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This is a continuation of the last
post. Freegold fodder for a lively and relevant discussion! Part of what
makes the following comments so interesting (aside from their mind-bending,
perspective-altering content) is that they were all posted in the 48 hours
leading up to the Washington Agreement on Gold, the first CBGA which took
place at the IMF annual meeting in Washington DC on Sunday, Sept. 26, 1999.
In fact, the last few comments in this post were probably right around the
time of the actual WAG signing!
FOA
(9/25/99; 12:15:48MDT - Msg ID:14354)
HOF
TownCrier,
I see where I.V. Holtzman has reworked his "Street Gold" post so as
to make it more on point and in context. It is a remarkably clear description
of how the dynamics of a market can distort "real price reality". I
think it will be a major reference item as our gold markets evolve.
Therefore, (I don't often do this) I, FOA nominate it for HOF. Also consider
that Another seconds that nomination (I'll ask him to make that official when
here). Can someone else also second this, please? Thanks FOA
Note: for the Holtzman article see: USAGOLD (09/24/99; 13:03:31MDT - Msg
ID:14297)
USAGOLD
(09/24/99; 13:03:31MDT - Msg ID:14297)
Latest from Holtzman...
Holtzman here,
--------------
More than one POG
--------------
There are many different prices for gold. Or, more accurately, there are many
different ways in which gold is formed and stored, and those differences
cause prices to differ between the resulting products.
A one-ounce gold JM bar, a Krugerrand, a 1999 U.S. gold Eagle, a slabbed 1908
MS-65 St. Gaudens (ignoring for the moment that it's not precisely one ounce
of fine gold), a one-ounce portion of a London Good Delivery bar, a one-ounce
portion of a vault claim ticket for same, a one-ounce portion of a futures
contract, a one-ounce portion of a derivative contract for same, and one
ounce of fine gold formed into a piece of jewellery, all have prices which
are somewhat independent of one another.
True, at their core, they all centre around what the market currently feels
an ounce of gold is worth, but each has its own additional factors (premiums,
risks and quantities) which cause its price to differ, often substantially,
from the others.
The U.S. gold Eagle differs in price from both the JM bar and the Krugerrand
because of a Patriotism premium. The St. Gaudens differs in price from
similarly sized bullion coins because of a Numismatic Rarity premium.
The officially quoted Spot POG differs from the price of one JM bar bought at
a coin shop because Spot POG is the price per-ounce at which very large
quantities of physical gold trade. By large quantities I mean
hundreds-to-thousands of ounces and upwards. Some of these sales are between
mining companies and refiners or mints or jewellery manufacturers, where the
buyer intends to reshape the metal into some new form, be it ingots, coins,
or next month's necklace special at Marks & Spencer.
But in many cases, the purchaser has no plans to remanufacture the gold.
Rather, he simply wants to own it. In such cases, the gold itself typically
remains in a third-party repository in forms such as London Good Delivery
bars (400 ounces), with only the Right to Claim those bars being transferred
from buyer to seller.
Since these rights can be transferred electronically, this allows Spot market
participants to make brief forays into the market, then retreat, with minimal
overhead expense. Money centre banks are better known for their similar
operations between paper currencies (buy Swiss Franc sell Yen this morning,
then reverse that this afternoon, etc.), but no doubt a great deal of daily
Spot POG setting is the result of trading rather than buying to own. Regrettably,
I do not have detailed information on the various global Spot markets, so I
have no way to discern the proportion of speculators to commercial traders.
In any event, this speculative access to Spot POG makes it susceptible to the
same sorts of "professional" day trading which is usually
associated with paper markets.
In addition, most of the gold sold at Spot POG has yet another factor
influencing it, one which can easily place it more in alignment with the
various paper forms of gold when market conditions become abnormal: the risk
that the gold is not entirely under the supposed owner's control.
If you have a few gold coins buried in your back yard, and if you bought
those coins anonymously with cash, you control that gold. If you have a claim
ticket for a few hundred kilograms of gold held at the Federal Reserve Bank
of New York, or a few hundred tonnes of proven reserves in a mine whose
location is known to tax assessors, or even a few dozen U.S. gold Eagles in a
unit trust, don't be so sure you're the one in control of that gold.
If or when a breakdown in the paper gold market occurs, it's quite possible
we may see the officially quoted Spot POG remain in lockstep with paper
prices, very possibly plummeting even in the face of blatant shortages of
physical metal. But all this would mean is that a make-believe price is being
impressed on market participants who are large enough to be easily identified
and coerced.
If a private citizen holds the claim ticket to a London Good Delivery bar
stored at the Fed, guess who has the power to insist on knowing details of
any sale of said bar. Even if a private citizen takes possession of the bar
and buries it in his back yard, Uncle Sam will be very keen to periodically
bother him about its whereabouts. Although Spot POG is a measure of physical
gold, it adheres to the paper world more so than to the physical world
because of this one point: the risk of governmental intervention.
This ties in with points about gold mining shares made by Another and FOA: mining
companies theoretically are at liberty to sell to the highest bidder, but
governments have a way of convincing their subjects to accept less and be
happy with it. If during an emergency the U.S. government were to declare
Spot POG to be $50, and if Homestake Mining were to begin selling gold
privately at a higher Street POG, the U.S. government could very easily make
life unpleasant for Homestake.
By contrast, the government would have a much more difficult time coming
after you and the handful of gold coins you've anonymously buried in your
back yard. Most likely, they simply wouldn't attempt it. A wise politician
never frightens his citizens too much, most particularly during emergencies.
A government can achieve its goals by oppressing the majority owners (few in
number) of a desired commodity while graciously allowing the minority owners
(vast in number) to retain their property.
