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ARCHIVED DISCUSSION FROM 9/22/1998 All times are U.S. Mountain Time jinx44 (9/22/98; 20:58:39 Msg ID:101) Bimatallism Sirs, I believe that a bimetallic currency standard would go farther than Au only. In so much as the Big Guys-Soros, LBMA, BIS and major owners of in-ground reserves, can effect pricing moves that will only hurt small people. Wouldn't Ag+Au give more stability to world currencies? I reference Wm. Jennings Bryan's "Cross of Gold" speech as a point of departure on the issue. Thank you bmacd (9/22/98; 18:54:48 Msg ID:99) Aragon III- the Common Man The common man will likely perceive whatever is suggested that he perceive re the value of gold to the Euro. Just as gold is perceived by the public as almost evil now, when the tide turns in favour of it, then will how it is perceived by the common man. I think Dines calls it the WolfPack Theory. bmacd (9/22/98; 18:50:59 Msg ID:98) Aragon III and Friend of Another Wow, reading you two is great education! No doubt the price of gold will go up with the Euro. $6000, as Another thinks, sounds wonderful to me! The thing is, true the price is cheap right now, in USD, although more expensive in terms of many other currencies thanks to the high USD. I'm Canadian, and thanks to the fall of the Northern Peso last month, my silver actually wasn't so badly priced with exchange, and saved me from margin calls! However my point is that with the introduction of the Euro, a huge amount of trade once denominated in USD, will now be done in terms of the new Euro right. This has to make commodities more expensive then, as all that trade in USD disappears. doesn't it? Now depending on whatever the Euro's exchange is set at, to tie everything in together, commodities versus Euro vs USD, and the Euro vs the USD, by the time the free market does settle it all out, the price effect on commodities could be very large could it not? Have I gone in circles here, or am I answering my own question, it just seems that I'm missing a link somewhere. sarxkill (9/22/98; 18:11:14 Msg ID:97) test test Friend of Another (9/22/98; 18:01:45 Msg ID:96) Aragorn III (9/22/98; 16:13:17 Msg ID:94) Aragorn, I doubt that the common man will feel there is gold in the Euro. He will know it but not fully understand it. The currency confidence factor comes from a strong positive exchange rate, much like that enjoyed by the dollar today. The average European will buy from the USA in the same way that Americans buy bargain goods from other countries. Using an overvalued dollar makes one feel as their is no inflation, even though there has been massive dollar currency inflation over the last twenty years (the real cause of price increases when the exchange rate is allowed to balance a negative trade deficit). As for the Euro being a clean, unmanipulated money system? Of course not! There will be all kinds of problems, but they don't carry the debt that the dollar does after all these years of reserve currency status. The Euro will be the lesser of the two evils. Perhaps by a factor of five. That is also why many major investors will hold gold as a proxy for Euros. Not to mention that it will increase in value a great deal. What exchange rate for gold in Euros? I think it will be more of a free market type system, but Another thinks $6,000 in todays dollar buying power. We shall see. Thanks for the consideration! I wanted to reply to your first posts but lost them? FOA Tech (9/22/98 Sorry about tech problems Please excuse the tech problems we have been having. The board has only been up for about 48 hours and there are still some things to resolve. Keep posting but keep in mind that there may be some problems at the start. They will get resolved. Again, my applogies for the problems. Jeff Marett (the one who put all of this together) Aragorn III (9/22/98; 16:13:17 Msg ID:94) Friend of Another (9/22/98; 15:21:04 Msg ID:92) Splendid! And of course, the various European Member Central Banks will want to hold on to their own gold reserves to the extent that they can, selling little (and only as necessary) to the European Central Bank when they find that they are individually in need of additional transactional gold currency--Euros. Certainly, the exchange rate is better today for acquiring gold than it will be in days to come. The question I'm sure that everyone wants answered today is "what will be the official exchange rate offered for gold by euros?" That is indeed a well-guarded secret! Perhaps it has yet to be decided, or perhaps there will be an adjustment period during the time that the dollar and yen and others come to terms with this new arrangement, and perhaps offer similar plans for stability. Ultimately, the system with the most gold can offer the largest value in outstanding transactional gold currency. Yet, this question is of little concern to me. Rather, I would like to know for certain that this system will be adequately disclosed