and Sell physical gold at a very high price, in current currencies of the world. It can be $30k, $60k, $100k or $1,000,000 per troy ounce of pure gold. As postulated by FO/FO/A, any price (sufficiently high enough) will do! The beauty of this is that prices of all other goods are not affected. In one single instant, gold will be freed from its role as a commodity, and become a unique store of high value.

What happens when a super entity (e.g. BIS/BOC/???) announces that it is offering to buy physical gold at $550k per oz. and sell at $560k per oz.? Will your local coin store, or any bullion dealer, or APMEX, or COMEX, or anybody – sell you physical gold for $2,000 per oz.? Everybody in the world would readjust their prices to use the New Offered Rates !!!

Most of the discussions have been focused on the BIS as the entity who has enough credibility to do this. Recently, a link in Turd Ferguson’s TF Metals site, showed a post by someone who posited that the BOC (Bank of China) could set a new floor price of gold, in US dollars, never to go down, only up – without using the words Free Gold anywhere in that essay.

Most of the rabble rousers here, just want to simply create chaos and dissension among Freegolders, so as to cause us distress and maybe cause us to dishoard our 2 ounces of gold! They are doing this, with their own agenda. Maybe they are being paid. Who knows? And Who Cares, NOT ME !

To me, what is the most important about Freegold now? It is to have confirmation that the FG plan is still being implemented! Since I have no connections, I research the wide world of the internet. And behold, I found it. 

PM Pete has posted in his blog, that he has a friend, who is in the Bank of England – who gave Pete, 4 potential dates in 2013 for the Revaluation. Obviously it has not yet happened. But it (to me) shows that FG is not just a utopian dream, or has been discarded.

http://lcn.freedgold.com/2013/09/great-gold-find-great-timing.html

Daniel Yu said...

Part -2

The Who, The When?

Since all of us have been searching our own crystal balls, to try to peer into the future, and perhaps see a glimmer of what will be, in order to arrange our own affairs; it has been all conjecture and speculation. I will join, in imagining the near future, in terms of Freegold and the Revaluation. All of the following are products of my imagination. It is pure BS.

I think that there will be a big surprise for all of us, early next year. In mid-January 2014, there will be more major theatrics, between the POTUS and the US Congress. We will be treated to a more bizarre and hysterical show. It will lead to an impasse, past the deadlines. Technically speaking, the USA will be in default on all its debts. And over a Sunday afternoon, the POTUS will hold a live televised announcement, where he will declare:

1. The US will not default on its debts, worldwide. It will pay its debts.
2. The US Treasury Department is offering to buy physical gold at US$1M per ounce and sell at US$10,000 higher per ounce.
3. The Federal Reserve Bank holds zero physical gold.
4. The US Treasure Dept. holds 8500 metric tons of physical gold.
5. This equates to 273.275 million ounces of gold.
6. This equates to 273.275 trillion dollars in currency.
7. All the physical gold in the COMEX vaults is 7.154 million ounces.
This will all bought by the US Treasury Dept. at $1M per ounce.
COMEX will default and pay their paper claims at $1400 (?) per ounce.
8. Total US gold will become 280.429 million ounces.
Total US gold value is 280.429 trillion dollars.
9. Of the US debt of $17 trillion, only $5 trillion are owned by foreign investors. This will be redeemed using 5 million ounces of gold, which is only about 156 tons.
10. The US Treasury has enough money to pay its debts, service its $1 trillion a year deficit for quite a few years down the road, and is spending billions of dollars less (each year) because it no longer has to pay interest on its debts (since they are now paid off).
11. The Federal Reserve will no longer issue paper money. All future physical currency will be issued by the US Treasury.
12. All US mines’ gold output will be bought by the Treasury Dept. at $10k per ounce.
13. There will be no gold confiscation.
14. Any visitors who deposit and/or spend at least $1 million will be issued a permanent resident visa, should they so choose.
15. It will be very easy, for worldwide gold owners, to get a visa to visit the USA.

With this announcement, P.O. will (be The Savior) and solved all the pressing debt problems, deficit problems, and prevented a financial meltdown in the banking system. There will still be banks undergoing bankruptcy due to their exposure to derivatives, but they will all be allowed to fail – which causes many people’s money to be lost (including investors’ money).

Most of the Americans will not have any gold. They will suffer. The people on EBT aka Food Stamps will still get their free food (for how long, who knows?). Many people in the 3rd world countries, who own one or two ounces of gold, will be doing a lot of travelling and spending.

Think about some poor people who own 2 ounces of gold in Asia. Now they have $2 million. They can come to stay for a few years, for their kids to get college education. A US college degree still holds cache in Asia, over their local university.

I know, I know. Another and FOA have written that the US will not be allowed to do the reset, because of all the legal claims against its prior gold defaults to other countries. But all of these legal claims, can still be denied and/or delayed by the current US legal/court system, for several hundred years, if need be. What do you think will happen, if POTUS is the one to do the Gold Re-price Offer? Do you think the rest of the world (including China) will say – NO? And take the risk of losing all their T-Notes/T-Bonds value?

