"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)]
The Long and Winding Road... the Second 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...
(Archive I) The Trail Head -- Start here for earliest archived Gold Trail posts from February 2000 - June 2000
June 2000 to January 2001 (Archive II) 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.
[We begin with a two-post overlap (#'s 26 and 27) with The Trail Head archive to provide continuity]
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
FOA (08/19/00; 17:28:58MT - usagold.com msg#28)
Up and running.
FOA (08/19/00; 20:40:49MT - usagold.com msg#29)
I'm tired from traveling and having just placed my house in order am in need of quiet time. Instead of hiking lets sit out on the veranda for a while. It's was such a beautiful evening, even as night fast approaches.
At times like these I can almost feel the thoughts of hundreds of my friends, worldwide as they collectively think of how our future must be, will be. It's a common understanding, these thoughts, as they agree and extrapolate on several singular items. Such as: mankind's future is more often negatively impacted by "acting on knowledge we learned from each other". Especially if it is contrary to the natural world around us. Nowhere is this more evident than in the "Western Mind's" concept of wealth!
I, being of "Western Mind" am fully aware of how this thinking will shape our future that's directly before us. Indeed, from cradle to grave we learned from each other how to highly value things that have no real value. From stocks, bonds, CDs and currencies, we hold a good portion of all of these as our Estate. But this is expected to support our lifestyle in the future. Yet none of these count as wealth in our natural world. They have no value until exchanged for "Natural world" things.
These "paper world" values are little more than credits and IOUs that we "learned to value" "from association with our own friends" of "Western Thought"! Even as the end of this financial era fast approaches we continue to follow our learned "Western ways".
"Don't buy that which cannot burn, buy a paper share of ownership of something that cannot burn." "Then watch, with your estate protected, while all the rest goes up in flames!"
My friends, a stock trader is a stock trader no matter what company name appears on the shares. If they think the world needs more golf balls, golf stocks are the ticket. More computers or internet providers, then those shares are purchased. If gold is expected to rise, gold stocks are played.
If a paper game is in them, paper products are pursued because that is what these investors were taught to value. Is electricity is on the move, buy electric futures. Oil? Buy oil futures! Iron? Buy iron futures (smile)!
Yet, even taking all of this in view; none of these traders are acting out anything different than their learned "Western Concept" of wealth. When the future comes, and it will, they will own nothing of natural value that can represent lasting wealth for their needs.
As night has now arrived, and we must go in now; please consider this short talk on my veranda. Sometimes fresh air can free the spirit so it may prepare for the future. A financial future that will, like our current Western forest fires, consume all paper made from these same trees.
In a day or so we can carry this much further. Even into the direction of oil.
FOA/ Your Trail Guide
FOA (08/20/00; 23:23:02MD - usagold.com msg#30)
Ready for the next hike?
I have been wanting to talk about the palladium situation for some time. There is a lot more precedent here than most writers want to discuss. From my position, the discussion has so far been slanted towards the "long" paper traders view. Let me ramble on a bit as we drift towards palladium: (smile)
During our "Veranda" chat in my last short post, I made reference to how so many financial players work from a learned "Western View" of paper wealth. With this background perception always dictating that owing the price of something in contract form is the same as owning real wealth, their reasoning becomes distorted. Their use of a real item as currency in trade loses it's function and purpose and the mind begins to see "intent" (a contract) as a tradable or ownable wealth on equal footing with real wealth.
Narrowing down the scope of that view considerably, we come to the "paper futures" game most every trader is familiar with. Again, what strikes me as odd is the universally accepted position that holds these paper markets as equal to "the real thing". In both value and possession! Indeed, how many times have we seen council presented by seasoned professionals as to how the physical product can be delivered against paper if needed or wanted. Yet, in reality neither side of these future markets are prepared to "settle up" entirely, 100% in physical merchandise if push comes to shove. That's right, neither side!
These markets were never designed to represent the value of 100% physical settlement. That's why they haven't recently and don't today demonstrate the real price value of their contracted product! The closing price is but a settlement of opinion ABOUT "supply and demand". Not settlement of real supply and demand that has been sold to so many as "one-in-the-same". An opinion bet is never a "real value" that's equal to a 100% settlement in actual trade.
The only value represented in these markets is found in their ability to demonstrate the cash margin build up on each side of the total contracts outstanding. The closing prices of gold contracts have lately shown that there is a bottomless pit of margin cash available to create the short side contracts against any long position. This is the real reading an investor should take from closing paper prices. Not a real give and take of physical supply or demand.
But, these shorts are no more ready to supply real metal than are the longs ready to pay for real metal. Why? The "Western Concept" of wealth accepts that if the "cash margin opinion" of the value of gold is great enough to move the paper price upward or downward,,,,,, then that opinion is the true "supply and demand" value of physical gold.
Indeed, billions of dollars of physical gold is sold every day using this "cash opinion" to set the value of physical trades. With all world currencies in play by their governments, then gold's low pricing is truly a political gift for those not blinded by "Western values" and investing in gold paper wealth.
But before you cry foul, understand that it's been this way for many, many years now! The vast majority of "Western" paper trades are cash settled with no metal moved in a way that largely impacts the "supply and demand" context traders so often discuss and follow. Again, the "Western View" takes the position that these contracts and their closing values are a paper value that represents real supply and demand values. My friends, it doesn't and never again in our lifetimes will it! Today, these paper price values only represent "margin deposit opinion" about where the physical trading price "should be" not where a "Freegold 100% settled price "would be".
A fraud? To say that the shorts have sold a metal contract that they cannot deliver against,,,,,, holds no more meaning than the fact that the longs cannot pay for metal they have contracted to take! As proof, watch as both sides always scramble to close out the majority of contracts for cash before they must settle. Betting on the price movements of something is not buying real wealth and running from a contract should prove it in the open to changing "Western Thinkers". Waiting for the shorts to be had, in order for your paper investments to gain value may be a long wait indeed. If this continues further, and now with the blessing of Europe, it's the paper longs that may be had as the shorts are let off the hook as the market is destroyed!
This very paper trading process was the birthplace of a larger world market that controls gold values for the benefit of those who will buy physical well under true currency market value. A wealth building benefit that is available to anyone. Below market physical gold, in dollars, is a deal available around the world to anyone outside the "Western Perception of Wealth".
In this perception mindset, most Western investors have purchased into the controlled paper side of the gold equation. They are lost in an outdated paper wealth dream that can never again be a value substitute for real gold. International politics and world currency realities are today pulling what little value is left from the paper gold wealth that so many thought they had.
In a way, one may say that the flow of oil was purchased over many years using this same cheap physical gold currency created by withdrawing wealth from these paper gold substitutes.
The fact that,,,,, for many years,,,,, around the world,,,,, so many investors adopted the "Western View" of paper wealth,,,, it changed the real supply and demand function of physical gold. Because the majority of "American Style" investors had decided they would do just as well by betting on the price of gold as by owning gold,,,,,,, physical gold was free up to flow where it was needed.
This paper market was born, not created and found that it could be "CONTROLLED" by the flow of official "margin cash". Truly, in a larger view it was our collective "Style" of investing that trapped many as "long paper gold bulls", not as much the flow of "opinion margin" that has been used against them.
So what about palladium:
The massive margin increase announced is demonstrating exactly what these paper markets always have been. They understate the real world value of the physical product by valuing it using margin opinion, not real physical supply and demand. If the markets get out of whack because too many players move away from holding "American Style" paper wealth and want the real thing,,,,,,, then the paper markets adjust by reverting to cash settlement using the "understated opinion price".
None of the recent commentary touches on the fact that the shorts also face the same huge margin increases. In reality, the move is a precursor to forcing cash settlement if needed. Once a crisis threatens to shut down paper trading, cash settlement liquidation is enforced. This is why the shorts need to carry 150%++ MARGIN to make sure of cash settlement (not physical settlement). The fact that the longs must also have the same margin does make the weaker players fold their hand. But still, many longs will stay for the end.
This is very much what is coming for our gold market, worldwide. Yes, just as in palladium (if it fails), long paper gold traders will smile at their big cash gains (if they can get them). But their smiles will fade as they notice how their $1,000 / ounce settlement only represented the "margin opinion" of real physical value. In the aftermath of a paper gold market shutdown they will buy a 1/10 ounce for that $1,000, if lucky!
In today's world, it's the physical traders that hold all the cards and will gain the most wealth for their future. The value is there today for anyone that want's it. The paper markets we know and love will die before they can ever equal the real value that's coming for gold.
The true physical gold demand in our world today is poorly understood and poorly calculated. While physical trades are documented as well as possible, little weight is given to the countless investors that own gold using the international margin/deposit paper markets. Yes, most of these players don't have the "here - with - all" to make good on their gold purchases by taking delivery 100%. Mostly they play the "gold price" in a paper game rigged against their ever seeing full value.
But if even 10% of this ---"I own real gold in paper form but haven't paid for it yet and have the cash to do it "--- demand was to surface outside the futures related arena? This demand would take all the supply available in an "adjusted" post paper gold world. Only then will the real demand equation be understood. Only then will physical gold trade for it's fair value as a world currency outside official paper gold control. That day is coming for the owners of real gold.
You see,,,,,, any excess supply would mostly flow to filling those that have contracted for it and have something the world cannot live without! OIL!
In time the real value of gold will be represented by real demand not subject to currency supply. Not the unlimited paper supply that values gold for political ends.
To reword Another's strange post: One gold is coming my friends, one gold!
Thank you all
FOA/Your Trail Guide
FOA (09/03/00; 16:27:20MD - usagold.com msg#34)
Of Currency Wars
Let's hit the trail!
While we walk view to the southwest:
Is Gresham's law no longer a law? You know, the one that say's good money will drive out bad money. One may look at our modern gold markets and say "help, it's not working". Indeed, if gold is the good money and dollars are the bad money, how come gold has gone down for all these recent years? Worse yet,,,,,, aside from price considerations, gold does not seem to drive out the bad money as people accumulate more of the yellow stuff!
Well, in truth gold can't compete because our modern world of gold mostly consists of the same bad money paper that currencies are made of. That's right, this modern world of paper gold very much functions as the same IOUs that currency is based on,,,,,, not much different from fractional reserve dollars.
So this is the same failing gold markets and resulting prices we all hear and read about. The same markets gold bugs watch with increasing despair as Gresham's law works it's will. By saying "paper gold cannot drive out paper currency" this law is proving that hard money investors have hitched their wagon to the wrong horse. A paper horse! Today, more than ever, investing in an industry or paper vehicle that requires a functioning gold banking (paper) intermediary will be devastating as this modern gold market evaporates.
Make no mistake, physical gold already contains many times the value these paper markets have established for it. When the price of physical traded gold runs far away from this imploding paper gold arena, the value of real money will them truly reflect where our bad money exists today.
Obviously, we are talking about dollars.
True, gold will reset itself in value compared to all world fiat currencies. But, that percentage reset will be viewed in a different context than when gold money was ordained by governments. Gresham's understanding applied more to gold as a bankable currency, not an asset holding "in and of itself". This is the future of "freegold" in our time. It will be much like comparing an advancing stock to the currency it's denominated in, a rising asset,,,, not a competing money!
Now look northeast, into the valley:
What will make this "modern gold market evaporate"? Well, value in a paper contract is a funny thing,,,,,,, it can change radically when no market bids exists for it to trade in. Like paper dollars, contracts have no value without a trading market demand. Walk into any store,,,,, if everything is suddenly priced in a physical trade format, our dollars suddenly become worthless, no?
If the gold market was to shift to say, 5 day hard delivery, how could one trade their contracts for gold? Yes, you guessed it, paper would trade all right,,,,, at a huge discount. But in short order, as a spiking price lunges upward into the thousands,,,, and doesn't come back to earth,,,,,, what counter party on the other side of your contract could deliver? Further, how could the bullion banking system match liabilities and make good on a cascading default?
Stop here and see how it could happen two ways (or a combination of both):
You see, all it takes is for one or two government and/or private entities to pull the cord. Most all of you long ago came to the same conclusion; a Dollar / Euro currency dispute could set this off. Outside parties begin buying gold with dollar reserves,,,,, on the barrel head for 5 day placement. It begins with twenty or thirty 100 ton orders ,,,,,, a billion$$ or so each! Not derivative orders, mind you,,,, hard delivery orders that aggravate and outline the soft nature of modern gold banking. They keep coming,,, days on end! Then, suddenly the paper markets "are no more".
The price of oil rises until price inflation can no longer be contained. Unmined physical gold is withheld from the markets to such an extent that even limited demand runs the physical price to a large premium. More and more investors pay a larger escalating premium to get physical "now". Such a premium overwhelms and discredits the function of paper market pricing. Bullion Banking must revert to currency banking to cancel out it's contracts. The run begins.
Let's check our political map to see where we are on the trail:
The wonderful recent essays by Mr. Howe expose and document a system as it currently stands,,,,at the end of it's timeline of usefulness. The purpose, need and use of gold banking has run headlong into a world class political storm. This end time battle has been in the making from before Another ever started writing. Truly, this Gold War will be about a transition from world dollar dominance.
As I stated in an earlier USAGOLD post (listed as #35569):
----- Today, oil flow has moved from playing a fundamental game of pricing "use value" with supply and demand to pricing it's "monetary value" in supporting any major currency block. Concessions are now there for the taking by oil producers. Dollar prices for oil can rise considerably higher with the US giving behind the scene support for this action. In addition, the world paper gold markets can and are being dismantled as a further concession to retain dollar settlement of oil. -------------
It's easy to see today that
most of the major world oil reserves have had their value politically
converted by the Euro's successful birth. The current trading
value of the Euro is a small factor compared to this "existence"
worth in our political currency wars. This Euro has broken the
"cheap dollar" value placed on oil by our one currency
world and now allows dollar oil prices to soar without constraint.
Oil has indeed been rising after the Euro's first few months of
existance The prize of this master play on our Chess Board ,,,,?
This new pricing thrust, unlike early OPEC drives of the 70s and
80s, will crush the modern paper gold banking game and place the
dollar and Euro on a level playing field.
And so the contest begins for real,,,, no longer must we talk in a future mode,,,,,May the best man win!
FOA/ Your Trail Guide
FOA (09/04/00; 20:23:42MD - usagold.com msg#35)
On the Veranda for an explanation:
I have a clarification to make concerning our observations during the last hike. Right after it was done, a USAGOLD poster with the handle Mr. Gresham (#35943) pointed out my backward way of presenting Gresham's law. Well, he was very right. My post had a way of reversing the concept.
I thought it would be understood, but after reading it again it was obvious that many would walk away with the wrong impression.
Gresham's law say's that "bad money drives good money out of circulation". In our context, on the trail it was presented from a position that "good money drives bad money into circulation". No, I didn't say that outright, but that was my mindset. You say, you can't read my mind? (smile)
We used this way of presenting the situation because it better illustrated how gold today, has not risen in value against dollars (the bad money). By failing in this process, the stage for a value judgment to take place where people hold gold (the good appreciating money) and spend dollars (the bad money) could not happen. Paper gold prices were not driving dollars into circulation! There is no FreeGold price to judge and convict our fiat currency.
With this mindset, one can take the first part of that last hike again and (hopefully) better see what we were driving at. I have no doubt most of you have never looked at Gresham's law from that angle. Please understand that I often converse with people that also present life's trails in just as difficult a format. I hope this helps you.
On another note: Due to technical problems I could not post several pieces intended for the trails here. Here is a list of those posts as located on the USAGOLD FORUM. While you are there, please consider the works of other guides posting there. Many of them are well worth the time.
[Editor Note: To view an auxiliary page containing these five posts CLICK HERE]
Trail Guide (08/28/00; 20:35:52MT - usagold.com msg#: 35674) The big trade!
Trail Guide (8/26/2000; 21:44:27MT - usagold.com msg#: 35584)Reply Hello Henri,
Trail Guide (8/26/2000; 19:16:31MT - usagold.com msg#: 35569)Hello Cavan Man!
Trail Guide (8/25/2000; 6:04:33MT - usagold.com msg#: 35504)Oh Aristotle
Trail Guide (08/21/00; 21:04:03MT - usagold.com msg#: 35283)Hello SLF
FOA (9/7/2000; 10:54:02MD - usagold.com msg#36)
Something to think about before our next walk down the Golden Trail!
Onto my back yard patio, please:
Have a seat and listen for a minute. Are you a hard money advocate and having a rough time with your assets? Do your hard investments need the present quoted gold price to rise for them to have value? Did you buy these hard assets knowing that they were leveraged to gold so they would rise faster than bullion? Do you buy into the view that these items are of the same security as bullion and therefore better than physical because of their leveraged? Are you in mine shares, futures options, share options, futures, not to mention plain old borrowing money from your trader against your physical account?
The one problem with all these positions is that they are also leveraged against you if the "gold price you are watching" falls away! If this current gold price doesn't rise eventually, your assets wither away? Or worse, if the present quoted gold price was to fall further, these leveraged vehicles could have no value at all? Reality dictates that in a "falling gold price situation" none of these investments will survive. So how in the world can they be of the same value as gold? History has proven that bullion retains value and maintains an investor's "staying power" through thick and thin markets.
