"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
[View early writings of ANOTHER and FOA at USAGOLD (5/1/98 - 9/3/98)]
WELCOME to the Trail Head...the First Archive for "Walking the Gold Trail"
USAGOLD is pleased to offer these special pages of unfolding commentary that are sure to challenge conventional perceptions of the gold market and international monetary affairs. Content for these Gold Trail pages is in the hands our two anonymous authors, "ANOTHER" and "Friend of ANOTHER" (FOA); and based on our past association with these popular commentators, we are confident that the message will continue to be as fascinating and as worthy of careful study as anything you will find on the web today.
Through these special pages we can now "Walk the Gold Trail" of current events; anticipating the road ahead while leaving this easy-to-follow trail of commentary behind.
We encourage you to follow along (or to catch up), and then to join your friends at the USAGOLD Forum to share in the discussion. It should be noted that we do not edit or seek to alter ANOTHER and FOA's presentations; they appear here as submitted by the authors. With that, we have finished lacing on our own hiking boots, and stand ready to enter the yellow wood, taking the path less traveled by...
Access the USAGOLD Discussion Forum Archives to view daily commentary referenced by FOA.
February 2000 to June 2000 (Archive I) This archived commentary has been re-arranged and presented in chronological order so that you may begin reading, naturally, at the top. However, you may click here (Scroll To Bottom of Text) for the later commentary.
FOA (2/23/2000; 19:49:22MT - usagold.com msg#6)
Hello everyone, I'm glad you could come along. My name is FOA. I see a lot of old faces here,,,, and some new. If you are wondering where we are,,,,,, your participating in one of our walks and talks on "The Gold Trail". You're one of many people who take the long drive out of the city to come here. Some say it clears their mind from things that are not real. Whatever the reason, it seems everyone arrives here sooner or later. For myself, I have been hiking this path for a good part of my life. I prefer it here, because from this vantage point we can better grasp how the world works.
None of us are the first, nor will we be the last to take this hike. Over time, various people and nations have been on this path, perhaps going back a thousand years or so. During some periods this same trail was followed right through the main stream of society. While during other times, like today it has tracked far away from the economic illusions in our modern world.
I see most of you have brought your laptops (computers) and cell phones for internet access. Good. We will be looking at charts and things as we go along. Also, one of our rules here is that no one can offer their credentials of track records to each other. Out here we all are the same with no exception. Just real people taking in the world events as they happen around us. Besides, one's past accomplishments and financial success are about what happened yesterday, not tomorrow. And understanding the future is what time on this trail all about. We will only look back at past events and commentary to gain perspective, understand ourselves and find reasoning. A process that helps all of us think more clearly in this world gone mad.
And one more thing before we get started: some of you were asking who I am. And I also heard those city slickers in the back joking about how this was all "so lame". Well, to address the second item first,,,,, more than a few of you slick dudes have left this trail complaining that the hike made their brain hurt worse than the old leg muscles. We'll see if you new ones are still joking after walking a few miles! Oh yes, I see you're wearing hard sole dress shoes. Now that "is" lame! (smile)
Back to the first question: all of you already know me. Just look in a mirror and see for yourself. I'm the butcher, baker and bricklayer,,,,,, doctor, lawyer and the banker. From the Texas oil man to the yardman in Hollywood, I represent the thoughts, feelings and perceptions that many people have, but never express. After we share some time on the trail, many of you may find that most of this understanding and knowledge of FOA was already with to you to begin with. Truly, it was the years of exposure to "Western life" that has obscured our good reasoning.
Mine is also a world perspective that offers thoughts and views as seen though the eyes of others from many lands. Sometimes it's through the eyes of Another. Oh yes, one more thing,,,,, I'm American to the core! "Born in the USA" and still living a "very" private life in my home there.
We must view the world in a broad context, just as much as in a detail perspective. The larger perception can be just like looking at a river the valley from the ridge above. From far away it's easy to see what direction national trends are flowing. The whole body moves as one, always towards the sea. The problem comes when we get too close and interpret things using only a small river section in front of us. More often than not, the white water we see only hides a deeper flowing truth.
In like sense, national governments and society in general, are the same as those boulders and eddies in the river. Seen up close, they sometimes give the impression that the river is flowing up stream or sideways, when it's only one small section of a larger political will. The same is true in the modern gold markets. The largest part of the river could be flowing in one direction with an unstoppable purpose, but the various swirls and eddies make it look like it's going in circles.
Within every social order, people have conflicting factions that try to dominate the whole. But if one can understand and pinpoint the logic and reasoning of several dominate groups, we can get a grasp for the overall eventual flow. We have seen through out history and in our modern life that the human spirit, most always reaches for and leans towards natural conclusions to ages old problems. There is something in us that makes mankind flow this way. Time and again we build up our emotional will. Then in a great flood we literally overwhelm the branches and rocks that distort our progress through this stream of life.
Today, it seems that the need for this natural flow has been perceived by several of the worlds large groups. We see this in the progress of the gold market to date and is something we have been discussing publicly for several years now. We have given many different perceptions of this changing modern gold market. Each appropriate to it's own period of time. Indeed, they were snapshots of political will,,,, each taken in the context of the moment,,,,, all documenting the evolution of gold as a new force,,, a new player in the world today.
Truly, the stream is being prepared for the great flood that must come, will come!
We rest now
Our most broad view, expressing our strongest position is this: From ten or perhaps twenty years ago a political will, a concept was being formed that would today change the economic architecture and power structure of the world. Within this change, gold would undergo one of the most visible transformations since it was first used as money. We expect that starting three or four years ago, the actual gold market itself, started responding to this sea change. As such, in our time, physical gold will enter the greatest bull phase in it's human use history.
This my friends is the very trail we walk today. During our hikes and fireside chats, we will point out this political will, consider the logic and express our reasoning for this position. All the while, observing the "river current" in the form of events that will soon confirm our view. Indeed, as Another always said, "time will prove all things".
At times we will walk looking backwards, as we pull up many of our old posts and discussions, detailing the whys and what-fors. Why we said what we said, then. I hope these walks will be as interesting for all of you as it will be for me. When not writing here, I can be sometimes seen discussing gold on the USAGOLD forum as "Trail Guide".
And lastly, I wish to thank Mr. Michael Kosares for creating this fine venue. Displaying all of the creative, professional talents of the Centennial group of people, this entire site is a testimony to their forward thinking ability which is so lacking in most precious metals companies. With this in mind and considering our changing world, a relationship with them today will most certainly benefit the investor in the long run. Possibly in a way one may more fully appreciate later. I encourage you to support your future as well as this USAGOLD free site.
"the human river flows for the will of no man,,,, it takes our precious time as it's own
our lives are spent learning how it does pass,,,,, yet it will never know how we have grown"
We walk this new Gold Trail together, Yes? Thank you for reading,,,,,,
FOA / your Trail Guide
FOA (2/26/2000; 11:13:56MT - usagold.com msg#7)
A Day Walk
If I had a nickel for every time we thought the dollar was finished, I would have a bunch of nickels! Remember back in the early 80s or even further back into the 70s. All we heard was how the dollar was finished and going to crash and burn. Books about hyper inflation and the need for gold / swiss francs were all over the place.
I read all of them to gain perspective and also acted on some of their advice. Made some money on it too. But even then, something just didn't completely ring true about the whole scenario. Indeed, in hind sight, gold never did return above $800, the dollar didn't hyper inflate and most of the world kept using the dollar as a reserve.
Today, we can more fully understand why so much of that early insight failed to deliver.
True, the dollar was seen as a basket case back then. It had just been pulled from it's gold bond and prices were going up all around us. However, because the world had been on a simi dollar / gold standard, all nations that had previously signed onto using the US buck as their currency reserve now did so with even more resolve. More important, it seamed than using gold itself was out of the question as every country's Central Bank brought dollars as fast as we printed them. The dollar still settled most all trade accounts while dollar reserve buying made an obvious show of support for this world system. No matter how much bad press was offered, they were staying on track and they have continued to do so right up into the 90s!
But all of this flew into the face of what every economist was saying, back then. The common understanding of the era was: if the US didn't stop over printing it's money, we would all experience a major price inflation,,,,,, and no one could stop it! Again, "major" inflation didn't happen and to ask a further question: if the dollar system was so bad, why didn't the world just dump the reserve system and refrain from using it further? In other words, let the dollar be "the US dollar" but don't use it as a backing for your own money system.
Thick Brush Now
Going against the logic of "sound money": through out all the currency turbulence of the 70s and 80s era (including today), the US never did reign in the over printing of it's currency. It continued almost non stop money supply expansion for it's local economy and in addition sent a good portion of it's cash all over the world. On and on the US trade deficit continued to do it's work of feeding ever more US cash into foreign economic systems. We printed paper currency by borrowing it into existence,,,,,, used it to purchase real goods overseas ,,,,,, while foreign governments actively soaked up this dollar flood by expanding their own money supply.
Like this: When you buy an item externally, a dollar is sent overseas to pay for it. Usually, through the world currency trading arena, that dollar is converted into the local currency of the nation which the goods came from. But more often than not,,,,,,, as we print that dollar out of thin air, the foreign government takes the dollar into it's reserve account and prints one of their units for deposit in the local economic system. They do this because: if the foreign CB didn't save the dollar as a currency reserve ,,,,,, and sent it back into the world currency markets to "buy" an existing unit of their money supply,,,,, this action would drive up their currency value vs the dollar and make the price their goods non-competitive in world markets. In other words, a US citizen couldn't use a printed (borrowed) dollar to buy an item for $10.00 that outside the "dirty float" of exchange intervention would cost $15.00.
This is how the "dollar reserve process" inflates the money supply world wide as we (USA) run a trade deficit for our benifit. It keeps the dollar exchange rate higher than it would naturally be thus allowing a US citizen to buy goods at a cheaper price than our expanding money supply and implied currency value would normally dictate. A process in and of itself that invites still more dollars to flow out and purchase still more external goods. Had foreign CBs not taken so many dollars, the ever expanding US money supply would have long ago impacted currency exchange rates and forced a major price inflation internally (in the US). Yes, the major inflation so many saw coming,,, back then,,,,, would have arrived,,,,, then.
So why did these other CBs do it? The standard explanation was that this created a market for their goods here in the US. Yes that's true, but it begs the question; did no one in their land want to buy goods manufactured locally,,,,,, and pay for them with the same printed money supply? Why is it the US could inflate it's money supply to buy cheaper goods externally for no more than the price of printed paper? But, in the same country our paper was sent to, they couldn't print their own currency to buy their own goods? Why couldn't they raise their real standard of living somewhat using the same process like the US,,,,,, and doing so without the burden of inflation or importing foreign currencies?
Again, why would our printed, inflated money movements not create price inflation for us (USA) in goods purchased externally? What if they (foreign goods producing countries) printed an amount of their money equal to the inflow of dollars,,,, but, without holding paper dollars as reserves to back it,,,,, brought the exact same goods from themselves. Common prevalent economic theory says price inflation would result? Or would it? Or better said: why them and not us?
Into the deep woods again
Again, and as above,,,,, In the 70s, it was widely held that the dollar reserve system forced other countries to inflate their local currencies, thereby importing dollar price inflation. But, as time went by,,,,, indeed a decade or two now,,,,,, the same process continued non stop, with no change. It seemed that some "other" countries had found a "new way" to somewhat circumvent the dilemma. Or was this "new way" something sold to them in order to extend the dollar system's timeline?
Many of the lesser third world countries experienced a combination of sporadic hyper inflation and deflation as we forced the dollar reserve system down the throats of their citizens. Their people's living standard constantly fell as they worked ever harder to produce more goods in return for more of our printed dollars. But, instead of using the extra inflow of dollars (positive trade balance) to buy their own currencies in the local system,,,,, thereby keeping their currency strong,,,,, they used that dollar flow as collateral to borrow (from IMF and international banks) more dollars from the world dollar float (mostly called Eurodollars). The lure (or the hard sell) was that they could build up their infrastructure,,, increasing their production efficiencies (human productivity's),,,, thereby raising the national standard of living. Further, they were sold the unneeded idea that even if they didn't completely use the dollar surplus to borrow more, they should hold those dollars in reserve (buy and hold US treasuries) and print more of their own money!
Again, it seemed they had no advocate to push for their own best interest. No one told them that their people already worked cheaply enough to more than offset the competitive loss of a stronger local currency. No one told them that with a strong local currency structure,,,,( that using the dollar surplus to buy their own currency would create),,,,,,,, would allow them to borrow in their own capital markets. A more go slow approach that builds long term benefits. This process would free them from the entanglements of making international debt payments in another money. Indeed, the costs of those involvement's later proved overwhelming!
Now the trail becomes more open
For third world countries their international dollar debt exposure eventually locked them into a servitude to the dollar reserve system. Despite all their natural and human resources, currency involvement had taken a lion share of any productivity increases and increased lifestyle this modern world offered.
However, it did help the cause for the dollar reserve system. By creating an ever growing international debt in dollars, eventual dollar demand to service this debt would only increase. Thereby keeping it's value artificially high. In addition, any left over floating dollars quickly took the form of US treasury debt held in these small countries treasuries. There they were used to further hyper inflate their own currency supply.
For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars,,,,,, and in doing so give the same buying power the US citizens have in your market,,,,,, to your own people?
If it's not price inflationary to take in part of a world "inflated dollar supply" and create jobs for your people locally,,,,,, why would it be any more inflationary to print your own currency outright? Indeed, why does one need a dollar inflow to legitimize the same money inflation process? That being currency inflation to create jobs?
Why should we (as dollar asset
holders) think about this question? Because someone else is and
doing something about it today!
Back to a marked trail
Today,,,,,, and after all of this,,,, the dollar never did crash from price inflation. At least nothing like what was expected earlier in the last two decades.
The dollar reserve system was never going to fail then because the major world economic powers were willing to use (waste) all the productive efforts of the worlds people to keep it running. Looking back we now understand the thinking behind this. Without the dollar acting as a reserve, we would have had to go back to a gold system. There was no other currency structure strong enough or deep enough to carry the load.
But, gold had been proven to be much to easy to circumvent as a national or world currency. It seemed human dynamics would never allow an economic system that operated on a pay as you go process without gold debt. If history had proven anything it was that if we have a money,,,, fiat or gold,,,,,, we are going to lend it, borrow it and in the process create debt. Yes, even using gold!
Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will,,,,, come hell or high water,,,,,, lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way.
Because the modern world had progressed into the efficiencies of using high speed digital fiat currencies, no one at that time or today, was willing to crash the whole system by returning to gold. I suspect that the worlds richest would have lost a lot, but so to would "us regular" people. Even with our savings in the form of a "digital illusion", at least we had a job to go to and a dream in our bank account. Removing the dollar and returning to gold would have erased the illusion and temporarily shut down the jobs.
So, dollar hyper inflation never arrived and gold did not make it's run because world CBs bet your productive efforts on supporting the dollar reserve. In the process, the US standard of living was raised tremendously on the backs of most of the worlds working poor. But this is not about to last!
A broad view from the ridge
Not long after the US defaulted on it's gold loans,,,, dollars held as gold certificates,,,,,, major thinkers began the long process of forming another world currency. One that would not maintain the fiction of a gold standard with the somewhat fixed gold prices inherent in such a system. The creation was distorted, to say the least. Just as the River in my first post was often seen in distortion, so too was this currency issue. It began with the European Currency Unit (ECU) and has later progressed to it's present state of the Euro.
After operating on a fiat system for 20+ years people are starting to realize that the only thing that backs a currency is the real productive efforts of their people. Yes, over time we always borrow more than out productive efforts can pay back and proceed to crash the money system.
But what else is new? (smile)
We call this a money's "timeline" and it's as new an idea a life, death and taxes! Time and debt age any money system until it dies. The world moves on. Only this time gold is going to play a different part in the drama. We will all watch it unfold.
It seems people saw something else that would make the Euro unique. Paid up assets also stand behind circulating money. Indeed, if someone owes a $100,000 dollar piece of land , has a good producing job and borrowed $50,000 against his land,,,,,, the world is likely to circulate that debt note as a fiat land backed currency. But, if his gold (the land) is worth $1 million in a free physical market,,, AND RISES FURTHER IF CURRENCY SUPPLY OUTPACES REAL PRODUCTION,,,,,,, and his other debts are relatively low ,,,,,, the same note would circulate just as effectively if the $50,000 was borrowed against his name alone.
In essence, the jump into the Euro is more based on a new currency that is more honest in dealing with our historic human dynamics. Let's try not lying to ourselves and admitting that gold alone in a currency will not remove our will to borrow and lend and therefore eventually defraud each other! Would it not be better to at least not shackle the money to gold. Indeed, a real physical freegold market will constantly be devaluating any fiat currency over a long term. While removing the need for CBs to maintain fixed exchange structure through a dirty float against gold.
But, the most important aspect is in the escape valve gold would provide to developing countries with positive trade flows. Those that wish to settle their debts outside the currency arena using gold as a settlement. Or, if they wish, to buy gold in the open market with their trade reserves.
The secret to all of this is in the "Legal Tender laws". Allowing gold to be used as a Legal Tender,,,, "for the settlement of all debts public and private",, but changing international law such that no form of debt can force it's payment in gold! This opens a one way street for gold and a two way street in fiat currencies. No one will lend gold because they cannot force it's return in the courts, thereby making gold a physical only international currency. Yet, on the other hand, we all must borrow in this modern world and currencies will be the only avenue for this. Creating a demand (and added value) for them in addition to general use demand.
The first thought many will have is that everyone will just buy gold to make debt payments, driving out fiat currencies. But remember, if you have debts they will be in currency settlement only. One will weigh the cheapest form for repayment! Gold in this atmosphere will be completely free to trade, become extremely expensive and stay that way. Not to mention that it's sale as a commodity (outside it's money use) on the private level will be well taxed.
