Oct '97 - Nov '97
Dec '97 - Feb '98
Mar '98 - Apr '98
May '98 - Sep '98
"Think now, if you are a person of "great worth" is it not better to acquire gold over years, at better prices? If you are one of "small worth", can you not follow in the footsteps of giants? I tell you, it is an easy path to follow!" --ANOTHER (THOUGHTS!) 1/10/98
[Follow contemporary writings of "ANOTHER" and "Friend of ANOTHER" at the Gold Trail]
"If ANOTHER's claims are true -- that a consortium of oil states has cornered the gold market (and given the impressive circumstantial evidence, this could very well be the case) -- these "footsteps of giants" become the most salient and persuasive case for gold ownership I have seen in the past decade, if not the full twenty-eight years I have been in the gold business." -- Michael J. Kosares, president of Centennial Precious Metals, Inc.; author of The ABCs of Gold Investing
USAGOLD is pleased to offer these special pages of commentary that are sure to challenge conventional perceptions of the gold market and international monetary affairs -- made even more intriguing because this exceptional commentary is offered by two anonymous authors, "ANOTHER" and "Friend of ANOTHER" (FOA). Based on our ongoing association with these commentators, we are confident that the messages you are about to read will continue to be as fascinating and as worthy of careful study as anything you will find on the web today.
After watching the readership of their sometimes enigmatic but always thought-provoking commentary grow by leaps and bounds at our discussion forum, through this archive we can discuss the road ahead having all had a chance to travel this same route behind.
We encourage you to follow along (or to catch up), and then to join your friends at the USAGOLD Discussion Forum to share in the discussion. A note on the text: No attempt has been made to correct typographical errors, misspellings, punctuation, grammatical and/or textual errors as originally submitted. This archive of ANOTHER's online commentary is presented here in its unedited entirety in the order his "THOUGHTS!" were posted via the Internet -- beginning at the Kitco website (from October 1997 to April 1998) then proudly hosted here at our expanded USAGOLD website (from May 1998 onward) through mutual agreement and cooperation with ANOTHER.
April 1998 Editor's Note:
I want to first of all welcome ANOTHER to the USAGOLD web site and thank him for electing to post here. ANOTHER has made an important on-going contribution to the discussion about gold in recent months and it is good to have him back in action. That he has surfaced here -- at the USAGOLD web site -- takes a backseat to the simple fact that ANOTHER will once again be offering up his mysterious and cryptic brand of market analysis to the delight of his many readers. His analysis goes beyond the surface representations which we have come to expect from mainstream sources and goes to the core of what is occurring in the world economy. ANOTHER is a teacher, but in our short private correspondence, I have found that he is also a seeker of wisdom -- a philosopher who offers substantially more than dry economic theory. He is also a consummate gentleman. Whether right or wrong, the one thing we can say about ANOTHER is that he makes us think, and perhaps, in the final analysis, that is his most fundamental goal. So we move forward with these THOUGHTS!
I would like to deal with the question of ANOTHERs identity from the outset. At all costs, ANOTHER wishes to remain anonymous. His contact with me has been through a third party who describes himself as "the firewall that breaks the electronic connection from the source." I have made no attempt to find out who ANOTHER is, nor do I want to know who he is. After long consideration of this situation, I have come to the rock-solid conclusion that it is not only in ANOTHER's best interest to remain anonymous; it is in our best interest as well. So, please, in your liaison with ANOTHER (which will be offered below) and with USAGOLD, do not waste your time or ours by making inquiries as to his identity, country of origin, etc. We simply do not know, nor do we want to know.
I would also like to put to rest any notion that I am ANOTHER; that I am an agent of ANOTHER; or that ANOTHER is an agent of USAGOLD, Centennial Precious Metals, or Michael Kosares. There is no connection between us (as you will see in these first postings) except that USAGOLD is providing a forum, the way a newspaper provides space for opinion columns, and ANOTHER is simply taking advantage of it. In the end, as I said in the Introduction to "IN THE FOOTSTEPS OF GIANTS":
"(The actual identity of ANOTHER) might not matter. What does matter is ANOTHER's educational value to all who would take the time to sift through his (at times) arcane and cryptic, but always thought provoking, look behind the scenes of international finance. If his THOUGHTS! are theory; they are good theory. If they are speculation; they are reasonable speculation. If they are supposition; they are well grounded supposition. In the final analysis, ANOTHER offers one of the more plausible hypotheses for why the financial markets have acted as they have in the past few years, and therein lies his immense value to the reader no matter who he is."
I would like to clarify one other aspect of ANOTHER's postings at the USAGOLD web site. There will be two people posting on this page. The first will be ANOTHER himself. From time to time his associate will also be posting. He will be identified here as the Friend of ANOTHER. There was some confusion over this dual role in the earlier Kitco postings. This will hopefully clarify the matter. The writings of both authors will be posted as I receive them without attempting to correct misspellings, punctuation, grammatical and/or textual errors so that analysts, researchers, and readers in general can study the text in its original form.
ANOTHER has graciously accepted my invitation to entertain questions from the public. Another has asked that in the interest of time that only a few questions be forwarded so I will do my best to pick and choose the most salient. This forum is not designed for, nor is it intended to deal with, specific investments and specific investment strategies.
As ANOTHER would say, "We watch this new gold market, yes?" Yes, we will. There is no formal time-table for ANOTHER's postings, so stay tuned. I think you are going to learn from and enjoy these initial exchanges which were originally intended to be private correspondence. On behalf of both ANOTHER and myself, we welcome you to this venue.
Michael J. Kosares/USAGOLD
5/1/98 ANOTHER (THOUGHTS!)
Mr. Kosares, This "new gold market", it is interesting, yes? The Euro is about to create "much stress" for bulls and bears, in gold! Perhaps, we discuss the past and the future? You have a "more private" e-mail address, as it be for eyes of three, yours, mine and Another.
Yes, I would very much enjoy a liaison. It seems that you and I have much in common in our understandings.
If the shorts have taken upon themselves to run down gold in anticipation of the European conference becoming unglued, then I believe they have miscalculated. I will say though that the politics could get very interesting this weekend in Brussels. If they go with the French candidate, he will be pro-gold. If they go with the German (Dutch) candidate, he will be pro-gold. By logical extension, if they go with a compromise candidate, he will be pro gold. So the politics may not matter for gold owners. Your read on this? As you have said, the important question is what will the policy be on the dollar?? As an aside, a knowledgeable friend of mine mentioned to me yesterday that the United States was able to maintain convertibility (!) with 25% backing. He assures me that this is true, but I have not had a chance today to check his assertion.
I look forward to discussing the past and future with you, as we do live in interesting times.
I remain your friend, Michael
(After some prelimary conversation
about communication difficulties)
It is very interesting that rumors were planted that Belgium was to be a gold seller. This happened once before when false rumors were planted through London Financial Times and Reuters about EMI selling gold. Do you remember? This time the rumor was planted at FWN. Soon there will be nowhere to plant rumors because there's only so many bridges that can be burned. Then the short sellers will have no place to go with their fiction. As it is financial journalists had better check their sources or suffer the consequence of being played for fools. Perhaps COMEX and LBMA need to clamp down on this sort of thing as well. I had heard from one of my sources that Merrill Lynch was a major player at the end of the day on Thursday on the short side, but as always, such things are hard to verify. It makes sense though. All of this runs together somehow. Also tragic the story about the chairman of the Japanese central bank??? What is going on there?? I do not find comfort in such news. MK
5/3/98 ANOTHER (THOUGHTS!)
Mr. Kosares, Your friend thinks much of this gold owned by the USA. It could be used to back the dollar up to 25%, no? Many come to this thinking and hold a secure thought, that as last resort, this gold will save the day! I think, many persons never gained the understanding that the American gold is kept by the "Treasury", not the maker of your money, "The Federal Reserve". It is there for good reason, as the present world currency system is not a function of American law! If the US were to place gold in the hands of the US/CB as reserves for the dollar, the BIS could claim it! It is, as a point of contention and of no real use. I think not a war would come of this claim, if it should happen! As the world currencies are now, a "new dollar" would be needed if gold were used as reserves! The present dollar would then, truly be as "paper for the wall"!
The urgent drive to create a new "reserve currency" began in the early 80s, after the last small "gold war". The road to making this new Euro did never include gold in large amounts, until the last few years! Even one year ago, the news would say, 5% or less. Today, we speak of a much greater amount! This is interesting, yes? The BIS did "hatch" this deal in a very late fashion! The future of the Euro was found to be "weak", as the Middle East oil imports onto the continent would continue in dollars! This was so from the dollar being made strong in gold. Gold priced in dollars at near production cost, offered a "no switch currency" position, for oil. This position has been unstable for the last year, and the alternative of a switch to gold was in progress! You have read my "Thoughts" before. Now the BIS does offer to "change the rules of engagement", a real reserve currency is offered!
Few do grasp what is happening and why! They think the holding of gold reserves by the Euro is of a little point, as to what good are gold reserves? One cannot use gold as Marks or Yen to intervene in currency market to support the Euro. My friend, the BIS has played the, as you say, "big poker hand"! The holding of large reserves by the ECB and the withholding of sales from the market will not only bring the end of the London paper gold market, it will, thru a high USD gold price, "make the dollar weak in gold"! From this position, the dollar will lose the "oil backing" from the Middle East! At first, all oil for Europe will be in Euro's, then all producers want "strong currency"!
There is more: Many say, how to defend Euro without much currency reserves? If gold go to many thousands US, what will be used to bid for Euro as defense? I say, these persons will find a problem on their computer screens! You see, the Euro will start as "nothing", no holdings of size, anywhere! The dollar is held as reserves as "the stars in heaven"! It is to say, "the dollar will bid for the Euro", not "the Euro will bid for the dollar"! All currencies will "flow into the Euro for trade". But, if the Euro becomes so strong, how to compete in world trade? It will be the price of oil that will make the "trading field" level! The soaring US$ price of gold will make even a 10% Euro reserve be as 100% today, in USD! Oil will become, very, very cheap in Euros and allow that economy to do well! Many other countries will see this and also want to join the new "world reserve currency" that has become"the new world oil currency"!
The politics of the ECB? It is as a "side show"? We watch this new market, yes? Sir, my words take time. I did receive two E-mail's from you.
5/3/98 Friend of ANOTHER
The Belgium story was the usual rumor stuff. It still had weight from the old CB deals and everyone still thinks more gold is coming to the market. These days, the big brokers look for any sign of gold movements by Bullion Banks. They don't really know what's going on, but any amount of CB gold trades are interpreted as the next big sale going down! Oh, gold is still moving, it's just moving from one CB to the next. The story from the BOE told the tale for the benefit of the public, the Euro is going to bring London some big loses! Merrill Lynch, et al, don'tgrasp the gold valuations by the BIS. 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 thought nine others want it to, because all I have to do is bid alittle higher and take it! Insane, but that's what is going on! Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!
They brought the Chinese onto their side by neutralizing the rest of the Asian competition. China hates Japan and would like nothing better than to watch them die as they stick with the US and the dollar. China also picked up huge gold holdings these last few years with the help of the BIS. They will easily fit into the Euro world and enjoy a massive trading block with Europe!
As gold is allowed to drift upward to the $320/$360 area, the real gold wars will begin where they left off in the early 80s. The paper gold market is still controlled by London, and we will see tremendous paper spikes up and down as this monster is killed! That's why Warren broughtsilver for BH, it won't move anything like gold percentage wise, but it's the best they could do in a public company. The poor traders don't think physical can move much, so they trade for a few dollars up and down. Michael, We are looking at a sea change of biblical proportions, that, if it can take down London, it will most certainly eat any and all traders. CPMs included! Not a good thought, yes?
Good evening, ANOTHER. I just
wanted to say that I received your correspondence today and that
I will respond hopefully tonight or tomorrow. Thank you for telling
me it takes time to formulate your words. It is good to know that
I am not only one who labors over the written word. I understand.
My questions, given the important subject matter, will take time
as well. Thank you for contacting me, Michael Kosares.
Dear ANOTHER & Friend of ANOTHER, I would like to begin by thanking you for taking the time to send your thoughts. They are very interesting to say the least. As you know I too believe that the introduction of the Euro is a seminal event -- one that will change the world financial landscape. I will try to ask questions in a logical framework for my own benefit as well as perhaps to help you to construct and add to your own thinking on these matters.
I would like to start with this because it troubles me at the moment: I have been working on this euro problem for some time -- trying to make Americans more aware of what the events you so eloquently describe will mean to their financial well-being. As I am sure you are fully aware, the American media has done a very poor job on these matters of earthshaking importance. I recently read a New York Times opinion piece on the subject and was surprised to see that the word "gold" did not even appear in the text. I was interviewed for a national network radio program recently and mentioned in our conversation that I thought the introduction of the euro would be viewed by historians in the future as the most important event of the last quarter of the 20th century (not the sexual antics of our troubled president). The press is only now beginning to understand the import of these events but still they treat it with surface analysis. With that as background, let me ask my first question and it is an important one:
It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? Is Europe (led behind the scenes by the BIS) an opponent to the United States? If so which countries are in which camp? Your associate seems to feel that Asia is split between the United States which has Japan as an ally, and Europe which has China as an ally ( a notion I found particularly intriguing). Where is Britain in this? Japan? And most importantly, the Gulf States, particularly Saudi Arabia?
