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Gold Special Report: Erste Group Says Foundation Of A Return To Sound Money Has Been Laid, Expects Gold To Hit $2,300

Tyler Durden's picture




 

Erste Group's Ronald Stoeferle has released another must read report on gold, recapping all the recent developments in the space, and more importantly putting the recent price moves in context. While there are numerous key observations which we leave to readers to uncover on their own, arguably the key fact is the following: "The possession of gold is tantamount to pure ownership without liabilities. This also explains why it does not pay any ongoing interest: it does not contain any counterpart risk. Along with the International Exchange and the Chicago Mercantile Exchange, JPMorgan now also accepts gold as collateral. The European Commission for Economic and Monetary Affairs has also decided to accept the gold reserves of its member states as additionally lodged collateral. We also regard the most recent initiatives in Utah and in numerous other States as well as in Malaysia, and the planned remonaterisation of silver in Mexico as a clear sign of the times. The foundation of a return to “sound money” seems to have been laid." And as the currency basket vs gold since 1999 chart below demonstrates, the key feature of fiat money is that is most certainly has liabilities, paradoxically in the form of central bank assets which collateralize it. The more worthless "assets" that are taken up by central banks to match the balance sheet expansion, the more worthless the actual currency in the form of actual circulating paper and reserves. As such it is not so much the actual dilution of fiat paper that devalues it: it is the increasingly less valuable available collateral that supports it. As for the future: one of Erste's scarier hypotheticals is that should the US lose control of its monetary base, leading to a 1000% jump in said monetary metric, the shadow price of gold assuming 40% backing of gold, would be $99,419. Frankly we have yet to hear even some of the most undaunted gold bulls throw this number around.

Probably the most important chart which each and every report on modern monetary analysis should include is the following: the one showing the relative value of gold versus a basket of currencies. While it is true that within the closed system of fiat currencies, where the devaluation of one leads explicitly to the revaluation of another (or others), the ceaseless dilution of all ultimately leads to an absolute loss in credibility and value relative to hard assets. Per Erste:

The following chart also shows the clearly intact downward trend of most currencies vis-à-vis gold. The equally weighted currency basket consists of US dollar, euro, Swiss franc, yuan, Indian rupee, British pound, and Australian dollar. The downward trend is intact and is at the moment only marginally above the trend line. We have little reason to believe that the downward trend should subside in the foreseeable future, which is why we stick to our positive assessment of the future gold price development.

And some more observations on the central bank-FX-gold interplay:

We underestimated the supply of “digital printing ink” by the Fed and the relentless deficit spending. In June 2010 we had not expected the US central bank to attach as little importance to monetary stability as it ended up doing. We believe that the “Bernanke put” is the main reason for the rising prices in the commodity segment. The Fed has repeatedly referred to the positive effects of higher share prices. Gold also benefits from the decrease in risk aversion, as the following chart clearly illustrates. The higher correlation between the equity market and many commodities can hardly be explained by traditional supply/demand structures; in fact, the monetary policy seems to have turned into the most important determinant of the financial markets.

Other key highlights in the report focus on why excessive structural debt suggest much more future appreciation in the price of gold, why negative real eates have been a boon to gold price increase, the dead end of debt saturation which means that soon baseless currency destruction will be the only outcome of further monetary and fiscal easing, on gold and silver as official means of payment versus Gresham's law, on why money is now gold according to the regression theorem, and much more.

Probably one of the most curious observations in the report goes to the gold stock-to-flow ratio.

The most important feature of gold is definitely its extremely high stock-to-flow ratio. The aggregate volume of all the gold ever produced comes to about 170,000 tonnes. This is the stock. Annual production was 2,586 tonnes in 2010 according to the World Gold Council. That is the flow. Dividing the former by the latter, we receive the stock-to-flow ratio of 65 years.

Stock-to-flow as most important reason for the monetary relevance of gold and silver Paradoxically, gold is not scarce – the opposite is the case: it is one of the most widely dispersed goods in the world. Given that its industrial use is limited, the majority of all gold ever produced is still available. The recycling of existing gold accounts for a much larger share of supply than for other commodities. This is also why any significant production expansions or disruptions can be absorbed more easily. We therefore believe that gold is not that precious because it is extremely scarce, but because the opposite is true: gold is considered that precious because the annual production is so low relative to the stock. This feature has been acquired in the course of centuries and cannot be undone anymore.