to all who shall use the euro--including the "little people"--so that this euro may not be subject to political manipulation, so that it shall be as money from long past--but with all modern conveniences for modern transactions. Simply put, "Will the common man know that 'there is gold in the euro'?" Friend of Another (9/22/98; 15:32:46 Msg ID:93) LOST POSTS? To All: I was going to reply/debate some other points but we have lost the prior posts. If anyone can repost, I will surely copy them first. These things happen! Thanks for the Forum Michael, it's still a great place! Friend of Another (9/22/98; 15:21:04 Msg ID:92) TO: RAINMAN (9/22/98; 10:19:25 Msg ID:83) Rainman, We do disagree on this reserves issue! To make my point I'll start with my most solid concept and work forward. First, people are the real backing for any currency/money. It doesn't make any difference if circulated money is gold or if circulated paper currency is backed by gold and silver. When no one will use it or accept it, money it is Not! All the gold and silver in the world could be stamped into coins and if people are not willing use it, it can't be money. You have heard this called the confidence factor. Well, I think a persons confidence in money is built after money is seen working, not before. We are not born with this confidence, it comes only if money continues to buy goods and services at a constant price, over time. People will accept fluctuations in the buying power of money, but that tolerance has limits. Once currency starts to fluctuate in it's purchasing power or exchange rate, citizens begin to require other types of backing for their money in order to maintain confidence. This backing, to maintain stability comes in only two forms that I know of. The currency can be turned in or exchanged for real items held by the government Treasury as backing (gold?). Or, the Central Bank can purchase the currency in the open market using Exchange Reserves as Backing. The obvious, well documented problem with this comes when the government doesn't have enough Backing to maintain confidence in the currency. As in the case of the dollar, they have created more currency unit obligations than they have Exchange Reserves Backing to defend it with. If the need arises. I know that you already fully understand how this works. My point? Modern digital currencies are today defended in the open market with Currency Exchange Reserves, not Gold. Most countries call their gold reserves. But, no country today classifies it's Gold as Usable Exchange Reserves . The Euro will! Of the 40 to 50 Billion in reserves that the ECB will hold to defend the Euro, some 15% will be Gold Bullion. Unlike currency reserves that will be sold to purchase Euros as defense, gold reserves will be added by selling Euros to buy gold from the EMCBs. At present, the dollar has only one competitor for reserve currency status on the world stage, gold. The dollar has been made strong in a low gold price. To compete with the dollar for world reserve recognition, the ECB will add Euros to the EMCB (European Member Central Banks) to replace their gold. The EMCB will then be free to purchase gold on the open market, using no longer needed US dollar reserves. Remember, the Euro will be the main currency reserve of Europe. The ECB will not have to sell it's currency dollar reserves as they are a small token amount for balance. The roaring price of gold in dollar terms will now make up the lions share of Real Reserves backing the Euro! In this context, the ECB will have no problem using the new dollar gold valuations to cover any dollar commentments of it's overextended members. Now my friend, you have my view! Perhaps you now understand why some natural resource countries value gold today at a Far higher dollar price than currently exists! Thanks Goldfly (9/22/98; 13:33:41 Msg ID:90) Gold Value Mr. Another, thank you for your response. Believe me, I don't need to be convinced of the frailty (flimsiness? fantasy? foolishness?) of the 'Paper House.' What's astounding is how long it has lasted. Undoubtedly, Russia's economic meltdown is an example of what can be expected in an America awash in paper assets and debt. They just started at a lower point. I am building my position in gold while the cost is low. I have not followed gold closely until the past several months. With my question regarding where gold should be priced, I'm just trying to get a better handle on where we stand in this situation, hopefully then to have a better view of where we're going USAGOLD (9/22/98; 12:52:00 Msg ID:90) Back up and running......... Had an archiving problem. But things should be OK now. Post at will! Sorry for the inconvenience. ANOTHER (9/22/98; 11:15:31 Msg ID:85) REPOST: My post to Mr. Aragorn is lost? Will send again if able. sniper (9/22/98; 10:48:04 Msg ID:84) Password Can passwords be changed?? RAINMAN (9/22/98; 10:19:25 Msg ID:83) @ ANOTHER AND FRIEND OF ANOTHER I have been