Along these lines, I too believe that currency movements will flow through Europe because the euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? Isn't it true that Japan imports nearly 100% of its oil? If what you say is true about future oil payments they will be forced to their own gold backed currency along the lines of Europe, and in the process unload the dollar as unwanted, unneeded currency. All of this, needless to say, is very bad for the dollar and perhaps you are right: A new, gold-backed dollar might be the necessary result. Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. One other item you might clarify for me is "Who is really behind BIS? The Swiss? The euro central banks? Who does BIS really represent? Why was Saudi Arabia just included in BIS? Has Saudi Arabia gone with Europe?
Please speak to these issues so that we might proceed.
I do not mean to sound naive but much of this is new to me and I would like to know who the players are and where they stand vis a vis the United States.
I remain your friend,
5/5/98 ANOTHER (THOUGHTS!)
[USAGOLD questions in italics]
A few thoughts for you, as the questions are asked?
** It seems that both you and your friend believe that the world is splitting up into currency/trading blocks -- much as the world did for both World Wars. There has been much discussion around the world about the imposition of a NEW WORLD ORDER and international one world government. Simultaneously, we see another, opposing force at work -- regionalism, nationalism, even tribalism. What do you make of this? Is the Euro a child of the forces of the New World Order, or the forces of regionalism/nationalism/tribalism? **
I would say, "Old World Order" to return. To understand/explain better: " A very easy way to view this "order", would be to simply say that the American Experience is reaching the end! As we know, world war two left Europe and the world economy destroyed. Many thinkers of that period thought that the world was about to enter a decades long depression as it worked to rebuild real assets lost in the conflict. It was this war that so impacted the idea of looking positively toward the future. The past ideals of building solid, enduring, long term wealth were lost in the conception of a whole generation possibly doing without! In these fertile grounds people escaped reality with the New Idea of long term debt, being held as a money asset. Yes, here was born the American Experience that comes to maturity today.
New world order, regionalism and tribalism are but modern phases that denote "group retreat to avoid paying up". The worldwide currency system is truly a reflection of an economy built from war, using the American Experience, the US$ and the debt that it represents. But, for the American dollar to continue as the representative of the global financial system, in the form of being the reserve currency, maturing generations of all countries must accept it, and the tax on real production it clearly imposes! In the very same mind set, that people buy the best value for the lowest price (Japan cars in the late 70s), and leave an established producer to die, so will they escape the American currency and accept any competitor that offers a better deal. Because we are speaking of currencies here, the transition will be brutal!
As you ponder these thoughts, consider that; all economies today are truly equal in production as the exchange rates are the manufactures of profit!"
** Is Europe (led behind the scenes by the BIS) an opponent to the United States?**
Sir, Yes, but not in the ways of war, as it is in the feelings of "pride" and "we go our own way". The downfall of the Russia, did allow for the Euro and all that it will build. They now see the debt of the US$, as a reserve money can be escaped! As even the US citizen will leave it's own workers to die as products are purchased "overseas", how much less will the world also flee the dollar! Opponents? No, I would say they are learners of the "American Way" as they embrace the "American Idea" of a "free world market economy".
*** If so which countries are in which camp? Your associate seems to feel that Asia is split between the United States which has Japan as an ally, and Europe which has China as an ally ( a notion I found particularly intriguing). Where is Britain in this? Japan? And most importantly, the Gulf States, particularly Saudi Arabia? **
Sir, I feel he is correct in this thought. Europe does grasp for a relationship with Asia as the US did have with the Japan. It would build a mighty economy on a foundation of oil and gold as backing for new money. As China and Arabia was once a part of the Europe economy, in a small way. They may now return with no fear of Russia. Britain? A lost nation. Japan? This one is "of the American Economy" and is to live and die by it! They will seek your Alaska oil before loss of face with gold. A dead Yen be a dead Japan.
**Along these lines, I too believe that currency movements will flow through Europe because the Euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? **
Perhaps, they be like Korea? Rich in paper until the world says, "this paper, it is not good"!
***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***
The BIS is the gold broker for all interbank sales/purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.
**One other item you might clarify for me is "Who is really behind BIS?**
Perhaps, "who control them"?
**The eurocentral banks?
**Who does BIS really represent?
"old world, gold economy, as viewed thru modern eyes" or " way to move from US$ without war".
**Why was Saudi Arabia just included in BIS?
**Has Saudi Arabia gone with Europe?
Sir, there is much more to this, but we talk over time, yes? I will be away for perhaps ten days. We speak again.
Dear ANOTHER, my great respect
for you has just deepened further. Have a pleasant ten days and
I will consider your words. Yes, we will talk over time. Thank
you Mike Kosares
I read your last correspondence with a great deal of interest. One question that immediately comes to mind is what exactly do you mean by old world order reasserting itself? The old European aristocracy? Is the political/economic power in Europe as it was prior to World War I? Also, if Europe undermines U.S. does it not also undermine its own security? Is not the Russian bear far from dead but simply in hibernation? Is Europe able industrially to gear up its military defense industry quickly enough to replace U.S. protection? I would think that the same applies to the Gulf and Saudi Arabia. Iraq and Iran are not friendly countries and Europe cannot protect the region from unstable societies. One would think that the U.S. would protect corporate interests in that part of the world no matter what happens in Europe, but if America goes bankrupt it will have other concerns.
On the subject of gold: Do you have any information as to the backing on the euro percentage-wise? Does it actually make any difference if its 10%, 20%, 30%? Or is the psychology the important factor? Any gold backing would make the euro more appealing than the dollar.
This morning a Portuguese central bank governor implied that gold was drawing such a nice interest rate that Portugal would probably would not sell gold. Implied in that statement is a willingness to lend. What would happen if borrowing entities suddenly found themselves unable to pay back their gold loans. Wouldn't this undermine that nation's balance sheet not to mention their sovereignty? Do you know of any instance where central bank gold loans have gone bad? And by the way, just what do you as a central banker take for collateral on a gold loan? Is not gold the ultimate, liquid collateral? Do you take back a piece of paper representing the right to future gold delivery? What good is that. To me it is pure folly. I've never understood this idea of a gold loan from a practical point of view? By its nature, it must by necessity be an unsecured loan.
Along these lines I have one more related question, then I must go. How long do you think those playing this game of paper selling can continue? We have heard for many months that there will come a time when physical demand will force the shorts to bid up the price to cover. It has not happened. Why not? Can LBMA play this paper game forever? Are you and I underestimating their ability to play the magician in this regard and keep us all mystified?
Though we are in a new market because of the euro, there is still much of the old because of the Bank of England and LBMA -- do you agree?
5/21/98 ANOTHER (THOUGHTS!)
I offer simple thoughts for hard questions.
"And by the way, just what do you as a central banker take for collateral on a gold loan?" (USAGOLD question)
I think, the currency of a country does no longer hold "backing". This term, it is used often, but is not correct. Today, all modern money does have "reserves", and such is used only for "the dirty float" in currency warfare. As in war, the larger and better equipped army in "reserve" does rule over the lesser force. Perhaps we should think in this way: in "cold war" of modern exchange rates, "digital currencies from reserves are used", however, when "hot war" of major default does begin, "nuclear weapons of GOLD" are deployed!
As in real war defense, of today, some countries hold a much lesser army, and depend on "the alliance" with other stronger nations to defend them. Such it is with the currencies! Many states hold but a few "digital currencies" as reserves for currency wars and see no need for "gold nuclear weapons". They sell off these weapons and do join "the currency alliance" of stronger nations. We see this in Europe, yes?
Time does record, that many young persons do mature without a history of "currency defeat" in money wars. These same do attain positions of authority with respect, to handling the currency "reserves" of a nation. It is in their "education" that the private citizens do lose much wealth. We proceed to such a time today, as gold loans hold only paper collateral! The motives of all Central Banks be not the same, with respect to "gold loans". A small number do travel the road of "monetary union" and sell gold as a commodity for funds to reduce debt. These officials thatsell for this purpose alone will be viewed as "much the fool" by voters, as gold does become a "great value" in the future. Some CBs also "lend" gold for a small return, as they see little difference in this metal to holding the Yen reserves and also receiving , perhaps 2%! These Central Banks place the gold with a private Bullion Bank. The gold is sold and the proceeds wait in this BB and draw market interest. The CB does have a "letter" claim to this "proceeds" and views it as "the same" as other "lent out currency reserves". The BB uses this "proceeds" as collateral to create contract with gold mine for future purchase of "new mined gold". The CB does also "attach" this "future gold" and views it as "lent out bullion reserves". This "attach" , it could claim the entire assets of mine in default, yes? Perhaps, we can see that "default" can also occur from other than "low gold price"? In currency wars of future, workers walk from doing job, as in Indonesia? A mine of few workers has little value, but often we see banks do claim "things of little value".
The key for this "new gold market" is found not in the process of gold loans and sales, but in the "who is the new owner of this metal"? Noone did see clearly, "the other side of this". Always the view was, "see how the fools sell the gold and drive price low", not "who is buying all of this new supply at such cheap prices and giving up interest on currency also"? One should consider, "how much currency has flowed thru gold" over these past years! It is a great deal of wealth! Can not one see the clear view, "has not gold made the dollar strong as world reserve currency"? This happens in a time that all say the dollar would fail! Perhaps, "this new gold supply", it was for the purchase of "time".
If oil was about to go off the "dollar reserve standard" and allow pricing in all currencies, and "the physical gold currency" was to be the most economical way to purchase, then I would say, "time was a valued purchase", yes? It is in this "purchased time", the world finds the creation of a "new reserve currency". The dollar, is today, strong in nature of a low gold price. Tomorrow, it will be the Euro that will find strength in a low gold price! Perhaps, these dollar "gold loans" will be called in to become "Euro gold loans"? "Gold priced in the thousands of USDs does not change this currency, it changes your perception of wealth"
5/22/98 ANOTHER (THOUGHTS!)
Mr, Kosares, I offer these replies to all. Send the next group as able. Thank You
From Richard Burke: Another, thank you for your "Thoughts". At this point I would appreciate your opinion as to whether the following is what you mean about the above relationships. Assume that one $US = one $EU to start and that gold is $US300 and oil $US15. Then, 1 oz of gold will buy 20 bbls of oil. You say gold will rise very much in $US. Say gold rises to $US900, but is still $EU300 (or will gold rise but rise less in $EU because of the gold backing?). Then, oil will be $US45 and $EU15. Europe as you say will be able to developits industrial base on cheap oil while the US is stuck with high priced oil.
ANOTHER: Mr. Burke, You have written the general outcome! Also, note, three $US would then equal one $EU. However, the difference in gold, as expressed in each currency may be much, much greater! I would not say, the US would be stuck with "high priced oil", as a new US dollar could be formed much fashioned from the Euro. If US gold is "revalued" upward to the new true level, what persons, worldwide may be stuck with would be the "old US$" and all that it could not buy! Perhaps shareholders of gold mines will push for recall, as most gold loans today are in the US$ reserve currency! I think, much will be the battle in this area as investors think first to buy physical gold, not gold in ground contracted for delivery and payment in future bad currency.
It is to say, "the foot will be in the other shoe", yes? Thank You for this thinking.
From Johan Campher: It is only very recently that I started reading the discussions on the Kitco web site. I then picked up something about ANOTHER moving to the USAGOLD web site. This is how I discovered your site. Unfortunately, as a relative uninformed, I find reading ANOTHER'S thoughts very difficult,because of the many abbreviations and acronyms. For you, and others in the USA/Europe it might be common knowledge. For some, not so common. For instance, what is the BIS? Could you ask ANOTHER to spell out the full name with the abbreviation in brackets before using it further in the text? ... or is there a web site where all the abbreviations could be found? How about a list of important abbreviations your own website?
ANOTHER: Mss. Campher, Bank For International Settlements! The Kitco group has much on this. I do think many there, that I spoke with, have better minds than myself. They do much to search out the truth! I will have these proof- read in future for better understanding. Thank You
From Polloa: All of these movements and realignments depend upon an electronic system or systems to support the transactions. Yet the Year 2000 problem seems to threaten the entire world's systems. ANOTHER, has this been discussed or acted upon that you know of? And if so, what actions have been taken?
ANOTHER: Polloa, I think, many will "cross this bridge at the last moment". It is a well known, considered problem that, if not fixed, will take the "Western World" back in time many years. Perhaps, luxury will be lost, and many will live as "third world countries". Some may find this a "better outcome" in life? However: Our world economic system does survive many problems. Humankind must battle the war and distrust with great intensity. Always, we find, it is the honest person of simple means that leads the lost! These same citizens will find a security for the future that comes from the past. History has shown the physical gold does hold true against all odds. If gold can stand against war, it will carry your wealth during the time of Y2K.
From Tom Young: Also, I found many of your prior posts to be, well, lets just say in need of interpretation. Your statements on $30,000. gold are improbable but not impossible. I agree with you on holding physical. As I have said so often I will judge your words next January. Not that this "judgment" affects you in any way. It is just my way of saying I don't disbelieve your thoughts or words and will let time tell if you speak true or not.
ANOTHER: Mr. Tom, Above, is only part of your questions/statements. I add this: All of life is "improbable but not impossible" and "in need of interpretation."! I offer these "Thoughts" to "open minds", such as yours, for "consideration and discussion". It is the "American Way", yes? This be not a good world, where secrets close doors and hide truths. I do feel ALL persons are very intelligent, and can understand the road maps of life. For many, "the answers are not found at the end of our travels, but along the trail we walk together"! We watch this new gold market, together, yes? Thank You and all of Kitco
From Lyle Montgomery: ANOTHER, If there is substantial backing of the Euro by physical gold the $US must certainly suffer. Enough physical is available if interests are pooled to make the Euro the preeminent money. Might this not precipitate a severe reaction from the US - possibly even covert action to in some way minimize potential backing by gold?