We rest now
True there is a lot more to this story. Some posters have been discussing it publicly for some time on the USAGOLD forum. If you want a wonderful background reading on what "Freegold" would mean,,, get your laptops out tonight and read the link above. There is also considerable agitation voiced against this view.
First read all of:
Aristotle (2/7/2000; 7:15:24MDT - Msg ID:24589) It begins! -----* Executive Summary --an Outline of Observations *-----
My position: The world is going
to change it's currency system before long and this will greatly
impact the wealth of dollar asset holders. Not to mention physical
gold holders. As a note for further consideration and talks,,,,,
we have talked before about the "Texas Railroad Commission"
and how it once declared oil a public utility and later controlled
it's production. In the future, international law must declare
all large gold reserves to be "public utilities" in
the countries they reside. Mines will be very profitable and good
investments after they recover from the destruction of our existing
paper gold market. Still, their total production will be controlled
and somewhat taxed. Small private operations will more likely
be heavily taxed.
We will pick up the pace later (smile). Eventually getting to oil and the markets today.
Thanks for reading,,,,,, FOA/ your Trail Guide
FOA (2/28/2000; 10:18:13MT - usagold.com msg#8)
The real hike begins
In my last post "Foundation", we raised several questions as we walked. Some were implied and others were direct. But all were mentioned to give pause to think. Today I'll offer my thoughts from an old study.
By 1971 the remnants of our gold exchange system had two major forces working against it.
The US had printed way more dollars than it had gold to redeem them. This didn't even take into account the fact that Americans couldn't exchange the native part of the money supply for gold. The whole concept of physical bullion keeping officials from printing too much money became shot full of holes. The reality of our modern day dictated that any major world power, not just the USA could eventually override the precedent of a money supply tied to a fixed price of gold.
It seemed that as powers became super powers and nations represented larger people blocks, their ability to just walk away from a stated monetary policy increased. Thereby negating the good effects of gold on a system.
The US had changed it's gold backing policy once before as hard times attacked the local economy. After the 1929 downturn began to gut the wealth of almost everyone, we just took gold out of the INTERNAL money system and added that supply for backing the EXTERNAL money system (foreign dollars). Indeed, all American gold was called in from US citizens. So, for anyone that owned real gold (in their hands), the historic dynamics of retaining ones wealth in gold during a "debt destroying black hole experience" was removed. Further, the "gold force" was not allowed to do it's job of cleaning out all the "dead wealth" created through the prior process of inflating the money supply.
Of the many excellent writers on the USAGOLD forum. I think some would see that the "hard times" of economic contraction are created in the first place by not adhering to a golden monetary system. I agree. But looking at it today, whether it's before the fact or after the fact, society just will not work within a system that fully kills off bad debt. Even if one separates society into two groups,, "controllers" and "the rest of us", it's still the way the world has functioned from the beginning. So, the perception I have received as to how policy will evolve in the future presumes human dynamics will continue as they always have.
Having changed the rules once (1933) already. We (USA) later proceeded on the same road again. By 1971, we were making dollars at a rate that virtually assured another change in the gold backing game. Indeed, it was becoming obvious that gold could not control the will of a large nation.
In addition, the very system itself offered no discipline. Think about it. Accepted policy dictated that a nation's gold was held in the same geographic economic block that utilized the money said gold was to represent and control. If that block held the gold and the "real money substitutes" under the same society roof, there was no impartial authority to control how the rate of gold could be exchanged for dollars! A natural, fair $X dollars for X amount of gold exchange rate could be changed at will and for the economic will! For a true gold system to really work, gold would have to be stored and it's conversion rate controlled in a separate nation from the country that printed the money. Without that separation, a large modern power could "using local law, take it out of the system" or "not ship it's gold" if the money supply increased too much. Indeed, this first item was followed by the second and is exactly what happened after 1971.
So, our modern society was quickly proving that it was incapable of maintaining a monetary function of gold if it was intertwined in any official fiat currency mix. Even if the currency represented an outright gold receipt in storage and supposedly redeemable through force of international law!
The trail is heading uphill now
Few people can fully accept or consider that oil became the backing for world dollars after gold was removed in 71. But that is exactly what happened in theory and practice. Using some earlier writing, I'll tie them into what we are saying today. I'm going to repost some of my comments
(between ---- marks) from the USAGOLD forum archives. Starting with FOA (1/15/00; 14:58:12MDT - Msg ID:22961).
---- my friend, they were not using this concept as a real "commodity money play" in the "gold standard perception". At that time we were buying local oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars". But, as you pointed out, dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity, not gold reserves. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil pricing fully well expected to cash in unneeded dollars for gold. As we can see, reality and present day events of that time were as "mismatched" as today! All of the dollars success was ultimately made possible because oil could (and was) priced so far below it's "economic worth" to the world. At that time, even our Middle East friends had no idea just how useful oil would (and had) become to maintaining the world economic base.--------
Having read that (and keeping
it in mind), I return to the implied questions of my "Foundation"
post below. "Why in the world did foreign governments, especially
Europeans, eventually go along with supporting a now fiat dollar
reserve system after 71?"
Well, the whole notion of using any paper money is in the confidence that we can eventually trade it for something,,,,, Beer, food, clothes, cars, etc.. Gold was always in the money mix to insure that we could get these items at a somewhat standard price. Still, most of society thinks along the immediate line that: "I don't care where the fiat money comes from or what it's backed by,,,, especially if I can get something well below today's value cost,,,, and it benefits me, now!"
This is where oil made the jump from being "just a commodity" to "the major world necessity that can and did back the dollar". Prior to the US going off gold in 71, our whole economic structure was expanding because we were gaining massive leverage through cheap oil. Back then, oil was literally changing our lifestyle for the better, and doing so because it's dollar price was so incredibly low relative to what science was doing with it. Modern science had made oil worth so much more than we paid for it, we could extrapolate our debt and money supply growth far into the future and still figure that productive increases would cover it. In effect, the US was targeting it's economy and money value to future oil flow value, not gold. Here is the same thought in my post:
------ the new found prosperity from cheap dollar oil was being used to justify mountains of dollar debt. As long as a barrel of oil could be used to produce more relative real wealth than the dollars used to buy it represented, dollar inflation worked in the only political measurement that counted. "An increase in the standard of living"!--------
The only problem was that if we continued this route, two things had to give: we would have to leave the gold standard because our money supply was exploding (relative to gold supply) and find a new source of oil because ours was running out. Again, here's more from my old post
-------At that time (prior to 71) we were buying local (internal) oil with "fiat dollars" (made so by the 1933 internal gold confiscation) and foreign oil with "gold dollars".-----
------ , dollar production was so far past it's "gold backing" that it was obvious they (USA) were pegging dollar printing to oil prosperity. Still, with London gold and oil mostly settled in dollars, the foreign dollar oil deals fully well expected to cash in unneeded dollars for gold.--------
In the eyes of our official
thinkers then,,,, For the local US economy to mature we needed
to get off the gold standard,,,,,,,, get the world to accept fiat
dollars backed by oil,,,, and find more oil that could deliver
triple dollar value for every dollar we paid! It was a tall order
and one that would require a major adjustment. The transition
through out the 70s was rough to say the least.
More from my post:
-----------they (usa) were already shipping so many dollars out and any more would further aggravate the "possible gold drain perception". This was everyone's problem then as the industrialized world wanted to still get gold if needed, but they also liked the "non inflationary" (relative to that time) expansion of the dollar base as it expressed the new oil economy and it's real goods produced wealth. The US wanted new oil reserves to be "Local" (the Americas), because it could be paid in "fiat 33" cash (internal dollars were not backed with gold after 1933) , not the more golden "foreign cash". Both our neighbours to the north and south ever asked for much gold. In this light they acted like the local oil companies that received post 1933 dollars for oil (as mentioned above). Yet, to get these new reserves for fiat 33, they had to prevent the very cheap Middle East oil from supplying it all if dollar (oil) prices were higher. --------
------- First and foremost, everyone was caught flatfooted as the dollar broke from gold. Like I said above, the industrial world loved the dollar expansion in the oil context presented. (They were) Caught between what appeared as a good system based on cheap oil and the loss of gold delivery ------
------ Even as we left gold behind (1971) and oil went up (1978), the system still worked (at higher prices) because oil was perhaps delivering $100.00 worth of value and being brought for $30.----------------
In a somewhat convoluted way,
by leaving the gold bond, it forced all world oil prices higher.
Advancing the search for new (still cheap by value return standards)
oil and paying for it using dollars backed by not only oil payment
settlement in dollars but the continued purchase of supply "well
under world use value".
G-7 countries knew that initially they would have to sell some gold in a controlled burn that would allow gold to seek a higher level after the dollar / gold break. However, once oil producers understood that gold was going to be "managed" at reasonable levels, the continued pricing of oil in dollars and it's flow was assured for some time. Allowing the exchange of dollars for gold on the world markets,,,, as needed and wanted.
This also appealed to major countries outside the US because it addressed the "second" problem I listed in the beginning. That being the geographic location of a currency's real backing asset. With most of the world oil reserves located outside the US,,,,,, and the US slowly running out of it's domestic reserves,,,,,,, using oil as a backing dynamic somewhat controlled the "free will" of the US. If indeed, the US backed away from managing a cheap gold market or ran it's printing press too fast,,,,,, oil prices could be managed upward in a devaluation of the dollar. No, not the best of policy concepts for the world, but better than perceiving that the US "Fort Knox" gold was a control on money printing!
Going back to the initial logic of my "Foundation" post, this was the context that G-7 countries "brought into" as they accepted and supported the new fiat dollars without gold. Like I said, the alternative would be a real mess to behold and this position brought time. Time to conceive and introduce a new world reserve structure.
It worked in a broken pattern for a number of years. Oil and gold defied all predictions of higher prices as they retreated from every advance. Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation.
Cutting across the field and returning to today's trail
Nations today, with little gold holdings seemed to have no clue to where this was all going. To a degree, the US used them as they took in dollars and never brought gold at all. They must be thinking that the dollar can be expanded forever and never lose value! To this end, they have based their entire social and economic order on selling goods to the US for a dream in return. Yet, after all these years they are only now seeing that foreign dollars are worthless when the US only runs a trade deficit that will not reverse. The real risk today is now being understood. The American economy will only slow down from a hyperinflation,,,,, and that will be caused from a shift from the dollar reserve function! Trapped holding dollars and no gold to compensate, these other nations are headed for real trouble.
Again, thoughts from my Foundation post
Euroland thinkers (today) are beginning to see where they really don't need dollars in reserve to retain market share in the US. Just as I asked: "if the US is just pumping it's money supply to build a bubble,,,, flooding the world with inflated dollars that we must buy to engage exchange rates..... With the Euro in play,, why do I need to hold their dollars to legitimize the further creation of my own currency? I can buy gold as a "wealth asset" to hold as a physical reserve and print my own money supply....... It's the same difference and at least I have a reserve that
" " IS NOT FLOWING FROM AN IRREVERSIBLE TRADE DEFICIT " " !
In better words:
The Euro float is still too small to receive a massive dumping of unneeded dollars. Indeed, the more the US tries to discredit the Euro,,,, the greater the risk of a "Washington Agreement #2" where the BIS / ECB uses unneeded reserve dollars to BYPASS the paper markets and massively buy "real PHYSICAL gold". In fact, all they have to do is enter the market in a minor way and the entire paper gold arena will go up in flames.
So, Is the Euro falling? Or is the dollar running away as a liquidity crisis threatens it's use?
Are we at the very doorstep of a crash in the US markets and it's dollar?
All caused by an evolving transition from the dollar reserve system?
We have some old writings on this subject and will examine them later.
We make camp here
FOA/ your Trail Guide
FOA (03/02/00; 20:15:21MT - usagold.com msg#9)
A Clear Path
It's a nice day to get outside! Let's walk a while.
Think back at our recent history of gold and one can build a better perspective of this "new gold market".
After the 1971 gold window was closed, the gold market didn't immediately feel the effects of major physical buying. At least until 1976. Most of the world remained shocked that the dollar was no longer backed, but perception remained that eventually gold would be brought back into the official money system. Yes, the dollar did drop in value but not so much that it would destroy the reserve system.
The world remained tied to using dollar reserves even though gold no longer backed them. Oil prices began their long march upward, but most of these early advances were more so political statements, rather than related to the dollar problem. Oil states, flush with cash, were able to convert dollars into bullion at still reasonable prices (as could everyone else). In addition, rising oil revenues were running well ahead of bullion prices and goods inflation. Producers saw little reason to overly rush into gold because some thinkers still held the prospect of a later dollar / gold relink. Especially so as gold began to sink in price after the US made it legal to own again (for US citizens).
By early 1976, gold was heading for $100 an ounce and making dollar holders less nervous. At that price gold was only a little more than double it's last official price of $42 per oz.. It seemed that the US had achieved what was largely unspoken at the time:
---------- By taking the dollar off the gold exchange system, it provoked a large increase in the dollar price of oil. As I just pointed out, most of those early price rises were political. But not all of it. There was some marking of oil to the free price of gold in a attempt to replicate any lost bullion value. Still, initially, oil prices more than made up for their (producers) now accepting fiat "greenbacks".
Oil was then and is now the life blood of our "new oil economy". For the US, this rising price set in motion a massive effort to find new untapped reserves that were unusable with the low prices an earlier gold dollar generated. Prior, without a rising oil price, the US faced the real prospect of running out of local oil and having to accept the reality of eventually importing Middle East crude for close to 100% of it's needs. What many only speculated about in the late 60s, later became reality as the Middle Eastern reserves did indeed prove large enough to supply and cheap enough to pump for everyone's needs. Their reserves would outlast and underprice our reserves, as long as we paid them in gold dollars. -----------------------
I pointed out in my "First
Walk" post how oil was indeed taking over the job as an asset
backing the dollar. Even with the first increases in dollar oil
prices, the world and the producers were very willing to accept
a dollar value based on an expanding "new oil economy".
At least until mid 1976!
Look over here:
Of course, during this time there was plenty of "background noise" on the world stage. There always is and it usually distorts the picture just enough to keep us from seeing what was really happening. Like looking at a river up close, in the rapids, instead of far away. But, in 1976 :
------The IMF convened a monetary summit in Jamaica and ratified "The Jamaica Accords" in April. For some major people, this paper was the reality that drove home the golden point. The Accords formally recognized the managed floating currency system for the duration. Marking a turning point in how national super powers effect fiat currency use in our new modern economy. But more importantly, gold was "demonetized" as a reserve asset! -------------
Most everyone immediately grasped
what this meant; "that gold would no longer back the currencies
as it did in the old gold exchange system". However, for
some 15 years to come, no one fully understood what was really
said! In the Accords, the wording stated that gold would remain
a " " Reserve Asset" "! Indeed, as a non currency,
real wealth "reserve asset", this world class money
was set free to become a backing for any economy. Even one based
on a new reserve system. This my friends, was the key to perceiving
what would later happen in the world gold markets. We'll get back
to it later.
It's no secret why gold went wild from it's lows that year. For the first time since the 71 break, really big demand was driving the market. No it wasn't just the public's buying of coins and small bars. Nor was it the futures traders with their paper orders that caused gold to rise so much. It was the wholesale scramble by huge dollar holders trying to buy some of those "reserve assets" before it's price went sky high. This buying was in the form of 400 oz bars,,,,,,, lot's of them at a time! Some Central Banks slowly sold into the storm in a effort to manage the demand. Politics and the media did a good job of telling the story as they saw it. But the real reason for the managed rise was to demonstrate to oil producers and other dollar holders that everyone couldn't convert if they brought physical all at once. Had some banks not sold, gold would have gone into the thousands, and in the process destroyed the dollar long before it's date was due. Without a reserve system to replace it, our world economy would have crashed and burned.
Further along the path:
Without the prospects of gold ever backing the fiat money system again, a good portion of the next oil price hikes (late 70s) were dollar related. It wasn't until the mid 80s that two things occurred to lower oil prices for an extended period of time.
The incredible rise in oil prices once again took away some of the pressing need for producers to buy gold. Oil itself was compensating for price inflation. Not to mention that gold was seen as still relatively high. Further, the gold marketplace itself was evolving into more of a contract market than a physical one. Offering hope that financial demand could be channelled away from becoming physical demand.
Europe, London and the US had all joined together in a quiet effort to better manage the price of gold. All in an effort to once again buy time for the dollar. From a US perspective, this time was needed to "work out" the dollars problems. From a Europe / BIS perspective, it was time used to build a dollar replacement.
Did both of these power blocks know what the other was doing? I think they fully well did. But as is usually the case in warfare, the generals on each side think the other doesn't have a chance. Truly, the net effect of this joint effort resulted in a stalled gold market, even though the reasons for it differed.
Once the evolution of this supposedly free gold market was seen by oil as backing the value of the dollar (with a stalled gold price), production was increased in the mid 80s. The combination of OPEC's added supply and the new supply created by the price induced US drilling, all forced oil prices down. The whole process was seen in the media as the world's dealing with OPEC and forcing the dollar down their throats in the process. But no one ever made the connection that they didn't have to take dollars for settlement and the world would still buy oil. But support the dollar for a purpose they continued to do!
Oil still had it's political ups and downs over the years and the same reflected in it's prices. But supply was mostly assured from a level to falling gold price. During the next ten years form 85 through 95, few really noticed that although gold and oil charted in the same direction, they never flowed in the same direction. Nor did they grasp how the gold market was engineered to supply gold for this very reason.
With most of the dollar oil problem licked, the G-7 began an effort to keep the dollar in play. Even though it's debt had aged it and it's timeline was running out. In 1985 they started a series of currency moves that would last until the early 90s. From the "Plaza Accords" (85) to the "Louvre Accords" (87), it was all an effort to stall and stretch out any crisis of the dollar. It seemed that no matter how much the dollar was inflated or how much debt was built upon it, it would be supported for all the world to see. Not even the gold market would be allowed to reflect any portion of this ongoing currency crisis. Showing their full colours in managing this "new gold market", the $500 price in late 87 was quickly brought down. Indeed, the evolution from a bullion marketplace into a mostly "new paper marketplace" was well underway. The later fall in price after reaching a Gulf War peak, was even more stunning.
