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Gold And The Potential Dollar Endgame Part 2: Paper Gold, What Is It Good For?
Authored by Dan Flynn and Joe Yasinski of Gold Bullion International,
Part 2 of 3: “Paper Gold, what is it really good for?”
In our first installment of this series we explored the concept of stock to flow in the gold markets being the key driver of supply/demand dynamics, and ultimately its price. To briefly summarize the STF concept, the “stock” of existing gold is the total amount ever mined and the “flow” is the amount of physical gold available for purchase on any given day. Obviously the more flow, the more for sale and presumably, the lower the price. Today we are going to explore the paper markets and, importantly, to what degree they distort upwardly the “flow” of the physical gold market. We believe the very existence of paper gold creates the illusion of physical gold flow that does not and physically cannot exist. After all, if flow determines price – and if paper flow simulates physical metal movement to a degree much larger than is possible – doesn’t it then suggest that paper flow creates an artificially low price? If the physical metal does not actually flow along with paper representations of flow, then isn’t it true that the current stock to flow ratio may already be much higher than previously imagined?
When we talk about “paper” markets, we are broadly referring to derivative markets; forwards, swaps, and in the case of gold, unallocated gold accounts as well. Derivative markets for commodities were developed to smooth the wild price swings caused by supply gluts or unexpected shortages. The first modern exchange for rice dates back early 18th century Japan. By 1848, the Chicago Board of Trade was formed, originally clearing trade of forward contracts on corn. Consumed commodities tend to exhibit tight supply/demand dynamics so it is easy to understand the necessity for such ‘paper’ markets for legitimate hedging purposes. As discussed in part one, gold is not consumed and given the existing stock and annual mine production – there is an approximate 65 year ‘overhang’ of new mining supply. Can you imagine the need of Cargill to hedge the cost of corn if a non-perishable, 6 decade supply sat in their warehouse? With a relatively massive existing stock of gold, there is no potential supply shock to hedge against – and the need for a large derivative gold market seems completely illogical. It follows that as the derivative market for most commodities developed over the last 3 centuries, the gold market remained “physical only”. Whether for settlement of international trade or otherwise, there was no need for ‘paper gold’ as the marketplace for and the flow of physical gold bullion was robust.
Things began to change in the 1970’s following the US default on the Bretton Woods agreement as the $ Dollar detached from its’ golden anchor. The $USD price of gold rose over the decade from $35/oz. to $200, then $300, then $400, reflecting the uncertain value of the newly fiat currency. As gold’s price rose, its’ flow slowed dramatically, putting further upward pressure on the price, ultimately pushing it above $800/oz. Seeing higher gold prices, many new mines came on-line chasing the higher prices. The new mines needed cash capital to get up and running, and the bullion banks offered loans. The US futures market for gold opened in January 1975, and by the late 1970’s, a gold company could take a loan, denominated in ounces of gold, at a much lower rate than they could take a traditional cash loan. Originally referred to as “mine finance” (Guy, 2012), bullion banks could offer lower rates of interest on loans tied to physical gold as they didn’t have to compensate for the rapid loss of purchasing power in fiat-currency denominated loans. By 1987, the London Bullion Market Association was incorporated. This collection of dealers and banks developed guidelines for clearing arrangements, options, and the development of the Gold Forward Option Rate (GOFO) – furthering the development of bullion banking. “Paper Gold” was born.
In typical Wall Street fashion, below-market interest rate gold loans began to attract the attention of hedge funds and other large pools of capital interested in using leverage to take advantage of the spread between various “risk-free” rates. Bullion banks were able to offer attractive terms to private holders of gold in return for gold deposits. This in turn allowed for more gold-denominated lending, even to borrowers who were not producers of gold. Great idea! What could possibly go wrong?
Most gold trading – both physical and paper - clears through the London market, with dealers and banks settling transactions for clients around the world. According to the LBMA website, “a credit balance on a loco London account with an LBMA member represents a holding of gold or silver the same way that a credit balance in the relevant currency represents a holding on account with a New York bank or Tokyo bank.” Further, the LBMA explains “Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.” (London Bullion Market Association, 2012)
Let us pause here to re-emphasize a point. When you deposit money at a New York or Tokyo bank, you no longer own the money. You own a claim – you own bank credit. Banks are free to use deposits as they please – typically as a base to leverage – aka fractional reserve banking. As the LBMA points out, loco London accounts operate in the same way – they are bank credit denominated in gold. So long as the bank meets its’ contractual obligation, paper gold and allocated physical are fungible.
Over the decades, the derivative market for gold has grown exponentially. What began as a means to finance new gold production has morphed into an untenably leveraged marketplace.
As US Dollar denominated obligations have skyrocketed, so has the demand for hedges against the US Dollar. Gold is the ultimate fiat currency hedge. As discussed in part 1, gold is a Giffen good. Unlike other commodities, physical gold becomes scarcer as its price rises. As long as the marketplace holds “paper” gold on par with physical gold, the dollar price of gold is suppressed because of the new, synthetic paper flow. In order to maintain confidence in the $USD as a store of value – flow of gold bidding for dollars is desperately needed. As we see it, the US Dollars’ ability to function as a store of value, and global reserve currency, is now completely dependent on the continued flow of (and confidence in) ‘paper’ gold.
