ARCHIVED DISCUSSION FROM 9/23/1998
All times are U.S. Mountain Time

bmacd (9/23/98; 21:57:25MST - Msg ID:132)
Tyler Rose
Well, nice idea in theory, and I hate to sound so distrusting (but what the heck!!), but the those doing the manipulating, are the ones that need to be legislated, so it couldn't happen without 'room for adjustment or error' or whatever playing room they gave themselves. The problem that I have with government numbers is that they're always adjusted later, which then totally changes the picture of the new ones just released. Sorry, I don't trust them overly. THis whole thing is a big game. Problem is the rules aren't so clear. Can you rationalize what's going on in the markets now? I can't really. I have an economics background or so I thought, and most of the time I just shake my head. All I am sure of is that commodities will go back up, and so will gold!!! On that note, I'm off for some sweet dreams. Good night, and this discussion forum is fantastic.

Pete (9/23/98; 21:26:13MST - Msg ID:131)
FOR ANOTHER OR FOA
I will make my questions short and sweet. 1) I noticed today that a hedge fund needed immediate funding in order to divert default. Is this just the tip of the iceberg and a sympton of things to come? 2) Will an interest rate cut by the FED avert the inevitable or is it too late? Glad you are both posting here at USAGold and appreciate your THOUGHTS. Thank you, Pete

Tyler Rose (9/23/98; 21:10:55MST - Msg ID:130)
Gold Backed Currency
bmacd & FOA: Thanks for agreeing with me that a gold backed currency is not in the works. While this may not be possible, I am interested in a solution to the current problem we face: unlimited printing of money, by USA and others. Printing money is a lot easier than raising taxes, but accomplishes the same goal: transfer of money between classes. Short of limiting currency issue to the amount backed by some hard asset, how do we control the printing presses? I can't think of a ready answer, but someone needs to come up with one, if we are to escape this trap that we are in. One possible approach would be to legislate the amount of new money created to equal the amount required to maintain a level playing field based on inflation; however, I don't think anyone would trust the government to not manipulate the numbers to print whatever they wanted. A hard problem, but one that could perhaps be solved by some collective intellect on a forum such as this. TY, TR

Friend of Another (9/23/98; 20:47:25MST - Msg ID:127)
bmacd (9/23/98; 20:11:08MST - Msg ID:122)
bmacd, one last thing then I have to go. Canada (your home country) is a good example for my last post to BC. They are a fine group of hard working people, in a country full of natural assets that the world wants and does buy. Yet, by allowing their government to gamble with their currency in a effort to stay in a Dollar/IMF world monetary system, they are going broke! In time they would look like Russia if this system doesn't change. By selling their citizens gold, the stage is set for them to, again, dilute another productive part of the economy. That being to tax and/or grasp for the gold mines of the nation to minimize the CBs past mistakes! I think this is a real possibility that is never discussed by the industry in front of stockholders. Goodday

USAGOLD (9/23/98; 20:35:42MST - Msg ID:126)
Answers for Pu'ukani and TYoung
Yes, Pu'ukani, all times are mountain and though we are separated by a great sea let me remind you that the University of Hawaii, Colorado State and Air Force Academy all play football in the same conference -- a nice advantage for Colorado students who get to visit your beautiful state for various functions. And, TYoung, yes, I look forward to the archives as well. It was one of my intitial criteria and apparently the most difficult technical problem to overcome. I talked with Tech Marett this afternoon and he assures me he is on the case. I was asked early on if I wanted to wait until the archiving was ready to launch and I opted for getting on-line and filling in with archives later. Be assured I am as interested in archives as all of you. Nice to see all these posters here tonight.

Friend of Another (9/23/98; 20:25:45MST - Msg ID:125)
BC (9/23/98; 19:08:38MST - Msg ID:118)
BC, Hello! Will they be at greater risk than central banks with larger gold reserves? Yes and no. It depends on the productive capabilities of the country. I think we must remember that gold (in a goldbug interpretation) is money, not part of the goods and services it is traded for. If a country has something the world wants, the world will deliver gold to their door to pay for these productive efforts. The world may also deliver currencies acting as money. As long as we have an open market gold valuation to keep the paper money honest, any productive country can develop a positive balance of trade. This can create a surplus that could be used to add gold to the national treasury.