It was right about here, in the early 90s that some major players began to stop trading gold. Instead they started slowly buying physical. It seems they finally understood what the "Jamaica Accords" of so long ago really meant. Indeed, it was worth leaving all the "winnings to come" on the table! Because, no matter how high dollar assets would go, physical gold was destine to go much, much higher.
In December of 1991, twelve members of the original "European Economic Community", now called the EU (European Union) signed the "Maastricht Treaty". It spelled out the process where they would establish a full currency union, called the EMU (European Monetary Union).
Once the EMU process was signed into law, we could see that there was indeed a purpose behind the formation of the "European Economic Community" in the early 70s. Because it closely followed the 1972 "Smithsonian Agreements", signed in Washington, declaring the dollar / gold break an official act by the US. Nor was it a coincidence that the very first discussion of a Pan Euro currency block in the form of a "European Economic Unit" was first heard of in 1976. The date of the "Jamaica Accords". The EEU, a precursor to the Euro, soon became official in the early 80s.
On January 1 1999, the Euro was born. On the headlines of almost every paper, the new Euro currency immediately became the topic of speculation. How high or low would it go,,,,,,, will it last,,,,,, what good is it,,,, and on and on. Yet, completely hidden from view and outside most speculator interest, one important item was overlooked. Once this competing reserve currency was formed, the two major power blocks of the world no longer shared the purpose of maintaining a paper gold market! Established, maintained and supported for the purpose of absorbing the demand for gold, it's price damping effects were no longer needed.
What an overview:
From a Euroland viewpoint, the dollar no longer needed to be supported by a low gold price. With the Euro in place and holding a large portion of the worlds new, non currency "reserve asset" for support, they no longer had a reason to buy at $280 or sell at $480. Indeed, they told the world they were backing out of the paper gold game with the Washington Agreement. We fully expect that during the 5 year time frame of that agreement, physical gold will soar from lack of supply as they trade it outside the London dominated paper markets. We also expect a convoluted workout of the left over contract markets as they fluctuate between $0 and $infinity. Further, the greenback could now go as high or as low as world traders would like to take this now "on it's own" currency.
From an oil producer viewpoint, with the physical gold market now only a shadow of the total "paper gold market", they can now only float a few dollars in sufficient amounts back into physical gold. With half the gold market supporting players retreating into the Euro umbrella, the present market will revert to little more than a paper float. With this in mind, it should be no surprise to anyone that crude prices began rising almost immediately after the EMU. Eventually, even $30 oil will disrupt world dollar debt to a point where the dollar exchange rate collapses. Forcing a run from dollar settlement and into Euro or a Euro + gold pricing basket for crude.
Prior to this they watch the same drama today you and I see. An ongoing dollar liquidity crisis that had long ago reached the end of it's timeline. Now it grows worse, brought about by not only the loss of most of it's Euroland financing function,,, but also it's Pan European support. Truly, this crisis demand will drive the dollar ever higher. A hyperinflationary trigger, not completely unlike the one facing Japan today. Day after day one has but to watch the US Fed ever pumping reserves in a effort to reflate a world dollar tire that's full of Euro holes!
From a gold bullion viewpoint: the Jamaica Accords signalled a permanent shift from holding gold and fiat currencies in competition with each other. Yet, the eventual good effects of such a shift would only happen once the sick dollar system was killed by it's debt load. Untill 1999, one of the two world's power blocks had a purpose in keeping it alive. Until a fall back replacement could be formed, a dead dollar would leave gold alone in the currency roll and sent the world into a depression. Truly, with talk of the EMU falling apartin 1997, oil wasn't the only entity that would have bid on gold if the Euro had failed.
But it didn't. Soon, bullion will return to doing what it did centuries ago. Representing the value of the worlds assets and productive wealth. Only, with the world having far more in the way of modern things than ever before in it's history, "Freegold" trading as a "reserve asset" will be valued as never before.
You ask, what are the dynamics of such a position?
How are world investors prepared for this event?
I'll tell you my view,,,,,,, next time on the trail!
Thank you for walking with me,,,,,,, FOA/ your Trail Guide
FOA (03/10/00; 10:51:52MT - usagold.com msg#10)
A Fireside Talk
We have walked a ways since our last chat, 03/02/00. Let's expand on what was said in each of these rambling talks.
To understand gold we have to look at it through worldly eyes, in a very "broad context". This is important because gold has a better history of storing true net worth over people's lifetimes. More so in a generational sense, not just in the decades span most of us choose to see it in.
Even though fiat currencies often record it as a poorly performing asset in the relative short run, it has far outperformed every paper money system. That's because every paper money system has eventually died from old age while gold lives on.
During both the short and long haul, physical gold is wealth insurance for our extended families. This holds true because even holding gold in the early successful stages of a currency's life, war, politics and natural disasters can work to destroy any nation's assets. This includs ones personal wealth that's denominated in the business structure of said destroyed society. Gold mines included!
Over time, one could never compare the returns of investing in stocks and bonds to owning gold. This is simply because when gold is entangled in currency schemes, it's fiat value is falsely presented while the currency system ages. Only the commodity use of gold is reflected, not it's much higher wealth "reserve asset" function.
However, this present era has become one of those unique periods in paper money history when gold will take a great leap in value during the relative short term. Perhaps we can define it as being between 1990 and 2010. Having covered the accumulation phase of the first ten years already, the next five should be one for investors to just sit back and watch. The last five will be a time where we spend some of our physical gold wealth.
This will occur in a transition from an ageing currency that's still entangled in gold valuation schemes and politics, into a new currency reserve system that's positioning itself to let gold run. In this new venue, we are going to see gold become a world class "reserve asset" that's not tied directly to any official money system.
Again, once physical gold is swept clear from paper moneys, it's value in real life terms will soar.
The modern gold era never changed. Banks lend the currency that is invested in South Sea - like companies. Then the companies and governments create ever more currency debt at the request of the populous. At first the currency is a receipt for gold, then it becomes a receipt for more receipts. Then more currency is created to save these same failing debts receipts, but no gold is there to back it! The endless cycle goes on, all the while hiding our modern value of gold in the process. As the game reaches the end, we even begin to think that the "natural things" and "real things" of life are not the only wealth. Rather, a contract can also be held as one's life savings. It will end!
As paper debt increases, it ages the currency by always generating more "fiat receipts" than human production can ever service. Then, at the end of the "currency timeline", in a great flood of human emotions, we reach for "natural conclusions" to a non retractable financial problem!
One of the conclusions we reach are that physical gold can replace the lost values we once placed in fiat debt and equity, even the loses in paper gold and gold equity! In this drama these same fiat values that we once traded as wealth receipts can no longer be valued at par with real earth things. Once at this point we reach for natural real wealth on a epic scale.
In the process the entire society, including the government structure and it's outgoing money system are all carried with us in an emotional flood to the sea. Sweeping away the whole format of our worlds currencies and real wealth. We will watch this new format unfold.
This is why so many fail to see why one should hold physical gold at this time, in this closing era. They ask, why now? What is different from 20 or 60 years ago? Seeing only the jewellery value of gold in contrast to past official fiat currency rates (dollar at $42 in gold) as enough appreciation to be fair. We think a move to $600 is enough and invest for that outcome. Locking ourselves out of the real surge.
These questions and perceptions arise because we can only review the recent history of gold. As such it was unnaturally priced in the fiat currencies of pounds and dollars, not traded "next to the currencies" and valued as a "real wealth" "reserve asset". In a price discovery process such as is coming, gold in the past would have reflected all the great wealth advances that have happened sence the early ages of European gold coinage.
Again, for most of us this recent period offers only a fiat value comparison and leads us to accept it's present low fiat valuation. Yet, gold's fiat values over this era were only relative to it's manipulated price during an extended Anglo-Saxon currency timeline. A period that saw the dollar take over the pound's role of representing and dominating all world wealth. Including gold wealth!
During this whole period, gold's value did have small shifts up and down. Even our recent 20+ years are representative of these small shifts. Yet, because of our fiat perceptions we see these moves as large bull and bear runs for the metal. While all the time a truly great value leap in gold was building, waiting for the present dollar lifetime to end. Once the dollar gold entanglements are ended, gold's relative worth in modern world wealth and production abilities will return. In our modern day, the old adage that "gold is worth a mans suit" will prove far, far too low a value.
While we think about this, I'm going to eat some fresh trout. Then, tonight, under the stars we can come closer and extend the next "Foundation post" and others.
FOA/ your Trail Guide
FOA (03/10/00; 17:00:46MT - usagold.com msg#11)
A Fireside Talk (continued)
Hiking a gold trail usually requires us to ramble on as we walk mentioning any points, commenting on good views and taking notes as we proceed. But, after the end of several days on a trail, around a quiet fire, we put it all together. This is the format we take. Our first fireside talk was just posted. It and these (continued) posts will expand on our walking "Thoughts" before we continue the hike.
From several viewpoints we proposed the same question: Why did so many of the world's nations continue to support a dollar reserve system after it went off the gold exchange standard?
They definitely had a choice; continue to use the dollar or go back to using gold. They choose to use the dollar! I pointed out how this policy flew in the face of common sense, and especially did so as the US only embarked on a policy of continued monetary expansion. In effect, inflating the whole world's currency systems right up into the end of 1997.
My point was that their actions can only be justified from a position of "buying time". Most of the major World and European countries had economies and currencies that could stand on their own in a competitive world. Yes, their transition from a dollar reserve would have been painful. But, compare that loss to the percentage of lifestyle gain they paid as a tax to the US by artificially maintaining the dollar exchange rate. Their Central Banks support polices were a decision to waste their citizens productive efforts in a process that held together a failing currency system.
They could not be this dumb! As I pointed out in the Foundation post:
-----For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars - - In doing so give the same buying power the US citizens have in your market,,,,,, to your own people?------------
The other side; why not create
a market for your own goods by selling them to your own citizens,
using your own currency as a reserve?
Clearly, after 1971 the result of a failed dollar reserve system would have delivered a healthy dose of "real" price inflation to the US. Not just the 10% or 13% we experienced! But at least for the major European countries, with their money systems expanding on their own over the next 20+ years, their citizens would have brought their own lifestyles somewhat relative to their efforts. At least this was more reasonable than paying slave taxes in the form of dollar support. Or maybe it wasn't ?
Indeed, the whole world would have slipped further down the inflationary scale had the dollar failed. Everyone's lifestyle would have slipped a lot more than it did. More in the US, less in Europe. But more importantly, the whole international house of trade would have slowed tremendously without some form of world currency reserve. It's possible, that once we left the reserve system, the return to an increasing momentum of world trade flows would not have been seen again for several generations. Such is the case a world financial fracture on this scale could have created.
Yet they didn't return to gold! In the eyes of many, gold had been discredited as a controlling force that could regulate world finances and trade flows. Yes, gold was an option then, but we had just seen how modern superpowers can just walk away from the discipline of gold. In my post:
----Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will - - come hell or high water - - lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way. ------------------
It seems the only explanation
for the continued support of the dollar came in the form of "buying
time": time to recreate a world reserve currency. But this
time, make it subject to a whole group of diverse nations of conflicting
political wills. In this format no one country can call the shots
for the world. In addition, take away the need to compete with
gold. Let gold be a supporting "reserve asset" that
trades in a free market, unlent and non monetary so as to circumvent
In this position a modern digital fiat currency can only represent the productive efforts of the nation blocks it represents. No different from the fiat schemes we have endured for 60+ years. Only this time without an illusion of gold backing and it's discipline. As such, a free market for gold will, on a ongoing basis, constantly devalue any and all currencies of the world. Just as in a somewhat similar concept where the stock markets of the world today currently discount the inflation of their local currencies.
Perhaps the payoff will be worth the past sacrifice of so many productive assets and savings. Perhaps we will never know just how far the world would have sunk had they written off the dollar back then. Without that knowledge as a measuring stick, we cannot compare if the recent loss was worth it.
Today, dollar support is winding down in the growing shadow of a Euro currency. This will eventually have a tremendous negative impact on all paper assets denominated in dollars. Whether they are viewed as hard paper assets or soft, the coming price inflation will wreck the use of dollar trading vehicles. Hard gold, owned as physical gold will make all the difference in the world.
Next, how oil was used to mask the motives of building the Euro, even as it supported it's creation. We will next extend the "First Walk" post. But first, more logs on the fire.
FOA/ your Trail Guide
FOA (03/11/00; 08:26:08MT - usagold.com msg#12)
A Fireside Talk (further continued)
Expanding from the: "First Walk Post"
Many political problems confronted any drive towards an EMU. In order to build a consensus for a Pan European currency, the architects had to have time, years of it. The last thing they needed was a world-wide economic downturn brought on by a failing dollar system. Working between 1976 and 1982, the software for such a system was only just beginning to really take shape. It was a slow, hard process because during this period and many years prior, the dollar was already experiencing convulsions. They needed at least another ten years, but without something to make the dollar more acceptable even five years was too long.
Working within a large group of nations required painstaking discussion of all ideas out in the open, so their agenda had to offer something for everyone. In addition, this new currency could not be seen as a competition for dollar use, otherwise the US would most certainly try to split the group.
It's important to understand that most of the world wanted to at least see another currency that could share some of the dollar's function. It didn't have to replace it. To this end, most every country gave some philosophical and political support in it's creation. But, by supporting a dollar that was now completely removed from any commodity backing system, would require the help of some major players.
Another group was extremely interested to see how this new currency would turn out. The major world oil producers. Prior to 1971, they were secure in selling oil for US gold dollars, even if it's true worth in a modern oil economy wasn't completely understood. At least gold had a long history of eventually defining it's value as equal to modern advances. Better said, if oil did more for the economy, then that increased value would be reflected in a stable value of gold. But after 1976 they found themselves selling a resource for far more than they realized it would bring and doing so in dollars of unknown future value. In the unfolding economics of it all, these people saw the same thing we did.
From my "First Walk" post:
------Prior to the US going off gold in 71, our whole (USA) economic structure was expanding because we were gaining massive leverage through cheap oil. Back then, oil was literally changing our lifestyle for the better, and doing so because it's dollar price was so incredibly low relative to what science was doing with it. Modern science had made oil worth so much more than we paid for it, we could extrapolate our debt and money supply growth far into the future and still figure that productive increases would cover it (the lost value due to money inflation). In effect, the US was targeting it's economy and money value to future oil flow value, not gold.-------------
After 1976 they (oil producers)
jumped into gold but soon found that their excess dollar flow
could never even partially be shifted into gold as it was traded
on this new commodity arena. For them, gold wasn't just a "trade",
it was payment in the form of real "reserve assets".
Oil assets for gold assets! If the CBs hadn't sold into the storm,
gold would have went to the moon from oil flow alone. So they,
and everyone else soon found out that there was a world of difference
between trading "gold dollars for real gold" at your
Central Bank and "buying commodity gold in a trading arena".
In truth, the gold market was only a free market for commodity
trading. It was never allowed to trade as a "wealth reserve
The options were few. Buy gold outright and see it's price run past it's "money for oil" value, or include gold in a currency basket for payment of oil. In essence saying: "straighten this currency problem out or you will be the one buying high priced gold"! They optioned for a third way. Continue to sell oil for ever cheaper dollars, all the while waiting for something to replace the failed reserve system. So they watched as the US said they would fix the dollar and Europe said they would replace it.
It was clear that the US would continue printing money as long as it got oil flow at a price that created an increase in American lifestyles. To this end, the dollar economy would eventually crash if oil was not priced cheaply in dollars. In addition, pricing oil in a currency basket with gold would just as easily crash the system. It was here, between 1980 and 1985 that both the US and Euroland proved that they could keep gold on an even level if oil could play the game.
Higher oil prices had indeed brought forth more oil flow and crude reserves for the US. This alone did wonders to extend the US dollar economy and the extra load of debt it was building. From this position alone, producers could justify supporting dollar settlement for oil, but only for a decade or so. The US and Britain were busy building a contract gold marketplace that would channel money away from real gold, thereby freeing up more physical to partially exchange for excess world dollars their oil imports produced.
Still, this didn't explain all of the game. It brought time for the EMU to build, but who was going to carry all the eventual excess dollars that would flow from a booming US? By 1986 a booming US economy was the result of still cheap oil. It was being sold to them and everyone for expensive dollars that flooded the world in an ongoing trade deficit!
From my "First Walk" post:
------It worked in a broken pattern for a number of years. Oil and gold defied all predictions of higher prices as they retreated from every advance. Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation. -------------
In this new format (post 1982),
the US and it's dollar system would only work if oil was sold
to them cheaply and in dollars. It's no secret that cheap oil
is created by opening the valves. But, dollar settlement without
gold was a political agreement just waiting for a reason to change
it's mind. Foreign Central Bank support for the dollar was the
key that kept this temporary condition working. Still, without
the added kicker of a world cheap gold price along with a significant
revaluation of that gold in the future, oil would have went for
settlement in a Euroland basket of currencies + gold, long ago.
The US had already proven that it could not be trusted with any form of gold currency. At least most of the major European countries still had a good record of trusting gold. This is where we saw the impact of oil in the building process of the EMU. If they were to be at least attracted to a new Euro system, it had to accommodate a new attitude in dealing with gold. They looked at the 1976 "Jamaica Accords" and said, "why not use it as it's written, keep gold as a "reserve asset" not a "money asset". Once outside the money system, at a high enough price, it could become a possible world oil currency without destroying anyone's economy."
These were the early thoughts that have continued to evolve through today. But the trick was in keeping the gold market functioning between now and then. It had to supply some gold to exchange excess dollars, keep the price within reason and maintain the major mining structure for supply. The last was most important because the BIS knew how the dollar faction was using gold to try to fix the dollar. Their agenda worked with the EMU process, but was outside the EMU agenda. Both factions wanted the dollar maintained, but the US was willing to sink gold if it brought ever cheaper oil. It was a short sided political process, but it brought votes.