ANOTHER: Sir, Yes. I do look for much destruction of the gold market as this progresses. I think, much of this "fight of money" will happen between 1999 and 2000, as the "gold trading center" in the middle east will be completed by then. If the Euro does fail, gold will become the "world oil currency". We do know this full well, "the Central Banks will horde all gold and buy any offered if this new European currency does not work" and "debt currencies fail". If this does comes, no paper asset of world economic system will survive, nothing! Not a good thought, no?Thank You
From sharfin: You will have to do better than this. I have read all of another's writings and what I read now is a sham.
ANOTHER: Sir, Thank you for reading my thoughts, as I do read yours! As in all life, "events make truths", not the words of Another. "time will prove all things" Thank You
From PH in LA: As the Euro is phased in, how will individual member currencies fare in relation to the dollar? Will a fall in the dollar result in holders of European currencies, real assets (such as European real estate), and/or bonds (in euros) reaping a windfall vis a vis the dollar? Or will gold be the only way for Americans to safeguard assets in the coming turmoil?
Sir, This change in "World reserve currency" will be
"the unfolding event of our time"! As in conflict, the
deployment of forces/assets is never a final decision! But, for
persons of simple thought, such as I, we do well to "follow
in the footsteps of giants"! Today, this trail does show
deep prints from the weight of GOLD! For myself and my country,
I stand with the proof from the past, I stand with gold! I thank
you for your effort, "for all your days, walk tall with wealth"!
5/26/98 ANOTHER (THOUGHTS!)
I know you have also seen where the Rothschild prepares computers for a change , perhaps to Euro market gold! Much will be the commissions earned in this area. Some investors say "gold loses face in low price" and "gold is a dead asset". I say, a travel to London will offer much education, as the "city" trades more gold than exists!
I offer this for consideration by all.
Do you know the value of gold?
From the day of our birth we are taught to value all things using the one factor alone, currency! Can one contemplate the value of all possessions in other terms? Do you not have to think first as to "how many dollars is that worth" then "how many dollars is this worth" to compare two items? If it is deep within our mind, that we can know value only in terms of paper, to this I ask, can one know value at all!
The Western mind does focus on "what I buy today for the lowest price". Yet, in this modern world economy, the lowest price is always the function of "the currency exchange rate"? The Yen, it is compared to the dollar today, and used to purchase goods. One year later and the Japan offers these goods for much less, as the Yen has fallen to the US$. The currency value of this purchase, was it "true " today or a year ago? Understand, all value judgments today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian ?
One should grasp that "today, your wealth, is not what your currency say it is"! In this world, paper currency is for trade, only! It is for the buying, selling, earning and paying, not for knowing the value of your family holdings! Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"! Again, I ask, how can we know a true value for our assets, when they are known only in currency that finds it's worth, as in the exchange rate for another currency?
Many will "think long and hard on this", but will find little reason for this position. For it is in your history to know only "things valued in paper terms". Some say, "I hold investments of great increase these past years, and am much ahead of the inflation, if it should come". I say, "your investments, worldwide, have moved little, as it has been the currencies that denominate your assets, that fall a great deal". The price inflation that comes, it is larger than your vision can see! Your past, holds little of knowing value outside of currencies, this does block the good view!
We watch the approach of this change, and discuss it, together, yes? It will truly be "a gold market as none before".
There is more: Today, the world reserve currency holds the exchange rate of one dollar equals one three hundredth of an ounce of gold! It is this rate, that makes the dollar, not as the Indonesian currency. Perhaps a secure thought? However, even this 1/300 rate is also subject to "exchange rate competition"! This new rate was purchased by the acceptance of the "new paper gold" as equal value to "the physical gold"! This large, new paper gold market was created to increase the supply of "traded gold". The physical gold supply alone could not be increased to bring the dollar into the mid to lower 300s exchange rate area, there by making it "strong in gold". But, as in all new markets, for the "traded gold arena" to accept a "paper gold item" in great amounts, it required new colatteral/assets to give this paper item "integrity"! That "integrity" was found in oil!
Some say, "gold fall because noone was buying it". I say, "gold fall because many were buying it"! They buy as the "trading market" was made "much fat" with added paper! Understand this: The US$ price of gold could only fall if a market existed for paper gold priced lower each time of offer! If the price did not fall, this paper market "could not function" as "it would not be profitable to the writer"! It was, for many years, in the good interest of all, for the dollar to find a gold price close to production cost. That time has now much passed!
One day soon, this "paper gold item" may lose it's "integrity from oil" by way of "competition" from a new reserve currency! In that day, "paper gold" will rush to become "physical gold" as "dollar gold contracts" rush to become "Euro gold contracts". You see, the value of the gold lost from the Euro CB sales will return in the form of a "Euro strong in gold". The "gold reserves" held for the EURO will offer strength, but it will be the total destruction of the dollar gold market that does make " this currency go home"!
When the future comes, and one holds asset values in dollar terms, many may discover, there wealth was not as this currency said it was! In that day, you will know your assets, as expressed in the real money of our fathers! This new dollar/gold exchange rate will end your search for the
"the true value of gold"
5/27/98 Friend of ANOTHER
This article (see below) puts a different light on the Euro. I think a major effort was underway for many years to unseat the dollar. It was only after the gulf war politics that the EURO group saw a way to use gold to draw in the oil producer currency backing. It was clear that the dollar was going to someday fall from reserve currency status because of it's compounding debt load. With nothing to replace it, gold would become the world oil currency, as Another says.
Initially, they built the Euro with little talk of gold, all the while building a paper gold market that is dollar settlement based. By increasing the Gold Trading Market with paper gold, it not only drove the gold price down, but gave these contracts credibility as they could be settled in a strong dollar via gold. The hook came when they suddenly wanted gold as part of the reserves for the Euro! Now the BIS just stops supporting the London market with Central Bank gold loans and sales. By the time for the Euro to debut , gold starts to rise through the $360 area, there by breaking the entire dollar based paper gold market! Every oil state, and anyone else that is holding paper gold, will try to first exchange it for physical. After that guess who will be waiting with a brand new hard world reserve currency, ready made for converting dollar gold loans into Euro gold loans!
The dollar will not necessarily be destroyed by inflation at first, but you can be sure it will collapse in terms of gold. In this process, if everyone try's to spend their overseas dollars (presently Eurodollars), the US will no doubt invoke foreign exchange controls and most likely create a new currency. I think, that's where ANOTHER gets the $30,000+ business for existing (replaced) dollars and I don't doubt it one bit. This is why everybody keeps getting lost in the falling gold price. They keep working it like it's the old physical market years ago. It's not the same. Anyone that try's to leverage it in any way will just keep getting pounded as London prints gold for all their worth until the Euro takes effect. I think, sometime in 1999 or a little later, physical gold will stop all trading on US$ markets, it has to, no other way! The Euro gold market will exist, but selling it in Euros will, no doubt be an interesting process. But, a much better prospect than trying to convert mining shares or any other paper gold contracts.
To the best of my knowledge, this is my interpretation of the current market.
Friend Of ANOTHER
FORMER BRITISH DEFENSE SECRETARY WARNS AMERICA ABOUT A UNITED EUROPE
(As summarized by Friend of ANOTHER)
(May 27, 1998) In a speech yesterday at the American Enterprise Institute, a conservative think-tank, former British Secretary of State for Defense, Michael Portillo, warned that European monteary union and a unifed European foreign policy will erode the Amerian alliance with Europe. He said that a united Europe will benefit neither global security nor free trade saying that its future foreign policy could lead to the emergence of a bloc in opposition to the U.S. He said, "What I really want is for a debate to emerge in the U.S. about what the European movement is really about. Americans essentially are comitted to global free trade, while many in Europe are not. And I think they need to be careful about whether a common foreign policy in Europe might lead to a silencing of the British view, the emergence of a consensus to do nothing, and the emergence of a distinct view that there was a third way, a new and positively anti-American way."
Dear Friend of ANOTHER: I didn't know the oil states were holding gold paper. I thought they were in physical metal. Reports show Saudi Arabian physical demand skyrocketing. Also do you have further reference on the Portillo comments? By the way World Gold Council recently published a graph on the level of estimated forwards and deferreds (in London) at over 2000 tons? Is ANOTHER aware of this figure? The name of the report for your interest is "Utilisation of Borrowed Gold by the Mining Industry" by Ian Cox and Ian Emsley. Cox is out of Samuel Montagu; and Emsley, Anglo-Gold. Personally, I think the bullion bank scheme is running out of gas simply because they are having a difficult time talking central banks into mobilizing. When the euro comes on line, we will know what is going to happen with reserves. Some say that mobilizations are already banned, or at least hampered through Maastricht. I would also like to find out more about the Swiss operations. Do you have access to the bill passed by the Swiss legislature yesterday?
6/2/98 Friend of ANOTHER
Michael: The article was from a conference that was just completed. You may contact the institute or visit their web page: http://www.aei.org/
This item came from the web site:
THE NEW ATLANTIC INITIATIVE
America and Europe: Will European Monetary Union Fracture the Alliance?
By the Right Honorable Michael Portillo
Wednesday, May 27, 1998
Wohlstetter Conference Center
Twelfth Floor, AEI
European elites are embracing federalism and European integration as the primary means to ensure post-cold war security on the Continent. Michael Portillo argues that this is the wrong route. European integration is being designed in such a way that it sharply reduces democratic control, stirs up nationalism, and endangers the transatlantic link. Only a renewed and revitalized atlanticism will, in Mr. Portillo's view, guarantee European security. Mr. Portillo was secretary of state for defense in Britain from 1995 to 1997.
Introduction: Jeane Kirkpatrick, AEI
Speaker: Michael Portillo
Comment: Richard Perle, AEI
I have a person in Washington that could find out more about this. However, I think this excerpt (I sent you) is open knowledge. It just has a nice connection to European thinking in regards to the new currency. The Middle Eastern bullion holdings are well hidden from official records. They control the gold market through the London/European gold paper markets. It was the BIS that handed them the market when it created the Central Bank lending deals. They were the prime buyers right off the bat! I didn't understand until about a year ago, how they were gaining control without cash. The answer is they don't buy the paper gold with cash! The Bullion Banks take oil reserves as collateral for it. The money that ends up in the account for a typical mining company forward deal is really a loan against oil in the ground. That's why the CBs lend the gold so cheap, it's not for the mines, it's for the producers! Now you know how we buy cheap oil prices. The world thinks the CBs are doing this for a 1% return. Truth is, the mining industry is going to pay full interest in the end. It's one hell of a complicated affair, with the politics and all. Needless to say, as the events open up and expose some of this, the public is going to be very interested. As for the SNB selling half of their gold. If they do, it will be for Euros, you can bet on it!
Friend of ANOTHER (FOA)
6/4/98 ANOTHER (THOUGHTS!)
I wish to thank you for your effort in providing this forum. In this format, we explore this new gold market from another view. Perhaps, many will find they have considered "these changes" before they occur. Mr. Johan Campher had asked for improved "abbreviations and acronyms". Starting today, I hope to speak more clearly.
From George Cole:
ANOTHER: On Kitco some time ago you said that the BIS was seeking to nudge the gold price back into a $320-360 trading range. If this is so, why has the price fallen back to $300 after briefly touching $315?
This question, it is important as many did not grasp the impact of the last Belgium gold sale. In the past many of my "Thoughts" were offered for open discussion and debate. When I posted that "a large purchase was in progress" and "we should see this in several days", the intent was to focus persons on the public announcement, soon to be released. I also offered that we would see $320 - $360. I add to this, for your question.
Many, not all, Central Banks offered gold loans in support of the expanding paper gold market. This major new trading market could not exist without some "addition" of existing gold, placed on the market from time to time. This addition of forward sales to the "existing physical gold market" expanded the "gold trading arena" .
Because the Central Bank loans and sales offered "credibility" to any outstanding "short gold paper", a large derivatives market was built around this "gold trading arena". The CBs, along with the Bank For International Settlements (BIS), wanted gold to fall into the low to mid $300 range as this made the dollar (US$) strong in gold. It also made much of the "old" gold paper "good for delivery" as the Bullion Banks could supply the physical by purchasing on the "outside market" at lower prices! Had many of the early paper buyers (year or so ago) called for delivery, there be no supply as the physical market was spoken for. A falling dollar gold price made good on past paper deals as existing private supply was made free. In this light, I think few do truly understand how much trading in done in the world "gold trading arena" by LBMA! To understand this, is to know, "the CBs could never supply it! To think that gold is not wanted or not traded or "is a dead asset", it does become the foolish thought, yes?
I think, over time, the gold derivatives market did "break" the control of the BIS. Gold is held by many world class entities, as a capital asset. These "Giants" did understand the purpose for $350 gold. In this range, the gold mining industry and many capital reserve gold assets would survive. Gold below $300 was not wanted, as even the BIS would be forced to move with the price much below $280. The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.
Today, a new currency is formed. It offers a way to break the dollar valuation of gold without the total destruction of worldwide currency markets and economies. In time, oil producers can offer their low cost reserves at true valuations, that support industry and commerce in exchange for a revaluing of real money, gold, in a real currency, Euros!
