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Physical Scramble Accelerates: Central GoldTrust Announces Imminent Purchase Of 20 Tonnes Of Gold
The scramble for physical is accelerating. Following in the footsteps of PHYS and GLD, yet another gold trust announces a follow-on offering, in which the entire $800 million outstanding under the firm's previously filed Shelf will be used up. "Substantially all of the net proceeds of the offering will be used for
gold bullion purchases, in keeping with the asset allocation provisions
outlined in Central GoldTrust's Declaration of Trust and the related
policies established by its Board of Trustees." $800 million is equivalent to 640k ounces at today's fixing, or about 20 tonnes. With this 20 tonnes of gold being sucked out of the market, and GLD's
gold NAV hittinging another all time high of 1,306 tonnes, (not so) slowly
all the gold is being sucked out of the system. So yes, even as stocks were off to the headless chicken races, gold once again staged a rally, which would make absolutely no sense if the market was at least a little bit less broken. The good thing is that the Fed's chairman, as confirmed by his last week's testimony, is just as clueless in justifying this "inexplicable" move in the precious metal. Perhaps if he were to look at the Frankenstein monster of a balance sheet he has created, all his questions would be answered.
From the announcement:
Central GoldTrust (TSX:GTU.U - News)(TSX:GTU.UN - News)(AMEX:GTU - News) of Ancaster, Ontario announced today that it plans to offer Units of Central GoldTrust to the public in Canada (except Quebec) and in the United States under its existing U.S.$800,000,000 base shelf prospectus dated June 8, 2009 and filed with the securities commissions in each of the provinces and territories of Canada, except Quebec, and under the multijurisdictional disclosure system in the United States pursuant to a proposed underwritten offering by CIBC. Central GoldTrust will only proceed with the offering if it is non-dilutive to the net asset value of the Units owned by the existing Unitholders of Central GoldTrust.
The entire original amount of U.S.$800,000,000 provided for in the base shelf prospectus is available for this offering.
Substantially all of the net proceeds of the offering will be used for gold bullion purchases, in keeping with the asset allocation provisions outlined in Central GoldTrust's Declaration of Trust and the related policies established by its Board of Trustees. Any additional capital raised by the offering is expected to assist in reducing the annual expense ratio in favour of all Unitholders of Central GoldTrust.
h/t Neal
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There is a 4 to 6 month lag between offering and actual delivery date. In the meantime shareholders holding paper.
Even then, when you really need it, you think they are going to give it to you? They will give you inflated cash and keep the gold.
GTU is a Canadian fund which does not offer physical for its shares. As far as I can determine, it's respectable, and I had a couple thousand shares until last year's end.
The reason I sold them is just this "add on" offering that they do "from time to time"........they did this a couple months after I bought the shares, and one morning I opened the ticker and they were down $5 a share.
They do it with like a few hours warning........I just got the notice in my email this afternoon. Watch for their share price to drop 10% or so at the open. I might scoop a few more shares then, but must be careful to sell them after 10% rise, as that's when they usually do this.
EDIT: Jesse discusses this today:
http://jessescrossroadscafe.blogspot.com/
Pretty soon, these funds combined will be the largest holder of gold in the world. Will that finally cause an audit? No.
Then, the funds will hold more than all of the known reserves. Will that cause an audit? No.
Then, they will hold more gold than all gold ever been mined. Will that cause an audit? No.
What a fucking joke.
Here is How THEY AUDIT GOLD in Zimbabwe:
(Serious video of what happens when paper becomes worthless)
www.youtube.com/watch?v=s3LdNxV0yPM
What is probability that one of these funds/trusts isn't so trustworthy and doesn't keep up its physical purchases to match contributions. Another major screw job possible.
thats why you read the prospectus and why you dont buy GLD. If they dont have regular audits, or they allow investments in 'gold-like' items (paper gold) then its not where you want to be. PHYS is just fine. However, the best place is in your own hand so no one can play with it except you.
“PHYS is just fine.”
Not really. I posted about my experience with Sprott Physical Gold Trust (PHYS) and how they diluted investors as a result of their surprise Follow-On Offering on 5/25/2010:
http://www.zerohedge.com/article/sprott-prices-phys-follow-1125-no-lack-demand#comment-375956
http://www.zerohedge.com/article/sprott-prices-phys-follow-1125-no-lack-demand#comment-374424
I wrote Sprott’s Investor Relations twice on the matter and have received no response. So then I wrote Eric Sprott --- the founder/principal of Sprott Investments --- on 6/9/2010. He has not responded either.
Lesson Learned: Looks can be deceiving. Just because someone comes across as an honest guy on the tube doesn’t mean a damn thing. My experience with PHYS strongly suggests Caveat Emptor. An outfit that won't respond to its investors says a lot about the firm.
Jesse shared his thoughts on the matter: http://jessescrossroadscafe.blogspot.com/2010/06/net-asset-value-of-certain-precious_09.html
True, I phoned and reached an investor relationship agency. No direct issue with that, but it does unnerve me a bit and I told them as much. I too did not get a response to my query.