The BIS was willing to maintain gold above $280 until the EMU. If they didn't, they would lose the support of oil for the Euro system. It wasn't just the fact that this price kept most of the major mine supply online, it was that crude at around $8.75 in gold was their bottom price.
When the Hunt brothers were going around talking about "an ounce of silver was worth a barrel of oil" they were closer to reality than even they thought. Prior to 1971, the lowest oil value was pegged by producers at around one gram of gold (at $42 that was around $1.30). At one gram per barrel today, $280 was still the bottom price. It's no strange thing that the real dollar price of oil never stayed around this level either. In any event, this was the reason for all the arm twisting in the summer of 1999. Even though the EMU was a done deal, the Euro was still too young to float partial oil settlement. With gold being driven home by the US faction, oil support for both the dollar and Euro was in limbo. The Washington Agreement not only took care of that, it officially announced to the world that the paper gold markets were ending. Indeed, it was paying the way for Euro Crude!
Today we are still on track for crude oil settlement to begin happening in Euros. Oil prices have continued the rise we predicted once the Euro was created. What is left of the gold market is but a huge paper float that's slowly losing it's credibility from the loss of over half of it's past major supporters, Euroland. To date, many of the major left over gold contracts are being shifted into Euro based settlement. It's only a matter of time until the illusion of a falling Euro is suddenly erased by a crashing US stock market along with it's dollar.
Next, we expand my "Clear Path" post. Then we will hike again, while talking about real events today.
Here are a few parts of Another's Thoughts as some time ago. They give us a different view. We are on his trail today:
6/4/98 ANOTHER (THOUGHTS!)
--------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 world-wide 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 revalue of real money, gold, in a real currency, Euros!----------------------------
5/26/98 ANOTHER (THOUGHTS!)
-----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 judgements 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 judgement 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, world-wide, 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!-----
-----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 collatteral / 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"
FOA (3/17/2000; 9:16:57MT - usagold.com msg#13)
A Fireside Talk (last one before we hike the trail in "real - time" context)
Expanding some of my "Clear Path" post #9.
We are only just now arriving at a time period that will bring about "The Currency Wars". Everything prior to this was only a preparation period to build an alternative currency. The years spent traveling this road were done to prepare the world for an escape medium when the dollar finally began it's "price" hyper-inflation stage.
Few investors can "grasp" that in reality, our dollar has already been hyper inflated , but without the higher price effects. Years of deficit spending, over borrowing, debt expansion have created an illusion that the dollar was immune to price inflation. This illusion is evident in our massive trade deficit as it carries on with no negative effects on dollar exchange rates. Clearly other investors, outside the Central Banks were helping in the dollar support process without knowing they were buying into a dying currency system.
The only thing that kept this process from showing up in the prices of everyday goods was the support other Central Banks showed for our currency through exchange intervention. As I pointed out in my other writings, this support was convoluted at best and done over 15 to 20 years. Still, it's been done with a purpose all this time. That purpose was to maintain the dollar for world economic trade, without which we would all sink into depression. Indeed, the mainstay of this support required an ever expanding world dollar base. There is simply no way the old dollar debts along with the new ones could have been serviced without this money expansion.
The entire long term process is / was very clear to a few major financial players as they prepared for the dollar's retirement as a reserve. Their main strategy for dealing with this was found in several positions. One was a long term buying of real physical gold. The other was the acceptance that all trade and investments would eventually transition away from dollar use. To combat this they began to denominate their paper assets and business transactions in other currencies (now the Euro holds the main transition flow). This was done because, as the dollar prices of real things first show real signs of rising, all forms of dollar derivative contracts would begin to unravel. Better said, the process of dollar contract failure would show up in the form of discounts on these derivatives from par value. Because most of our "end time" dollar world has built itself into a huge derivative game, this discounting will occur across the board in almost everything we deal in. Not just gold.
The first signs that official dollar support is winding down is seen in real world pricing and official policy. The most obvious "first" price sensitive arena to reflect a "real coming inflation" is not gold as so many think, it's the stock markets. Their long term bull run, mostly starting around the early 80s completely reflected this official sanction of world dollar expansion without price inflation. It's only in the last year that we can see where equity markets are telegraphing a transition into dollar expansion "without world support". Better said, major price inflation is coming on a level equal to hyper status. Many stock markets have headed straight up in reflection of this.
Another area where we see this change is in crude oil. For years, every rise in crude prices was quickly shut down from added supply. Done to add the producers portion of help to the dollar support effort. Even war in the oil fields was not allowed to create a dollar destroying price rise. Once the Euro was born and seen in operation as a possible "backup" currency, added crude supply to keep prices low was no longer available. Prices have risen and fallen in a broken fashion that will continue it's upward bias. This policy change is not only a vote of confidence in Euroland, it's also a Euro reserve support function that will lead to much higher physical gold prices later. Oil around $30 (and $45+ later) now values gold upwards to $930 using the old one gram = one barrel from a pre 1971 gold dollar price ratio. This has fueled ongoing trade in gold by the BIS as it seeks more physical gold supply outside the LBMA paper contract world. A process that can only further destroy the present contract gold illusion as expressed in a paper dollar gold marketplace. Eventually, $930 gold crude will become the absolute bottom pricing range as real dollar price inflation begins.
The most recent example of official policy change toward the dollar was found in the Washington Agreement. It marks the end of Euroland support for the paper gold markets that helped maintain a dollar / oil settlement bond. In the beginning (1980s) it was a joint effort by at least two factions that has today become only a single effort by one faction. The US / Britain.
Even with this, the US accepted a reworked IMF gold structure. Because of this, they (US) are today operating two policy positions that contradict each other. One tries to use an escalation of the gold price to maintain IMF support for foreign US debt, while the other tries to keep the "gold trading desk" of several market makers solvent through an even lower price.
This places Euroland, the BIS and major world physical gold players on a direct collision course with the US backed contract gold marketplace. The effects of this will "most likely" be seen in a literal flood of new paper gold entering this arena in an effort to maintain "bookkeeping" credibility for the market makers. Today we see the beginnings of this change impacting the market as it is evolving into little more than a large paper float that exists mostly for this "bookkeeping" purpose. It will stay viable until dollar price inflation dries up to physical supply that to date still sells into this market. No doubt, the mine companies will become the very last sellers to support this arena. Possibly, selling into it's paper pricing all the way down.
For years, gold bugs have figured that gold would be the next dollar escape mechanism. Not another currency. They gave little thought to the reality that our modern world could not, would not price gold as a "reserve free trading asset" without a digital paper money reserve to do it in. Once the dollar begins it's decline through price inflation, it's use as a reserve and more importantly it's use to establish a gold market will stop. This will cause an unexpected delayed positive impact on gold values as gold's paper marketplace goes through tremendous convulsions. We may see dollar price inflation in all things, yet gold values fall as contracts fail from constricted supply. Eventually, even the mining sector will be forced from shareholder loses and poor contract price economics to abandon the dollar pricing contract system. I expect that during this time the physical price of gold will be soaring as it's lack of trade constricts supply. Most paper gold traders today, don't understand how a real dollar price inflation shrinks physical gold trade, no matter how high or low the price goes. Further, they continue to use the various dollar gold derivatives even as their paper supply mushrooms. A process that forces the contract gold price down. Yet, all the while they are proclaiming that they are "in the gold market" and bemoaning how the manipulation of the metal is giving them loses.
It's important for new players to understand that no government or private banker in the world today can manipulate the dollar price of traded physical gold once real price inflation begins in the reserve currency. A failing currency system would find governments and bankers selling into a virtual "black hole" of demand.
Prior to dollar price inflation effects, the impact of official policy can only manipulate paper contract prices. Just because traders are willing to sell physical gold for a paper settled contract price doesn't mean that's the real gold value in the world today. More to the point, this is simply a temporary condition that could exhaust itself before price inflation, once physical delivered against paper prices dries up. Thereby forcing contract prices into discount and destruction.
This modern paper market is relatively a new concept in world gold trade. It was created by banks, western traders and mine operators themselves over the last 15+ years. They supported this market by buying into it instead of buying and trading only real gold. True, the paper promoters may have been dishonest in presenting the effects of this process, but no one was forced to use it! Without user cash flow giving credibility to these paper derivatives, the market would not exist in it's present form. Yes, it's true that the Euroland and dollar faction agenda, along with oil interest and indeed physical gold traders all benefited from this investors market making cash flow! But this is reality for any investment where a buyer of a contract abrogates the security of present real ownership into a paper position with counterparties risk. Even today, call option buyers give their money away in support of this illusion, instead of buying coins outright. Truly, western gold paper traders and gold stock investors today a have evolved and in no way represent what the term "gold bug" used to mean. Today, physical gold advocates are the real gold bugs as they now posses the real leverage paper players only think they have!
To close, I offer two post from the USAGOLD forum.
The first is from Mr. Kosares and presents a true picture of how real gold flows have moved over the recent years. It collaborates my point made long ago that CB gold was never flooding the market as traders and the media thought. In reality it's been the evolution of investor use of the paper markets that have set lose so much private gold. Thereby playing into the hands of official policy.
This second post is from Mr. Solomon, who offers up a wisdom that is so very relevant to this fireside talk.
USAGOLD (3/8/2000; 15:05:37MDT - Msg ID:26541)-------
According to the World Gold Council's Demand Trends #30 released a few weeks ago, theofficial holdings of gold were 1106.0 million ozs in 1996, and 1080.6 ozs in October, 1999.
In other words, central banks over the past four years have lost in the aggregate a mere 25.4 tons-- or a little over six tons per year.
That after countless mainstream press articles bemoaning the surety of central bank sales, the Bank of England dishoarding, Dutch and Belgian central bank sales, Canadian, Russian, Malaysian ,Jordanian sales -- and others.
What the mainstream press fails to point out consistently is that while some central banks have been selling, others must have been buying. I want to thank my good friend, Voyager, for prompting me on this subject.
Solomon Weaver (03/14/00; 21:11:52MDT - Msg ID:26846)--
I remember a comment by Another which stated that dollars (cash) was a "derivative"....at first I was confused.. but over time...I started to understand.
Money "derives" its value from what it can move.
Anyone, with half a sense for history and culture, who sits down and ponders the most recent few hundred years of mankind's developments, comes to the dizzying realization that we have developed a massively new epoch in the total history of our species...in the last 300 years we have truly tasted the fruits from the tree of knowledge..and on some levels have indigestion.
The primary common denominator to our survival is knowledge (and its partner, wisdom).
Until about 120 years ago, oil was not very valuable...but the more we discovered how to "burn" it and how to "form" it (chemicals, plastics), the more valuable it became.
Like others here at the forum, I think that gold and silver are due for a return to hard asset category, and given their lackluster performance in the last 15 years, in a time with immense economic progress, can only enjoy a solid recovery (both in price and popularity).
On the other hand, I think we all have to consider that (all paradigms aside) humanity has entered into a world where the physical survival of 50% of our population requires the continuing functioning of a very complex set of physical and economic flows. These folks live in a derivative world. Milk is in cartons. Heat comes in over wires. Wheat arrives baked.
We see the rumblings of reemergence hard-liners in China and Russia and the "idea" of future wars is discussed....The problem with this is that with so much of our ability to create wealth tied to knowledge (techknowledge), invasion of the rich no longer generate the spoils they did before. I think that if we are honest, we will recognize that the extended use of emergency executive orders by the President would accomplish the same thing as having America invaded.
Would any President really want to be the one to do this? When Roosevelt called the bank holiday in the 30's and confiscated gold, does anyone think he wanted this???? He was a decisive man, stepping into a new office where he realized we needed some real bitter medicine. Gold was targeted because it was the "accepted" place for people of all nations to "park their wealth" in pockets "outside of the formal banking system". Back then, there was no highspeed digital money,and a large portion of money was cash....today, when you move money it goes from "your bank" to "counterparties bank". It is almost a pure derivative money. Even if gold were to rise in value such that it could be valued close to the same as today's fiat pool, most of us would die quickly if the digital fiat system did not work.
We look at the divergent paths of gold metal vs. gold paper. When gold paper becomes worthless, gold metal will have value because it holds inherent credibility. But given its very scarcity, that gold metal will need "another currency" to move its value into in order to transact purchases. In a dollar crisis in a digital world, there is really nothing to gain by "confiscating gold"....the primary concern should be to keep the "remnant of the dollar economy" stabile enough that "gold will flow back into it". Perhaps I am naive to believe that our leaders will understand this...if they don't then they are not only fools they are derivatives of fools. I like to hope that this might be one of the reasons why the very intellectually astute monetary mind of Mr. Greenspan decided to stay in power...I think he may be one of the few who understand the problems of foolishness (particularly when viewed in the magic mirror made of gold).
Poor old Solomon
Thank you for reading
FOA/,,,,,, your Trail Guide
FOA (04/01/00; 16:59:05MT - usagold.com msg#14)
Walking The Trail
It's been a few weeks and it's time to stretch the legs again.
During these last few days I have seen several renditions of my discussions from the USAGOLD Forum circulating around. Good! Glad to see it being thought about. I just wanted to let it be known that this was a collection of several of my rambling posts. They were strung together and included some commentary of ORO and a few other good posters there. I don't know who put this together but have seen THC, Singlion, Sharfin and a host of others posting it all over. With a title of "Selling Paper Deeds for Roman Gold" it does truly hit home for gold advocates today. Food for thought in a hungry world. Thanks people, for adding your own special flavor to the currency problems we consider today.
Every time the dollar price of gold is driven down we hear cries of despair all over the web. Understand that these sounds you hear are not really the noises of physical pain, rather it's the ages old wale of one person giving his wealth to another and getting nothing in return. (frown) As "Gold Advocates" we hear these same as signals that indicate more free assets coming our way. As Real Gold buyers, the feast only becomes larger and our real wealth greater! (smile)
You see, a Gold Advocate looks at gold as a wealth currency and continues to accumulate it at any better price. Follow those that "mostly" invest in Paper Gold or even the "Gold Industry" and one can only see where more losses are coming at these lower prices. Some gold mines may be a good buy here, but not many of them.
Some moaners place gold as a downtrodden relic and swear never to invest in it again. Yet, from our view, they never purchased "gold the currency" in the first place. Their idea of "hedging their wealth with gold" included a wholesale buying into the concept that "paper gold" was "real gold". It never was and never will be. Paper trading only works while the paper world stays together. A dynamic that is unraveling now!
There is a big risk difference between betting on the price of gold for a short run profit and buying real wealth currency for a long term crisis event. For myself, the largest difference will be in the real wealth gained in the future, not today. Over the last 15 years political gold policy has caused paper players to walked the gold trail like drunken sailors. As a result their assets have done likewise. One step forward in the little gold paper runs and two steps backwards while waiting for the next move. All the while giving away their dollar wealth with nothing to show for it when the real run comes. In the end, they will sober up only to find that they made little progress as most of their "gold" investments brought them full circle. About even if they are lucky! Yet, bullion holders will experience gains that make almost any investment today look tame.
Look over here
The currency of gold hasn't done nearly as bad as paper traders would have us think. As a person of the world I own many currencies (dollars included) and all of them go up and down as much as gold. Some even more so. Because gold is but one very large currency holding for me, it takes on an exchange significance.
Using very approximate values:
In January 1985 one dollar would buy 1/300 ounce of gold. At the same time it would buy 3.25 German Marks and about 250 Yen.
Ten years later, by 1995 one dollar would buy 1/375 ounce of gold, 1.40 Marks and less than 100 Yen.
Here we have two world class currencies moving well over 100% against the dollar! Yet, gold was more stable as it moved only 25%. From Jan 1999 gold has been even more stable than the Euro, today resting within 5% of it's value from the Euro starting range.
My point is that today, all currencies will run up and down in their race to full fill a fiat's destiny. Yet, in the process their percentages moves could be temporally far greater than what gold moves. Making gold look like the most stable holding of all. Even as paper gold bugs cry about how it's crashing?
In this light we must all consider ourselves like insurance companies writing risk policies by holding paper currencies. The higher the movement risk, the more interest we must receive to hold our wealth in paper form. Indeed, just as an insurance company is lucky in good years to balance it's exchange rate loses against the same interest return, currencies are not that great a deal in today's world. Physical gold becomes a fine wealth holding that pays a much higher premium than any fiat currency. It's zero interest is "high" in relation to the default (inflation) rate inherent in paper money. In the future, some will even pay a "negative" rate in the paper markets to try and acquire gold through legal force. This is called buying a gold contract in default and trying to force the counter party to produce gold. Some will, most won't!
For all of you with a mind for intrigue, the game is now on to buy gold at negative rates. ORO, the SDR is telling your story. (follow his past discussion on the USAGOLD Forum) If the US would just stop pushing paper gold boulders down the hill,,,,, and stood and watched for a while,,,,, they would see that the avalanche now has a mind of it's own and needs no help. The whole paper gold mountain is on the move. (smile)
Further we walk
All of the massive tonnage of contract gold that is owed today was never as real as investors thought. It was an illusion of paper supply. Most of the gold sold by the European and other world CBs moved no further than the next CB vault. The gold trading world brought this "physical selling" story in it's entity and in the process supported the dollar's life.
Today, Europe is the greatest supporter of "Freegold" the world has seen for some time. As they act out their policy, the paper gold marketplace as we know it priced in dollars will fail. The completely unexplainable gold sales by the BOE are only a means to this end. They are much more concerned about joining the Euro and saving some BB face than any longer saving the dollar.
The US is now "in it" alone as they have lost the dollar war and the "oil war". Crude oil will not stay in this new dollar price range for long. This was politically arranged to somewhat save US face. We (US) are now calling in every favor, expending the last political capital and inflating the dollar in an end run that will soon lead to nowhere. A grand hyper inflation of prices is now directly ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.