How big is the flow of this combined market? Total trading volume for 2011 was estimated at 50,459,865,000 ounces. (Gold Fields Mineral Services, 2012) 50 BILLION OUNCES!! As a point of reference, the World Gold Council states that annual mine production for the last 5 years has averaged approximately 83,000,000 ounces, and total above ground stock of physical in all forms is approximately 5,465,500,000 ounces. (World Gold Council, 2012) One might conclude that a significant amount of leverage exists in the gold markets given the fact that in 2011, the volume of paper gold that traded equaled 10x the amount of physical gold that has been mined in history! Consider further that the WGC estimates that only 19% of existing above ground stocks is categorized as “investment”, and nowhere near all of that 19% sits in LBMA vaults in good delivery form, ready to satisfy paper claims. Further, Central Banks (estimated to hold approximately 20% of the gold stock) today are net buyers – not sellers.
At its April 2011 meeting, the LBMA Management committee agreed to survey its 56 full members for trading turnover in the loco London gold market. The World Gold Council, who has been advocating for the inclusion of gold as a high-quality liquid asset under Basel III, wanted the LBMA to help demonstrate the depth and liquidity of the gold market. (Murray, 2011)
Typically, only monthly clearing statistics are available from the 6 clearing members that form the LPMC (Barclays, Deutsche Bank, HSBC, JP Morgan, UBS, and ScotiaMocatta). These clearing statistics include transactions executed within their own books and between each other. The last liquidity survey was carried out and published in 1996 and was restricted to the LBMA’s market makers. By August 2011, 36 of the 56 Full LBMA trading members submitted returns for the new survey, and the results were rather shocking. Quietly, the size of the “paper” gold market had grown to monstrous proportions – successfully creating a tsunami of paper gold flow. In fact, according to the Q1 2011 LBMA Liquidity survey, over 173,713,000 ounces or 5,400 tons of “paper gold” per day (more than 2 year annual physical production) turns over with only 2/3 of LBMA members reporting! The surveyed turnover of the 56 LBMA trading members demonstrates total loco London volumes (perhaps not surprisingly) ten times the size of the 6 LPMC members. Without question, the gold market “flow” is dominated by the paper market. Yes, good old fashioned physical bullion does trade hands OTC – and at GBI we facilitate physical transactions every day. But the great majority of physical lies very still while paper changes hands rapidly.
We have a better idea now how much paper gold is flowing, but it’s crucial to understand the leverage that paper flow represents. How many paper claims exist on the relatively small stock of bullion? For a few hints, we can look to the COMEX. As of October 30, 2012 COMEX gold Open Interest equaled 454,742 contracts (45,474,200 ounces of gold). COMEX registered inventory stood at 2,735,041 ounces for a factor of 16.6X. (CME Group, 2012)
Is a leverage factor of 16 enough for you to take action? For some very prominent fiduciaries, the answer is a resounding “YES”. In a 2011 interview Kyle Bass of Hayman Capital (who helped the University of Texas Endowment take delivery of nearly $1 Billion in physical gold bullion) described a conversation he had with an exchange official:
“When I talked to the head of deliveries at COMEX NYMEX, I was like, ‘What if 4% of the people want deliveries?’ He said, ‘Oh Kyle, that never happens. We rarely ever get a 1% delivery.’ And I asked, ‘Well, what if it does happen?’ And he said, ‘Price will solve everything’ and I said, ‘THANKS, GIVE ME THE GOLD’. (Bass, 2011)
Let’s look at the leverage a different way. In 1Q11, the 36 reporting members of the LBMA disclosed gold sales of 5,593,743,000 ounces versus purchases of 5,350,183,000 ounces (see line 1 – London Turnover). Based on the survey, we deduce that in 1Q11 excess demand for gold was 243,560,000 ounces which translates into approximately 7,575 metric tons. In a typical year, quarterly physical production (new mining supply) is approximately 625 tons. One would imagine that with a traditional commodity, physical demand outstripping new supply in a given quarter by a factor of 10 would cause a significant increase in price!! And for commodities like copper, corn, or cotton that would certainly be true. Yet during 1Q11, the price of gold rose from $1410 to $1439…a $29 dollar per ounce increase. (LBMA, 2011)
If one is viewing gold as a currency, this data is to be interpreted differently. A large player using paper gold to hedge $USD exposure doesn’t necessarily think of gold in terms of ounces, but instead looks at these contracts in terms of dollars. (FOFOA, 2011) For the currency trader or $USD hedger, the more relevant data point is quarterly demand of $337 Billion (Line 1, total value of sales net of purchases). We believe that the largest holders of physical gold have very strong hands – and $1,400 per ounce is nowhere near high enough a price to coax significant new flow into the market. As a simple mind exercise, let’s imagine this dollar denominated gold demand was met exclusively from new mine production – no paper flow and no existing physical bidding for dollars. Based on the LBMA liquidity survey and WGC data, newly mined (average) per quarter flow of 625 tons physical gold would have needed to absorb 100% of that $337 Billion dollar demand. And in order to do so – gold could not have been at $1,400/oz. Instead, to clear the market gold would have averaged a price of $16,920! This is a partial glimpse at the true Freegold concept (Another, 1997) – no paper gold flow – a return to a purely physical marketplace. Although this may sound like an amazing price - if we apply a “reserve” factor of 16.6 to the LBMA demand statistics, we’d suggest that $16,000 gold would be a bargain. It’s all a matter of perspective.