My concern was that there appeared to be no firm representation when the REPO 105 auditors and the Canadian mint representatives conduct a physical audit.
Just ticking and bobing
Jesse commented on the GTU Follow-On Offering. People are becoming educated. They see there is a difference between the Canadian precious metal trusts.
One fund (GTU) does the honorable thing and executes a offering that does not hurt investors. The other fund, Sprott Physical Gold Trust (PHYS), demonstrated it has no qualms about screwing its investors with its recent no-notice dilutive Follow-On Offering that hurt all its investors (but really was a sweet deal for the underwriters). It should come as no surprise Sprott offers no response, no explanations, and no rationale for taking advantage of people that trusted him with their money --- even after investors contacted him about the matter.
When you look beyond the media hype on PHYS and really compare funds, GTU proves it has its investor's best interest at heart whereas PHYS uses a creative hook (redeem for physical) to lure in investors and then kicks them in the nads with their Follow-On Offerings.
Central Gold Trust Opens Its Entire $800 Million Base Shelf Prospectus in a Non-Dilutive Offering
Stefan Spicer is opening up his Central Gold Trust (GTU) for expansion in a very classy way, making it non-dilutive of NAV so as to not penalize the existing unit holders.
Well done indeed. An excellent response to surging market demand. The Spicers once again show the way to respond to their customers. It will be interesting to see how quickly this offering sells. Since the Central Gold Trust holds its bullion in a strict allocation it represents a potentially large physical offtake in a tight bullion market as the move to hard assets continues.
And as an aside, it is so nice to be able to trade Canadian securities on the American exchanges. Anyone who trades the Canadian junior miners on the 'pink sheets' is all too familiar with the spread games and bid dodging the market makers are playing these days.
http://jessescrossroadscafe.blogspot.com/2010/06/central-gold-trust-to-open-its-entire.html
GTU is run by the same group that runs CEF. Their bullion holdings are segregated and independently audited.
guess these guys don't understand that you can't eat gold.
or that we all "need" paper.
Sorry, no. I guess you dont understand that gold is money, currency, and as such it has the ability to function in the same way as your beloved FRN. However, gold is not a note, unlike a FRN, and a note is debt. Someone has an obligation to pay the note as it is debt.
We dont need paper unless you like getting your wealth/money stolen from you.
GB, I think he was being sarcastic....
Could be right (sarcasm). I'm a little touchy today - heh heh. Then bump it up to the guy above who he was being sarcastic to.
+$1235........hehe!
Also, consider this -
A "note" is a promise to pay and one of the requirements of a note is for it to bare the signature of the issuing party.
As the "note" is issued by the Federal Reserve Board, why is it that it bares the signature of the US Treasurer and Secretary of the Treasury and not the head of the Fed.
It's all smoke and mirrors.
I'll take gold please.
Why? Because it is a liability of the US Government:
http://www.ustreas.gov/education/fact-sheets/currency/distribution.shtml
These Federal Reserve notes are claims on the assets of the issuing Federal Reserve bank and liabilities of the United States Government.
how much gold for that egg?
better yet, how much gold will that egg buy?
Anyone who doesn't think you can buy food with gold should stop by my house with a double eagle. I'll give you all the food in my kitchen for it.
Here we go again....
Gold is Money. I suspect that yet to be born grandkids will laugh as I tell them stories of a time when people used to walk around with little paper chits in their pockets and exchange them for things. I'm mean really, the whole thought is preposterous!
Gold certainly is money. How a gold-backed currency works.
For those who say there is not enough, etc. this should shut them up.
http://thedailybell.com/1126/What-You-Always-Wanted-to-Know-About-Gold.html
A small taste:
...and...
...and the real kicker:
I really like that. It clarifies the situation perfectly.
Anatal Fekete is da man.
More at: http://www.goldstandardinstitute.com/
Cheers Rocky
We need all the help we can get. That website again, www.goldstandardinstitute.com! Maybe not as exciting as ZeroHedge but lots of good info on gold and the Real Bills Doctrine.
I think Benron's confusion regarding the rising gold price comes from the fact that, as he keeps shorting more and more of it, the price keeps going up. He is so confused!
Hansel. He's so hot right now.
Is that look "Magnum" or "Blue Steel"?
Goooooood news!
Yes, today I had a look at the absurd melt up in the S&P and said to mysel "Gold has been struck down, damn it!", but then I saw gold was way up. Considering it's been moving inversely to the stock market, I take it as a sign of strenght for gold, and a bearish divergence for stocks,too.
It's my understanding that 20 tons is only about 1% of tonnage traded daily (2,000 to 2,200 tons/daily) albeit these trades are on paper...so 1% is only 1% right?
Possible, but this gold is being removed from the market and put in a vault. The ripple effects of draining small amounts of liquidity from a highly leveraged market could, if this trend continues, have a noticable impact on prices. I guess....
Its still 20 tons that will have to be delivered. Enough 20 ton purchases with delivery is going to start causing problems for Comex and LMBA at some point.
according to christian 100 times the physical so %2 would be double the daily amount. thats if it is only 100 times.
20 tonnes is nothing. Maybe the manipulators will mothball a few mines this time around instead of reducing production down to nill.