Understand that the largest gold rush will be from the paper gold arena into real gold. Any form of asset allocation that took the form of:
" "hey buddy, this security belongs in your portfolio as the gold portion" "
will be dumped and the remaining value placed in hot pursuit of the real thing. Just watch how it all unfolds, you will fell the pressure.
I for one hope someone can force paper gold lower while physical supplies still sell into it. Because once paper credibility is broken, our physical markets will seem like a speck of sand washed on an ocean shore.
We were at this same crossroads almost one year ago. The same stress brought about the "Washington Agreement" as it was pieced together during the summer of 99. I expect that this time, stronger medicine will be applied and fully expect it is "in process" now with gold under $280! The only difference today is that the Euro grows more mature and oil ever more independent.
Onward to camp
Here is a post I offered on our Forum. It's a good reflection of what was just said. Read it around the fire.
Trail Guide (03/25/00; 16:29:55MDT - Msg ID:27470)
Journeyman (03/21/00; 06:32:00MDT - Msg ID:27201)
Paper/gold composite spot
I know we all pay lip service, but at times like this, it's good to remember. Also good to remember, if TC or MK was it? was correct, most of the gold "sold" actually travels around to other CBs, it doesn't really enter the market, doesn't affect the supply/demand equation except psychologically.
What MK wrote about total gold in the CBs is absolutely true. I agree with him in that we read so very little about this statistic. I think it's because it obliterates most of the theories about how the CBs are killing the gold price by selling off this unneeded asset.
I and Another pointed our countless times that the CBs were mostly playing the BBs against the market by giving "gray guarantees" to protect their (the BBs) paper positions. In reality the whole thing is a political thriller every bit equal to any 007 film.
The truth of it all is that they could never control the value of physical gold and because of this kept most of their holdings in tact. I would even go so far as to say that much of their draw down is an illusion.
We must remember that selling a real asset to the public for cash does not control anything. You get the gold, they get the paper money. It's the same for crude. The price is what you get real oil for. The lower the better. Just like gold, a lower price imparts the benefit and use of the product to the buyer. Indeed, a lower price is the loss is to the seller. Through out this 1990s gold downturn, what physical gold the new buyers obtained was to their gain. There was no control at all, the buyer gained the gold!
What this modern gold market can control is the value of contract gold. Here they (BBs) do an exceptionally fine job. They sold paper gold to everyone that wanted to only bet on it's price movement, not buy gold. To this end, they took everyone's money and the buyer got nothing in return. Yes, it did play an important role in supporting the dollar while the currency world was in transition. Just as our USAGOLD writer SteveH has said, this gold industry and the contract market it services was sacrificed. But, look at what would have happened if they didn't. Indeed, the time brought was purchased on the backs of gold bugs, not physical gold advocates. One ended up with depreciating paper and the other with an ages old world class money. This isn't the first time citizens of the world such as Farfel learned that "betting" and "owning" are two different things. It won't be the last!
This country is diving head first into a grand hyper inflation and no amount of Fed maneuvers will stop it. People that learn this early on, before the physical comes into short supply, will be miles ahead. Buying gold between $400 and $200 will be like knowing a member with Masters Tickets.
Enough for now, unpack and lights
out. We need our rest because the trail will get rough from here
Thanks for walking,,,,,,,FOA/ your Trail Guide
FOA (04/03/00; 20:58:36MT - usagold.com msg#15)
Looking ahead, around the next curve?
Last year the Washington Agreement (WA) spelled the end of the modern paper gold markets as we know it. Yet, few people truly believe anything substantial has happened because gold failed to "follow through" on it's post WA price spike. Most hold this conclusion as a result of watching the ball instead of the game.
The WA was a direct response to the "dollar faction's" use of contract gold in driving the value of the "real asset" down. Prior to the Euro birth, such an extreme paper manipulation below $280 would have been meet with a different kind of WA. More likely an outright "physical purchase" of gold on the world spot markets by the BIS. They would have allocated this newly purchased gold into the same official accounts where current BIS gold flows are now placed.
But today we operate in an established, new Euro environment. The very fact that the US and England acknowledged the WA is alone evidence of this new Euro political power. In essence, an ECB / BIS alliance has placed the world "in process" to changing the way gold is traded and valued. A process that will drain "real gold" liquidity from the present london market and leave many players wondering what happened.
Part of understanding "what is happening" requires us to keep our eyes "on the game", not on the ball. Physical gold advocates have but to follow the posts of TownCrier on the USAGOLD Forum. He has consistently pointed out how "Post Euro" Euroland arena gold sales are being "allocated" into BIS sanctioned placements.
Even though the WA allowed for 2,000 tonnes to be sold over 5 years, no provisions were made to officially channel that new gold into the world contract market. The upcoming Swiss sales and the more recent Austria sales make the point. Especially when one understands that the BIS does not buy gold to sell outside the CB community or it's special accounts held for certain nations.
More importantly about the WA, the total existing contracts held at signing time were allowed to continue without any draw down criteria (gold to cover) over the 5 yr. term. Over time, this will squeeze the dollar physical market in an effort to fill existing paper commitments. In effect, the BIS now has it's hand on the gold valve and is controlling the contract filling flow at will.
But most analysis misinterpret the strategy of this. It is not an attempt to drive the contract gold prices upward. Quite the contrary, it's effects are just the opposite. In our current dollar gold market, the less gold is supplied, the more it pressures the price down! Players must create and sell not just more contracts to cover expiring ones, but also sell enough paper to force the price down further. In a market that's becoming shorter of physical gold, this is the only way they can add equity to cover rollover positions. In this political game, the dollar supporting paper gold arena is being forced to kill itself. It's also the reason I proclaim that we will see rare physical gold in the thousands once the deed is done.
Looking down the trail we can see the end of our paper gold markets. This same market place that evolved from 1971 into a "contract gold currency" is now being politically forced into hyperinflation in much the same way fiat currencies are. Just as the dollar has been inflated to unimaginable extremes to protect the US banking system, so to will this gold currency be inflated until suddenly it's credibility is shaken. I think a large gold default is directly ahead and it will be forced by the BIS / ECB. Right up until that default, contract gold currency will be printed as never before. Indeed, they are printing now for all they are worth! Literally!
If contract gold prices stop around here, be assured that the US dollar supporting faction has truly hit the end of that printing "worth"! If the prices start to rise now, a canceling of the BOE gold sales will confirm a large default in the pipeline. There would be no reason to sell into their LBMA if the marketplace is lost.
Further, watch for a sudden rush of OI on comex (double ot triple of total OI). This is the same item we watched for as confirmation around this time last year. The rush to buy contracts will be nothing more than an attempt at bookkeeping hedging by big traders. Truly no gold will come into play.
Excitement is building while the game is "in process"!
FOA/ your Trail Guide
FOA (4/15/2000; 14:31:21MT - usagold.com msg#16)
The trail is getting rough!
Here is a map to review as we walk.
I have read numerous times over the last year where analysts are finally subscribing to the fact that gold is a political tool. At first (1996 - 1997) only a handful even discussed this as a possibility, citing their perceptions that it couldn't be manipulated on such a grand scale. Now almost everyone knows it as a fact. Still, very, very few of them can today make the connection that the political tool of managing gold is not by selling on the physical side. In reality it's actually the "contract gold marketplace" itself where paper selling manages the gold marketplace.
We read media report after report where the CBs are dumping gold and forcing it's price down. But just as I pointed out on our last hike, in the BIS world of CB gold trading a very small percentage of gold has physically left their system during the 90s. The only thing falling has been both the "contract gold price" and that of investor perceptions of "total gold stocks" held officially. If investor thoughts have been manipulated at all they have been impacted most by "watching the ball and not following the game".
Clearly the world has broken itself into "only two" currency system support blocks. The US and the European! We have to observe these factions as a group if we are to understand their actions. Further, it's important to place nations that are outside these two groups. Are they "supporters" or destroyers of a faction. Which one is most strategic to their cause.
Japan and much of the Asian block are clearly "supporters" of the dollar faction because their entire trading structure was built on selling into a "US dollar trade deficit". Any buying of gold or Euros with dollar reserves would wreck their economy further by driving the Yen straight up. If they do elect to do this it will be in response to a much larger American economic crisis and occur further along in the dollar inflation timeline. Talk of the Yen being the third part of a "tripolar" currency world will be proven completely off the mark. Japan and any other of their close economic allies will sacrifice their money's viability for some time to stay with the dollar. In the process suffering the same full blown dollar hyperinflation effects that are coming to the US. Other Asian nations sold gold during their recent crisis not in support of the dollar so much as they were forced by the IMF to do so. In a story I have told before, their physical buying was hurting the manipulation game. Breaking them was all in an effort by the BIS to maintain a Pre Euro low gold agreement. Today, the lesser nations of the Asian block have returned to buying gold. Something that is in their culture, rather than a desire to destroy the dollar. Only this time we will not witness a political effort to stop this buying. To there credit and good fortune many (asians) will retain this wealth asset as our dollar is eaten from price inflation.
China is a wild card that uses the US for short term gain while not politically "supporting" the dollar system. Their historic trading ties face West to Europe, retracing the old Orient Express. Further, their attachment to gold is a natural draw that pulls them into the Euro faction. When the time is right and Euro trade deep enough, they like the oil producers will adopt the Euro as a reserve. That time may be very, very close!
Canada is seen selling it's gold stock in support of the US. This is an easy one to understand because everything they do is US related. Like Japan, if the US sinks Canada will ride the ship down. Their small gold holdings were nothing compared to standing in the American shadow. Selling it helped keep liquid our contract market. Still, I think most of their sales ended up in BIS and CB accounts anyway. Indeed, North American gold that will eventually support the Euro. The irony of it all!
South America has been in an extended financial crisis for what seems like forever. For the moment they also have tied their economic fortunes to the dollar and sold much of their gold in it's support. Yet, tragically this whole continent continues to operate as an economic "play thing" that is used by whatever world "currency block" that's in power. They will be dropped off by the dollar train and picked up by the Euro train at the next "crisis station". But because of the gold ties that Euroland will employ, South America as a whole will eventually prosper as they are forced to painfully break from the dollar induced inflation cycles of the past 20+ years. In time the Euro will be good for them.
England was not only part of the dollar faction, it was the dollar faction and is clearly becoming a "run a way" nation. They are moving towards the Euro and leaving our dollar world. But, unlike many other first tier Euroland nations that joined and quietly sold gold into private accounts, Britain is selling it's gold in an obvious "retreating action" from the dollar. Truly, their government has a long history with the "who's who" in LBMA and I suspect owes more than a few favors. Their little gold sales are specifically designed to allow some "backing out" room before the dollar based contract gold markets fail. Once in the Euro, England will enjoy the shelter of a free gold market that supports the Euro system. Still, after saying this, I would not be surprised to find that a good portion of those bullion bars ended up filling contracts owed to BIS accounts.
Editor's note: It's amazing to recall just how few knowledgeable people even had even heard of the LBMA prior to 1996, let alone know how it impacted the gold markets for years prior. I remember reading how many "big time" internet gold writers were asking "what's the LBMA" when it first made public it's trading volumes. These same "political gold analysis" today know "all about it". It's all part of the learning process we "physical gold advocates" are gaining by as their cheap physical gold is sold for the wrong reasons (smile).
A view of the Mountain
The game we should be watching (instead of the ball), has been changing from the spring of 1999. The early joint manipulations of contract gold has broken apart and left only the US standing alone in the wind. As I said further back on the trail, the US dollar faction is now hyper inflating contract gold in a last ditch effort to block a dollar destroying rise in "physical prices". Many people (Cavan Man, USAGOLD poster?) do not understand why the Euro/BIS group just stands there and allow this to happen. The fact is that they (Euroland) have the gold in the BIS system (never really sold it outside) and do not care what happens to the prices of contract gold expressed by the US or LBMA marketplace. Those contracts (as the gold currency they represent) (SDRs?) will eventually fail.
This is a simple concept that so confounds and hurts investors and traders in the "gold industry" today. They are mostly on the "failing" side of the war as their purpose remains to bet too large an amount of their hard portfolio on the price movement of contract gold, not own physical gold itself! I would say that the opinions expressed on most of the internet come from traders trying to time a paper trade in a failing marketplace. Even those buying gold mines can be compared to my "Paper deeds for Roman Gold" analogy. Betting on a rise in the price of real estate then selling it for Roman gold coins before the city (gold marketplace) falls.
"Truly, the ECB / BIS have made sure that there will not be enough Roman Gold to cover the property sales before the city falls"! Physical gold will not follow the same ratio to mine equity it did in the 70s. If a mine goes from $10 to $300, bullion will have gone from $300 to $15,000++.
The contract marketplace for gold has for years given the illusion to Western investors that enough gold exists to maintain the old ratios. So they continue to follow this mistaken precedent and follow their chart points. Points that can only represent the trading realities of paper. All the while planing their move that will make them some retirement money. Sadly however, once the paper gold system is broken, we will all experience an evolution in the true value of physical gold as it is expressed against mine equity, currencies, all real things and most certainly paper gold equity. Something this dollar world of investors have never seen before.
Just as Koan (a USAGOLD poster) long ago expressed bewilderment at how gold moved as fast or faster than silver and most gold stocks after the WA, the coming true break in the system will make that even percentage comparison to paper look like nothing at all. Investors that do not believe this should rejoice for the experience, it will be a chance to see something few ever get to see (smile).
Honestly, during most of our investing "timeline", we as Westerners have never understood that owning gold itself "IS" the profit one makes when a reserve currency system fails! The price of physical gold in said failing currency is "meaningless" because that price can no longer express any long term value!
Back to the main trail (extending from my first paragraph)
They (paper gold bugs) "now" rightly warn everyone that this "political control" of gold is coming to a dangerous end and council investors to "be in" the gold markets for this ride. But most "gold bug traders" stick to "the paper facts" and maintain strict "paper trading" discipline. I submit they will completely miss the "real profit" of owning gold at an advantageous currency price. Their trading with factual information about this "paper marketplace" will eventually net them only more paper gold or currency in a cash settlement. Both of which values will fall completely behind a soaring physical market.
By sticking to the "facts" dictated to them from trading in a hyper inflated paper contract market, they cannot see the "reality" of a coming "politically induced" shortage of deliverable gold. Just because a contract is governed by the Crown's laws, doesn't mean it will retain the value of physical settlement. As the dollar holders prior to 1971 thought they held a receipt for warehouse gold, the dollar's gold market today will leave traders completely out of the greatest gold bull ever to occur! This my friends is understanding the politics of gold in it's fullest context.
The great dollar hyper inflation is only just beginning. Convulsions in all paper markets will be the norm from here on out.
Next item today: a response to the points of Aristotle and TownCrier (USAGOLD posters)
Thank you for reading and hiking
FOA/ your Trail Guide
FOA (4/15/2000; 18:06:59MT - usagold.com msg#17)
A Fireside Chat
Your message #ID:28580 was very interesting.
It seems that some have walked this trail before me as my "Guiding" is following the echo of USAGOLD posters (smile). The fresh air must be doing everyone some good!
This day in time is a unique period in real money history. Seldom, if ever, has the world found itself in the grips of a possible, complete fiat reserve breakdown! Especially one that impacts the way 70% (???) of the worlds current assets are valued. What a wonderful mess for a well connected financial sleuth to be born into, right? (big smile)!
We will all look back on this and see that most of our trusted measuring sticks were useless to decipher the situation. If we truly do not know what a "dollar credit" (DC) is, how can we know what it is worth in purchasing power? We do not even know approximately how many DCs are out there, let alone their demand to satisfy debt service. What is really starting to spook the big world players is that no one now knows what kind of currency intervention is in the pipeline at any moment in time. This is having the effect of making one's real debt in international dollars an "unknown". The same thing goes for dollar assets?
You could owe one million in value today, then find that an evolving political agenda has changed that amount to 5 million in real value tomorrow. All of this was glossed over for many years by employing derivatives to hedge. Now that arena has grown so large that there is a real threat that the derivatives need hedging too! I laugh about it but it's a real event, happening in real time. It's scaring the hell out of a bunch of people and they are not taking if as being funny.
The camp fire is burning now and everyone is here:
Did you ever see the movie "Havana" with Robert Redford? It was a great tale about a card gambler that often went to the casinos in Cuba. It takes place just before the revolution when Havana was a real swinging place. I don't remember the exact lines in the show but he often made reference the the laws of probability. Saying "anything is possible, just not always probable". To that end he explained to his girlfriend why there was a lump in the skin in his forearm. It seems he had a diamond sewed under the skin, "just in case"!
It was an excellent example of human interaction with the laws of probability. It seems that inside all of us lies a fear that what the world is telling us (the marketplace) may not be real. Just like ORO said what if "there is no spoon" and our financial process is the trading of illusions! We all expect life itself to be chancy, and fully expect to lose some in the effort. But no one wants to be "busted out" because of a freak, once in a generation "revolution in the way wealth is counted".
In reality,,,, in the real world,,,, big players never tell their whole tale,,,, not like the persona of our little trader/gamblers talking their book on the Internet. In the big arena that really counts,,,,,, real players all keep most of the wealth "off the table" and "under the skin". So what does this have to do with the BIS?
Something that Big Trader or Another said a long time ago about trading gold off market in the thousands. Trust me, it's there somewhere way back in the pre USAGOLD days. It seems that gold was then and is today traded between countries, CBs, special accounts,,,,,,, at not only contract prices but in the "perceived prices" that would exist in a non dollar world. Hard to believe? Don't be so quick to laugh. We are talking about gold traded in large amounts on the "possibility" of a no dollar reserve world,,,,,, gold moved from "under the skin" to "under the skin" so to speak.
In some cases more than a few people have "done the math" and come up with some startling probabilities and possibilities. In some perceptions, it's a political certainty!