Global gold reserves grow by an annual 1.5% and thus at a much slower rate than all the other money supply aggregates around the globe. The growth rate is vaguely in line with population growth. The trust in the current and future purchase power of money or any means of payment not only depends on how much is available now, but also on how the quantity will change over time. If mining production were to increase by 50% (which is highly unlikely), this would only translate into an annual increase of 3%. This fact creates a sense of security as far as the availability is concerned and prevents natural inflation. If production were down for a year, this would also have little effect on the overall situation. On the other hand, if the copper production were to be disrupted for an extended period of time, the stocks would be exhausted after about 30 days. For example, if a huge new mine were to come online and supply doubled, this would come with huge repercussions for the copper price, but with hardly any for gold. This stability and safety is a crucial prerequisite for the creation of trust. And it is what differentiates gold and silver as monetary metals clearly from commodities and the other precious metals. Commodities are consumed, whereas gold is hoarded. This also explains why traditional supply/demand models are only of limited use for the gold market.

Due to the high stock-to-flow ratio gold tends to be traded in contango. This means that the futures price is above the spot price. The last backwardation in gold dates back to2008, while silver was traded in backwardation in January 2011. In the case of backwardation, the market sends a signal as a result of which demand all of a sudden increases, and it makes no sense anymore from an economic point of view to bet on a later delivery date, given that the costs of storage, financing, and insurance would be higher. Backwardation is a clear sign of supply shortages.

What are the implications - enter the Shadow Gold Price:

In 2008 we set our long-term price target of USD 2,300 for the first time. We continue to expect the gold price to rise at least to the inflation-adjusted all-time-high of USD 2,300/ounce (dating from 1980) at the end of the bull market. Some historical comparisons suggest even higher spheres. When we compare the pinnacle of the previous gold bull market with the closing prices of 2010, we find that gold had increased only marginally in relation to the S&P index, the money supply, debt, or even the US dollar reserves.

QB Asset Management calculates the so-called "Shadow Gold Price” (“SGP”). It divides the US Monetary Base by U.S. official gold holdings, the same formula actually used during the Bretton Woods regime to fix the exchange value of the dollar at USD 35.00/ounce. It would be the theoretical price of gold today were the Fed to depreciate the USD to a level that would cover systemic bank liabilities (transform a debt-based into a asset backed currency). The current Shadow Gold Price would be just under USD 10,000. This figure illustrates the magnitude of monetary inflation already embedded into the system, sitting latent and threatening to increase the general price level.

The following table shows the theoretical Shadow Gold Price in different base-money supply scenarios. If the money supply were to fall by 25%, then the SGP would still be USD 7,456, if the monetary base were to rise by another 50%, then it would be at USD 16,634.

This calculation is by no means a pure mind game but rather the way the exchange rate between paper and money was calculated during the Bretton Woods Agreement. After the Federal Reserve Act of 1914 coverage was set to at least 40%. Therefore we have also based our calculations on a 40% coverage ratio.

At the moment less than 2.6% of US government debt is covered by gold, which is clearly below the long-term median of 5%. Should the gold price therefore double, the coverage would only rise to the long-term median. But this would also require stable government debt, which is less than likely. The highs of the ratio dating from the 1980s would only be reached at a price of about USD 15,000.

If one were to fully cover the current debt with gold, the price would have to increase to USD 57,000/ounce. That said, a full coverage is extremely unlikely; at its highs the ratio was at 55% in 1915 and at slightly less than 25% in 1980.

All this and much more in the full report below.

Special Report GOLD - In GOLD We TRUST - July 2011

 

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Mon, 07/04/2011 - 17:12 | 1425098 DoChenRollingBearing
DoChenRollingBearing's picture

Yes.  

The central banks have a huge amount of gold.  And at a low cost basis...

The world has already chosen its principal wealth preservation holding: Gold

Mon, 07/04/2011 - 10:03 | 1424064 sunnydays
sunnydays's picture

This information has been around for a long time in that gold is sound compared to fiat currencies.  I have read this since 2008.  The information is real, but you have govts. that will defend a low price no matter what.  So yes it is truth, but it does not matter, we won't get there.  I have expected a huge rise in gold every month, doesn't happen. 