The Belgium government did state " The National Bank does not intend to sell any further gold and this sale completes its programme of gold sales which started in 1989". Mr. Cole, in this statement you may read, that the "paper gold" of "the modern gold trading arena" will no longer be supported with "Euro Group Supply"! They did also state "After the start of European Economic and Monetary Union (EMU) in January 1999 Belgium will hold close to 300 tonnes of gold which is expected to be equivalent to around one third of its external reserves"! Sir, you may also read this as, once the Euro is formed, all "new" sales of "external reserve gold" will be done in: EUROs! They will have little use to sell gold for US$ reserves as they will have "much of that currency" already.
As events progress, all/most "external gold reserves" of the "Euro Group Countries" will move towards the ECB and be settled in Euros. As gold will always be traded and denominated in the world currency that settles oil sales. Even Swiss gold will be sold to European Central Bank (ECB) for Euros for defense against the falling dollar. Yes, most dollar derivatives will fail as "worldwide gold trading in US$" stops from "contract default"! Will the dollar be weak in gold? Indeed, it may not exist as a market for gold!
The Belgium CB does also state "gold will continue to play a role in the international financial system"! Some say these CBs are fools because they lower the value of their own reserve asset. This is done as a new world reserve oil currency is produced. Perhaps the perception of value is an ever changing, fools game? And to this I ask, what kind of fools are we?
Yes, the Central Banks now look for $360. But in time, "that too will pass as swift clouds on a moon less night"
6/14/98 ANOTHER (THOUGHTS!)
From Lyle: Another, Much is beginning to be seen about the effects of hedging on the spot price of gold - to be more specific, that companies like ABX (Peter Munk) have destroyed the market. To be enabled to create a successful hedging program the cooperation to the holders of gold (CB's)must be necessary. Two questions
1) Is collusion possible (actual?).
2) Will non-hedged companies like NEM ultimately be gratified by their refusal to participate?
ANOTHER: Sir, To understand this process, one must see the mining companies for what they "do", not what they "are". These companies are in business not to make "gold", but to make "profits" in terms of currencies! As such, when currencies fail, the business and the profits do become destroyed, in shareholder terms. The modern "hedge" is a very much "all paper" operation. The mine does never see or touch the actual gold that is involved, nor can they know if physical gold was "actually sold". Find me the names of new physical gold buyers and show me here! I think you will look long and hard for this, without success, as much of this gold does lie "very still". After long search, what you may find will be a "paper deed" to gold, that is many times over "encumbered" from much use and travels through foreign hands!
Is collusion possible (actual?) In much of the world, what you call collusion, is "good business". However, on the producer side, this "good business" is to produce profit. On the lender side, the purpose is for changing currency valuations.
Will non-hedged companies like NEM ultimately be gratified by their refusal to participate? This question, you ask it with the mind of the past "physical gold market". Many investors buy "gold paper investments" today with the thought of the past as to be like the future. The conclusion of many years of gold manipulation will not offer the currency gains one seeks. Today, the entire "gold trading arena" requires a physical market and a much larger paper derivatives market for operation. If a mine sells only physical for currency profit, they will be hurt as the "physical settlement for US$s" market is destroyed! If they are hedged for currency profit, they will be hurt as the "derivatives settlement for US$s" market is destroyed. I think, perhaps, only physical coin and bullion dealers, that can convert to settle in Euros will still find a trading market. Please understand, this "gold trading arena", both physical and paper, will be subject to "GREAT" surges, up and down, in US$ pricing. The removal of the political "world dollar settlement" price of gold will revalue this asset in terms that noone of "western thinking" can understand. This "gold war" will leave a great landscape of burned and destroyed "gold companies" along with the investors who "stood for battle without real metal" as a shield!
From PH in LA: Dear ANOTHER and Friend of ANOTHER, In Friend of ANOTHER's most recent post it was stated, "if everyone try's (sic) to spend their overseas dollars (presently Eurodollars), the US will no doubt invoke foreign exchange controls and most likely create a new currency." Can you clarify this? What do you mean by "everyone trying to spend their overseas dollars"? By buying gold? Also, what form would "currency controls" be likely to take? I assume that limits on dollars wishing to return to the United States would be set. Would limits be likely for US citizens? Would limits take the form of heavy taxation? Or would the "new currency to be created" take the form of distinguishing between domestic dollars circulated within the US and the eurodollars presently held as reserves by CBs?
In today's (June 4) post ANOTHER says that the market for gold in dollars might cease to exist. Does that mean that dollars would have to be traded for Euros before gold could be bought? Or conversely, would selling gold mean exchanging Euros for dollars after the sale? Or is he alluding to US government confiscation of gold (and silver?)? Or is this where currency controls would take effect? Restrictions (taxes) on dollars returning to the US from sale of Euros. Surely there will exist a market on which Euros can be exchanged for dollars for use in international trade, etc.?
Sincerely, PH in LA
ANOTHER: Sir, You ask, What do you mean by "everyone trying to spend their overseas dollars"? It is a very large question, yes? A simple answer would be: What else can a person of small wealth do with a currency but "spend it"! Outside your country, small persons, large traders and Central Banks hold the dollar, not for spending, but for the "reserves" and "store of value". It is held in much more quantity than exists inside your borders. Many of these persons think and know, that in last resort, the dollar, it can buy "oil" or "Gold" anywhere in world. In the real world, this is the "real backing" behind the dollar held in many lands! Today, the same "system" that makes this dollar "strong in gold and oil" does destroy the native currencies of many peoples! You may list for me, as perhaps the Canada, Mexico, Japan, Africas, all of Asia, come to mind! I ask you now, what gain these countries to maintain a "system" of "currency reserves", that breaks the local savings and economies? In a world that finds many nations "hungry" for a "reserve currency system" that correctly values "gold and oil" for the benifit of "local currencies", this Euro will change many thoughts.
In time, as the dollar does lose it's backing of oil and gold, thru a much higher price of these items, many "foreign dollars" will find "no other worth" but for "the spending of them for goods". The US economy cannot stand for these many digital units to "come home", as much will be the inflation should this result! I think, in this time, the great minds of your treasury will find many ways to "change the rules"! PH in LA, you have offered "some food for the thought" and "consideration" for them in your post. We watch this as it does progress, yes?
You ask, "Surely there will exist a market on which Euros can be exchanged for dollars for use in international trade, etc."? I find, the politics of gold will mature much differently than many feel. The transition from dollar reserve currency will bring a tremendous economic change for the country that issues this currency and it's world debt. In that time, the government will "encourage" citizens to hold an asset for personal "well-being" and "support", Gold! As the alternative will be the Euro, and this will be frowned upon. The gold will be seen as "American" and "walk tall with American Gold" and "carry your own weight, carry gold for the future of yourself and country"!
Remember, gold has a history many times your nations age. The last twenty years of transition do not represent the future of this world class money. I agree with what may be a common thought for local political gain, "follow in the footsteps of giants, and carry your future in both hands, carry gold"!
From CMAX: ANOTHER, How pleasing to see you here. If I may ask again, there has been one question left unaddressed that I had posed to you many months ago..... that of your thoughts regarding the future % increase in the U.S. paper value of SILVER, as compared to gold. I appreciate your implication about WB having to maintain a certain face in a public company (thus obligating him to purchase silver), but maybe he decided that it may do better than gold? To my mind, it seems that gold and silver should rise TOGETHER and proportionally, no?
Thanking you in advance.
ANOTHER: Sir, We meet again! I think, many buy the Silver (and platinum) for but one reason, it will increase always more percent than gold. It is always the thought of more leverage, yes? Even today, these metals have more use for the industry and find a better "concept of economic purpose" in the minds of investors. Many dealers say, this purpose is of better "investment reason" and as an aside, you also hold metal, like gold? I say, gold has "no investment reason" as it is "real money" that draws no interestfrom being "lent out". For this purpose, it is an asset that shows "the conclusion wealth" from our long life of investing in commerce! Given the option of investing for "economic purpose", there are and have been, many better items than silver (Dow Jones?). In future currency wars, silver will show a return, but it may prove as uncertain as the economy?
Remember, you buy "silver for purpose" but "trade currency for gold for conclusion". As the long history of gold does show, "time will prove all things".
From Sam: BARON in May 6, 1998 article (HOT MONEY DOES NOT STAY IDLE LONG) on Gold-Eagle web site poses question of what happens to EMU currencies when Euro takes over. He strongly suggests 240 Billion of supplanted currencies will end up at the LBMA where 12 Billion in paper gold is traded daily. The arithmetic works out to an explosion in the gold price of US$300/oz (present day) to US$6000/oz if this 240 Billion in "hot money" finds its way to the LBMA. US$6000/oz is your figure for the present interbank value for gold. Is the RED BARON on to something ?
Please comment !
Also, For whatever percent backing by gold, will the Euro be convertible to physical gold, and by whom (i.e. all or limited) ?
ANOTHER: Sir, The history of "Hot" paper money does show it to "burn easily" from " much heat"! If you read my Thoughts in today's replies, we see much "fuel" in dollar derivatives trading in foreign markets. Much of this trading represents a "claim" on physical gold that may become "a transaction for physical gold" as dollar reserves are displaced. The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range. Without deflation, the dollar will be devalued much lower than this (higher gold price)! Once the Euro is created and begins to effect world trade (late 1999 perhaps), the gold market will begin a transition as never before! I think it will be interesting to follow the politics of this change, yes?
Your question of Euro gold backing? The Euro will not be backed or fixed in gold. It will, as Michael Kosares (USAGOLD) notes, be the first "modern currency" to hold true "exchange reserves" in gold. It is important to understand that "exchange reserves" of gold are much more powerful a tool for currency defense than gold backing! In this system, gold must be traded in a "public physical market", in that currency, Euros! As such, the Euro can "devalue gold" (Euro price of gold falls) thereby making it strong in gold! In today's world, this will happen as a "strong Euro physical market" displaces and defaults " the old dollar settlement paper gold market"! The dollar will become"weak in gold"!
EDITOR'S NOTE: As the one who processes ANOTHER's mail, I can tell you that he gets a large number of questions and comments and it would be impossible for him to answer them all. I do not know what criteria he uses in choosing what he answers. I just hope that all his readers keep submitting the questions. I think it stimulates his thinking, and in turn the thinking of all who visit this site. If you've sent a question and he hasn't anwered it, please do not let that stop you from asking another one. At first I was going to ask ANOTHER questions myself; but, when I saw the number of questions and varied subject matter, I realized that you, the readers, would probably ask what I would have asked anyway. Please keep those e-mails coming. Thanks MK/USAGOLD
6/17/98 Friend of ANOTHER
Another believes the BIS has actually entered the gold physical market. It was purchased through a Euro bank, not UBS and is continuing. It is not for the account of any country, but for BIS capital. They may announce this outright through the news services before he can write next week? My understanding is it was not for Japan! They were used as a diversion. For what purpose, I do not know? It could be they see the banks in Japan are about to fall under the capitol ratio rules as their market and economy takes a hit? The BIS may need the gold to cover any unpaid GF (gold Franc) reserve capitol due from BOJ? This is most likely the reason. Besides, during a crisis, it will be to late to patch up reserve ratios. If Asia falls before the Euro is in effect, Jan 1, it will take oil down with it in currency terms, along with an ensuing major reallocation of assets into gold.
This could get very intriguing!
6/24/98 ANOTHER (THOUGHTS!)
I read at USAGold the "Frank Veneroso's Gold Commentary & Central Bank Watch" with much interest. It is good to see this market thru the eyes of others.
Your post of (6/23/98 Daily Market Report), it speaks of a market not of the past. I agree. Many persons in this industry try to analysis price movements using "supply and demand" of gold. This information is of public knowledge and shown to all. What cannot be seen is the "currency of gold" in the form of "derivative positions "market. The "supply and demand" in this trade, it is much different, yes? Many of these "positions" find not a beginning in the mine industry, but they do make the physical dollar price of the metal "much different"! The trading of this new currency as a form of "dollar/gold" cross was born in the Euro Central Banks. It was offered as a means to escape the "political" dollar valuations of major commodities. Oil?
The Central Banks make much news of their good use of gold thru lending and leasing. They often add an "also" to this thought in the form of "and this process adds liquidity to the market"! Many accept these statements as "for the mining industry", as it creates a good market for mining forward loans. I say, even the mine loans are part of the "adding of liquidity", as the "currency of gold" market is many times the "gold mined and sold as a commodity" market!
Some wish to see the "inside" of this "currency of gold" trading? It was somewhat shown to many with the LBMA trading volume. This volume has "no explanation" from any analysis? The "supply and demand", it does not work as "good reason" for this trading, yes? Soon, the true nature and use of this new gold market will be in "good view" with "good reason" for all to see. Even today, the Euro Group Central banks, thru the BIS are trading gold in Euros! I think Mr. Fava offers only the beginning of the fire that comes to London: ( a small part of this article)
"LONDON, June 23 (Reuters) London Bullion Marketing Association (LBMA) chairman Peter Fava earlier said in an interview with Reuters Television that he expected gold to reach $320 an ounce by the end of the year. Fava said this would be due to central banks becoming net buyers of gold."
Yes, the Euro already exists in the form of the currencies that are now part of the ECB. These currencies change little between themselves as Jan 1, 1999 approaches. This withdraw of "dollar liquidity" from the"currency of gold market" will begin to effect the dollar price of gold. It will be the "currency of gold" "derivative positions " that will be forced to convert to Euro positions, first! The existence of "exchange reserves" of gold in the ECB does increase the Euro currency value in dollar terms as the dollar falls against the "currency of gold derivative positions ". To hedge these positions, physical gold and Euros must be purchased. Today, the BIS does do both for ECB customers. No longer does the dollar price of gold fall for the benefit of oil, as the Euro has been chosen for oil settlement in future. The dollar price of oil will now move for a different story: "oil was priced to low in dollars and to high in ounces of gold"! I think, the price of gasoline will be a "good deal" in Europe soon.