following your posts for a long time and want to congratulate you for the quality of your thoughts. You have certainly brought in light important concepts for the GOLD holders/investors community. Of particular importance , are your insight about the views of oil countries and their willingness to move from a dollar world to an alternative. Also , you predict the demise of the dollar as it is obvious to everybody that a pile of debt can't back the world reserve currency. You think that the birth of the EURO will precipitate the incredible shift of currency reserve allocation (for investors and CBs). The compelling reason for such a shift lies, in your opinion ,in the fact that the EURO is backed by GOLD. I respectfully disagree.The EURO is not backed by GOLD. The European CB has currency reserves to intervene on the currency market if need be . Some of these reserves are backed by GOLD . These reserves (about 50 bln EURO) are fairly small in comparison to money supply and there is no link whatsoever between the money that european citizen will use and GOLD. The European CBs as well as the US have GOLD in their vault to some extent. The situation has not changed. USAGOLD (9/22/98; 09:43:07 Msg ID:82) POSTING PROBLEMS... Seems we're experiencing technical difficulty. The technical people are looking into it. Starter Bugs, not millennium bugs.........Try shorter posts and don't forget to save it because we don't know what's going on here. Will post when its fixed. Goldfly (9/22/98; 09:30:52 Msg ID:81) Gold Value Mr. Another, thank you for your response. Believe me, I don't need to be convinced of the frailty (flimsiness? fantasy? foolishness?) of the 'Paper House.' What's astounding is how long it has lasted. Undoubtedly, Russia's economic meltdown is an example of what can be expected in an America awash in paper assets and debt. They just started at a lower point. I am building my position in gold while the cost is low. I have not followed gold closely until the past several months. With my question regarding where gold should be priced, I'm just trying to get a better handle on where we stand in this situation, hopefully then to have a better view of where we're going ANOTHER (9/22/98; 07:36:39 Msg ID:80) Goldfly (9/21/98; 21:37:48 Msg ID:77) Mr. Goldfly, Perhaps your question will be answered in the future we now approach. However, for today, if we place ourselves in the land of Russia at the entrance of the "once most strong bank". What price do you offer for gold to replace the lost savings account? It would seem that in the process to return a portion of your wealth, that does represent a "lifes productive efforts", any price for gold would be as "the bargain". I do admit that it is not the good position for ones family to be in, as others will also bid for this opportunity to gain gold. Tomorrow, when you and your neighbor use Euros to purchase the gasoline, a much smaller supply of gold will be divided by the dollars in existence. Few will concede that gold could be so high, as at present, "dollars price gold". But few have known a time when "Gold priced dollars"! Thank You ANOTHER (9/22/98; 07:00:04 Msg ID:79) Aragorn III (9/21/98; 16:07:21 Msg ID:71) Mr. Aragorn, Your write offers good thoughts. I also often question why a person would want to hold the "silver for the little person"? Indeed, the gold can be divided into very small parts and still it holds the good value. I think the silver issue comes from the same view point that gold should not be "up valued" against paper currencies. It has always been seen that an official reset of the gold price is "the bad thing". Always, it is "at all costs do not raise gold price"! The political Western stand is "Give the citizens silver and let that price rise, but, keep the gold low and we purchace it for our well being". It would seem that those of the "democratic power" want to hold the gold for "insurance" (as Mr. TYoung rightly does) and never allow it's good effects to pass to the "little person", as you say. Perhaps we do still see the "human nature" at work with silver. Persons are always attracted to the leverage argument in any investment. Again, the western analysis uses the past dollar performance of silver to make the point of "it will rise at faster rate than gold". I think, if the past economic and monetary performance was to continue, this could be true. However, we come to the end of this era. The changing of a monetary system for the benefit of removing "debt load" does also require the changing of rules for past game! History will be written as this: "we now know that in times of major financial change, real gold increases in value and holds that value far greater than any paper gold derivative" also " no other form of commodity (silver and platinum included), even food, was valued as gold". Even in times of past war, soldiers and citizens were found starving for food, but still, gold was found in the pockets, not food! Thank You