A nation selling it's gold cheap is no different from one that sells it's trees, land or any other real thing at two low a price. They made a mistake. To correct this they may also repurchase these real things with productive efforts. The whole argument of gold, currencies and debt comes from cheating by the Central Banks with a dirty float of exchange rates. In progression this leads to over creation of the currency by it's treasury. Further on, the real purchasing power of the national currencies can never represent the true productivity of the country. A better answer/reply to your question would be: In the future a CB with gold has a better chance of covering it's past mistakes than one that doesn't. A lot of past mistakes with too little gold does put them at risk. That risk being that the citizens will have to produce more for less. Thanks

AUBUGx10 (9/23/98; 20:24:36MST - Msg ID:123)
Test run
Simply a test run sorry!

bmacd (9/23/98; 20:11:08MST - Msg ID:122)
Gold Backed Currency
I agree with Friend of Another, I doubt that we'll go back in time to a gold backed currency. It does seem that counries that have sold off gold reserves have had some 'problems' with their currency ( I live in Canada). Gold can still be held in reserves as a backing of currency. The world right now has this silly belief, (read people have been manipulated to believe) that gold is evil. It's of no value, and no use as currency. Odd then that many of these same people still want this worthless thing in jewellry form. Gold isn't a dead issue. It has always represented wealth and stability. It's the last days of this dollar and present currency mess spitting and fighting to stay alive that is causing the powers that be to keep gold at a low level. At some point that ends too. I'm probably repeating myself, and I apologize but obviously the system now in place isn't going to able to survive. Countless countries are printing money (Japan has stopped mind you) like there's no tomorrow. How can these currencies hold value? Then there's the mountains of debt. John Q. one day soon, will wake up and realize that there is no value in any of this, and want a hard value asset. By the way, note the countries that have not sold gold reserves (US, Japan, Germany, France, to name a few. I had a point, and it was that, gold does represent value, and even just holding it in reserves as a backing, without returning to a standard, is still representative of stability.

Friend of Another (9/23/98; 19:37:43MST - Msg ID:121)
Tyler Rose (9/23/98; 19:09:59MST - Msg ID:119
Tyler Rose, I don't think we are going back in time to a gold backed currency. Even as Aragorn III (id:112) spells out the possible correct way to divide the metals for one, he also shows that it is an undertaking that requires political agreement by most countries / Treasuries. An insurmountable task, for elected officials. I can't add to his post, but I can show more to think about! Unfortunately, the future for the Euro will most likely present an evolving monetary system that we in the audience must watch as the play unfolds. No doubt, if the world financial arena becomes bad enough, Europe could evolve back into a Gold Standard. They have been there before but human nature being as it is, this is not where they want to go.

The one positive aspect is that the Euro will become a major transactional currency for a larger functioning gold market. To unseat the dollar gold will have to be brought back as a true currency evaluation tool. Much more so than it is today.

Following these lines we can see that the world value of gold will have to increase many times in order to create a large enough pool of value to be of use in measuring the billions of currency obligations outstanding. Just as none of the governments, that supported the old London Gold Pool never wanted to re-value the gold price upward in their currencies, they will now be forced to accept an open gold market evaluation!

I fully expect a soaring gold price in US dollars to force the American Treasury to implement foreign exchange controls for it's currency. They will never accept the public vote of no confidence that gold will deliver. Note that none of this can take place during the time that the World gold market transforms from being a dollar settlement system. This was a function of the dollar reserve currency status that is soon to end. That transformation will be part of a financial panic that witnesses the default/liquidation of billions of dollar/gold assets, built up over many years. The trading of gold in dollars will stop for some time as these loses are worked out. Only after this debacle will gold be able to naturally trade in Euros exclusively.

