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Guest Post: The Rise And Fall Of US Confidence, Or Why The Fair Value Of Gold In Phase Space Is $6,000-$12,000

Tyler Durden's picture


Submitted by The World Complex

The Rise And Fall Of US Confidence

Today we look at a graph of confidence in the US system. The US confidence ratio represents the ratio of outstanding US Federal debt to the dollar value of US gold holdings (as reported*). No corrections for inflation should be necessary, as both terms are valued in the same depreciating dollars. We use the term confidence as the ability of the US to stretch this ratio to (by our thinking) absurd multiples was a reflection of the world's confidence in the United States--which differs from the ability to actually repay debts.

For post-1971 I used the assumed holdings of 250 million ounces multiplied by the average annual price (from Kitco). There are those who suggest the true holdings are substantially less than 250 million ounces. That may be so, but the picture is already bad enough if we accept the official numbers.

Confidence level sank throughout the Depression up until the beginning of WWII, after which ascendant American power was reflected in a climbing confidence ratio up to the oil crisis in the early 1970s. Confidence sank as the US withdrew from Viet Nam and inflation rose until the price of gold rose sufficiently to restore confidence in American solvency.

From 1980 to 2001 was a golden age for the US. In this time, both stock and bond markets were strong, the US currency was strong, and the only credible opposition to US hegemony disintegrated. But every bubble meets its pin, and ever since the planes hit the towers, the US power and prestige has gone into decline. This decline is marked by a rapid decline in the confidence index. How low will it go?

There is a provocative looking left shoulder and head, suggesting a drop to the neckline somewhere around 2020, after which there may be something of a resurgence in American confidence. The anticipated completion of the bankruptcy head-and-shoulders formation promises to be a hair-raising event.

Actually, though, what appears to be happening is the blowing of bubbles. A bubble is blown, but can only expand so far before confidence fails and the bubble deflates. Then another, in this case larger, bubble is blown. If the bubble is able to deflate without society collapsing, perhaps it will be possible to blow another. Or perhaps we will be wise enough to act in ways that prevent the bubble from being blown in the first place.

At the World Complex we are of the opinion that bubbles are bad--but we recognize they can be a lot of fun. Sort of like going on a bender. The US has been on a bender since 1980. Soon the weekend will be over and it will have to be back at work. Although the new boss may be of the Asian persuasion.

For the bubble to deflate, the debt must disappear, or the gold price must rise. Assuming no change in debt levels, the gold price would have to rise about ten-fold for the confidence ratio to fall to historical values. Unfortunately, a considerable rise in US debt appears to be baked into the cake at this point, so we would foresee gold to eventually reach breathtaking prices.

The 2-d reconstructed phase space of the confidence ratio appears below:

On this chart we don't dare suggest anything other than a fall towards the origin of the graph. If the ratio falls to 10, then gold has to rise to about $6,000 per ounce at today's level of debt. If the ratio falls to 5 (the last low in 1980), then gold would have to be about $12,000 per ounce (again, only at the present debt level). The numbers could be quite astronomical once the deficits in Medicare and Social Security start being realized.


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Tue, 08/30/2011 - 22:15 | 1617556 russki standart
russki standart's picture

Gold will utimately balance the external debt of the US, as the fiat Federal reserve system continues to crumble. 

Tue, 08/30/2011 - 22:57 | 1617664 spiral_eyes
spiral_eyes's picture

Long term average of DJIA:AU 1:1. Price at peak of NASDAQ bubble 1:60. Price now 1:5. Now prices tend to overshoot. I will sell my gold at 1.5:1. That means at today's prices that should be something like $17,000 an ounce. Now the DJIA is still in a bubble. If we proportion the old ratio of gold to dollars from before 1971, all that fiat creation has led to a $9000:1oz/AU ratio. So the long term trend seems like we will end up at something like DJIA at 6,000, with AU at $9,000. 

Just my two cents. 

Tue, 08/30/2011 - 23:26 | 1617808 flacon
flacon's picture

Gold will soon not be measured in fine linnen (dollars), but rather in purchasing power... 

Tue, 08/30/2011 - 23:32 | 1617830 eisley79
eisley79's picture

the problem with historical analysis, is that they depend on historical events.

In 2008 Western Capitalism ceased to exist.  While it still has the facade of what once was, it no longer shares much in common with what came before.

The events that have occured, are occuring, and will occur, cannot be gauged from the past, because Capitalism has never collapsed before (since its inception).  A new system will be formed, the peoploe in control now will try to shape it in their image, while those opposed to it will attempt to move the new system back towards "freedom".

Gold and Silver have always existed as stores of values, while other systems come and go.  The end game in the current system, is DOW 0 and Gold Infinity.  Something else will replace both the dollar, and the monetary system before these asymptotes are reached.

Look at the value of Gold and Silver historically relative to the value of farm land.  That is about as universal and true a relationship that one could find.  In the new system, it is that ratio that should return to normal, and everything else relative to it as well.


Wed, 08/31/2011 - 01:31 | 1618058 Freddie
Freddie's picture


Well said. Sad but true.  It has happened for thousands of years.

Wed, 08/31/2011 - 19:49 | 1621064 Cole Younger
Cole Younger's picture

"Gold will soon not be measured in fine linnen (dollars), but rather in purchasing power"

Agree. If gold continues to climb, there will come a point that it is meaningless to price it in dollars.

Tue, 08/30/2011 - 23:32 | 1617826 eisley79
eisley79's picture

double post

Tue, 08/30/2011 - 23:54 | 1617889 essence
essence's picture

"I will sell my gold at 1.5:1. That means at today's prices that should be something like $17,000 an ounce"


Will you really sell your Gold (after it having gone up x8) and buy stocks even if HFT and a corrupt SEC are still in place? A bought off Congress and puppet president still in place?




Wed, 08/31/2011 - 00:15 | 1617928 DoChenRollingBearing
DoChenRollingBearing's picture

Why not wait until after freegold arrives, and sell it for $60,000 / oz?

