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What is the main
difference between a commodity and a currency? Consumption! A currency
circulates through the economy as a medium of exchange but is not consumed. A
commodity is a useful basic economic good that is produced, traded in common
units and prices all over the world, and then consumed by industry or
individuals.
Here is a list of
commonly traded commodities from Wikipedia:
Agriculture
Corn
Oats
Rough Rice
Soybeans
Rapeseed
Soybean Meal
Soybean Oil
Wheat
Cocoa
Coffee C
Cotton No.2
Sugar No.11
Sugar No.14
Livestock/Meat
Lean Hogs
Frozen Pork Bellies
Live Cattle
Feeder Cattle
Energy
WTI Crude Oil
Brent Crude
Ethanol
Natural Gas
Heating Oil
Gulf Coast Gasoline
RBOB Gasoline (reformulated gasoline blendstock for oxygen blending)
Propane
Precious Metals
Gold
Platinum
Palladium
Silver
Industrial Metals
Copper
Lead
Zinc
Tin
Aluminium
Aluminium alloy
Nickel
Recycled steel
And what is the difference between a currency and a wealth asset? Time and
appreciation! The main difference is the amount of time that each is held. A
currency is earned and spent in a short timeframe and wealth assets are
accumulated and held for longer timeframes. Here is a list of some common
wealth assets:
Endurable Wealth Assets
Real Estate
Fine Art
Antiques
Collectibles
Gold
Other Precious Metals
Gemstones
Rare Classic Cars
Securities
Stocks (Equity Ownership)
Bonds (Debt Ownership)
CD's (Currency Time Deposits)
What separates "endurable wealth assets" from the rest of the
physical world of consumer goods is their tendency to appreciate against the
currency. Take classic cars for example. They usually appreciate versus the
dollar while regular every-day cars depreciate as soon as you drive them off
the lot! The same goes for Fine Art versus Not-So-Fine Art, and antiques
versus their contemporary equivalents.
It all comes down to time... and appreciation over time. This is the
difference between Wealth, Currency, and the rest of the real consumer world.
The goal of wealth is, and always has been, to retain and/or gain purchasing
power during the test of time.
But what is Purchasing Power? In a world where our currency is an
ever-depreciating piece of paper such a concept is difficult to measure. I
suppose it depends mostly on what you will need and want to purchase in the
future when the time comes. And with a world full of things to buy and always
new things coming to market, how can one possibly track such purchasing power
accurately?
As a whole, we (the human race, the marketplace) are constantly measuring our
currency and our wealth against a world full of physical things to buy. You
see, there are two sides of this fence. On one side is our money, on the
other is the things we buy. And as a group we measure the two sides against
each other as time passes to make sure that the present and future division
of the real physical world matches up with the currency and wealth scheme we
are running parallel to it.
 
This process of
measuring the two sides of the fence against each other is a very complex
process, perhaps too complex for even a super-computer. Both sides of the
fence experience the push and pull of supply and demand. Currency is in
constant demand as men work in order to feed their families and, because
currency is only held for a short timeframe, it is also in constant supply. So
a very high, almost infinite demand for currency can be quite easily met with
a relatively small supply when time is factored in.
Imagine an island of 100 men with a money supply of 1,000 sea shells. That's
10 sea shells for each man. But over the course of a year each man on the
island works and earns an annual salary of 100 sea shells. So the total
economic power of the island over a year is 10,000 sea shells. We could say
that the GDP of the island is 10,000 ss. We could also say that the demand
for sea shells is 10,000 over the period of one year and that demand is met
by a supply of only 1,000 sea shells.
Now imagine that ownership of a piece of real estate on this island costs
about 2 year's salary, and that there are enough pieces of land for each man
to either own or rent one. So each piece of property might cost about 200 ss.
The entire island's worth of residential real estate would be in the ballpark
of 20,000 sea shells, twice the GDP. Yet the money supply still remains at
1,000 sea shells and that limited supply somehow meets demand.