Aragorn III (9/21/98; 16:07:21 Msg ID:71) Bimetallism, etc. If we can accept as true that gold is the ultimate form of money, bimetallism would fall short of the mark, although much nearer than where we find ourselves with modern fiat currencies. Bimetallism would eventually fall victim to Gresham's law--the money with greater intrinsic value would be hoarded out of circulation. Assuming that a "transactional tool" exists to subdivide a metal of very great value into a fashion suitable for all levels of transactions, what would be the incentive to hold one's wealth with a large quantity of cheap metal rather than a small quantity of quality metal? Small gold would stand beside large silver. Jinx44, in reply to your concern that gold is manipulated by "the Big Boys", is it not true that more gold is held outside of Central Banks than within by perhaps a two-to-one margin? To paraphrase Tolstoy in "War and Peace", it is the will and actions of people en masse that drive the wheels and set the direction for a nation. The greater one's rank, the less control one has over events. Having said that, let me remind you that gold has been the honest money standard for people longer than it has not. Fiat money has been a contrivance, by those of "high rank", that historians will someday marvel at as an incredible acheivement in worldwide "suspension of disbelief", or more simply, "fooling all of the people for some of the time". The will of the many will eventually overcome the will of the few. On another note, I question why some individuals indicate a certain fear or loathing for the day that sees gold priced as never before. Fear and loathing should be directed toward a monetary unit that has nothing more than thin air and confidence as its foundation. To attach a standard physical quantity (of gold) to the future definition of a term such as "dollar" would, in my view, restore peace of mind. Any fear and loathing should be directed toward a government that resists and fails to intelligently respond to the will of the masses. Friend of Another (9/20/98; 22:12:19 Msg ID:54) ALL: To some of my friends I say good day and to others good night. Will return for more discussion and thoughts. Thanks Friend of Another (9/20/98; 22:02:45 Msg ID:53) BMACD Before I continue, I want to thank Mr. Kosares for creating this Forum. This effort by USAGOLD will reward many readers with interesting discussion and debate about the future of gold in the world society. Michael, thank you! Also: BMACD: In reply to your 20:48. Hashimoto made the comment, but what position do we find Mr.Yen in now? I think it was a comment created by political need at the time. What would happen if Japan sold (dumped if you will) their US dollar reserves on the world market and/or brought Gold with the proceeds? Even if the Federal Reserve purchased some of the debt, it would no doubt drive down the value of the dollar. But this action would not help their economy as they still operate worldwide in a dollar reserve system. The dollar price of gold would rise, but not enough to liquefy their financial burden. In short, they still have to sell goods and services to the world, in order to raise their GDP. This will not happen if the Yen appreciates against all other currencies! As you can see, this is the box they are in. It is also the predicament many other countries are in that operate using the dollar as a reserve currency. For many of them, a rise in the dollar price of gold will not help them, yet. Gold has not been brought to the forefront as a true currency reserve asset. It will when the Euro is created. At that precise time these economies will have a new market for their goods and they will accept payment in a new reserve currency. Until this reality becomes apparent, the world financial system will continue to slide down the dollar reserve slope. This slide will create the illusion of a economic deflation, but then isn't the dollar really an illusion also? Thanks Friend of Another (9/20/98; 20:48:44 Msg ID:51) BMACD: Here are a couple of items I read from someone else: "The China Daily published a special report from the Chinese state planning commission that outlines a plan to reallocate foreign reserves ratios away from U.S. dollar holdings. It recommends reducing U.S. dollars as a percentage of reserves from 60 percent to 40 percent. This suggests U.S. dollar sales of $28 billion. The report went on to say that China should prepare for a weaker U.S. dollar on grounds that the U.S.