---------Both manipulated and
If you are suffering from not understanding all of the above, then it's because your mind set is running parallel with Western Hard Money Thought. Truly, you are running in the wrong crowd. You are playing a game that the Political Will of this world say's you cannot win! Today, the gold price everyone watches is little more than the influence of paper printing on quoted prices. Because it is not the the REAL reflected value of bullion, it will slowly fall away from too much paper supply.
To better understand and grasp what this means, read the USAGOLD post by Aristotle at:
(09/06/00; 20:34:12MT - usagold.com msg#: 36150).
He does a wonderful job of laying out what is now waiting for all hard money advocates that have isolated themselves in Western Thought.
Hard money advocates that take a more worldly, political view have already come to understand his meaning. Indeed, most of them did so long ago. With today's politically created paper gold pricing system, they know why being a "Physical Gold Advocate" is the only path for "Protecting Their Wealth" in the long and short run. Watching the current traded gold price is useless to them except to buy more gold at ever cheaper prices. We know how investing in vehicles that demand that paper price to rise "can be disastrous" in this evolving market!
To quote Aristotle:
----To be sure, it is not confidence in physical Gold that is slipping, but is rather a failing of confidence in the inflated supply of paper Gold that is at this time calling the tune and being reflectively priced into Gold by the structure of the marketplace.
Just as it always has before, complete failure of the paper equivalency awaits. The paper portion dies, and only the physical Gold remains to deliver your wealth to the other side.
In a nutshell's nutshell: The price of Gold is falling because we are witnessing the end days of the timeline / lifespan of a "currency system" known as Paper Gold. I expect considerable volatility until the "bitter end." ------------
Nice job Aristotle!
People, I fully well expect that most Western style gold bugs will become more violent and inflammatory as the influence of political will on quoted gold prices increases. More and more the line of difference between Physical Gold Advocates and Hard Money Investors will become a valley as said leveraged gold substitutes wither. Indeed, in the future that valley will mark the difference between haves and have nots in the coming super bull market in physical gold!
Some will ride their paper roller coaster all the way to it's conclusion. Yes, they will be rich, but none of them will collect. I submit that physical gold buyers that can grasp the political nature of this will come out the very best.
As an often repeated example I again explain:
---- Whenever the world gold price threatens to run away, whatever pricing system in use at that time is officially forced to fail. It does so not because the system cannot adjust to the new higher values. It fails because the runaway value exposes the political manipulation of gold inherent in that time frame and system. There will be no difference between officially forced failures of yesterday and today.
The only difference between then and now is in fashion! It's possible that this present Western generation is more interested in being "in style" with their hard money views than with actually coming out ahead in the crisis that awaits.
In 1971, the simple solution to adjusting the over expansion (inflation) of the dollar money supply would have been to simply raise the dollar price of gold to a level where every dollar (a contract for gold) was worth it's equivalent. But this would have exposed the manipulation of the dollar (over printing of contracts) that occurred prior to that happening. Not to mention it would have bankrupted many important players (like Bullion Banks today).
Back then, like today, gold in the form of paper contract dollars, traded in a far higher quantity than the actual physical that was delivered against total contracts (like LBMA, no?). In fact, it was far in excess of all bullion in existence at dollar prices at that time. As $35 was a paper price for gold then,,, so too is $270 or even $50 a paper price today! It had no real contact with the real value of gold. Sound familiar? Is this sinking in?
Today, like yesterday, any rise in the "paper quoted" price of gold, will have the same effects on the dollar contracts written and the major player that create these paper traded gold vehicles. Just as in 71, when official dollar contracts for gold were frozen at $42?? while physical eventually soared overseas,,,,,,, Our current bullion banking system will be officially frozen in US terms while physical soars. ----------- It will do this much much more today because the paper price is even further away from reality. Gold at thousands and thousands an ounce is in our future!
If you can understand Aristotle, then you can grasp where we have been and where we are going. In fact, read all his fine works!
In recognition of our fine host, Mr. Michael Kosares and the CPM people I add this:
In the future, a relationship with a good """ world marketing""" bullion and coin dealer will be more valuable than all the paper gold you could ever own.
FOA/ your Trail Guide
FOA (09/16/00; 10:02:54MD - usagold.com msg#37)
Hello Everyone and New Readers!
On with the packs:
This is a pre-hike post intended create a feel for the gold trail as we have "seen it" and prepare for the next hike. I use the term "as we see it" loosely because much of what has happened and what is coming we (Another, myself and others) prepared for long ago. Our actions were based on an ongoing "real life" evolution in political power structure as it related to currencies and gold. Not some possible outcome as so many attribute these works as referring too. This political evolution we are involved in has been in the thinking process for 30 years and in the actual implementation for perhaps the last 10 to 20 years. The flow of events were correctly expected to pick up steam considerably from 1995 to date. They did and Another began to privately discuss these changes in the early 90s (later through various intermediaries on the internet). All in an attempt to prepare his citizens and friends for the eventual outcome.
Another's style and flavor of writing reflected his background culture and human level of understanding wealth. On this level, gold was a real wealth holding. An asset held in an equal wealth concept to every other real thing we possess. It was something to save and / or eventually spend as needed. During it's accumulation it was understood that gold's current price (over the last 25 years) was something different from this wealth asset value. To say the least, this was a far cry from accepted hard money discussion during this time. Most of which focused on trading the price of gold for what constituted nickels compared to saving real gold for a personal family fortune in the making.
In a Western Style World where "the dollar market system's" trading price was seen as the only real price for anything, investors forgot that when it comes to gold, governments may not control it (physical gold) but they do control "the dollar gold market system". I say forgot but it's doubtful some ever knew. Many still feel to this day that gold was set free in 1971. Today, this same "control" concept that was laughed at only a few years ago, most hard money thinkers have come to agree is true. In the future directly before us, our gold trail is leading around a curve that once again the hard money crowd is laughing at. What they do not know is that Another has already walked the trail our eyes have not seen. Yes, the footprints of Giants are there and easy to follow, he is just ahead, around the next curve.
This current phase of public writing and discussion (last 3 years or so) was implemented by Another so as to concentrate the average investor's thinking on certain aspects of these coming economic changes as they evolved. He always wanted people to see the actual flow of events as creating a background in their minds of the political evolution his directions were pointing to. In other words, use his map, place it over the events as they occur and consider (not accept) the direction. Over and over, he said that in this process, as your understanding grew (changed), events would prove his Thoughts. Events, not his words or mine! To that end, until he decides to write again, following his lead, my seemingly poorly thought, fragmented posts will become more academic. As events unfold and the trail straightens, my clarity will grow with your understanding.
The Common Person's Strategy
Because this currency transition is in a fluid progression, using a price sensitive gold substitute investment during such a dynamic political process was useless. Perhaps dangerous! Just as in the game of chess, for most average investors there are no public, permanent hard facts to cling to. Yes, chess players and even poker players can and do give out signals opposite their intended play. Further, in this political world game a solid move is countered with an opposite move that renders each step to be very short term in nature. For small private investors, only the game's end will have the most long term lasting effect on their wealth. It would also create the most massive gains for anyone that can continue to "stay and hold to the end". Indeed, this meant using a vehicle that history has shown was certain to outlive the chess game. Physical gold value has outlived the battles of many kings and queens during 2,000+ years of chess moves. Truly, in our time, the next very large match is about to be concluded.
Another's posting was done to report where we were located on the political board. Not intended to make a "Market Call" for gold substitute players. To date, his only point was for citizens to buy physical gold for a run of a lifetime. To date (from his beginning posts), any hard money advocate that has left the gold substitute game for a physical position is in a major "wealth ahead" position compared to the pounding paper gold substitutes have taken. Indeed, that accumulated asset value builds and remains to be realized in the final days. To this end, the prize of physical gold in the thousands will make many a gold substitute player sick to see. There is no possible way the current dollar system's "political will" can allow the gold industry or it's gold banking system to experience such a dynamic gain / loss relationship. For many sophisticated players, hooked on an outdated failing concept of saving gold substitutes our currency evolution will be a painful learning experience. Yes, a few gold mining companies will make it and so too will some in the gold banking industry. It's possible they will do extremely well, but the gains will only compare evenly to the gains in physical gold. It's that simple! Truly, it will all be documented and followed on the USAGOLD forum as it unfolds.
Again, the drive behind making these free offerings public was to point the largest number of average citizens to look in the right direction. These changes were (then) about spill out into the open in a piece meal, seemly unrelated fashion. Yet, they were all connected in a way "Western Eyes" were not focused to see.
Without giving specific details, those Thoughts forced people to see our currency evolution in a way few others could or wanted too. In this fashion private citizens had to follow "events" in a different light from accepted media reporting. It is gratifying to see many people (on these forums and privately) acknowledge how his Thoughts had done this. Recently USAGOLD poster SteveH (and many others) said as much. Thanks from Another and myself!
We'll walk quietly to that tree ahead. Then I'll discuss the evolution from my old post as offered in USAGOLD #36622.
FOA/ your Trail Guide
FOA (09/16/00; 15:11:26MD - usagold.com msg#38)
After six miles we arrive at the burial tree!
I've stopped at this burial tree to have a look at something Michael Kosares found while hiking. It seems he and a USAGOLD poster (Invisible Hand) are examining the "old bones" of a post. That post was written and placed here on 08/10/98. After reviewing it, I agree they are my "old bones" (smile). What do they tell us today?
From 8/10/98 Friend of ANOTHER
It has taken some time to send this, but now I can also offer my thoughts to your questions.
Your statement: (from MK) "As a matter of long term policy, do you believe that ECB will "sell" gold to defend the Euro or "buy" gold to defend the Euro? Each of course would entail a different course of action with respect to reserves of the new national bank. Along these lines, will ECB buy gold from its member treasuries, or will it simply force them to transfer it to ECB coffers if needed to defend the Euro? I am prompted to ask this question in view of your assertion that there will be much selling of Euros to defend the dollar. If the Euro, as you suggested, is being printed to buy dollars isn't this just another manifestation of the U.S. exporting its inflation? It appears to me that the Euro will need to be defended -- and not with dollars -- but with gold! "
The ECB and Duisenberg have it right.
It's the dollar that's too strong (compared to it's management policy), not the Euro is too weak (compared to it's management policy)!
Under recent circumstances; using the dollar as a trade reserve it was the policy of all CBs to save most of their positive foreign exchange. This was in an ongoing defense of their domestic currencies value. We must grasp that just saving the excess trade reserves constituted active dollar support.
Simply put, when a nation state does a good job of manufacturing and runs a balance of trade surplus they are receiving more dollars in trade. This mandated a dollar surplus in their economy's banking system from where more local moneys were printed against those saved reserves. In other words, if you're trade positive you are supporting dollar values by default. But why save dollars as a reserve?
In the good old days; when our country (USA) printed too much money and that money overflowed it's borders as buying power, the selling of that excess currency by our trading partners (lowering it's value) to balance trade differences would force the printing nation (US) to slow down it's money creation. If they didn't, price inflation in the domestic (US) market would begin to catch up and reflect said overprinting of the money. So far, so good.
Today; if our (USA) trading partners allowed those dollars to flow back into the world markets (actively buying their local currency with dollars) this action raised the exchange value of their currency and penalized the international pricing structure of their goods. Their goods would cost more and slow down their exports. Yet, if your currency management is strong (as the Euro's is) and your people (read that economy) work better than their foreign US competitors, the exchange rate system shouldn't hurt your goods pricing! But, it does. You see, selling these extra dollars today would have the effect of hurting a competitive producer that has good money management. But this is not the way our dollar system was supposed to work!
It's not a situation where your currency should get stronger if you're doing a good job. It's the other currency (dollar) that should get weaker because they are doing a bad job! In this a "Western Style World where "the dollar market system's" trading price was seen as the only real price for anything" (see my last post below),,,,,,,,,, the currency doing a bad job can and is manipulated to higher values than their manage policy should dictate.
But it is the over printer that should have been forced to slow down because of their policy of currency inflation (not the under printer). If you are a "Positive" trading partner of the US, your exports should slow because the US is sending less dollars out to buy things from you internationally. In this dynamic your competitive pricing structure should remain the same even as USA demand for your goods slows.
Again, the whole reason this all worked backwards stems from the US's ability to manipulate it's dollar value through currency and gold derivatives, even as our dollar has super inflated it over the years. If we (as US citizens) can see this happening, think how foreigners see it? Our interest rates are way under where this money printing should have them. Our domestic economy is swollen fat with hyper spending for any and all forms of ancillary, nonessential goods. Yet the real US prices we all pay comes nowhere close to reflecting this money creation (I'm talking real life pricing today, not the government CPI). Debt creation (the machine of dollar creation) is surging as our domestic economy runs away on goods priced low by foreign exchange rates.
If this is not bad enough, who wants to hold their neighbors debt as a wealth reserve? More from my "old bones":
I believe the most difficult part in understanding the modern gold market is overcome by seeing all the various political factions involved. Essentially and basically, the largest pro gold groups are those who want a world currency that is not subject to the performance of the American economy. At this moment and in this period of economic history, all currency reserves held by foreigners (non-Americans) is a debt of the US Government and by extenuation through tax collection, a debt based on the ability of the American economy to function profitability!
In essence, America has told the world that as long as the business of this country is functioning, your wealth, as represented in Marks, Yen, Pesos, etc. is backed with performing US debt. It's like saying, "as long as your neighbor, next door, does not loses his job, you will not lose all your money! Most people would be surprised at how clear this is, outside the USA sphere of influence. This, the largest of the pro gold group, is largely made up of countries with economies that have no need to sell most of their production to the US. The business of these communities would not totally fail without the American engine. Yes, they would slow down, but not collapse, as trade with other countries would continue. To add what was said before: If your neighbor loses his job, you can still trade with the other people in the town, as long as the currency system is not based on your neighbors debts!
This group, made up of much of Europe and the Middle East, is not looking for a return to the old Gold Standard, but perhaps something far better. They do not see any advantage in holding the currency bonds of one country, as a reserve asset of future payment, over holding physical gold as a reserve asset in full payment. The fact that the debt reserve asset pays interest is little more than a joke in these banking circles. Any paper currency, the dollar included, can fall in exchange value against your local currency far more than the interest received! In today's paper markets, the only true value in exchange reserves, held by a government as currency backing, is found in it's effectiveness for defending the local currency from falling against other currencies. In other words, use the reserves to buy your countries money. But, this is a self defeating action as sooner or later the reserves are used up! This fact is not lost on many, many countries around the world, as they watch their currencies plunge, lacking reserves as defense. Ask them how important the factor of earning interest on reserves is under these conditions.
Looking down the trail:
This is where the ECB is offering a different currency animal to combat our failing monetary order.
By not selling dollars to buy Euros, they are making an end run around the exchange system no other currency has had the option of doing. Think about it. The dollar reserves they hold are really worthless in a new currency system. If their Euro is as Duisenberg puts it, a new reserve for Europe, not the world; they don't need dollars or the buying value they represent. A super hyperinflation can take the dollars value to zero and the ECB will lose nothing. It already has it's dollar reserves in the form of Euros and gold.
Using the logic above; if they don't use reserve dollars to bid the Euro exchange rate above it's domestic pricing structure, the dollar system has no alternative but to slow itself down through competitive default. With nothing to stop it, through such a default the dollar will be force hyper inflated in a real world act. That dynamic will lower it's exchange rates. For good!
So how will the ECB give further backing to it's currency? Back to the burial tree:
On the other hand, buying gold on the open market, using your local currency, works as a far different dynamic from selling foreign bond\reserves. This action takes physical gold off the market, and in doing so increases it's value in dollar terms. Gold is and always has been the chief competitor with the dollar for exchange reserve status. The advantage here comes from the fact that governments do not run out of local currencies to use in buying gold, as opposed to selling foreign currency reserves to buy the local currency on the open market. Of course, the local price of gold goes sky high, however, in this action you are seen as taking in reserves, not selling them off.
Also, as gold begins to rise against the dollar, the local gold reserves are seen as assets of increasing value, backing the local currency. Under these conditions, with a stable currency, citizens will purchase more gold as it is seen as a positive asset. Not unlike a rising stock, everyone wants an increasing investment. Contrast this action against that in Korea, where everyone sold gold as it increased in an unstable currency!
To those that think the ECB lacks the resolve to do this, just have a look at the exchange rates of the German Mark against the dollar. Between 1979 to date, the Mark had one instance where it lost 45% against the dollar. I submit that if the Mark and/or Germany didn't fail from that experience, this Euro and all of Euroland will not fade away from a little 20%+ fall we see today. From a recent Mr.Wim Duisenberg comment; "Weakness of euro is not one of the "exceptional circumstances" that would justify intervention" !
Indeed, it was the US that first initiated the accords in 1985 that broke the dollar's high value. They were worried then but there was no alternative currency to work against them. They are trapped now.
Today, the ECB can use not only it's excess dollars to buy physical gold sold from other banks, they could use Euros printed outright to buy physical spot delivery. If their currency continues to fall before the dollar begins it's terminal phase, this option is wide open to them. Certainly, "Free Gold" is not going to compete against them as it would against the dollar because it's their policy to mark all it's rise to the market. Because Free Gold will not be an official currency, it's wealth building power will compliment the bank's reserves. In addition, national citizens would own gold as a wealth savings, not a currency.