I know this doesn't address all of your reflections, but I thought it needed to be put forth. I think all of this will be well discussed as events begin to play out. We shall see. Thanks

Friend of Another (9/23/98; 19:21:21MST - Msg ID:120)
WELCOME!
Welcome Tyler Rose and Aloha Pu`ukani, I have seen these names before! TYoung, I agree with you that it would be really nice to have the archives so we could read them back in time. Aragorn III, that was some post! Good to see people writing their views for everyone to see. Questions are nice, but you can not follow a market properly without seeing it through everyone's eyes, both large and small. In this light these discussions make markets become real life events, impacting our real living habits through time. Not just a moving graph line on a computer screen. For the future, myself and a few others truly do think that these monetary changes will not only be something we see, but will be something we will feel in our homes. Our families and neighbors will have to make adjustments to account for the very events that we chronicle here. Thanks of considering! FOA

Tyler Rose (9/23/98; 19:09:59MST - Msg ID:119)
Gold Backed Currency
If a currency is backed by gold, that implies that a fixed unit of currency can be redeemed for a specific amount of gold. This would mean that the government would be willing to exchange it's gold for the currency which it issued on the basis of a fixed rate (if it were other than a fixed rate, the government would be underwriting the vagaries of the market price of gold). A gold backed currency means that the government will print no more currency than they have gold to back that currency, so, if the price of gold can fluctuate according to an open market, the government would be forced to call back currency if the price of gold went down, as a result of market factors. I don't see how it would work, if gold were allowed to trade as a free market. Maybe I'm dense? TR

BC (9/23/98; 19:08:38MST - Msg ID:118)
European Central Banks and Gold Reserves
TO: FOA, Thank you for your thoughts on the relationship between the Euro and gold. In your response to Aragorn III, you state: "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." What do you see as the fate of any central bank that has sold off most of their gold reserves? If I remember correctly, I believe Luxembourg has done this, for example. Will they be at greater risk than central banks with larger gold reserves? Thank you. BC

bmacd (9/23/98; 18:31:29MST - Msg ID:117)
Tyler Rose, Gold backed Currency
Perhaps I'm oversimplifying, but why couldn't currency be backed by gold and trade in the open market? Currencies right now are traded in the open market and their reserves vary depending on the country. Some have reserves of gold, some have reserves loaded with US Treasuries, some with USD, some with other currencies. It's possible that with the job of backing currencies, gold would be less volatile and just more valued.(I said possible, not probable). I can't imagine how the world could all at once agree to pull gold off the open market. Can you imagine what would happen to the price especially during the process? I just don't see it. But almost anything is possible.

Tyler Rose (9/23/98; 16:15:09 Msg ID:116)
Gold Backed Currency
Thank you, Michael for this new site. I follow it with interest. Another, Friend of Another or other informed sources: I have a hard time visualizing a return to a gold backed dollar or euro, for that matter. If you had a gold backed currency, how could you allow miners to mine gold? They would effectively own the mint. If gold is fixed in price relative to the currency, would we be able to trade it? If so, would it be at the fixed price only? What happens if a private mining company discovers a new "mother lode" that triples the supply of gold? In my opinion, the only way to have a gold backed currency would be to have a world-wide currency, perhaps issued by BIS at a fixed rate of exchange. If that were so, then I can't imagine that there would be an openly traded market for gold. Any comments would be appreciated.

TYoung (9/23/98; 15:44:27 Msg ID:114)
Archives
Mr. Kosares, any chance you could advise when the archives will be up and running? Nice of Another to drop by the other day. Thanks. Tom

Pu'ukani (9/23/98; 15:36:40 Msg ID:113)
Time?
Michael, Congratulations on this new site which I'm sure will be of great value to all in the days ahead. Are your noon to midnight times Denver (Mountain) times? When you live in the middle of the Pacific Ocean it helps to know the time zone that's being referred to on frequently visited web sites. TIA

Aragorn III (9/23/98; 15:01:56 Msg ID:112)
A reply for jinx44 ("rebuttal" seems too harsh for our dialogue)
At the risk of oversimplifying, let me suggest that the productivity of mankind can be classified into one of two possible categories--goods or services. Understand that by "goods" I refer to the production of real things that are useful and have value. These goods may also be called commodities, which is the term I shall use throughout.

Some commodities endure, while others are consumed. Commodities find their value through their utility in one or several functions...industry, construction, energy production, food production, etc. Gold is indeed a commodity with many uses, but it finds its largest value for its role in commerce. In fact, its unique suitability for this role in commerce (as money) raises its value so high that it precludes its usage in other functions to the point of luxury.