Create a mining crisis or something. Then you'll get your fireworks.
Mr. Central Gold Trust... meet Mr. El-Erian.
Hey Cow,
are you a TLH breeder too?
"Told you so" time Bitches!
http://www.gordongekkosblog.com/2010/03/its-going-to-implode-buy-physical-gold.html
"Told you so" time Bitches!
........................................
Thanks Gordon:
Hope they listened or their going to be "Broke Bitches"!
Gordon, do these numbers look right to you?
With 8,133 tons of gold in its reserves, the United States rates as the world’s largest sovereign holder. In fact, as of March 2010, gold made up 70% of official U.S. reserves. Now, let’s break it down.
I don't know if I should laugh, or cry. That is simple, obvious, and stunning.
You have to multiply by 100%. So, 410 billion into 14 trillion is .029, times 100%, = 2.9%.
With these calculations, gold will have to increase in value by a factor of 34.15 in order for the feds to cover their liabilities (14Trillion/410Billion).
Well, the prickly problem of semantics appears: Gold will have to increase in "price". It's value doesn't change much. Silver will play into the equations so some of the heat will be taken off gold.
8133 tons * 2000 Lbs/ton = 16,266,000 Lbs
* 31 toz/Lb = 504,246,000 toz's
= $504B
to cover the $14T debt, the price of gold would have to be $27,764
That is doable. Ask someone still living in the 1960s if they'd pay $6 for a cup of coffee. I recall as a kid in the 60s my family stopped at a Howard Johnsons Restaurant to have breakfast. When my Dad saw that a cup of coffee was 50 cents we left!
As I stated, other metals will take some of the burden off gold. That is why lesser metals were used in currency: silver, copper, nickel.
ANYONE here at ZH who has not read Gordon_Gekko's article (and I imagine almost all have) needs to do so immediately.
So many things going horribly wrong. It makes my head hurt just thinking about all of these disasters / Black Swans out there.
There is not much time. Posters who have said to buy guns & ammo, medical kits, food, etc. are all correct as well.
I have bought physical gold for several years as insurance in case the SHTF. I follow the gold discussions fairly closely and have learned a lot from many of you here at ZH. I do have a question. Isn't more and more people buying gold indicative of a bubble forming? I mean, even meat-head Cramer said to buy gold a couple of weeks ago. Someone care to enlighten me? Thanks in advance!
Ask any of your friends what the spot price of gold is today and you will have answered your own query.
+ $1225
You've been on a roll since joining us AVP.
U buy and own gold to prevent the friendly people at the fed from robbing u.
Isn't more and more people buying gold indicative of a bubble forming?
Yes and no. When everyone and their brother is already in gold and you cant find anyone who isnt in gold - thats a top/bubble.
Currently, I've seen'heard the number of 0.2% of investment money is currently in gold. At the end of the 70's it was 5.0%+
There is a long way to go before it gets too crowded and its time to jump ship. Another way to look at the value of gold is in relation to how much other stuff you can buy with it. Dow/gold ratio is a decent way of looking at the relative value of paper assets versus gold. It was around 40:1 dow/gold in 2000 and its about 8:1 now. Its been 1:1 three times in the past 150 years. 70's stagflation, Depression, and a prior depression in the later 1800's.
If you value gold by the old standard of the circulating dollars being backed one to one then you're talking another couple thousand points. If you go to M2 its a lot more. If you go to M3 it could be 50,000+. And thats if they stop printing money RIGHT NOW! More printing and those numbers get higher and higher.
Thats assuming the dollar suvives (I doubt that).
this time around maybe not a good thing to jump ship,
gold will serve a person well for all kinds of business opportunities
Not saying to jump ship then, just trying to show how you can look at gold relative to other items. People frequently freak out when they see the top line dollar value of gold over 1,200. But in context as a ratio of other goods/items it can be seen that it is far from being overvalued and in a bubble relative to the Dow, GDP, median incomes, etc... in comparison to other times when the price of gold has peaked historically.
Personally, I'm holding all mine for a good long time. I believe that either the dollar goes away as pure fiat and we go to gold backing or we get the SDR thing first for a little bit and then that fails too and then we go to gold backing. Although the percentage is yet to be determined.
Tree's are a renewable resource and Gold is not
How's that ?
nope .. so few are buying , the bubble is in the debt.. in the paper that is what a person should be worried about
in the future gold will back the fiat with some ratio,
so if you had a $100 bill and took it to the bank,, and exchanged it they would hand you 2 $50 bills .
in the future exchange the $100 bill and they hand you gold equivalents/
we have a long time to go before that happens . governments will be buyers at 1650 and higher , as will large international banks
There will come a time when everyone owns gold and wants more. This condition is not the height of a gold bubble, but rather the return to a gold standard.
You will not be disappointed if you hold your gold and continue accumulation. The brief pause that started in 1980 and lasted for 20 years can not be repeated due to massive government debt. Buy gold and hold it. Never sell it. Just wait until the time comes, and you will instead be able to spend it.