More from our diggings:
Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold.
This takes us back to his recent large speech, Duisenberg said:
-----"First, the "euro project" is to be seen as a further logical step in the European integration process, which started more than half a century ago, immediately after the Second World War. Its objectives were not - and are still not - purely economic, as European integration aims not only at the creation of a prosperous but also a stable and peaceful Europe. For a large part, trade, economic and financial integration aimed at the removal of all barriers to free competition has been the engine of this process. In this context, the euro is to be seen as a major contribution to the completion of the Single Market in Europe.--------
I repeat, ----Its objectives
were not - and are still not - purely economic----
Truly, a new world reserve currency in the making!
The present dollar overprinting (already in the system) is enough to force the US to further print in order to stop a cascading default. Again. this current dollar strength is killing it's trade and exploding the foreign exchange deficit. The final trigger for all this is in the prices of two international goods that are synonymous with real wealth, gold and oil.
Oil now doing it's two part thrust to drive the US into hyper status. Thus ending it's reserve roll for good. High oil prices are forcing the trade deficit to alarming, derivative busting levels. In addition, these same oil prices will completely break the ability of American goods to be priced competitively. At some point our domestic economy will roll over and the above mentioned cascading defaults will begin. Rather than raising local interest rates to slow our dollar flood (as the fed would do in the past) they will, like Japan drive rates to almost zero. All in a mad attempt to save the system and keep the world away from Euros. It will not work.
Contrary to what many hard money advocates expect, In such an atmosphere the dollar / gold market and it's gold banking system will completely fail. As part of the current dollar derivative system, a hyper inflating US price structure will fracture the credibility of paper gold. The paper gold prices we watch every day will go directly to the floor!
Just as in every inflation in history, credibility only goes so far. Then it's time to settle up. Trading volume on the world paper gold market is now falling away just as paper gold derivative supply is driving ahead. Truly, even a corporation cannot continue to get away with issuing more stock privately as public trading dries up. In the same light paper gold derivatives are being inflated as volume slows. In the end it's pricing structure that always fails. Today this paper gold price continues down into market failure. At some point, a full "Free Gold" physical market will appear and it will be used by the ECB to support the Euro Banks with a super high free gold price. This is something Physical Gold Advocates know is coming.
The ECB is going to support gold in a major way. They may be doing so now through the BIS sales of Swiss gold but none of this will break into the open until the dollar begins it's inflation and it's derivatives fail.
As all of this is going on, inflation in Europe will more than likely bring their trade status with the US to an even neutral basis. But by then, the Euro (through comparison) will have become the candidate as a leading reserve currency holding worldwide. Not only will the ECB be buying gold with dollars, so too will any other positive traders with the US. Most everyone will be asked to use Euros to buy oil and the oil producers will be buying gold hand over fist with excess dollars.
Right around here, the ECB will begin buying dollar reserves from other CBs. Of course using Euros. It will be seen as a defense of the dollar, but by then such an action will be just a political ploy.
Ok, let's place this little guy back into the ground under our burial tree. We will meet here next time to see how these oil for gold deals will benefit the further expansion of Euro use.
We do live in exciting times for Physical Gold owners. Exciting times.
FOA/ your Trail Guide
FOA (9/23/2000; 9:26:10MD - usagold.com msg#39)
Once again, a big Happy Birthday to Michael Kosares's USAGOLD and welcome to all the new writers there! Also thanks to everyone at CPM and especially TownCrier for "ALL" his fine thoughts.
Another pre hike talk at the trail head (as a warm up)
In my view, the only people that see the Euro as weak are the ones with a clouded Western Perception. I own a large portion of my currency in dollars. But they aren't held for investment, rather just plain old money / risk diversity.
In addition, my Euros once made up almost the same amount of cash held as Dollars Prior to EMU my foreign fiat was in the form of several European moneys and some Yen. After EMU I allowed all of that portion to be slowly converted into Euros. About 1/3 went off initially and the rest followed over time. Once the Euro exchange rate drifted to the .90 area I began shifting more of my dollars to Euros. (of course physical gold is my largest holding along with several other assets) Today, the Euro makes up some 80% of the currency mix.
Why shift into a weak Euro or hold Euros at all?
Well, mostly because I don't see or value these cash assets the way Western traders do. Nor do I hold them in the form of derivatives, looking for a trading profit. As large as these assets may be, I do expect to eventually spend them for something real some day.
With this position and viewpoint I don't have to "buy into" the "Euro is weak" trading talk distributed around various forums and trading houses. I don't have too because I can compare, "first hand" the relative values of these two currencies (or at least others can do it for me). By relative I mean their native buying power . In Europe, prices of a large basket of "LOCAL" goods have not gone up in price the same 30% +/- the Euro exchange rate has changed against the dollar. Conversely, the price of US goods produced natively have not fallen 30% to reflect the dollars gained strength. It's that simple.
Notice how we word this money comparison; it's an exchange rate, not a value comparison rate! Most Western traders consider the exchange rate to be the value, but it's not. Spending the paper money in it's local economy is the value rate.
To continue my logic I repeat an item from our last trail walk:
----- The ECB and Duisenberg have it right. ------- It's the dollar that's too strong (compared to it's management policy), not the Euro is too weak (compared to it's management policy)! --------
OK; with that understanding we can grasp why I am selling dollars (real dollar holdings, not derivatives) for more Euros. The fact is that, for a bunch of reasons the dollar went up in it's exchange rate against the Euro. It did so even though the real value of these currency's "buying power" did not become an issue, rather the manipulated exchange rate did.
This process alone created the gain in my dollar holdings. I see it as no different than buying a stock in America that rises over a year or so. No, the dollar (Euro concept) didn't fall against the stock (dollar concept), it's the stock (dollar concept) that went up in value. So we sell the stock (the dollar) to retain profits! Just as most American tech stock's trading price does not reflect their fundamental worth and value, so too does the Dollar exchange rate not reflect it's true fundamental pricing value.
Further; if an across the board price inflation was raging in Europe and not in the USA, the situation would be different. But it's not.
Also; who is fooling who here with this (Friday) currency intervention? Exactly which currency power block in under the worst stress and pressing for help (in the background)? Our Western Media gives us all the details of Europe's oil and other problems but perhaps 1/10 the coverage is given to the US trade hemorrhage. Any damn fool can see that this trade deficit is the result of a currency being manipulated and squeezed up for reasons that are uneconomic. USAGOLD poster ORO explained this dynamic many times.
Prior to EMU the dollar was expanded (thru debt creation) at levels never before thought allowable or possible. But all of that debt creation in conjunction with it's demands for that future debt service is spiking the dollar "exchange rate" as Euro financing competes with Dollar financing. In other words, on the world stage converting dollar debt into more favorable Euro debt shrinks the dollar liquidity pie. As this happens, our Euro value (in relative local buying power) stay's almost the same even as the dollar exchange rate rises against the Euro.
Again; it's the dollar that's caught in a vice because it's exchange value is rising while it's native buying power is somewhat the same. In order to balance the dollar's strength, native goods prices should be falling. By staying the same, it's effects on our exchange rate process makes the local price of US goods ever more noncompetitive to sell to world markets. I think Intel is but only one large operation that just recently demonstrated how this works against our US economy.
This very dynamic creates a massive demand for Euro priced goods from outside their borders. Left on it's own, such a process would expose the dollar structure to the bankrupt / hyper inflated position it has been in for many years. The US trade deficit would grow until the flow of dollars destroys our dollar reserve system. From where I swim in the ocean (in deep water), this is exactly the unending process we have embarked on. This time it will not reverse.
Better said, the US has been forced into such an inflation by the existence of a new possible reserve currency. Something our money policy has never had to contend with before.
Go back a read the most recent speeches and comments by the ECB president, Mr. Duisenberg. Truly, the ECB is not interested in "crashing" the system, rather let's "transition" the system into a more fair order. If intervention is needed, it's needed to keep the American economy from failing too fast from the coming hyperinflation of it's currency. If the ECB is worried about the "exchange rate" being too far out of whack, it a worry about it's effect in generating a dollar system meltdown from deficit trade. Not a total failure of the Euro as so many report. When the time comes, and it will; the dollar will begin it's fall away from it's own past policy failure. Until that time, for the benefit of oil producers and many others, let's move as far down this Euro / gold trail as possible. Without a breakdown.
The very existence of a Euro today makes oil policy in America as never before. One way or Another oil production control is going to expose the "best" system for future use. The one that most values and allows real wealth pricing in currency terms. The first system that allows the price of physical gold to rise will see it's currency price of oil fall. Yet, a rising physical gold price is something the dollar cannot and will not live with. The American and world gold market trading system is going to fail with this currency transition and that prospect will leave some high profile gold owners high and dry. It will also leave some very smart physical and paper gold traders with a real wealth holding Western traders never will understand. You see, in our day, in our time oil and gold will never flow in the same direction. Both price wise and physical wise.
Many American / Western order proponents will always take a nationalist side when writing about the Dollar's position. I think it's called "spinning" the details. Yet, in today's evolving money system, it's the dollar that under stress from a trade deficit dynamic. We shall see!
Let's hike back to the burial tree we visited last week. There we can re dig some "old bones"!
FOA/ your trail Guide
FOA (10/02/00; 17:03:27MD - usagold.com msg#40)
In the world today it's looking more and more like our physical gold trail is the best place to be. Because it takes the "high road" above risk, we can watch the action with little fear of ending up with nothing. Indeed, we may end up with everything!
However, be ware, while hiking the physical trail it's easy for us to be confused with those on that other paper gold trail. When asked, "are you still hurting from exposure to gold substitute paper", I have to reply; "I'm sorry, you must have missed the climbers across the valley". "Yes I say, we can hear their problems over there, even far over on this side, but their gold is not like ours. Indeed, nor is their pain ours!
So often Western observers wonder, "why do so many "Giants" buy physical gold when it's going down"? Well, my friends, I'll use the same example we offered recently about the Euro; it's not that gold is going down so much as the dollar is being driven up in failure, and truly this end drive will be it's very last. We will not have to suffer this play much longer.
Look around the world and place yourself in many of it's other countries. Consider just how many of them have seen the dollar rise over recent years, say at least 30% against their local moneys. Yet, prior to this recent oil run, the actual cost and pricing structure of most American goods has not risen this same 30%+ within it's domestic market. No, I'm not making a case for the US CPI figures being correct, clearly they are not. But, the US has not even begun to enter it's real price inflation phase. A phase that brings to light our price inflation on a world scale.
The point we are making by taking a foreign view is that gold prices are marking the world reserve currency's domestic pricing market, not it's currency's exchange market. Just as in our recent Euro and EuroLand posts, we measure a currencies true values within it's local markets. From these positions it's clear that US goods have not come close to pricing all the dollar expansion of the last 20+ years. A dynamic that would have been exposed long ago if our reserve currency function were threatened as it is now.
Had a large cross segment of foreign nationals owned dollars over the last number of years, they would have watched their purchasing power in the US market gain some 30% or more when comparing to their various local moneys. Yet, US prices did not even drop a little on a productivity basis balancing act that could have evened out the loss on exchange against these foreign moneys. No, the whole world is not so evil or completely wrong in it's currencies and goods pricing values. Nor are we so god given productive. Clearly, the dollar is being driven up in an end time liquidity game that is more like a race between suitors. But this race is exposing our age.
As an example of value justification, had these nationals owned gold in one of these countries at say $400US; the loss of gold purchasing power on the US market would more directly compare to their average (many nations) currency's exchange loses. Take that 30% from $400 gold and you find the range of $280 gold. About where we are now. This recent price is demonstrating the world over that using gold as a real economic value scale, US goods have already been inflated in America today. Yes, our inflation is running 30%+ over these last years, compared to the world's price structure.
(Those of you falling behind, climb hard and take larger steps. We need to get to the top before sunset, so the battle can be seen!)
This is the process that we are now deep into. Our economy cannot adjust to this form of competition using it's normal, from the past currency policy. To sustain our current economic momentum we must resort to a serious outright currency inflation. Only, this time the game will be different than from before! Today, the world's only true modern reserve currency is going to price all fiats on a level playing field. That currency, by the way, "is oil"!
In the time directly before us, this level and in the open competition is going to gut our economy by exploding the US trade deficit before it explodes anyone else's. Eventually, our inability to shut down that deficit will demand a super run in our local US price structure. This dynamic will also be exposed in the "DOLLAR" price of real "physical gold".
So Mr Gresham,
(and also hello, sir (smile))
You ask in your USAGOLD FORUM post #36807: "In other words, why didn't physical get a jolt from them before now?"
Because they and other Giants were buying all the gold our american made paper markets would supply without driving the price above a domestic US price structure comparison. Remember, the question was never "Where" is the gold going, rather always why are we selling it?
This past inflation of paper gold would not only produce circumstances that only strengthen the exchange rate value of our dollars, but somewhat lower the price of gold in relation to our local goods prices instead of against oil. This position generated buying at the constantly lower levels this new ratio generated. Even though gold would later be priced in dollars using oil at 1gm per barrel. Lower gold was good for them (us) but demanded a currency policy above our economic structure's ability to sustain. Even as our true price inflation remained hidden in the dollar's reserve currency status, it was only a matter of time before the system fell apart. If cheap oil could only keep US prices even (not falling) then expensive oil would one day demand at least a strong economy busting exchange rate. It will be to that end (our economy will fail with our reserve currency status) and physical gold will rise from serious bidding to match any future economic supportive price inflation we embark upon. You and I know what the system will provide.
Expose a market dynamic that is delivering in your favor by taking more than can be supplied? You don't! You allow the broken system to expose itself first, then you move on. You see, unlike the boys across the valley, many of us (grin) are buying gold "the currency" not gold "the commodity". There is a world of strategic difference in how and why this is done today compared to yesterday.
The Washington Agreement was a signal as to what side of gold the ECB was on. Now, with all the players at the chess board, the clock has just been punched! All the words I and Another have written is now on the line!
My friend, it's show time!
FOA/ Your Trail Guide
FOA (10/07/00; 12:29:10MD - usagold.com msg#41)
Checking the view!
Before starting my discussion on the main forum today, let me begin the long process of clarifying our ( mine and the Giants I walk behind) views and understandings of the many concepts that drive our position. Indeed, these concepts and positions create and drive "the modern gold markets" of today.
By now many of you can see, that as events have proven, our gold market has indeed evolved. It's become a different sort of animal than the one we knew a few short years ago. Certainly it's response to world events is not even close to it's reply even as far back as fifteen years ago. Whether you follow gold stocks, play the gold paper derivatives or buy bullion itself, your portfolio has been impacted by these important changes in how gold is valued and priced.
Addressing everyone now with this is important, because most every investor in the "gold market" dynamic reads these words and has a perceived failing stake in the game. I also believe the entire system as we know it has reached the end of it's timeline that Another's Thoughts were always pointing to. So, today I'll make the first of many, clear and to the point posts. All done with a purpose of getting everyone into shape for the long hike directly before us.
Dollar currency and paper Gold? ----- both have been inflated ----- both will fail!---
Take a brief moment to look at the dollar as a fiat currency only and forget anything about it's past or present connection to gold. Consider the dollar as being backed by the actual goods it's economy (the USA) produces and how that backing is governed by a stable price for those goods.
In other words let's assume we will allow the USA to print all the currency it wants as long as that amount matches the ability of our economic structure to deliver goods against those dollars. Further, let's say the gauge of whether this is working correctly is read in the price of those goods (in dollars) being stable.
As long as our (USA) society could make goods and deliver then for dollars in a stable price range, it should be fair to say that any and all of us would always own, retain, save and use dollars as a reasonable paper currency. If over any ten or twenty year period, the fiat prices for delivered goods stayed the same, in the minds of everyone (myself included) digital paper dollars would indeed be as good as owning things themselves.
Do you see the thought thrust of the above? By a wide margin, humans want to equate holding dollars as the same as holding goods. Like this fictional account:
### I went to a Ford dealer the other day to see about getting a new SUV explorer. The dealer I went to had a ten year supply of them on hand (he must have been a big dealer - smile) and said they went for $22,000 each. He said that he had so many of them that their price would not vary much at all and they could even fall. Further, he said that I could take my time,,,,,, no rush,,,, come in any time and he was sure the supply would be there. Well,,,,,, I had the $22K in the bank and my old SUV was still working fairly well,,,,,,, so I didn't buy. I just went home, safe in the assumption that my $22K in the bank was as good as a new Ford SUV. In fact,,,, as the weeks went buy I even told my friends I had a "paper SUV" in the bank! All I had to do was "call for delivery"! ###
You see where this is going
now, don't you? Over time, America has printed and created various
forms of dollars and dollar substitutes while distributing then
at home and the world over. The driving force behind this dynamic
is in ours and the world's perception that these dollars are paper
versions of "real things". This is the bedrock of a
fiat currency; that the economic structure of the nation that
prints said money can deliver goods against that currency and
do it at a stable price.