Imagine, if you will that gold,,,,, tomorrow,,,,,, was "marked to the market" and slated for 30 day physical settlement. Most Western thinkers and investors would say that there is plenty of gold out there to cover all that paper. At worst it's price would go to,,,,, say,,,,, $700 in the squeeze. Well, that is assuming this event happens in a world like today where the dollar and our US economy is still running.
But these Western investors don't understand the real human world. Gold being marked to market would be the result of an economic revolution of sorts. A currency transition, if you will.
Most of the big talkers you here in the bar,,,,,, saying they would sell at $1,000 and buy some land,,,,,,, would be the very last scared kittens to cut that diamond from under their skin! Believe it!
Under the circumstances,,,,,,, miners would do their best to "stop mining",,,,,,, dealers would mostly be making a market on the buy side only,,,,,,, and our bar room paper gold trading friend,,, with all his bravado would be telling everyone,,,,,, "Gee, I sold too early and wish I hadn't"!! All the while wearing a long sleeve shirt on a 90 degree night in Phoenix,,,,, just to cover the lump that's under his skin!
The night is getting very still:
Today, gold is worth far more than it's traded contract price,,,, and has been for some years. That's the reason some players have owned it while giving up any interest and stock gains they could have enjoyed.
Listen to this and listen closely: "the real value of gold today is based squarely on the probability of weather the US dollar can survive as a reserve currency"! No problem, you say? Well, you may think a little different in a few weeks or years.
Considering the trade deficit of the US, CB dollar reserves and the interest they earn,,,, are worth between $.50 and $0 in real good buying power.
Now, would you sell your gold into the BIS system for dollars,,,,,, at the market price today to have it returned in Euro gold credits reserves at the real price much later?
Just as TownCrier says in his daily commentary:
the IMF gold leaves at one price and returns at "Another" ,,,,,,,, it travels far but never moves,,,,, while the BIS holds the value for a later use in time.
It seems a neet "gray concept" to have just popped out of nowhere, no? Was that plan already "in process" somewhere ,,,,,, someplace,,,,,,,, think about it?
Then think about the dollar price of gold today? In fact, "think long and hard about it"?
Thanks for hiking. (be on the forum later or tomorrow)
FOA/ your Trail Guide
FOA (4/22/2000; 20:48:58MT - usagold.com msg#18)
Good Morning everyone!
Because the group has had a good night's sleep and a fresh cup of coffee, I wanted to say a few things to fresh minds before we get started.
People hike the gold trail for the understanding they gain along the way. For some it's to make a profit using the reasoning gained. Others find reinforcement about the historical asset insurance gold provides against other wealth. Still others do it to further an ideological standpoint that gold wealth is more a direct reflection of true reality in life. Whatever the reason, for many people gold holds and maintains a real image of stability even beyond it's currency price. A rare concept in this modern world full of financial fakery.
Whatever your purpose in joining us may be, understand that neither I or us make the trail. We simply follow it as it winds it's way through our evolving lives. Gold, an entity of mother earth's making has a fluid value that's an ever changing perception of what wealth represents in the minds of men and women. Over time the wants and dreams of humanity along with their need to retain them are the forces that shape this path. The actions of ourselves and the governments that represent us create this trail as we grasp just how much in life is real and how much is not.
To date, we see a large segment of Western society that has accepted most of our modern paper as their wealth and reasoned that the value of gold itself is little more than an illusion today. In time most of these "new reality" believers will join us here and contrast their life's experiences with other hikers. In these recounts, many will profess that they lost "what they never really owned"!
A few days ago I offered this post: Trail Guide (4/18/2000; 7:00:01MDT - Msg ID:28918). It can be found on your laptops in the USAGOLD archives.
I presented a perception of the changing image of Gold Bugs as they appear to other would be gold investors. Many of whom see the strategy of the old TGBs (trader gold bugs) as something to avoid as it produces nothing but loses. A wealth destruction that seems unending as the evolution of the gold market itself continues. This evolution of over twenty years has proven to many that our market place was never as free as many played it for. Indeed, the growing perception today is that the gold industry and this paper market place have become little more than a leveraged game inside a manipulated concept. Rather than a contract market that represents the sum total of knowledge and therefore value of our physical gold supply. In the beginning this concept once held gold trading to be the same as free physical trading. It never was then and is not today.
New, "would be" physical gold investors are not looking at the gains made from shorting or going long paper gold as profits made from operating in the same arena that dealers use to sell physical from. Rather profits and loses from trading all paper representations of gold are seen only as they apply to our current paper market. While profits and loses from owning physical gold are found only in the physical market. To date the profit and loss difference between these mediums is striking. In the face of massive distortion of facts, figures and contract supply, physical gold has suffered a very reasonable discount when compared to investments in it's leveraged paper side.
Seeing this, the question is presented: why trade a gold industry security or gold derivative paper when I can make and lose just as much playing the established fiat stock markets? Truly, if contract paper gold is being inflated with supply in order to mask bullish fundamentals on the physical side, why bet on a rise in physical gold using a leveraged derivative? If the world stock markets are in trouble and I need to hedge my wealth, why hedge using an arena that will tend to be manipulated down even more so as equity markets fail?
Further, if this official paper gold market is not the free place we thought it was why not buy the product that's in short supply and the subject of said paper manipulation? In this regard, Physical Gold Advocates are gaining the upper ground of "sound reasoning" as we speak! New investors see through the fog and don't want any part of an investment that's already killing many investor assets. From my post:
"The distinction between gold stocks, contract gold and physical gold investments is widening as the relative "soundness" of these asset classes is further exposed daily. In the past, as long as all gold vehicle valuations held within a tradable ratio of each other "Trader Gold Bugs" could hide within the "Gold Bug" community and proclaim all the fine attributes of a "physical gold advocate". But this current protracted political involvement in the gold "paper marketplace" is dividing "Gold Bugs" into their two clear different groups and showing their two clearly different reasons to be in gold.
Over the last three years, Trader Gold Bugs (TGBs) have fallen further and further behind "Physical Gold Advocates" (PGAs) as their leveraged investments are more percentage impacted by a falling contract gold system. No longer able to keep quiet, the pain that their leverage brought them is forcing an ever more vocal (and irrational) response to the movements in gold prices.
Every $2 drop is seen as a total failure of gold and every $2 rise as pathetic and proving how gold is done in for the count. Truly, these are the perceptions of investors trading either a "Paper Gold Market Place" or a leveraged "Gold Industry". Not the feelings of a Physical Gold Advocate holding a sound world class financial asset! One that's holding it's own strongly in the face of massive official manipulation." " "
This full post was aimed squarely
at the failed paper gold investor of the past. Whether buying
into the gold industry or the contract gold arena, the flaw in
this strategy is that leverage gold today is and has been for
some time opposed to official policy. An investor can "wait
out" this policy time frame or buy directly into the part
of the gold market that cannot be controlled. Physical gold!
The real leverage today is found in the understanding of just how this current "wind down" of official policy will impact the two markets for gold.
Whether doing the bidding of "official policy" or just trading paper gold short, the major makers of short contracts cannot and will not "just walk way". If they have created so much supply that it is "uncoverable", they have no option in stopping their writing. In a last ditch effort they may make every trader aware that they will create a bottomless pit of supply if necessary to stop any rise in contract prices. Regardless of the physical price! Especially if a rise in contract prices is the only accepted agent they must mark their margin to! In the end, no speculator, commercial trader or gambler in the world will buy into a contract that must end outside physical settlement. The end of out current gold markets may end this way:
"""""""""" If physical gold spikes and is trading in the dealer market for $3,000 an ounce,,,,,, and a major trader stands ready to sell contracts in any number,,,,, to all comers,,,,, for $200,,,,, no one will buy if the obvious settlement will be for the full equity of the paper gold marketplace!!!! Truly an amount that may only bring $400 or less (an ounce) in negotiated cash to cover the "end time" hyper inflated contracts issued. """"""
This my friends is the full picture seen by not just old money in gold but new gold money also! It's also the reason so much "Physical Gold" is leaving the US today. Please see Mr.TownCrier (4/19/2000; 17:59:41MDT - Msg ID:29050).
Western gold investors have lost the real "Gold Spirit" rooted deeply in their past as they chase profits instead of reality. Mr. Farfel made this comment (Msg ID:28931) that so aptly describes this modern Western phenomenon:
" " You seem to have the mentality of a trader, with no rooted beliefs in anything other than that which makes you profit." "
Onward The Trail:
The gold industry today is in a position to take advantage of and profit from this changing view of gold. To do this they must sell their product to the public, not their shares. Microsoft did not get where it is today by selling it's stock as an alternative to owning Windows. It sold it's main product first to a public that wanted and needed it. It's stock value followed.
Two thirds of the modern gold market creators have walked away from further manipulating the current pricing system. The ECB / BIS position has evolved into letting the remaining market inflate itself into oblivion. If the gold industry is to survive this coming reckoning of a crashing system, they must move now to break their product away from filling paper commitments. Only a small handful will have this choice. The move by some players in creating "goldavenue.com" is a major first step. But it's not enough.
The companies that will survive must make their product into registered form. Then sell only to users that will certify and prove that gold's end use as jewelry, coin or private bar. Registered bar sales, must be stored in bonded warehouses that can identify a mine's product bar. If the paper industry or fabrication process is to use this gold they must remelt it, absorb the cost and pay a fee to the mine of that numbered the bar.
Very few mines will make this shift. But it's the only way they will profit enough to overcome the taxes and regulation that's coming.
The gold industry must make every effort to educate investors that their mine shares are not a substitute for owning gold. Demonstrate why persons should own and utilize their software (gold) for personal financial safety first. Only later (as profit potential prescribes) encourage persons to invest in microsoft stock (gold shares).
The few companies that can follow this lead today will be amazed at the outcome tomorrow!
The paper markets give the illusion of a fat gold supply that says, "there's plenty to go around". Yet, once our paper markets finally price in their own destructive tendency, the illusion of supply will vanish along with the available product. The price change in physical gold will be fast and brutal, to say the least. Leaving virtually no chance to convert any paper profits into real gold on a one to one basis.
To this end, "PGAs" (Physical Gold Advocates) today enjoy the very best of all worlds.
The "wind down" of our official paper marketplace has begun with the Washington Agreement. An accord that began with the first private acknowledgment that IMF gold would have to be revalued through either sale or official revaluation. We are on the road to very high priced gold, but will not arrive "publicly" at these values until the paper markets destroy themselves.
London is clearly in the wind down process as their volume slows. The dollar faction is alone in representing itself as the defender of low paper gold prices. I give the odds of contract gold spiking and holding it's gains at one in ten. If the paper gold market can end it's days in a rapid rise to bankruptcy, it will take a major portion of the banking system with it. The same banks that the mines must work through today.
In the eyes of new Gold Bugs, all risk today is in paper held in lieu of gold. The choice is clear. Buy into a bear market in paper or ride on a new concept for our changing modern world.
The future belongs to the PGA. Physical Gold Advocate!
Thanks for walking
FOA/ your Trail Guide
FOA (4/26/2000; 7:45:41MT - usagold.com msg#19)
The Euro is part of this trail!
This is a pre - weekend office review before our hike.
Here is some context from today's WSJ that reinforces what we have been talking about. I'll put it in my words but read it yourself in their paper.
In the World Watch section, under ECB Rate Rise:
----Inflation in the Euro zone may have peaked in march and now declining. ------ The CPI in all 11 countries rose 2.1% in march, year over year. ------- But analysts expect euro zone CPI to fall back to 1.8% this month and to 1.3% by end of year. ------ Three German states reported that prices were unchanged or fell in April / March. ------ Two other states reported similar data last week. -------- Italian cities reported inflation in April had declined from month before. -------
Does this sound like the major price inflation that was suppose to impact Euroland as their currency has fell for over a year? That's right, it's not! This is because the Euro Zone economy is "benefiting" from a sound currency structure. It's the Dollar that's is being driven ever higher into over valuation as it's reserve status is transitioned. The ECB / BIS are doing the same thing to the dollar that they are doing in gold right now. Allowing the Western Dollar faction to inflate and export (if able) the paper version of both items until they burst from supply.
In this process US interest rates must retain a large premium over Euro rates to support and over value the dollar as it's supply is pumped. This in turn drives performing financial structures (real world goods creation) into Euro assets because a sounder currency allows lower operating costs with the same or lower current price inflation. By this measurment, short term exchange rates are not the "use" deciding factor. If this continues, Euroland has the potential to take the lion share of world finance, and goods settlement. We are on that road today as a forced high dollar exchange rate is fueling our trade deficit! Yet, all of this is hiding under cover as the media only reports on the loses that traders take in the Forex markets.
Further from what I read in the WSJ under Foreign Exchange:
------ From an economist in New York ------ The European economy is strengthening. ---- European rates are rising. ------ And Europe is at an earlier stage in the business and restructuring cycle than the US, which suggest greater potential for price gains in the intermediate term. ------
Breaking the dollar's hold on world reserve status means forcing it into a major price inflation at the end of it's timeline. This is done by tying the hands of policy makers so they can only create (pump) more dollar assets into the world system. That "tying of hands" is done by creating for the first time an alternative currency structure that does not fail from continued dollar "crisis strength" or "crisis weakness". The world economy will run to just such a system as their current system (the dollar) fails.
The US is now trapped because they cannot lower rates to bring down dollar exchange rates without gunning their stock market and economy into an obvious hyper inflation. Yet, they cannot raise rates any further without causing a complete landslide of investors into using the lower cost Euro system.
Hence the little 1/4 point rate rises Alan is doing. He and the dollar are now trapped from all the outstanding dollar debt in the world. The whole mountain is now slowly sliding down the slope as we watch. Is it no wonder that gold leaves our shores in record amounts.
In the past, no one would rock the boat in such an obvious way as the ECB / BIS is doing because everyone would lose as the dollar eventually was discarded. But today, the Euro Zone system has taken a second step to backup their Euro banking reserve structure when the fall comes.
In an ever so obvious event they told the world that the Dollar based world paper gold markets are "on the road" to being phased out. That event was the Washington Agreement. If you have read my earlier "trail walks", you know how this action is slowly drying up supportive gold supply that gives credibility to the paper gold markets. The eventual outcome of this is to allow the current contract markets to be supported by the US and it's backers alone. To date, without world support there is not enough gold supply to keep these contracts at par with spot bullion prices.
In a desperate attempt to keep dollar gold prices from spiking, the dollar faction must inflate it's contract market to the same extent that the dollar itself is being created. Without this paper supply, the paper gold markets would show a discount to physical just as world dollar debt would discount dollar price inflation without more created dollars to buy existing debt supply.
The stage is now set for a fall in the dollar and a corresponding leap in the "dollar reserve replacement value" of gold held in the BIS system. The point is clear for all to see,,,,,,,, when a crashing dollar exchange rate comes from dollar price hyper inflation,,,,,, and drains world liquidity and value from dollar holdings,,,,,,,,,,, gold and Euros will fill that void. The Euro system is completely braced to accept a US self induced transition of world reserve status from the dollar into Euros. It's no accident that the breaking of the world gold market structure and dollar price inflation will come about just as the Euro comes to center stage. Euro depth grows every day and brings in ever more players seeking opperations value.
Now you know what "Another" has know for some time. Now you know why gold is and must rise far, far higher than anyone expects or predicts. Now you know why our paper gold contract market is about to fail as a "freegold" physical market takes over. Gold in the many, many thousands is in our future as the transition to Euro reserve status is set to begin.
"We watch this new gold market together, yes?"
Thanks for hiking
FOA/ your Trail Guide
FOA (05/06/00; 16:45:21MT - usagold.com msg#20)
For Your Eyes Only!
Thanks for stopping by my home before our hike. I have a large outdoor fireplace in back and plenty of chairs. Here we can first eat, talk some and then get on the trail.
I want to start by making my personal opinion more clear. Some of you that know what talk is coming are smiling already. But, this is for some of the newer ones.
It's shocking to me when I hear that so many are still trying to figure out "gold's place in the world". Some people even question whether gold is any kind of wealth worth owning, let alone be a substantial portion of their savings! With this mindset is it no wonder that this current slice of "Western Investors" can be so easily bilked out of their "hard money" savings. Instead of saving gold for coming currency devaluation's, these same try to only profit from gold's current small price movements. It's an old strategy built to fight yesterday's gold wars and it's costing them plenty. Here- in, we see there is a huge difference from our position and what they are trying to accomplish. In the quest for profits they have taken the Fiat bait, "hook, line and sinker" and brought into fiat gold substitutes in every form.
But, I guess it must be this way. The financial convulsions that lie just ahead cannot possibly occur with everyone holding physical gold. At least not at any kind of currency prices we see today. Perhaps this is just one more signal of the end of this financial era as we know it. Somewhere in the "good book" I read where in the end many would throw their metal in the streets. By buying gold substitutes we may be seeing a whole segment of our world savers literally tossing the metal before the fact.
Let me expand:
We, physical gold advocates, have largely built our views from the actions of several smart players. Players we perceive are out there in significantly large numbers. Here we find a kind of thinking that's completely opposite from the dollar asset world most (Americans) live in.
When all of us hear of someone buying gold with no intention of ever selling it for dollars, we laugh! What good or profit could they ever derive from it? Well, a lot of paper gold bugs are going to understand this real soon. In a way that's kind of "up front and personal"! Our fellow "Trader Gold Bugs" all firmly agree that it's much better to hold a trading position on some form of gold derivatives. In their view, mining shares, stock and gold futures options offer a much better play and much better profit potential than physical gold. At least in dollar profits, that is.