 

Wish it would, but after expecting it to go sky high for so long, I have now come to the realization all the charts and information about what it should be at and any day now it will increase tremendously, is just words and not going to be a reality.  The governments will never let it be a reality. 

 

I have been expecting a comex default since 2009 too - so many said "any month now".  That has not happened and I have given up the hope that it will happen any month now.  Once it was uncovered China is part of the Comex manipulation besides JP Morgan, I knew  it will not stop. 

 

I wish it would, but I don't hold my breath and don't get excited about this type information anymore.

Mon, 07/04/2011 - 10:34 | 1424127 Janice
Janice's picture

I feel your pain.  However, with CD interest rates at 1.5%, stock market manipulated and moving sideways unless you have inside information, bonds are scary for a small return, everyone lies on their financials, land is taxed to death and until death ~ where else can you go?

This is what I keep in the fore-front of my mind.  If the Federal Reserve gets their publicized target rate of inflation, which is 2%, by the end of my lifetime, I will be broke.  My income cannot keep up, nor will the return on my investments.  Plus, I control when my gold is taxed ~ if ever.  I can give it away and no one's the wiser.  Do you think I'm going to report it?  Gold is the ultimate "anti-government" play because it throws a wench in the fractional reserve concept.  The money that I have invested in gold just sits around.  The money that I have invested in cash at the bank gets divided up and loaned out.

I feel you on that ...I have been waiting.  But as far as I'm concerned, if the black swan event happens like the Comex blows up, that's just icing on the cake. 

Patience, grasshopper.  Count those blessing that you know to be true.

 

Mon, 07/04/2011 - 11:46 | 1424346 DoChenRollingBearing
DoChenRollingBearing's picture

Nice response Janice.  I would think that almost all holders of physical gold DO already have patience.

It may be next week, next year or the next decade.  But, holders of the real thing will have their wealth protected.  Depending on how things work out, some may make a fortune just letting their gold quietly sit there, doing nothing.

Mon, 07/04/2011 - 10:05 | 1424071 apberusdisvet
apberusdisvet's picture

Silver is the near term play due to the shortages that will even become apparent to the captured MSM within only 5 years.  At normal levels of industrial and investment demand, silver might disappear from the planet within 20 years.  World resources: 500,000 Mt. Annual demand:  25,000 Mt. Do the math.

Mon, 07/04/2011 - 10:10 | 1424077 bigwavedave
bigwavedave's picture

So funny. The most important thing to have when it all goes under are good freinds and reliable neighbours. Gold and Silver is for people who dont have these two basic things in life..... Like Jews....

Mon, 07/04/2011 - 10:16 | 1424093 KlausK
KlausK's picture

You sure have a point there. But how "reliable" will your friends and neighbours be, if they can't even feed their own families? Bullion and buddies, bitches.

Mon, 07/04/2011 - 10:36 | 1424143 Janice
Janice's picture

Buddies, bitches or bitch's buddies.  Good either way.  

Mon, 07/04/2011 - 10:24 | 1424113 doggings
doggings's picture

good friends and neighbours will have gold silver food n supplies of their own too.

Mon, 07/04/2011 - 10:46 | 1424161 LongBalls
LongBalls's picture

Unless you have everything known to man for any situation that will arise you are doomed without gold or silver. You will need a medium for exchange or be forced to dig through what you have and hope person in trade wants it.

Or you can just try and preserve your wealth as fiat currencies of the globe race to the bottom.

Mon, 07/04/2011 - 15:07 | 1424879 HellFish
HellFish's picture

@bigwave what an asshole thing to say.

Mon, 07/04/2011 - 15:25 | 1424911 Iam_Silverman
Iam_Silverman's picture

"wo basic things in life..... Like Jews...."

Spoken like a true insider.  Spent much time at the local JCC?  No?  Some day you may understand that it is not a race, but a religion that encompasses all members as a "family".

Mon, 07/04/2011 - 19:20 | 1425285 Advoc8tr
Advoc8tr's picture

Did you just contradict yourself?

Judaism is the religion - Jewish

Israeli or Palestinian is the race or more precicesly their Nationality

 

Tue, 07/05/2011 - 17:16 | 1427804 Iam_Silverman
Iam_Silverman's picture

"Did you just contradict yourself?"

I don't think so...