Our dollar currency system has drifted far, far away from this expectation. Early on, years ago as we began printing more money than the goods we produced could be delivered (sell) against, prices began to rise (price inflation). But we adapted by expecting interest returns on these dollar holdings to make up the price rises. We accepted that if in general, American price inflation was running at say 5% then an 8% return would somewhat cover it. Over time and throughout our up and down price inflation cycles, we progressed further and further into accepting some form of ever increasing extra return on dollar savings as the balancing factor. Today, whether it's the stock market, bonds or whatever, dollar holders rely more and more on trading profits and derivatives to cover the added risk.
So what is wrong with this? Well,,,, our private dollar accounts have been covered because their numbers are increasing. At least if you have done your homework and were a good trader! Truly, there are ever increasing dollars in the world and their increase is helping to reassure dollar holders that their money is still equal to "real things". But, in reality it's the ability of the finite US system to deliver real goods against these ever increasing paper demands for delivery that is in question.
Over time, we have come to think of all of our various dollar substitutes as being easily converted into real things by just calling for delivery. In other words, spending them on something.
This "spending" is the process directly before us that will default the dollar through inflation. This is how a contract system, like our dollar currency begins to fail. Everyone, through trading or just plain old interest on CDs has built up an ever larger holding of "paper delivery notices" in the form of dollar credits. Like my example above, these "paper SUVs" have been inflated even as the ability to supply real goods produced in the US, has stayed the same. In fact, "THE PHYSICAL GOODS" that must be legally delivered against these "dollar legal tender credits" cannot come anywhere close to covering the (fiat) contracts written!
In the days ahead, we will see it as price inflation as Physical goods cannot be delivered against all the outstanding currency calls in the consumer marketplace. In many cases, it's the holders of these "paper SUV" contracts (what we call dollars) that will see their savings value tumble as the underlying physical goods soars in price.
So, this is the classical price inflation that results after a long expansion of a fiat currency. From the beginning the currency is seen as a contract for the delivery of goods sometime in the future. We save it (fiat) instead of spending it because it's convent and logical. Yet, the more that people, and in general the international marketplace relies on this method of holding their goods the more the officials expand the contracts (fiat currency) as a method of creating fictional wealth. This expanded currency is used to buy services, goods and commodities, even oil! But it's timeline has a beginning and an end. Today, we are at the dollar's end!
So do we see any comparison to "paper gold" in the above? You bet we do! Like hand in glove "gold the money" travels the exact same route "dollars the fiat" does in our modern banking system.
For every person that thinks their "paper dollar" holdings can be spent for goods and receive those goods (call for delivery) at near today's price,,,,,,,,,, there are almost as many "paper gold holders" that think the world system will "deliver gold" in the price and amounts they have contracted for. Folks,,,,,, in today's world that's a lot of gold owners!
Yet, the holders of "paper gold" will fair little better than the holders of "paper dollars" in the coming super inflation. Both will lag the price rises of physical goods and physical gold as the inability of the finite supply system to deliver comes into play. One will end up in grocery markets trying to spend those paper dollar contracts and beat rising prices, while the other ends up in court, waiting for the delivery of physical gold that simply does not exist.
Another (and by following him, myself also) has seen this end from long ago. We buy physical gold not for it's commodity dollar value, but rather for it's money value in the coming failure of the entire dollar system. We do not expect the world to fail, rather change. We see a transition where traders see the loss of a infrastructure that blocks their building of wealth. Bullish gold traders detest our view because it denies them their dollar trading profits. Yet, dollar profits were exactly what we were trying to avoid.
To date, Another's view and position has been and is continuing to be right. The dollar paper system is on fire and the gold paper system is failing from continuous supply. The dollar is being forced upward as oil values rise, blocking all efforts of the Fed to raise rates and contract the runaway system. Hyperinflation is directly in our path.
I'll talk more about this and other things on the main forum, today.
FOA (10/14/2000; 10:30:03MD - usagold.com msg#42)
Our Position -- Their Position ----- From Which Mountain Will You View The Valley Battle
Hello once again!
I see that our little group of "Western Minded Physical Gold Advocates" is growing by leaps and bounds. I have added Western to the phrase as a way of distinguishing them from most of the world's other physical buyers. It seems that outside our American way of understanding wealth, gold has always been a savings currency for other peoples! Only now has the Western mind begun to see gold as real wealth. Anyway, each week's walk on the trail has more hikers than the last. No doubt the ongoing failure of paper gold substitutes must be taking it's toll.
Many new travelers here once held long term beliefs (myself included) about physical gold and it's relationship with various leveraged paper gold substitutes. I understand how easy it is to consider these relationships to be solid, valued historic perceptions. But today, they are not.
Most of the current gold market and it's industry has only recently matured to the present state of paper sophistication. If I had to venture a guess I would say it all began just 28 +/- years ago, in 1971? An even better estimate would tie it to the early to mid 80s. In any event, this is the period (from then till say 1996) that most gold thinkers use to build value relationships into paper gold from physical gold. In other words, if gold is at "such and such" price then typical, traditional trading has historically valued paper prices (mine stocks, gold options, futures, etc.?) at "such and such" price.
What so many failed to understand was that all of those old dollar gold values and their paper relationships were created during the dollar "near failure" of that time (70s?). Not the dollar failure that's coming (00s?). The great dollar inflation, back then in the USA and it's impact on our world was hardly an inflation by historic readings. Truly, what our Western minds saw as a colossal explosion in gold prices was only a "blip" of size and substance relative to the "blip" of inflation that occurred then! Again, the physical - to - paper context of today uses those same conditions and trading results to reach value conclusions and extrapolates these into our future paper gold substitute's prices. A process that I submit will find our paper gold traders running far behind the real price inflation that's coming. Yes, these paper gold plays may indeed go up, but they will not gain the way bullion does relative to the currency destruction that's ahead.
The only lasting impact the historic 70s dollar price inflation had was to set off a search to create a replacement for the world's greenback reserve system. A "political will" was created to hold this reserve system together at any and all cost and for whatever amount of time was needed to build said replacement. If the "will" was not strong enough or "time" not long enough, it was easy to see that gold would be the fall back reserve. Indeed, that would be quite a fall back, especially for those people (governments included) without gold.
We make the point for physical gold today because today is different! There is a huge difference between controlling an "ongoing price inflation" and battling an ongoing timeline failure of your currency. The first is controlled through printing restraint, while the second is managed to a bitter end. Some would sarcastically say "it's manipulated for it's longest lasting effects".
So, we walk this trail to build an understanding of "gold the savings" not "gold the dollar account multiplier"! Thinking as the "Giants" walking before us think;
"we don't want more dollars as a result of gold gaining permanent long term value that will last a lifetime, we want more gold"!
Our Position -- Their Position ----- From Which Mountain Will You View The Valley Battle
Once again, I'll expand further while we walk so as to make our case more clear.
Last week I closed by saying; " " We do not expect the world to fail, rather (to) change. We see a transition where traders see the loss of an infrastructure (paper gold market place) that blocks their building of wealth." "!
It's a clear choice for anyone walking this trail; use paper gold derivatives to gain more dollars or hold physical gold to gain more wealth?
This is the presentation we offer. This is the wisdom you must decide upon.
Will our dollar show a strong price inflation as it did in the 70s? If it does and does so in a slowly building fashion, then the current paper gold market and pricing system should work. Allowing it's participants a chance to "cash out" into more dollars. Dollars, I might add that should gain somewhat in goods pricing value as the system cycles through one more price inflation phase.To date, this outdated trading strategy is not working, is it?
Truly, this is the race most paper gold players are betting on. They point to the fact that gold bugs have been calling for dollar destruction and hyperinflation for a long, long time. Yet, it never happened! I agree. Indeed, we (modern Physical Gold Advocates) never saw the dollar as ending it's reserve roll then, either. Nor did we figure that the USA or it's dollar empire would fall. We brought and held (long term) some gold, but mostly sold in and out of the cycles as best as possible.
But as time traveled on, dollar debt exploded in a fashion none of us could understand. Over this same period, my relationship with several world thinkers helped me to grasp the changing dynamics of our money system. Placing all of the "Oil for Gold" and "Political Games" in a lesser dimension, I learned where we were headed over the long term. Indeed, ongoing national financial strategies are only something to observe along the trail.
A transition away from our dollar reserve world went a long way to defining the process we witnessed over this last decade. There is simply no possible way the dollar debt load could have been expanded to it's present scale without a massive worldwide helping hand. Yet conversely, to help explode dollar assets was clearly and end time maneuver that would destroy everyone's assets. Unless some other system was on the wind, ready to take over.
This is really where our modern gold trail begins, the early 90s. Mostly because this is when the logic began to leak out from behind closed doors. We can see the influence of "Old World" hard money in this new fiat reserve creation, where gold can be the fall back if the system fails. We can now openly see the slow destruction of our dollar's mainstay in creating it's value illusion; "the dollar based, world paper gold system".
Clearly, this system had full international support for many years as our paper gold pricing helped to maintain dollar demand and use through it's illusion of dollar value. That mirage was always a steady to falling gold price that not only helped price oil, but strengthened dollar savings demand. Starting in the mid 90s, we began to see the very first cracks in this support as it became clear to us that paper gold market support would fall away as the Euro was born and grew. Once established and with the Euro "walking on it's own legs" support for the dollar, in lower gold prices would fall ever more heavily upon our US financial structure. A structure that ironically is heavily built on the British LBMA. Perhaps explaining the struggle to keep England out of EMU for as long as possible.
Knowing full well that they could not sell US treasury gold into a BIS sanctioned currency reserve transition for fear that foreign CBs would simply consume all the gold, they opened the paper gold flood gates in a fashion similar to printing dollars prior to 1971. Today, our old disgraced system of non redeemable 70s dollars backed by insufficient vault gold has been replaced with "commodity market contract gold". Any increase in stress would require Paper gold to flood the markets in ever increasing amounts so as to stifle any rise in the system. A dollar gold paper system that sets the price of physical gold trading. Indeed, as our good poster on the USAGOLD FORUM (SteveH) (hello Steve, smile) notes it, they are using commodity gold markets to influence world monetary gold values and reserves.
Is all of this a surprise? No, at least not to Modern Physical Gold Advocates that have been watching "Events" these last few years, as Another asked. Clearly, this is the guide map for an ending currency system. You explode the currency substitutes (debt?) worldwide, to save your banking system for as long as traders will accept it. When international "political will" begins to walk away from your fiat, you take up the ball of last resort and run with it; "you inflate the gold issuance for all you are worth"! Indeed, you sell it into destruction!
Let's rest a minute and look around!
Now do you see why major players are buying physical gold as carefully as possible out of sight? Now do you see why they are also buying paper gold, in sight so as to make a market and slow it's destruction decent. The longer the system can work, right up to the end, the more small amounts of gold can be brought. Eventually, even a tiny amount of gold will more than balance all the loses in dollar gold contracts.
Further, do you see why even gold mines will suffer such a loss of share value as the paper price descends. Yet, once to it's (gold's) final destruction level (and the share prices follow it), the rise in physical will come in a full scale crisis that demands crisis nationalization of all paper trading. Not Physical trading, just paper contract trading! Paper market shut down for adjustments?
Because the new fiat competitor for our dollar system has based it's strength on a functioning free gold marketplace, every nation will be forced to do the same using bullion. To compete they will have no choice but to free gold for their citizens, even as they lock down in ground reserves with grandfather "windfall profits taxes"! All enacted while share trading and paper bullion trading is halted for months on end.
As I stand here, my view is:
I do not hate gold shares (I own some) or gold derivatives (I own three of those also as an experiment on the main forum).
My only offense to paper gold traders is that;
"I place these gold substitutes in their proper perspective in our changing world". "Another" has challenged you to do the same.
More during our next get together,,,, a fireside chat.
FOA/ Your Trail Guide
FOA (10/20/00; 14:00:07MD - usagold.com msg#43)
A Fireside Chat
Let's settle by the outdoor hearth for heat and conversation. I even see Michael Kosares back there with a warm cup. The fire is aglow,,,,,, the talk is about the trail before us:
Aristotle, said this today:
Aristotle (10/19/2000; 5:44:45MT - usagold.com msg#: 39386)
Do you heed your own advice? Thoughts on Trade deficits--big and small
"""""As for the U.S., we are in a unique but temporary position in which we haven't yet had to pay the full price for our past trade deficits. Until that day arrives (with severe currency devaluation), we might be inclined to stand the old terms on their heads and describe our current trade deficit as a FAVORABLE trade position because we are receiving real goods and services from other countries with partial payment (required in excess of our own exports) made in typically depreciating paper of our own easy creation.""""""
In this post you also made another very good point (see full post) by directing Hard Money Advocates to pursue their own often stated doctrine. I think that perception is a given; that when the crisis hits, everyone the world over will be buying gold for depreciating dollars! Indeed, if your Chimps, Champs and Chumps (see his #39302 on the main forum for definitions) are really forward thinking, they would be wise to follow their own strategy by buying physical gold now. Before the winds blow?
Further to ALL:
Following on Aristotle's above:
The dollar deficit is truly the main money destruction tool being forced to function in our modern "killing fields" of today! In the past we saw this trade deficit function operate for only short periods as it constricted growth in our US economy! Now, they have not only the US economy but also it's currency caught permanently in this long term trap. For the first time since we left the gold standard while making them play by our rules, they now have us. Once before, in 1985 (look at a dollar chart then) we were well on our way to the same problems, but the difference then was that "noone" had a potential alternative reserve currency system to run to when we induced a recession. Today they do and this "waiting in the wings system" is the hatchet tool in the hands of our world markets that will do us in. As the ECB says;
""" it's not the Euro is too low, your dollar is too high ,,,,,,,, so go ahead, make my day and fix it"""! (smile)
Indeed, no intervention by the US now is a stab in the heart of the dollar economy.
The US has had the rest of the world in somewhat of a trap also. For a long, long time. Perhaps from when we told them that the world gold exchange standard bearer would no longer ship gold for dollars. From that point on we (USA, my country) could inflate our money without consequences.
In fact, we had to inflate in this "Darwin" fashion over all these years! Truly, if we did not inflate long term and ship liquidity (created dollars) outside the US, our dollar's value would always soar above other strong currencies. This is because of it's world settlement function. Notice I said soar over their value instead of they would fall away from our value. There is a difference. As in our recent hikes, we saw that the internal basket of goods prices for both dollars and Euros dictated that these currencies are at opposite extremes in value and should reverse. Further; I use Darwin because everyone came to think that our sending money overseas was part of the "natural order of things" (chimps (smile)). They thought and still do think that the world just craves our money! They will have a different opinion later.
We must reconcile with the truth of this process by looking at the dollar world from 1971; the one time the dollar soared too high for too long it began killing off our economy. Forcing us into the same printing policy other lesser nations must employ to keep their exchange rate level. Yes, even the USA must sell overseas to create jobs and profits at home. A huge trade deficit in a reserve currency nation, induced by an overvalued currency like we are seeing now, raises the currency's value even further above other strong fiats. This is the way such a reserve system naturally reacts when there is no local reduction in liquidity to check it.
A regular (non reserve currency) nation's money would suffer a different fate if they inflated the native currency the way we do. It's non trade settlement function begets a falling exchange rate. That in turn drives then into the same policy of hyper inflation but it's effects are felt in higher prices, immediately.
Again, conversely, a reserve currency always rises in exchange function from this forced "liquidity draining" trade settlement. Once on this trend, over time, the higher it's value goes the more people finance in other mediums (yen carry, gold carry, Euro carry, oil carry) This further dries up the fractional reserve created dollar reserves as the demand for dollars grows ever stronger from it's ever higher cost trade settlements. Settlements dictated because IMF / dollar protocols demand dollar use as settlement.
In the past if the system began driving the dollar too high and forcing US trade deficits, the Fed would raise rates to throw us (USA) into an economic recession that broke the vicious deficit trade cycle. Knowing full well that it would be a short recession policy because "noone" would jump the dollar ship before the medicine could work. Looking around back then and we see there was no other reserve currency ship to jump to. We either lose jobs and profits from an "overvalued currency" or from an induced recession. The first can lead to a financial breakdown, the lasts corrects things after only a short while. Naturally, we embark on the quick fix of a fast recession.
This is why our times are so very different now. What the "chimps" came to know over this 20+ year period as a strong America in a high dollar, was always something our money creators were striving to fight against. We truly have always been inflating our currency for these many years in a attempt to keep the natural effects of the IMF reserve system from spiking the currency too high up. Again, if we had a regular currency, our policies would have been reflected in sky high prices for everything. What most of us "smart chimps" know as price inflation reflecting money supply inflation.
OK, let me sip some starbuck's:
Ever since the Euro was seen in by US policy makers as an eventual success, our treasury has tried to put it's best "New York Spin" on the ongoing process. Simply stated; from the early to mid 90s we are in favor of a strong dollar policy. In reality, with the advent of the Euro and the evolving stance of the BIS, this has made our "economy killing" strong dollar unavoidable.
There is no way the Fed can create a new recession now without everyone jumping ship for another currency reserve. There is no possible way the Euro Zone will suffer as big a downfall as the US in another policy induced recession. Just looking at their closed economy and debt structure tells that story by itself. Any US slowdown means a run for the Euro, yet weakness in the Euro means the US must inflate at a torrid rate. We now stand toe to toe and wait to see who will fall first. All the while our world dollar gold markets are caught in the cross fire!