Although I may chicken out some and sell a LITTLE bit for $5000 and maybe a LITTLE bit more at $17,000.  Hey, does a Bearing know the future?

But, for now, BUY while physical gold is still available!

Wed, 08/31/2011 - 07:15 | 1618243 GoldBricker
GoldBricker's picture

As an old fox once told me: "Buy all the way down and sell all the way up".

Or was it the other way around? I can never remember.

Wed, 08/31/2011 - 03:32 | 1618143 Idiocracy
Idiocracy's picture

A good time to trade your gold for the DJIA might be when the companies in the index start to do significant business in PM backed currencies.

Wed, 08/31/2011 - 03:57 | 1618154 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

exactly so many people are saying this based on the previous 2 bull markets - but what if the dollar actually collapses this time?? and gold ends up being worth about $50,000 easily in todays money??

the ends of previous bull markets were market by raised interest rates + sound fiscal policy + deficits that were a fraction of todays

for me the Dow gld ratio is certainly not my major indicator of when to sell

Wed, 08/31/2011 - 04:54 | 1618177 spiral_eyes
spiral_eyes's picture

I'll put it into farmland, industrials (companies, not stocks), productive assets, real estate, energy infrastructure, groundwater. Then wait for the next Kardsahev wave to begin. Gonzalo Lira's post-hyperinflationary recipe is something he really nails.

Tue, 08/30/2011 - 22:55 | 1617699 russki standart
russki standart's picture

Who Carez what  the Yahoo and Bloomberg hack scribblers have to say? Unlike the 1970´s, when gold demand was primarily driven by the US, the rest of the world is gladly buying up AU whilst boobius americanus is relying on the Dow to reflate and restore their 401k´s. Only problem is that the resulting pensions streams will pay out on dollars that will buy much less. 

Tue, 08/30/2011 - 23:51 | 1617886 Spitzer
Spitzer's picture

why dont these retards ever talk about how many times  US treasuries could buy the DOW ?

The fed has a trillion, china has 3 and japan has a trillion. Thats 4 trillion, double the value of all the gold in the world

Wed, 08/31/2011 - 00:17 | 1617929 DoChenRollingBearing
DoChenRollingBearing's picture

+ $1830 and a green Spitzer.

Wed, 08/31/2011 - 07:19 | 1618249 GoldBricker
GoldBricker's picture

True, but it's like robbing a bank with a toy gun. Once you really have to use it, the game is up.

It's a literal paper dragon (or, these days, an electronic computer-game dragon). Once the average man groks the fact that paper trillions are bidding for their physical stuff, he'll clamp on tightly and use fiat only for daily necessities.

Wed, 08/31/2011 - 10:00 | 1618629 dropdeadfed
dropdeadfed's picture

This is already happening. +1

Wed, 08/31/2011 - 11:11 | 1618918 I Got Worms
I Got Worms's picture

+1 for that metaphor!

Wed, 08/31/2011 - 12:25 | 1619191 OutLookingIn
OutLookingIn's picture

A small point, however, valid none the less.

Simile: Figure of speach that dirrectly compares two things using "like" or "as".

Metaphor: A direct comparison of two different things without using the words like or as.

I suppose this would be a direct comparison between the level of education attained and the 'grade' that was awarded to such attainment! In other words, how the great American educational system has failed.

Wed, 08/31/2011 - 00:26 | 1617946 zerohedgeJUNKIE
zerohedgeJUNKIE's picture

sell gold nahh!!! we rather stick to the tradition.

Wed, 08/31/2011 - 10:21 | 1618711 Bullionaire
Bullionaire's picture

Negative JPM:SILVER watch - unless TPTB hit silver for $5 today, enjoy Day 30.


Suck on THAT, Blythe.



Wed, 08/31/2011 - 02:39 | 1618113 Snidley Whipsnae
Snidley Whipsnae's picture

"Americans Choose Gold As Best Long Term Investment"

This Gallup Poll, conducted Aug 25, this year, speaks for itself. In addition to the questions asked by the poll there should have been one more, worded in this manner: 'Do you own any gold?'... How many of those polled actually own gold? How many like the 'idea' of owning gold?

Interesting survey results; breakdown by age, party preference, sex, etc...


Tue, 08/30/2011 - 22:16 | 1617568 Yamaha
Yamaha's picture

Looks like a graph of my hormones.......

Tue, 08/30/2011 - 22:16 | 1617569 SeventhCereal
SeventhCereal's picture

It is inevitable that gold will go up over time, the question is are you liquid enough to survive the indefinite pullbacks from the manipulating banksters and their cronies in government?

Tue, 08/30/2011 - 22:58 | 1617717 seek
seek's picture

Hold physical, don't buy on margin, bought with savings and not operating funds would pretty much guarantee sufficient liquidity for nearly a lifetime. The bigger issue is if it's a long stretch of manipulation, being around to enjoy the profits.

That said, one look at the 5-year chart shows they've lost control of the market in the longer term, their manipuations seem to be fixated on OpEx days now.

Oh, BTW, powers that be, thanks for being so predictable on the OpEx plunges. I held my latest purchase off until the OpEx pullback last week, and as a result  purchase was up by several K before it was delivered today. Keep up the good work!

Tue, 08/30/2011 - 22:59 | 1617726 aminorex
aminorex's picture

I find it hard to understand what you could possibly mean by reading your words.  A human being is neither liquid nor illiquid.  I can make sense of it if I substitute "sufficiently capitalized" for "liquid enough".

Tue, 08/30/2011 - 23:03 | 1617739 Au_Ag_CuPbCu
Au_Ag_CuPbCu's picture

Got physical?

Tue, 08/30/2011 - 22:19 | 1617581 delacroix
delacroix's picture

what happens, if it is discovered, that there is no gold in fort knox. none, zero.

Tue, 08/30/2011 - 22:21 | 1617586 alien-IQ
alien-IQ's picture

discovered? perhaps you mean confirmed?

Tue, 08/30/2011 - 22:25 | 1617596 Terminus C
Terminus C's picture

Bad shit... Really bad shit.