Leveraged systems are based on confidence – confidence in efficient exchanges, confidence in reputable counterparties, and confidence in the rule of law. As we have learned (or should have learned) with the failures of Long Term Capital Management, Lehman Brothers, AIG, Fannie & Freddie, and MF Global – the unwind from a highly leveraged system can be sudden and chaotic. These systems function…until they don’t. CDOs were AAA… until they weren’t. Auction Rate Securities were great ‘cash management’ vehicles…until they weren’t. “Principal Protected” Convertible Notes underwritten by Lehman Bros were like CDs…until they weren’t. Paper Gold is just like allocated, unambiguously owned physical bullion…until it’s not.
At GBI, we believe THE WAY to hold gold is via unambiguous ownership, allocated and held outside of the banking system. Any other way introduces unnecessary and potentially catastrophic counterparty risk. We’ve built our company to give clients the same or better liquidity and trading convenience as the ‘paper gold’ alternatives – but with the safety and security of insured storage, geographic diversification and clear title that whole bar and/or coin ownership brings.
In the final part of this series we will discuss what we see as signs of major stress in the paper gold market and what the end-game might look like for holders of paper contracts as well as owners of physical bullion.
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And ZH has been writing articles about the dollar endgame for....how many years now?
How's that dollar endgame thingy workin' out for you? Oh I forgot. It's just around the corner!
the road to the end game is expensive as in gas at 3.69 rather than 1.69 douchebag
GOLD vs the US Doelarr?
Set to close up for the 13th year in a row. So what's your point? That it isn't losing purchasing power?
Stick it in your ear assclown.
It's good for options trading to make more electronic to buy more physical.
@davidsmith, yeah, let me know how eating out of a wheelie bin goes for ya fucktard. Oh, that's right, I won't be in YOUR neighbourhood.
Might come next week.
http://www.bostonherald.com/news/us_politics/view/20121130congress_looks...
Since gold was about a 1/3rd or so of its present cost in FRN?
Gold was 1/43 the present cost in today's FRNs the last time Fort Knox was audited.
Not to worry....I'm sure the government is on top of it.
By definition, the word "economy" can only be used to describe the conditions of a country that is on a Gold Standard.
Paper currency is not money and is always used to trick people out of their land, resources and labor.
Gold is not printable.
GLD is only paper, printable for eternity, allowing for complete control and manipulation of it's price .
To value your assets or wages in real money, divide your paycheck by the price of silver. If you make $350 a week, you are actually earning about $10 in real money, otherwise known as Silver Dollars.
If the price of Silver were not being manipulated downward with the use of SLV paper, and Silver were allowed to find it's actual paper value of $200 per ounce, your $350 paycheck would actually mean that you are only getting paid $1.75 for your 40 hours, or less than 5 cents per hour.
Therefore, if you wait to buy Silver, when you get around to it you will only be getting 5 cents worth for an hours labor, thanks to your United States (Banker) government. You might want to buy Silver, Gold , Platinum and/or Palladium now, while they're at a discount.
And why are you learning this from the comments section rather than from one of the so called authors here on Zerohedge?
I know you have a lot of up arrows but you comment is false. Up arrows were given by people that have an emotional perogative towards a gold standard. I noticed you didn't qualify you statement with a definition of economy.
The fact is, an economy is the financial conditions of a region using whatever ACCEPTABLE means of trade. The US dollar is the current acceptable means of trade. While I wish it wasn't so, that is still reality.
Anything can be used as a means of trade. And, more importantly, which many gold bugs seem to miss, gold as with other markets, can be manipulated to trick people out of their land, resources and labor.
sly way to favor electronic transactions
"Central Banks today are net buyers – not sellers. "
Buy Gold and become your own Central Bank, Bitchez!
The Peoples bank of China ( tourism) / welcome " PROMO"...
.
Paper Gold, What Is It Good For?
Arb-ing physical of course..
My speciality.
Next question???
Paper "gold" is ironically one step FARTHER away from actual possession of gold than is $1714 in paper FRN currency.
Paper gold is like a lesbian: when it really comes down to it, it won't function . . .
Paper gold is like a lesbian: when it really comes down to it, it ...
doesn't no dick?
Come on fellas/ I'm just joking with you... I have been gobbling up the shiney stuff for quite some time!
Zombie Banks borrow at 0% from the Fed then max leverage shorting the yellow metal. It's the 'New Paradigm.'
yeh that barbarous relic is posing a major problem for the game.....two word explaines the ultimate checkmate.....physical possession
"Once the precious metal leaves the approved chain of custody, it loses its authenticity."
- Gold Bullion International
You do know it costs less than $1/oz to have new good delivery bars made from GD bars you take delivery of (versus far for more than $1/oz daily volatility), and that there is no guarantee that an approved bar received from an official custodian is actually gold in the first place, unless you have it melted.
"You do know it costs less than $1/oz to have new good delivery bars made from GD bars you take delivery of...."