This is where we have been for the last decade. This explains why the DOW and all it's paper cousins have enjoyed the effects of a massive, ongoing dollar expansion worldwide without any official policy interference. Right when we were to the point of changing policy to slow things down, the Euro was to be introduced in a year or two and risked taking away or sharing the dollar's standard.
The "lesser chimps", lost in Western thought keep waiting for the fed to induce their deflationary policy. (I was monkey - ing around in this area for a while myself) (grin) It is not coming. To do so now would commit the dollar to non reserve status in a hurry and produce a massive price inflation at home (right now) as all these unneeded dollar reserves come racing home. Remember, the ECB does not need dollar reserves! The Euro is a stand alone currency representing an in house trading block. They may have to buy dollars for oil, but others must also buy Euros for European produced goods. If the Euro went to .10 to the dollar the EuroZone economy would not stop. But all international dollar trade would grind to a halt. The USA could not sell anything internationally, at all! Every other nation would simply abandon the IMF protocols and use their native currencies to trade directly with Europe. Even Arabia would break their SDR basket peg and trade oil for Euro goods, either using their currency or directly if needed.
Our outdoor fireplace is getting hot, lets step away.
The lesser of the two evils today (and this is the one the ECB / BIS enjoys watching) is our current frozen policy. We can no longer cut off the strong dollar / growing deficit circle by raising rates and invoking a recession as in the past. This time we must continue to pump the reserves at all costs in a process that only floods the world with more dollars. It's called a currency hyperinflation and is one we (as US people) have never witnessed in modern times. The pressure has built up full volume now as all escape valves are being closed. We are well on the way to a derivatives exploding event that will break into the open with a cascading dollar and full force US price inflation.
This is the "why" for the gold derivatives policy that Physical Gold Advocates are now enjoying. Also one that leveraged paper gold investors are being tortured with. In effect, we "gold buyers" are trading 1971 style dollar derivatives contracts for the physical gold we never could get then. And doing so before a 1971 style gold event that comes in the form of a denouncement of the contractual viability of all gold contracts. Let's call it "no gold for dollar derivatives"!
All the while, just like in 71 other "chUmps" (smile) are saving these same paper gold substitutes to protect themselves from this same crisis.
Further; many of them have sold their physical gold for use by the BBs. I think SteveH calls it OPG (other peoples gold). This is where the real supply that fills a Physical Gold Advocate nation's coffers (and mine) comes from. It's truly a good deal in light of what's coming. Let's not mess it up by talking about who is buying all that gold, rather just point everyone to watch how much is being sold!
The US cannot walk away from hiking our ""gold trail"" now. Because "this process" is one of the few tools available to them for keeping the dollar perception in a good light. In effect by slowing the currency transition process they are doing exactly what world dollar holders need the to do. They will inflate these derivatives until in effect; our modern gold market bankrupts itself as supply is exhausted. I say, good! (smile) But once we get to that stage, I expect that a super US economic downturn will ensue. Then the fed will go wide open and cover everything in sight to keep us going! The ongoing price inflation will be driving everything from physical gold to real estate through the roof.
I submit that many smart hard money thinkers like Traveler and Thai Gold (and many others) are walking forward but looking backward. I (myself) have tried this before but usually run into something I didn't see in front of me (smile). That something today, for modern hard money followers is in the form of an internationally induced transition away from the US dollar as a reserve currency. Such a policy evolution has the effects of driving the lead currency's creator into printing press mode as an only option to maintaining the viability of our economic and financial structures.
Yes, it eventually breaks everything! But this is nothing new for us gold history buffs and it's what has happen in countless modern national fiats around the world today. Nations that don't have a reserve currency to play with. We will do like their citizens do, continue to use dollars but carry in our pockets whatever new reserve is in fashion, as a backup! Be it gold or Euros or both. In addition, our entire financial structure (like in these other nations) will change to operating in an inflation economy. Money will be lost, big time and made big time, but things will still be financed, brought and sold. Houses will double, triple then double again in price, even as financing rates approach 35%, 40% or whatever. We will also follow the (then) prevailing world policy concerning physical gold, solely because it will make economic sense to our officials.
As such; like today, everyone uses dollar reserves because it keeps us within accepted international policy. Across the currency warfare valley our "gold trail" is coming to, we will also use gold as a free reserve medium. Mostly because it's what the leading reserve policy of that time will dictate and that will keep us on good trading terms.
No, we will not confiscate gold again. Perhaps if it is designated as US legal tender and caught up in some kind of currency change, that will pose a risk! But that's just following the same fiat rollovers so many other countries now must employ and will have little impact on most gold owners. Besides, PGA's know how to avoid such a trap through physical gold ownership diversity! US Eagles held along with a diverse group of new and old coins fit my pocket just fine. I don't worry about the premium on any ounces I buy today. In the future, the total price we now pay will probably be the premium anyway (huge smile from ear to ear!)
Again, as international trends follow the use of physical gold into the free trading asset realm, no longer as an official money, then it's value and ownership will soar the world over. To date this is the future before us as the dollar fails it's function.
Truly, a relationship with an honest international physical gold dealer will no doubt place oneself at the center of this exciting new financial evolution. (I'm trying to think of a dealer that would fit that description? I know I just saw one on this page. Somewhere?) (smile)
Don't tell me an inflating dollar economy doesn't work this way! I have lived in many, many lands and have witnessed and used such inflating systems. Look around for yourself at how non reserve moneys are impacted by their native policy today and the effects of those policies on all real assets. There are few examples that do not follow this regular fiat price inflation mode. Our dollar use and function is about to revert to a lesser more common level, suffering it's drop away from reserve need. In doing so it will change as never before in our time. In fact, it's only the current gold pricing system that may experience a larger change. Not only in use but in Western gold value perception.
""""We watch this new gold market together, yes?""""""
Thank you one and all for sharing this time
FOA (10/28/00; 10:40:51MD - usagold.com msg#44)
There Is No Way Such A Currency Could Ever Last!
I'm glad to see everyone brought their overnight packs because we are going to take an extended walk this time. It's going to last over several days, so let's get going!
There Is No Way Such A Currency Could Ever Last!
Here we have eleven completely different country's and each one operating under an independent government. They all still have their own internal currencies and banking systems but set most or all of their trade settlement and pricing in only one currency unit. With all the in fighting and at odds views, how could it be expected to last? To this end I completely agree with all the negative sentiment people today have! I completely agree,,,,,,,,,the dollar will never work! (smile)
Can you imagine any success at all when these nations try to use such a currency scheme? The countries of Canada, Mexico, Australia, Brazil, Britain, Japan, Peru, Argentina, Taiwan, Venezuela and Hon Kong all have operated for 20+ years under a Dollar system not much different in effect than the new Euro Project is birthing today. In fact, most of the world has used this ad-hock dollar reserve system for a long, long time!
So when we hear all the stories and reasoning about how the Euro will never last, just remember, the very same reasoning was applied to the dollar's future a long time ago. It's still here.
On the main USAGOLD forum I saw a post by Salmon (he must be hiking with us today) that asked a very relevant question I want to expand on; "People conveniently have short memory. I remember not that long ago $US were trading 80 on the US Dollar index."!
Boy Salmon, I agree some of these people must have been too young to have fully financially participated in the great dollar scares of the past. Either that, or your are right that their memories are short. I remember endless articles, discussions and books that all pronounced the death of the Dollar as we knew it. Each and every thinker all saw that the dollar would fail and their forceful commentary made today's Euro bashing look like sweet cream!
Yet, the dollar made it anyway and for all it's incredible misuse and global hatred is still the most widely used unit in the world. Over time all the dollar bears had to simply "be quiet" or risk being totally discredited as it's value climbed endlessly. Remember the mid 80s when the dollar was off the charts, making today's strength look week in comparison? What happened people? Dollar debt, money growth, price inflation all never stopped. Slowed down off and on, yes, but stop, no way! Every reason why the dollar should have stopped was / is still in force, nothing changed.
The very same people that voice their views against the Euro today would have, using the same criteria, said the dollar is toast at half the debt level and political contention it now holds. But it didn't toast well did it? That's because the world's "political will" all came together and supported the Dollar's use for better or worse until something else could be formed. You can turn this "notion" upside down, sideways and throw it against a concrete wall and still not present a sound argument that can topple this as the fullest explanation of the matter. All the grand US economic explanations only sidestep explaining the negative monetary issues that have traveled hand and hand with the dollar through it's ups and downs.
Besides, listen to the bashers for their reasons as to why their own native currencies are still in use? Even after watching some of their local moneys change even more than the Euro. Kind of silent commentary in that sector, isn't it? They hate the prospects of the Euro and say their (Europeans) people will dump it, but I ask why do you still use the Canadian dollar for example? Why is that money still in your pocket but your discussion precludes that others (Europeans) will dump theirs. Use their reasoning against the Euro and one must conclude that no fiat currency today can last.
Our reasoning in advancing Euro success is based on what is happening, not what must not happen according to fiat trading theory. To use the position that the Euro will fall because the dollar has risen so high against it begs the question: why did not all of the European currencies fail in the mid 1980s when the Dollar soared against them then? Indeed, so much higher than even today?
The Euro Story May Be Offering Something A Lot Of Paper Gold Investors Don't Want To Hear!
The Euro Project is changing the outlook for gold in a way many gold industry investor didn't play the game for. Not one of them ever factored in just how a reserve currency transition would impact "not only physical gold", rather the gold market itself as it exists today in dollar contract form.
It seems everyone was in complete agreement that any fall in the dollar would be bluish for physical gold, including myself. Yes, one day the dollar price inflation would return and bring with it the need for investors to once again buy all kinds of gold vehicles. However, as late as the mid 90s none of the hard money advocates thought of the Euro Project as a system that would change gold thought, use or valuation. The new currency was seen as just some new currency that would be tried out in another part of the world. Like a new Peso in Mexico?
But, Western traders had fallen asleep in their basic understanding of gold and certainly paper gold substitutes. Over the years, the very dollar system they expected to fail had been slowly transforming the pricing mechanism and the nature of world gold holdings. As contract gold was inflated to meet the needs of ever more sophisticated traders and hedgers, paper gold was seen as having a physical gold tracking longevity every bit as good as the dollar. No one expected the dollar to be displaced, so leveraging non physical gold in the form of dollar based contracts must be an easier, cheaper, more highly leveraged ticket. Sure, the dollar would be taken down a bit and price inflation will return, but the world was never going to leave this reserve system. In this stupor type reasoning, it made no difference whether real gold was behind the paper so long as it tracked the physical price. For confirmation of this reasoning, just visit some of the gold forums and listen to the traders. Even some on our forum are completely unbiased toward paper gold's worth. Is it no wonder that, in time paper trading grew until it became the physical price.
Again, no one considered what would happen if the dollar was transitioned away from being the reserve. Well, they must have thought; if it was to happen, what ever new reserve that came along would just offer the same paper system and we would all trade over into it. Wrong! Suddenly, the ECB has in it's charter the marking of gold to market, at what ever it's worldly price would reach and in Euros no less.
But, here, we have the entire American dollar based contract gold market predicated on a limited commodity price range policy, pushed by the US, that kept gold in a pocket of dollar valuation. Not allowing it to leave this range allowed the growth of paper only gold because the outside extremes of price risk (both bottom and top) was known. Now we have a real threat that the Euro could unseat the dollar and allow gold to seek what ever level physical demand may allow. Can you say, "unlimited risk"?
A complete breakdown of the worlds only current contract gold market would slam the dollar very hard, indeed. It would also completely disrupt and financially fail the entire gold industry. Most every player that is "playing for a move in gold" will lose his playing vehicle in a currency transition the system is not structured for "limited price moves"! Hence the reasoning for our "physical gold" only approach during the rough period ahead!
I'll close now, as we walk a little further. Then we can discuss what currency is "in abstract form". You have heard us say many time that the price inflation is already built into the Dollar, well, this will help you understand why.
Onward: next stop in a little while
FOA (10/28/00; 11:05:36MD - usagold.com msg#45)
In the last part, please read as: "UN limited price moves"
--the system is not structured for "unlimited price moves"! Hence the reasoning for our "physical gold" only approach during the rough period ahead!------
FOA (10/28/00; 18:12:18MD - usagold.com msg#46)
The inflation is already around us!
Let's stop walking and begin here by using one of Traveler's thoughts (USAGOLD poster).
"Deflation is everywhere and always a monetary phenomenon."
The "Traveler" was absolutely right with the above remark. This perspective has been around for some time and describes to an extent our paper money dilemma. However, reading from a different angle would require another question; what kind of "monetary" are we dealing in"? Even better to ask; do credits in any monetary system always try to deflate?
Well, in most kinds of fractional gold money systems there is an absolute end to the amount of credits (debt) that can be extended. Even when banks are allowed to make loans at some multiple beyond their gold holdings, eventually the relatively fixed gold stores in their vaults stop all new credit creation. Usually this process is quick to react as a shut off valve and creates somewhat of a deflation before the credit expansion impacts the economy too broadly.
So here we can say that "deflation most likely is waiting around everywhere, all the time", but it becomes most apparent just as soon as banks begin lending too far beyond the fractional limits that gold places on them. Somewhere between point A "gross amount of debt created" and point B "gross amount of debt created", physical restrictions force a stop to further credit creation. That forces the economy to begins it's failure response to service some of said debt. Deflation is then in the air. Most of you hard money buffs have heard this explained before in several variations.
Today, fiat money systems operate outside gold's control and do it on two levels to destroy savings. Both of these levels work to pull wealth away from you in a way that's out of sight and out of your control . Further, the matter in which these processes are discussed tends to hide the wealth destruction by placing it's eventual effects as always happening more in a future tense. That's not the case and much of our presentation for physical gold now, is based on understanding how much a currency owner has lost already to said money wealth destruction.
So, try to place yourself in a different position, using a somewhat abstract view that may allow you to see what is happening "underneath". In an off take from Traveler's above, let's try to look at a different kind of "monetary" to see if anything changes with it's use. First, we consider the fiat as it is in use now.
Once we leave a fractional gold system, nothing changes all that much. In place of gold, banks are given strict percentages of credit creation that in some ways follows the same rules gold imparts. In a very basic sense banks can only create so much credit unless the central banking authority sanctions more bookkeeping reserves for them to lend against. In many respects, if those in authority kept to their strict rules, our fractional reserve paper currency system would work just like the above gold system would. We would indeed experience "deflation in the air" as soon as said lending limits are reached.
But in a fractional reserve fiat system, people make and break these money rules and use whatever advantage gained to overlord others. Some of us explain this by saying it's this faction or that faction doing it to all us in another faction. But power groups-are-us and indeed our whole political process is but the playing of factions against each other. So, I leave out the blame placing, preferring to see our actions as a people's will. Or political will in the end.
It seems that in our human experience, there is no end of reason why we should not avoid most losses and expand credit just a little more. War, special circumstances, social need, emergencies all add up to a constantly expanding debt system and changing the debt creation limits to meet those special needs. Simply put, a fiat system run by humans will not cut off the arm of single dynamic group when it (the system) can be engineered to cut off the finger of everyone! This is the monetary loss phenomenon we must understand and deal with today. It's the only deck of cards we can play with if staying in the game is a desire.
Every time excess credit is created it robs one of us of a finger of our wealth. Even though we cannot immediately see the general price increases such a money expansion creates, it's dilution of our own wealth is all the same and very real. As an example:
Work with me on this?
Say you owned a plot of land free and clear with a barn on it. You even had a deed to show it. That deed was a paper derivative of your real wealth holding, the Barn (and land). Worth at least $100,000. Now you may say that the Barn was yours and it alone represented your assets, paper deed or not. But just try (under current laws) to sell that land without said deed? No go, right?
Now lean back, close your eyes and imagine that deed as a type of fiat currency you own. Then, one day you try to sell the Barn at auction. You come to the auction house, deed in hand and offer it for sale. Suddenly, you find out that the county clerk has created nine other deeds against your land, placed them in the hands of others and those other deeds are also for sale by said holders. The auction takes place and instead of your one deed bringing 100K, the extra ownership forces your sale down to a real value you never knew existed. That being $10,000 as it represents your diluted derivative's share of the Barn pie.
So what happened here? Examine not only the facts but your misguided emotions as well. You, as a fiat currency owner may for years own a currency (deed) that you know has a buying power or worth equal to 100K. Yet, all the while you were saving this money for later use, other money deeds were being issued by the officials. An observant watcher of the financial scene would know that other money was always being created, but even the best of us never fully feel that those other deeds apply to our portion of the Barn pie. In other words, from the beginning and over some 20 or 30 years, our savings were diluted away by the continued issuance of new money. We always feel, emotionally that we can sell our barn near full price. That we can spend our money for something that brings in our perception of that $100K in purchasing power. But in reality, once we enter the marketplace in mass, rushed on by a sudden recognition of what the county clerk has done, we find our wealth was diluted away long ago.
This is what Another meant when he said, "your wealth, it not what your money say it be"!