The reason this works is because sea shells are the currency. They circulate and pass from hand to hand
over a short timeframe. This is called velocity and it has the exact
same effect on the value of a single sea shell as does the size of the
money supply. On our island 1,000 sea shells change hands 10 times per year
creating an island GDP of 10,000 ss. If they changed hands 20 times a year
the GDP would be 20,000 ss. Or if we doubled the money supply to 2,000 sea
shells that changed hands 10 times per year it would also yield a
20,000 ss GDP. So velocity and money supply of the currency have exactly the
same effect.
This is the main difference between currency and wealth on their side of the
fence as we measure their value against the other side of physical things. Currency
has a fast velocity of circulation while wealth items have a very slow
velocity. We hold a currency unit for maybe a month while we hold wealth
items for years and years. So wealth items, as a store of purchasing power
measured against the physical world, carry an almost 1 to 1 value ratio
across the fence while high-speed currency carries a fractional value.
It is my
contention that the denouement of our current state of affairs will carry
gold from the commodity zone, across the fence, over to its ancient role as THE
wealth reserve par excellence, bypassing completely the velocity-suppressed
state of transactional currency. And that this shift will alter all value perceptions in the most
astonishing ways one can imagine.
Consider that it is the bankers and central bankers that have gradually
compressed the spring that is gold wealth first into velocity-bound
circulating currency coins, then into fractionally reserved currency and
finally into the mold of a common commodity, all the while protecting their
own hoard and calling it a "reserve". What do they know that we
don't? It is simple really. They know that eventually the spring must
explode.
In the meantime,
these same bankers have made a KILLING selling us all on the idea that paper
indentures are the real value to be had. That by indenturing each other in
perpetual debt servitude we can, as a planet, rise to a new and unlimited
level of wealth in a world of limited resources. But the problem is that all
this debt has now finally exceeded its own ability to continue existing
parallel to a productive world. It can only exist now by Ponzi-cannibalizing
itself to its own end. This is where we are today. The spring is held down by
only a thread.
To get a handle on the potential energy stored in this "spring",
let's take a look at how gold in its commodity mold compares to just one
small piece of the rest of the physical world... oil. The total of all
"proven" oil reserves in the ground are about 1.2 trillion barrels.
Currently oil in the ground is trading at around $15/barrel. So the oil
"slice of the pie" is worth around 18 Trillion USD. [1] Meanwhile all the gold ever mined is
around 160,000 tonnes or about $5.5 Trillion at today's price. [2]
So confined to its
central bank-commissioned commodity prison all the gold in the world is only
worth about ONE-THIRD of all the oil in the world! Or said another way, oil
could corner the gold market THREE TIMES OVER. This is what Another meant when he said:
Oil is the only
commodity in the world that was large enough for gold to hide in.
Here is the full context of his statement:
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!
You see it was oil in the ground that was used to secure gold in the
ground through the paper gold market of the 90's. But those "gold in the
ground contracts" would ultimately be backed by above-ground gold from
the central bank vaults, at least to oil they would, or else oil agreements
would be similarly discarded. This was the message Another brought. His
insider knowledge that explained not only the volume explosion on the LBMA,
but also the low ($300) price of gold happening at the same time as physical
was drying up to the point that central banks had to provide supply.
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.
In my last post, Gold: The Ultimate Un-Bubble, I made a few
predictions about the purchasing power of gold after the restoration of its
ancient role. But probably the most important line in that post was this:
The price of gold is completely
arbitrary.
Understanding this concept is the key to understanding coming events that
will confound almost any observer. So let's expand it:
The value of gold relative to the value of anything and everything on
the planet Earth is completely arbitrary.
Or:
The value of gold is completely arbitrary.
Gold is neither expensive nor cheap. It is theoretically free. It is a
monetary conversion, like buying a Treasury or a money market fund. To the
Giants, do you think gold is a game of "how big is my slice of the
pie?" Or is it "how much is my slice of the pie worth?" Is it
better to have a 15% slice of a commodity pie, or a 5% slice of the wealth
pie? Is it more likely that all the gold in the world combined, when used as
a wealth reserve, will be worth a large percentage of everything? Or that it
is worth only 30% of the known oil reserves?
My friends and I are Physical Gold Advocates. We own physical
outright and do so employing the same reasoning mankind used in owning gold
throughout most of history. However, there is a major difference between our
perceptions of this historic reasoning and the current Western perceptions so
many of you are attuned to. Our's is not a mission to unseat the current
academic culture concerning money teachings; rather it is to present the
historic and present day views of the majority of gold owners around the
world. Those of simple thought and not of Western education. Plain people
that, in bits and pieces, own and use the majority of above ground gold.
