The "Sovereign Man" On What To Look For "When The Gold Market Tops"

Tyler Durden's picture

Yesterday we got to hear Doug Kass recite Howard Marks' most recent views on gold by memory (badly) and come up with the conclusion that gold may drop 25%, something not even Marks was foolish enough to suggest. Today, we present a contrary view, that of the extremely original and always provocative Simon Black, aka Sovereign Man. Writing from Auckland, New Zealand, the activist who has previously openly defended expatriation as a means of "revolting" against the collapse of US economics and society, turns his attention to gold and shares his thoughts on what to look for "when the market tops." As always Black, who has encountered more cultures in the past few months than most do in their entire lifetime, gives an unorthodox view on the metal's prospects, which if nothing else, are based on a much broader sampling of data, than merely the (biased) read of the opinion of just one other person. His conclusion is not that surprising for someone who has a worldview that is wider than just the FDR through the West Side Highway: "People are only starting to wake up to the reality that unbacked paper currency is fundamentally flawed, and it will be a long time before this belief becomes widespread once again, just as it was in ancient times."

From Sovereign Man:

When the Gold Market Tops

Date: December 21, 2010
Reporting From: Auckland, New Zealand

My friend Doug Casey has frequently written that you'll know the bull market for gold has peaked when there's a picture of a golden bull tearing up the dollar or the New York Stock Exchange on the cover of Time Magazine.

I have a similar view, but with a different indicator.

I'm sure you've seen those TV commercials, fliers, and billboards that say "WE BUY GOLD". The business model is simple-- they take in whatever gold you can find around the house (a false tooth, granny's wedding ring, etc.) and trade you for worthless paper money.

If that's not bad enough, they capitalize on people's ignorance of the gold market and offer a ridiculously low valuation, sometimes less than 50% of the spot price for gold. People are getting ripped off, and they're happy about it because they're able to sell their 'junk' for a few extra bucks.

These are the types of things that are common in a rising bull market that has plenty of room to run-- the public, largely ignorant about gold, is happy to trade physical wealth for worthless paper.

At the top of the market, we'll be seeing the exact opposite. The public will have wised up; the vast majority of people walking the streets will know the price of gold and be able to distinguish a Maple Leaf from an American Eagle. 

At this point, everyone will want to own gold, and the signs will change from "WE BUY GOLD" to "WE SELL GOLD"... and they'll be everywhere.

Entrepreneurs, flush with all the bullion they've been racking up over the years from false teeth and wedding rings, will start unloading their gold holdings to the very people who supplied them to begin with... all at a handsome profit.

In certain parts of the world, we're already seeing early signs of this. I've seen hoards of Chinese people queuing up to buy small gold bars in Shanghai during their lunch breaks. Same in India.

Gold "ATM" machines are sprouting up in Europe and Asia-- you can pop a few hundred euro (or your credit card in some cases) into what looks like a vending machine, and out comes a small, assayed bar of gold.

I've been following the spread of these machines with great interest, and I noticed that the first of them arrived to the United States in Boca Raton, Florida a few days ago.

Don't get me wrong-- this one machine doesn't constitute a top. Not even close. There would have to be thousands of these machines across the country at McDonalds and Starbucks before that happens.  If you need extra convincing, ask your neighbor what the price of gold is.

Years from now, though, I'm willing to bet that the sucker who ends up paying the highest price ever for an ounce of gold before the metal starts to decline will probably do so standing in front of one of these machines at a shopping mall somewhere in suburbia.

Another 'top indicator' that I look for is the occupancy rates for safety deposit box facilities like The Storage in Hong Kong or Commonwealth Vault right here in Auckland.

When these firms have a long waiting lists, or new facilities are sprouting up, it suggests that public awareness for gold is increasing... and the more that happens, the closer we get to the top.

Again, this is also starting to happen. Singapore's recent Freeport facility leased out to capacity almost instantly, and you're hard pressed to find an available safety deposit box at any of Singapore's banks. Buy hey, that's Singapore... not exactly representative of the entire world.

Here in Auckland, Commonwealth Vault has plenty of availability, and they charge peanuts.

Bottom line, while some of these 'top indicators' are starting to emerge, I think it will be several years before they're ubiquitous. People are only starting to wake up to the reality that unbacked paper currency is fundamentally flawed, and it will be a long time before this belief becomes widespread once again, just as it was in ancient times.

In the meantime, as long as central banks keep pumping their currencies full of hot air, gold should continue to have strong, long-term growth potential as the 'anti-currency'.

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Johrny Bravo's picture

Thanks to everyone above who is SOOOO understanding of me...

Goled to $200 Bitchez!

Johrny Bravo's picture

Buried canned ham in the backyard, Bitchez!

RockyRacoon's picture

Oh, Jorny, me boy.  Where hath ye been?

cosmictrainwreck's picture

Johnny, I think it would flow so much better as: "canned ham buried in the backyard, bitchez". A subtle shift....