Now open your eyes and think in currency terms. Why shouldn't we think our money is not holding it's value? The fact that prices are not rising only confirms that our part in the market economy (represented by Barn ownership) is not being subdivided, yes? No, the fact is that your wealth has already been inflated away by past currency inflation. You see, currency inflationist want you to perceive that your savings balance against equivalent buying power in the future, not today. The fact is that your deeds are being inflated and the value is lost, today! Never to be regained by gaining additional account balances in the future. The very extra balances you count on to keep you ahead, only dilute the pie that much further.
Are you with me?
The secret behind the over creation of fiat currency is in the fact that most of the holders have no way of knowing how much their wealth or buying power is being diluted. Except at auction! The auction that is the marketplace for all goods produced and sold.
Again, as long as the MAJORITY of owners hold the deeds without taking them to auction, the loss of value never shows up in the real market auction place we call "spending"! This is how a huge credit expansion in a fiat system hides the dilution. It entices owners to hold the deeds as near money in the form of interest bearing credit instruments. In this process everyone can lose a bit of a finger every so often and never know it. With all this background in mind I continue our discussion:
Once our regular fiat system expands debt well beyond a point where gold reserves would have forced it to deflate, our economy demands that we enter a constant slow debt expansion that stops deflation from taking hold. In this sense, deflation is always "in the air" the moment we stop adding reserves. The system slows down whenever new credit flow stops. At this point Travelers statement takes on more meaning and has an expanded context. "Deflation is everywhere and always a monetary phenomenon because; we create the monetary ourselves and do it with no controls over our desires not to lose as a group". The dilution of all our money holdings is constant and real, yet none of us wants the system to tally up as long as we can slowly share the pain. Suddenly, monetary phenomenon is really a social phenomenon when Fiat is used.
At this point, one the dollar world has been past for some time, deflation is no longer the consequence of over debt creation. Deflation is now determined by our hand as we adjust the fiat reserve supply. Often, in order to slow things just a little before we start again the fed stops it's manufacture of deeds (err,,,,,, currency reserves). It becomes a cycle that many have identified as the inflation / deflation cycle. It seems to have no limits to it's life in our modern world.
But it does. At some point, deflation becomes a socially impossible event because the credibility of the money system is rendered second behind recognition of real wealth loss. Here, we will lose the wealth anyway, but our books will still balance. This is our future in a currency at the end of it's timeline.
Consider this a while.
Then I will summarize my reply to Traveler, using the above.
FOA/ your Trail Guide
FOA (10/30/00; 08:31:18MD - usagold.com msg#47)
Good Morning ALL,
It's nice to wake up on the trail for a change. In fact, change is in the air on this morning so rare,,, do you feel the wind beginning to blow? I do.
The other day (back in town) I responded to one of a series of The Traveler's posts. His was offered on 10/24 #39771 Deflation Scenario II. My reply was on the same day #39784 and (because it was broken off) #39794.
Before carrying my reply further, I wanted to establish a base of thought for reference. This was done in the last two talks (see below) of this extended hike.
So let's begin today, Onward:
Early on in that discussion I said:
================Mr. Traveler: conversely: the "real" inflation I point to is largely a cash phenomenon, where all the past massively over created credit instruments are brought up by the money making authorities and paid for with printed cash or allocations to the owners digital cash accounts.=================
This above comment should clearly point out what we see coming on the horizon. Over the last 20 or 30 years analyst have always explained our US inflation process as being one of continued credit expansion. If the economy began to contract from too few credits being created, we speeded up the credit making machine. This has been true and is something I agree with. But after so many years and cycles of this process it has largely become a continuing operation that never stops or any longer slows. Such an evolution into constant money inflation has and does slowly change and condition our perception of it's dynamics.
Back then, many years ago, slowing the money pump may have entailed actually bringing the paper creation down to zero or even into a negative creation condition. But, in keeping with the explanations I have pointed out on the Gold Trail; currencies have "timelines" that upon close examination are really just an expression of the changing social expectations of the society that uses said currencies. Earlier on this extended hike we heard:
========It becomes a cycle that many have identified as the inflation / deflation cycle. It seems to have no limits to it's life in our modern world. But it does. At some point, deflation becomes a socially impossible event because the credibility of the money system is rendered second behind recognition of real wealth loss. Here, we will lose thewealth anyway, but our books will still balance. This is our future in a currency at the end of it's timeline.=========
This ending process becomes a natural "next event", not only in our minds but in our culture's actions. We no longer think of the currencies credibility as being at stake or even an issue. Now, well into an expectation that "expanding credit" is natural and acceptable because the world (and ourselves) needs more of it; just the act of slowing the increase is enough to trigger deflation talk and thoughts of economic slowdown. The whole process of what we once knew as "real inflation" the monster, becomes an acceptable, wanted event.
Yes, we lose the wealth into price inflation anyway, but our accounting tells us we are keeping up, so everything is ok. Gently, the notion of a slowing of credit creation is good, evolves into a constant rising expansion of credit that is not moving fast enough! This is the realm we have been in for most of this decade even as it has been masked by an overvalued dollar. Now we begin to move into the next stage, "real inflation". From my Traveler reply:
=====However, in the real hyperinflation that's coming, as it follows our current credit inflation phenomenon it's not the borrowing class that's liquefied, it's the lending class!========
Because so far it's only the financial structure that's been inflated, the rise in real good prices is just a partial reflection of the "account inflation that's all around us". Already it's built into our rising accounts and denominated in digital currencies. Yes, we have been beating price inflation on the books, but only beating the portion that's been reflected against our partially liquefied super inflated financial structure.
I the dollar falls, and prices start to rise, we will demand that our accounts continue to beat price inflation. The officials will grant our request by making sure none of this nations financial assets fail. Because our money has been built as a debt money system, if you only just carry or use dollars, you are part of the "lending class". The very class most point out that will demand deflation. Clearly, our holdings out vote the perceived evil "world order" that we fear will collect! A world order that is really just a reflection of ourselves in the money pond.
Maintaining our perceived wealth, if only in bookkeeping form will require these officials to liquefy everything. The recent derivatives bill now being passed in congress is only another step in this cashing out process. A process for us, that can best be described as; someone standing in an elevator while the building around them moves downward. In our eyes, our accounts (as the floors around us wiz by) seem to be going up as they beat a new rising price inflation, in reality the entire financial structure is going down as all the credit instruments from our past are cashed out by the printing press.
This is why people run from what was once perceived as a strong currency and the social system that created it. This transition from "credit expansion" to "credit buy outs" acts to place real numbers into the economy and those real digital numbers will start bidding in the marketplace. Suddenly, as in my "Barn Deeds" explanation; everyone is forced to reconcile the fact that their previous buying power, held in various "credits in account form" never could equate to real buying in our truly limited goods marketplace. Their loss to money inflation was always with them over many years, just never quantified at auction.
In such a process, even foreigners, important people, bankers and such, do not retain their debt claims on society. They join in the mad scramble to sell out because they are just as unable to change the process as is anyone else. Deflationary gains never come to anyone that waits. From my reply:
=======foreigners holding even government guaranteed paper debt in a deflating currency is little more than bookkeeping wealth if the actual goods buying power of the currency is compromised. Yes, our US would continue to print dollars to service it's debt, making the accounts look good. But, in such a deflation situation, foreign exchange controls are a 100% guarantee. Foreign held dollar assets would not come home, at least not at the same exchange rate one needs to become financially whole! When the world begins to abandon a currency at the end of it's reserve timeline, deflationary gains on debt instruments are an illusion of bookkeeping.===========
This is why we don't watch traditional banking numbers or official money supply Ms for future directions. These will become reactionary items, reflecting the coming changes well after the cashing out event begins to unfold. ORO pointed out in what I view as a good description of how out system will spiral in such an event. Over and over, credit will be liquefied in an unending circle. Parts of his post:
====ORO (10/24/00; 23:00:45MT - usagold.com msg#: 39827)
Trail Guide and Traveler - bankers liquidity
The banks themselves can not survive a credit crunch where more than 10% of debt is unrecoverable. That would wipe out the whole of the banking system.
In order to save the banks, the Fed must print enough funds to bring back the banks to a point where they are at least liquid, if not solvent. Meaning that as banks sell surviving assets to meet withdrawals
The market value of these assets from distressed sale will fall substantially below what it otherwise would have been. In order for the banks to survive, the Fed must pay above market prices for bank assets till bad bank assets are at a low enough level that they cover remainingliabilities.
Since the market value of bank assets (not the fictitious book value) under current circumstances (higher general interest rates and high spreads) is falling, while bank liabilities are still growing at an interest rate similar to that of treasuries, Bank capital is falling at 10 times the rate at which bank assets are falling===============
Even though ORO was describing
a deflationary event response, once a real price inflation is
accepted and expected by people at large, the rising rate levels
force the government into this same circle of events.
Looking at all we can see today, "inflation is in the air" as never before. Expecting traditional credit cycle events to save our financial structure this time will be asking the system to do what no one wants it to do. The very best and clearest early indicator that a super inflation is upon us, will be seen in the next "one way" fall of the dollar from it's overvalued level.
Our system of hiding past dollar currency inflation within a falsely valued credit structure is about to break wide open from a falling exchange rate. In the era before us, understanding the failure of our dollar at the end of it's timeline will require little more than knowing the price of bread at a grocery store. High finance is about to be "distilled" down to it's true worth; knowing the physical gold price an honest bullion dealer that can deliver at the same.
Now, let's hike back into town to continue on the USAGOLD forum.
FOA/ Your Trail Guide
FOA (11/6/2000; 11:53:21MD - usagold.com msg#48)
Just a quick note to mention that a major family problem has come up. I will return to regular hiking just as soon as able. As usual, someone will try to save most of the main forum discussion for me while away.
Also: TownCrier, good to see you back.
FOA (12/02/00; 11:40:02MD - usagold.com msg#49)
An analysis for the time ahead.
The world is not going back in time for a repeat of gold's historic money function. The future of gold is before us and that future holds it as an asset of great wealth, not a currency for everyday spending. Indeed, it will be more than money, perhaps a wealth beyond money!
Hello friends and readers:
For many long years I have been following this new evolution in gold. I have also been following how that evolution is changing Western hard money thought. It seems that our new gold market has only now started forcing hard wealth investors to reconsider their long held beliefs about bullion vs. substitute gold. Many of you, have also followed the Thoughts of Another from the beginning and have recently concluded that this evolution was not only a long term process, but as much political as it is financial. With years of those early writings under belt, it's easier to now see where "the events" Another spoke of, always were "fluid in political dynamics" and their impact upon the gold market's structure left little firm ground for "historic investors" to stand.
We are, today, still standing on moving ground as a new monetary dynamic works it's way through world financial opinion. Not yet completely understood nor is it often spoken of in proper context, it's effects are, all the same, very real. Half of that dynamic is the ongoing destruction of the paper currency system our entire house of wealth is measured with, dollars. The other half of this evolution is within the "transition to" and "development of" the next paper measuring system our trading economies will use. Yes, as this process is played out in our time, it seems that the Euro will perhaps be the system we will all one day use. This transition will have a tremendous impact, not only on physical gold value, it will dismantle the way gold is traded for decades to come.
Our part in understanding this--------
For the casual observer and participator in this evolution everything around us, that is financial in nature, will seem to blur as events write new rules into our once static money history. I believe this storm will become worse as many paper assets are buffeted by it's destructive winds. During this time the transition of currencies will place a more proper price on all the paper values we now hold to be so true.
In this light we should know that our real things in life will not change all that much. Your tools, chairs, cloths and cars will remain yours. Houses and land, TVs and boats, all will retain the exact same "value" they always had. What will change is our ability to use our currency and paper assets as a medium to measure the "real value" that's always so inherent in these items, yet so well hidden in our perception of today. Yes, the currency price of things will greatly change, even as their "use value" moves little. Such is the nature of dying paper money systems. Such is the ending of a currency timeline!
We of Western thoughts and values---------
The world of "Western thought", of all things financial, that we have lived in and with for so many years, was slow to evolve into it's current state. Over time we came to accept that; because "paper assets" were so often used to measure and price the "trading value" of real goods, that these paper items must be equal in "use value" to these same real goods. Holding one's wealth in CDs, contracts of delivery, stock ownership and IOUs of most every form; all constitute owning "trading value", not real ownership value. Never were they equal to the real wealth itself, for only during long-term, major inflationary expansions of money substitutes could such a fraud be hidden. Further, it could
be better said that the "trading value" our fiat money system places on these paper assets is more of an illusion immersed in "conceptual economic value", not the "use value" real ownership implies.
Yes, it's true that accounting books say we can convert all these various paper holdings into their "use value" by just selling them and buying real things. But accounting standards fail to evaluate what a "world money medium change" has done in the past and will do in the future to the holders ability to "convert and buy". As in the past, the world will deliver "real things" against "paper trading assets" as long as the medium is accepted at par with "use value".
But once a nation's medium of exchange is placed in transition to Another nations medium, and subject to revaluation, wealth denominated in the failing over expanded paper mediums must be delivered as "more of the same currency" in place of real asset settlement. This is the true face of hyperinflation.
Behind years of massive paper wealth creation, there is never enough domestic production capacity to settle "in kind"! Relief in the courts from the fraud of real goods settlements reverting into paper settlements is rare in hyperinflation; as "fair value" is often seen as also being the same as "a fair value in legal tender". During such periods, legal tender can buy equal "use value" if only the real ever changing world values would just hold still. It never does because the more intense the transition becomes, the more intense the exchange crisis and the more quickly real world values (costs of goods) will move away from the paper holder.
Reading Western Thoughts---------
Truly, there is a big difference today in Western views of holding wealth, from the "gold coins in your pocket era" from the past. The longer it has taken the marketplace to challenge these differences the more human opinion mutated them into one in the same. We see this perception firmly grounded in written opinions today. The security of holding gold substitutes in leu of physical gold has never been stronger. After 30+ years of children growing into adults in a Western paper world, only delivery default and gold industry bankruptcy will change such paper minds.
The new future of gold is directly before us as our changing money dynamic will find paper wealth illusions running in circles. Paper assets will continue to set the price of things even as the currency price of things rises faster than paper wealth can reprice the same. Round and round we will go as our system outruns itself and strains to match the illusion of past paper wealth creations against the real world of taking delivery. Stranded on the money trail of past precedents, millions of investors will lose fortunes by holding what they thought were gold substitute assets.
Nowhere will this process be more vividly seen than in our physical gold markets as they reemerge from a total paper default. During the initial default stage, the entire gold industry as we know it, both paper trading and mining, will utterly fail to perform it's function of tracking the real value of physical gold.. But once the smoke is cleared, physical gold will first soar beyond every other asset medium, both precious and not precious, then it will be at the starting gate with all other real things. Then it will again run the fastest race against the onslaught of hyperinflation.
Nothing will change the trail we are now on------------
Today, at the end of a long history of dollar use, we say that this currency's timeline is ending. We repel from the popular thought, perhaps common thought, that some foreign political order is killing the dollar. It's easy to use war like terms to describe the dollar battle as one side losing the fight against another. I, myself, use it often to make a clear point. But, in truth, it's out of context to present the transition that way. Truly, the dollar is dying from it's own old age and it's debt burden is the final disease.
The arrival of a new system to take it's place will eventually take on all the appearance of a victor plundering the vanquished. Perhaps this is the way it will be played out in our media. Indeed, the stories will be ripe for telling as investors caught holding "dollar system" dependent paper assets will no doubt paint this transition as unlawful. Perhaps even avoidable, if only somehow the right team was at the helm. Yet, reversing this timeline change will be like stopping a surging river at it's historic height of flood. Still, history is perfect in showing that no government, team or individual has ever controlled a transfer of wealth measuring power on a scale such as this. Never has and never will.
So the evolution of hard money opinion will continue and much of that change will be witnessed as the timeline ends and people learn from watching and talking. Much of that evolution will be presented on forums such as this. Some on each side will line up with their wealth bet on their best perceptions of the outcome. Perceptions built on the solid ground of history, but riding our "fluid political events" of today. It will sweep us all down the same river of evolving money history. Down the surge we go, some drowning as they cling to paper based hard wealth illusions, others surviving the trip with the heavy weigh of physical gold for ballast. All in all just continuing the interesting journey we call life.
Thoughts spoken with a background of coming hyperinflation--
It's almost impossible to compare our (FOA & Another) outcome of all this to other opinions because we have built our actions and testimony upon the one-way flow of this timeline transition.
We say "one way and one way only" and waver not! Own physical gold and position one's other
interest with regards to a changing reserve currency dynamic.
Most every commentary written that is somewhat at odds with us, uses a foundation of a continued sound dollar financial structure as it's base. Be it; deflation alone and / or deflation with some return to a gold exchange standard OR a total failure of other world bodies to reach for other acceptable alternative structures. Some say a little inflation will arrive and lift all boats within a "more of the same" dollar world. Indeed, their boats include a paper gold system and it's ongoing use by the gold producing industry. All of these concepts are yesterday's outcomes and will be washed away in this great storm.
We say the timeline is ending and will do so in a great transition of dollar use. None of these other opinion's positions can reconcile the dollars inability to compensate it's debt load at par based on it's exchange for the goods of daily life. Truly the economic structure of the US cannot now, nor ever can in the future pay the costs of supplying real goods as payment for it's debt. We, as a financial nation, have gone that far over the cliff.