Tue, 08/30/2011 - 22:39 | 1617648 Doña K
Doña K's picture

Gold price to the moon and heads will fall off

Wed, 08/31/2011 - 00:33 | 1617959 zerohedgeJUNKIE
zerohedgeJUNKIE's picture

Fort Knox should be audited by the congress to verify and confirmed. If it happens that indeed there's no gold. Heads will roll via Guillotine.

Wed, 08/31/2011 - 01:58 | 1618075 Al Gorerhythm
Al Gorerhythm's picture

Past and present serving congress critters and senators should be rounded up and like German menfolk around Dachau after the liberation, paraded through the vault, if it is shown to be empty. There should be no mystery left for anyone involved, as to the anger that will be displayed towards them on Explanation Day.

Wed, 08/31/2011 - 00:57 | 1618005 ActionFive
ActionFive's picture

At a manipulated 1800/oz with a debt of +14trillion, that gold might pay the bills for a few days at these prices.

I guess if nobody cares now, why then?


Wed, 08/31/2011 - 01:02 | 1618008 StormShadow
StormShadow's picture

The real question is this: of the gold that may or may not be there, how much is still ours and not liened to another party (or 100 parties as the case may be, and prob is)

Doh! Now that's something a war might start over, eh?

Tue, 08/30/2011 - 22:20 | 1617582 alien-IQ
alien-IQ's picture

Gold at $6000 would put the cost of a loaf of bread at...$25? (theoretically)

I feel a drinking binge coming on....

Tue, 08/30/2011 - 22:27 | 1617601 Terminus C
Terminus C's picture

Better do it soon because a shot will soon be $75.

Tue, 08/30/2011 - 22:31 | 1617616 InconvenientCou...
InconvenientCounterParty's picture

fine spirits might be a better investment than gold. Just something to think about.

Tue, 08/30/2011 - 22:40 | 1617654 Doña K
Doña K's picture

bottles brake

Tue, 08/30/2011 - 23:04 | 1617744 Clampit
Clampit's picture

As do people ... for those looking to diversify.

Tue, 08/30/2011 - 23:23 | 1617796 Freddie
Freddie's picture

You can eat broken bottles and they don't pay a dividend. ;-)

Wed, 08/31/2011 - 09:25 | 1618536 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

You turn that into Street Entertainment and sure as hell it WILL pay a dividend.

Tue, 08/30/2011 - 22:57 | 1617709 russki standart
russki standart's picture

They already are..... cost of Macallan 18 yr old has increased from $89 to $129 in the last 3 years, a higher return than any USD deposit.

Wed, 08/31/2011 - 04:00 | 1618156 theMAXILOPEZpsycho
theMAXILOPEZpsycho's picture

buy and hold - there's no capital gains tax on perishable items

Wed, 08/31/2011 - 07:19 | 1618252 passwordis
passwordis's picture

There's no capital gains tax on secretly held PMs either!

Wed, 08/31/2011 - 08:15 | 1618333 DosZap
DosZap's picture


Not until YOU SELL.

Wed, 08/31/2011 - 08:56 | 1618436 passwordis
passwordis's picture

You're kidding, right? I'm talking about holding physical.

Tue, 08/30/2011 - 23:46 | 1617876 Flocking swans
Flocking swans's picture

Well then those fifteen bottles of Crown I bought last week should come in handy! Come on down to my Black Swan Saloon!

Tue, 08/30/2011 - 22:31 | 1617614 Let them eat iPads
Let them eat iPads's picture

I grow my own bread, you should too.

Tue, 08/30/2011 - 22:37 | 1617641 Hulk
Hulk's picture

Does it come up in wrappers?

Tue, 08/30/2011 - 22:57 | 1617710 Let them eat iPads
Let them eat iPads's picture

Yes, and the strain I grow comes up thick-sliced.

Thank you, Monsanto!

Tue, 08/30/2011 - 22:46 | 1617667 Womb Service
Womb Service's picture

No. That should be $6000 Gold at current bread prices. Gold is undervalued in real terms.

Tue, 08/30/2011 - 23:01 | 1617729 aminorex
aminorex's picture

More to the point, gas at $10/gal.

Wed, 08/31/2011 - 10:03 | 1618646 dropdeadfed
dropdeadfed's picture

My girlfriend insists I should find a way to trap and burn my own gas...frrrrrap!

Tue, 08/30/2011 - 23:15 | 1617776 dollarcoaster
dollarcoaster's picture

With a ferment buble inside the loaf?... priceless!


Tue, 08/30/2011 - 22:21 | 1617584 Newsboy
Newsboy's picture

I'm waiting for this realization to become widespread. then there are some things I will need.

Tue, 08/30/2011 - 22:26 | 1617600 sgorem
sgorem's picture

1 gram, 1 hollow point, 1 gram, 1 hollow point, 1 gram, 1 hollow point..........................

Wed, 08/31/2011 - 15:53 | 1620186 blueRidgeBoy
blueRidgeBoy's picture

if 1:1, then either you have a lot of gold or not nearly enough bullets!

Tue, 08/30/2011 - 22:27 | 1617602 delacroix
delacroix's picture

I read a story a while back, where a secretary, who worked for a rockefeller,reported that her boss was removing gold from fort knox, illegally. shortly after that, she fell to her death, from a highrise window.  (link anyone?)

Tue, 08/30/2011 - 22:34 | 1617627 FilbertH
FilbertH's picture

She wasn't resuscitated by cats was she?

Wed, 08/31/2011 - 01:23 | 1618050 PaperBugsBurn
PaperBugsBurn's picture



There? another source for this too. I think it was same source I read about Bush and Rockefeller stealing Geronimo´s skull for their secret society at Yale. Too long ago to look it up but they did mention these scumbags stealing the gold.

Tue, 08/30/2011 - 22:28 | 1617608 InconvenientCou...
InconvenientCounterParty's picture

Confidence is measured relative to the set of alternatives. All it would take is for China to implode and it would make confidence in the US reflate. It takes less energy to knock someone else down than build yourself up.