"Judaism is the religion - Jewish"

That's what I said - it is a religion, not a race.  I think that the poster I was replying to might have mistaken the Isrealies as the subject of his venom, instead of just lumping all of us of one religious persuasion into the same steaming pile.

Mon, 07/04/2011 - 10:29 | 1424122 gwar5
gwar5's picture

The US counts gold still in the ground as part of it's gold reserves. 

It seems certain miners would be nationalized when they are pulling $10,000 ounces of gold out of the ground. The TSA will go nuts trying to hunt people with gold if things don't change.

Bravehearts: Happy 4th to all!

Mon, 07/04/2011 - 11:43 | 1424338 Boxed Merlot
Boxed Merlot's picture

Who is this "US" you speak of?  How is this information arrived at?

 

As long as the US continues to issue deeded mineral rights for sale and ownership, this asset will remain in the private sector.  When this changes, expect the hue and cry from every entity deriving income / security from mineral resources, including the oil and gas industry to join the fray.  (I hope)

 

By the way, these instruments are not susceptible to taxation, just another plus in being able to sit on them for extended periods of time.

Mon, 07/04/2011 - 13:20 | 1424593 FeralSerf
FeralSerf's picture

The government could just do as they did in the 1930s -- increase and control the gold price and make private ownership of it illegal.

Mon, 07/04/2011 - 11:50 | 1424361 DoChenRollingBearing
DoChenRollingBearing's picture

@ gwar5,

"The TSA will go nuts trying to hunt people with gold if things don't change."

That is one reason why those who can get gold outside the USA may want to do so ASAP.

I discuss this issue and other gold issues at my blog.  Send me a gmail at my name, assure me that you will behave and I'll email the link, as it is in my own name I do not post it here.  160 + ZH-ers can't be wrong...

Mon, 07/04/2011 - 10:55 | 1424190 Version 7
Version 7's picture

Gold and silver will ultimately end up with those still having something else to offer - rather than gold and silver.

Mon, 07/04/2011 - 11:08 | 1424192 sampo
sampo's picture

If one were to fully cover the current debt with gold, the price would have to increase to USD 57,000/ounce. That said, a full coverage is extremely unlikely; at its highs the ratio was at 55% in 1915 and at slightly less than 25% in 1980.

And where's the price when the PM backed derivatives start collapsing.

http://news.goldseek.com/GoldSeek/1309532700.php

Mon, 07/04/2011 - 11:36 | 1424320 Marco
Marco's picture

That depends on how much money the counterparties have. A short squeeze can only boost the prices when there is something to squeeze. If the counterparties are effectively broke (after having spend all the money on drugs, whores, executive bonuses and pre-emptive bribes of the SEC and government) then the price won't change much, you will just have a lot of people who thought they owned gold becoming very angry as contracts go undelivered.

Mon, 07/04/2011 - 15:35 | 1424932 Iam_Silverman
Iam_Silverman's picture

"you will just have a lot of people who thought they owned gold becoming very angry as contracts go undelivered"

and are settled in USD (with maybe some premium?), as is allowed.

Of course the TBTF banks and CDS issuers that backstopped the transactions will have buckets of freshly printed FRNs to give to the unhappy bagholders, thanks to the USFRB.

Mon, 07/04/2011 - 11:05 | 1424229 Chingalay
Chingalay's picture

"Cannibalism and slavery are probably the oldest manifestations of human predation and submission. Although both are now discouraged, their continued existence in psychological forms demonstrates that civilization has achieved great success in moving from the concrete and physical to the abstract and psychological, while persisting in the same purposes." Leston Havens, Harvard University Psychiatrist 

Thank you ZH for helping me awake from the slumber. I am starting to deal with the programming. A piece at a time. I am amazed, often embarrassed at the layers and depth of naivety and ignorance from which my life was based. I am taking advantage of the opportunity to change.

Mon, 07/04/2011 - 11:54 | 1424366 DoChenRollingBearing
DoChenRollingBearing's picture

It took a good friend of mine (argumentative!) and Zero Hedge (esp. Cognitive Dissonance) to awaken me as well.

As you essentially say above, it is hard.  And taking a long time.

Mon, 07/04/2011 - 11:23 | 1424276 oldmanagain
oldmanagain's picture

"We believe that the “Bernanke put” is the main reason for the rising prices in the commodity segment."

