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"Gold
has always been funny in that way. So many people worldwide think of it as
money, it tends to dry up as the price rises."
(ANOTHER, 1997)
All the gold in the world is a fixed quantity. It always has been. It just
gets moved around like poker chips on a table. Some of it is still in the
ground and some is above ground, in portable form. But it is all owned by
someone, underground or above. If it was sufficient to simply trade paper
ownership certificates then there would be no need to pull it out of the
ground at all. We could just estimate how much was down there and then trade
ownership rights. But it is not sufficient, especially for cross-border
trade. Never has been. And this is why we pull it out of the ground.
In the monetary roles of 'numéraire/accounting
unit' and 'store of value', this gold has been the most reliable money the
world has ever known. But those of us who are savers know from personal
experience that gold need not be the medium between every single exchange. We
generally work four months out of the year to cover the government's
"cost of living," seven months to cover our own cost of living, and
one month to add to our capital account, our savings. We really only need the
gold for that last month's efforts. Debtors, of course, work those last
months just to service their debts. So they don't need gold at all.
But for a saver whose income is derived from depleting his capital, like a
gold dealer or an oil producer, the required flow of gold is a much greater
percentage of gross receipts than a saver who, say, produces cheap goods for Walmart. While the latter might require a flow of 5% of
gross receipts in order to slowly grow his capital account, the former needs
a flow sometimes as high as 95% of gross receipts just to stay even!
Imagine a gold dealer who sells 10 ounces of his own stock for $14,000. He
must then replace his stock and refill his capital account, so he turns
around and buys 10 ounces for $13,500. He has just made himself an income of
$500. His gross receipts were $14,000. And he required a gold flow of 96%
just to keep his capital account even. Now think about the oil reserve owner.
His oil reserve is his main capital asset, just like gold to the gold dealer.
But oil doesn't get shuffled around like poker chips on a table. It goes up
in smoke. So what does the oil producer use to keep his capital assets even?
Promises?
Of course above ground gold is much more valuable than gold still in the ground.
And likewise, value is added to oil as it is pulled out of the ground. It is
now able to be sold, traded, refined and consumed. It is this added value
that the oil producer uses to fund his lavish cost of living. In this way,
the oil producer is more like the gold mine owner than the gold dealer, as
the gold miner need only retain a small portion of what he pulls out of the
ground to keep his capital account even.
Unpublicized gold for oil deals are nothing new. The first known deal was 65
years ago, right at the beginning of Bretton Woods:
To
collectors, however, the most interesting Saudi gold coins weren’t
coins at all; they were “gold discs” Similar to coins, they were
minted by the Philadelphia Mint in the 1940’s for Aramco,
and bore, on one side, the U.S. Eagle and the legend “U.S. Mint,
Philadelphia, USA” and, on the other side, three lines on the fineness
and weight. They looked like coins, they were used as coins, but,
technically, they weren’t coins.
In the 1950’s, numismatists were puzzled by these “discs”
until - in 1957 – the story emerged in The Numismatist. Aramco, required to pay royalties and other payments in
gold to the Saudi government, could not obtain the gold at the monetary price
fixed by the United States so the U.S. government specifically began to mint
the “discs” – actually bullion in coin form for these
payments. In 1945, for example, the mint turned out 91,210 large discs worth
$20, and, in 1947, 121,364 small discs worth $5, according to The
Numismatist.
(Saudi Aramco World, 1981 print edition)
The coins were struck in Philadelphia by the United States Mint in 1945 and
1947 to satisfy the obligations of the Arabian American Oil Company, or Aramco, which had been set up in Saudi Arabia by four
American oil companies. The company was obliged to pay the Saudi Government
$3 million a year in oil royalties and its contract specified that the
payment be made in gold.
The United States dollar at the time was governed by a gold standard that, at
least officially, made the dollar worth one thirty-fifth of an ounce of gold.
But the price of gold on the open market had skyrocketed during World War II.
For a time the Saudis accepted payment in United States currency, but by 1945
they were insisting that the payments in gold be resumed. Aramco
sought help from the United States Government. Faced with the prospect of
either a cutoff of substantial amounts of Middle Eastern oil or a huge
increase in the price of Saudi crude, the Government minted 91,120 large gold
disks adorned with the American eagle and the words "U.S. Mint --
Philadelphia." (New York Times, 1991)
US Mints ‘Gold Disks’ for Oil Payments to Saudi
Arabia
There is an extremely important point hidden in those articles. Can you guess
what it is?