The confiscation in the U.S. in 1933 was along such lines: the government's
intent was to take direct possession of the vast majority of gold within U.S.
borders (common gold coins) by pulling them out of circulation, yet not
overtly injure citizens who had sentimental or numismatic attachments to
specific coins. There weren't any jack-booted thugs banging on Americans' doors
after midnight in search of every last gold coin, and I can't imagine any
present or future administration doing so either. It's far too expensive to
be worthwhile... not to mention that it's far too likely to start a
revolution (or in your case, re-start one :-).
And yet, despite the very convincing scenario of complete meltdown painted by
FOA and Another, I still find myself clinging to the hope that the
supply/demand cycle will re-assert itself as has happened in other industries
(the recent history of the airline industry being my beacon in the darkness).
I would never touch futures or their derivatives even under normal market
conditions, but a small stock investment in the most efficient, best
established global mining companies seems to me still to be worth the risk
(note again my use of the word "small"). Whether those shares are
ultimately sold for Euros instead of dollars, I still am optimistic enough to
wager that they will indeed trade on some market for some price in some currency.
In any event, though, I plan to keep an eye on potential warning signs that
such optimism may be about to be dashed.
So where will we find a "real" price of gold amidst the
make-believe? Clearly neither Spot POG nor futures POG will be realistic
during a full-blown emergency, nor will the share prices of gold mining
stocks. Of course, if I find myself still in possession of such papers during
an emergency, their official resale value will be all too real to me.
Even under normal market conditions, the paper price of gold is not the
perfect guide because it is determined by constant repetitions of FOA's
analogy of the two neighbours betting over the fence. Perhaps one in a
thousand participants in the daily setting of the official prices of gold
plans to acquire or deliver physical gold. The other 999 participants are
merely there to bet on it and claim their winnings in some other currency.
Put another way, how many people at a racetrack are attempting to buy a
horse? If you want to know the going price of a physical horse, don't look to
a racetrack for answers. And don't assume that being a partial owner in a
horse farm (thanks FOA) in any way assures you of being able to own a
physical horse at some future date.
Likewise, if you want to know the going price of physical gold, don't look to
the paper chase, most especially during any sort of financial emergency when
paper-related numbers will become very distorted. Frankly, even though the
emergency has yet to be publicly declared, things in that arena are already
becoming increasingly distorted.
Most of us here at the USAGOLD Forum do not buy and sell thousands of ounces
at once, and most of us take immediate possession of our purchases. From
that, it's clear where we should look to find the price of physical gold
which is most appropriate for our activities: in fact, our very conversations
here are being hosted by someone who spends most of his waking hours
discovering that price.
--------------
Street POG
--------------
The Cash or Street price of gold is the number of dollars (or pounds, or
euros) you take out of your wallet and hand to your friendly, neighbourhood
coin dealer in return for a one-ounce Krugerrand.
Why a Krugerrand? Because it's the least numismatic, most commonly
encountered, least lovely form of gold. It has no numismatic premium and no
jewellery premium and no patriotic premium. It's even less attractive than a
one-ounce JM bar.
That makes the Krugerrand the perfect unit of measure for Street POG. Its
only special quality is that it contains exactly one ounce of gold (mixed
with much too much copper).
The only circumstance which would disqualify the Krugerrand would be if
suddenly coin dealers were willing to sell Maple Leaves or Eagles for less
than Krugerrands. But to deal with that case, let us define Street POG as the
price of the cheapest one-ounce coin or wafer available for sale at that
moment.
You will know that the governmentally influenced markets are becoming highly
distorted when you see a Krugerrand selling on the street for significantly
more dollars than the Spot POG quoted by the paper markets that day.
A Krugerrand will always have a little premium built into its price (hi, I
just bought these coins and I'd like to sell them to you without making any
profit at all on the sale... my, that would be daft).
At some point in August 1999 when Spot POG was quoted at $260, I bought a
single Krugerrand for $268. That's within the range of normality. We're not
in uncharted waters yet.
But let's say that Spot POG drops to $200 (sadly still not out of the
question even with the September 1999 rise in POG towards $270). What will a
Krugerrand cost on the street then? If Spot POG drops no more abruptly than
has been its wont in recent months, there's a decent chance Michael and his
fellow coin dealers might then be able to profitably sell Krugerrands for
$205 each. In that case, the shorts and the financial ministers are still in
control.
But if you see Spot POG drop below $200 while a Krugerrand selling on the
street never falls below $230-$240 ... or if you see Spot POG remain at $256
yet Krugerrands leap to $300 and Eagles to $310 ... hello new gold market.
That would be a clarion call that things are starting to become seriously
distorted. [FOFOA: Note that
things did get spooky just four days after this post. You can see it
graphically in the large spike here, here and here. The price of gold jumped
more than 25% in nine days, from $257 on Sept. 22 to $325 on Oct. 5. That
would be like gold rocketing from $1,420 today up to $1,795 by March 24.
Imagine what that was like!]
--------------
The American Civil War
--------------
I think maybe the hardest mental hurdle for people to clear in understanding
Another and FOA is this notion of two gold markets occurring simultaneously.
There's an historical example (and it's Western :-) in which very much the
same thing transpired...
In 1864, the USA and the CSA were reaching something of a stalemate in their
war. Contrary to what most Americans learn today in (the winner's) school
system, had but a very few decisions been made differently, the Confederacy
would have won.
This, by the way, is why we see so many Americans (descended from both sides)
re-enact Civil War battles over and over. How often (except on Monty Python)
have you seen re-enactments of Pearl Harbour? The only battles worth
replaying are the ones that could have gone either way.
In any event, to the average person living in Either the USA or CSA in 1864,
the near term future was incredibly unclear and terrifying.