One Bad Adder said...

Daniel Yu: - a lot of thought has gone into your (above) offering - Thanks!
The future is but a hairsbreadth away - yet, to some, it never arrives.

John Smith said...

Why could gold not be re-priced tomorrow (or after a few weeks of forced cash outs of paper gold holders) by all major central banks, without causing major economic or monetary problems? It almost seems like a form of QE. People would sell their gold to the central banks in the beginning and go out and spend, spend, spend.

People would be jealous, but it would not be so different than someone who bought Bitcoins four years ago. Bitcoins going way up didn't cause any major problems in the economy or monetary realm. How would a re-pricing of gold be that much different to shrimp? Gold and Bitcoins are both seen as basically useless to a shrimp. I really doubt the farmers and producers of products we buy at grocery stores keep very much of their surplus in gold. These people value their wealth in USD and IMO, FG would cause their USD "profits" to increase.

Very few people, upon a re-pricing of gold, would receive a significant new flow of a given currency.

A re-pricing of gold would not significantly affect the quantity of goods being produced on a global scale.

A re-pricing of gold should be a benefit to the giants. They will hold a larger portion of the total equity of the world.

The debt burden of the world would be significantly reduced by increasing the amount of equity relative to the debt.

I think it is important to include all the powerful giants, so as not to make anyone mad that has enough influence to cause serious destruction. I think there may also be the issue of certain giants believing that other groups have too much gold and they would gain too much power from this transition, perhaps this is what is going on with the Syria and Saudi Arabia situation.

I think the reason FG is not yet here is that this process is still in progress.

This is my brief summary of my understanding of the ideas that will lead up to FG.

What do you other posters think of my understanding?

To be honest, I do not understand the debate very well here about post free gold, but I will continue reading and thinking about it.

Thank you FOFOA and all other posters

Franco said...

"Finally, it is easy to forget that the U.S. budget deficit is shrinking very rapidly. In the current financial year, I expect it to be less than 3% of GDP, and it will likely be less than 2% of GDP in 2015."

What kind of nonsense is this? Budget deficit shrinking very rapidly??? During the last 365 days, the public debt increased by $0.9 trillion or close to 6% of GDP, not 3%.

Biju said...

Byiambyoung ,

I think that article has some truth to it especially with respect to budget deficit.

- The trade deficit has slowed to approx $40B/month, chiefly due to reduced oil imports.
- The budget deficit also has dropped to approximate half last years number approx $55B / month.

Taking these into account the difference of (budget def - trade def) has shrink substantially from approx -60B/month to present value of approx -15B/month. USA has really improved atleast for now.

Correct if my numbers or understanding is wrong.

michael3c2000 said...
This comment has been removed by the author.
michael3c2000 said...

Biju
There were multibillion dollar repatriations of overseas corporate funds to the US after tax incentives expired, leading to the lower deficit from a temporary surge in imports.
Earlier posters referencing debt to GDP have to start from scratch. The true debt numbers would never be used in the calculation, such off-ledger losses expose dollar mismanagement, malinvestment or fraud that might tip the house of cards at the most importune moment.

The denominator of the ratio- GDP numbers are heavily misrepresented and misleading - numbers like government expenditures, computer use and even corporate research add enough to the measure to ensure that the real shrinking economy, unemployment, capital destruction, M3 money supply, inflation and gold deliveries remain vanished from respectable academic discussion.

Phat Expat said...

Though bitcoin does appear to have some momentum, I would tread cautiously with any medium that doesn't afford some kind of accountability let alone acceptability (at least at the PTB level). Is it a coincidence that the recent, and highly publicized, take down of Silk Road occurred?

Any medium that tries to compete with the current system will be met with vigorous resistance and outright hostility. And yes, that includes Gold as well. How else can we explain the constant delay in the implementation of FG? By saying 'they' aren't ready yet? Yeah, and just WTH is 'they'? I believe FG will come to pass, but we won't know about it, until it does. And FOFOA, and those before him, and so forth, and so on, have done a stellar job helping us to understand what could come next (WWWWH). The "W" that is missing is "W"hen; and it will stay that way, until it doesn't. I always look forward to each article as it brings me that much closer to understanding the elegance of what CAN be. IMVHO

Jeff said...

The price of gold is just a means to an end. The gold must flow, at whatever price. Hammer open your old safes and take a look inside.

http://gma.yahoo.com/blogs/abc-blogs/old-safe-given-away-scrap-filled-gold-coins-174545230--abc-news-topstories.html

byiamBYoung said...

Biju,

I should have been a bit more precise in my rant :)

The numbers, at least as they are currently calculated, are probably accurate...at the moment. The article breathlessly hints at an ongoing trend in declining US trade and budget defecits. That is simply unsustainable, and the defecits will rise again.