QEx could break the peg, which I'm thinking would be quite disruptive to Chinas plan's for world domination.

Tue, 08/30/2011 - 22:37 | 1617642 russki standart
russki standart's picture

InconvenientCou, it is quite possible that a basket of currencies could emerge, undermining the US reserve status. Also, a flight to real assets, out of paper, will likely occur so even if the US retains reserve status among fiat currencies.  As is already the case, gold and certain commodities are rising in price relative to all currencies. 

Wed, 08/31/2011 - 01:17 | 1618039 CrazyCooter
CrazyCooter's picture

Jim Rickards talks a lot about this over in his many interviews on King World News. I think he has four potential scenarios:

  1. SDRs
  2. Gold standard
  3. Competing reserve currencies
  4. Chaos

I am more or less of the opinion that all debts that can't be paid won't be. The question is whether they are cleared via hyper inflation or cleared by deflationary default.

I still don't really grasps the ins and outs of how any of these scenarios will play out, although it doesn't stop me from reading/thinkinga bout it.

Going to be a shit show!



Wed, 08/31/2011 - 10:40 | 1618767 tsx500
tsx500's picture

Rickards is da man. Last week he tweeted 'my 7k gold call is not a prediction, it's a warning. When it happens, the world will be a different place.'. Notice that he says 'when' , not 'if' it happens....

Tue, 08/30/2011 - 22:31 | 1617617 sellstop
sellstop's picture

I still see a rising trendline in the graph.

The chinese may be the "boss" someday, but they are too green to be the boss yet.

We are the champions in the financial world, still, and we will outsmart them for the next round also.


Tue, 08/30/2011 - 22:35 | 1617618 sitenine
sitenine's picture

Why assume a head-and-shoulders formation?  Decline is traditionally more rapid than the climb up.  Just sayin'.

Wed, 08/31/2011 - 00:37 | 1617970 sullymandias
sullymandias's picture

agree - premature - only one shoulder

Tue, 08/30/2011 - 22:34 | 1617625 chump666
chump666's picture

The World Complex is very cool blog, just checked it out re: stock markets.  Very true.  A mentor stockbroker that I once knew once said that the market is not science but 'Art mixed with time.  Find that pattern and you should do ok'...something like that.  Anyway great post

Tue, 08/30/2011 - 23:21 | 1617787 dollarcoaster
dollarcoaster's picture

You mean... doing god's work??? As if Oracle of Omaha was not enough.

Tue, 08/30/2011 - 22:35 | 1617630 FischerBlack
FischerBlack's picture

To be complete (i.e., useful), this analysis would have to include all hard assets owned by the US government, not just gold. For a short list, it would have to include all of the marketable real estate (national parks, government buildings, military installations), all of the marketable materiel (tanks, planes, aircraft carriers, postal trucks, SUVs, black helicopters), all of the art and artifacts in all of the museums, blah, blah, blah, you get the picture.

Actually, more to the point, given that we have what is ostensibly a representative democracy cum plutocracy, the US government is technically the voters and taxpayers. Why not include all of their marketable assets, too?

I'm long gold and gold miners in size, but this seems to be one of the sillier arguments for higher gold prices.

Tue, 08/30/2011 - 22:48 | 1617674 russki standart
russki standart's picture

FischerBlack, the problem with most of the hard assets owned by the US government is their illiquidity, valuation and risk of forfeiture should the US gov´t decide to abrogate title held by a foreign entity.  Unencumbered gold, held outside of the US and international banking systems is far safer and easier to value.


 Parenthetically, I find the world complex arguments to be interesting but not compelling, since there are many better reasons to hold gold and gold miners.

Tue, 08/30/2011 - 22:48 | 1617675 snowball777
snowball777's picture

Don't forget the shitload of plutonium.

Wed, 08/31/2011 - 08:21 | 1618344 DosZap
DosZap's picture


For that to be pertinent, one would have to assume anyone would want to purchase them,( land yes, always) why the American public ever stood for the Feds taking land from them is beyond my comprehension, and two, anything held by the Fed Gvt will not be sold unless their is no Fed Gvt.

They just CONSUME,spend and waste money,they do not give back................only to the slothful, and wastrels of society.

Producers, and savers, are penalized.

Wed, 08/31/2011 - 08:23 | 1618347 DosZap
DosZap's picture


Tue, 08/30/2011 - 22:35 | 1617631 High Plains Drifter
High Plains Drifter's picture

but but but , richard berntein said this morning on squawk box that we have a fiscal problem and there is nothing more the FED can do........huh?????

Wed, 08/31/2011 - 00:21 | 1617932 DoChenRollingBearing
DoChenRollingBearing's picture

IMO our .gov spending is an even bigger problem than the Banksters.  Whether the Fed can do much about that (no), it does not affect the coming very high prices of gold.

Tue, 08/30/2011 - 22:36 | 1617634 bankruptcylawyer
bankruptcylawyer's picture

you guys have it all wrong gold will be 1,000,000 dollars an ounce, maybe a billion. , at least.

Tue, 08/30/2011 - 22:49 | 1617676 russki standart
russki standart's picture

It already is, in zimbabwean dollars :´)

Tue, 08/30/2011 - 23:29 | 1617816 cynicalskeptic
cynicalskeptic's picture

After independence the new $ZIm was worth $US 1.47.    

After lopping off 3 zeros and revaluing $Zim100 TRILLION (that's 12 zeroes) to $NEWZim 1, Zimbabwe'd paper money is worthless.  That's some accomplishment for what is one of Africa's riches nations (in terms of natural resources).

People living in a former exporter of food are starving - panning for flecks of gold to pay for food.  

Wed, 08/31/2011 - 01:35 | 1618064 Freddie
Freddie's picture

Fools in this country, mostly TV watching morons and welfare parasites, voted in Mugabe 2 in 2008.

Tue, 08/30/2011 - 22:52 | 1617685 snowball777
snowball777's picture

$1 quadrillion / 10B toz == $100k max...lay off that crack.