We will now see China walk the trail to Berlin as the Japan does rush for the American dollar! Indeed, the Yen will seek much more US debt as they are , locked out! The Mr. Alan Greenspan will attend a board meeting of the Bank for International Settlements in Tokyo next month. I think the markets will see "much change" of spirit after this meeting. It will be the end of the past and the start of the future for trading gold! We watch this new market together, yes?
From James Turk, Freemarket Gold & Money Newsletter: How did you come by the handle "ANOTHER"?
ANOTHER: Sir, It was found far in the past. The true value of gold was often taken from view, with purpose. Today, paper debt currency does price gold as little and value all other assets as much. History has proven that " your assets never offer a return as great as your paper money say it does". As such, in time real money does always bring a true gain. Many will find our wealth of the future has been with them always, in Another form, Gold!
From Dr. Woods, MD:
The copies of gold and silver inflated,
which after the theftwere thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scrips and bonds will be wiped out.
This reminds me of the future predicted by "Another". Are the paper gold contacts issued without adequate physical gold backing by the London Bullion Exchange in "ANOTHER"'s postings and the wipeout of U.S. dollar denominated Treasury bonds actually predictions of Nostradamus in 1530.
ANOTHER: Sir, I see this conclusion does come thru history as " unchanged". It has always been in the minds of men to make gains at the expense of others. The past has shown that honest money must be taken from a person using force, today, our assets are removed as we sleep! I believe Mr. Kosares used this Notradamus quote in his book ABCs of gold, to make a betterpoint. We watch the outcome together, yes?
From Zama: "Another" , thank you for your insight; I pretty well agree with most of what you say;ie. physical gold, but what of such a country as Norway: is their fiat money so undesirable? As the second largest exporter of "black gold" they look pretty good to me, and they might have an initial advantage in staying out of the EMU for the time being. What are your thoughts?
ANOTHER: Zama, I think Norway is a fine country and strong people, but do they not also use the US$ as a reserve currency? In the future, if they sell "black gold" for "real gold" or the Euro, all will be well, except their banking system will fail from dollar holdings! They be not dumb, and will reach for the true values as will all others. To add to your words I offer: They may experience the: initial "Disadvantage" in staying out of the EMU for the time being, but time does change many thoughts!
6/29/98 ANOTHER (THOUGHTS!)
Mr. Michael Kosares,
These Thoughts for all!
The winds blow well on this cloudless night. All are asleep with the dreams of what tomorrow may bring. I have help to print these words for the future. Indeed, this be a "conversation of our Thoughts" for this quiet time of life. Yes, this is a fine evening to consider gold!
For many, the years have passed and this noble metal has not revealed the value it hides. Ones of western thought have held long and strong, with great demands that it should obtain a high price in American currency terms. Yet, in some two decades of time it was the dollar and paper investments that bring forth their hidden strengths. For you, this history has proven gold is without value in these modern world economies! I say, this thought is but a passing argument, as it is not "what we sell gold for, but rather how much gold can one buy" that produces wealth over time!
The last gold war of 1980 ended as the choice was between "gold as a currency" and the US dollar. The dollar was accepted as the world reserve and trading currency. Many did not believe this reserve would hold in the test of time. It was "expected" that from twenty years in the past, any inflation of dollar debt would send all persons in a run to gold. This be the "flaw" in thinking of many analysis and investors. For it was in this time that all the governments of the world began to "play a currency game". Yes, a contest for many, even most, but not all! This game was offered to the rich, the working and the poor. It was even for the wealthy to play as they watch to see who will remain the longest. But history has shown that as the sun sets in the east, so must also conclude games of men, these "games of chance".
Most citizens of this world have placed their life's efforts on one bet at the tables of Monte Carlo. Some wager for far into the future, but none will succeed. They bet, as you say, "the farm", even the full estate of the family on the only one outcome: " that paper currencies will continue to denominate the full value of their assets" and "continue to do so in a way that reflects the current relationship of paper assets against real things"!
Why must these private fortunes be lost to the "House of Carlo"? Why did they not run to gold in the long years that pass, as analysis believed? Why the "flaw" in thinking? I say, because the "game of currencies has not ended" and has produced "asset valuations" that would not exist if converted into real things. As such, the wealth of nations, that many believe they hold does not exist today, in dollar terms, nor will it exist tomorrow!
How long do persons continue to make these paper claims to "bonds", "stocks" and "currencies" that are produced in numbers as the leaves on the trees? These seasons of spring and summer of twenty years time, have offered a harvest to gather wealth that lasts for centuries. When the economy of the dollar, becomes as your "Autumn" and arrives suddenly, they will pause from this foolishness. In that time, the savings for the future of their children will be as these dried "leaves"of winter, blowing in the wind!
The wealth of gold, it does not change. It is hidden from view for the purpose of changing reserve currencies. The dollar has consumed the wealth of all who hold assets in these terms. The American debt is evidence of this consumption. The expansion of this debt now destroys the economies of countries that use the dollar as a reserve. The Euro will be forced to become a successful, hard reserve currency or "gold as a currency" will be backed by oil and take it's place! China and Arabia can force this outcome, as the Euro group will trade with China as the Japan has with America. China will devalue in time and break the American/Pacific economy as oil finds a "good price for commerce" in Euros. This is done as "intervention" into the oil markets, in dollar terms forces the oil price up! In this time the entire Euro Group /China / Middle Eastern economy will heat up to form the greatest demand for oil. All producers will rush to sell oil for Euros and dump dollars.
Gold will rise in dollar terms to values little understood to analysis of "supply and demand". As they know the commodity purpose for gold, little is thought of the "currency/wealth" purpose for gold. As "supply and demand" did not explain the dollar drop of gold for the past twenty years, it will not explain the dollar rise for the next decade! Soon, gold will rise "with the dollar", then the maker of your money will force this currency down in a effort to stop it from coming home.
Many do speak of supply and demand for reason of gold decline because of "extra leftover gold" held in ECB, however, they do not consider the "extra leftover currency reserves"? The Euro will hold forty to fifty billion in total exchange reserves, of that perhaps 15% in gold. This does leave perhaps forty billion in currency reserves to be held. The eleven Euro group countries now hold much more than forty billion in exchange currency. Do they sell these dollars at same time they sell leftover gold for dollars? I think all should talk to these new analysis about the "supply and demand" for dollars, not gold.
To close I offer the thought of a banker : "I would not sell gold for dollars when, as a district Central Banker, I could soon use it to purchase more Euros from the ECB. As all new local continent debt will now be issued in Euros, it is better to allow the new future Dollar / Euro exchange rate to pay old dollar debt. Yes, the coming American dollar inflation will make "good work" of this European debt problem, perceived by many to be "insurmountable! Even now as I ponder this thought, we may not even sell gold for Euros, as it is a true "exchange reserve" of our ECB! As oil will be priced in Euros, and a low dollar price of gold no longer necessary, perhaps, with it's future dollar value" increasing, I will purchase more gold with dollars for future payment of debt?"
We watch this new gold market together, yes?
7/19/98 ANOTHER (THOUGHTS!)
Why does the Euro start life with such small "exchange reserves" of other currencies? It is because they will have little need of them. For most nations, exchange reserves are used to defend the local currency, that is, buy on the open market your money with other countries money (dollars?). In the typical "operation" this would be done to raise value of the domestic currency. However, today, the Euro countries as a group will run little if any "account trading deficits" with other countries. Do compare to the dollar, with perhaps 14+ billion of trade deficit currency flowing out of America each month and we see what currency will need "defending"! Also, with perhaps 500 billion or more of dollars held as "exchange reserves" we do ask, "if these reserve dollars are to be sold to make room for a new reserve, who will trade Euros for them and at what "exchange rate"? The ECB and it's system CBs will not be in a position to buy dollars, as they will be holding to many "non reserve" dollars. With the American "payments deficit" having "no end", dollar assets have no "purchasing reality". They will quickly become a "nonreserve exchange liability"! One use for dollars may be to purchase ESCB gold, then sell this gold to the ECB for Euros. Another would be to purchase gold on the open market and hold this as matching the 15% gold reserves of the Euro basket. The end result will find to many deficit dollars outside of the US with no way to return home. These dollars will find gold and in doing so will drive up in value one of the ECBs main "exchange reserve assets" without exporting the coming American inflation into the Euro trading block. It is "the master plan" and comes to conclusion.
More to the purpose of maintaining the world economy, the BIS will now begin this act in concert with other CBs to devalue the dollar against gold! They have begun this already, by writing Euro notes for future delivery against these contracts. With LBMA trading 1,000 ton a month, there is much realignment to be done during the next year. I expect gold to cross $360 soon, as the floor is now established with billions of homeless dollars. Time grows short as the plan has been laid out with "no turnback". The ECB has said openly, "gold is now MONEY"! And this will change the dollar asset world you live in!
The US Federal Reserve will now have little choice but to raise interest rates as the dollar currency inflation of past years moves from "paper assets" into real things. With many other economies and nations (ME and China included) about to anchor themselves to the Euro Block, they will enjoy a rebirth of low inflation growth not seen sense before the dollar went off the gold standard! Many persons and nations will sell "dead, nonperforming dollar assets" as these will not show a real return for many, many years. Much as the way gold is viewed today!
I leave this small part of a news article for added thought:
TOKYO, July 6 (Reuters) - What if the Euro keeps rising after its launch, leaving the dollar far behind?
U.S. DEBTS THREATEN DOLLAR'S GLOBAL STATUS
Former presidential advisor Bergsten has forecast the net debtor position of the United States, which has already passed $1 trillion, will shortly exceed $1.5 trillion. In its annual report released in June, the Bank for International Settlements said: ''the BIS is concerned that the markets will lose patience with the accumulation of U.S. external debt and drive the dollar sharply lower.'' Analysts say the launch of the Euro may trigger a reversal in the dollar's current strength to reflect huge U.S. debts.
7/19/98 ANOTHER (THOUGHTS!)
From Q Ball: I would like to ask Another his opinion on this. What are his thoughts on what some people are predicting to be a dominance of OPEC nations in terms of oil production. Specifically forcasted in the following page says that OPEC production will surpass NON-OPEC in about the year 2006.
ANOTHER: QBall, This is true. The Middle East nations, in particular, have shown their reserves to be much greater than ever thought possible. These "new/ larger" reserves have come to be known about, only in the last eight years. It was the "possible existence" of this oil that created muchfear in the American Capitol, prior to the 1970s. In that time, it was known that the Western economy was growing on low priced energy. Thisgrowth would soon consume all "local / domestic" reserves that, in turn, would bring much dependence on low cost Middle East oil. The reserves in this region were, and now even more so, are the lowest cost to produce in the world. As all oil was sold in dollars, and US$s were then, still somewhat attached to gold, the ME producers had "no need" to raise prices! The political forces in the West needed much higher oil prices to "stimulate exploration" to avoid the "strategic problem" of "all oil supply from one region". Make no mistake, there is enough oil reserves in the ME to supply "all world" for "many grandchildren"! It was in this time that the events created by the "politics of dollar currency", allowed the decision to remove the gold backing from the US$. This move, broke the "gold bond to oil", and created a need for more dollars per barrel of ME oil. The oil producers, as expected, did create "Beirut Resolution titled XXI. 122"!
Partial reprint from report by others:
"Shortly after the gold window was closed in August 1971, OPEC called an emergency meeting with U.S. and other nations' finance ministers in Beirut. The result of the meeting was the Beirut Resolution titled XXI. 122. It called for adjustments to OPEC's crude oil pricing whenever the dollar had been devalued. The resolution called for OPEC's price adjustments to be triggered whether or not dollar devaluation was caused by government action or by market forces. If the dollar lost purchasing power, OPEC could raise its prices."
QBall, this was the beginning of a move by dollar advocates to raise this commodity price by inflating the "world reserve currency". As an "also", the ME was shown to be and caused to be "unstable" for dependence for oil production. Not all nations agreed with this move. The French and Germans did not, and by 1980, Europe was working with the BIS to implement a new "reserve currency". They did long for a "money" that would resolve "Beirut XXI" and allow for the purchase of low cost reserves, not the high US$ cost "world oil supply" , of perceived strategic importance to America alone.
The "new Euro" did take much longer to create, and the Gulf War did create a crisis of payment for oil. In this time, early 1990s, the currency of gold was brought "into use" as a "temporary" partial payment until the Euro could be presented. A paper gold market, of sufficient size, was created, that as such, it could hide discount payments to a few producers for oil. Today, if these claims on paper were converted into bids for physical, it would take all of the "tradable gold" in existence! It was this "leverage" that forced the Euro makers into gold. Gold backing for the Euro would not be enough! Only "exchange reserves of gold" would allow oil priced in Euros. We move to this end today. Tomorrow will see ME oil in good supply for a new trading block of nations.
From Gary: Dear Another, I have recently begun investing in gold and I find that your comments on the future of gold give me support in these dark time for gold investors. However, I was a little concerned recently when I read your writings in which you based your belief on the price of gold increasing on a comment from Peter Fava. As you noted, he is the Chairman of the London Bullion Marketing Association and he gave his opinion that the price of gold will rise to $320 by the end of the year.