Thanks for that; I'd hate to be stuck holding a bar which lacked "authenticity". I'm a firm believer that one's deep gold should be held directly under one's own physical control, not allocated to an account by what appears to be a trustworthy dealer or financial firm. I thinks it's slightly amusing that the authors, who debunk paper gold, represent a firm which strongly suggests that one should hold metal in an account ("allocated" or not), rather than take possession.
Unfortunately, I don't own any GD bars, but I suppose in a pinch one could melt down Maples; I suspect, however, that holding one ounce Maples gives one a more flexible and less conspicuous position as compared to a GD bar.
The cost per oz is much higher with the smaller units. Coins are also much easier to measure and ping against the table top, which would weed out any fakes, and your risk is divided across all the coins you own. However, unless you can print your own fiat, the GD bars hold a lot of risk when each single brick is 1/2 million and the guarantee is only a few hundred dollars.
Yeah! stick it in your ass earclown!
LOL! Brilliant. I'm picturing Joe Biden (the plagiarist).
Clown it in your stick, EarAss.
(I just wrote a computer program that came up with that. Pretty nifty, right?)
Umm...maybe avoid posting that on your match.com page.
Dude... rule 1: algos are never nifty.
Hmm, algorithms can be elegant though!
How about that can of Coke Cola that was a $1 now costing you $20?
I think that is what a can of beer costs these days about 20 bux.
As far as Coke they want you to poison yourself with that krap and consume their subsidized HFCS/poison concoction too so they give that (used motor-oil-like liquid substance) away for free.
Free beer? Nyet comrade. High sin-taxes for anything you actually want ( and a dozen other taxes )
I spent about 50USD on a six pack of Bud in Tokyo one time.
Why? It's not like it is even a good beer?
Bitter resentment toward the locals. I just wanted something that said "Made in St. Louis, Missouri" on it. Well, as it turns out, they charge you for that.
How about that can of Coke that used to be 10¢?
currency induced cost push inflagtion sucks
Best possible play. Take all the money now deposited in banks and buy physical gold and simultaneously sell paper gold. Physical gold relative to paper can never go down, but the collapse of paper gold could make a lot of scratch and still hold physical in your hands.
aud/usd is going down/ next week Bear! It's going into the 90's! usd/jpy-audjpy eur-aud gbp-jpy!
I'm on that trade like " boobies on a sunny day"...
Seems like forever coming, but once it gets here, you won't believe how fast it came. +1david
FOREX play, all anticipation then wham!, done.
Hey davidtroll...how long has the US dollar been in existence? And what percentage of that existence has zerohedge been around? Not a real long time, eh?
Oh, and by the way...how long has the US federal deficit exceeded GDP? And for how many multi-year stretches of history has the Federal Reserve maintained ZIRP? And how many of the last 100 years or so of the dollar's existence has the Fed's balance sheet reflected multiple $Trillions of "asset" purchases? And why is it that there is chronic inflation in commodities and deflation of leveraged assets over the past 5 years of "recovery"?
Last question: apart from printing more fiat dollars, how is a $100+ Trillion GAAP debt going to be paid down on the back of a nominally $15T GDP?
BTW...this is a great article to those of us who are not infested with logic-repellent antibodies.
Excellent rebuff Sir...
The article shocked me, and I´ve been stacking since 2008. I knew paper gold was the instrument responsible for the market price manipulations, but never imagined just how unbelievable this trading system has degenerated into. If the gold market is being raped this bad, the silver markets must be getting absolutley gang-banged. No wonder the Chinese are buying up as much Phyzz as it can and encouraging it´s population to own gold and silver. No wonder the CFTC isn´t doing jack shit. They can´t. This bitch is economic nitroglycerin and when it drops it is going to be the primer charge that causes the rest of the $650+ trillion derivatives market to detonate and cause the Great Reset.
Future generations are going to curse the people of our time for the festering shithole this Earth will end up being for them.
Time to go all in with the last of my powder, get my Phyzz, and go on a boat ride. What the hell else can you do?
PS: Sprott may end up being a trillionaire when this story finally plays out, but I doubt he is going to have much shadenfreude.
Sell Dollars and go Long NY FED Tungsten! - oh ya Baby!.
@davidsmith: "And ZH has been writing articles about the dollar endgame for....how many years now?"
And that makes it any less true? Have you read any financial history, ever?
@ davidsmith
Not many is the the answer to that. Just because things don't happen in your ADHD timeframe does not mean they won't happen!
K@
google david smith.............comes up bernanke's brother in law.
there are guys sitting in dusty little cubes paid to pound on the keys to be david smith.
It's funny how Keynesians expect Austrians to predict the future to the exact date, but they (Keynesians) fail to predict any bubble or crash regardless of the date.
+100
Such mentality is interesting isn't it? For rarely do people consider the future until it is right upon them. Take for instance those few voices which were saying that there was the potential for crash in the markets back in 1928 and early 1929, few took heed or paid much attention, yet there were those who just happened to be reading the signs well enough to know that such a potential existed. Likewise, there were those who saw the potential for a crash/panic, they were declaring that the potential was there as far back as 2006, yet few people took heed or paid much attention.