It is that the price of gold does not matter to the producer/saver, only the
flow of gold matters. I'll say it again. The producer/saver doesn't care
about the price of gold, only the flow. To the producer/saver the price
doesn't matter because it is a straight currency exchange, like exchanging
dollars for euros.
Did you see it in the article? Aramco owed the
Saudis $3 million a year, but it had to be paid in gold. They didn't owe 2.67
tonnes of gold per year, but that's what they had
to pay because the US fixed the price of gold at $35 per ounce. The US could
have raised the price of gold to $100/ounce and then it would have only had
to ship .93 tonnes of gold to the Saudis! Would the
Saudis have been displeased with such a move? No. The guaranteed price of
gold only matters to the printer of paper gold. To the producer/savers, all
that matters is the guaranteed flow of physical!
Up until 1971 the US administered the flow of physical gold within the
official international dollar banking system. If you were not an insider you
paid sometimes as much as $70 per ounce for the same gold:
The
bullion coins were crated and shipped to Bombay, where the $35-an-ounce
American gold was sold for $70 an ounce. Most of the coins were melted into
bars and later sold in Macao.
(New York Times, 1991)
During this time dollars outside the US were "as good as gold"
while dollars inside were not. FOA called these internal dollars "Fiat
33" after the Presidential order of 1933 that made all internal dollars
irredeemable in gold. Oil produced inside the US or even in Canada and Mexico
could be purchased with "Fiat 33" dollars, while overseas oil required
paper gold, redeemable in US Treasury physical gold. Even the Saudis
eventually accepted the US paper gold, as long as a portion of it was
regularly redeemed.
Then, in 1971, the US stopped the flow of official gold. What followed was
this:
We all know why the flow of official gold was cut off, right?
Well, maybe not. Here was FOA's explanation:
FOA (12/5/99; 17:38:01MDT - Msg ID:20347)
The world did begin to walk away from the dollar! It plunged and remained on
a downward trend for several years! The US knew their option was to raise
gold prices prior to 71 (just as I offered in the last post). But oil was the
major problem link! Every oil person in the US knew we were running out of
local reserves at the old "gold backed" dollar price. All the
Middle East had to do was wait us out as they were happy to out produce and
supply us in exchange for "real dollar backed gold". You see, oil
was and is the real driver of all economic production.
We could have raised the dollar price of gold to settle our accounts but that
would not have raised the local oil price enough to make deep reserves
available. Yes the dollar would have depreciated somewhat and foreign oil
would have gone up, but not enough. The need for more local reserves and the
higher dollar prices that could make them available is what drove the 71 gold
window closure. They had us and we had them.
…
At that time we were buying local oil with "fiat dollars" (made so
by the 1933 internal gold confiscation) and foreign oil with "gold
dollars". But, as you pointed out, dollar production was so far past its
"gold backing" that it was obvious they (USA) were pegging dollar
printing to oil prosperity. Still, with London gold and oil mostly settled in
dollars, the foreign dollar oil deals fully well expected to cash in unneeded
dollars for gold. As we can see, reality and present day events of that time
were as "mismatched" as today!
…
The US wanted new oil reserves to be "Local" (the Americas),
because it could be paid in "fiat 33" cash, not the more golden
"foreign cash". Both our neighbours to
the north and south never asked for much gold. In this light they acted like
the local oil companies that received post 1933 dollars for oil (as mentioned
above). Yet, to get these new reserves for fiat 33, they had to prevent the
very cheap Middle East oil from supplying it all.
Wow! So I think he said that the 1970's spike in oil prices was actually
desired by those in charge of the dollar's management. That they had
out-printed the gold reserves already and wanted to somewhat temper that
development. Did it work out exactly as they hoped? Of course not. But that's
not the point. The point is that the producer/savers need gold to flow. And
the US cut off that flow.
Now obviously (at least I think it should be obvious to everyone) I believe
ANOTHER and FOA were 100% credible. I believe they had some unrevealed yet
deep inside connection to European central banking and the gold for oil deals
in London that only a European central banker would know about.
But I do realize that most of you do not share my credulity toward these two.
So I think that you may find this interview from last week somewhat
intriguing. In it, John Defterios of CNN
International's "Marketplace Middle East" interviews Sheikh Zaki Yamani, the Saudi oil minister from 1962 to 1986.
That's right, he was the Saudi oil minister during the 1973 oil shock!
It's a short video and the relevant part is in the first 90 seconds. I'll
even give you the transcript:
John
Defterios: 1973, the Arab oil embargo, you were a
key player during that process. The former US Secretary of State Henry
Kissinger said it was political blackmail what Saudi Arabia and OPEC were
doing to the rest of the world. In retrospect how did you see it?