In the pre-war USA, national government funding was handled by the levying of
import/export duties. The IRS was not yet a glimmer in politicians' eyes. For
a nation at peace, duties provided sufficient income to run a minimalist
national government.
In time of war, however, expenses magnify dramatically. Both the remnant USA
and the new CSA needed to acquire vast funding very rapidly to raise an
effective military. The both of them did so in the time honoured way: they
borrowed the money. Have a peek at Lincoln greenbacks and Confederate paper
money sometime. They are promises to pay the bearer with gold and/or silver
at some significant time following the cessation of hostilities.
These documents were by no means the equivalent of today's Federal Reserve
Notes (try redeeming a $20 FRN for a St. Gaudens sometime). No, Civil War
paper banknotes were the equivalent of today's Gold Futures Contracts.
Oh, Lincoln greenbacks and
Confederate dollars passed from wallet to wallet during the Civil War years
as if they were currency, and in the first year or so they were regarded as
1-for-1 equivalents of coin. But as 1864 drew nearer, something odd began to
happen.
"Howdy, I'd like to hand you this crisp $1 greenback in return for ten
silver dimes change."
"I'll give you 8 silver dimes for a paper dollar, not a penny
more."
Realise that this happened in the North, in the remnant USA. It happened too
in the Confederacy, but modern people remember it there only in association
with the final default on paper which happened when the CSA government was
extinguished.
But the sole difference between a Confederate dollar and a Lincoln greenback
was that one paper issuer was still in existence in 1866 and one was not. In
1864, no one could confidently say that either government would still be
there a mere two years hence.
Notice that, in this regard, not much has changed since then. In 1933 for US
citizens, then in 1971 for the rest of us, the USA government voided its
obligation to pay gold for paper dollars.
If you hand me silver or gold, I won't care whether the symbols impressed on
it are from a reliable government, an unreliable one, or a defunct one. But
if you hand me paper, I'd better be firmly assured the issuer will live long
enough (and be inclined) to pay off this debt to me. Even if you hand me a
paper claim ticket to silver or gold stored in a vault somewhere, I'd better
be firmly assured the vault keeper is of a mind to let me take possession of that
metal without the slightest hesitation.
Another and FOA, by saying wise people should avoid paper and only hold
physical, are indicating that they expect the LBMA and Comex Gold Contract
documents will go the way of the Confederate Dollar (or maybe more
appropriately, the way of the pre-1933 paper dollar: "Yes, a dollar is
still a dollar, we just won't live up to it in quite the way we used
to.").
At the very least, they're saying the risk of such a systemic change is so
substantial that one should not be standing too near the fault line should
the quake come sooner than predicted.
What the both of them are describing is an official Spot POG (and its kindred
future months' POGs) which may well plummet to $200 or even, as Another
allowed some time ago, perhaps $10. Realise, though, that Another is by no
means predicting that Michael will be able to profitably sell Krugerrands at
$10 each. Far from it.
What Another and FOA are anticipating is a situation much like the paper
money situation in both the USA and the CSA in 1864: how likely is it that
the paper contract you're handing me today will be redeemable for any amount
of gold by this time next year?
Tell you what, I've got a spare ten bob I feel no desperate attachment to.
I'll buy your one-ounce IOU just for kicks. If LBMA completely expires, I'm
out only a small amount. If LBMA unaccountably fails to expire, I've struck
it rich. Of course, I may still not receive a physical ounce of gold on
settlement day. I may find I've become the proud owner of a 1/400th part of a
London Good Delivery bar, which I'm then told may not be removed from the
vault. If I'm lucky, I might be able to sell my claim ticket for some amount
of whatever paper currency is still worth accepting.
Meanwhile, those of us with less of a gambling inclination will sleep more
soundly holding physical. After all, a silver or gold coin firmly in your
possession remains silver or gold even after its issuer expires.
Yours,
I.V. Holtzman
FOA
(9/25/99; 12:28:42MDT - Msg ID:14356)
Question?
Goldspoon (9/25/99;
12:08:04MDT - Msg ID:14353)
One reason $ilver may do
better than gold in the late stages is because $ilver is also known a Poor
Man's Gold... There is alot more poor people than ritch ones...Poor people
generally come late to the party and buy what they can afford ($ilver) so
$ilver will be a late bloomer but Oh what a flower....
Hello Goldspoon,
Could you please elaborate. Your above comment that "silver is more
affordable than gold", brings my question.
Which is more affordable $100 of gold or $100 of silver? Even if gold was
$1,000 an ounce, why then, at that time would $1,000 in silver be more
desirable as a "poor man's gold"?
I'll be back with more. thanks FOA
FOA
(9/25/99; 14:29:40MDT - Msg ID:14367)
Comment
To ALL:
When a person tries to protect their assets against the effects of fiat
money, what are they really fighting against? The first inclination is to say
"rising prices". Yet, it's much more than that! Most everyone
agrees that interest in the bank never covers the loss of buying power
brought on by price inflation. Especially the "after tax" return.
It's the same old story, played out decade after decade. We must "invest
our savings" (or become a day trader?) because the money will erode in value!
Even at 3%, price inflation can eat away at any cash equivalents.
But, price inflation isn't the only story that impacts us. Rising prices come
and go, but money inflation continues to affect us without fail. So why do
people feel better when price increases slow or stop, even as money inflation
runs ever upward? The good feelings usually evolve from the effects that
money inflation (increases in the money supply) has on financial instruments.
These assets take on the very same characteristic that the rising prices of goods
once exhibited. They run up in currency price.
During these periods of "less goods inflation" another sinister
form of mind set lurks in the shadows. Credibility inflation! Yes, it has
been here many times before as every fiat currency alternates it's effects
upon the feelings of the populous.