We, or perhaps I shoud say the "collective" population of his country perfers not to see, not to pay attention, not to take heed, rather we like to assume that everything will continue as it has, that some magic concoction can continue to divert the laws of economics just long enough to avoid a disaster, but that can rarely continue for a long period of time before the patchwork simply no longer holds the system together. The FED has tried to patch up the system with every manner of monetary tricksterism possible, but all of the tricks in the world can not avert eventual fiat monetary failure since no such systems have ever been sustainted in history, they all implode.
Check the actual author. Many if not most articles are not by ZH but by other authors that ZH redistributes. But no matter where an article comes from, it is up to the reader to do due diligence and research. Obviously, something you don't.
Ben?
Is that you?
Here here....
Chemtrails all round.
Paper gold? Read FOFOA! Bitchez!
fofoa.blogspot.com
The funny thing is FOFOA's Freegold system is a PAPER SCAM in iteself. Bitchez!!
It advocates such snake oil that bankers should still force people to use FIAT paper as currencies but offer them gold as savings so that bankers would discipline themselves from inflating it too much.
To those of you believing in such banker offer I've got a bridge in Alaska ...
Ahh, no.
No junk, but I think you are reading FOFOA wrong.
He really is in favor of competitive currencies, and not by force. There will ALWAYS be a need for some kind of fiat, for easy transactional use. FOFOA posits that gold will be used as a store of value, and that paper currency will flow for everyday purchases. You will not hold paper currency (for long anyway), you will SPEND it! That's what the paper is for!
You could always use your gold (silver) to spend, but that would be a little inconvenient, just as it is now.
The key flaw in his freegold theory is still letting bankers issuing FIAT. Once you allow the bankers to do it you will have them attack your gold for sure b/c the bankers would never tolerate an honest gold price revealing how much they have inflated and stolen. There's no justification in letting a privileged group issue FIAT to spend while everyone else has to work for it especially when this group is notorious for abusing it.
I think where you are missing the plot is in thinking the bankers are the ones with the power.
The people has always had the power.
Sadly for a long time they have saved in paper, which gave bankers the opportunity to run their scams. The people in effect screwed themselves.
Once the people save in gold, the bankers will be SOL.
The bankers never had the power you attribute to them, the power has always belonged to the people.
Trouble in America is that the people don't save. They run on credit. Therefore paper remains king until it collapses dramatically.
Well there is truth in that, but it is also a gross oversimplification.
The lower income groups that live on welfare have no savings to speak of, this much is true. And for the most part the rich are not stupid enough to save in fiat.
The middle class however, yuor consumers, have a net position that is perhaps slightly slanted towards indebtedness. On the one hand they have consumer debt, and mortgage debt, but on the other they have a small amount of savings, and then their pension funds.
While they may be debtors on net, we cannot ignore the latter.
It has been estimated that as much as 9% of the 1 trillion in welfare money is spent on the lottery. That 90 billion would buy 3 billion ounces of silver. Not only do the people have the power to end it. Just the people on welfare alone do.
Silver For The People
http://www.brotherjohnf.com/
double trouble ^^
The claim "people have the power" is misleading. If I can print FIAT whenever I feel like to while everyone else has to work to earn it then I have the power. People ain't.
Were it "people have the power", people should be able to issue and use own money but that's neither what is happening now nor what would happen in freegold. In fact, bankers are the one with the privilege to issue and force other people to use their FIAT, and would retain such privilege in freegold as FOFOA insists it'd work.
The freegold folks get upset when we call them out on being banker apologists. Well, if they keep defending such privilege for the bankers then they technically and necessarily are banker apologists.
The problem is not in what people are forced to used to spend with, the problem is that people should be free to choose in what to save in...and that they really should not save in paper.
Where does fiat money get it's value? The printer of it certainly doesn't tell you what it is worth in trade for real goods. You find out it's worth when you offer it in payment for real goods.
There is a definate need to store value, to defer consumption, for say retirement. You have any number of choices of what to store value in. You might choose paper money, or silver, or art, or property or gold, or hell nickels.
The problem with most of these things is that they can be manufactured on demand. The exceptions here are silver and gold, where despite massive rises in price, mine supply has not increased much.
If people no longer store value in money ( for savings for eg retirement), then there is a much smaller pool of true value which the bankers can dilute. And, if people save in gold, and they try dilution of the paper currency, well it reacts pretty quick spoiling the scam.
Fiat is usefull for making payments in. Just think about buying some online music.
With the pool of value stored in fiat drastically reduced people would only keep such currency as they need for daily expenses. So the fiat would still have some value as long as it is freely exchangeable for gold at demand. And as I have said, any crazy inflation that the bankers tried would mean people drop the currency in favour of gold or other currencies, which means the bankers lose all benefit.
Hope these thoughts help.
dlmaniacL "The claim "people have the power" is misleading. If I can print FIAT whenever I feel like to while everyone else has to work to earn it then I have the power. People ain't."
Comment: You miss the concept that power isn't just in printing. In other words, you can take your fiat currency and convert it to whatever assets you like, thus the power still remains with you despite whatever printing occurs. You lose your power as government enacts more restrictions on you to convert your assets or if government simply confiscates assets.
Some like to talk about the hidden tax in inflation. Why aren't those people talking about places to reinvest their assets to beat inflation? But that point is mute. Since my opinion is that we are in a deflationary environment, that should direct the discussion.