This and endorsement of very old school Austrian subjectivism, plus many charts that compare disparate unlinked entities,make the conclusions derived best be put in the hope chest.

The first simple question becomes do people change their minds when the B-Put is gone. That would fit their theory.  There many other comparisons that are strictly subjective, ie magic glimses of hope.

Just follow the price charts, that is the best indicator of subjective forces.  Plus, the chart of prices has very strong correlation to price, like a thermometer does to temp.  One doesn't have do mental gymnastics, ad nauseum.

Mon, 07/04/2011 - 11:21 | 1424277 Dr. Gonzo
Dr. Gonzo's picture

That's all well and good but you forgot the #1 reason worthless paper can be the world's money is because they literally point a gun at people's heads to force the issue. Otherwise NOBODY would take it. PERIOD! It takes a lot of air craft carriers, bombing missions, and coups to install puppet regimes to continue to get oil priced in US dollars. This is just one example of how they are constantly trying to tweak things to keep the irredeemable  paper money scheme going. Yes the arrangement is beneficial to a small percentage but that's changing fast. Soon it will only benefit the people printing the currency. This is the most obvious self evident reality but surprisingly most people aren't even aware of what money is or how it works. There is a reason for this. The people in charge not only don't want it explained. (It's a pretty simple concept) They don't even want people to know it's fascinating history and in fact they do their best to confuse people and discourage them from trying to understand our system. I don't blame them because it's an utter Ponzi Scheme and con artists never break character until they complete their fraud and are safely long gone. Here's what I know to be true: 1.Paper money always goes to zero 2.Paper can never replace paper when a currency dies. 3.The people in charge are corrupt liars and have lost all credibility. 4.Our Fed dollar system is not sustainable. 5. They will kill and bomb, lie and murder to protect their power. (They always have) I'm not exactly sure how they are going to play this out but I do believe that when it is over they will have most of the wealth and I also believe that when they are ready to throw the dollar under the bus they won't even blink. To me it's not a matter of if they are trying to save the dollar. It's a matter of when they are ready to kill it and go onto their next scam. When they are all in proper position and ready to let it die they do the deed and never look back. Honestly it's a dam miracle it's lasted this long with no gold backing. It don't think it would take many "events" to make it happen. 

Mon, 07/04/2011 - 11:57 | 1424375 oldmanagain
oldmanagain's picture

Gold backing is no solution.  Not enough gold.  Therefore, it has to be a ratio. Ratio can be changed. Over and over

IF REGULATED, open markets tend to work better.  The idea of super banks printing their own derivatives(money) is not workable.  Now, this system, via the Supreme Court, can buy Congress.

It is an irony of history that the Austrians were blind to the threat.  I think it became a hope for lower taxes that paid for themselves.  Hidden in the proposition were changes in regs that blew up the system.  The Savings and Loan scandals were  the warning, and under Bush II reinstituted, aided by some prior Clinton caving when he got caught with his pants down.

We face a crisis.  One side says to tax those who can afford it is horrific. End the world as we know it. Actually, it has already occurred. The horse is now out of the barn.

We talk of Greece, but our state governments have the same problem.  And we  are throwing them under the bus. Longer term, a huge mistake, maybe the last we make.

We are importing the educated~~~     

Mon, 07/04/2011 - 13:30 | 1424621 FeralSerf
FeralSerf's picture

"Here's what I know to be true: . . . 2.Paper can never replace paper when a currency dies."

Paper currency usually replaces other paper currency when the former becomes worthless.  Wiemar Germany is an example.  The gold usually disappears during the hyperinflation.

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."  -- Mark Twain

Mon, 07/04/2011 - 18:48 | 1425240 Dr. Gonzo
Dr. Gonzo's picture

Wrong. After WWI the Goldmark was replaced with the Papiemark which promptly failed and was subsequently replaced with other failed forms of irredeemable paper money all with mark at the end of the name and all complete failures and all competing against a thriving black market where anything but irredeemable paper was welcome. After WWII Germany begged us to let them circulate gold coin as their currency and we flat out refused since we wanted the US Dollar to be the defacto world gold standard ala Benton Woods. After WWII we controlled almost 80% of the gold supply and almost everyone else was bankrupt or in ruins.  We didn't want countries we had conquered having gold and prospering while it was still illegal for our proles to own it. How would that look? We needed complete hegemony via a quasi false gold standard that we would eventually default on after we lost Vietnam. He who has the gold makes the rules and that has always been true. 