Fiat currencies must, by definition always expand in quantity. Their
continued usage and acceptance is always obtained with the bribe of
"more wealth to come"! Without that bribe, humans would never fall
for holding a debt to receive the same goods in the future if they could get
the real thing today. Human nature has always dictated that we buy what we
need now instead of holding someone's IOU to receive it later. That nature is
only changed through the "greed to obtain more". Like this:
"I'll hold my wealth in dollars currency if my assets are going up.
Later those increased assets will buy me a better lifestyle as I purchase
more goods and services than I could buy before".
This is the hidden dynamic we see today and the exact antithesis of the past
price inflation's. Just as destructive as "goods price increases",
"credibility inflation" impacts our emotions to "hold on for
the future", more is coming! In every way, "credibility
inflation" is just as much a product of an increase in the money stock
as "regular price inflation is. As cash money streams out to cover any
and all financial failures, we begin to attach an ever high credibility to
the continued function of the fiat system. In effect, the more money that is
printed, the higher we price the credibility factor.
Onward:
ORO, the GDP is one of the great deceivers in the Fiat money world. During
the last century (??) or so, some form of GDP has always been used to measure
the great mass of human endeavours. Yet, throughout this time, some form of
fiat currency has always been in effect. Even during the Gold standard,
fractional reserve banking expanded "gold note money" more so than
the "gold money in existence. Prior to 1929 this effect, if not creating
outright "price inflation" during a time of Gold standard policy,
was creating "credibility inflation" in the minds of investors.
Using the backdrop of a growing GDP, people bought into inflating financial
assets and ignored these signals as evidence that the fractional currency
system was failing. Even though the dollar contained a policy statement to
supply gold, back then a gold loan was still only good until everyone asked
for gold.
The same thing is happening today. People destroy the currency structure by
thinking it can deliver more than reality will allow. Instead of all debt
failing slowly with each upward march of price inflation, prolonged
"credibility inflation" snaps all at once as investors try to
suddenly revert to a "buy now mentality". The inability of
government authorities to contain the fiction of "good debt" is
usually the feature behind the investor mood change. A currency run induced
by an IMF stalemate would qualify as just such a function change. The
"snap back" into a sudden "real price inflation
situation" caused during this stage by a currency failure always breaks
the whole structure. We approach this end today!
Further:
The GDP has been the relative gauge to mark all other measurements against.
Even so it's numbers reflect little more that the result of an
"expanding fiat money supply". Yes, there have been recorded
downturns in GDP, but these contractions would have been worse if measured in
real (gold) money. In opposite fashion, expansions paint a much brighter picture
as all financial liabilities seem less a threat if held against a rising GDP.
I submit that the GDP figures offer little more than a way to entice
investors to increase their "credibility image" of our monetary
system. Fiat moneys are always on a long term upward expansion, and they can
hardly do less than bloat the picture.
Someone I know said; "your wealth is not what your money say it
is"!
What should we be looking at to see the real picture? Be back a few hours
from now.
Thanks FOA
FOA
(9/25/99; 19:11:59MDT - Msg ID:14375)
Comment
ALL:
When it comes to silver, I agree with all of you. But then "along comes
reality"! Many of the current analysts persist with their analogy that
"silver is used to make change and small transactions". A concept I
completely agree with, only if we sink to that point? The valuations placed
on silver will mostly be established by the kind of "currency
turmoil" we experience.
Look at today's US paper currency. It's all dollars and yet $100 bills are
used readily right alongside $1.00 bills. It seems that we found a way to
create ever smaller denominations of dollars to satisfy the demand for making
change. I don't see anyone carrying around Canadian currency for the small
purchases a US $100 would not work for.
My point is that gold has in the past and will again in the future be broken
down, "if needed", into alloyed coins for the very smallest of
transactions. One can easily carry a one gram gold coin that is made the size
of a quarter. Even a 1/10 gram will do the trick. As Mr. Gresham points out,
someone will always be around to create money change. Be it in silver or
gold, the most efficient money will rule the day. In the worst of war like
conditions, paper money is traded. German marks were spent as the booms fell!
My question of which is more affordable $100 in gold or $100 in silver? A
poor man will accept and use either that is offered, no contest.
Again, the future demand for "Metal money" will be established by
"how the currency markets evolve". I believe (and have written on
this before) that throughout all that is to come, US dollars will continue to
circulate as will most all the established currencies today. "Come what
may", we will use them for whatever value and efficiency they will
offer. Just as the much lesser moneys of the world presently circulate, while
their citizens hold dollars, gold and silver, so too will we act in a similar
fashion.
The question for our immediate future is in what form will you hold metal
money to represent the "bulk" of your tradable wealth? As all the
currency and economic turmoil swirl around us, the pressure will be to not
only hold reserves that will not be at risk, but hold them in the largest
"tradable form". Gold and it's high future price will certainly fit
that bill. Again, contrary to what many think, when the dollar falls off the
reserve currency tower, most everyone will still be getting paid in dollars.
Yes, they will be greatly devalued from price inflation, but buying your gas
with dollars will still be a weekly chore.
The future will see the Euro currency as the value reserve all other
currencies will trade off of. Beside it will trade a "free gold"
market denominated in Euros. The implications of this will be for US
nationals to continue using dollars while holding gold (or Euros?) for a
bulk, risk free tradable reserve. One can see that in this picture, the
purpose for silver is greatly diminished, no?
Got silver? Don't need it, cause I got gold!