You might wish to read Dave Harrison's ruminations on the "divorced currency" agenda and FOFOA's probable role in all this. Trade with Dave is his blog. He has read FOFOA but is not onboard.
Dlmaniac may be on the right track in his skepticism.
I have followed your advice and went to Dave's blog. I searched in vain for sensible criticism. Most of what I saw was vague inuendo like "I don't trust him", and promises of more later.
I have mailed with him to ask for help in this regard. We will see what ensues.
You don't need fiat for transactions, 100% reserve gold certificates facilitate transactions just fine ... what you "need" fiat for is the ability to inflate the money supply together with economic growth, because supposedly without that the (psychological) incentive to invest for most holders of financial capital would not be sufficient.
all the paper gold stuff .. gold is not paper ... those who write about paper gold are probably also setting in little plastic pools of spit calling them swimming pools .
long articles to fill up space .. and still not having a clue . since 250 gold and 4.00 silver the on lookers try to do the song and dance to cover up their inability to act for the loss of the value of paper .
the buck has lost value and buys less and less of gold even at 1750 ..the buck goes down and the little brains think the game has not changed ..
looking at life through the lens of purple bubbles
Those who lean most towards Totalitarianism also seem to be the most anti-gold. I wonder why that is?
Relative to the amount of debt and massive printing, the US dollar has held up quite well. Conversely, considering the massive printing, why isn't gold over $3000/oz?
Look up David Smith in the "Yellow Pages"... It's just above Fiscal Cliff...
More of the erroneous & pernicious quantity doctrine.
Even if there is no flow at all, it doesn't mean there is any demand, thus price. Quantity has no bearing on value, thus price. The fact that gold has a large stock to flow ratio is an irrelevant consequence of its quality. It is quality that determines value, thus price. The quality of gold is eternal, it thus a standard. Gold is unlike anything else on Earth.
And the rest of this article is worthless.
You need to explain your "thought" in terms understandable by those who speak logic and can add. Cuz your word salad ain't makin' sense, Jethro.
If there is 10x the claims as there exists the physical product, then what is the actual value of the physical product? Take your time...
25x (10x for price correction + my 15x guestimate for the demand increase).
Forget about price and a liquid market for the time being, If there is NO FLOW bearing in mind with gold a 65 year production overhang. Then we are saying at the extreme of S&D supply is ZERO or demand is ZERO as either extreme.
To increase supply price would have to go up. (liberate some of the 65 year overhang or current production)
To increase demand price would have to go down.(send it to 50 cents a kilo and I can buy shiny stuff for the wife and kids)
There IS DEMAND as exhibited by golds risen in price for over a decade. This clearly indicates DEMAND.
If you increase gold supply by PAPER flow you satisfy demand with promises and reduce price pressure.
"Paper Gold" is a great example of Orwellian newspeak. An oxymoron.
Don't be a moron. Just go with Gold Gold.
Paper Gold*
Nutritional Information:
Contains 100% of your FRB daily recommended amount of Au.
*contains 0 nanograms of gold per serving
Who needs paper gold, or even physical gold when there is the much more secure In-Situ gold? ... nearly impossible to steal.
http://tradewithdave.com/?p=13884
I trade paper for a living, and I'm telling you to buy metal! Get smart people, and buy in tradeable denominations/
ALL denominations are tradeable- a 1 gram sliver can be traded to fill up a sedan with 89 octane for a trip across town, or a 10oz bar can be traded for enough A1 for a transoceanic hop. If your usual counter party is a bullion bank- they prefer GDs or KGs. I think the more important point is don't put all you eggs in ONE basket, bar, or coin.
If you wanted to convert a nice house into a good delivery bar, DON'T, but rather go for 40 x 10oz bars, or
If you want to forgo the nice new car and get a kilo bar, DON'T, but rather get 30 x 1oz coins, or
If you are getting sick of that few grand of fiat that is getting moldy and worthless while sitting in your bedroom closet safe, convert into a bunch of gram, tenth oz, or quarter oz pieces.
There isn't any Paper Gold since I haven't seen and touched any. What so-called Paper Gold in reality is the digital gold that they can type it up at any moment. At least in the worst case senario you can wipe ass with paper gold. but you can't say the same for the digi-gold.
/.20 /.50 /1toz tradeable denominations. Coins that you can walk away from" with out", asking for change.
I just bought a shitload of platinum and silver
Did you buy a boat? do you know how to read a river? run a rapid? All of your shit GONE...gone to the bottom...Well done young hedger!
Nice to meet a fellow " salvage operator".
I am shocked at the many physical metal investors who have had boating setbacks. I do not own a boat, but the DNR has designated the back of my property a "wetland".
We can find a spare Dinghy for ya! ;-)
You don't even need a dinghy to lose your gold-- I've heard terrible stories of people burying the stuff and forgetting where, Either that our somebody find it and did it up.
You don't even need a dinghy to lose your gold-- I've heard terrible stories of people burying the stuff and forgetting where, Either that our somebody find it and did it up.
lulz X2 Bastiat
Double post and spelling worse than usual-new 7" tablet.
never owm a boat...always rent boats,much cheaper and more convenient than owning
"I do not own a boat, but the DNR has designated the back of my property a "wetland"."