Sheikh Yamani: Well that’s a very long story, and the reaction of
America for what happened is not a one reaction. They decided to raise the
price of oil 400%. They needed to help the oil companies to invest outside
OPEC. In Mexico, in North Sea and so on. And this will not happen without a
high price of oil.
According to Yamani, what happened in 1973 was twofold. There was an American
plan, and also an OPEC overreaction. 1973 was, according to Yamani, the first
time that OPEC flexed its muscles as an organization. From the full
transcript of the interview:
Sheikh
Yamani: Yes and there was an agreement between the Shah of Iran and between Dr.Henry Kissinger to raise the price of oil… I
really highly respect Henry Kissinger. He is really a planner and
strategically he is a man to be respected.
Is it true? I don't know. But I think it's true. Not because I believe Sheikh
Yamani, but because I believe FOA and ANOTHER were 100% honest, credible and
deeply resourced. And Sheikh Yamani happens to corroborate what FOA wrote
eleven years earlier.
But whether or not it's true is beside the point, which is the same point
ANOTHER made in his very first post, quoting his friend and fellow poster,
"Hong Kong Big Trader":
It was once said that "gold and oil can never flow in the same
direction". If the current price of oil doesn't change soon we will no
doubt run out of gold.
Now you might think he was saying "If the current price of oil doesn't RISE
soon we will no doubt run out of gold." But he didn't say rise, he said
change. And it is not as simple as you would think.
From 1980 through 2001 gold did flow, though not in the efficient way it
would in a free market. With the expansion of the gold forward sales and
futures markets, the Saudis and the third world bought up all excess physical
gold flow. As ANOTHER said in his very VERY first
post, which is prior to even the USAGold archives:
September 14, 1997 by "ANOTHER"
The CBs are becoming "primary suppliers" to the gold market.
Understand that they are not doing this because they want to, they have to.
The [CB] words are spoken to show a need to raise capital but we knew that
was a [smoke] screen from long ago. You will find the answer to the LBMA
problem if you follow a route that connects South Africa, The Middle East,
India and then into Asia!
Remember this; the Western world uses paper as a real value, but oil and gold
will never flow in the same direction. Big Trader
"South Africa, The middle east, India and then into Asia!" This was
where the physical was flowing while we, in the West, were becoming enamored
with paper gold trading. No longer did the US Treasury have to supply ITS
gold, the market was supplying gold for it. But keeping the physical flow
bought up, cornered as it were, was putting a great deal of stress on the
paper market of the LBMA by the mid-1990's. It's all
about the flow remember, the flow of PHYSICAL that is. FOA:
FOA (12/04/99; 21:34:03MDT - Msg ID:20282)
Earlier this year, old bullion supply dried up and it looked like the last of
the private "old stocks of gold" had finally run out. Then the
price shock from the Washington Agreement flushed out some more. I've written
on this before (and ORO told it better than I), but the more the old holders
sell out in return for holding "unallocated gold accounts" the
worse the shortage will be when the marketplace fails. Slowly, over many years,
the people that now hold the real bullion that was sold to create a lot of
paper gold, have literally locked up the ownership. The old liquid gold
market we used to know in years past functioned because of all the private
physical holders that traded it. Now, it's all paper being shuffled around.
This gets back to your LBMA item. The old, deep private bullion pool has been
replaced with a paper commitment pool. In the past, if someone defaulted, we
just grabbed their bullion. Today, if they default, they just default! Again,
if that big African mine does tell them to take a hike, the whole modern gold
market could just collapse. This is why I smile when I hear someone question
why the big funds and traders don't just take delivery against OTC paper. The
question is just exactly what are they going to take delivery of?
All the gold movement is just for show. Same for Comex.
Sock a little gold in there and complete a few deliveries so it all looks
right. It's all the same game we played with the dollar before 1971. Only
when everyone asked for delivery did we find out that the world was awash in
paper gold,,,,,I mean
dollars! It's going to happen again, real soon.
ANOTHER:
Date: Tue Oct 07 1997 22:37
ANOTHER (THOUGHTS!) ID#60253:
You see, when paper trading volume dries up it's a bearish sign, but when
real physical gold volume drops it's bullish! That's because gold is being
cornered on a scale never seen in history. LBMA is doing its best to show
real volume exists!
Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:
The Western governments needed to keep the price of gold down so it could flow
where they needed it to flow. The key to free up gold was simple. The Western
public will not hold an asset that's going nowhere, at least in currency terms.