We shall see, back in an hour or so. FOA
FOA
(9/25/99; 20:31:48MDT - Msg ID:14388)
Comment
Gold Dancer (9/25/99;
18:36:32MDT - Msg ID:14373)
Silver/Gold/
Hello Gold Dancer,
I think I paralleled some parts of your thinking. Thanks for offering your
reasoning.
Goldspoon (9/25/99;
15:37:33MDT - Msg ID:14370)
Some have suggested confiscation....possibly.
--
Goldspoon,
I think the confiscation item has always been blown completely out of
proportion. Some even go as far as saying that there is no use in holding
gold if it gains a lot because it will be taken away from you. Then in the
same context, it's offered to buy gold stocks to gain from a more reasonable
increase in the gold price! In addition, for the same reasons they see silver
as an item that will not be touched. One has but to review "Holtzman's
"More Than One POG" #14297" to get what is his beautiful
rational and reasonable retake on what confiscation would really mean:
--------If during an
emergency the U.S. government were to declare Spot POG to be $50, and if
Homestake Mining were to begin selling gold privately at a higher Street POG,
the U.S. government could very easily make life unpleasant for Homestake.
By contrast, the government
would have a much more difficult time coming after you and the handful of
gold coins you've anonymously buried in your back yard. Most likely, they
simply wouldn't attempt it. A wise politician never frightens his citizens
too much, most particularly during emergencies. A government can achieve its
goals by oppressing the majority owners (few in number) of a desired
commodity while graciously allowing the minority owners (vast in number) to
retain their property.
The confiscation in the U.S.
in 1933 was along such lines: the government's intent was to take direct
possession of the vast majority of gold within U.S. borders (common gold coins)
by pulling them out of circulation, yet not overtly injure citizens who had
sentimental or numismatic attachments to specific coins. There weren't any
jack-booted thugs banging on Americans' doors after midnight in search of
every last gold coin, and I can't imagine any present or future
administration doing so either. It's far too expensive to be worthwhile...
not to mention that it's far too likely to start a revolution (or in your
case, re-start one :-).-------------------
Thanks Holtzman, incredible job!
Again, if you think silver is going up because of currency turmoil, is it
reasonable to believe it will increase as it did during the 70s style Hunt
fiasco? I'm not sure that event wasn't but a one of a kind move. Everyone
considers that performance (the only one we have had ) as an example of how
silver moves when gold goes up. However, it's entirely possible that that
gold move was but a minor side show and in the future gold will dwarf any
percentage rise in silver. We didn't know silver could move like that until
it happened and we may find that few will understand how gold can outperform
everything in the future. As I offered earlier, the coming currency
transition may render the "many present reasons" for holding more
silver than gold useless. Especially if currency stays in circulation as the
demand for industrial silver falls from a economic contraction. If such is
the case, the percentage move will fail to match gold.
I know many own silver. I offer this as a balance observation. Good luck to
all of us, may we all win! FOA
FOA
(9/25/99; 21:11:01MDT - Msg ID:14392)
Reply
Leigh (9/25/99; 19:36:56MDT -
Msg ID:14378)
Do you think silver is worth
holding as a commodity, the way you would hold platinum? Don't you think the
prices will go very high as silver reserves as depleted? Or do you think gold
will rise the highest?
Hello Leigh,
All of the investment attributes for these metals are conflicting. On a
commodity basis, silver would be the best. Warren B. bought it in his company
name expressly for its industrial prospects. He views it in the same light as
a stock investment. I doubt he took it for any of its monetary reasons.
Again, invest to make a return. Take your best shot. But for today buy gold
to preserve what you have during a global dislocation of currency systems.
Because the future may play out as I have outlined, gold will out-perform (on
a real basis) most any past investment made during the last 30 years. Not
because it's a good investment with great prospect demand, but because it
will again perform its ages old function as the world's money. Something it
hasn't done in stand-alone fashion for perhaps 60 years?????? That return to
money use in this modern world is the attraction that drew in the Giants, in
whose footsteps physical gold owners now walk. The rise will make most people
feel very foolish not to have purchased at $1,000 while it was cheap (smile)!
We shall see.
Thank you and good day FOA
[FOFOA: Next is a short
excerpt from Twice D that is relevant to FOA's reply below. It is similar to
complaints I hear all the time. "You don't know the future. No one but
God can know the future." I like FOA's reply.]
Twice Discipled
(9/25/99; 20:40:54MDT - Msg ID:14390)
FOA - Dollars/Gold/Silver
I try not to understand your perspective to hold all knowledge of the future
(only One in the universe can make that claim), but to gain an understanding
of how we may be required to manage and use that which we have put away for
future use.
FOA
(9/25/99; 21:12:34MDT - Msg ID:14393)
Reply
Twice Discipled (9/25/99;
20:40:54MDT - Msg ID:14390)
Point 1)
If my above interpretation of
your suggestions is correct and the events play out as you see them then with
further thought I may come to agree with your remarks regarding silver.
Hello Twice D,
There is actually quite a
large group of people that see things this way. Nothing is written because
they are very private. [FOFOA:
"quite a large group of people (Giants) that see things the A/FOA
way!"]
--Point 2) If we move to an
environment where bartering becomes the standard, then I would still think
silver would be appropriate in some degree because of the smaller value
associated with it. I would also ask who I would trust to take my .1867 oz
Napolean III and melt it down into a 1 gram gold coin – definitely not
the government, I would never see it again. I would also be skeptical of any
other organization given that history shows us examples of
"shaving" whereby the gold content of coins was reduced.------
-------Of course, when the
time arrives we will no longer speculate, but participate in what
transpires.--------
Twice,
I agree! Indeed, if history is any guide, we are walking a well-worn trail.
After this weekend, Another may have to update his view of current events.
Things are moving now! [FOFOA:
"Moving now!" –the WAG was signed the very next day! What did
FOA know when he wrote this?]