Even the most unsophisticated player on the world financial scene will agree that their wealth would be subjugated to a lower par of matching the US's output ability. Today's paper wealth, if held during any pay down period of deflation or the further debt expansion a "little more inflation" would require, will be substantially destroyed. I allowed to happen, the dollar would be dumped in an accelerated fashion as a world trading medium. Indeed, the world today may float in the same economic trading ocean and our goods exchanges may depend on a somewhat level sea for movement; but we no longer all float in the same "medium of exchange" boat.
Yes, it's to everyone's advantage to see the dollar transitioned with the least disruption, but to think that our international governing power structures are all in bed together begs the rhetorical question; governments only represent a following when their private constituency's debts can be settled? I submit that the power structure that offers the best dollar debt transition settlement will receive the most support and use of it's currency bed.
A new reserve currency with gold valued at super high levels will support debt transition into that next currency system far better than a restructure of real US economic production repayment ever will. Such an avenue of escape for investors and world traders completely cuts off any attempt by the US of engineering a deflationary landing. Such a landing can be explained and distilled into many esoteric forms that bear little resemblance to a classic deflation. But all, in the final measure, require deflation and a lesser settlement of debts. It will not happen.
In our time and for the first time in the modern US dollar history, the US will embark into a classic hyperinflation for the sake of retaining it's own lessened dollar for trade use. As destructive as that might be to players in this financial house, it is better than immediate total economic failure. It will evolve in a form much like the course of any other third world country, if it's currency too was suddenly deprived of world reserve status. We will, like people the world over, learn to live with it and live in it. Truly, our dollar and economy will not go away, but it's function, use and value will change dramatically.
FOA/ your Trail Guide
FOA (01/03/01; 08:50:37MD - usagold.com msg#50)
Euros: -- the breaking of dollar derivative gold! ---
Thank you for the comment yesterday on USAGOLD's main forum.
I have to say that everything is working out well as the new "Power Euro" begins it's displacement of our dollar. Right on que, the gold derivatives are taking a beating as that portion of the dollar market is dismantled. Hyperinflation, in most dollar economic zones will eventually gun gold much higher. But, not until gold has out-run everything on the planet so as to get to that inflation price starting gate!
It seems people will learn about "this new gold market" in two fashions; they buy gold and await the dollar / derivative failure or they buy substitute gold (mines and derivatives) and watch this entire dollar gold structure sector get destroyed. Either way understanding will be gained.
I know you have opted to own real gold while watching this all unfold. Truly, physical gold will explode in an unbelievable fashion once the Euro has supplanted derivative gold trading with physical gold trading. A process that allows us little time to buy more gold as derivatives descend. The wash out of trading in paper gold could take their paper values to depths unseen. While a virtual explosion in physical buying, happening at the same time, will make the physical run-up un-buy-able during the first several hundred percent.
If it unfolds more slowly than this and starts from these levels, "good for physical gold advocates". But, as I understand what is happening and the political preasures in force, physical gold is about to become the only portion of the gold sector that will perform,,,,, and perform as no other asset in history ever has!
Oil producers / backing Euro Zone development / backing super high physical gold / will change the trading dynamics and gold perception as never before. Between then and now, those gold substitute players, who are waiting for past historical paper performance to lead the way, will be forced into financial oblivion. All the while betting on a paper horse they thought was a Golden Arabian.
I'll have more as able, on this trail, our trail into the future.
Michael and Randy, today is a very good day! A very good day, indeed! (smile)
FOA (01/05/01; 14:20:40MD - usagold.com msg#51)
Back to Trail Marker #1
Before starting our hike, let's review an old trade.
A while back, I left a marker on the Gold Trail so we could one day return to examine some old footprints:
FOA(5/25/2000;2:54:39MD- usagold.com msg#23)Trail Marker #1
For the record, as I posted several times, I'm not a trader. Nor am I a futures trader, even though I have traded almost everything there is and done so before many of you were born. With this perspective of me, not being a naive newcomer, lets recount the trade.
A one time poster here made a bet to show that paper gold was better than real gold:
BTD (5/23/2000; 16:01:57MT - usagold.com msg#: 31098)
""I just sold my Krugerrands and bought futures contracts""
Because so many of these "bets" are done and never openly followed up on, I thought I would copy his actions in real time with real money. I did, as reading my msg#23 above explains. I dumped a portion of gold in one quick sale. I must have got unlucky, because my offer of 300 Krands hit a down moment and sold at $270oz. that day. Some called me out on this and said I was building this example unfairly. But, you know, in real life, in real trading, often unfair things happen as many of you can understand. The rosey paper bets never do in real time what they do over an after dinner wine! (smile)
I used the sale proceeds and brought appx. $81,000 of t-bills as margin, then brought (went long) three (3) Dec. gold contracts at $283.30. (I mis typed this as 383 in my post, but most of you reading would have known this). I got around 6% on the bills while waiting.
About six months (Fri. Dec. 01) later I traded out (sold) my 3 contracts before being delivered against them (stopped, in broker jargon). They were "sold on close" at $268.60. I saw no point in buying 300 ozs. of warehouse receipts for $283.30oz when an order for 300 Krands could be had for around $271 at the time. Ironic that they were only around a dollar above what I had sold them for????
Anyway, the math (I hope I type this right?) works out roughly this way:
After liquidating my margin account, I had lost:
$14.70 oz on the futures (283.30 - $268.60 = $14.70)X 300oz = (loss of $4410.00).
Then my interest on the 81K amounted to $2,430. +/-
which made my loss appx. ($1,980.00) (less all commissions we can easily round it out to ($2,000)).
SO,,,,,,, I sold 300 krands for $270,,,, after a few months my $81,000 had become $79,000,,,,,
of that I couldn't buy back the 300 rands at the new price of $271.
Wait a min! I would be short some 8 ounces and all for what?//
Boy, the convienence of holding paper gold is sure expensive! I didn't want to roll this over again by buying another out month!
The truth of the deal is that if one must trade, it's often better to just trade physical with a good dealer (I know I saw one somewhere on this page?).
The commissions are in the physical prices already. At least you don't get hit with a paper blitz that amounts to nothing but added loses. All you newcomers remember that a lot of the bark about paper trading is just that ,,,,,, bark.
The guy telling you how to do it couldn't do it himself so he want's you to pay a commission so he can play a game (with your money) that beat him long ago.
Besides, as the evolution in gold moves on, just owning physical will do it all without any trading and the gains in wealth will be staggering.
Here a few quotes from BTD's post that can now be seen in a different light:
----Two weeks ago I sold 300 Krugerrands and transferred the funds into my commodity trading account and bought 3 gold futures contracts. This is my preferred way to hold gold. In my trading account, I invested the margin funds in 6-month treasuries (earning 6.05% interest), and used these treasuries as margin to buy 3 gold contracts (unleveraged).------
---In this way, I earn interest on my money, yet still retain full exposure to movement in the gold price (I have my cake and I'm eating it too).------------
(TrailGuide note: HA! HA!)
-----In fact, in some ways, one can consider this as lower risk than holding physical gold: futures contracts require a low commission (with the right broker) while physical purchases and sales cost a high premium charged by the dealer;---------
----I earn interest on my treasuries, while the holder of physical "loses" the interest he could have earned.------
------The reason I'm telling you all this is to provide an alternative perspective to the bulk of the posters on this forum.--------- Well, I AM a trader, and I don't believe FOA/Trail Guide can foretell the future any more that the $5.00/minute psychics on late night TV. Trail Guide is a very articulate and thoughtful commentator, but his ideas are just theories like everyone else's.----
Well, all I can say to all the
BTDs in the world, is that your big trades lost you (and anyone
else that followed it,,,, me too) a few ounces of gold. I could
have just kept my krands and not been any the worse off. In fact,
I would have had a couple extra thousand of wealth in my pocket.
Like Another, my Thoughts are "free as the wind". In fact, $5 bucks a minute is cheap compared to the loses the BTD paper boys sell you.
OK,,, now it's time to head for the Gold Trail,,,,, the Physical Gold Trail,,,, that is (big smile)!
Either today or tomorrow, with comments on the last several days and the new currency directions of the Gulf States,,,,,,,
FOA (1/6/2001; 9:49:51MD - usagold.com msg#52)
The Perception Of Gold
It's been a while, so let's build a fire and plan the walk.
Long ago I was given a stay at the Paradise Lodge, up on Mt. Ranier. During the summer this volcano, outside Seattle, is a favorite for mountain climbers training for other big European and Asian mountains. Many other day hikers also take the high trail above 10,000, just to say they did it. Some go much higher!
On a clear day you can pick a nice spot close to the Lodge and watch the climbers work their way along the trail. Way ---- waaayyyy --- up there, they look just like ants. Often, clouds bellow in and envelop the troops for a while as they disappear from your lower view. It often becomes scary as we can see when they are disoriented and start off in the wrong direction. Sometimes only a few steps separate them from a chasm of disaster.
This is also the way I feel watching us walk the Gold Trail. Just like from Paradise Lodge, I have a different view than many of you. From where I stand, I understand much of what is ahead. Yes, a lot of us have been up this trail before, but this time, evolution is moving the mountain and bending our common path.
This time my friends, I tell you, the risks are ten times greater and the drop-off much more sudden. Indeed, we are but ants on the financial mound from where others can see us. Like the mountain walkers, thick fog also fills our thin air. So gather close to the fire as we check this worn map and mark the changes I know are ahead. But remember, before knowledge there must be understanding and before understanding there is perception.
Truly, as peoples, we can know nothing if perception cannot separate "real" from "illusion".
Hello PH in LA, I read your #45071. PH, nice construction of the way it works. However, roads do curve. Here are a few of your items so as to extend current perception:
----- However, last I heard, there still existed something called "delivery notice"; the day on which holders of contracts must declare their intention to stand for delivery. ----------
------ I declare my intention to accept delivery. At this juncture, (as the system is presently functioning) I would eventually receive my gold.-------
------Now, for a physical market to open up separately as FOA forecasts, the paper based futures market would have to vaporize instantly. Otherwise, anyone noticing that prices were higher on the physical market, would merely opt to stand for delivery and sell the delivered gold there. Far from causing the futures market to fall farther, it would merely explode higher as investors took delivery at Comex and sold it on the new Euro physical market.-------------
A financial structure, such as our old 20+ year paper gold market, is changed by the force of currency traders reevaluating their use habits. Such structures do not rearrange themselves on their own. People use a large economic backdrop to create their perceptions of the worth of paper contracts. At this point our current gold pricing structure is built on physical values constructed on our currency's viability as it functions in it's current economic structure. The inability of contract performance is not "priced" into this structure, yet. From gold mine sales to bullion bank dealings, paper gold is accepted as physical even if it changes hands a hundred times before it's zeroed out in paper exchange. All done without bullion conversion.
It will be our changing "economic backdrop" and "it's restructure" under an evolving reserve currency that shifts our and our institution's beliefs past the point of "contract viability". Dollar price inflation, while impacting gold prices later, will not be the initial trigger that guns gold into the thousands. Many are waiting for this new dollar drop to kick off the next gold bull market.
It will, but Another dynamic will happen first.
It will be the inability to reconstruct the present volume of paper gold into a new reserve currency, the Euro, that breaks the gold pricing system. It is at that point, where the inability of our dollar biased gold structure to perform a currency reprice or make delivery at all, prior to transition, that will cause us to discount the value of all "future gold" against "instance performance". In other words, "on sight spot purchase and possesion".
What all that means is that physical gold, "on sight", will start trading at a much higher price than any form of contract gold. From Comex to Hong Kong to London, workouts will be required prior to real delivery. Even the normal "contango" of interest, built into these contracts as higher prices for further out months, will not begin to overcome the new "price discount" on paper contracts. That pricing discount will at first be in perception only. But later, as the fear of non-performance builds, bids will reflect this perception. Once the massive OTC gold markets begin to demand various dollar to Euro workouts, prolonging delivery times by offering cash extenders, "perception discounts" will gain legitimacy and become "factual discounts" based on "understanding".
As I said before, in other posts, this whole act will be presented in the media in different lights. The first priority in dollar land, will be to promote the legitimacy of the dollar paper pricing dynamic, no matter if gold is delivered or not. It will be labeled as; "dealers are making huge profits on physical gold by trading it with premiums far above the london markets". Long after most of the paper rules have been modified to shift the majority of contract gold into cash settlement, the paper prices will still be reported as the "real prices". Not the other way around.
PH, when you say: --- anyone noticing that prices were higher on the physical market, would merely opt to stand for delivery and sell the delivered gold there-----:
No, in our real life currency evolution, it's the other way around. When the perception builds that all gold trading and contract structure is shifting to another reserve currency, all of us know the derivatives will not / cannot be converted at par. Mostly because the extended dollar is debted and expanded far beyond it's current usage. The real world dollar assets dwarf andy comparison to a new currency system. The only way to "par" your exposure is by doing the well known impossible, taking delivery. That is a dynamic all of us have been positioning for for years. The only paper owners that are not worried are the ones with an economic good that demands satisfaction, in gold if needed. Oil! The rest of us must bolt towards the closest "par" conversion first. Real gold.
Indeed, "Big gold Traders" don't stand for delivery when there is a possibility (certainty) of cash settlement. Especially in the near future, when the big big bullion banks and exchanges must set in motion a "trade for liquidation only" rule. A rule that basic physics will demand and the courts will back as long as the settlement currency is "legal tender". They will and it is!
To get physical gold in such an enviornment, you must sell for cash and do your buying on the physical markets. But, as we all know, noone will "par" their transfer when even cash settlement is at a 1,000% discount to physical trading. Welcome to the real world of a currency crisis no government can control.
Note: PH, did you think we were playing for peanuts (smile).
My friend, truly, this is but one portion of a huge international dynamic, in place, that will change our perception and understanding of gold. Even change it into knowledge. Truly, gold will once again become "The Wealth Of Ages".
The aftermath of this will leave us in a physical gold trading world for the rest of out time. It will, by default be mostly done in Euros. Mr. G. (one of USAGOLD's good posters) noted that his perception was that we could all just buy Euros. Well, I have, and the Euro will be the next digital transactional currency holding reserve status ,,,,,, and it will eventually be much higher than the dollar ($10.00 = E1.00??).
But most of that exchange rate will be a function of both an inflating reserve Euro against a hyper inflating dollar removed from reserve status. Prices will rise in all currency systems around the world as the Euro eventually expands it's coverage everywhere. There simply is no way to undo 50+ years of dollar inflation without unwinding some of that into our real economic price structure. The price of folly does not go away. This is where gold was planned to return and to be part of a wealth structure without being a currency,
This big difference from our present dollar /non gold recognition reserve, is that nation states and individuals can / will contain their lost wealth in an official free market in gold. Gold production, everywhere will eventually be extremely controlled with citizens reporting unofficial mining in much the same way as people report each other to the IRS. But, make no mistake, miners and citizens will all benifit. All mines, both big and tiny will make huge profits on the limited production allowed because the price will be so high. ($30,000+ in dollars (big smile) But, the road between here and there will more than likely price mine owners close to zero, first.
You see, gold will be a major wealth / saving asset to just about everyone. Not a currency. Make no mistake, $30,000 dollar gold divided by ($10,00 to E1.00) Euros = E10,000 in Euro gold. Gold moving to this level over the next number of years will allow the Euro reserves to cover it's issuance in a duel asset world. We will all save both Euros for interest and spending and gold as permanent wealth.
"Noone", not even our oil producers will control gold wealth, it will be sold and lent as a wealth medium, no different than Real Estate or Factories. Just not lent and spent by bankers as currency. Gold will never again be able to act as a trading currency in our modern digital world. We have tried that on various gold standards and even presently using this failing paper gold market. After the default that's comming, no nation or people will not accept such a deceit again.
Yes, corrupt governments will still have their way with fiat money. But, for our immediate future we will go this rout first. Truly, even the dollar took 50+ years to kill itself. So too will the Euro.
Remember PH, yesterday you could live a good life in Spain (smile) even considering all their money troubles, using their currency and saving dollars. Tomorrow we will also live a good life here in the USA. From Florida to Oregon, we will use a declining dollar and, just like in other nations today, own gold and Euros. Why, I bet life will be better than in our youth. At least for those who know a good gold dealer (big smile).
The perception that you can not "afford" gold at higher prices will give way to the understanding that we "earn" the "wealth of ages" at any value. Trading excess dollars for gold at, say $5,000 will meet no more concern than paying $25,000 for a car. Just wealth in a different form.
Now, see what you have done? I am out of time and must finish these other comments later.
PH, Michael, Randy, Everyone,,,,,,,,
Yes, Jan 04 was a good day!
Fires out, Zip up, while the stars are still bright
(smile to all)
FOA (01/10/01; 17:50:30MD - usagold.com msg#53)
24 hour hike.
OK,,,, everyone is here!
Light packs this trip, because we are moving fast. It's finally time to take the curve and see that "unseen view"!
Let's go,,,,, keep close because I'll be talking as we hike,,,, commenting on a number of views others have mentioned. Then we will stop and have a grand look.
Silver, you ask?