I believe, in this instance, falling into the bog in your chest waders while carrying your stach of heavy coin is sufficient to be classified as man overboard and your coin becomes trove.
YC...also "junk" silver - pre 1965 quarters, pre 1944 dimes/nickels, etc. should be viable currencies in small denominations. Lotsa (first) depression-era folks have stocked them for that rainy day that's a-comin'.
"...the total amount ever mined..."
What an intriguing concept, rife with suppositions in calculation.
No tungsten in my inventory!
All my gold is belong to me!
how much does a SHITLOAD weigh
shit load/ just a dumping spot for " Heavy metal and personal items" Eg; shit load/
BTW....pretty sure one can pass gold up to 1/4 oz with no side effects. Makes for efficient travel but a little challenging if needed on demand...
Yeah, on the airport scanner metal looks like litttle gallstones.
Smell lingers for some reason,no matter how much you wash the gold,
seems t o permeate the metal.
Wrap in condoms before swallowing.
Paper = Fiat = Digital
One use, to steal real goods and services.
i bought a NEW HOLLAND 60 HP skid steer loader for 5000...same condition would have easily brought 15000 in 2007...is my buy better than buying 5000 in gold......a month ago i bought a 6 horse aluminum horse trailer for 4000 it weighs 10000 lbs and is aluminum...would i have been better off buying gold
You own your skidder and trailer. I bet you can look out the window and see them. They are real and in your possssion. If you are on a decent piece of land it is a wash.
i can collect rent on them...you can,t rent gold
Now that's some useful metal.
An old neighbor collected heavy construction equipment for 50 years. Most of what he acquired was from people who owed him money, but he would accept machinery at a substantial discount. They are now his retirement fund. He just sold an old D6 with a ripper for $30K. A Cat 330 parked under the shed is a lot less likely to be vaporized than any digital fiat or its derivatives.
My brother does this with vintage motorcycles. Lovingly restored with original parts. He has 30 at last count, all Brit and BMW, and he sells them at a tidy price when fiats are needed. Since he is a machinist (40 yrs) he can also make what he needs.
He is quite happy toiling in his shop, keeping his "gold" under observation.
I have a mint '76 Bonnie I roll out on nice days. We learned how to do entire rebuilds like back in 1970.
With ownership of a British bike, that is a useful skill:) PS goe any 250 cc bsa's???
Gold is money which you may need to buy a new trailer when it breaks. At some point you may need to borrow money (Gold) and pay interest (Rent).
i loan money and collect 20% interest on stuff i buy for 5000 and sell for 10000..i normally get 1000 down and 400 per month i have sold same item 3 times in 5 years.
Sounds like you should start a paper gold brokerage. Same returns, less heavy lifting.
There must be a pretty good supply of suckers in your neck of the woods.
looks to me like the suckers are on this website...they buy gold that you can not use or rent.
gold buyers are are buying an asset that is at its all time highest price
i buy low and gold buyers buy high,,,,which is the sucker
i buy depressed assets at their all time lowest price, i can use, rent,lease or sell my assets.
Earl..... Needs a Pearl Necklace.
Oh! And a brain.
i must be real dumb, i am only one on this site that does not own gold, i buy assets when they are making lows NOT HIGHS,,,but i must have it backwards////i did buy some silver back when it was 12 bucks an ounce but sold it at 22...more proof i am dumb it is over 30 now.
Sounds to me like you have it right. You have a system that works for you.
Most people never get one from what I can tell.
Paper gold is good for;
1.suppressing the price via GLD, and
2. letting naive people perpetuate bullion bank gold ponzi schemes
Did they recover all that(Sandy), paper under Liberty Street? All those "petrified" bonds?
i'll take a shot at this:
zero$ for paper gold; infinite$ for phyz bullion.
Global M1 money supply is currently running at $14 trillion, give or take. Gold in reserves, per the IMF, is worth about $1.7 trillion at current spot. That's a ratio of roughly 8x. So if we went full gold-standard in the morning, the price of gold would go angry octopus and holders of physical would rejoice.
Having said that, the ratio of M1 to gold reserves was 8-ish throughout the early to mid 90's and the price of gold went nowhere for the decade. It really didn't start to rally until 2003, when the ratio hit 13x. Since then, the price has benefited from money supply growth and by compression in the ratio of cash/gold.
I hold physical coins so don't berate me, but gold is not going to keep appreciating at the same rate that it has been. In late 2009, global M1 was growing at 30% YoY and gold was $1200. Today, global M1 is growing at 4% and gold is $1700+. Not really a rally setup unless China and/or Europe seriously fire up the presses - at this time, that seems improbable.
"Having said that, the ratio of M1 to gold reserves was 8-ish throughout the early to mid 90's and the price of gold went nowhere for the decade. It really didn't start to rally until 2003, when the ratio hit 13x. Since then, the price has benefited from money supply growth and by compression in the ratio of cash/gold."
You are overlooking the tremendous increase in demand for physical gold from SE Asia and the Mid East.
In fact, you are wrong on both counts of your call on what is benefitting the price of gold.