Most contemporary Western thought is centered around gold being money. That
is; gold inherently has a money use or money function; built into it as part
of the original creation. This thought presents a picture of ancient man
grasping a nugget of gold, found on the ground, and understanding immediately
that this is a defined "medium of exchange"; money to buy something
with. This simple picture and analysis mostly grew in concept during the
banking renaissance of the middle ages and is used to bastardize the gold
story to this day. Even the term "money", as it is used in modern
Bible interpretations, is convoluted to fit our current understandings.
Much in the same way we watch social understandings of music, literature,
culture and dress evolve to fit current lifestyles, so too did gold have a
money concept applied to it as it underwent its own evolution in the minds of
political men. This is indeed the long running, background story of our Gold
Trail; an evolution, not of gold itself, but of our own perceptions of this
wealth of ages. A evolving message of gold that is destine to change world
commerce as it has never changed before.
Onward my friends
In ancient times there was no concept of money as we know it today. Let me
emphasize; "as we perceive money today". Back then, anywhere and
everywhere, all things known to people were in physical form. All trade and
commerce was physical and direct; barter was how all trade was done.
If one brought a cart to market, loaded with 20 bowls and 20 gold nuggets, he
used those physical items to trade for other valued goods. The bowls and gold
had different tradable value; as did every other thing at the market. Indeed,
gold brought more in trade than bowls. Also true; if a barrel of olive oil
was in short supply, it might bring even more in trade than all the gold in
the market square.
The understanding we reach for here is that nothing at the market place was
seen as a defined money value. All goods were seen simply as tradable,
barterable items. Gold included. Truly, in time, some items found favor for
their unique divisible value, greater worth and ease of transport. Gems,
gold, silver and copper among others, all fit this description. These items
especially, and more so gold, became the most tradable, barterable goods and
began to exclusively fill that function.
But the main question is: was there money in that market place? Sure, but it
was not in physical form. Money, back then and today, was a remembered value
in the minds of men. Cumbersome it may have been, but even back then
primitive man had an awesome brain and could retain the memory values of
thousands of trades. In every case, able to recall the approximate per item
value of each thing traded. That value, on the brain, was the money concept
we use today.
Eventually gold climbed to the top of in the most tradable good category. Was
gold a medium of exchange? Yes, but to their own degree, so were the bowls. Was
gold a store of value? Yes, but to a degree, so were dinner plates. Was gold
divisible into equal lesser parts to define lesser barter units? Yes, but to
a degree one could make and trade smaller drinking cups and lesser vessels of
oil. Perhaps gold became the most favored tradable good because the shear
number of goods for good traded made a better imprint on ones memory; the
worth of a chunk of gold in trade became the value money unit stored in the
brain.
Seeing all of this in our modern basic applications of "money
concept", almost every physical item that naturally existed or was
produced then also held, to a lesser degree, gold's value in market barter. But
most of us would have a hard time remembering a bowls value and thinking of a
bowl as money. The reason this is such a stretch for the modern imagination
is because bowls, like physical gold, never contained or were used in our
"concept of money". Back then, as also today, all physical items
are simple barterable, tradable goods; not of the money concept itself. Their
remembered tradable value was the money.
Money, or better said "the money concept", and all physical goods
occupy two distinct positions in our universe of commerce and trade. They have
an arms length relationship with each other, but reside on different sides of
the fence and in different portions of the brain.
For example: say I take a bowl to the mint and place an official government
money stamp on the underside. The bowl now is stamped at $1.00. Then I take
one tiny piece of gold to the mint; one 290th of an ounce or at today's
market a dollar's worth. They stamp that gold as $1.00. Which
physical item would be money? Answer; neither.
Using ancient historic reasoning and the logic of a simple life; the bowl
could be taken to the market square and bartered for another good. Perhaps a
dinner plate. In that barter trade, we would most likely reach an
understanding; that the "bowl for plate trade" imprinted our memory
with what a digital, numeric dollar concept is worth. Again, the 1.00 unit
was only stamped on the bottom for reference. While the dollar concept is
only a rateable unit number to compare value to; like saying a painting is
rated from one to ten when judging appearance.