RockyRacoon's picture

He recycles his ham.  Reburies it after eating it.  Like my dog does.

MsCreant's picture

Notice that apple of his too, all chewed, black and grey. What does that smell like?

Real Estate Geek's picture


Speaking of nice boys, NORAD has a website for tracking Santa.  The kids seem to enjoy it -

Too bad they couldn't track a few 767s.

Andy_Jackson_Jihad's picture

I will not look for the price in Gold in USD to get outrageos then decline to get out.  I will only look for the relative purchasing power of gold to decline.

That will be the time to trade it for stock, a gun, pair of russian nymphomaniac gymnast twins with open minds to marry etc.  There is a good possibility the nominal value of gold will keep rising after that point.

XPolemic's picture

pair of russian nymphomaniac gymnast twins with open minds to marry

Best purchase suggestion, ever.

I wonder how many ounces there are to the russian-nymphomaniac-gymnast-pair.


Village Idiot's picture

I'll second as best purchase.  Christmas?

RockyRacoon's picture

Looks like your fate is to live in Utah.  The Mormons would welcome your bigamy -- and your gold. 

Andy_Jackson_Jihad's picture

So will the corrupt local pols so I can live wherever I want.  Bigamy is not the same as marrying two hot ass russian sisters.  Anything is OK if they are hot enough and gymnastic enough and nympho enough.

So sayeth Jesus, Moses, Allah and Joe Smith

trav7777's picture

Russian girls are fucking ruthless been warned.

RockyRacoon's picture

Russian girls are fucking ruthless mercenaries...

The operative word being the modifier of "ruthless".

MsCreant's picture

pair of russian nymphomaniac gymnast twins

Hope you are up to it.

Kali's picture

Nuttin a viagra/meth/ecstasy cocktail can't fix

Village Idiot's picture

I was thinking 15 minutes with one and a reach for the remote.

Oh regional Indian's picture

ooooohhhh.... ouch......

man-hood is dying. woman-hood is dying too.

Narrow hips and limp dicks cannot make babies anymore.

Such is where we are Kali. It's your hour...



Kali's picture

Told ya I was coming!  Yes.  And when they do manage to have children, 1%(!) are born with autism now, and, probably still rising.  Think about that.  1 in 100.  Average lifetime cost for child with autism = $3.5 million

trav7777's picture

did they figure out yet that old man + old woman = less viable offspring?

I mean there's a goddamned reason women are so fertile from 13-27 and it goes down after that...nature has plans which do not include a career

Worker Bee's picture

Yea right..what people are starting to wake up? The same ones trampling eachother for ipads at wal-mart? 300 million people in the states and maybe 10% of the cattle out there have any clue about gold except that they can overpay for gold plated cables for their new 10000 in. 3d TEEVVEEEE.

drink or die's picture

The same people that put down $0 to buy a $500K house with a $50K a year income, and then took out an equity loan to buy a boat?

RockyRacoon's picture

Wham!  That one will leave a mark.

bingaling's picture

I think he is right about how to determine the top . But I think his timing may be off . The internet can take gold viral in 12 months with a good hit of inflation or the death of a common paper currency.

Diogenes's picture

90% of the population never invests in ANYTHING.To them, money is for spending. They can see spending it on a TV or a boat but to spend it on stocks, bonds, mutual funds or gold is just stupid. Where's the fun in that?

So don't worry about all the Walmart shoppers suddenly buying gold.

barkster's picture

At the top of the internet craze I recall a twenty-something year old in our IT department trading like mad every day and sending out stock tips by email to other employees. Looking back, that was certainly my signal. I was not in though because I thought the market was overvalued at Dow 4000.

Long Strange Trip's picture

I don't think he mentioned a specific timeline - only to look out for gold going main stream where access to physical gold is in ATM's across the country, etc.  Personally,you give the people out there too much credit that they'd actually stop watching the TV and spend the time to understand how f*cked the financial system is and buy gold. Things going viral on the internet have the depth and substance of something like this

Methinks most of the people won't know what the hell is going on until it's too late and all financial paper is burning.

koeleköpke's picture

as always the smart ones already have covered their positions since long. year after year they had good returns on their physical holdings. what will bring the near future ? more debt, more paper, much more peptalk and the smart ones are still bying bars and coins in gold and silver.


Flore's picture

FOFOA bitchez

traderjoe's picture

I've been thinking about the $55k argument since I received my order for 1/4 ounce coins. These relatively small coins are currently worth $375 or so. They are pretty small (Australian Kangaroos). I no longer think $55k is possible/relevant, as it would make this small coin worth $10k. I'm not sure someone could get their minds around that reality as they looked at the coin. $1k per coin, sure. $2k, maybe. 

Of course, I understand why they make that 'prediction' as the price of everything else would be completely different as well. In some ways, my thinking makes me more bullish on the possibilities for silver, as likely silver would close the ratio gap first before gold really shot to the moon. 

Just thinkin' out loud...