Sorry for the short reply as I must go now...........thanks FOA
Aristotle
(9/25/99; 21:28:58MDT - Msg ID:14394)
Hi FOA
I just finished reading the posts of today and your latest. On this debate
about Gold and silver you might want to consider one thing that you might be
seeing past in your discussion.
First of all, I am in nearly total agreement with you in regard to Gold and
its use for currency, with no need for silver. Your Canadian dollar as change
for US $100 was brilliant in its clear simplicity.
But here's where you might not be seeing eye-to-eye with some of the others
and their silver comments (though not all, because some are interested in
silver for yet other reasons too varied for my limited imagination). When
they are talking about using silver to make change for small purchases, it
seems to me their primary focus must be on some kind of infrastructure
collapse as would be a worst-case post-Y2K situation. Only if there were no
means to use modern conventional transactional tools such as checks and
plastic would anyone be floating the idea of paying with coins. In such an
environment (which makes me shudder) silver would certainly be handy as they
describe for short term trading. But all roads lead to Gold, and as things
got back on their wheels, we will all discover that the same small amount of
Gold will be able to buy ever-increasing amounts of silver as time goes on.
Barring any Y2K problems as described above, you've got it nailed down. Gold
will outperform silver many times over, and it's easy to see why it would
even be in the governments' best interest to support higher values for
Gold--they all hold Gold, but no silver. Their Gold stockpiles (savings)
could last forever with a high enough valuation. The key, as you well know,
is Gold's new VALUE. Its currency price doesn't mean a damn thing. Instead of
talking about the future dollar **price** of Gold versus a future price of
silver (to see where one's dollar "profits" would be greater), we
should be talking about their future **value**. This could be expressed in
terms of something like loaves of bread. Here's the example:
Let's say we had four equal stacks of dollars and we today took one stack to
buy a year's supply of bread, and then spent two of the remaining three
stacks to acquire a pile each of Gold (small pile) and silver (large pile).
Right now they are all equivalent values...the dollars, the bread, the Gold,
and the silver. Roll the clock forward, well beyond any Y2K mess, or lacking
that, simply past the day of reckoning when the dollar folds, and let's
re-examine our pile of equivalents.
Ok, our year supply of bread is gone, because we ate it. The remaining stack
of dollars will now only buy us a two-week supply of bread, the large silver
pile will buy us a year supply of bread, and the small Gold pile will buy us
enough bread to last for twenty years.
Certainly, these numbers (two weeks and twenty weeks) could be something else,
but I hope I've at least expressed my point clearly for any future discussion
on the matter. If we quoted prices in terms of loaves, we would actually be
talking about value. A dollar price is somewhat meaningless, wouldn't you
agree?
Gotta meet a friend for a brew. Hey you guys out a Peter's place--I'll be
thinking about you!
Gold. Get you some. ---Aristotle
Aragorn III
(9/26/99; 2:53:37MDT - Msg ID:14408)
Mr. koan, perhaps you
might elaborate, or else reconsider?
I shall speak only with the universal language of mathematics...
You said in your post "Silver only has to go to $10 to double. Gold has
to go to $500 to double."
Good Sir, my scale is broken this day, and therefore my currency knows
nothing of weights and measures. I am told that the silver held in my left
hand was purchased for 10 dollars, while the gold in my right hand was
purchased for 10 dollars. To "double" (to equate with your example)
they must each "go" to $20. How is it that this silver knows the
shorter path and may travel the faster, easier road? Consider when you answer
that at my feet is also $10 scrap iron. Per ounce, the price of scrap iron is
quite low...is this then the "gold" for the most wretchedly poorest
of poor men, as you say silver is "gold" for the wealthier version
of poor men? Does scrap iron therefore know the shortest path to double and
beyond?
To be sure, Black Blade makes a point of psychology that must fit into an
equation to be considered. Is this also your unstated rule of mathematics, or
do you contend simply that the dollar will lose one-half purchasing power
against silver more quickly than against gold because the purchased silver
load is heavier to bear? Surely then scrap iron is the best investment of
all? Or must we ignore the weight, as often it does not apply as we see here:
does the low salary of a blacksmith double more quickly than the high salary
of an engineer? I look around, but I see little demand for blacksmithing
these days. When did you last read of silver in the national or international
news?
You will likely agree that all things are subject to changes with changing
times. Perhaps we will need blacksmithing again, and the few that do work for
museums will then command a high price on such a day, indeed.
It holds true today, and perhaps always will, the modern use will define the
value. Consider that the IMF and BIS, the ECB, and yes...the BOE (even as a
seller-in-distress), and frequently our good Federal Reserve Chairman; they
all speak only of gold, but never silver. Please be aware they can move the
gold price further with a small finger than you or I could ever move silver
with a crane. The path has become increasingly clear with the IMF moving to
mark to market a portion of gold holdings...an easy addiction with more to
follow??? I would say we might hold our breath on this one and yet not risk
turning too blue.
Pursue silver if you must do so for your own appeasement. It will certainly
serve you better than dollars in a dollar currency crisis. I believe the
picture painted by Aristotle on this issue in his recent post was quite
reasonable, and worthy of consideration for the two sides. I say only two
sides because if you extend the prevailing rationale of our many posters,
platinum is right out of a role.
got choices?
got gold?
FOA
(9/26/99; 9:54:32MDT - Msg ID:14425)
Comment
Aragorn III (9/26/99;
2:53:37MDT - Msg ID:14408)
Hello Aragorn,
Nice application of clear logic! Let me see it I have this right for a future
context:
"Get your scrap iron now because gold and silver have already run up in
price. Iron is the only affordable metal for late buyers. You get many more
ounces per purchase because the gold / silver / iron ratio is so far in the
favour of iron. When the teaming masses can no longer afford "real
money" they will most certainly buy iron in 1/10 ounce form to use for
small purchases"
I expanded your post with my slanted view to drive home a point to others.