The problem for the CBs was that the third world has kept the gold market
"bought up" by working thru South Africa! To avoid a spiking oil
price the CBs first freed up the public's gold thru the issuance of various
types of "paper future gold". As that selling dried up they did the
only thing they could, become primary suppliers!
You see, after 1980, "oil" started trusting paper gold again, just
like it did in the 1950's, as long as some of it could be exchanged for
physical. But having been burned once, in 1971, they weren't about to be
burned again. And what the euro CB's figured out was all that mattered to the
producer/savers of the world was the guaranteed FLOW of physical gold, NOT
the guaranteed price or weight/mass. (And this is why we pull it out of the
ground: so it can FLOW!)
This is what the euro architecture guarantees in the case of a dollar (paper
gold market) failure: that physical gold will flow… uninhibited! It
does this through its "severed link" association with its own
official monetary gold reserves, allowing them to float against the currency
and publicly proclaiming this policy every three months in its quarterly
"marked to market" consolidated statement. This is something the
Fed simply cannot do because the Fed's "gold stocks" are
irredeemable paper gold Treasury certificates marked at $42.22 per ounce. The
US Treasury owns all the gold. The Fed owns paper (and electronic book entry,
post 1935) certificates that are irredeemable to the Fed, so how can it
possibly mark them to market?
Notice the Fed still quotes its "(paper) gold stock" (or "gold
certificate account" as it is listed on the consolidated statement) on
its own balance sheet as 11,041. That is in millions
of dollars, so 11,041 is really $11,041,000,000 divided by $42.22 per ounce
which comes out to 261,511,132 ounces which, surprise surprise,
comes out to 8133.5 tonnes, the same amount
voluntarily reported to the WGC and relayed to Wikipedia.
Speaking of Wikipedia, let's see how much gold Saudi Arabia is voluntarily
reporting in its "capital account." Wow! Only 322.9 tonnes? That's strange, because when I look back at the
A/FOA archives I find that on "Mon Dec 15 1997 11:06" Allen
estimated, "Saudi stockpile guesstimate 5,000 metric tonnes,"
to which ANOTHER proclaimed, "Mr. Allen's perfect article" and,
"Mr. Allen, thank you for this thinking. It should be read by
everyone."
Oh, and then on "12/1/99; 23:54:38MDT" ORO estimated, "I
believe the current gold in hand would be about 6000 tons or so in Saudi
hands. The Oil Royals paper gold position outstanding was probably in the
8000 ton range in the end of 98." To this, FOA wrote, "Oro
understood this and posted it." (FOA (12/5/99; 17:38:01MDT - Msg ID:20347))
So does it make any sense that the paper-gold printer is practically ignoring
his real gold account at $42/oz. while the real-goods producer/savers are
intentionally underreporting theirs? I suppose it makes some sense in a
really unbalanced "hypothetical" international monetary system that
is about to come undone. What do you think?
In my post, The Shoeshine Boy, I wrote that I would
revisit the context in which ANOTHER made the statement at the top of this
post because it portends vast changes in the international monetary system
directly in front of us. So I guess it is time to take a look at that
context. Here is ANOTHER's entire first post archived on USAGold:
Date: Sun Oct 05 1997 21:29
ANOTHER ( THOUGHTS! ) ID#60253:
Everyone knows where we have been. Let's see where we are going!
It was once said that "gold and oil can never flow in the same
direction". If the current price of oil doesn't change soon we will no
doubt run out of gold.
This line of thinking is very real in the world today but it is never
discussed openly. You see oil flow is the key to gold flow. It is the
movement of gold in the hidden background that has kept oil at these low
prices. Not military might, not a strong US dollar, not political pressure,
no it was real gold. In very large amounts. Oil is the only commodity in the
world that was large enough for gold to hide in. No one could make the South
African / Asian connection when the question was asked, "how could LBMA
do so many gold deals and not impact the price". That's because oil is
being partially used to pay for gold! We are going to find out that the price
of gold, in terms of real money ( oil ) has gone
thru the roof over these last few years. People wondered how the physical
gold market could be "cornered" when its currency price wasn't
rising and no shortages were showing up? The CBs
were becoming the primary suppliers by replacing openly held gold with CB
certificates. This action has helped keep gold flowing during a time that
trading would have locked up.
(Gold has always been funny in that way. So many people worldwide think of it
as money, it tends to dry up as the price rises.) Westerners should not be
too upset with the CBs actions, they are buying you time!