ANOTHER: Sir, I do not base my Thoughts on the open discussion of "only the one", but on the actual commitments and actions of many. I would say these times, they are dark indeed for any form of paper investment in gold. However, the sun is at "midday" and shows the brightest period in your history, for real physical gold! The future will show a "great loss" for men of courage that invest formost in paper. Quiet minds will think: "I did not know dollar assets would find such a fate" and "had I known physical gold could hold such wealth, no other investment was needed"!
As such will be the world investment climate, you will see these thoughts "flow from community to community". LBMA? Often, changes in events are preceded by public announcements, done with much "conservative nature". The Bank Of England did also state a short time ago, that, gold trading loses were coming. In the past, I have found, "when a small nose appears under my tent, life will change before a good nights rest is at hand"!
From Ian Shaw: Sir, If I have interpreted your comments correctly, you take the view that the Euro will continue to fly after a successful launch. Supposing the Euro does not fly, but crashes to the ground after several years because of, for example, a Europe - wide economic policy applied by the ECB. What would be your views on gold in the event of such a happening?
ANOTHER: Mr. Shaw, This bird, you call a Euro, it is unlike any we have ever known! It has already crashed to the ground with the weight of metal! It will not fly and it cannot move, as it is built for "durability" and "stability", not erratic movements! It also has a "great appetite" for the food of it's choice, Gold! Unlike any currency of past, this Euro will eat gold reserves and not grow fat. A common past problem of foods with "gold backing"!
Sir, Between now and sometime next year, a great deal of paper gold commitments will be executed to purchase physical gold with dollars. This gold will then be sold to the ECB for Euros, as such, the ECB will hold the gold as "Exchange reserves" and the dollar selling entities will hold the Euros as "exchange reserves". All will rush for this new Europe trading block, as the perception will be: "this debt dollar, it's decades old balance of payments deficit has no end" and "see this new Euro, is this balance of payment positive, see them buy more gold reserves to prove it"! A golden door has been created, that will allow nations caught in dollar reserves to borrow gold in paper form, from the Euro makers. At first, this moved oil assets out of dollars, now it prepares the world for a change of reserve currencies. Look closely and see, "as the dollar/IMF world is brought closer to close, is not the borrowed gold offered more freely"? Do not the lease rates drop further? Do not the holders of Yen, outside of Japan, cross the Yen for borrowed gold as that currency falls? The Yen and the dollar/IMF are one in the same and soon fall together! Direct CB commitments for lent gold will be covered with Euros, but who will cover LMBA and with what? You see, Mr. Shaw, this market is not of a supply and demand world, and is much about the real world currency you have never known.
From David Powell: If China were to devalue the yuan, what effect would it likely have on the US$$ gold price and why? PS: Great website! Keep up the good work! (and THANK YOU!)
ANOTHER: Mr. Powell, In the time before us, China will trade in Europe with "great intensity"! As this trade develops, little use will be found for use of dollars in trade and little purpose for to devalue the yuan, except for the revenge against neighbor nations. A good purpose will be found to trade dollars for gold! The gold could be sold to ECB or gold could be held for reserve of 15% or higher to match Euro group reserve requirements! Much will be the future for this position! As such the Yuan may become part of Euro Group basket, yes?
I think, in the future, for one to make their currency lower against the dollar will be as:" trying to hold the hand one meter below a falling stone"?
FromWilliam Hsieh: ANOTHER: I appreciate your emphasis on holding gold and Euros. My question is how do we hold Euros now when the currency is not yet born? Is the German mark today a reasonable proxy for the Euro? What will happen to currencies like the German mark, French franc, etc. when the Euro is finally introduced-- i.e. will they fall as people convert the European currencies for the Euro? Thanks.
ANOTHER: Mr. Hsieh, As the exchange rates move little in currencies of Euro group, before end of year, the Euro basket exists now. On Jan. 01, 1999, each currency will make up a fixed portion of a Euro. As a person within the country, you will purchase with the present currency, whatever it's portion of a Euro, it will buy. After a time, all eleven group moneys, will be converted into actual Euro currency. I see that the China will buy dollar debt issued in Europe, by Euro group countries as a means to obtain Euro reserves when that debt is converted. Perhaps, this be the answer you receive from a broker, concerning "unborn Euros", yes? Even today, the BIS trades gold in "unborn Euro form"!
From Michael Kosares: Something came up while you were gone. The head of the World Gold Council recently suggested to the Gulf Co-opeartion Council that it bring its gold reserves up to match the 15% to 20% reserve of the ECB. Do you think that the Euro might cause a domino effect around the globe as other economic blocs back their currencies with gold to compete ( or live in concert) with the Euro?
ANOTHER: Mr. Kosares, Thank you for your question. I think, this "domino effect" is in progress now. For some it is in the "thinking stage", but for others, I see the BIS is now much busy in the brokerage business. You are very correct to see the next currency devaluations as being "against gold"! Some countries will form "blocks" to compete, however, they will be cut off from the "unloading of falling dollars". To what CB will they sell? It will be as "the anchor that is around neck, yes? I think, we will see nations of small dollar holdings, attempt to match reserve status percentages of Euro. With, as you say, "the eye on joining" the "basket"!
All are much confused and upset that the dollar price of gold does not reflect this. It is sad that these persons are given to paper leverage with "no reward" as the value of a lifetime walks slowly before their estate! Our history will read, that persons of simple life, will find they have made the greatest leverage investment ever seen and thought of it as only the small trade. When gold moves from "bottom to top of world currencies", many will find their assets in the "Estate Of Kings"
[Editor's Note: Please read what's below carefully. This is an extraordinary analysis from the Friend of ANOTHER at a time of much confusion and uncertaintly in investment/currency markets. We are told at the outset that the largest pro-gold groups -- the Europeans and the Gulf states -- want a world currency "not subject to the performance of the American economy." In other words, a currency not tied to American treasury obligations, or the percpicacity of any other nation for that matter. That currency for those of us who have reached for the deeper truths of economy is called gold. As an American, I must say that I have never seen the concept of American hegemony explained in quite the same way before. Perhaps, my eyes were closed. I keep getting this feeling that Americans must necessarily begin to understand a new role for this country in a rapidly changing international political and economic environment -- a role for which our political and economic institutions appear ill-prepared. I will not be so presumptuous as to explain what the Friend of ANOTHER is saying, I will let you read for yourself. I do not think it could be said any better than Friend of ANOTHER says it. The fact that his analysis implies how one should design one's portfolio is a happy side benefit.]
8/10/98 Friend of ANOTHER
It has taken some time to send this, but now I can also offer my thoughts to your questions.
Your statement: "As a matter of long term policy, do you believe that ECB will "sell" gold to defend the Euro or "buy" gold to defend the Euro? Each of course would entail a different course of action with respect to reserves of the new national bank. Along these lines,will ECB buy gold from its member treasuries, or will it simply force them to transfer it to ECB coffers if needed to defend the Euro? I am prompted to ask this question in view of your assertion that there will be much selling of Euros to defend the dollar. If the Euro, as you suggested, is being printed to buy dollars isn't this just another manifestation of the U.S. exporting its inflation? It appears to me that the Euro will need to be defended -- and not with dollars -- but with gold! "
Michael, I believe the most difficult part in understanding the modern gold market is overcome by seeing all the various political factions involved. Essentially and basically, the largest pro gold groups are those who want a world currency that is not subject to the performance of the American economy. At this moment and in this period of economic history, all currency reserves held by foreigners (non-Americans) is a debt of the US Government and by extenuation through tax collection, a debt based on the ability of the American economy to function profitability!
In essence, America has told the world that as long as the business of this country is functioning, your wealth, as represented in Marks, Yen, Pesos, etc. is backed with performing US debt. It's like saying, "as long as your neighbor, next door, does not loses his job, you will not lose all your money! Most people would be surprised at how clear this is, outside the USA sphere of influence. This, the largest of the pro gold group, is largely made up of countries with economies that have no need to sell most of their production to the US. The business of these communities would not totally fail without the American engine. Yes, they would slow down, but not collapse, as trade with other countries would continue. To add what was said before: If your neighbor loses his job, you can still trade with the other people in the town, as long as the currency system is not based on your neighbors debts!
This group, made up of much of Europe and the Middle East, is not looking for a return to the old Gold Standard, but perhaps something far better. They do not see any advantage in holding the currency bonds of one country, as a reserve asset of future payment, over holding physical gold as a reserve asset in full payment. The fact that the debt reserve asset pays interest is little more than a joke in these banking circles. Any paper currency, the dollar included, can fall in exchange value against your local currency far more than the interest received! In today's paper markets, the only true value in exchange reserves, held by a government as currency backing, is found in it's effectiveness for defending the local currency from falling against other currencies. In other words, use the reserves to buy your countries money. But, this is a self defeating action as sooner or later the reserves are used up! This fact is not lost on many, many countries around the world, as they watch their currencies plunge, lacking reserves as defense. Ask them how important the factor of earning interest on reserves is under these conditions.
On the other hand, buying gold on the open market, using your local currency, works as a far different dynamic from selling foreign bond\reserves. This action takes physical gold off the market, and in doing so increases it's value in dollar terms. Gold is and always has been the chief competitor with the dollar for exchange reserve status. The advantage here comes from the fact that governments do not run out of local currencies to use in buying gold, as opposed to selling foreign currency reserves to buy the local currency on the open market. Of course, the local price of gold goes sky high, however, in this action you are seen as taking in reserves, not selling them off.
Also, as gold begins to rise against the dollar, the local gold reserves are seen as assets of increasing value, backing the local currency. Under these conditions, with a stable currency, citizens will purchase more gold as it is seen as a positive asset. Not unlike a rising stock, everyone wants an increasing investment. Contrast this action against that in Korea, where everyone sold gold as it increased in an unstable currency!
Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold. Michael, you are absolutely correct in that the USA will see a hyper inflation of it's currency and a gold price in dollars that reflects it. Unfortunately, for most investors, the gold price rise will be sudden and also hyper fast. as it will occur just after a rapid plunge in dollar based assets including, stocks, debt and the entire banking system. This action will destroy virtually all gold based paper assets as they are also dependent on a functioning economic system. A local gold mine, in any country, must sell production to realize a profit. The contract system they deal with will not be functioning during this time. Contrary to many hopeful investor, local treasury officials will not allow miners to pay employees or buy equipment with physical gold. When the dust does clear for mining to continue, gold will be recognized worldwide as real money, and the mining of money will, no doubt, carry Extreme taxation. Stock prices of these operations, after being priced to zero, will then double or triple in price. Zero times three equals?
Back to your original question. The Euro will not replace gold, it will evolve into a gold transactional currency. It will also price Euro gold very high, perhaps $6,000 in current dollar terms buying power. However, in actual dollar terms of the future, $30,000 US will reflect the American debt as the negative reserve asset it truly is. The ECB will have an easy time issuing Euros to buy gold from the member banks. The real political warfare will be in trying to force them to sell the gold at all, once this ball starts rolling. The Euro has, in effect already been dispersed in the form of Gold Leases not gold sales. One has only to look at the official gold holdings of most central banks to see that physical gold sales are little more than the average, with a good amount of that coming from nonEuro countries. Gold is a funny thing, it can be sold many times and pass through many countries and still remain in a CB vault. Truth Be told, some 14,000 metric/ton have been sold this way. Far more than the street thinks. Using this amount it's easy to see how certain entities have moved off the dollar standard in the last few years. If we use a future price of $6,000+US, the move is about complete.
The process: An oil country (or others) goes to London and purchases one tonn of gold from a Bullion Bank. The BB borrowed this gold from the CB (leased). The one tonn gold certificate is transferred to the new owner. The gold stays in the CB vault and the owner goes home. The CB leased this gold to the BB and expects it to be returned plus interest. The BB financed the Actual Purchase of this gold mortgaging assets of the buyer. The BB, who created the loan, then uses the cash arranged in this venture to contract with a mining company (or anyone wanting a gold/cross financing deal) to purchase production gold, using this cash to pay for it. In the eyes of the mining company, the BB just sold gold on the open market, for cash, and will purchase future production at the contracted price. The mine does not know where the gold came from, only that it was sold and a fixed cash price is waiting. Of course, most of this made more sense when gold was higher. There were thousands of these deals, structured in every possible fashion. Look to the volume on LBMA and you see where the future reserve currency is traded today!
Now when we look at this picture, who is at risk here? The Euro CB Group still holds the physical gold and will buy it back from the new owners, if asked, using printed Euros. The new gold owner has just replaced his dollar reserves with either bargain priced gold, or Euros at an exchange rate never to be seen again! Some of this was done to buy the pricing of oil in Euros. The BB owe the CBs 14,000 tons of gold that they must collect inthe future from producers or currency speculators. And they must collect it by paying what will be a, then, ridiculous price of $300/$400US, while the world market price will be, well, a little higher.
With Canada, Australia, and perhaps England having sold much gold to hold US$, much of the English speaking, IMF/dollar world is about to change. Any country, Japan, Mexico, etc., that has locked their future by selling most of their production to the American economy , is headed for a depression. Another is answering some of your mail questions and is also sending a letter. Will send it on arrival.
8/11/98 ANOTHER (THOUGHTS!)
Part of my replies:
From David J. Powell: If China were to devalue the yuan, what effect would it likely have on the US$$ gold price and why?