All of this is fine and probably very true in their world of perception. But we have to remember that these TGBs all present their case for a higher value of gold as "the reason" to play the paper derivatives game. Whether gold's value rises from an industrial use physical shortage or induced from a currency devaluation (price inflation) physical shortage, they see the currencies as bad and gold as good. But the deep flaw in this thinking is found in this: "Playing paper gold substitutes is only a game that tries to make you more of the same currency that's failing from price inflation"! It's a currency game that's apart from owning physical gold. In other words their position is: "if fiat prices are rising 10% or 20% I want to make at least that much more of those currency units so as to keep me ahead". Even if they get delivery in gold against paper contracts or receive some gold as a dividend from a mine, they need and intend to sell it for cash to profit.
Whether their gold stocks are surging or their stock dividends are rising or the leverage of futures options are gunning ahead,,,,, the gain "in the mind" and "in the hand" still comes in the same fiat you are losing against. You play the game because the money is somewhat failing, but keep making more of the same failing money to stay ahead! Get my picture? That's ok when the currency was just inflating a little and world governments were trying to save said currency. But the currency war ahead will paint an entirely different picture in these markets. The next price inflation will build well past "plain inflation" and explode into Hyper-inflation.
It all comes down to you playing with a paper gold supply that's supposed to represent gold you could conceivably get, if needed. But the closer we get to the "real act" in this play, the more the paper game is inflated with supply that cannot be covered outside a cash settlement. That is a simple position to understand and work from but just look around? The "Western Mind" is stumbling all over itself in an attempt to explain it with a different outcome. In other words: There must be a way this can all work out so as to preserve our dollar and the leverage we own in these paper gold substitutes. You see, it's the perceived leverage in paper games that keep them coming back, but official policy has changed these markets in order to conduct a now ongoing currency war! Paper gold leverage is only an illusion built on the desires of dollar players trying to prosper in a dollar position. Well, I can tell you that the further we travel this trail, the higher the eventual cash settlement of all gold paper will be and the less that settlement will be allowed to match any "free physical" price.
This, my friends is the reason so many Physical Gold Advocates have no intention of selling their physical gold for dollars any time soon. "They don't expect the dollar to retain enough real value to warrant trading it for gold. At any price! When the "real act" begins to play out, international gold will be settled outside the dollar world and done so far above the coming forced contract cash settlement prices. Whether traded "outright" or for a "better" currency, gold and the current dollar derivative world will part ways.
By holding physical gold you are owning a super leveraged "derivative" that will be exchangeable against the value of real things at a par level lost to the minds of most investors. Today, physical gold purchased in dollar values is discounting it's worth by perhaps 100 times. For us PGAs, that is a leverage worth "playing the physical game for"! (smile)
(that smoked salmon is good, no? go ahead, there's more here)
I have made it clear that I follow in the footsteps of giants and by extension remain in Another's shadow. We have been buying gold all through the 90s as a portion of out savings. It's held just like any other currency and represents a major portion of the (my) pie. I also own some gold stocks (smile). But own them in a portion and for a reason that any leading gold mine executive can only crave:
"they are held not for trading and in small enough portion that they will never be sold".
In effect, we own their product first and foremost for the real world, long term leverage it represents. We own a share in their business with a far away view across the "coming currency war valley". In the middle of that valley, amiss the war, we expect some of these businesses to survive by changing into the Euro world. But, most all of them will experience a crushing collapse in equity values during the war. My view to the other ridge sees a gold price, so high, that it will eventually overcome taxation, government production controls and even the failing dollar based contract gold market. Even though these shares will plunge "in the valley", my holdings are such a percentage that I will own them "through it all". This is why I own only a few of the very best and one in particular.
For all of you here today, contrast this position against the trader of the last few years? During the worst plunge in paper gold assets seen in a quarter century, these same have lost most of it through their leverage. In and out, in and out, and all the while saying they are only "a little down"! Then, at the slightest little rise in their paper positions, it's given that this proves they are right. Right in that paper leverage beats physical any day. I submit that the way traders work, they will be lucky to be even as gold runs past $1,000.
Again, Yen, Euros, dollars and Marks are in my savings position, but physical gold is held as the derivative that will best outvalue them all! I do not trade these positions, I build and save them. The coming political transition from dollar reserve use will break the paper gold markets into cash settlement pieces. In that process, induced by this Euro / Dollar war, physical gold will outperform any any all failing paper gold. The value is there to own today and anyone can have it! Events will prove that the footsteps we follow have placed on "the real gold trail".
Now, onward the hike.
See you there in an hour or so.
FOA/ your Trail Guide
FOA (05/06/00; 21:50:37MT - usagold.com msg#21)
I see Gold!
Anyone following these walks knows I am not the best at putting the trail into words. We must therefore rely on events (and other writers) to demonstrate the real world around us. Recently the completion of the Swiss gold sale is a case in point. Here you have a country known for it's pragmatic hard money trends, yet it's selling gold. Something they would never do unless the process could in some way return the lost value back to them.
Trading Swiss gold into the BIS system gives further support to the Euro "free gold" cause. Giving the ECB / BIS more control over how physical gold is allocated only further starves the dollar paper gold world. Having once backed a low dollar price of gold for oil, the Swiss helped build and sustain the same contract gold infrastructure that would eventually be the undoing of the dollar. Today, they further align themselves with the Euro world just as a "deflationary" phase is set to impact the dollar dominated gold banking world. In the end, gold values will be much better with the Euro pricing a Free Gold marketplace. This in turn will mark to market the remaining Swiss stocks of gold at a higher level than could be currently achieved. Add to this a strong Euro system and the benefits will be enormous.
Gold banking paper deflation will lead to Gold banking paper inflation
Just as deflation in a currency block is caused from the defaulting of currency loans, we are on the same road in the gold banking business. Such deflation is cured the same way in both instances, paper printing! Be it gold paper or currencies.
In the end, a currency deflation is halted by supplying the currency units until rising prices become an obvious default of the fiat money. For you and I the prices of everything race ahead. For business caught on the wrong side of this, it's hell! In other words, the dollar prices of real physical things rise higher than many business contracts can deliver against. Hyper - inflation bankrupts businesses that agreed to supply a physical item at a price they can no longer buy it for. Whether tires, tools, batteries or gold bullion, anyone writing supply contracts that last into a major price inflation will end up settling those contract in cash. That is up to the limits of their capital. Then, only if the treasury deems them important enough does the government prop them up with more public cash to bail them out. This endless circle goes on until all currency contracts fail from the loss of credibility.
Our current world dollar gold contract business is arriving at this same juncture with different results. Paper gold markets expanded to meet investor demands. The only difference between now and in the past is that "Western investors" today want to invest in the price movements of gold, not use gold as a money holding. The demand for gold today became the demand for leveraged gold paper. Instead of selling real gold to meet demand, governments, bankers and brokers created more contract gold. In the same way that people borrow cash created out of thin air, would be gold owners and traders brought a lot of gold credits based on nothing but thin air. The paper market expanded until a political change now threatens it with default deflation.
Just like a fiat currency, modern gold currency is only credible until prices start rising against it. It will start out with a settling of contracts with only a percentage of physical and the rest in cash. Then, in the same way as prices rise against a currency during an inflation, physical gold prices begin to rise against paper gold. Slowly but surely, less and less gold is supplied against contracts until we end up with total cash settlement. All along, the physical "free gold" market trades at a higher and higher currency price. This, my friends is what dollar hyper - inflation may look like in our modern paper gold markets. The selling of paper gold "into the dirt" even as all prices run away.It may last for an hour, a week, six months or several years, but it will unfold this way. As long as investors believe in paper gold, their wealth will be slowly absorbed by physical gold buyers until trading breaks down. Eventually we have the super failure that locks up the entire paper gold arena and ends it for good as everyon's holdings are marked to the real market.
On another note, please read ORO #29003 and especially #29498 on the USAGOLD Forum. His Euro Crush and Dollar spike describe many of the items that impact our currency world. These same forces are also shaping the transition of the gold markets.
I noted this past week how the dollar rose against the Euro. Many rushed to proclaim the Euro weak and failing. I have to ask: "without a dollar to compare exchange rates to, how would anyone measure the Euro's weakness"?
If you lived in the Euro Zone countries, with a bank account full of Euro credits, what impact on your lifestyle would lead you to see how the Euro is weak? Against what? For myself, I can find none! In fact, most all prices of goods are rising slower than in the US. I can borrow money at lower rates than in the US. The Swiss unit is falling and costs there are out of site! The Pound carries interest so high I would certainly not give up my Euro system to operate there. Here in Euroland I sell more abroad than I bring in.
Perhaps the world is not what it seems!
The dollar faction is having a hard time keeping paper gold under $280. Now that the world has seen how the WA is placing Swiss Euro Gold, the paper markets should start to discount physical. I think weeks are all the time the dollar faction has left before things begin to change!
Thanks for hiking with me
See you at the USAGOLD Forum
FOA/ your trail guide
FOA (05/14/00; 20:39:25MT - usagold.com msg#22)
Mothers: the only real gold of this earth!
Hello to everyone!
No hiking today. Let's just ramble on about some recent discussion and do it in a relaxed format. This is an especially good time to do this because most all investors are softened in spirit from mothers day. Yes, we all came from somewhere and even thought us guys try to take credit, it's the mothers that worked the magic! I am of an age where my mother is long sense pasted, but still celebrate the occasion with those of the new generation.
After a good dinner, a few glasses of fine wine and exceptionally good company, I'm now writing this piece. Thought you should know this (smile). Having read lightly through the USAGOLD forum I / we want to touch on a few things.
"it's a beautiful day for a hike". Thank you for considering (smile)!
indeed the American public and private debt still grows. Yet, we as clear minded, broad thinking conservative citizens are expected to believe this debt has no end. This debt growth process alone is enough to make one seek financial cover. All of the economic facts , figures, projections and sentiment don't make a hill of beans compared to the corrosive powers of the total US dollar based debt. This alone completely overwhelms any near term bullish considerations. No economy in the history of mankind has survived long enough to make good on this magnitude of IOUs. None! This country will be forced, in our time, to hyper inflate us out from under a debt than cannot be covered. This is a proven fact from the beginning of all history, especially that of paper money.
you are a miner, I see. Good fortune for you any your family. I encourage your support for GATA and all who fight against the suppression of "FreeGold". Soon, a foreign political tide will turn strongly against the American dollar and drown it's policy of maintaining this paper gold
marketplace. When the great tide changes, the current will be like wind in a miner's sails. But my friend, it will be an exceptionally strong breeze. One seldom felt on desert nights. Only the strongest boats will race before our storm. My only fear on this day is that your people voice no clear
understanding of how this change will affect the trading of physical gold. They still long for the past and a return to an honest, supportive paper gold marketplace. They base their financial plans on $600+/- gold in context of a concurrent futures / paper market. I submit to you it will never happen. Paper gold will live with falling prices or die a horrible death. No middle path will modern miners walk. May your best dreams be as a fortune in hand's grasp.
Thank You, Another
Hello TownCrier! My best to your Mother (smile).
Your item on the German 20 mark was an fabulous piece. It tells a true story that few can believe today. Those coins are both a part of history and the future. I read some of Holtsman's article and have to add something.
Many people today picture gold as an evolving asset that's only just now showing it's real potential. Perhaps this is seen in a context that gold value never did represent people, rather it represented our created wealth on this planet. Yes, actual physical gold, in ounces, has increased dramatically over the human time span. But, never before in history has human physical creation been as it is today. The real wealth assets of our modern world have increased thousands of times over the mined gold supply! Had mankind not intervened over these last 50+ years and created gold substitutes, there is no telling what gold would be worth.
As the only real wealth money this earth has ever had, it's unthinkable what value physical gold would have had to attain to denominate our created holdings. This is where so many "gold advocates" completely sell themselves short in projecting gold's future price. They try to somehow reconcile gold's value with it's cost of production. In fact, once man's drive to attach his official currency / fiat money to gold is broken (as it is about to be), all the gold "IN" the earth today could not represent human created things at 10 times it's current price! Throw in the fact that the earth will not give up all it's gold any time soon, present world gold holdings in reserve currency today must rise in value at least 100 times to match what assets now exist. On top of that add in the fact that dollar gold will go sky high just to equal past dollar creation (as the dollar fails) and one can see where physical gold is "the play" in modern times. Forget stocks, business valuations, land or currencies: physical gold is the wealth for the next generation. The generation that in "our time" came from today's "Mothers" (smile).
But TownCrier,,,, you already know this. Perhaps I am expanding on your thoughts? ,,,,, if so, then it's good for you, me and everyone here!
Hi - Hat,
The people at the Hi-Hat ranch have a pigeon shoot (target practice) using real birds, no? A friend of mine said it caused a controversy there recently. It's a practice commonly used in other parts of the world. It's the same with our gold perception, just depends on where one has been and who we have known.
Oil begun rising in dollar terms again, even though many thought some deal was cut! Well, cheap oil is hard to maintain now that the Euro is breaking our paper gold market. It seems that only real gold flow will slow the oil rise. Today, derivitive gold is on the way out! Let me tell you, this revelation is sinking in on American policy. Without cheap oil, this Western economic illusion is going to fade quickly. And with it will also go the Western illusion of value in paper gold.
Like those in the rest of the world, a Sovereign Individual will be the one with real gold.
-----I hereby nominate the overextended timelime of the US dollar on life support for one of the great wonders of the modern world. Certainly on a par with the Colossus of Rhodes.-----
Ha! Ha! Never in the history
of human endeavor has such a debt been built! I dare say it is
greater than the seven wonders. When I listen to how players plan
their next investment based on TA, I fully understand their narrow
view. Truly, they are trading paper deeds as Rome burns!
-----The only gold mining company that I know has the capacity to fabricate both gold jewelry products and bullion wafers is Harmony Gold Mines. It would appear to me, that this gold equity (paper gold investment vehicle) would have the potential to shift its product sales into EUROs should the buying power of USDs implode. Do you know of any other such companies?-------
Quite a few miners are talking
(very privately) about how they could sell their product "outright".
The problem is that they have built their whole financial plan
on selling gold to the "middlemen" first. So, now that
paper gold has priced their product to a bare bones margin level,
they have no resources to just "cut and run". When the
"real" "next" physical gold bull breaks open,
it will be lightning fast and lock the very market mines must
sell into. Truly, it will be pandemonium at it's best!
The calls for "derivative cancellation" and "physical delivery" will wreck every possible banking network in the food chain. Both good and bad, solvent and bankrupt. There will be no market for gold in the banking world and these same BBs will be demanding all mine loans be settled from any miner that starts selling his product publicly before it's all settled out. Technically, many mines will be placed in default and their shares sold because their product is frozen.
There will be some huge profits to be made by holding certain mine stocks. But, almost all of them will go close to zero first. I doubt many investors could hold their current percentage through this price action. Physical gold will find a new market and soar in that medium of trade. In the face of this, few if any stockholders will hold their falling mining shares while watching gold soar. Yes, some will (like me) hold through thick and thin because they have a right percentage of (the best) mine shares to bullion. But, many, many others will pressure the market as they attempt to adjust to (our)level of holdings.
Companies that are "unhedged" and somewhat profitable at around $280 may attempt to restructure their bullion sales "near term". The problem comes in where so many "western share holders" do not believe that our paper markets are "maintained" much less about to destruct. So they vote for a status quo while waiting for some "legal" or "political" action to return us to "normal" paper prices. For these companies and their share holders, this backward view is the wet concrete that will set up and freeze their wealth as gold later soars.
As an aside, I hope the US will enter the paper arena and allow a controlled burn as paper prices rise. This would be the most "saving grace" for all long derivative (and stock) players. But the leverage creation has been so immense these last few years that I am afraid Another is completely right. All paper will burn! Completely!
Thanks on this Mother's day
FOA/ your Trail Guide
FOA (5/25/2000; 2:54:39MT - usagold.com msg#23)
Trail Marker #1
I'm placing a marker on the trail today so everyone can see our path more clearly. Please read my post on USAGOLD: Trail Guide (5/24/2000; 7:33:47MT - usagold.com msg#: 31148). I'm calling it the BTD Marker.
No, I'm not becoming a futures trader. Rather it's done as a real life response to a post (#31098) made by BTD where he presented his case that holding 300 ounces as futures was just as good as holding 300 physical ounces. Far to many newcomers arrive at the decision to own physical gold only to be taken in with the paper song of futures brokers. Usually it is given in the context that:
"Your physical is just laying there doing nothing, so why not trade it. Better yet you can even earn interest to boot!"
More often than not, fresh gold investors end up losing a ton of their wealth before getting an "education" that leveraged paper gold is not real gold. Therefore, I will hold and even roll over several times my 3 - 100 ounce futures in an effort to compare it's return to holding physical gold. Anyone that is tempted to "unload" their real gold to follow the leveraged game can watch my money first. I sold 300 K-rands at $270, netted out $81,000 and brought (6 month) T-bills. Placed them in a margin account and brought 3 Dec futures at $283.30 (I mis typed this as 383 in my post, but most of you would have known this).
After a period of time (even a few rollovers) we will see if we can buy back those same 300 K-rands for even money. I'm now betting that the season is close enough that the two positions will part ways. For all of you that have been walking this gold trail, you already understand how paper gold is the tool being employed today to destroy the dollar gold market. It is very possible we will see the effects of this during our exercise as the value of futures is discounted well below the physical gold price. I'll be sure to update my new holdings for anyone that does not chart this trade themselves.
In all fairness I wanted (asked) BTD to track his "Publicly stated position" so as to articulate his gains or losses for new followers. He declined for personal reasons in #31154.
The perception gained by following a losing position in paper gold comes in seeing the different mentality inherent in the gold market today. As I presented many times before, their game is to play the "price" of gold in a paper leveraged way. It's an old failing tool that is compounding loses as the years go by. In no way can they understand the massive leverage in holding gold itself against the coming discounting of the paper industry. From my post:
------"My friend, it would only be the end of the world for paper gold traders. Indeed, if comex stays intact, I bet my physical will match your contracts ounce for ounce (smile). Something that cannot be said for a reverse situation I see coming. You see, our position is leveraged for a worse case, while yours can only keep up with mine in your good case!"------
Immediately after I presented
my "trade", futures brokers jumped in to council and
precondition my comparison. As if to outline how it had to be
done. Well, I have brought and sold paper from every position
you can guess. Up, down, sideways and in reverse! Most of you
have also. Having to listen to them backtrack and explain to me
how futures are meant to be traded and are a short term investment
and how it should be done,,,,,,,, it's like having our just grown
up children return for a visit and listen as they "educate
us" on politics, human interaction and sex! I can only quietly
think "you're kidding", "I didn't know that"
"wow, didn't know things worked that way" (smile).