1) Real interest rates are negative in many soverigns. As long as real interest rates remain negative demand for gold will be increasingly strong... only an idiot would hold paper that can go to zero and pays negative interest when they could hold gold that never goes to zero and is appreciating 17% per yr for the last 12 yrs.
2) China opened up gold purchase to it's citizens and is making purchase of gold easy for them. The rest of SE Asia is paying attention to what China/India are doing and are going along with them. Gold in SE Asia is a traditional store of value, unlike the West where citizens have been weaned off gold and onto paper. Real gold is moving West to East and will not be returning.
It's true that real rates are negative, but there are plenty of liquid assets that will probably benefit more than gold. Emerging stocks. for one. Investors continue to pour money into bond funds, especially things that are indexed to the Barclays Agg, and they aren't going to earn mcuh on that investment. I doubt that they all wake up one morning (in retirement) and suddenly feel the need to buy a semi-illiquid real asset that pays no interest. They'll stick with the 4% mutual fund because it provides income, even if it means a declining standard of living.
There's not very much M1 in India, at least in terms of the market value of gold. I don't think that they can singlehandedly drive the next bull market. And China, the money printing capital of the world, probably doesn't want to accumulate so much that it strengthens their currency by a lot. I don't see either of those countries driving it substantially higher.
I own physical, I'm not bearish, but really not optimistic that gold can outperform emerging stocks or a well-traded commodities strategy.
We can agree to disagree.
But you say that " I'm not bearish, but really not optimistic that gold can outperform emerging stocks or a well-traded commodities strategy."... Gold has outperformed stocks for the past 12 years IF one looks at the various indexes. If you contend that you can pick individual winning stocks in hindsight, that is a different kettle of fish. Very few people can do this consistently. By claiming that you can consistently pick winners you are implying that you are extrodinary.
...and, "well traded commodities strategy" could include gold or whatever...
I have no problem with people sticking with mutual funds but at 4% they are getting their heads handed to them when the real inflation rate is included in the returns calculation.
interest rates cannot go up, if they do all the world will default. Savers are being punished.
Vampires do not punish savers. They merely suck them dry and move on.
"merely"?
Yeah, merely. No big deal to the vampire.
Every central bank around the world is printing as fast as they can, every country is up to their ass in debt, how can you believe gold will not go up.
cuz Cramer told me it's overbought
In late 2009, global M1 was growing at 30% YoY and gold was $1200. Today, global M1 is growing at 4% and gold is $1700+. Not really a rally setup unless China and/or Europe seriously fire up the presses - at this time, that seems improbable.
**********
The POG is not about M1 and never has been-
Gold is not interested in the tiny amount of cash that's printed or circulates or doesn't circulate-
Look at credit supply/debt/default risk- if you want to see why gold is rocking and will continue to rock
I don't think gold really cares about supply/debt/default risk either. I think gold is looking at the runaway train wreck of government expansion/consumption of resources. Governments can create money/debt out of thin air, consume resources now with full faith and credit that they will be paid for later. That idea works great as long as there is confidence that there will always be more resources than promises as has been the case with the past 150 years of persistent economic growth which is an anomoly in contrast to the rest of recorded human civilization.
Gold does not care about M1.
Gold does not care about supply/debt/default risk.
Gold does not care about Sovereign collapse.
Gold does not care about Govt unfunded liability.
It is people that care and when people care enough about what they owe and to whom they owe it, then and ONLY then, will we see people re-value the gold that they require to settle their accounts.
Cans are only kicked when bored shiftless ingrates are not bothered to pick them up and make the place tidy.
"Cans are only kicked when..."
Cans are only kicked when they can be kicked. When WE allow them to be kicked.
What will happen when the kicked cans don't move any longer? The cans are getting mighty heavy, and aren't going nearly as far these days. The Can Kicking Cycle (CKC - just kidding) thus happens more and more frequently and with less and less effect. (see the reality of Europe, with Japan and the US hard on her heels...)
twinkies
more rare than gold..
Why do you compare countries and a continent (America)?
Interesting if off topic:
"Multi-Million Gold Heist From Curacao Boat"
http://www.usatoday.com/story/news/world/2012/11/30/curacao-gold-heist/1738409/
Here is a differnt sort of boating misshap that caused a loss of gold. :)
Snidley you are "TACK SHARP". Man you are smart!
Snidely is that a typical insurance scam or the world's most inept amateur gold shipment operation??
Hey, I just read and pass along what is (imo) informative and/or entertaining. If I had to guess I would say it's a scam... If the owners of the gold wanted to take the safe route they would have air shipped with heavy insurance. Then again, maybe the owners of the gold wanted to remain under the radar and got burned by pirates. Dunno...
Roger that Snidely. That was an interesting link. But it does leave me scratching my head....
absolutely nothing, say it again!
Did I upset you "Iridium Rebel" ? I'm tired as heck, so I appologise if that was the case.
I get 2-3 hours of sleep if I'm lucky.{ why what}?
No worries. I like you. You do seem to burn the candle at both ends. Rest up....tough times are coming.
I'm 1/2 way across planet earth and watching
HAVEN on syfy tonight! Told myself politics were out of the question!~
Dinged for no apparant reason/ I'll continue to trade, and respect like minds... Just a thought- be careful on those risk trades Sunday.