Wed, 08/31/2011 - 00:31 | 1617955 DoChenRollingBearing
DoChenRollingBearing's picture

Actually snowball, that $100k / oz is about FOFOA's upper limit too.

The number of ounces of gold that exist that I have seen the most is approx. 6 billion oz.  There may be more that the Rothschilds secretly have, but that 6 bn should be approximately right.

My Trail Guide FOFOA sez that we currently have approx. 100 paper claims on each physical ounce, and that we should expect a 40 x or so upward re-adjustment in price.  Most likely very quickly when someone fails to deliver physical (wouldn't it be funny if it was Chavez who brought about freegold?).  40 * $1800 = +/- $70,000.

FOFOA sez further that these would be non-hyperinflated numbers, if we get HI, then the price of gold would that much higher.

People will still have to use SOMETHING as currency.  It will probably still be US$, maybe with more zeros attached.

Wed, 08/31/2011 - 03:04 | 1618126 Hansel
Hansel's picture

I don't see the point in having an upper limit before they quit printing.  Don't forget the paper mark:gold mark chart.

Wed, 08/31/2011 - 07:23 | 1618256 GoldBricker
GoldBricker's picture

No, FOFOA makes clear that he means today's $50K of purchasing power; the fiat measure is simply for convenience. Once the lid blows off and no one will exchange metal for paper, then the number becomes meaningless.

I know that FOFOA's stuff is vast, verbose, and has no index or table of contents, but it's worth the wade.

Tue, 08/30/2011 - 22:38 | 1617646 zorba THE GREEK
zorba THE GREEK's picture

Gold has broken away from trading in relationship to: the dollar, equities,  the bond market and 

other commodities. Gold will soon break away from trading in relationship to paper gold.

That means that the manipulated paper gold trade will not affect the price of physical gold.

That is why paper gold and silver needs to be converted into physical gold and silver very soon.

To many of us, it feels like it has been a long time coming, but when it arrives, it will go down 

fast and some will be caught off-guard. Make your moves now and avoid the rush, that way

you are less likely to pay a premium.

Tue, 08/30/2011 - 22:46 | 1617663 Doña K
Doña K's picture

The banksters are sniffing the end. They are buying en masse and take it with their yachts in St. Barts. Someone should call the SEC. Yea right!

Tue, 08/30/2011 - 23:31 | 1617823 cynicalskeptic
cynicalskeptic's picture

Hell....they're MAKING yachts out of gold now

Wed, 08/31/2011 - 08:11 | 1618295 tarsubil
tarsubil's picture

That is one of the most retarded hoaxes ever.

Tue, 08/30/2011 - 22:44 | 1617660 lolmao500
lolmao500's picture

For the confidence to go back up in the US, Americans need to stop being sheeple. They need to re-discover freedom, what it means and how much it costs in blood and sacrifice.

It also needs to clean itself of the scum that is infesting it (war criminals, bankers, everything will be alright the government will take care of everything type of people, the MSM)... it needs THE RULE OF LAW back...

If that doesn't happen, forget it, it'll continue to go down down down.

Wed, 08/31/2011 - 01:43 | 1618068 Freddie
Freddie's picture

As long as they watch TV - Any TV - they Are serfs.  Until they pull the plug enmasse - then the elites will know the sheep have no clue.

Tue, 08/30/2011 - 22:45 | 1617662 Mec-sick-o
Mec-sick-o's picture

If you are so confident gold is undervalued five-fold, I wonder what keeps you from focusing all your efforts in raising all money possible and keep buying cheap gold, instead of writing and letting everybody else get it before you and raise your present gold value, reducing your benefit.

Tue, 08/30/2011 - 23:22 | 1617792 Tyler Durden
Tyler Durden's picture

Everybody? While ZH does have about 3.5 million monthly readers, that does unfortunately leave out about 5,996,500,000 people...

Wed, 08/31/2011 - 00:44 | 1617988 Mec-sick-o
Mec-sick-o's picture

I'll let you sink in the definition.  

You need to update your 1999 Almanac, current world population is almost 7 billion.

Wed, 08/31/2011 - 01:23 | 1618049 Real Estate Geek
Real Estate Geek's picture


Wed, 08/31/2011 - 00:57 | 1618004 zerohedgeJUNKIE
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Unfortunate indeed. But slowly we are spreading the word out there. I just hope it goes parabolic so more people will be educated.

Wed, 08/31/2011 - 01:30 | 1618056 PaperBugsBurn
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great freaking nick

Tue, 08/30/2011 - 23:38 | 1617856 Prometheus418
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"Tyler built his army.
To what purpose, might one ask?
Well, one might ask, if not for the
first rule of Project Mayhem.

In Tyler We Trust."

This *is* Fight Club, isn't it?


Wed, 08/31/2011 - 01:09 | 1618021 sherryw
sherryw's picture

...and where IS Project Mayhem lately?

Wed, 08/31/2011 - 01:54 | 1618078 Freddie
Freddie's picture

One thing I do like here is you get so much less BS.  I foolishly went to the WSJ?barrons a a few days ago. I wrote them off a long time ago.  They were fawning over Buffett and his BS.  The whole thing was sickening along with people responding.  They were probably Hope & Change govt workers in the Ministry of Propaganda.

Wed, 08/31/2011 - 00:38 | 1617971 DoChenRollingBearing
DoChenRollingBearing's picture

Some of us here (many) actually ARE buying gold as fast as we can.  I buy when I have extra fiats come in.  I don't like debt, so I buy only when I have free and clear cash.

So much money will be made by holders of gold that there is plenty of time and consideration for us fans of gold to alert everyone to the benefits of holding the best wealth protection asset in town.

Chumbawamba, last I heard, actually DID what you suggested.  He maxed out his credit cards and bought gold.  He's leveraged, put his money where his mouth was.  Looks like he made a GREAT bet.  Chumba, correct me on anything I may be wrong about.

Tue, 08/30/2011 - 22:48 | 1617673 Thunder_Downunder
Thunder_Downunder's picture

Great chart... been waiting years for the 'diving red hampster' chart pattern. Hampsters like cheese, cheese is yellow, gold is yellow, it is a good omen.