(as a net debtor) consumption boom has created a Bubble." Also: "CHINA MAY BE FORCED TO TURN RESERVES INTO EUROS: ECONOMIST BEIJING, Sept 3 ( AFEC/AGENCIES ) - China may be forced to switch much its enormous foreign currency reserves into the new Euro if the dollar falls in the future, a leading economist was quoted as saying Thursday. While there has been widespread speculation over a devaluation of the Chinese yuan, state development planning commission economist Wang Jian said China would have to watch for any fall in the dollar when elaborating its economic policies, the official China Daily newspaper reported. Wang said the US economic boom of recent years was a "bubble," caused by a massive influx of foreign capital, which could burst when the Euro is introduced on January 1. China has around 140 billion dollars' worth of reserves, with about 60 percent denominated in dollars, the China Daily said. It also has around 60 billion dollars of US treasury bonds. Wang said China would reschedule its reserves so there was around 40 percent in dollars, 40 percent in the Euro and 20 percent in Japanese yen. China currently also has German marks, Swiss francs and yen reserves. The Euro is to be launched with 11 European members from January 1 next year. The government has insisted in recent weeks that it does not intend to devalue the yuan, inspite of the Asian crisis which has undermined its exports, and that it was ready to use its huge reserves to maintain the official parity. " I think the question of the Euro will be answered by the actions of the official government Central Banks. For a citizen living in Europe and using the Euro, it will become the best of all worlds. Not much different from the American using dollars to buy goods (in discounted real terms) from Japan or any other third world country. Only, now the shoe will be on the other foot with the USA trying desperately to sell it's goods to Europe for EUROS. This will be another strange twist as many/most of Americas foreign goods producers will, by then have stopped using dollars as reserve assets. The outcome of a change in reserve currency is mind numbing. For the small person outside of Europe, they should "Follow in the Footsteps" of others. The holding of physical gold can and will be considered holding a currency asset as will the holding of Euros. However, the Euro will not come remotely close to the appreciation of gold as valued against all things. The ECB and the BIS will make it that way. You sir (or Ms.) will see this come to pass. Thanks bmacd (9/20/98; 20:45:24 Msg ID:50) To Friend of Another Well, now thats soemthing I hadn't quite considered! A couple of points though. Remember a year ago when Hashimoto made the comment (which he later retracted) that the US might worry that Japan would start to sell some Treasuries and perhaps buy gold instead. They sure had made some money from the bonds. The US dollar would be in trouble if BOJ dumped. I doubt that they would dump it all for gold, but it may not take much. Once the US dollar comes down and loses the safe haven label, I bet on a good rise up in gold. You're right. Joe Citizen could care less if gold is $1 or $2000 except for what that says. Let's say all my prayers are answered and gold does rocket way up. Well, all is not well in the world, and then Joe Citizen has to care as any of those factors settle home. It is going to be interesting for sure. Back to Japan for a moment,I don't beleive that they're really suffering at all now, as the media would like to have us all believe. I think Robert Rubin is very nervous these days. It's early, I know, but I'm tired, and seeing as gold hasn't made it so that I need not work full time yet....so good night, and I look forward to more discussions on this site. Friend of Another (9/20/98; 20:16:24 Msg ID:49) BMACD: My last post was to your 18:29. Also, I somehow double posted? Because not many are here, perhaps we willtalk for a while. I expect Another will send something if able. I will reply to your 19:30. Thanks Friend of Another (9/20/98; 20:09:53 Msg ID:48) TO BNACD: We continue to watch the BOJ to see if they are selling US Treasury debt. I don't think that is going to happen. They will buy gold, they will talk a great deal, but they can't sell US debt held as reserves. Why? From the beginning Japan has tied it's future to a US dollar world. They built their economic engine by trading with America using a dollar surplus mode. From a USA viewpoint, that's a balance of trade deficit in American dollar currency. It was always a week Yen (in real terms) that created the demand for goods made in Japan. The huge balance of payments surplus, held by Japan in world reserve currency dollars gave them the reserve assets to grow their economy. As governments manipulated currency exchange rates (known as the dirty float) for the benefit of an IMF/Dollar reserve system, this action gave Japan an enormous advantage in trade and finance. As this has gone on for over twenty five years, Tokyo could not help but represent a bloated financial system. Today, they have reached an end that no one ever thought would come; the dollar reserve system is ending. As one might expect, Japan having received the largest return for supporting this system, will now suffer the largest loss. They simply do not know how to play a different game. The Yen will one day fall with the dollar. Will the BOJ buy enough