It reminds me of a fat guy sucking in his gut while a pretty woman walks by. Woo-hoo, he's gone from a 46" waist to a 44" waist...at the moment. But the fat guy has also just ordered a 16" meat lover's pizza and a large chocolate malt ;)

Cheers

MatrixSentry said...

Is the USG capable of actually reducing its budget? Budget deficit yes, at least temporarily if revenue is increased. But how long will that last as the depression grinds on?

Where will the new money come from that the world needs in order to service the $IMFS if it isn't coming from issuance of US debt? We have deflation threatening the entire globe at the moment. QE and/or USG deficit spending will be required in order to keep the $IMFS inflated.

I expect we will see an increase in both QE and deficit spending when deflation is perceived as the real threat. Janet Yellen will be quick on the QE trigger. The budget deficit politics will be heading in the opposite direction, but only until the wheels start to fly off the bus. Then there will be bi-partisan support for massive spending increases. Not just in the US, but everywhere.

If I were running this show I would hope that the world would enter Freegold all together, doing exactly what we have been doing for a long time. Just let the thing happen when all the gold is distributed to all the players. When there is no more gold to flow, it happens.

jojo said...

FOFOA-
Congrats on 6 Million page views!

Anonymous said...

Daniel Yu,
+1 for that awesome imagining of a possible future!
+1 for Obama turning into the savior of America. Major lolz!
+1 for luring investors to America to spend/invest their gold. Maybe we would even be able to build out the nation's new infrastructure! You skipped the part about how they'll avoid capital controls at home, but love the image!
+1 for the added entertainment value of the US courts saying effyou to prior international claims for gold delivery. I always thought that aspect of the analysis was weak sauce. I mean, haven't these people read Charles Dickens' Bleak House? The anglo-american system was designed under the banner, abandon hope all ye who enter here!

Dante_Eu said...

Possible arrival of Freegold, when total pageviews looks like this:

Total Pageviews:
6669999

:-)

Anonymous said...

Any significance in the fact, that the new spot contract platform in Dubai's DGCX starts at 25 oz.? Obviously they can tweak it up or down any time they see it appropriate, but for the launch next year they have decided accordingly, any guess why, just to stay open for the small local shops clientèle, so nothing RPG related behind it or is it?

http://blogs.wsj.com/moneybeat/2013/10/29/dubai-to-add-spot-gold-contract/

Brady said...

matrix,

similar mindset as to how it could play out...

will say it does smell like deflation out there...feels like things are 'slowing' down in my neck of the woods...like we're almost at a standstill, without direction, just moving along, on the verge of business activity really slowing down...

Biju said...

I do not understand when people say USA is now in a "depression". No way am I seeing this around. Economy is looking up and humming along, as far as where I am looking.

Dante_Eu said...

+1 Sam

You always post well thought comments. Polar opposite to my.

I usually post the first thing that pops up in my mind. :-)

Sam said...

@Phat

“Any medium that tries to compete with the current system will be met with vigorous resistance and outright hostility. And yes, that includes Gold as well. How else can we explain the constant delay in the implementation of FG? By saying 'they' aren't ready yet? Yeah, and just WTH is 'they'?”

FOA once said: "The war between gold and the dollar has been over for a while now… Leaving gold bugs with a lot of questions that ask why this: both systems will strive for a higher currency price for gold; one doing it because they have to; the other doing it because they want to!”

I believe your statement was correct up until the launch of the Euro. At that point the dollar stopped fighting gold as it went on an unprecedented bull run. The dollar was the group that “had” to let it rise as physical would have dried up long ago had they not. The Euro on the other hand wanted gold to rise so they could show the whole world that they not only would, but were designed to, treat gold unlike any currency ever has. They showed their design would not suppress it like a gold standard or manipulate it with paper as was done in the decades after.

So who are “they?” “They” are Nation(s) that run a trade surplus of goods and services and send them to the US in exchange for dollars. Deficit nations like Japan don’t matter. Only physical stuff matters. These surplus nations don’t spend these depreciating paper promises but instead loan them back to the USG in the form of buying treasuries. Are they fools? Even Grumps is a better investor then this. No…All the while they accumulate gold slowly and as discreetly as they can on the side. Can you think of any nation that has done that recently? A super power that wasn’t ready for the transition so at great expense bought a little time to get prepared? So why is the FG window considered open today but not open 2,4, or 10 years ago? Is the surplus nation(s) that popped into your head still buying treasuries today? How about the gold accumulation? Is it still discreet or is information started to leak to more mainstream sources? Is the paper price of gold still being supported at well above production price or has it been allowed to crumble? Is the last and most profitable store of physical reserves for the bullion banks being added to or drained?

Edwardo said...

Good series of posts, Sam!

Jonas said...

Maybe the free gold crowd will enjoy this video with Greg Hunter from USA watchdog with Jim Sinclair:
http://youtu.be/8IQ_TBJHrcU

$50.000.... Isn't that what our friend and guru has been saying since we started reading this blog..???

onedayfly said...

Freegold is the only answer to a monetary system with exponential growth..

Reset in 3.. 2.. 1...


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