So why has this played out this way? In the real world some people know that
gold is real wealth no matter what currency price is put on it. Around the
world it is traded in huge volumes that never show up on bank statements,
govt. stats., or trading graph paper.
The Western governments needed to keep the price of gold down so it could
flow where they needed it to flow. The key to free up gold was simple. The
Western public will not hold an asset that going nowhere, at least in
currency terms. ( if one can only see value in paper currency terms then one
cannot see value at all ) The problem for the CBs was that the third world
has kept the gold market "bought up" by working thru South Africa!
To avoid a spiking oil price the CBs first freed up the public's gold thru
the issuance of various types of "paper future gold". As that
selling dried up they did the only thing they could, become primary
suppliers! And here we are today. In the early 1990s oil went to $30++ for
reasons we all know. What isn't known is that its price didn't drop that
much. You see the trading medium changed. Oil went from $30++ to $19 + X
amount of gold! Today it costs $19 + XXX amount of gold! Yes, gold has gone
up and oil has stayed the same in most eyes.
Now all govts. don't get
gold for oil, just a few. That's all it takes. For now! When everyone that
has exchanged gold for paper finds out its real price, in oil terms they will
try to get it back. The great scramble that "Big Trader" understood
may be very, very close.
Now my friends you know where we are at and with a little thought, where we
are going.
What I find most intriguing is this part:
In the early 1990s oil went to $30++ for reasons we all know. What isn't
known is that its price didn't drop that much. You see the trading medium
changed. Oil went from $30++ to $19 + X amount of gold! Today it costs $19 +
XXX amount of gold! Yes, gold has gone up and oil has stayed the same in most
eyes.
Like he said, all oil producers don't get gold, just the swing producer,
Saudi Arabia. They control the flow of oil from all the other producers. If
gold stops flowing and the Saudi's turn down the oil taps the price will rise. As long as gold is flowing, Saudi oil is flowing at
$19/bbl and the rest of the producers must sell their oil for just the $19
cash.
So was there really a deal like this made? Of course there was! ANOTHER even
gave us the math:
Date: Sat Oct 18 1997 21:04
ANOTHER (THOUGHTS!) ID#60253:
Let me fill in the Xs.
First a reprint;
"You see the trading medium changed. Oil went from $30++ to $19 + X
amount of gold!
Today it costs $19 + XXX amount of gold! "
If you owned a commodity in the ground that had to be sold for paper currency
in order to realize value what would do? Yes, the oil in the ground may last
another 50+ years but will the bonds and currencies of other governments last
that long? One thing you don't do is buy gold outright, it would cause it to
stop trading as a commodity and start trading as money! You learned that in
the late 70s. Nor do you acquire "real gold money" in any fashion
that would allow a comparison of price trends ( graphs
) ! There must be a way to convert the true wealth of oil into the outright
wealth of gold. We know that oil is a consumed wealth of a momentary value
that is lost in the heat of fire.
The stars blink and it is oil wealth no more!
It has become "the debt of nations " now
owed to you. Gold on the other hand is not a commodity as many assume, as it
is truly "the wealth of nations " meant to
last thru the ages! A wise oil nation can strike a deal with the paper
printers and in doing so come out on top. Go back a few years to the early
90s. Oil is very high, you offer to lower the US$ price in return for X
amount of gold purchasing power. You don't care what the current commodity
price of gold is, your future generations will keep
it as real wealth to replace the oil that is lost. Before the future arrives
gold will be, once again valued as money and can be truly counted on to
appropriately represent all oil wealth!
The Deal:
We ( an oil state ) now value gold in trade far higher than currencies. We
are willing to use gold as a partial payment for the future use of "all
oil" and value it at $1,000 US. ( only a small amount of oil is in this
deal ) And take a very small amount of gold out of circulation each month
using its present commodity price.
If the world price can be maintained in the $300s it would be a small price
for the west to pay for cheap oil and monetary stability.
The battle is now between CBs trying to keep gold in the $300s and the
"others" buying it up. In effect the governments are selling gold
in any form to "KEEP IT" being used as 'REAL MONEY" in oil
deals! Some people know this, that is why they aren't trading it,, they are buying it.
Not all oil producers can take advantage of this deal as it is done
"where noone can see". And, they know not
what has happened for gold does not change in price! But I tell you, gold has
been moved and it's price has changed in terms of
oil! For the monthly amount to be taken off the market has changed from $10
in gold ( valued at $1,000 ) /per barrel to the
current $30 in gold /per barrel still valued at $1,000! Much of this gold was
in the form of deals in London to launder its movement. Because of some
Asians, these deals are no longer being rolled over as paper!