From the time that silver ran in the 70s, on one ever had any historical
precedent that it could move so much. Yet, from 1980 on, every silver
promoter has used the Hunt squeeze as the basis that it will rise again in
just such a fashion. It has been the ideal "leveraged sell" for
every boiler room to sucker in paper traders. I bet there are many who have
lost the most money by taking on silver as a leveraged play.
I say all of this as the proud owner of some silver! Just as Aristotle (and
yourself at other times) pointed out, in a complete "currency:
breakdown, silver will be needed and used. Yet, in this modern day and age,
ironically, inflated fiat currencies will most likely continue to be used for
most purchases. I bet CMAX could add some light on this as he is in an
"inflating country"!
Further: During the run-up in gold during the late 70s, the governments were
selling gold all the way up. In the same light as we look at the YEN today,
gold buyers were always afraid of the "next" intervention. Yet,
even with the official gold sales, gold soared. During that time silver was
never the application of any widespread major sales. Today, we must consider
the effects on gold that a major 'Official" policy change would do.
While everyone is waiting for the next big sale, others are anticipating the
total withdrawal of government selling/ leasing from the markets. Indeed, if
the ECB or oil or china start buying official stocks through the BIS, the
results will be the reverse of the 70s markets. "Street gold" will
be the percentage out performer!
We must bear in mind that there will be a big difference between Official BIS
buying through the CBs as opposed to them buying paper gold on the LBMA. I
think Mr. Holtsmans "More Than One POG" #14297 will be a hated
factor for many current gold mine owners for years to come. With BIS buying
from all CBs, the supply of gold will collapse, forcing the "street
price" through the roof. Falling demand (buying) for paper gold will
drive those securities to the floor because of their inability to secure and
deliver enough physical gold. This dynamic will absolutely force the IMF/
dollar governments to lock the trading price of paper gold at below most
production costs until new mine supplies can work off some of the paper
commitments. Even though cash settlement (at the locked price) will be used,
it will cover but a fraction of the outstanding paper. Counter party default
will rule the day. No doubt, the majority of the mines in operation today
will close, thereby forcing an extended workout period.
It's a simple choose of what is more important to the majority of people?
Save the major portion of the banking system whose menders are the who's who
of the LBMA, OR save the worlds gold mines? No contest!!
This is where we will see competitive revaluation's upward of IMF and
existing CB gold stocks. These source of new equity will be needed to cover
aid to failing countries (some from shut down gold mines) and back the
massive loses a collapse of the dollar reserve currency will bring.
For years everyone looked for the nations to block any large rise in gold, so
they invested in assets that would benefit from what would be perceived as a
reasonable gold increase. One that the governments would begrudgingly allow.
Of course we think of Gold stocks. Yet few considered the true ramifications
if countries suddenly revalue gold not as money, but as a world reserve
asset! We approach this dynamic today as world dollar debt has reached its
limit. Exciting times for those that "walk in the footsteps of
giants", awful times for those that have invested in the gold industry.
It's not too late to change course and sail with the wind. With the direction
of someone that understands, I have done just that!
With the wind...........we are on the road now!!! FOA
FOA
(9/26/99; 11:22:32MDT - Msg ID:14430)
Reply
Leigh (9/26/99; 9:50:43MDT -
Msg ID:14424)
Questions for FOA
------------When you and Mr.
Holtzman talk about a black market for gold, do you mean an illegal black
market? ----
Hello Leigh,
If I answer for both Mr. H and myself, it may get him riled up enough for him
to post more of those great works. So I'm going to do it this one time!
(smile) Also, it will be best to stay in close contact with Michael Kosares,
as he will know the very first changes in the markets (if they occur).
However, in my view: I bet we end up with a very strong "dealer
market" with companies like Centennial Precious Metals in the forefront.
The difference will be in that they will price their product based on the
real investor supply and demand as these dealers trade among themselves. Yes,
an official gold market will be in effect, but "street gold" will
carry a huge premium over the official "trading price". A premium
that will not be profit for the dealers, rather a reflection of the true
price of gold.
(TownCrier, you had a great explanation of this somewhere, no?)
Over time most dealers will slowly disregard all paper trading. The present
major banking houses that trade bullion and paper will most likely drift far
away from the gold business if their loses in that arena build. So; It won't
be a black market like in the movies. That will only come about if things
"really get out of hand". Something I doubt will happen, even
during a Y2K breakdown.
----Do you think it is
possible transactions in gold will be outlawed? That wouldn't do our
government any good, would it? -----
Outlawed? No possible way! The thing everyone forgets is that during the 1930
gold call in, the governments were trying to place gold in a tight price
range. They still had a good dollar system and wanted to keep it for the
world's sake. Today, the problem is different in that they have created so
much dollar based debt that it can't be serviced any more without a blowing
up the world reserve money supply and hence the system. The US knows it's
over and must accept a partial defeat. To accomplish this, in opposite
fashion from the 30s they must raise the price of gold, not keep it down.
It works like this: To keep the gold price stable you have to get your hands
on more of it. Then use that physical to balance existing dollar claims (as
in the thirties) or sell it into the marketplace (as in the last 20+ years).
For today; To make the price rise, you don't need more physical to use as
supply, you simply withdraw supply from the marketplace and revalue what
you have. [FOFOA: Note
that the WAG was being signed right as FOA was writing this. Curious
coincidence.]