Modern technology (such as e-gold(tm)) allows gold to be easily subdivided and transferred among accounts in the course of commerce and daily transactions. Quantity is simply not an issue in that scenario. But, if it were insisted by the population that the money be in a physical form convenient for transactions, gold coins would not fit the bill. Even the smallest gold coin would have a value too high for the purpose. A proxy would be necessary.

If the "Powers" that issue the proxy currency could be trusted not to issue currency in excess of the established ratio with gold held in reserves, then this proxy currency need not have any intrinsic value of its own. They are essentially warehouse receipts for X amount of gold held by the issuing entity.

You imply, perhaps rightly so, that the issuing entity (governments or central banks) is not trustworthy, and therefore the currency DOES need to have intrinsic value. And as I have just discussed the shortcoming of using gold in hand-to-hand transactions, you suggest that silver would fit the bill. Several problems present themselves.

Due to the size of the global money demand, any formal role of silver in commerce would dictate its value as a commodity in a manner similar to my earlier discussion of gold. Use of silver for industrial or manufacturing purposes would also become something of a luxury. And even the smallest silver coin, when properly valued as a money-commodity, would likely have too large a value to facilitate small transactions. So perhaps now the need arises to include copper as a monetary commodity. And with so much copper available, and its importance as an industrial commodity, I hope you can start to appreciate the difficulty in establishing what the "proper" ratio should be between the metals such that X copper equals Y silver equals Z gold. Due to the changing value of copper for industrial use, and perhaps likewise for silver, their relative values must be allowed to float over time, which would undermine a weight-based monetary system, whether it be bi- or tri-metallic.

This is where Gresham's law will take over and upset the system.

It would not be prudent to unnecessarily 'raise the price' on important industrial commodities such as copper and silver by formally linking them into a system to play a role as a monetary commodity. Better to avoid the difficulties and let gold shoulder that burden alone. There are more people alive today than the sum total of all who walked the earth before us. Think about the logistical problems that creates that did not exist before.

We cannot simply return to a system of commerce where the hand-to-hand money has intrinsic value. But what we can do, SHOULD do, WILL do, is move to a system wherein the hand-to-hand currencies represent, reliably, X amount of gold on reserve, payable on demand. When the day arrives that people en masse see the true nature of a fiat currency, arbitrage opportunities will be exploited through purchasing gold on the open market until its value equals that of the money supply divided by the gold reserve in the treasury. Or as you suggest, this could happen sooner, driven by the likes of Soros and company. My apologies for the length and typos.

RAINMAN (9/23/98; 13:46:33 Msg ID:110)
REPOST FROM YESTERDAY @ A and FOA
Some posts might have been lost in the ether yesterday including mine.I will repost an approximate duplicate. First of all , many thanks to A and FOA for their valuable contribution to the GOLD holders/investors/analysts community whoever they might be. They seem to have good insight about oil countries state of mind relative to $ as a trade/reserve currency and to GOLD and oil relationship. The US $ is a " soon ?" to be worthless currency . It is backed by trust and debt . The first will evaporate and the second will explode including hidden liabilities like pensions and government backing for debt issuance. Will the EURO precipitate that demise ? The $ will fluctuate against the EURO as it does vs DM . Certainly in a more volatile manner.The current account deficit of the US is skyrocketing and besides a hint by AG that the FED might cut rates , it is certainly the main reason why the $/ DM is in freefall . Only a regional conflict (IRAN vs AFGHANISTAN or N KOREA vs whatever ) might save it for now. Later , the US vs Europe preparedness for Y2K bug could play a role. Does the EURO GOLD backing have a say in the equation : certainly not. There is no GOLD backing for the EURO. Only a fration of ECB currency reserves (about 50 bln EURO) is denominated in GOLD . There is no relationship whatsoever with the money supply which is used daily by citizen and companies. ECB and regional CBs still hold GOLD and the US as well. Nothing has changed. Thanks.