Tue, 08/30/2011 - 22:49 | 1617677 par4
par4's picture

1980 to 2001 was a 'golden age'? What the fuck kinds of drugs are you using?

Tue, 08/30/2011 - 23:23 | 1617795 bankruptcylawyer
bankruptcylawyer's picture

someone has been snorting the internet dawwwwg.

Tue, 08/30/2011 - 23:36 | 1617846 lolmao500
lolmao500's picture

1980 to 2001 was the CREDIT AGE... the beginning of the bubble.

When was the US golden age... the 1920s? The 1950-60-70s? After the revolution?? In the expansion of the west??

Hell if there was some new continent, like America was back in the 1600s, I would move there... RIGHT NOW. Screw the ``old world`` full of parasites.

Tue, 08/30/2011 - 22:52 | 1617678 Manthong
Manthong's picture

I think that if you include ALL paper claims including unfunded mandates and derivatives the number will turn out to be more like $60,000 / oz.

Chart looks like a fetal pig with a woody to me, but then I always drove the shrinks out of the room in a daze after the Rorschach tests.



Tue, 08/30/2011 - 23:03 | 1617735 russki standart
russki standart's picture

Yeah, Manthong, I remember in grade 12 when a psychologist showed me an inkblot and asked me what I saw. When I told him that it looked like a mans brain blown against a wall by a Magnum 44, he was singularly unimpressed.  Neiher was the Principal, when I told him I was just screwing with the shrinks head...

Wed, 08/31/2011 - 00:40 | 1617979 DoChenRollingBearing
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+ $1830 and green

FOFOA predicts a number between $55,000 - $100,000 based on similar criteria, mainly paper claims on physical ounces, which works out to be pretty much the same as your presentation.

Tue, 08/30/2011 - 22:50 | 1617680 erg
erg's picture

What's at the centerpiece of Galt's Gultch? A big,golden dollar shaped icon. What was on the rare cigarette? They know what real money is.

You know Galt's Gultch, the place the privileged have set aside for themselves to ride out the storm while the plebes monkey knife- fight each other for food. Then, after we beg their forgiveness and plead for them to save us from ourselves, they'll auger in the final phase. With complete sanction from the lemmings.

Tue, 08/30/2011 - 22:51 | 1617681 uno
uno's picture

the great society,how is that working out

Tue, 08/30/2011 - 22:51 | 1617682 Thunder_Downunder
Thunder_Downunder's picture

Terrible analysis... You could drive an armoured car full of bullion through most of the authors assumptions.


H&S pattern? What a joke. I hope this author doesn't get guested again.

Tue, 08/30/2011 - 22:51 | 1617684 Clampit
Clampit's picture


Tue, 08/30/2011 - 22:54 | 1617689 Caviar Emptor
Caviar Emptor's picture

For those who get it, this article makes perfect sense. This is how affairs of state have been conducted for millenia. We're lucky in this day and age as 'average citizens' to have a window on it. ZH has been a huge part of that which enables citizens to observe, learn, discuss and participate. 

We should take stock of this for a moment: you no longer need to be of noble descent, or a Borgia, Rockefeller, Morgan, Rothschild have access to and participate in global macro-based investing. 

Gold was always there, lying latent behind the scenes conferring power to the dominant economy in every era. In times of turmoil and transition it's value has a premium because, yes, it is the ultimate fungible monetary asset in the world. Universally recognized. Whether 'rational' or not (what in this world really is when you come down to it). 

Wed, 08/31/2011 - 01:32 | 1618059 gwar5
gwar5's picture

I'll drink to that...

Tue, 08/30/2011 - 22:55 | 1617692 vegas
vegas's picture

Things to consider:

1) Absolutely no way will the US ever repay the debt. $15 trillion and climbing rapidly. Hell, they can't even slow the rate of growth.

2) Gold and silver have always been a store of value since man became upright.

3) Politicians will never do the right thing. Only revolution and riots in the streets of Peoria will wake up the politicos. Even then, they will lie, cheat, and steal from future generations to get votes.


There is no theoretical high in gold or silver. In old Zimbabwe dollars, what is the current bid/offer in gold?

10 years from now, $12,000 will look dirt cheap.

Tue, 08/30/2011 - 23:39 | 1617859 cynicalskeptic
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Ten years from now a loaf of bread will cost $10,000.    

THAT is how you pay off trillions in debt without defaulting.  You devalue your currency by inflation to the point of worthlessness.  Same thing happened with Continental Dollars - that is why the Constitution prohibited states from printing paper money and limited the Federal government to coining gold and silver.


Thu, 09/01/2011 - 00:14 | 1621676 zerozulu
zerozulu's picture

I did my calculation and ten years from now, loaf of bread will cost $20.

Tue, 08/30/2011 - 23:00 | 1617696 King_Midas
King_Midas's picture

Today the Russia state news post a commentary that gold may drop to 1400 after QE implodes along with any insolvent banks ?

Will most banks allow debts to be settled in gold ? I think most will issue a l/c backed by Au ?

I have not seen the inflation from QE at the rate anticipated and I am thinking maybe this is the scrooge effect ? whereby the wealthy and the banks horde the cash thereby increasing the value of the dollars that are liquid and circulating ? .... Could someone please explain to me the process whereby M3 may be converted to M2 and on to M1 ? Isn't that conversion is what is required before we see any inflation at the consumer level ?

Tue, 08/30/2011 - 23:06 | 1617750 Mec-sick-o
Mec-sick-o's picture

Inflation has not kicked in because:

1. Money is parked at banks.

2. Money that is parked has zero velocity.

3. There is an enourmous black hole: instead of letting creditors take the losses... the losses are socialized.  There is permanent indebtness, no clearing of the bad loans.  Liquidity is still used to pay interests and none of the principal.

4. Rotten assets such as real estate at banks are being lifted artificially, not marked to market.  Prices nevertheless need to come down.  This is antiinflationary.