Date: Tue Oct 07 1997 22:37
ANOTHER (THOUGHTS!) ID#60253:
Ever notice how many important Middle Eastern people keep a residence in
London. It's not because of the climate. The most powerful banks in the world
today are the ones that trade oil and gold. It is in the "city"
that the deals are done by people who understand "value"!
Westerners should be happy that they do because the free flow of oil and gold
has allowed this economic expansion to continue this
past few years.
Understand that oil is still traded for a certain number of US$ but after the
deal is done a certain amount of gold is also purchased "with the future
flow of oil as collateral".
Date: Sat Mar 07 1998 13:19
ANOTHER (THOUGHTS!) ID#60253:
A Noble Purpose, This Oil For Gold
When one considers the merits of a specialized world oil currency, the
thought usually turns immediately to "send in the military and stop
them". I must ask, why? If an oil currency is born before or out of the
shambles of an financial meltdown, and it offers
great benefit to all, again I ask, why stop it? Look at the merits of such a
move:
In a very real "currency sense", oil will be devalued in terms of
gold. As one makes a currency weaker by increasing the money units per ounce
of gold. Oil will become very cheap in gold, as the amount of gold paid per
barrel will fall dramatically as compared to today's ratio. There will be
much more than enough gold worldwide to quantify a "world oil
currency". To that end, the world paper "reserve currency" at
use in that time, will continue to be traded for oil at an extremely low
price relative to today. The only change will be the addition of a "unit
of real value" added to each trade, a "world oil currency",
gold! However, in terms of today's currencies, gold will be "upvalued" to perhaps $10,000 to $30,000 an ounce. So
as not to rewrite what is already an excellent piece on this coming
readjustment, I will repost part of Mr. Allen ( USA ) 's perfect article on
the subject along with his requested changes per his :
Date:
Mon Dec 15 1997 11:06
Allen ( USA ) ID#246224:
Last one on this topic until more ANOTHER posts. I'm not sure that it would
be necessary to have that large a cabul in on the
"offer" of oil for gold. Given the rather small market in gold in
comparison to oil/currencies it would only take one or two well endowed oil
states to pull this off. Here's why.
Let's say the Saudi's have been accumulating gold through the back door ( approx. 5,000 tonnes ) . They
sell say 20 Mln Bbl oil a day. Close enough. At one
ounce of gold per thousand Bbl oil that's 10,000 ounces of physical gold per
day. That's a lot of physical gold.
The first few moments after the Saudi's proposal to trade oil for gold at a
very steep discount of 1000 Bbl/oz ( approx. 1.5% of
current US$ price ) there would be
roars of laughter. One fast thinker after another would think "Hey. I
buy some gold at $300/oz, trade for oil to receive 1 Mln
Bbl, then sell the 1 Mln Bbl for US$ 10 Mln. Net profit is
$10,000,000-$300,000=$9,700,000. Easy money.
Everyone at once turns to the gold market to buy, which promptly shuts down.
Now no one is laughing. Because everyone realizes that gold is now worth at
least $10,000 per ounce and no one is prepared for that revaluation. Whoever
has gold now has 66.67 times the purchasing power in that stockpile. What
appeared to be a stupid offer has now become a complete revaluation of all
gold stockpiles vs all currencies.
Who has the gold?
( per corrections :Date: Mon Dec 15 1997 11:06 Allen ( USA ) ID#246224: )
Saudi
stockpile guest-imate 5,000 metric tonnes = 5,000,000,000 GRAMS not ounces. Gold now at
US$9.65 per gram revalued by multiple of 66.67 = US$643.37 per gram x 5 Bln grams = US$3.2 Tln.
Germany 2900 metric tonnes = 2.9 Bln grams, revalued to US$1.8 Tln.
USA 8,085 metric tonnes = 8.1 Bln
grams, revalued to US$5.2 Tln.
Is this plausible??? How is it possible by making one little change in oil
dealings could this ever happen? It is simply the very intelligent use of the
scarcity of gold and the necessity of oil. It is the desire of one party, who
is big enough to swamp the gold market, to make it the preferred vehicle for
buying oil. In fact if not one ounce of gold is ever transacted for oil, but
the offer is continued intact, then gold will be revalued simply by the
possibility of trading. Those who are in a bad way in their currency
situation can always get oil with their gold.