Thanks, Mose. I'm not considering selling, I have turned for the time being to acquiringfreeze dried foods, seeds, a water purifier, coffee, salt, grain alcohol and sugar. I have guns and ammo...
acquiringfreeze dried foods, seeds, a water purifier, coffee, salt, grain alcohol and sugar. I have guns and ammo...
Never a bad move.
Don't forget medical supplies. A good trauma-level medical kit only costs about 1/5th ounce of gold (~US$250) - and is well worth it.
Sweet, thanks! I have seen several folks on here talk about buying cigarettes for barter. Don't they get stale fairly quickly?
Buy polacrilex gum. Cheaper at Sam's. Never gets stale. Besides, a gum substitute is better than a smoke sometimes -- like when taking aim. It gets in your eyes and gives away your position.
Today, the word "bubble" has a retarding influence on the financial community. Do not use it as it will actually make you dumber.
My five cents
Speaking of nickels...
Some time ago they were giving away silver -- back in 1964 when they coined the last of the 90% silver coins. One could pick them up in pocket change and have an instant profit. Today we think there is no similar situation. Wrong! Look at the intrinsic values of the cents and nickels in circulation. Go to coinflation.com and take a peek at the current melt values of the 95% copper cent and the nickel. Pre-1982 cents are 95% copper. Put them away today and you'll be glad you did. Too bulky? That was a common argument back in 1964 as well. Melt ban on the cent and nickel? Sure is. Who cares. You are not going to melt them, they would need an assay if you did. Keep them in coin form for easy handling and quick transactions.
1946-2010 Nickel $0.05 $0.0499180 99.83%1909-1982 Cent (95% copper)
$0.01 $0.0198426 198.42%or put another way, do you Really think NOW is a good time to sell your gold? Lol for what?
The paper gold market is effectively creating a gold price ceiling which has a tendency to create commodity shortages. How long can the system contain the paper gold market? I'm still waiting to be convinced that it's even possible for the paper market to decouple from the physical market considering how the producers rely on the gold they're selling now that won't be produced until years later.
the price for future delivery's will be much higher.
paper buys paper shorts paper, when the delivery time comes, better have some gold in hand .
gold is not a commodity it is the real money
don't wait to long to be convinced , or read some expert people about gold. Sinclair's been trying to get the message out for 9 years
so you are either slow ,, or not a person who understands austrian economic.. the reason for gold is laid out for all to see
I am intrigued, dumpster, Rocky, Gordon, MsCreant, Turd (still hard for my mind to grasp the concept of communicating with a turd :)) and friends, about prices paid for Big Gold. Earlier today on a similar thread, some poster offered to buy very large amounts of gold (1 metric ton and more).
And I have also read that central banks are buying large amounts and paying well over the "kitco" (etc.) price.
...
Actually, Tylers and Marlas, I think that issue of whether BIG buyers of real physical gold is worth investigating, just sayin'...
We don't even know who's bidding in the bond sales (households?).
How could we ever know who is actually getting any big gold holdings? They may be transferring title or paper receipts, but where is the real shiny stuff?
Sorry for the late response here.
In the last 9 years, what has happened to the supply of gold on the market? I could guess without looking that it has increased substantially because gold cannot be destroyed. Furthermore, the paper supply has a 100:1 ratio. So basically if 100 tons are mined, then 10,000 tons finds its way on the paper market. How can you possibly out-pace that? Not only are you fighting the production of physical, but also JPM's commodities trading desk. And let's not forget about the undeniable Afghanistan mineral deposits in the order of $1 trillion (sorry just had to throw that in there :p).
My point is, you have a shortage of physical gold because the paper market is creating a price cap. But the producers themselves are selling on the paper market to cover operation expenses for the next n-months. The only way I see a decoupling happening is if the gold producers open their shop doors and start selling gold coinage directly and abandon the paper market or regulation is implemented to limit leverage on physical. I don't see either of those happening any time soon.
However, I will say there are very compelling reasons to like gold because (insert fiat money argument here) and free market reasons. I just don't see how the beast can be tied. You're fighting against politics and the last time that happened, the government just confiscated gold. For these reasons, I like oil more than gold.
usually when these closed end funds make a big purchase there NAV takes a hit, as the
premium usually goes down significantly.
Right now nav on GTU is around 11%
Any idea on when the hit will occur?
oops, i'm going to answer my own question.
GTU down 3.55% in after-hours trading.
rats!
4.5% to 5.5% premium over NAV should be where it stabilizes.
But, you need to adjust the NAV as the spot price changes, do not rely on the "official" mark, based on the LBMA 2nd daily fix.
When are they going to set up a gold pipeline made out of those bank vaccuum tubes.
so what is that supposed to mean .. gold pipe line made out of vacuum tubes...
Sorry if you don't know what a vacuum tube system in a bank drive through is. Go to a bank drive through and learn something.
Could you imagine the vacuum that must be drawn to perform all of your banking transactions in gold? Or even silver, come to think of it!