Wed, 08/31/2011 - 07:32 | 1618273 GoldBricker
GoldBricker's picture

1. Money is parked at banks.

It's parked there because the Fed pays interest on all those excess reserves. This is 'bank recapitalization':

1. Banker borrows at 0% from Fed, parks money at same Fed.

2. Fed pays banker some rate greater than 0%

3. Banker puts feet on desk and smokes a fine cigar. Nice work if you can get it.

The lid comes off when this changes.

Tue, 08/30/2011 - 23:10 | 1617763 russki standart
russki standart's picture

In a deflation, where fiat credit is destroyed, gold may decline in nominal dollars but in real terms will increase in value.  During a deflation, the value of most bank assets decline, calling into question their viability. Hence, holding cash or near cash in a bank becomes more risky than holding gold outside of the banking system.

Tue, 08/30/2011 - 23:45 | 1617873 cynicalskeptic
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Russia and China talk the price down - and buy the dips. Look at what they do, not what they say.  

Russia sold off some gold a little while back - very publicly.  In a few months they'll probably reveal that they bought far more over the following months.

China's reserves have shown astounding - an previously unreported - jumps when they do finally make numbers public.  

Wed, 08/31/2011 - 07:41 | 1618285 BlackSea
BlackSea's picture

If gold goes back to $1400, US gasoline will be $1.50 not $3.80/gallon because deflation would rage.

But in today's system the cries of "DO SOMETHING!" will be sooo loud, no deflation in USD will EVER, EVER be allowed to take hold.

Tue, 08/30/2011 - 23:08 | 1617724 SHRAGS
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(How do you get images to insert?  This chart shows up under preview, but not in the post)


Tue, 08/30/2011 - 23:08 | 1617758 delacroix
delacroix's picture

first there will be a shortage of paper currency, driving up the purchasing power. then the digital dollar excess reserves, will purchase real assets, at bargain prices.much of the digital dollars, will hit the economy, just in time to meet a new abundance of paper currency, destroying its value.  win/win, if you're in the club.

Thu, 09/01/2011 - 00:08 | 1621665 zerozulu
zerozulu's picture

Money changers are thrown out many times you need to check this list out . I believe they will be thrown out one more time very soon.


Tue, 08/30/2011 - 23:13 | 1617771 alien-IQ
alien-IQ's picture


Congress Giving Millions of Foreclosed Homes To Wall Street 


I think I'm gonna puke now....

Tue, 08/30/2011 - 23:22 | 1617793 cynicalskeptic
cynicalskeptic's picture

The remake of 'The A Team" isplaying in the background on cable....godawful movei but the plot is intriguing.    The CIA is worried about terrorists who captured the 'Iranian Mint (sic - a 'mint' makes coins)' using presses to print 'Billions in unbacked US currency'

by those standards, the Fed is one hell of a 'terrorist organization'.


And BTW - for reral - in the 1980's there were counterfeit $100 notes so good they passed through currency processing equipment.  Whether prduced on the Intaglio Presses we sold to Iran (the printing presses used for engraved currency production) or printed by the North Koreans, these notes were good.  The Colombians were pretty good in printiong on bleached $! notes (real US banknote paper)  - whihc is why they started wqith the security threads.  But strangely  the $US 100 is the LAST - and still unreleased - note to have been redesigned with litho printing and other serious security features.  Rumor has it the print job was so bad they can't inspect and replace the errors fast enough to be cost effective.  But I suspect that the US is reluctant to make all those existing $US 100 'obsolete'.   Despite the billions in counterfeit $US100's throughout the world - very bad in many cases - esp in Africa, the REAL $US100 notes stuffed in mattersses and safes all over the world represent interest-free, indefinite duration T-Bills....  'loans' the US doesn't have to pay interest on.   But the smart ones are trading their US dollars for more 'tangible' assets of late.  Holding paper$US is a money losing proposition lately - no matter where you are.

Wed, 08/31/2011 - 07:37 | 1618280 GoldBricker
GoldBricker's picture

This is an old trick. The Germans made such good counterfeit pound notes for its spies that they Bank of England certified some specimens as genuine.

There's a lot of US paper all over the world. I once went to a bank in a village (4000 people) to buy a $100 bill for a graduation present. The cashier pulled out a stack of hundreds 3 or 4 inches high and asked me how much I needed. In such circumstances, how likely is it that high-quality fake FRNs would be detected?

Once the devaluation is in full swing, a lot of those FRNs, real and fake, will head back to where they came from as the world tries to salvage something physical while it still can.

Wed, 08/31/2011 - 08:22 | 1618339 spanish inquisition
spanish inquisition's picture

The A Team plot also had the CIA and Army wanting the plates to print their own money (of course, they were rogue elements). Back to reality.  So what happens if they change the $100 bill and all these people learn their CIA money was counterfitted by the CIA?  Of the 7 billion notes out there, what happens when there are 11 billion redemption requests? So I would conclude that the CIA has sabotaged the $100 because they needed to by time to upgrade their presses and processes so they can print and exchange the money they have handed out. That would of made a more realistic plot. Let's face it, the US is the biggest counterfitter of US currency (that's why the $100 bills are so good)

As for me, Jessica Biel covered up many of the issues with the movie that I can't remember the name of becuase i thnkgin..jessica...mmmm

Tue, 08/30/2011 - 23:35 | 1617825 delacroix
delacroix's picture

I think they realized, tim geitner's signature, on the dollar, would accelerate the loss of confidence.

Tue, 08/30/2011 - 23:43 | 1617865 Haole
Haole's picture

"Gold at $6000 would put the cost of a loaf of bread at...$25? (theoretically)

I feel a drinking binge coming on...."


Totally fallacious implication or "theory".  I bought gold at half the price it is now and a Mars bar was $1.25 and a loaf of my favorite artisan spelt bread was $5.95.  They're still $1.25 and $5.95...

Tue, 08/30/2011 - 23:50 | 1617883 alien-IQ
alien-IQ's picture

You're right. there is no inflation. let us all celebrate with a fresh round of QE.