The US treasury has some 8,000 tonnes ++/--. They can't back the same dollar
with gold that they removed from the gold standard in 71. Major legal
problems there (BIS???). Nor can they create a new dollar with the Euro on
their backs. They can follow the ECB and the IMF lead and begin to revalue
the existing US gold stock to use as equity against the massive reserve loses
that are coming. No it won't cover even half the liability (even if it's over
$10,000), but it's the only fallback asset any nation has. It will prevent a
total World and US contraction.
The trading and owning of "street gold" by the US public will be
encouraged, not outlawed. Any demand that raises the gold price further will
be welcomed as a "new concept" to save a contracting economy. This
was the real reason the Gold Eagle program was started in the first place!
Political bases covered when the time comes.
---Wouldn't they want us to
spend our gold so that eventually they could get their paws on it?---
No Leigh, in the future they will ask you to spend "your" gold, but
not for their accumulation. They have plenty of gold and will just devalue
the dollar further by raising the gold price in stair step fashion. Your
spending will be to build the economy again. In reality, you will be selling
some gold to a dealer for depreciated dollars. Then spend those dollars
internally, within the country.
Gold coin sales will be a hard act to follow as we cross this valley of money
transition. Mine owners will be screaming for controls of the street price so
they can sell into the defunct LBMA at a higher price. It won't happen.
Later, everyone will be glad they bought physical while the going seemed
rough. Needless it's going to be interesting as this all unfolds. Eventually,
paper gold will be out of the way (covered) and a real "mining boom will
ensue". That's when we sell some of our gold to buy gold mine stocks!
(big smile)
Get ready for that time............buy gold now!
Thank You FOA
FOA
(9/26/99; 16:16:08MDT - Msg ID:14449)
Comment
Leigh (9/26/99; 11:58:37MDT -
Msg ID:14432)
---- One more question: Will
the government tax us gold owners to death, since we'll be among the few who
have any money?---
Ha, Ha,,,,,,, Leigh, what do you think?
FOA
(9/26/99; 16:18:59MDT - Msg ID:14450)
Comment
koan (9/26/99; 12:32:58MDT -
Msg ID:14433)
Silver and gold - relative
appreciation - a theory
-----If silver goes to $10
per oz you just doubled your money i.e. now you have $10,000 (1,000 oz times
$10). That other $5,000 you put into gold for 20 oz will need to go $500 per
oz i.e. 20 times $500 = $10,000.) Elementary my dear Watson.-----------
Mr. Koan,
Watson wants to know why gold can't double at the same time that silver
doubles?
He still wants to know why a poor man will buy $100 worth of silver before
he'll buy $100 worth of gold?
Does that also mean he will buy ten pounds of dirt for a $1.00 first, if one
pound of sand is also selling for a $1.00? Hmmmmm!
I have a few dumb friends but they are not stupid. Seems the most
"dumb" among them always understand the relative worth theory
better than most any PHD scientist. I also know I'm smarter than they are,
even if they have more money than me? (smile)
It's going to take a whole world of "special people" buying silver
to make this work out. I'll watch here with everyone to see how this works
out. Thanks FOA
FOA
(9/26/99; 16:59:38MDT - Msg ID:14456)
Comment
Chicken man (9/26/99;
15:30:12MDT - Msg ID:14446)
FOA @ The Tale of the Golden
Egg..
C Man,
That was a good one!
One of the reasons I advocated buying Goldfield stock was to support their
actions. I Know most didn't understand, but burning a property deed (or stock
certificate) in some cultures is synonymous with stating "you will never
sell the investment".
Here, this company does an industry supporting move and no one (even GATA)
advocates investing in that company for their strong anti-gold selling
stance. Instead people see what happened and went out and bought ABX (or as
much)? This Goldfield action was the major catalyst that sparked new interest
in the gold arena. It called into attention the delicate nature of the paper
gold position if physical is taken out. If everyone starts charging the
auctions, this paper gold market will close in a hurry!
Goldfield buys and everyone comes out of the woodwork to proclaim a new bull
market for reasons other than what happened. Then they direct new buyers into
more paper gold investments, regardless of whether they are controlled
"shorters" for the BBs. The Goldfield action clearly stated that
they alone (along with Anglo) are independent from the paper control. I
support management that take "right minded stands" whether my
investment will pay off or not!
Chicken Man, watch this market run for another ten or twenty and see what
happens to it! With the G7 fiasco concluded, we may get a blow-out this week!
[FOFOA: Oh, boy, did they
ever!]
Thanks for your reasoning....... FOA
FOA
(9/26/99; 17:11:30MDT - Msg ID:14458)
Reply
Golden Truth (9/26/99;
16:56:35MDT - Msg ID:14455)
TO F.O.A, TIME TO CHANGE
SILVER INTO GOLD!!!!!!!!!!!!!!!!!!
Hello F.O.A tomorrow i will
be taking all my SILVER Maple Leaf coins and exchanging them for GOLD.
Golden truth,
Don't forget the iron bullion! (SMILE)
-----One question i do have
is, could you please explain the comment you made about the "massive
reserve loses that are coming" what will cause this? and possibly when?
I,am sorry, i know this is a basic question but i have some trouble with figuring
this one through Thanks as always G.T -----------
GT,
One of many examples. You are a foreign CB that is holding 100 billion in US
treasury debt. The dollar loses half of its value. Treasuries now worth 50%
less! The US declared "foreign exchange controls". Good thing you
held gold that has now more than ?????? gone up! Throw the treasuries in the
trash and forget about them. Now the ECB is offering to buy gold with Euro
treasuries, if anyone wants a "special relationship" with europe.
You know the rest!!!
I have to go now..........This week will be something..... FOA
Sincerely,
FOFOA
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