The other literal translation for a "vacuum tube" (or "valve", in British) would be an electronic device later replaced by transistors. Those of us old enough to have owned an original fender tube amp can testify for the warmth and richness they provide over the cold, sterile, peaky sound of the newer all transistor amps.
please mr vacuum head, still a dumb example
and even a shitty reply ..of course any one with a brain knows what a drive through system looks like
to think that gold lined tubes are going to be in vogue and something the average person would be looking for , shows Etti Betti brain
vacuum or not, in german airports are machine dispensers of gold. Its the people that suck mostly. Machines just stand there, sorta like the government during emergencies.
Gold in your hand is the only gold that exists. If the crap hits the fan and I was "storing" your gold you'd be out of luck. If you have an emotional attachment to gold (and that's fine) then at least do yourself the biggest favor in your life and take physical possession.
Nobody can take better care of your assets than you.
charmin in my hand, how did you know?
As for the bubbleliciousness of gold I personally know no one else that's buying gold right now. Now it could be that no one is saying anything about it but generally these types of things come up at cocktail parties and dinners, and I'm hearing none of it, so to say that it's a bubble is a bit early. When I hear it frequently at parties and know a few people buying then I'll start giving the bubble more merit, but until that time....don't think so.
You are drinking with idiots! All they have is Perrier and mustard in the fridge, a BMW in the garage and hedges in the garden.
Got to admit it Tyler, you almost make this fun to watch
I know! It's more fun than stompin' baby chicks barefoot.
Go climb a tree you chicken stomper! No more dog food for you.
BTW do raccoons have a fetish for shiny objects?
Yep, just like any sane thing these days. I especially like shiny silver and gold coins.
Some people have a way with words. Tyler trounces even most of them.
The postbacks are chock full of ripping-wit as well.
Thank God I don't have to turn on the TV to stay tuned.
On a macro level, it is impossible to go back to the gold standard based on the level of economic activity in the world. The rich countries will make sure of that fact by debasing gold. We are headed back to the barter system. Affordable clean water, food, fuel/energy, arable land, minerals and fertile women will be worth far more than gold will ever be. If you have those, you can raise an army, build some weapons systems and steal what you need. It has worked for the USA for 100 years. It will work again in the near term.
On the micro level, holding some percentage of your wealth in gold is a good hedge. Betting the ranch on gold has burned many of the true believers time and time again.
"and fertile women"
and attractive fertile women.
There, I fixed it for you!
If it was perfectly possible for the world economy to be on a gold standard in 1900 ---- as it demonstrably was, as we were ---- and if on the other hand it is, as you say, "impossible" today, then you should easily be able to tell us in exactly which intervening year did the worldwide gold standard become impossible? Since you make such sweeping and authoritative statements, I await with great anticipation your detailed revelation of the financial and mathematical basis for your assertions.
On a macro level, it is impossible to go back to the gold standard based on the level of economic activity in the world.
This is just wrong wrong wrong. Theres always enough gold. one kilogram could do it. Although not at $1,200/oz. How hard is it to grasp the idea that gold can be whatever price is needed to cover all the paper? It just needs to be a lot higher. And the reason it needs to be so high is because of the ridiculous amount of paper thats been printed. To argue that because the price of gold that would be needed for it to work is really high has nothing to do with the workability of it. It just means that all that paper you have that you think has value does not.
So your plan is that you make gold the most expensive "thing" in the known universe? Worth more than say the design of a fusion reactor run on cheap fuel? Even if your idea was even feasible and it is not, it would result in anarchy as countries and individuals hunt down the owners of gold.
The barter system will be the net result of failed fiat currencies. Individual countries would negotiate the value of each others "thing". this has worked throughout history and could work even in our massive world economy. The US would not be able to skim the "cream" off the top of every deal done in dollars as it is now. You will see a massive drop in the standard of living in the US for most.
One doesn't "make gold" anything. It's a natural occurrence in the evolution of stable economic systems. The value/price is not set, it is developed. Gold owners do not have to be hunted down for their treasures. It's not so barbaric as you think.
The value of gold has been surpressed for over 100 years. The powers that be can do wonders when they have the incentive. China, Brazil, Venezuela and dozens of other countries with tangible things are using the barter system more and more. Gold is just another "thing" they will barter for. China could keep every oz of gold they mine and refine but they don't.
I think we are splitting hairs. The "price" indeed has been manipulated, whereas its "value" has remained rather stable. (No, I didn't say "absolutely, forever, without exception" stable.) If I have my facts right, China IS retaining its mined gold. Someone else may have a link to that fact. Since we are more or less on the same side of the battle I propose a truce.
Most of China's gold output stays in the country where it's transformed into jewelry and manufactured items, though the country's export role is increasing. Last year fabrication rose 18%, helped by demand from China's increasingly wealthy middle- and upper class.
price/value of gold not changing. price/value of paper money is going down. price/value of gold doesnt' change like paper money does. I would actually offer that with increasing productivity, fixed money supply you should see deflation which reflects the improving living condition of society.
oh no wait thats not what my text book told me.
and no gold is not just another 'thing'. it is perfect money. and an economic system post stone age needs money. decent money though, not elitist controlled crap.
So your plan is that you make gold the most expensive "thing" in the known universe?