Same old song for a brand new generation, all ready to hear those wore out verses being sung once again. It seems it doesn't make any difference that silver has failed every MODERN human attempt to include it in hard money use and thought. Yes, just like the various failed gold standards, we keep trying to convince people that silver is better than fiat money, even as good as gold. Perhaps, a poor man's gold, no?
Ha! Ha! The last thing a poor man (or woman) needs is silver. Actually, any metal could be a poor man's gold, even iron! One ounce of iron is more affordable than silver and has just as good a chance at outrunning gold,,, percentage wise of course. Isn't that right Randy? I saw your face back there in the group (smile).
The only real argument all the silver pushers have is based on it someday outperforming gold and holding that gain for good,,, again percentage wise. This is the same old worn out logic all the various paper gold substitute players also use. Throw it into the same waste basket with options, futures, leveraged gold contracts, delta hedging both long and short paper positions,,,,, even gold mines, silver mines and the like. All of it is pushed because of the same thought; "why own physical gold when these items will go up faster in the next move"!
Yea,,,, somebody forgot to mention that the next move in gold may be of a nature like "noone" has ever seen before. Oh, you didn't hear that this time the entire paper gold marketplace may crash and burn,,,, taking all those above leverage vehicles down with them? Exposing silver for the play it always truly was,,,,, just another leveraged metal being pushed to poor people standing next to gamblers?? Yea, poor people shouldn't use gold,,,, that's only reserved for rich people hedging their big wealth. Ha! I ever there was a way to increase the gap between have and have nots,,,,, just sell the nots silver while the haves keep gold.
Try this "Thought" on for size:
--- In the beginning, the earth and Western style gold trading was created (smile). All we had were these big 5,000 ounce gold bars moving around. At say, $5 an ounce one of those bars cost $25,000. But one day, as the years went by and use / need pushed it's price ever higher, $100 an ounce became the norm. Oh my, what will we do, who could possibly afford a bar that cost $$1,000,000? I have an idea, said a smart woman (us guys didn't get it), let's melt the bar down into one ounce units and everyone can afford (use) them. Especially now with an ounce being $100. We can call it "poor man's gold money" or "poor man's gold wealth"!
-----Then the price went to $800 an ounce and once again, the poor man couldn't effectively use gold as money. Once again someone had an idea, let's melt the ounces down into 1/10 ounce coins so they will be $80 each. Once again it will be "poor man's money". Boy, we can even build on this logic and add alloys to the gold! Making one gram coins that are the same size and feel as a full ounce. Great day, now gold will always be the "every persons gold";
-----because it can always take the place of paper fiat,,, no matter how much any currency inflation drives up the conversion value of paper money into gold!-----
The point made here is that
gold has no set currency price and never has. In fact, we don't
even need any more gold produced! All the gold in the world could
easily convert all the currency, bank accounts and wealth in existence
into gold value,,,,,,, at some currency price. As pointed out
above, it will always be available for wealth replacement even
if we have to put just one atom of gold in a one ounce coin. Don't
laugh, it may happen (big logical smile)!
All the commodity players, gamblers, mine operators and silver pushers try to sell the public this story; that gold can't rise too high because it's just a industrial use commodity. Therefore, it will never go too high and thus the need for other vehicles to compensate for currency inflation.
Boy, what reasoning about gold's future, resulting in a conclusion that a need exists for leveraged products. But, imagine if gold went up so high no one would buy it and the mines would all go broke???? Ha! This reasoning flies in the face of the fact that gold always eventually rises to match fiat inflation and it doesn't get to such a price because """NOONE""" is buying it!!!!
The proposition is:
-----Hey, nobody is going to buy any jewelry if gold rises too much?---
No wonder so many miners are in such a fix with brain power like that at the helm.
When the next real price inflation begins, silver and every other hard asset will indeed, rise in price. But, for it to become the "poor man's gold" that bridges the wealth gap, silver buyers will have to reconcile a major value rise in gold first. The result of the breakup of paper gold leverage. Only then will gold at the gate of the great inflation race,,, a race that, at best, silver follows gold!
---Gold my friends, not a story of riches to come,,,, real wealth for all modern people today----
The USA may have robbed local and foreign dollar holders of gold in the 30s, but it could not rob the poor of the world of their physical gold ,,,, not then,,,, not tomorrow,, not ever.
As the song goes "ohhh nooooo,,,,, they can't take that away from meee"! (smile)
A drink of water and,,,,,,Onward:
If I understand the reasoning, some people think there is a mass of physical gold out there and it's being used as underground money. This is what explains the low price of gold today, as all that black market gold surfaces?
Well, that may not be the proposition, but if any of you want to know; none of our evil outlaws are so stupid as to use gold for trading when there is literally "TONNES" of cash circulating around the world. Please, give all of us a "logic break" for a minute? Why would I, as a crook, carry even one ounce of gold when three crisp $100 bills can take it's place? Even ten $100 bills are easier than gold priced at, say $1000. And there is no shortage of that cash stuff around! Hell, I bet there really is more tonnage of "Black Market Cash" in the world than all the gold still in the ground. Cash for ounce,,,,, gold still priced in the thousands! Believe it!
OK, now we are coming to the grand curve. But first a few more comments. I'll rest a bit here and present the rest around 8:00 or 9:00 mountain time (if my time conversions are correct)
Thanks for reading
FOA (1/11/2001; 11:35:06MD - usagold.com msg#54)
OK,,, I had my coffee and morning walk in the woods to see the wildlife,,,,, packs on,,, let's go.
It's always great to spend time out here,,,, away from the city,,,, out on the Gold Trail.
One more point on Black Gold as we walk:
All that gold, more than triple what we think is out there, would have been in existence for some time prior to our life spans,,,,,, given the timeline required to produce the stuff. Remember, Black Market production could not have existed prior to, say 1971, as even public mines were not making cash profits. Also, it takes real cash and investment to produce both White Gold as well as Black gold.
Indeed, simple extension of physics concludes that nowhere near that much "EXCESS" gold could have been dug over the last 25 years. It didn't happen, even with slave labor. Because, as in above, even lawbreakers have to sell most of the gold in the open just to cover the illegal "Cash" they invested in digging the ore in the first place. These guys don't do such a "wash" business when their cash works just as well in the first place?? Get my point?
Also, the gold would have been moved into the open as the majority of goods and services brought with illegal money, to create their evil lifestyle, must involve the White Market Economy too. Black market wealth is mostly in cash, it's just too easy to move and spend. So, there is no reason to go through gold first, just to buy in the real marketplace.
With all that gold out there, the Dollar powers would not need to create paper gold debits to placate strong dollar backers. In fact, I suspect they would have created channels to flush all that gold into the market. Illegal or not, this action would have suited their end result.
No, the natural trend of easy money humans, both good and bad would be to spend said gold for other consumable wealth and keep cash in the background. Indeed, this is truly what has been happening as regular investors trade physical for non-physical substitute gold. The small amount of physical supply vs the monstrous paper trading denotes how such existing gold has bridged the industrial use gap. It didn't take a vast new unaccounted supply to make paper seem real, just moving the existing into new hands did the trick. OK, we finished burning that story in the fire.
Let's build another fire.
Mr. Weaver, my god you are all the way out here too?
I did check my trail markers and sure enough, as you said, someone placed a little silver on them,,,, on top of the gold plate that is. It seems that over the last decades of western hard money thought, people have always been trying to ride silver on gold, nothing changes (smile).
That day, when gold first hits $5,000,,,, we will all see something "not as before". You see, price inflation will not be the initial driving factor for gold. No, it will be a realignment of the gold price discovery system. There,,,, in that destruction of paper,,,,, anything with leveraged perception attached will tarnish,,,, silver included (smile). Then,,,, after that value adjustment,,,,, all hard and real assets like gold, silver, real estate, oil, natural gas, soap, etc.,,,,,,,, will be at the starting gate of the great dollar inflation race. The gun will fire and we will all run the trail. In that environment, none of us will "AFFORD" anything of hard value. We will, however trade for what holds value the best,,,, not what gains currency price the fastest or the most-est. Gold, with the greatest history of holding the highest numerical value of world wealth in lieu of assets,,,, will outrun any and all contenders. And do so from a new higher level.
At the flea market, you will, along with others bring boxes of silver and wallets of currency for trade. But, the least discount for real trading value against "real use economic goods" will belong, always, to gold.
Once the trading is done, before walking away from the flea barn, we will square the books by trading any left over silver and currency for ("single atom" if needed) gold coins that have then become the world's secondary saving accounts. Indeed, people will have to accept a discount on silver and or cash to exchange it's excess back to gold. The Free Gold marketplace will do what no government ever could; make gold a savings wealth, not a medium of exchange.
My friend, for a free life, choose gold!
-- Gold, natural wealth, a history of kings, but ess than a holding in these days of our life --
Why even discuss or buy the Euro?
Someone very smart once E-mailed me that "you must somehow impress upon them that the Euro is but a means to an end, not the end in itself". How very true, even though it sometimes appears that I am a big Euro backer. Or even that I am European! HA! HA! I would not wish such a terrible association on my friends and relatives in EuroLand (smile)
Even so, the day after our Fed lowered rates, the ECB did an equal thing of importance; they stayed still! Our Euro friends are in the drivers seat now.
If you have hiked this trail for a while, it's common that the next gold adventure will transpire with a shift in world currency design first, then affected again from world currency values. Yes, gold will react twice, once against the hyper increase in American domestic economic goods pricing,,,, but before that against the demise of dollar use in most international financial structures.
Most hard money players have expected for some time, that gold will rise in dollars as the dollar falls against other currencies. To date; the dollar has begun to exhibit it's initial fall in exchange rates, but gold has not risen. Don't worry, because it won't rise until a further reduction in dollar "use" has become the trend. Presently, under current international currency structure, the dollar could fall considerably and even ignite slight local price inflation,,,, and gold still would not rise. This goes against the grain of your 70s style money history teachings, correct? I knew so.
You see,,, "this market is not as before". I heard that somewhere years ago? But, it's true. Only a reduction in "dollar use", worldwide, will fracture the current paper gold markets into discount against physical. Then, any further fall in our dollar's exchange value will trigger both major price inflation and a continued huge rise in physical gold prices. But why is it this way?
I'm glad you asked, because we are just rounding the curve. Make room for everyone,watch and listen as I describe this magnificent view! Oh my goodness, it is good!
Gold, it has no market price!
Some long time ago a group of us came to an understanding that would eventually shake the financial gold world. It seemed that, then, for over twenty years physical gold could be had without the currency markets placing a correct price on it. This made fertile ground for all the special gold dealings that took place over the next decade or so.
Background and foreground for reference:
was and is always thought of as the father of modern currency inflation. Whenever prices rose, it was because the treasury was following poor old Keys thoughts on official money policy. But, in truth, we only accepted and acted on half his directives, then proceeded to label our 1/2 use of his stuff as "his socialist process". In truth, he promoted that we expand fiat during times of trouble, then contract during times of less trouble. In the end the world slanted toward a non gold fiat money expansion only and reaped the result.
----Us humans acted on the part that suited our drives while placing the failure of our actions on the whole of Lord Keys's thoughts-------
is a big problem today. But, once again we use only half a process and label it as whole. We created a somewhat fractured deregulation of that state's electric system but called it a full deregulation. Just like Keys above, humans used what part of the process we liked and when it failed, called it a "whole failure" of deregulation.
------ this is the natural way we perceive our social and legal interaction, "and we been doing it a longggg time"------
Before the USA took the dollar off of gold, many dollar proponents openly stated that gold would tumble if it had no dollars behind it. Again, the Western mind had conditioned itself to knowing and embracing only half the concept. Again, it seems that we have a way of acknowledging the half of a concept that produces the most liberal response for us while ignoring the half that promotes the most long term good.
We didn't just conveniently forget the truths of what money was, rather we abandoned the knowledge that our dollars were a warehouse receipt for gold. Gold being a real economic good that, for centuries circulated as money, but now ,was suddenly reversed and seen as a receipt for dollars? Something of a major reverse, no?
Indeed, we accepted that dollars were more of a warehouse receipt for "goods exchanged in our economy". Once again we expected everyone to accept "this half" of the process. The half that benefited us the most. Yet, if it failed to work, it was the whole gold process that failed.
----- This, my friends is the legend of gold use in our modern society. Like so much of our flawed thinking, we embrace what is trendy for our personal singular perception while rejecting what is best for the whole.-----
BIS's paper gold:
While extolling all the virtues of gold in an official money system, we ourselves shun the non leverage of physical gold. Indeed, we buy,,, among various gold deeds,,,,, paper gold in the form of BIS shares. Once again we blame the official system because this paper receipt finds it's value defaulted on.
Prior, we proclaim to anyone that will listen that a share receipt of "X" amount of retained gold value is a good deal because we can buy it for 1/2X. X being the the physical gold price. Then, when the humans on the other side of that transaction try to do to us what we were trying to do to them, that is gain the full thrust of gold value we purchased for 1/2 full thrust, and we lose our gain ,,,,,,,, something is wrong with the gold market.
This is but one more fine example of paper gold, like pre 70s dollars, not being able to perform it's perceived function of marching to physical gold's value. Again, as in all above, we as an economic society try to reduce these instruments into non organic concept of receipts that carry no flavor of human function in their distant performance.
----- We brought gold, but if the paper gold market fails to perform to our expectations,,,, then the whole gold market,,,, including physical gold is considered not right for our ownership. We invest in half the process but expect the whole process to work.----------
The Grand view:
Whether we as hard money people knew it or not, our society, governments and yes, even cabals,,,,, all influenced the structure of modern gold markets and did it in a way so that no one could know or trade on the true worth of gold.
Because gold became entwined in modern fiat money function, it suffered all the same effects fiat received from the expansion of banking in our economy. In that arena gold could not help but be paperized and even labeled "the physical gold market".
In truth, anyone understanding this dynamic early on, would see that over time a real currency price for gold would disappear. As we embraced this banking component of the whole gold picture, true to the various examples above, we discarded the need to know what physical gold "alone" would buy. Physical gold was no longer needed as a "receipt for commerce", like our modern dollar. Therefore, it's value in the economy would be degenerated toward our perception of it's commodity value. As long as the banking price, that is the paper price, stayed within this jewelry commodity range, we accepted it as the real price of physical gold.
Indeed, once again, we were destine to experience the gut wrenching results of using half a concept until the whole concept failed. We are at that point today, with gold.
The result of all this was to allow physical gold accumulators (physical gold advocates) to buy gold at an unknown constant discount to it's real wealth value. No matter what the paper trading derivatives would say over the years, any gold delivered through the 90s could be counted on to contain a massive, colossal, value above any past attained paper price.
----Truly, as we talk, there is no known market price for physical gold! A market price for physical gold does not exist!---------
As Another tried to explain and I tried to refine,,,,, gold has historically represented it value as a function of the total world wealth and economic activity. Over time, our known gold supply has grown by leaps and bounds, but our economic structure and goods creation ability has literally exploded a thousand times that gold creation.
In doing so our wealth relationship with gold has seen it's ratio degraded to a tiny fraction of where it would be in a physical only market. Paper gold and the examples above of the human dynamic, have played an incredible roll in creating a mismatch of wealth value unknown in man's time.
I would guess that Michael Kosares, the owner of this gold site, has traded tonnes of gold over his lifetime. Yet, from the time of his start he has never sold gold coins for their physical worth. Truly, he has only sold them for the supply and demand market price of paper gold banking.
Further, as Mr. Paul Eaden's (spelling?) research piece in USAGOLD's opinion site shows, the derivatives market makes the price of gold. Using his view to look over the Gold Trail, we can see that paper dervatives can not reflect the "value" of gold that Another said was comming.
It is from here that we can understand the awesome leverage contained in holding but one ounce of gold. Here, on this ledge overlooking the entire golden valley, we can see this truth! Yet, it is a revelation to gold buyers as much as a curse on gold industry and leveraged paper investors. They spend their days, consuming their wealth, betting on a price that cannot represent gold until it fails. Destroying all they wait for.
From here, we understand why the current prices for gold do not have any bearing on the buying habits of the major players that walk this trail. As Another has said " The price you know, it be your price, not my price".
It is true, we are buying gold, not to trade for a paper value created today. Rather, to hold it beyond the paper destruction that must come tomorrow. Gamblers, traders and gold substitute players will all witness a colossal shift in world wealth that degrades their holdings. Even as their bet on half the process is proven as a folly very typical in human nature. Only unseeable as it exists.
Let's make camp and wake in this new position a while. It will be proven as well worth the hike
Fires lit, the stares are out and stories are near:
The price of gold need not be known
it's value cannot be seen
fire in the fields will make truth be shown
in such light it's worth will be redeemed
so on this ledge we make our stand
and no evil will reach this air
real wealth becomes nectar it's taste as cream
by our lips this reason is fair
Good night all, the best days are ahead!
---END of (Archive
II) June 2000 through January 2001---
(Archive III) The Scenic Overview -- Gold Trail posts from January 2001 - April 2001
(Archive IV) Nearing the Great Divide -- Gold Trail posts from May 2001 - June 2001
(Archive V) The Trail Widens -- Gold Trail posts from July 2001 - September 2001
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