Tue, 08/30/2011 - 23:57 | 1617898 monopoly
monopoly's picture

All kinds of numbers, we are slowly moving forward. Like to see gold rest for a week or so. 1,800, less, more. No big deal. Then $2,000 possible. One step at  time. This is going to take years guys, not months.

Wed, 08/31/2011 - 00:02 | 1617905 Haole
Haole's picture

"You're right. there is no inflation. let us all celebrate with a fresh round of QE."


I didn't say there was no inflation, only that $6K gold does not necessarily mean $25/loaf bread, or $20/gallon gas, or...

A fresh round of QE?  Did it ever stop in one incarnation or another?

Wed, 08/31/2011 - 08:45 | 1618400 DosZap
DosZap's picture

Haole,@ 00:22,

According to Shadow Stats .com, Mr.John Williams, REAL inflation ( Not the CPI crap), includes FOOD & FUEL.

And it's sitting at 11.2%,your earning maybe 1.5% on cash at a bank, and losing 30% on the dollars purchasing power over the past 3rs.

Bernanke has said we leave rates at basiclly ZERO for a min of 2yrs.

Where you putting you fiat?.

The only thing I have made GOOD profits on, is PM's...................

All else is shite.

Wed, 08/31/2011 - 01:34 | 1618062 BigDuke6
BigDuke6's picture

It was all so predictable , and many called it right here on ZH.

QE3 put off until the banksters threw their toys out of the pram....

The crucial thing to remember is that this level of debt has never been paid off by any means other than inflating the debt away.

Prepare accordingly.

Wed, 08/31/2011 - 03:16 | 1618132 Reven
Reven's picture

It's the FLOW or velocity of gold changing hands that matters, not the aboslute amount in existence.  This is true of all currencies.  But the velocity of dollars is set to explode as they seek a place to hide from the collapse of the world's monetary system.

The funny thing about gold is that as the price rises, physical gold available for purchase starts to hide.  There is anecdotal evidence of this from local precious metal dealers if you ask around.  Fewer and fewer people bring in older gold coins to sell as the price rises.  So the absolute physical supply available at a given price is declining due to increased risk of a monetary/financial/banking dislocation.  Once this concept is understood, it's obvious that gold is headed for an exponential, parabolic increase in price.  My gold, buried in the backyard or wherever as insurance, is not going to help the millionaires and billionaires of the world who suddenly and frantically start trying to buy every physical available on the open market.  My physical gold and many others with physical will not be offering an ASK, no matter how high the BID goes.  The shenanigans have to end, and gold is going to mop up and absorb all the phoney wealth in the corrupt system.

Wed, 08/31/2011 - 23:32 | 1621604 Mec-sick-o
Mec-sick-o's picture

Lately fiats avoid collapse just by re-issing a new fiat currency.

I find many interesting observations in this video, specially after 14:00 min.

Wed, 08/31/2011 - 03:37 | 1618147 gwar5
gwar5's picture

First, I'd like to see gold clear the inflation adjusted high of $2400. I'll count the rest after it happens.

Wed, 08/31/2011 - 03:53 | 1618152 Highrev
Highrev's picture

Nothing like a 40 year anticipation of a right shoulder (not to mention completed head).

Hey, do these guys do finger painting too?

Wed, 08/31/2011 - 04:12 | 1618155 FunkyOldGeezer
FunkyOldGeezer's picture

So, if Gold is currently greatly undervalued against the greenback, doesn't that imply that it has actually been piss poor as a store of wealth up to this point?

THE one great flaw in all the arguments put forward by all the Goldbugs.

Don't get me wrong. I can't see many things that might successfully navigate the upcoming financial meltdown, but this is the one irritating, obvious question that appears to be glossed over. 

As for the 'head and shoulders' comment...what a load of claptrap! If the chart went back 1000 years (impossible for obvious reasons) it just might be a valid interpretation. What a joke!

Wed, 08/31/2011 - 04:14 | 1618163 jomama
jomama's picture

seems more like massive manipulation & no legitimate basis of supply and demand/price discovery to me.

Wed, 08/31/2011 - 04:49 | 1618174 Reven
Reven's picture

Gold is massively undervalued against all paper assets and currencies, not just the dollar.  Look at the expansion of debt, stock values, world GDP, and even population in the past 50 years.  Look how high they had to raise interest rates to deflate the last gold "bubble".  Continued 0% interest rates means the US dollar is no longer interested in being a world reserve currency, so something must replace it.  It's obvious the world is choosing gold as that replacement, as there are no viable alternatives with enough credibility.  The price level of goods in the US is restrained from going up due to supply and demand and the fact that dollars are still accepted for oil and other valuable imports.  Demand is weak though, and there's a glut of excess productive capacity in the world that was built to service the demand of a perpetually rising debt bubble.  But that could all change if there's a disorderly collapse in the value of the dollar versus other currencies.  It's a race to the bottom for all fiats worldwide, and the dollar is just determined to win that race.


The Chinese seem to want to go down with the dollar by continuing to peg their currency to our own.  They will regret that foolish and shortsighted mistake.  Once gold is required to import oil, you will see a very drastic change in the dollar as a store of wealth.  Gold is and will be the one world currency and again required for trade between nations.  No longer will the savers of the world be held hostage to the actions of central banks that tinker with interest rates and money supply.  If savers disapprove of monetary policy (as they do today), they will simply buy gold (as their vote of no confidence).  The economy will then suffer from the rise in gold and the corresponding higher fiat price of oil and other imports.  But until gold reclaims it's role as the world reserve currency, our US dollar gives us a certain amount of protection from the mistakes of our central bank's monetary policy.  Central banks would be wise to target a stable fiat price of gold in the future once the system clenses itself of debts that cannot be repaid and the USD is no longer accepted for international trade.

Wed, 08/31/2011 - 05:29 | 1618188 Thomas Gresham ...
Thomas Gresham b. 1519's picture

Interesting. One arrives at similar conclusions when looking at the Fed's balance sheet size.

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