Mon, 07/04/2011 - 11:23 | 1424286 proLiberty
proLiberty's picture

"The foundation of a return to “sound money” seems to have been laid." And as the currency basket vs gold since 1999 chart below demonstrates, the key feature of fiat money is that is most certainly has liabilities, paradoxically in the form of central bank assets which collateralize it."

 

This is not a "feature" but a fatal bug.  You cannot attempt to convert debt into an asset without dire unintended consequences.

 

Mon, 07/04/2011 - 13:36 | 1424640 Real Estate Geek
Real Estate Geek's picture

Although I agree with the point of the article, I'm questioning how he uses that basket of currencies to support his contention  The currencies in that basket are all equally weighted.  Does that make sense to the statisticians here?

(I would have thought that a more relevant metric would be to set the proportions by the amount in circulation, or perhaps the GDB of the issuing country, etc.)

TIA

Mon, 07/04/2011 - 12:09 | 1424401 thunderchief
thunderchief's picture


Silver. It's the better metal.

Mon, 07/04/2011 - 14:18 | 1424772 XenoFrog
XenoFrog's picture

I think the best solution would be a gold/silver standard. In combination, they each make up for the weaknesses of the other.

Mon, 07/04/2011 - 12:14 | 1424414 DoctorGold
DoctorGold's picture

So, silver at $150? Will look back twenty years and think, that's cheap.

Mon, 07/04/2011 - 12:59 | 1424543 laosuwan
laosuwan's picture

The possession of gold is tantamount to pure ownership without liabilities

 

I read this phrase eight times; can anyone explain what it means?

Mon, 07/04/2011 - 14:04 | 1424740 XenoFrog
XenoFrog's picture

I'm 95% sure it means that you really do own something when it can't be taxed or otherwise confiscated. (ex: property tax)

Mon, 07/04/2011 - 15:44 | 1424956 Iam_Silverman
Iam_Silverman's picture

"you really do own something when it can't be taxed or otherwise confiscated. (ex: property tax)"

My only contention to this is that when you exchange your gold for more readily acceptable fungible funds (FRNs) you are charged a tax if its relative value has increased since the basis of its purchase (capital gains).  Years ago, I remember living in a state that had an "Intangibles Tax" on anything held as an investment.  Would PM's be considered an investment?

In the 1930's, the private ownership of gold in quantities other than used for jewelry (investment or monetary use) was prohibited, and the government "fairly" compensated the owners as it was voluntarily given up.

BTW, the word fairly should appear in bold-sarcasm font.

If it chooses, the government can make owning PM's and uncomfortable enterprise.

Mon, 07/04/2011 - 16:12 | 1425003 XenoFrog
XenoFrog's picture

Less than 25% of the available gold in the 1930s was turned into the Federal Government. The rest was held by citizens. No American was convicted of hoarding their gold, and none were forced to turn it in. The whole, "omg the guvment is going to take my monies" thing is largely hyperbole generated by the Beck/Goldline scam to get people to buy overpriced collector coins.

Mon, 07/04/2011 - 18:05 | 1425177 lolmao500
lolmao500's picture

The Soviet Union did it. The US government is nearly there.

Mon, 07/04/2011 - 23:07 | 1425686 lawrence1
lawrence1's picture

And individuals may make attempts at confiscation an equally uncomfortable enterprise.

Tue, 07/05/2011 - 17:21 | 1427814 Iam_Silverman
Iam_Silverman's picture

"And individuals may make attempts"

True.  Tis' the reason for first acquiring food, water, and the means to protect them - before attempting to preserve monetary wealth.

I know, I know... the naysayers will laugh and call some of us closet commandoes and such.  I find that most of those trolls never served their country either, and are mostly unfamiliar with firearms themselves.  If it makes them more comfortable to think that way - more power to them.

An Army Ranger once told me this - remember, hunting is just sniping a target that the Geneva Convention allows you to gut and eat.

Mon, 07/04/2011 - 22:06 | 1425505 laosuwan
laosuwan's picture

Possession: the state of being possessed; ownership.