My friends, they are a fine example of this new generation of "Western Thinking" when it comes to gold. Read all of the 05/24/00 USAGOLD for some background. No matter how many thousands of words are written to identify the different impact that Physical gold and paper gold have on the market place they promote a paper investment as the saving factor that will drive the price higher.
The very forces that Chris Powell and Bill Murphy of GATA are fighting against are using these "mindsets" as the tool to control gold. The vast majority of traders "buy into" the concept that paper gold is real gold, all the while placing real investment money against the opposite side of a cash trade. In the process freeing rare physical to satisfy the established contracts of a loan / leasing game.
Further we walk
The Washington agreement formed the ground work that will eventually destroy all of our dollar based paper gold contracts. Yes, PH in LA we are still "on the road" to high priced gold. Today, selling paper gold is almost free money to the banking industry! No one opposes the complete unbridled selling of gold contracts because so few want delivery. More and more, real gold is being channeled outside the contract arena. It has become so obviously clear it should appear as a blinding light to anyone that looks. Trading on established paper exchanges will dry until they fail.
On the US side, we continue to write gold derivatives to keep the "followed" price down for the dollar's sake.
On the Euro side, they write gold derivatives because it further dilutes, discredits and eventually destroys the dollar's gold market.
From the BIS perspective, "noone" cares what the paper price of gold goes to now because the acceptance of paper gold has been replaced with "real gold flow" as the regulator of dollar oil prices. With a "full on" cash settlement of outstanding paper contracts on the horizon, Euro paper will best out dollar paper, but no one is stupid enough to be covering paper with real gold. Well, perhaps a few are.
This is the landscape from where GATA is trying to pressure a return to "fair trading" of paper gold. My friends, it's not going to change back for the better and the industry doesn't expect it to. In the words of Goldfinger in a 007 film: "I expect you to die Mr. Bond!"
This failing system is also one of the same investing vehicle so many futures brokers push! Brokers present all these leveraged items as a good way to "play" the price of gold. At the same time my friends are selling, creating, writing and unloading all the paper derivatives the world can handle. Indeed, they will keep doing it as long as the market has money to give away by not discounting these derivatives against physical gold. It's free money from paper gold investors!
No, we gold bugs are not all on the same side! Many think I don't like paper gold just because it's not physical. They say there is no precedent for a large scale devaluation of all paper gold. One has only to see the perception just prior to 1971 when the dollar was discounted against gold. That discount, unlawful as it was will in every way compare to the coming discredit of all paper gold. One day you will have a gold contract, the next it will be a currency contract. Marked to the market, the currency price to settle this crisis will not even compare to the coming "free gold"
Perhaps we will see the beginnings of this while I hold my 3 futures. I expect our resident paper pushers to jockey and squabble all the while this unfolds.
Back to the city.
Thank you for Hiking
FOA/ Your Trail Guide
FOA (5/31/2000; 6:54:53MT - usagold.com msg#24)
For anyone that wishes to follow along, we have been having a long running discussion about gold futures on our USAGOLD forum.[Archives here] Right after I placed the BDT Marker #1 I was somewhat challenged on it's validity by the good words of Mr. Goldhunter and others. Here are some of my recent posts. Please review all the good writers that posted both before and after me. We will be hitting the trail for a good outing this weekend! (smile)
TrailGuide (5/25/2000; 12:51:58MT - usagold.com msg#: 31250)
TrailGuide (5/26/2000; 13:21:36MT - usagold.com msg#: 31367)
TrailGuide (05/29/00; 18:38:21MT - usagold.com msg#: 31510)
TrailGuide (05/30/00; 05:37:20MT - usagold.com msg#: 31538)
TrailGuide (5/30/2000; 13:16:32MT - usagold.com msg#: 31562)
TrailGuide (05/30/00; 18:48:46MT - usagold.com msg#: 31570)
Also: my discussion with Mr. Michael Kosares (USAGOLD)
USAGOLD (5/28/2000; 10:50:58MT - usagold.com msg#: 31446)
TrailGuide (05/28/00; 19:20:44MT - usagold.com msg#: 31469)
TrailGuide (5/29/2000; 8:28:27MT - usagold.com msg#: 31482)
All of the above created the train of thought that brought us here to today's post on the forum. I will spring from this trail head for our hike later.
THanks for reading
FOA / your Trail Giude
My post of today.
Trail Guide (5/31/2000; 6:48:50MT - usagold.com msg#: 31587)
ORO (05/30/00; 22:58:11MT - usagold.com msg#: 31580)
Solomon - 100 fold
----A 10 fold drop in the value of the dollar has occurred in your lifetime.-----
----I grew up (in part) in a country that saw 1000 fold depreciation in the currency within the space of a few years in the 70s and the 80s, and finally reached a better than 10000 fold depreciation. -----
---The currency had some 0s knocked off and was renamed. Then the currency inflated again and again a couple of 0s were knocked off - and the currency renamed.-----------
Your background life has helped build a real working perspective about currency inflation dynamics! I wish more Western Gold Bugs could have spent some time in these "real life" countries. Or at least study their currency history. Far too many of them dismiss these awesome figures as a function of said money being in the "third world".
Most people understandably draw a complete blank in trying to see the dollar doing the same. Truly, as the dollar "reserve" function is politically removed, this real inflation will begin. Just as you witnessed, we US citizens will continue to use our dollars no matter how many 0s are added. I use Mexico as a close relation to this event because so many Americans travel there or have close business ties to that country. It's very common to use pesos but dollars are the mainstay. In the next event in our currency experience we will eventually use Euros as the Mexicans use dollars. Hard to accept but easy to prepare for.
This brings me to Journeyman:
Journeyman (05/30/00; 22:04:20MT - usagold.com msg#: 31579)
Re: Skirts & bank runs @ Trail Guide
Hello again Journeyman and thanks for considering.
I used the Comex as an example because, like my Mexican peso example above, it's a market most Americans look at. The key to understanding our gold markets is in placing paper gold trading in a correct perspective. It's not gold trading, it's leveraged currency trading with a little physical delivery thrown in. What hurts the public most is when Gold Mine investors and supporters bash the manipulated paper dynamic but fight to keep it in place for the gold mining industry sake. Most of the front lines battles are aimed at retaining the same paper trading concept, but "cleaning it up". Then, in their mind gold can return to it's proper "futures determined price range" of around $400 - $600.
This amounts to returning to a gold standard after a financial crisis wipes everyone out. Then the governments can start the same decay all over again.
We want to avoid this in the gold trading arena of the future by forcing the concept of "free gold". This has been approached by the next reserve currency backers. By trading physical only as the price making medium, gold will act as a real currency outside the established fiats. It's value surge will make it deep enough to actually carry a good proportion of world financial trade. But do it as a "wealth money", not a borrowed, lend able, bankable, government fiat system. A true natural vehicle for holding ones wealth. Most likely the way gold was meant to be used in the beginning.
I fully accept the political motives for getting us to this point. They are using gold to destroy an aging, failing, over debted dollar reserve system and doing it to promote their next fiat arena. The only difference is that they are structuring their system to take advantage of a surging gold price, not be destroyed by it!
All of this points to a breakup of the old paper gold trading business as a physical crisis eventually crushes their derivatives based equity. This is why we point everyone to look in that direction. All paper trading contracts along with their "price discovery" function are going to fail as the dollar begins it's "great price inflation" destruction. The vast majority of Western gold bugs are all watching and waiting for this event but reject the political certainty it will bring about. That being the failure of most all paper gold substitutes to shelter an investors dollar depreciation. As such, the leverage in using these vehicles is lost while said leverage moves to physically held gold!
I'm going to place this post on the Gold Trail with reference to my discussion posts about futures trading. I hope it continues to give readers a new perspective as we hike this path.
FOA (6/4/2000; 21:26:34MT - usagold.com msg#25)
The Trail is getting Hot!
That was some weekend hike, yes? Let's talk while we rest a while.
Is BILL Murphy not heard? No not really, not yet. While it's true that his ongoing presentation is still not on the center of "anyone important's" desk, one has but to spin 180' in their chair to find a neat stack of it on the "boss's" credenza. Very close by, so to speak. (smile)
I know, they get a lot of flack from the trader crowd and spend a lot of time defending the gold cause. It's important time and well spent because a broad base of people must understand GATA's position if they are to help with the PR. But that bunch will never be the ones that actually transition the market. What I'm saying is that whether "The" report drives their personal trading is meaningless. It's the broad political position that counts. Harsh statement? No real life and real politics.
The same holds true for the media. That venue is never telling anything the real players didn't know two years ago! So, if the media appears to be downplaying the GATA news, it's OK. Because the story has been out for a time now and it's truly moving in a wider circle! Remember, the most damaging knowledge is the stuff that moves quietly, behind the markets. Seemingly before the fact in the eyes of regular citizens.
We said a long time ago that Bill didn't need to really do legal action to blow this wide open. We also felt they were doing something for the marketplace that was above and beyond their "stated aim". Truly, they only had to keep talking until the game is almost over to have a devastating impact. What's so important about that?
Well, most of the "big gold" world knew about the derivatives and all, for some time. But no one really knew when it would reach it's political limit. In the very same view that no one knew where the end of the dollar's rein would be, either. In a very simple way of saying it: both of these paper currencies would expand until there was no one else left to fool!
Just as soon as paper dollars and paper gold become political liabilities, the perception of the game changes. Today we see that perception changing. For the first time ever, the US dollar faction is in a trap brought on by the Euro and it's backers. With the European world operating in a more closed circuit fashion than the US, their financial and economic engine can continue to run without the supporting American drive intact. This makes their Exchange rate values less important in maintaining real local economic growth. Even today, after a huge, economic supporting decline in their currency, price inflation is still less that in the US! Confounding the currency trader bugs that present themselves as knowing just how a currency should act. Further to their discredit, a new Euro carry trade is creating massive new Euro liabilities that are based on the successful record of the Yen carry trade. A serious mistake, because that yen trade was done using a single nation currency that greatly depended on the US. A big difference!
The political agenda in both Japan and the US generally supported the outcome of borrowing Yen to invest in dollars. Mostly because the Yen must eventually be inflated in supply to keep the Yen in a competitively down stance to save market share. In a long view, both currencies will inflate together and balance that carry trade. Even if they both hyper inflate.
In contrast, the Euro does not need to inflate to remain competitive. We have said all along that the ECB is allowing the markets to do what the Japanese have struggled a decade to accomplish. That being having a weak (in exchange rate only) global currency with low inflation relative to the reserve dollar. This supports the internal economy of Europe without having to drive interest rates to zero (like Japan) to do it. Every day that this Euro / dollar currency mismatch continues, it expands the coming Euro Zone financial dynamics. The longer that dynamic is in place and growing, the less impact an eventual failing dollar will have on them. This is the fatal flaw for the dollar in this ongoing "currency war". When the dollar death signs are signaled by our Fed raising rates further, it also outlines the significant difference the Yen carry has with the Euro carry. Truly, the ECB will not have to inflate the Euro currency supply in an exchange lowering rate battle with the dollar in order to maintain "market share"! This will trap the Euro carry in a diminished currency supply situation that will literally decimate their (the carry trade) program. It will also gun the Euro!
The Fed cannot raise rates high enough or restrict reserve creation enough to slow the US economy without cascading our financial markets. This is a seldom seen typical function of a failing currency system off the gold system. Such a Fed action that would drive business into the Euro Zone sector at the exact same time that currency and it's economy is rising. And rising as local Euro rates stay the same. Today, the political perception of this risk is raising the dollar's political liability.
If the Fed does nothing, they remain on a full blown inflation track. Right where Europe want's them. A track that every important player in the world has "slightly" hedged by taking the long side of those billions in paper gold derivatives GATA has shown is out there! Yes, this is the very same super demand for gold that has been with us for most of the 90s. It's just that the physical demand is a little above supply while the rest of the demand has been channeled into a paper leveraged position. Even as many of these bullion holders elected to trade old physical holdings for leveraged paper accounts, they helped transfer the price making dynamics towards these dollar faction paper creators. With new (old) gold supply on the market joined with the unlimited supply of paper contracts, price discovery started on it's now well known down trend. A trend originally started in a joint effort between Europe and America. Our past discussions outlined their current split.
But something is very wrong with this picture today? If the political risk is now on the dollar side,,,, and your gold inflation hedge is discovery priced with contracts created with unlimited dollar supply,,,,, how will paper gold rise in a dollar hyper inflation? In addition, how will any gold supplier that must sell into these markets, profit during an inflation? We have hiked this path before, no?
As I said, GATA keeps putting two and two together in this derivitive game as players keep re-thinking their position. Eventually, everyone will begin to reach the same conclusion:
" " I have to dump the contract derivatives game and buy real gold,,,,,,,,, AGAIN!" "
In that process, the world gold markets, as they are 95% dollar paper today,,,,, will crash in the face of unbelievable physical gold demand. Derivative and contract values in all positions will be crushed in the race to transition out of them. Not exactly the end most investors had in mind!
We watch these developments.
So we see,,,,, it was never a war between the dollar and gold. The US won that game long ago by playing to Western gold bugs taste for paper! No, now you understand with all we have discussed why gold will run because of a fiat currency war. Not a gold currency war. Indeed, this war is waged between different views of what money should be. A currency war that will transition gold into a different world from our perceptions today.
Keep talking BILL, I said they started sweating over a year ago. Now even the shoe laces are wet! (smile)
FOA/ your Trail Guide
FOA (06/12/00; 19:48:25MT - usagold.com msg#26)
Put your cards on the table!
The gold poker game as seen at Camp:
My bet for you card players: "Did any in our camp ever express that the Euro would be backed with gold using the current paper system?"
The whole concept behind the Euro thrust was politically driven to specifically include only physical gold in a future "non currency" function. Not intertwining the present dollar paper gold system in some form of currency backing. This position was driven home by the lessons oil learned in the 70s and 80s. It was included in the Euro because a real threat to use gold as a currency for crude would have resulted if it wasn't. This explained the early warnings (years ago) from Another that "All Paper Would Burn" as gold soared in value.
With a future Euro backed by a "free trading" physical market in gold, gold's real value would be later seen! Upon hearing this, almost every analyst took the ball from us and immediately ran with it in the wrong direction.
The usual explanation built on the fact that the world paper gold markets would burn up in a paper short squeeze. There by delivering our projected "soaring gold value". Well, there is something to be said for that, but such a process would be short lived and certainly not be the real play that's coming.
The current paper gold world will die (burn) as it's value to users erodes, not increases! We have to remember that some 85% (or more) of the long side of our world paper markets will not (perhaps cannot) take delivery of physical gold. If the paper trading price is driven ever lower from new derivative supply, these longs simply "trade out" and take their cash hit. The major banks and players in this arena know this and therefore are not at risk from expanding their positions. Truly, they are only playing behind the real political game today.
Indeed, if the Euro function will ultimately burn the dollar and it's paper gold markets and replace it with a physical "free gold" market, then selling paper gold is free money! Right? This is but one segment of the coming currency transition and to date it's progressing right along!
Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction. They are trying to understand just how the Euro zone players are going to get out of our current gold market liabilities when the Euro makes use of the dollar gold market! These same thinkers are looking for some kind of "work out" of our system so it's price discovery function will value gold where it should be! My observation from the "Euro Makers "is that one should "forget this notion"! "Noone" gives a hoot about holding "price discovery" paper contracts as the real thing. Except for those with the real power to trade something for full payment! OIL!
Today, paper gold derivatives are for selling because they will eventually be politically defaulted once their discount to physical drives their value next to nothing.
So who is in danger of being hurt as this unfolds?
That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical.
This stampede out of "paper physical" by the "big boys" will first discount that medium as all the selling comes to play. Then the real buying of physical will ensue. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it's the long that will be dumping and forcing the discount!
Yes, the Washington Agreement gunned the paper price and was the political signal that gold was "on the road" to super high prices. But, when we said gold we were talking about the same "physical gold" we always point to. The process that agreement started was really marking the death of our current paper gold market place, not it's new use beginnings!
Whether the paper market was about to default and burn then (as we thought it could / was)or next year, the point of all this is that it's destruction is politically written in stone!
Still, not one Western Gold bug in a thousand fully grasps the impact of this. Most of them frantically search for a ray of light that shows how our "price discovery" paper market will advance in value.
All the while major players unload on investors all the derivative gold we are willing to bid for. At the same time world traders are buying all the physical gold that comes their way.
Eventually, "Physical Gold Advocates" will own a real wealth asset that's fairly marked to market in a "free gold" Euro Zone marketplace. The same marketplace value that will back the new Euro economy by pricing "free gold" in the many thousands. A new world class currency backing a new
world class currency!
So how will these big derivative players make out on their paper gold loans and paper gold shorts?
I think they will make a fortune because they understood Another better than the Western Gold bugs could!
Thank you for camping.
FOA/ your Trail Guide
FOA (06/14/00; 05:19:29MT - usagold.com msg#27)
Off the trail for a while!
I noted in my last two USAGOLD FORUM posts (5-13-00) that I will be traveling for a while. Some of the time will be for research, but most will be as "time away". Will bring a laptop to follow the flow of gold discussion while away. It will be quite a few weeks before I return to this trail so
please help yourself to our path.
If all goes as expected, we will have a lot of ground to cover when I return.
FOA/ your Trail Guide
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(Archive II) The Long and Winding Road -- Gold Trail posts from June 2000 - January 2001
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