Actually, no. Its not that gold is expensive, its that the paper isn't as valuable as you think it is. Gold is generally as rare as its been since 1980 in terms of ounces above ground that exist per person in the world. Golds value should be unchanged in terms of other goods it can buy over time hence the adage of an ounce of gold buying a nice suit, or toga. Its paper that has exploded and for some reason (manipulation of the gold market) still has a large amount of purchasing power out of relation to how many more dollars have been created versus either the amount of gold or the productive capacity of the economy.
And gold is what has arisen from barter economies time after time after time. The reason is that its hard for the pig farmer to find every person that needs a hog in the perfect apportionment to what he needs from them. Hence, an intermediary barter item of value - or gold/silver/etc. Truthfully, it could be anything that everyone in that society agrees upon, but that choice throughout history, over, and over, and over, is gold.
'So your plan is that you make gold the most expensive "thing" in the known universe? '
There is no plan. Only natural laws.
'The barter system will be the net result of failed fiat currencies. '
No gold will be used before barter. Why do you go straight from failed fiat currency to barter?
What about tally sticks? They worked well for 800 years right?
+100
I wouldn't say gold "rallied" today. I think a little jump was allowed when DOW+200 was grabbing the attention.
the ETF's hold no gold/silver
what is the real price of gold..$6500.00 an oz
if you went into the open market for 100 tons of gold
well tell me what is the price
gold is money....
I read the book, The Reagan Diaries, which follows Ronald Reagan's 8 year term through
his daily dairy entries, and lo and behold, early on at page 25 comes this obvious bombshell
from economist Arthur Laffer: "Art Laffer dropped a grenade on his colleagues when he said we weren't
going to solve the fiscal program until we returned to convertibility of money for gold. I would have
liked to heard the discussion among the economists after I left" - Ronald Reagan
read the book.....I have it in my hand....it is true
The gold standard would never work. The economy is way too large. In the case of the US, it will be forced to export more high tech items like 747s and weapon systems. Unfortunately the countries who can afford such luxuries include ones we don't like. Fighting wars to stave off having to export is a losing cause in the age of nuclear weapons and cheap and effective soldier fired anti-armor/anti-air weapons. If the Chinese and Russians chose to, we would be driven out of Afghanistan and Iraq in less than a year.
The gold standard would never work. The economy is way too large.
Just so you know, thats the common refrain of Keynesian's and defenders of the state. And since you state so flatly that it cant work due to the size of the economy, please explain/tell what the maximum size is that can be handled within a gold standard. And how, exactly, did you get there? The reason we left the final convertibility with Nixon wasnt because the size of the economy was too big, it was because they wanted to run persistent deficits and not pay the bill, and yet still have the dollar maintain its purchasing power.
It was the debt. Its always the debt. And yet, every time, people want to claim that this time, its different, or that a gold standard just cant work anymore because of technology advancement, size of the economy etc... Until humanity as a species eliminates greed, dishonesty, etc... then we absolutely need a gold standard. And that aint gonna be any time soon.
A gold standard can use all the same equipment, ATM's, digital transfers and payments, etc... of the current financial system. It's just that anyone at any time can ask and receive a specific amount of gold for every dollar they turn in.
I have a 'gold bitches!' coffee mug. its the balls. makes coffee taste like profits.
We will not be returning to a gold standard, so this is all hot air.
The force of nature which is the market will do what it needs to do in order to regain equilibrium.
The market will move to an evolved form of the gold standard, as the provider of this equilibrium.
One in which the 'price' of gold floats freely against all currencies.
Physical gold will be the asset with which one 'saves' their wealth, the excess (if they generate one) over and above their day to day expenses. Expenses which will continue to be paid in fiat, which works particularly well as a transaction medium, but, due to the political 'necessity' of inflation, performs exceedingly poorly as a store of wealth.
Sovereign nations, just like sovereign persons, will accrue gold when running a surplus, and part with gold when running a deficit.
The accrual of gold will strengthen the local fiat currency, making gold 'cheaper' in that currency.
Physical gold will become the clearing mechanism in international trade, the payment in full that todays debt based system cannot achieve, hence it's Ponzi-like need for continual expansion.
Gold will rise to whatever 'price' the market requires to achieve this function. It will seem high, by today's standards perhaps, but as Rocky has rightly pointed out, it is the issue of 'price' that has everyone confused.
It is not an issue of 'price', but rather of value. When one understands the subtle difference, all becomes clear.
This is why gold is a 'barbarous relic'. This is why the west has been (successfully) conditioned that gold is a 'commodity' for the last hundred odd years. So we could not conceive as to how we were being robbed through inflation, and not conceive of how gold could restore justice and freedom.
Any serious study of the nature of money reveals that the nature of the money dictates the nature of the society.
And by money, I mean WEALTH RESERVE. What is commonly regarded as 'money' by most today, would be better termed 'currency'. Today's general perception of money is not as a wealth reserve, hence the fashion of 'investing', seeking a 'return'.
Debt is not an honest form of money, and will soon eliminate itself, ironically.
When those who control the money do not do so with honest intent, then money does indeed become the root of all evil. In the most literal way.