ANOTHER: Mr. Powell, In China, persons own gold for reasons that reach far from the past. They see the price of gold, in dollar and Yaun terms, not as gold value rising or falling but as these currencies rising or falling. As such, gold is viewed as "the stable wealth" and currencies as the "changing asset value"! Not unlike the Dow Jones stocks, always moving, so it is of the paper currencies of today. . Much is written of how gold does not come to China, as it is "expensive" and "citizens have no money to buy"! I say, they have money, just not your paper money, as they were taking in gold from before the birth of currency and will do so till the end of time! In that country, China, where gold was purchased in great quantities, from before the existence of America, this will not change if the Yuan is devalued.
What will change is the currency China uses in world trade. They have yet to "secure" the Euro against their US dollars held in Hong Kong. They will make this trade for the benefit of their "old trading partners" that ended with the "Orient Express"! If traders sell gold as the Yuan is devalued, I think that gold will ride this train route to Berlin, Yes?
FromTatusko: ANOTHER, What currency, besides gold, do you view the world from. Your statement "The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range. Without deflation, the dollar will be devalued much lower than this (higher gold price)!"
An American perspective would appear to be "The only way the price of gold will stop at $6,000 is if the Federal Reserve is successful at stopping inflation at that price. If not, the inflation will be much worse, and the gold price will go much higher.
You speak in terms of what currency? Euro's, Swiss Francs, or ANOTHER? What is your future outlook for the Swiss Franc and Swiss Annuities? Will Swiss Francs continue to be the strongest currency?
Thanks. Sincerely,Don Tatusko a.k.a. ShortSellr
ANOTHER: Mr. Tatusko, At present, I, like you, must view the world thru dollar. The "world reserve trading currency" it remains! All persons hold dollars, be they as the "proxy" currencies of other countries, or other assets worldwide, all things find value thru the "debt securities" of American citizens! It is, the ability of the, "factory worker" in Detroit, to pay the mortgage that does make your, say "Pounds", of value in world trade. It is the way of the IMF, Yes?
I think, your "American perspective" does not see or know or understand, how the dollar is "already much inflated" worldwide. Your Western thought is only of the "dollar price of things" at present. It is to say, "if prices do not rise, there be no currency inflation", and "see the world competition for selling goods and services in dollars, this brings no price increase"! This results from the current world currency system that does force the "holding of dollar debt" as reserves. A new change in this system will release these reserves, for the spending and the buying! It is during this change that American persons will find a "new price inflation" from a "existing currency inflation". In this time, the "competition for selling goods and services" will become " the competition to buy goods and services" in Dollars! You see, it is as you say, "your chicken has roosted for some time, but only now you find he has come home"!
If a depression does arrive to America's main trading partners, Canada, Japan, little Asia, Mexico, etc., it could destroy many of these " roosted" dollars and hold the dollar price inflation to, "only extreme". Of this point, perhaps $6,000 gold will be enough to represent the extent of past "overprinting".
Also, you ask an additional question:
ANOTHER, You emphasize buying physical gold, and you have also said there may come a time when the US Dollar is not convertible into gold. What do you believe will happen to those who are long gold futures on the COMEX. Do you believe the COMEX will default, or will these people be able to pay off 10 lifetimes worth of 1998 US dollar denominated consumer debt?
Thank you. I enjoy your THOUGHTS very much.
Sincerely, Don Tatusko
Mr. Tatusko, In the event of a major increase in gold price, I do not think the persons on the other side of any large gold contract will have the resources to deliver cash in a settlement. Perhaps they may deliver the physical metal if it is in account? I ask, if you have "leveraged" an account for the "short side" by 200%, and the market moves against you, "overnight" by 1,000%. Could you complete the "most honorable" contract? " plan not your sail for the calm day, as a strong wind may change your landfall"
From Aragorn III: I recently posted the following for the Kitco Gold Discussion Group. I would be grateful to know its merit under the scrutiny of ANOTHER.
Date: Tue Jul 21 1998 20:19
Aragorn III ((THOUGHTS!) by ANOTHER...I certainly DO like the way the numbers play out) ID#212323:
Gold is effectively revalued to $1,800 per gram, or equivalently $56,000 per troy ounce ( ballpark figures ) . Perhaps that sounds preposterous to you, but I submit that it is not. What does sound preposterous is that an institution can take paper and ink with very little effort and assign/create whatever value they choose. What is to stop this same institution from throwing a little gold into the deal as an accounting tool---THOU SHALT NOT CREATE ( from this day forward ) A DOLLAR OF VALUE ON YOUR LEDGERS WITHOUT FIRST GAINING POSSESSION OF .00055 grams ( .000017 oz ) GOLD.
Think about it. The institutions (Central Banks...particularly the ECU) are free to do this, and what's to stop them. The citizens certainly wouldn't complain. Suddenly their paper money would have an inherent value, not just a confidence-based value. This scheme to end USDollar hegemony is nothing short of brilliant. Too often the forest is not seen because the trees do get in the way. Individuals often see a situation as us ( people ) against them ( Govts, CB's, etc ) when in fact the battle lines are drawn in unexpected places, allying us ( people ) with some of them ( CB's such as the ECB ) against the rest of them ( the US Govt ) . Accept it.
Any right-thinking individual should easily see that gold is the great equalizer in the world of international economics. No one can be cheated when value is exchanged for equal value in the marketplace--whether domestic or international. The problem we face today is that few people recognize value...they have for too long been lead to believe that paper with ink has value according to the design and country of origin. They do not recognize the true value of gold ( as money ) as a store of wealth for the future purchase of items in need.
I shall not mince words. When I refer to a Dollar value you may equate that with a Euro value as they are nearly at par with each other ( as currently perceived ) . There is approx. 1,400 Billion dollars of total currency value on account among the 11 European Monetary Union member nations. For the launch of the Euro, it was decided that approx. 50 Billion dollars in value would be held in the European Central Bank as foreign exchange reserves. ( Please notice that you don't hear much talk about what percentage will be held in any specific nation's fiat currency...all attention is on "How much will be gold," as all paper is for appearance only, as I will further explain ) . To announce that 15% of the reserves will be gold is to say that the ECB will hold approx. 25,000,000 ounces of gold ( 25 Million ) as backing for the 1,400,000,000,000 dollars of total currency value among the member nations.
The Euro will NOT be a fiat currency if this ratio is maintained for any future "creation" of Euro dollars by the ECU. Think in these terms: a new measuring system has been created for gold to supplant the troy ounce...it is called the Euro. The Euro is the mass equivalent to .00055 grams and also .000017 troy ounces of gold. As an individual, you may choose to hold your wealth in raw, bullion form, or for spending purposes you may exchange it for equivalent receipts ( called Euro's ) in coin or paper form. ( It is simply not practical to use physical gold as money...a coin of only one gram would be worth 1,800 Euro's (and notice here I do no longer state the value in dollars as the true USDollar would be worthless ) . ) Inflation is arrested as the gold reserves grow in proportion the circulating currency...the money in circulation, when tallied, represents the total weight in Euro's held by the ECU.
It had to be done in this round about way...both to buy time and to facilitate a smooth transition. Imagine the pandemonium if the ECU announced simply that 25 Million ounces of gold ( worth 7,500 Million dollars by today's misguided notions ) would be held as the sole exchangeable reserve ( payable on demand ) for 1,400,000 Million currency units called a Euro that each individually represent a modern-day purchasing power that is on par with a dollar. They would be ridiculed and laughed into extinction. Further, apparent disparity would result in a pricing turmoil. The typical citizen and shopkeeper do not know how to value things outside of the monetary system that they've grown accustomed to. If asked to price things in gold, they would make the mistake of using the spot price, which is currently far too low to be used for a worldwide monetary exchange rate. So instead, a grand production was made that approx. 50 Billion dollars of foreign exchange reserves would be held, and that 15% would be gold...that is to say, 25 million ounces. The citizens will be gently lead into the new age of a worldwide currency...gold as money. Nations with gold or abundant resources for international trade will no longer be held hostage to the nation with paper that is stronger than all other paper.
You will agree that gold as money could be accomplished smoothly in NO OTHER WAY THAN THIS. Meaningful wealth on the world stage would be predicated upon how much gold an individual or a nation owned. It is better to trade your dollars for gold now, at the misguided exchange rate of $300/oz, rather than move into the new era with only the paper in your wallet or the digits in your account. On the open market, with a Euro and a dollar's purchasing power on par ( initially ) , it would not take long for gold to reach the exchange rate of $56,000 per ounce as people tried to take advantage of the arbitrage opportunity.
Yes, I do like the way the numbers and the rationale add up. It wouldn't be me if I didn't ask... got gold?
[And a follow up post was directed to someone who felt that there would be a consumer pricing crisis; and also the possibility of another gold-rush whereby people would quit everything to try panning their own gold]
Date: Wed Jul 22 1998 10:26
Aragorn III () ID#212323:
I think it is quite possible that when orchestrated as I've crudely presented, an official monetization of gold does not necessarily lead to a pricing chaos as you've suggested...$400 for a gallon of milk, $200 for a dozen eggs, etc. The only arena in which the dollar plunges in purchasing power is with gold. The institutional assignment of the gold value could for all practical purposes be transparent to the average citizen and shopkeeper. Only those relatively few individuals who possess physical gold would see the world through altered eyes...rejoicing in their forethought to own gold while the rest of the world was enamored of paper.
It would be expected that nations would quickly establish restrictive mineral rights laws that would heavily tax or otherwise control the future mining of gold to the Govt's best interest. Mining operations could very well relieve citizens of their individual tax obligations. And no nation could continue with the practice of creating money value from thin air.
Thank you for your effort to help "fill in the blanks" on gold's role in the esoteric realm of international economics and finance.
ANOTHER: Mr. Aragorn, I offer my "Thoughts" to all and encourage persons to think, consider and discuss this new gold market. During our journey in life, it will be the "world events" that truly "fill in the blanks" as this "economic drama" unfolds! History does shown, that over time, wars are won with an ability to reconsider, and to move and change course. Perhaps this war of "money" is not located on the fixed ground of past thought, but will be waged in the fluid minds of men as they seek to defend their life's savings. I send your writing to the eyes of others, that they may also, engage this enemy, with the thought of keeping our families wealth!
From Terry: Michael, If the Euro is to be introduced at a one to one exchange rate with the USD, wouldn't it be in the rest of the worlds best interest to keep the dollar up, and keep the price of gold down (in USD terms) until the switch can be made to Euro's in '99. Since so many countries hold USD reserves, they wouldn't want to see a drop in their assets before they could convert them. It looks like the European CB's would have a huge interest in keeping gold low against the dollar, thereby making their currency very strong in gold terms at it's introduction. Then the Euro could (will) leave the USD in the dust. Is this paranoia on my part, or is it just to scary for the mainstream financial market to talk about?
God forbid, but this is the kind of stuff wars are made of.
ANOTHER: Terry, Please read what is considered here. Ask others and counsel elders of past money wars. We will watch this new gold market together, yes?
From Carlsen: ANOTHER, my head is spinning reading your replies. I read them and I reread them. However, my question is. For us small investors sitting with losses from our investments in Gold Producing Mining Companies are there any hope for us to make any money on our investments or should we take the losses and buy the gold bullion?
ANOTHER: Carlsen, The gold has a history of many thousand years. It is not for "the investment", it is as the "conclusion of wealth". Other items will always rise and fall against gold. The value from investment in "commerce" is truly found in the production of people. This be not the same as the enduring wealth of a "world class money"! Gold in both hands lives by no rules of man, as does the business of trading nations. Portion your investments as you thinking will allow.
ANOTHER: Mr. PH in LA, Sir, your letter asking of the Gold Carry Trade, I did read. Perhaps the letter from my good friend to Mr. Kosares as posted does help your thinking? Many persons do trade this gold currency for reasons and purpose we may never know! It is the ways of men to lose the "wealth of nations" for gain of the few. Always, some win this game of kings and show this prize as proof of direction. And always, as night becomes day, these gains are returned, in quiet hidden places where "eyes do not see"! As we watch this new gold market, we trust what is real, yes?
8/19/98 ANOTHER (THOUGHTS!)
Supply And Demand for Gold; Does this change the value of this "Metal Currency"?
I ask, why do many look to the "commodity" supply and demand of this element for direction of price? The use of gold for jewelry and other fabricated forms is but a small amount of the buying and the selling. The mines do produce perhaps 2,500 tonnes a year, and "fabrication demand" does use perhaps 3,000 tonnes. Yet, all look closely to see if the usage does change and move the price up or down. However, the "fabrication demand" has been much greater of the mine supply for many years and the dollar price still falls!
Truly, the selling of 3,000+ tonnes of gold, for the making of things, does not influence the dollar price of an item of that trades 13,000 tonnes a year at LBMA alone! And the gold does trade much greater amounts in the small places of which you have little knowledge. Perhaps this "metal currency" is used for "the money transactions" as 20,000+ tonnes per year? The Central Banks still hold a billion ounces of gold:
Does your broker of "leverage gold" tell you these banks watch the "jewelry production" for the intent to value gold reserves in vault? Do the other holders of perhaps, two billion ounces of gold, held worldwide, also look for "fabrication demand" to raise the price? Do the billions and billions of currency/gold/swap transactions all see value only if "jewelry" is selling well?