What would the impact of this revaluation of gold and currencies do? It would
instantly shift economic and financial power into the hands of those who own
large amounts of gold: CB's, Saudi's, Roths
et al. It would mean that gold/oil would be THE CENTRAL POINTS OF ECONOMIC
REFERENCE. It would mean that currencies would be devalued by a factor of
1000 in relationship to the new standard of gold ( as
a proxy for oil wealth ) It would upset an awful lot of people. There would
be no TARGET to shoot at or take over, however, because all other oil
producers would immediately jump on this band wagon. Its a simple matter of what an interested party is
willing to receive for their goods. Venezuela, with gold and oil reserves and
production capacity, would be one of the wealthiest nations on earth. The
world would be turned upside down geopolitically, wouldn't it.
Literally "..the 'have-not's of the world will
become the 'have's.."
Mr. Allen ( USA ) ,
Another thanks you for this
thinking. It should be read by everyone with an interest in this area. It
should also be studied by students wishing to learn of market dynamics. We
also offer this piece as an addumnum to the above,
also by the same author.
Date:
Mon Dec 15 1997 10:49
Allen ( USA ) ( Quick Note to JTF re: 23:05 post -
US$ oil float ) ID#246224:
US$ price of oil is floating. The "proposal" to offer oil for gold
at say 1000 Bbl/oz is far below the present float price in US$. The gold
market is SO SMALL that if the oil nation that made this proposal was pumping
enough oil the gold market would be swamped by oil buyers who were looking to
make a few ( !! ) US$ on the discrepancy in price. In effect this would revalue
gold by inserting an entire different group of buyers into the gold market
who have ALOT of money.
Why is it the oil nation would not just buy at
market? Same as above. Their effect in the open market would basically shut
down the market thereby frustrating their efforts to buy gold. Conversely,
why would they then make the "proposal"? Because either they have
enough gold to buy the world at the new price, there is a crisis in which
they feel it is to their advantage to do this ( such as a US$ crisis ) or
they might have a geopolitical rational. In the new valuation the US$ would still be intact. But its monopoly role
would be altered. Its not that currencies would
become worthless but that gold would become worth much more in relationship
to paper currencies.
To answer the "military" question, asked at the begining
of this article, I say:
The massive increase in the "reserve currency" price of gold would,
no doubt be ushered into the USA house of congress as a godsend answer to
Americas debt problems. With the "full production" of oil, now
viewed as a sure thing, The world may well see the USA send the military into
the Middle East just to ensure that this "deal" [Freegold] is not disturbed. After all, it is oil that
will be massively devalued by gold.
Thank you
Did you catch what he said there? He said the US would not use its military
to stop Freegold. Instead, it would use it to
ENSURE Freegold once its benefits to even the US
are recognized! This is such a simple concept yet so few of you seem able to
grasp it.
And for those of you that keep asking me if I think the US gold is still
there… yes, I do.
Here is something you need to understand about the US gold. The Fed does not
own it. The US Treasury does. Following the Gold Reserve Act of 1934, the
Treasury gained title to the entirety of the U.S. monetary gold (including
$3.5 billion of which was currently being held by the Federal Reserve banks).
From that point on, the Fed has received private issues of new-fangled gold
certificates in $100, $1,000, $10,000 & $100,000
denominations -- not to be paid out and not for circulation.
So the Treasury took 175 million ounces of gold from the Fed, paid it in
DOLLAR-DENOMINATED certificates for this gold at $20 per ounce, then revalued it to $35 per ounce. So if the Fed had even
been able to redeem those certificates for gold in 1935, it would have only
gotten back 100 million ounces. The windfall of 75 million ounces of gold
($2.6 billion), in this case, went entirely to the US Treasury and not the Fed.
The entire Treasury windfall was $2.8 billion and was the reason and the
funding for the establishment of the ESF, the Exchange Stabilization Fund in
1934. So following the Gold Reserve Act of 1934 100 million ounces of gold
were already automatically monetized. The rest of the US gold was eventually
monetized through the Fed. The way this happens is the US Treasury issues
fancy new non-negotiable, dollar-denominated gold certificates to the Fed and
the Fed credits the Treasury account with dollars.
Today, all of the US gold has been "spent" in this way, but only at
the price of $42.22 per ounce. That's 261,511,132 ounces of gold monetized at
roughly $11 billion, money that was spent long ago.
So you see, the Fed cannot mark the US gold to
market. It cannot even revalue the US gold. Only Congress can. And even if
Congress DID revalue the gold, it would not change the Fed balance sheet by
one penny. The Fed only holds dollar-denominated certificates worth $11
billion, payable in gold, but not really. It's kind of like Aramco in 1945 who owed the Saudis $3 million, payable in
gold.