Our move to an honest monetary system will have positive benefits in all spheres, not just the markets.
And it will be our responsibility to be, as Marc Faber says, our own central bank.
There are many, many very smart people in the ZH community, but without correct perspective, all 'thought' is wasted.
I respectfully disagree. Although lovely post. Gold is necessary because it is honest. And we as people fail at this and i can't see us changing. So while i applaud your call for an honest money system, unless you count tally sticks paper has failed pretty conclusively. Gold is required because it imposes honesty.
I may be reading you wrong but you say we won't be returning to a gold standard then you describe how a gold standard originated? ie gold on deposit at bank and you trade slips of paper that can claim that gold. Safer than taking it with you. Originated ancient greece i think? How is this not a gold standard? it is EXACTLY pieces of paper backed by gold.
Furthermore, without governmnet interference in the money supply, mandating inflation as a method to rob society, i think you might find your store of value argument poor. But thats by the by as the decline in purchasing power of a dollar since 1913 demolishes your argument already.
I apologise if i have misunderstood your post. But it seems quite contradictory to me.
Our compulsion to act dishonestly stems from the money we currently use. While we will always be potentially dishonest, it is not a given that we will act so. We are also potentially honest. Given the choice, far and away the majority of us would conduct ourselves honestly. That is my experience of others, anyway. People acting otherwise generally feel themselves to be in a position where they must be dishonest. Very few would choose it otherwise.
The gold standard was gold at a fixed rate to the currency, not floating, where the market finds its own level. This is where all gold reserves must be marked to market, as with the Euro. BIG difference. The market decides, no one else. (I did refer to it as an evolved form of the gold standard.)
Governments may inflate their own currencies if and when they feel necessary, but this will have an effect on the valuation the market gives that currency with regards to its buying power of gold. Capital will simply move to other currencies that are 'stronger in gold' (more buying power).
Thus, a completely free and self regulating system.
I completely understand. The perspective with which to understand this simple concept has been conditioned out of our society, and for good reason. Government has had a lot of debt for sale.
It is all about perspective. We assume we are viewing things from the correct perspective. But why then do things make no sense?
And yet a wider perspective reveals so much more...
The perspective that we have been conditioned to see with is the one that ensures the continuation of the current regime, unless said regime breaks due to an inherent flaw. Which it is doing. Which is why we don't see the way out.
It (the way out) is there, but we have been blinded to it.
But that does not mean the superorganism which is the market, which is the total sum of all of us, won't do it anyway, as an act of survival.
Insert Witty Title
I have edited my first post and started a new thread with it here: Freegold
If you would like to move your comment there, I would move my response there too, and we can develop some ideas, perhaps?
I appreciate your comments.
Hi nuinut,
While that is a very good suggestion, you have revealed me as an extremely lazy, selfish soul who is hoping to increase his own knowledge rather than actively contribute to any discussion. Also I'm not that quick so i need time to think about your post and by then this will be washed away on the tides of the internet.
Good reply though. I think that Thomas Woods posited (is that the posh word for suggested?) that the great depression was caused by the Fed not letting market forces devalue the pound ie less gold per pound and instead devalued the dollar to prevent exactly the market based movement you are suggesting in the late 1920's?
EDIT - i know you said the difference was fixed and floating and yes i agree with your points there. Just pointing out that the powers that be may not be so keen to allow a floating rate, unless the honest people you speak of turn up in spades!
If I have this right, and I like the idea of study the boom not the bust, then as long as there is any human control over the money supply, market forces will be retarded as much as possible by little men with little equations.
All the best and thanks for giving me lots to think about, and apologies for not transferring my comment to your thread.#
EDIT 2.0 - I now think I understand your floating rate idea, and yes i like it. Don't think it will happen or if it does it will be eroded over the next 100 years. But i get what you're saying - combine the convenience of paper with gold as the honesty check and a floating paper conversion rate to gold auto balancer. Cool.
IWT
I don't know that reference, but Webster Tarpley claimed roughly the same: http://tarpley.net/online-books/against-oligarchy/british-financial-warf...
Regardless, I get the impression that it is accepted historical fact that both the Bank of England and the Federal Reserve played quite the shenanigans with the gold-convertible pound sterling.
Two slight misconceptions which, while seemingly minor, do change the rhetoric:
...and
1. The love of money was the root of evil.
2. The gold standard was the barbarous relic.
Might not sound like much but it is important to make the distinctions.
+1
Thanks, Rocky.
You are quite right.
A fiat currency works when one party is constrained by how much value the person they are "trading" with allows his currency to have. When your fiat currency is weak or getting weaker, you can end up with hyperinflation.
The US is uses it's military might to artificially "amp" up the value of the dollar thus "cheating" in how fiat currencies are suppossed to work. The Brits got away with it for 150 years. Also because many commodities are required to be bought in dollars, it means the US is getting a free "commission" on all transactions including ones it is not a party too. With the diminishing of US military power and the loss in exports, the days of the dollar as the reserve currency are numbered.
Gold would never work as well as barter as a way to assign value to each countries goods and services. First many countries don't have enough gold to support theireconomies but they have goods or services that other countries want. Barter was used long before gold was even known to exist.