USAGOLD (9/23/98; 12:21:53 Msg ID:109)
Welcome!
I would like to welcome gold bugs from near and far. If you would like to register for posting, we very much welcome it. Please click on the Sign Up. If you would like to say something or ask a question or address another poster, don't be shy. We created this site for it to be used. We have had a strong response so far in terms of registrations as well as visits to the site. Overton, I'm sorry, but we don't give advice on gold stocks, though all three companies you mentioned are welcomed and esteemed members of the Denver business community. We still have some glitches here and there but we will get this thing in proper shape. When does a lurker become a poster?? Here's an incentive for you: All first time posters will receive a free copy of THE ABCs of GOLD INVESTING. Til midnight tonight only. You post, it's out the door to you. In fact all who have posted so far will receive a copy. Best wishes to all. Have a golden day!

jinx44 (9/23/98; 10:52:55 Msg ID:107)
rebuttal to A3 posting Msg ID 104
reference:
"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?"

A3 I am not advocating gold instead of silver. Silver as the small transactional tool, coins in the pocket, etc., seems like a reasonable idea. Silver has been an historical metal for currency since Babylonian and Assyrian times - in addition to gold. The older ratios were between 1:6 and 1:10 Au to Ag in 3000-1000BC. As far as the big boys go, I am inclined to distrust the ECB less than Soros, so if corporates like Soros and individuals like me hold gold 2:1 over CB's, then that tells me guys like Soros can make a mess short term - nicht war? Seperate thought: If the ECB will buy gold from the EMCB's(as the mechanism to expand the supply of available currency) in exchange for Euros and the EMCB's then buy gold on the open market with $US, where is the confidence of the people in the "gold-backed Euro" if there is no convertability of Euros for gold for the people? If I am nervous about the Euro, how do I convert to gold at the ECB exchange rate? Or do I just buy on the open market? THX

overton (9/23/98; 10:08:50 Msg ID:106)
MR USAGOLD Comments on PM CO's in your neighborhood
If one wanted to add a little speculation to his physical holdings what would be your opinion on some of your neighbors (Gold companies) Newmont, Getchell & really speculative Canyon Resources

Aragorn III (9/23/98; 08:07:33 Msg ID:104)
Reply to Friend of Another, and requested reposts
FoA, Thanks for your comments to me yesterday. You concluded with, "I wanted to reply to your first posts but lost them?" It is reposted yesterday. Also, ANOTHER's comments were lost due apparently to technical difficulties. I was fortunate to have made a copy prior to its disappearance, which is also reposted. Question for Michael K: Will posts over one day old be archived and accessible for future viewing? Presently, it seems this is not the case.

jinx44 (9/23/98; 07:53:59 Msg ID:103)
Bimatallism
With all the big players in this Au market, wouldn't a bimatallic Au/Ag standard be advantageous for the little people (like me)??? I reference the "Cross of Gold" speach by W.J. Bryan. THX

Friend of Another (9/23/98; 07:06:03 Msg ID:102)
The direction of gold.
TO ALL: I think we now are now in one of the best periods for gold ever to occur. You have every hedge fund, trader and producer ready to short/sell into any major rise in the dollar price of gold. They will be wrong, this time!

During the lows a short time ago, major CBs were buying gold in small amounts through the BIS. All of the small sales announced by other CBs were taken in with ease. The BIS did not make a public announcement that these buying banks were behind this coordinated effort driven from the BIS. Many years ago this would have been the case. This time they will not want to start a panic with the Euro about to commence operation. Am I correct with this view?

We should see each pullback in gold stop at a higher price. These pullbacks will be used by major buyers to complete their acquisitions of gold and hence the distribution of dollars. Well before the end of the year, many will look back and understand that we will never see these dollar prices for gold again, ever! The same forces that confounded the efforts of gold theorists to explain the drop in price, will now confound them again. The next 18 months or less will give rise to this metal in a way that will have gold bull analysis calling for a large pullback. It will not happen. We will run through $400, $600, $800, $1,000 and on. Each time a pullback occurs, massive buying will ensue. For guidance, look to the US balance of trade deficit and a fast changing negative exchange rate for the dollar to chart the course.

Also, as this unfolds, look for the US Federal Reserve to raise interest rates solely for the purpose of defending the currency. A currency with a future that no longer holds resurve status. High rates will be of little help, much in the same way that Canada, Mexico, Brazil, Korea and others have raised rates to no avail. Some would call this an extreme view? From what I understand of this era, it is an extreme view for extreme times. Perhaps what Another has told me is true, "many are to comfortable with familiar habits of finance to understand the potential for change". We shall see! Thanks