If Congress DID decide to mark the US stockpile of gold to market today it
would find it had a new stream of revenue. At today's price of $1,328 per
ounce, the US gold would be worth $347 billion. Subtract the $11 billion
already on the Fed balance sheet and Congress could immediately ask the Fed
to credit the US Treasury with $336 billion new dollars to be spent.
And then, if they let the value of the gold float, anytime the price rises,
they could issue more fancy dollar-denominated gold certificates to the Fed
and be credited with new dollars to spend. In fact, at a Freegold
price of $55,000 per ounce, Congress could retire the entire US national debt
without giving up a single ounce of gold, merely monetizing what it already
has through the Federal Reserve. But what will really happen someday soon is
the additional step of opening the vault and allowing that gold to FLOW
again, but at a floating price. With this one move Congress wouldn't have to
retire the entire national debt because credibility would be reestablished.
You see, the European gold reserves are far better, far more credible than
the US gold reserve, simply because they engage in a two-way gold market, and
have for decades. The US gold has been hoarded and locked away for more than
30 years, never deployed in case of emergency. The European CB's took a lot
of flak for selling gold over the past two decades, but that action is
precisely what makes them so much more credible (and valuable!) than the US
gold hoard. Any trading partner knows full well that if all else fails, gold
will be paid.
The price of gold today is unstable. Anyone with eyes can see that. Worse,
it's rising. Which means the flow of physical gold in the quantities needed
(at today's gold price) to lubricate global trade is drying up.
"Gold has always been funny in that way. So
many people worldwide think of it as money, it tends to dry up as the price
rises."
But the flow of physical gold WILL be reestablished. The world demands it. It
doesn't care how high the price goes, only that the flow is guaranteed. Only
the $IMFS seems to care about how high the price goes. And, apparently, that
is because the $IMFS is the main printer of paper gold. Flow WILL be credibly
and sustainably reestablished, which means paper gold WILL be discredited.
Flow is sustainably and infinitely guaranteed at a floating, physical-only
price. What that price is in today's world is anyone's guess because we
haven't had such a market in centuries.
Oil will probably keep rising in price until something breaks. Then it is
going to around 1,000 bbl per ounce of gold when the paper gold market fails
to deliver the increased flow demand of physical gold at the paper market's
low four-digit dollar price. And the oil producers will be VERY happy with
this new, guaranteed flow. Hard to believe? Believe it! And if that doesn't
scare the pants off somebody who has their whole life's savings fully
invested in paper promises at today's valuations, nothing will.
Sincerely,
FOFOA
"Sir, I feel the prudent allocation of wealth
assets will see us thru most of this." - FOA
"I think that surviving the transition has to
be the No. 1 priority and I also think owning some physical gold is a key part
of a survival strategy." - Costata
"We have met the enemy and it is us. The best we can do now is just prepare ourselves, our family, and friends, at least that
very small percentage that will listen." - Greyfox
"It's the Debt, Stupid"
"Charles T. Munger says you’re a jerk if you buy gold,
even if it works. He wants you in equities so he can pluck you like an
animal."
- A Friend
ORO (12/1/99; 23:54:38MDT - Msg ID:20038)
Accumulation
As I have worked it out, the purchase is done on paper. The accumulation is
slow but steady. They obtain the gold for gold loans from themselves and buy
it back. The rates of accumulation are not the same today as they were in the
past. The 1995-1997 period was the main thrust where
8000 tons were committed and 4000 tons of their own gold were used to back
that up (sums in total for the period). Trades were executed in the second
and third quarter of every year. Prior to that, the accumulation was
significantly slower, probably on the order of 12000 tons gross since 1987,
going into 1994, a large minority of that in paper form. I believe the
current gold in hand would be about 10000 tons 6000 or so in Saudi hands. The
Oil Royals paper gold position outstanding was probably in the 8000 ton range
in the end of 98.
I would need to expend a significantly larger effort to put all that together
into better estimates with something beyond back of the envelope
calculations. Right now, obtaining information before 1995 is quite
difficult.
The main point is that in 98, as Asians dumped their gold, the Arab Oil
countries were getting delivery.
Because of many Westerners dumping their gold holdings after a disappointing
20 years, right at the beginning of a new gold bull - right after the first
spike, it is in the interest of all gold accumulators to use the opportunity
of collecting more gold at a discount to do so, even if one needs to delay a
long plan from executing.
Sincerely,
FOFOA
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