 

Tantamount: equivalent, as in value, force, effect, or signification

 

Pure: free from anything of a different, inferior, or contaminating kind

 

Ownership: legal right of possession; proprietorship.

 

Liabilities: moneys owed; debts or pecuniary obligations

 

Possession   =   uncontaminated possession without debt

 

Uncontaminated and without debt cancel, so you are left with

 

Possession = Possession

 

It’s a circular argument with no meaning, so I guess you have to interpret it to inply that holding the gold in your hand in the form of bullion means there is no claim against the asset, which of course is not necessarily true, as the government or anyone through a court can put a claim against your assets.

Mon, 07/04/2011 - 23:05 | 1425683 lawrence1
lawrence1's picture

You ignore the obvious, that physical possession of PMs has no current, valid counterparty claim. Of course, the government can change laws or a regular thief can try to steal.  Of course there is no perfect solution to this but physical property is easier to tax or confiscate, so your argument is vapid and just ignores the obvious.

Tue, 07/05/2011 - 02:58 | 1425949 laosuwan
laosuwan's picture

To say that there is no counterparty risk when you already have possession of a good you have purchased seems kind of obvious, doesn’t it? No disagreement with you there. If you have the gold and Goldman goes bust you still have your gold. Unless of course you don’t pay for it, it is stolen, or there is a claim against any or all of your assets from a third party such as divorce settlement, judgment of a court, or whatever.

 

My point was that from the way the article was written I could not tell what the point was.

 

By the way, the word Vapid means lacking in liveliness. I thought my comment was very lively!

Mon, 07/04/2011 - 18:21 | 1425201 Dr. Gonzo
Dr. Gonzo's picture

Technically a business transaction is never complete until final payment in gold is made. I'm betting this still holds true because when we have our currency crisis I believe we will find all the gold in Fort Knox plundered to settle arrangements made to keep our fiat privileges for so long. Also to answer your question you can hide gold easily. You can't hide land or possessions from confiscation or taxation. This is just one of the properties of the perfect money.

Mon, 07/04/2011 - 13:00 | 1424547 Tedster
Tedster's picture

People aren't going to "wake up" because of your arguments no matter how many facts and logical examples you cite, because they have too much invested in their worldview and it would mean admitting they were very, very wrong about a great many things, and for an extended period of time. Yes, they will become bitter.

When the balloon goes up, in fact, you may well be in great danger because as in all totalitarian societies informants are cultivated and folks like you will be slated for, uh, special attention. American popular culture has been pretty much developing a kind of authoritarian, collective control freak mentality for decades so it's way, way past time to convince anyone of the impending calamity or trying to pin blame. Keep your yap shut, and have a plan, and never, despite how good it might seem, say "I told you so", despite the fact you resisted the neo-totalitarians every step of the way. Remember when things get wierd, the wierd turn pro - people you thought could be trusted will rat you out to gain favor &c.

Mon, 07/04/2011 - 14:21 | 1424741 delacroix
delacroix's picture

I sometimes, get a funny feeling when I trade a stack of green paper strips, for a stack of silver ounces, like I'm getting away with something. I always thank him, and he doesn't charge me any sales tax. the girl working saturday, put the bucket of generic  1 oz bullion on the counter, as soon as I walked in the door.   I got a betty boop, a howdy doody, and a marilyn monroe coin, for $1.50 over spot. I paid $2 over spot, for a tube of new  liberty mint indian/buffalo's.    No i'm not telling anyone, where I live, I know this can't last. happy 4th , the real fireworks haven't even started.

Mon, 07/04/2011 - 15:47 | 1424961 Iam_Silverman
Iam_Silverman's picture

"I sometimes, get a funny feeling when I trade a stack of green paper strips, for a stack of silver ounces, like I'm getting away with something."

Why do you feel this way?  All you are doing is "getting some change".  You give them paper - they give you coins.  Why would that even be taxable?

Mon, 07/04/2011 - 14:31 | 1424795 FunkyOldGeezer
FunkyOldGeezer's picture

Pluck a figure out of thin air, any number and that's what the price of Gold could be at some unspecified time in the future . If and when the Dollar goes walkabout, the future Gold price could go to infinity, so $99,000 odd is perfectly feasible, BUT exactly when and what a loaf of bread will cost at that time, no-one knows.