My friends, events will change your thoughts. Often you are sold gold that is called "deliverable", yet the broker does lend you much percentage cash to buy. Perhaps this transaction is "deliverable after full payment" and as such the broker doer deliver "little real gold", yes? Much of the western world does "attach" to gold in this form. This metal is sold with the "modern concept" of "gold is the commodity for fabrication" and "is dead as money" in "this new era". This "concept" say that only "leverage" and "trading" does add to your estate. In this fashion, many have lost the long term benefits this "world class money" will soon bring. These persons wait for the event that does not come. In the future, many "salesmen of leverage" will tell stories of the fact that could not be. "The demand for gold "the element" will vanish, as the dollar price for "gold the money" does soar". What chart will be used to view this new high gold price, that will remain, for many years, "unaffordable" as a commodity, yet all bid for daily as the right to buy "money"? In this future time noone will deliver a leveraged commodity that has become, "leveraged money", no? The physical gold, it will trade by the dealer that has seen the Euro as the gold and oil settlement currency of worldwide use. Many will learn the price of gold in Euros, as even the American Eagle will be quoted as such!
Canada does continue to sell, however they lust not for the Euro! Perhaps the American dollar will change this thinking! Poland, the BIS did deliver them more gold for the future of their children. We watch, as the BIS does continue to buy gold under $360, for it's account, as they fill Central Banks with a new world currency reserve. Countries that now begin to think in Euro terms, find the dollar gold as "the good exchange rate" for joining the Euro Group in future! From spring of this year, this demand, makes gold be above $280? The ECB says, "this gold has been sold in dollar terms but has yet to replace the dollar reserves."
I think, now it comes time to sell the dollar. As the Belgian gold was purchased to replace dollars, it did announced the end of EMCB leases. Now the BIS transactions do create a gold market that is "not as before"!
We watch this new gold market together, yes?
9/3/98 ANOTHER (THOUGHTS!)
From Stockdoc: Dear Mr. Kosares/ANOTHER, I am a stockbroker in Tacoma, Washington, and have been an avid follower of gold (my uncle started Strategic Investments, now Lexington Gold Funds, many years ago - so I come by my 'hard money' stance naturally). I have bought many gold equities for my clients over the years because I believed it was the conservative and prudent thing to do with a portion of their portfolios; only to have them gravely disappointed, and leaving me heartbroken. I am also finding myself feeling quite silly as I have watched the greatest bull market in history march on while my own portfolio is littered with money losing gold stocks.
My question, sirs, will gold stocks ever come to life, please? I read your website daily and look forward with great interest to your erudite updates. I wonder if by "paper" gold assets, you mean that gold stocks will not take part in the coming gold bull market. Any comment regarding gold stocks in general and specific mining companies in specific would be greatly appreciated.
ANOTHER: Mr. Stockdoc, I think, many looked in history of "performance" by gold stocks and reached for "events" that would happen again. However, the future of investing in "most paper gold assets" is not made with a short past that begins from only 1975! Perhaps, when persons add today's "performance" of gold stocks, they will view the future as: " truly, gold in the ground, this is a business, not the currency asset". If gold does rise slowly, these stocks will show a gain for a time.
However, never before in history has gold been cornered in currency terms. Not physical terms. Never before in history, has a world reserve currency, the dollar, been forced from a high gold valuation to a low gold valuation, along with a destruction of world gold market. Because gold is traded today, worldwide in dollar terms, the transition will destroy the capital assets of 99% of all mines. Please place yourself in " context of future events". Physical gold will not reach $30,000/oz because noone is buying it! It will come to this level because the dollar, today, is already inflated to level that will bring this price. The perception that this dollar is "no longer a good reserve", it will bring the flood of buying. This "already printed and in circulationtoday" currency will seek gold!
Governments will tax mines for the right to produce money and force them to sell production in terms of "whatever the new world reserve currency" is at that time. Euro? Because gold mines are the "unique" circumstance in world of investments, their owners will suffer a "unique" problem of definingwhat they really own!
Also, remember, gold will rise soon as world trading continues this course of change. However, at some point, when the dollar market is destroyed, noone will know the currency value of gold thru an official market. Paper gold will not do well as the currency world is at war! The true surge of gold in dollar terms will not show until perhaps a year has gone by. During this time of trouble, physical gold will prove to be "the investment and holding for a lifetime".
From David: Friend of Another. Your thoughts that the Euro price for gold could be set at perhaps $6000. As the US is the largest holder of gold reserves, wouldn't even the suggestion of them selling gold keep a lid on the gold price.
ANOTHER: Mr. David, Again, please place yourself in this time of change. Perhaps many banks have failed and most governments may seem as "Russia today". In this time, the US will not sell it's official gold for such a low price.
"a young man cannot see the future thru the illusion of day, always in the night of life we find the clear path"
From Gandalf the White: Hail MK, I certainly agreed with your AM post and was happy to see things going in the correct direction, UNTIL a few minutes ago when the NY Shorts removed about $2 from the Au Spot price ! Now a Question to you. Reading ANOTHER's latest message, (FIRST let me thank you again for making a sounding board for HE and Friend!) Does he no think that ONLY the "bullion type" gold will retain the realvalue ?
This would, I hope, include coins and other physical type items, BUT NOT mining company stocks and paper items such as XAU calls and options.
What are your thoughts on that concept.
ANOTHER: Gw, I would say, all forms of physical gold is good to own. Even the rare ones offer the "art form", yes? Even in war, the art work is looted first, then the jewels, and always food. I prepare for not the war of men, but the war of currencies! This conflict will bring forth a new concept for many: "western governments will encourage people to hold physical gold "! When the Euro has defeated the Dollar, citizens will be asked to use gold as a savings, for holding the Euro will be frowned on. Gold will not bring your "capital gains tax" as the mines will be taxed to compensate.
Yes, rare gold will be good, but not as liquid as "bullion type" gold.
From Steve: On 8/10/98 Friend of Another commented that hyper inflation "will destroy virtually all gold based paper assets," and that "the contract system they deal with will not be functioning during this time." Could you help me understand the breakdown of the contract system on a global basis and why those companies with cash reserves will not be able to whether the initial economic system collapse and do you literally mean "zero" stock value for all gold stocks.
Do you foresee any interim period between now and hyper inflation where gold will go up enough to suggest that those holding gold paper assets will be able to sell at a higher value than the doldrums it presently holds?
Thank you for your insight.
ANOTHER: Mr. Steve, If you read my letters for today, I think this question is answered. Also, this new gold market is "ongoing" and "changing". The potential exists for the return of gold as the "only" reserve currency. This may result from a failure of the Euro, due to a massive upheaval. Oil states, they have the ability to force this outcome. During this result, all paper will burn and the world economy will start over. However, the BIS is buying gold for customer governments as they begin to lower the dollar. This action, began some months ago will bring gold up, perhaps to the middle $360 range. If the world paper markets do not destroy themselves, gold stocks may rise for a time. But, physical gold is the good hold for this time.
From Johnson: Another, your comments are fascinating!I am a small investor who was lead to gold by way of the Y2K computer and embedded chips/ infrastructure global crisis. How do you think that figures in to your projections? Also, how can a small investor take advantage of this knowledge? Gold calls? Gold coins? If the US is heading for this apparent disaster gold will be confiscated as it was during the depression. How aboutmining stocks? I understand they have sold future production in order to stay open!
These are interesting but troubling times.
ANOTHER: Mr. Johnson, I add only this: Many savers consider "no need for the gold". As spoken to Mr. Kosares, I think these investors of "young eyes" do not know the value of this insurance. Please add the amount you pay for the "Western insurance" of all personal things. The Automobile, House, Health, Life and Other. What is the "return on this investment"? It cannot be known until time to collect, yes? Perhaps, a fortunate person will find "never a return".
The physical gold, this money insurance, it will be collected in future. In that time, the return will be easy to see.
From Rod: Dear FOA (and/or Mr. Kosares), Upon reading your letter of 8/10/98 to Mr. Kosares, I have the following question. Is it not probable that, in the interest of preventing an administrative nightmare (not to mention the equivalent of another "drug business" in "black market" physical gold), the "powers-that-be" will create two forms of physical gold? One would be "street" gold (coins, jewelry, industrial products, natural resource reserves, etc.) valued approximately at current rates, the other would be "Central Bank" gold valued at some (high-"dollar") "reserve" exchange rate. The latter form of gold would NEVER leave the CB vaults in ANY WAY other than as "guaranteed genuine" paper certificates "directly representing" the physical metal).
The process of "reserve currency" conversion could happen "overnight" by deciding upon how much gold to take out of circulation and "pegging" the "exchange value" of all existing currencies at the same "point in time" (probably to the US dollar). Each currency would be "assigned" their relevant "share" of the CB gold "pool" at this time based on the current "value/amount" of that currency in "circulation". The process for a country to "add" to the "CB reserves" after the initial "creation" would need to be based on some "quantifiable" measure of the "true" increase in the "wealth" of the contributing nation (relative to the whole world?). Subsequent to this "point" all national currencies would "float" against the "CB gold-certificate reserve currency" based on the country's "economic health" [deja vu - shades of the "old" gold standard?].
The removal of the "CB" gold from circulation might cause a short-term spike in the price of "street" gold. However, "supply and demand" would soon find a true price for "street" gold. The current infra-structure for precious metals trading would not need to change since it could still be applied to the supply/demand for "street" gold.
Thank you for any commentary/enlightenment.
P.S. A precise trace of radioactive isotope in each "bar" would segregate the two types and thus make it easy to tell if any "leaked" out of the CB vaults by "mistake".
ANOTHER: Mr. Steel, I add this to your thoughts. A currency losses value because persons do not want to use it for commerce or savings. During the times of "distress", this "value loss" does happen because citizens are selling the paper for other currencies or they are exchanging it for "things". In times past, a currency becomes "bad" because the government is no longer trusted to maintain the value of paper money. In your process, noone would take a paper gold receipt from a government if the gold could not be removed. Treasuries are known to cheat more than the once! If the paper receipts cannot bring gold, they become as "plain paper money". The Treasury say, "I print no more than amount equal to gold", but then they print more " as a temporary, emergency, measure", but then there be no end to emergencies, Yes?
My proposition: Revalue gold to represent all currencies. Perhaps many thousands US/oz. and all governments buy and sell gold for these currencies, in the open. In this outcome, we find no more "black market physical gold" than there be "black market physical currencies"!
9/3/98 ANOTHER (THOUGHTS!)
Will the Euro become as the dollar of days past?
If one hears the thoughts of present investors, they consider this new currency as "a horse to fat for the running"! I offer that life is but a series of choices that, in each case, expose the risk of saving our productive efforts for a later time. Each choice does hold the bad flavor if eaten in inappropriate combinations. Even the vintage history of wine does show the bad years of mistaken purchases.
Some make the great gamble by trading investments for profit by day. As the night of these assets approaches, they find the dull taste of gold as "a season for the food of others". It seems, only the hot spice of derivatives will fill them! Yet, suddenly, a conservative nature takes hold in discussion of currencies. These same then speak loudly of a "Euro of little future" with no backing. It is much overlooked that the dollar has held the dominate position, to this day, "with little backing! Even fifteen years have passed from a time that many said, " this dollar has the weight of debt and will fall soon". It has not, it did not! Noone did see that the weight of trillions was "of little luggage" for this dollar camel that found strength in Gold! A gold chart from 1970, turn it upside down for view, there we see the strong dollar beast. However, even gold will not support the lead pack animal that does become wild with power. It will be put down when the replacement arrives. Mr. Kosares, from my last letter you find the direction to unload this dollar, yes? It be time to remove your luggage, quickly! Events, "to defend a falling dollar", "in the form of rising interest rates", will show this as the currency soon to lose the backing of gold.
I think the mistake, for many, does come from their "eyes of youth". Even the old experienced mind does, at times, view the world with "eyes of trust". Few can, or will understand what makes a currency, a currency. Gold has not changed, nor has it lost it's place in the world as money. It is still the test of currencies, yesterday, today and tomorrow!
9/3/98 Friend of ANOTHER
Poland and China are good customers for the BIS. This is real physical gold they are taking out of circulation, not the pay me back when you have a chance lease deals. They really do have the IMF/Dollar countries over the barrel. Under these conditions it's easy for them to drain the Canadian gold reserves. Soon, these goldless countries will be left with nothing but high yield US dollar treasury notes. Later, when new issues of this paper is yielding 15%-20% these Central Banks will wish for the day when they held an assetthat offered no return! Gold!
The world currency crisis is heading for resolution. I think most of the reallocation of reserve assets is complete. Now the war can commence. The Dollar NEEDS a lower gold price to keep it up. London tried to use the Russian gold story as an excuse to send it down. My understanding is that whatever collateral was freed up from the USSR , the BIS picked up for others. It left the brokers selling leases for almost nothing or 1/2% or so. No one was buying them so the rate just fell on no volume. This was a lucky move for them as the perception was that massive sales were taking place. I don't think the BIS wants to be seen as a currency destroyer so they are doing the buying quietly. Investors know now that $280 will come back rather quickly. I thought it would take a month or so!
Michael, I'm looking for a large default in the paper gold market. With the major CB only buying now something is about to give as the most extended shorts can not cover. A default is most likely part of a game plan to get the ball rolling. This spike in gold will no doubt crush the dollar. The next few months will offer the last period of time to roll out of dollar assets at a good price. Of course, all of this is my opinion from and for the most part, Another's.
Editor Note: It was at this point in time (late September 1998) that USAGOLD successfully launched its Discussion Forum for wider public participation and interaction. Subsequent intermittant posts by ANOTHER and FOA can be found in the Archives and at the Gold Trail (see links below).
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May '98 - Sep '98
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