Arius's picture

dont think too much...LOL

XPolemic's picture

I'm with you. Gold has recently hit it's inflation adjusted price (my calc, based on an average 6% risk free rate of return), and will most probably move in lock step with USD devaluation.

Silver on the other hand is still 200 bucks away from it's inflation adjusted price (by the same measure). Might get me some more PAMP today. :)

Simon Endean's picture

Can't see how it would ever get to $55k.  Right now, those small coins aren't worth someone killing you to take it.  At $1,000, maybe.  Get much above that, and it moves from possible, to probable, to certain.  Likewise, the odds of it being "lost in transfer" or some other such mishap rise accordingly.


Point being, the headaches involved with safekeeping it will probably effectively cap its worth well before anything approaching $55K.

RockyRacoon's picture

Heard the same arguments about it reaching $500, $750, and $1,000.

Imminent Crucible's picture

Simon is making a common error.  He's thinking of gold reaching $55k while $55k will still buy what it buys today.  That's why it seems improbable to him.

Gold could well reach $55k an ounce, and when it does, you won't be able to buy a decent used car for $50k.  It's like this, Simon; gold won't be going to $55k because it suddenly becomes tremendously valuable.  It will be because the dollar becomes tremendously worthless.

Gold didn't go to $55k in Zimbabwe dollars.  It went to septillions of Zim dollars, just before Gideon Gono canceled the Zim dollar.

DoChenRollingBearing's picture

I stumbled into FOFOA somewhat over a year ago.  When I saw him making his case for $55k, I thought wow this guy's an extremist!  But I've always had a place inside me for (non-violent) extremists so I gave him a read.

And then I got hooked.  Hey, I don't know what's going to happen!  But, there's too BS in the system and it looks like a lot of people are going to get fried...

As ZH-er nuinut (who knows more than I do and is more articulate) explains, the BIG price rise will happen when paper gold price diverges from the physical gold price.

goldsaver's picture

Perhaps. But what is a 1 carat diamond "worth"? How big is a 1 carat diamond? How about a 10 carat diamond? 

I think there will be those willing to pay $50K an ounce (FRNs) for gold. Specially when there is no loose physical to be had. Of course, that will just make it more likely that the .gov would confiscate it, sorry, voluntarily recall it, for National Security purposes.

traderjoe's picture

The diamond is an interesting counter-point. I would never pay that much for one, but obviously some people do. 

I think what is more likely is a massive bifurcation of prices in goods - tangible and useful v. discretionary and costly. As another poster on another thread said, discretionary indebted and costly items like boats, fancy cars, etc. will be driven down in value. An ounce of gold might be able to buy you a $20k bass boat. 

On the other hand, it won't be able to buy you $20k in gas, oil, or food. But again, who knows what the relative prices will be like at that time. I just can't imagine someone selling a year's worth of gas for one small coin. I'm a bear on the fiat currencies, but I'm not a raging bull at $55k/ounce (assuming relative prices stay the same as today). I get the one gold coin for 2 nice men's suits argument. But if all of a sudden a gold coin buys 20 nice suits, then I think you might have a backlash against gold. I personally want it to be a store of wealth and be of value in the future, but I'm not trying to 'profit' from owning it. 

Ludwig Van's picture


Throughout history, one oz. AU buys *one* nice suit.

(Tired of seeing the ratio misquoted here; but worse, appalled at implied nice-suit inflation.)



RockyRacoon's picture

A word about the "suit analogy".   It was true some time back when labor was not priced the way it is now.  The labor in making a suit was mostly human labor on a sewing machine.  Today it is labor using highly-automated equipment.  The labor cost is not so much a factor now.  Another view is the early automobile business.   A nice 1930s auto with multiple carbs took a bit of labor by a mechanic to keep it tuned and running optimally.  Now that work is done by smart chips in the car using fuel injection, etc.  So, the labor component is removed to a large degree.  It is labor that has become the expensive component of the price of goods.   It was not always so.  The suit/car analogy has transformed into the situation in which we are able to obtain a better product (more sturdy or cheaper in the suit, more reliable in the car) but the relative cost is the same.  You get an extra pair of pants with the suit, and you get more bells/whistles on the car. It's some of the thinking of the BLS when they use "hedonic adjustments" to the inflation of certain items.  There is some validity to it but not when it is used primarily to make inflation look "tame".

DamnDirtyApe's picture

"Freegold" is a pet theory that will never happen. 

FOFOA holds mainly gold and desperately wants it to go ballistic so he can cash out and get rich. He is no dufferent than everyone else who buys equities, commodities, real estate etc.


Given two scenarios :

A) Gold and Silver form a nice bubble (say 4k for Gold), which eventually pops, and life moves on to the next fiat rigged system


B) The "freegold" dream where the world magically permanently transforms into a utopian free market open system of 55k gold that crosses all boundaries and economies and all borders and exists outside of the fiat system.


... well I'll bet on scenario A as being 99.99% more likely.