That surplus of goods and services is the means by which the gold is earned.
Gold is fungible. It is more efficient than barter.
You are on the right track!
The surplus of goods is wealth (surplus above one's own needs). Services (labor) do not become wealth until expended and one is paid. Then the payment is stored as wealth. There is much more but I felt the need to address the immediate subject. Again, these small distinctions are vital to understanding how it all works. Having half the picture will result in a serious loss of wealth!
There is so much more alright!
Depending on the angle with which this topic is approached, there would seem to be an almost endless number of details to discuss, but I wanted to paint a broad, simple picture, initially.
This is a topic which should find a capable and willing audience here at ZH, but the topic has not been properly tackled yet.
It has been obvious to me that there are a few ZHers, such as yourself, who understand this concept, but the majority of the 'sharp minds' here have as yet either been unable, or unwilling, to see past their conditioning, or have simply not been exposed to the idea in an accessible form.
I expect this (freegold) to come to pass, regardless of how many people understand it, but obviously those that do understand won't be so confused about events.
Few who participate in, or are swept up in, manifestations of the superorganism, such as an angry mob for example, have much in the way of logical, rational analysis of the situation at the time, nor much in the way of free will to express, but this doesn't mean they do not take part. But they wee also not able to position themselves prior, to negate negative consequences.
For more info on Central GoldTrust (GTU) see http://www.gold-trust.com/
And just where is this fund going to find 200 tons of gold? What's that, around 10% of annual world wide production? Mining companies, refiners, my local gold shop?
It's not as much as the Boyz are short!
I had this info for many years..
when this was first brought to my attention.......I put it off until I bought the book....a paper back.....from Reagan......I think it says it all...
I want a hard back book....if Woolworth was open I would still shop there
strange when I said this......the teller said I was one of those...damn Skippy...true that
Dr. Arthur Laffer
who is he....ask this
I have been playing PHYSICAL metals for a decade. I even went retail a couple years ago - www.londongoldbuyer.com.
As a student of the 1980 boom and bust of metals, I have to say that we are nowhere near the bubble top.
Yes, I have cocktail party conversations thinking that gold is a good idea, but we are not at the point when Joe six pack actually jumps in and converts significant paper assets to physical. To me, that is the time when the bubble is blowing exponentially.
I am waiting for the line ups wanting gold or silver in any form. The street is starting to stir, but no where near panic levels.
We are still at early days at this point.
(snip)
As a student of the 1980 boom and bust of metals, I have to say that we are nowhere near the bubble top.
the 1979 gold price is inflation of gold today at $1200
BS....$850 high of 1980
the price is...was always $400...1979
look at your charts
1979 inflation of $400 gold today 2010 is $1200 an OZ
No, the price is actually $42 as per dot gov.
At $400, they are only lying by a factor of around 10.
When they are lying by a factor of 1000 I will be glad to offer you a minty fresh gold maple leaf.
BTW, here is that chart - http://www.bullnotbull.com/archive/gold1980.html
And just because you could not trade it, does not mean it did not happen.
Came across this article from 2007
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2554723.ece
Looks like the tungsten filled bullion is cracking apart.
The highlight from the article
"According to market observers questioned by Metal Bulletin, cracks and fissures suggested that the bars may not be pure gold. The gold in coin form may also be contaminated with base metal."
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No tungsten, just melted down bullion from good ole Executive Order 6102.
Imported bars cast from high copper content fine gold. What's that thing that copper does over time?
A fiat currency works when one party is constrained by how much value the person they are "trading" with allows his currency to have. When your fiat currency is weakening and you run deficits, you end up with inflation or implosion of your currency.
The US is uses it's military might to artificially "amp" up the value of the dollar thus "cheating" in how fiat currencies are suppossed to work. The Brits got away with it for 150 years. Also because many commodities are required to be bought in dollars, it means the US is getting a free "commission" on all transactions including ones it is not a party too. With the diminishing of US military power, barter between other countries, new security exchanges outside the control of the US and the drop in US exports, the days of the dollar as the reserve currency are numbered.
Gold would never work as well as barter as a way to assign value to each countries goods and services. First many countries don't have enough gold to support theireconomies but they have goods or services that other countries want. Barter was used long before gold was even known to exist.
Your statement negates thousands of years of demonstrable and irrefutable monetary history, as well as common sense. You simply have no idea what you are talking about.
If I were you, I would be profoundly embarrassed at this point. But that would presuppose that I were knowledgable or aware enough to be embarrassed, which you clearly are not.
Exactly! How do I barter my summer squash for your coal in the winter? I don't have any squash -- ate 'em all or bartered them away in the summer. I exchange it for a few silver coins and then I can "buy" your coal in the winter. It's a store of value or wealth. Yes, barter was used very early on but with the social complexity it became more sophisticated. One could say I bartered my squash for silver, etc. Same concept but with a more efficient transfer mechanism.
PM is barter, with the quality of disintermediation -- as mentioned above.
Fiat currency is barter, with the quality of disintermediation EXCEPT it is highly abusable.