gold through the BIS to offset the complete destruction of their financial system? They will no doubt try, but I doubt their is enough gold out there to make a difference. At present valuations, all the gold held by Central Banks is worth what, 300 billion dollars? If we doubled or tripled it the amounts would make but a small speck compared to the loss of the second largest financial system in the world. You see, the current supply and demand for gold as a commodity or weather one CB is buying or selling some of it today is really a non-event compared to a changing World Financial System. For the regular citizen, gold priced in the many thousands will have little effect compared to oil priced at $200 or $400 a barrel! My friend, we are coming into changing times as never before. It will be here, on the USAGOLD Forum that we will follow these events. As Another would say, "We watch this new gold market together, Yes?"! Be assured, he will post here as soon as this site is known to be open. Thanks bmacd (9/20/98; 19:30:44 Msg ID:47) Euro Well, FOA, I like you scenario, and I myself will perhaps enjoy some fine vintage wine if you're right. I just wonder how quicly people will dump US dollar to buy the Euro. While the currencies and countries that make it up are not new, the Euro itself has yet to even be born. Personally, a brand new currency might not quite spell total stability to me. Guess that leaves gold? Friend of Another (9/20/98; 19:03:15 Msg ID:43) The Markets! To All: It's an interesting corner that the Euro people (BIS) have put the US government and the dollar into. As the only reserve currency, the dollar must fall in value in order to reflate the world economy. But, a week dollar is exactly what the Treasury doesn't need with the upcoming Euro. Now, all Europe has to do is wait and watch as the markets do their dirty work! If the dollar stays strong, the countries in crisis will sink even lower. In doing so this will create a US trade deficit never before seen in modern times. It is no accident that most of the economies in crisis are many of the chief trading partners of America. It's also no accident that they all are IMF/Dollar advocates. Meaning, they hold little Gold and much US treasury debt as local currency reserves. The US will be forced, by deteriorating market conditions, to lower the exchange value of the dollar. But, if Greenspan lowers local interest rates, Europe will begin to dump the dollar. For them, they don't need the dollar as a reserve currency anymore! They will hold a small amount of it only as an currency exchange intervention vehicle. With this new definition for the dollar it will be required to carry a good interest rate. They have the Dollar in a trap that will force the Fed to lower it's value through the foreign exchange window. All the while pushing interest rates up or holding them steady to protect this reserve currency. This isn't a strange twist as it happened once before during the 70's. Only this time a new world reserve currency is coming online, giving many countries a choice for the first time. I think China can't wait to unload it's US treasury holdings for the Euro. I agree with Another's last post (in the archives) about the vintage wine. Gold is that reserve vintage that many people kept trying to open before it's time. By the end of the year, the currency wars will bring this fine wine to completion. Once it goes above $360 some major defaults will occur, changing the entire aspect of the market. Add to this the introduction of the Euro and the old US Dollar gold market will disappear. Some investors are buying gold for the Y2K problem. I thing the Currency Wars will destroy the markets long before Y2K does it's deed! Also, I am very excited to hear of this USAGOLD FORUM. I think myself and Another will have much participation with this new discussion group! It will, no doubt, be followed by many Gold investors. Who knows, perhaps even a Central Banker or Government leader? Thanks FOA bmacd (9/20/98; 18:29:41 Msg ID:42) New Week It's early in the new week, but Japan is down 276 points, and gold is down a mere nickel. So much for Japan's new bank fix. Maybe they'll make good on that sell USA Treasuries, and Buy Gold comment. USAGOLD (9/20/98; 15:58:21 Msg ID:39) WELCOME........... I want to welcome all fellow goldmeisters to the USAGOLD FORUM. If you would like to post, please go to the registration page as soon as possible. I will be trying to issue passwords what's left of today and tomorrow as soon as possible to get things rolling. Let's keep it clean, have some fun, and learn a great deal from each other. I invite you to make this your headquarters for finding and disseminating gold information. I will pretty much stay out of the conversation and let this be your FORUM!. Who knows we may even have a visit soon from some old friends. Stay tuned, fellow meisters, this is going to be fun.
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