Mon, 07/04/2011 - 15:25 | 1424912 DosZap
DosZap's picture

Funky,

Exactly.

And what a few others here have stated.

Whatever the Inflated value in USD's is, makes no difference in relation to Gold, or Pm's. The higher the price in fiat FRN's PM's go, the less the value of the USD will be.

Or anything else tangible for that matter.

If it's Wiemar, or Zimbabwe, the ultimate value is How much of whatever you need is it going to bring to you per ounce.

Mon, 07/04/2011 - 17:56 | 1425159 clymer
clymer's picture

Ever notice that on a national holiday where most have the day off from work this place is unusually troll-free?

Mon, 07/04/2011 - 18:01 | 1425164 clymer
clymer's picture

I mean - really, hardly even any junks above. A bunch of thoughtful banter though. Thanks

 

(this place is a far cry from marketwatch - they probably could have kept their readership if they didn't start with the thought-police censorship)

Tue, 07/05/2011 - 01:45 | 1425225 cranky-old-geezer
cranky-old-geezer's picture

And as the currency basket vs gold since 1999 chart below demonstrates, the key feature of fiat money is that is most certainly has liabilities, paradoxically in the form of central bank assets which collateralize it. The more worthless "assets" that are taken up by central banks to match the balance sheet expansion, the more worthless the actual currency in the form of actual circulating paper and reserves.

Drawing relationships between currency in circulation and value of central bank assets is meaningless.   Why?  Because the currency is not redeemable in any of those central bank assets.

That's the point.  The currency isn't  redeemable in anything, therefore it has no intrinsic value.

It's not "collateralized" either.  Because one has no recourse to any collateral.  If the dollar was to collapse tomorrow, could anyone go to the Fed and collect X amount of collateral?  No, of course not.

"Full faith and credit of the US government" is meaningful to creditors, but it's meaningless regarding the currency.  It has nothing to do with the currency.

The value of the dollar is determined by people's confidence in it.   That's it.  Just people's confidence.

People's confidence in the dollar was gained decades ago when the dollar was redeemable in gold (or silver). 

I didn't say backed by gold (or silver).  "Backed by (whatever)" is a myth.  It's meaningless. 

I said redeemable.  "Redeemable" is the only thing that counts.

Over time redeemability was removed.   But people's confidence continued right on more or less.  In '71 when Nixon removed the last bit of redeemability from the dollar, we didn't see the dollar collapse.  There was hardly any noticeable change at all.

Why?  Because people were brainwashed into the dollar's value by then.  Those fancy green piecies of paper suddenly had no value at all in terms of redeemability, but people continue believing they have value.

Fiat currencies are a confidence game.  They operate solely via confidence, having no intrinsic value, not redeemable for anything.

FRNs are not debt.   FRNs are pieces of paper.  That's it.  Just pieces of paper.

A debt can be created if they're loaned out. But they themselves are not debt.  They're just pieces of paper. 

What if they're printed and simply given away?  No debt is created.

What if they're printed and used to buy something (like worthless Wall Street securities)?   No debt is created.

I can't imagine where people get this "debt currency" nonsense.  They're not debt.  They're just pieces of paper.  

Tue, 07/05/2011 - 09:52 | 1426302 Boxed Merlot
Boxed Merlot's picture

I can't imagine where people get this "debt currency" nonsense.  They're not debt.  They're just pieces of paper...

 

I suppose the debt currency nomicker comes from their use as the item of exchange for interest bearing treasury bills.  In theory, the ciphers are placed in JPM's food stamp allocation program in relation to the number of zeroes on the end of Mr. Geitners latest auction results.  So actually, they don't even have value as pieces of paper. 

 

The ether they represent keeps the patient comatose and feeling no pain.

 

Until it doesn't.

Mon, 07/04/2011 - 22:08 | 1425465 PulauHantu29
PulauHantu29's picture

The Fed will force all commodity exchanges to raise the margin requirments 100% the demand for gold will be so strong.

$2,300 is an understatement. $5,000 is more like it as the dollar goes Ker-Plunk!

Now the Big Boys will accept Gold as collateral for Billions in loans...this will trickle down as  more and more merchants, lawyers, doctors...pretty much anyone with a thinking brain, will accept Gold not only as collateral, but as payment for their debts.

$99,149......sounds exciting and not unrealistic!

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