We could do the exact same thing without 1/ 290th ounce piece of gold as with
the bowl above. In the process we again would walk away with the knowledge of
what a $1.00 unit of money value was worth in trade. The physical gold itself
was not the money in trade; the value of the barter itself created the actual
money value relationship. Again, the most important aspect for us to grasp
here is this:
----- The use of physical gold in trade is not the use of money in trade. We
do not spend or trade a money unit, like the dollar, to define the value of
gold and goods: we barter both goods and gold to define the worth of that
trade as a remembered association to the dollar money unit. That remembered
worth, that value, is not an actual physical thing. A dollar bill nor an
ounce of legal tender gold represent money in physical form. Money is a
remembered value relationship we assign to any usable money unit. The worth
of a money unit is an endless mental computation of countless barter trades
done around the world. Money is a remembered value, a concept, that we use to
judge physical trading value. -----
Onward
Naturally, for gold to advance as the leading tradable good it had to have a
numerical unit for us to associate tradable value with. We needed a unit function
to store our mental money value in. In much the same way we use a simple
paper dollar today to represent a remembered value only. Dollars have no
value at all except for our associating remembered trading value with them. A
barrel of oil is worth $22.00, not because the twenty two bills have value
equal to that barrel of oil: rather we remember that a barrel of oil will
trade for the same amount of natural gas that also relates to those same 22
units. Money is an associated value in our heads. It's not a physical item.
The first numerical money was not paper. Nor was it gold or silver; it was a
relation of tradable value to weight. A one ounce unit that we could
associate the trading value to. It was in the middle ages that bankers first
started thinking that gold itself was a "fixed" money unit. Just
because its weight was fixed.
In reality, a one ounce weight of gold was remembered as tradable for
thousands of different value items at the market place. The barter value of
gold nor the gold itself was our money, it was the tradable value of a weight
unit of gold that we could associate with that barter value. We do the very
same thing today with our paper money; how many dollar prices can you
remember when you think a minute?
This political process of fixing money value with the singular weight of gold
locked gold into a never ending money vs gold value battle that has ruined
more economies, governments and societies than anything. This is where the
very first "Hard Money Socialist" began. Truly, to this day they
think their ideas are the saving grace of the money world. It isn't now and
never was then.
When investors today speak of using gold coin as their money during a full
blown banking breakdown, what are they really speaking of?
In essence, they would be bartering and trading real goods for real goods. The
mention of spending gold money is a complete misconception in Western minds. Many
would bring their memories of past buying with them and that is where the
trading values would begin. Still, it would take millions of trades before
the "market place" could associate a real trading value to the
various weight units of gold. It took mankind hundreds of years to balance
the circulation of gold against its barterable value. Only then could a unit
weight value become a known money concept. In that process, in ancient times,
gold had a far higher "lifestyle" value than it has seen in a
thousand years. This value, in the hands of private owners, is where gold is
going next.
If you are following closely, now, we can begin to see how easy it is for the
concepts of modern money to convolute our value and understanding of gold. It
is here that the thought of a free market in physical was formed. Using the
relationship of a free physical market in gold, we will be able to relate
gold values to millions to goods and services that are currency traded the
world over. Instead of having governments control gold's value to gauge
currency creation; world opinion will be free to associate the values of
barter gold against barter currency. In this will be born a free money
concept in the minds of men and governments. A better knowledge and
understanding of the value of all things.
-FOA (2001)
What does "Gold is Wealth" really mean? It means that gold, all of
the gold, is set parallel, on the opposite side of the fence from the rest of
the world of consumer goods and endurable wealth assets, as the
numéraire of wealth in its role as the one physical holding par
excellence for the purpose of preserved purchasing power over long
timeframes. That is, denominating global wealth in its physical form only,
non-fractionally reserved, non-transactionally diminished through the
velocity of exchanges, but in its stationary, one-to-one relationship with
the rest of the world's wealth, plus or minus a few lesser competitors.
What's next
Time and volatility are now the greatest threats to the current global fiat
regime. As time passes volatility will rise. Volatility means price action in
BOTH directions, with only one possible conclusion. For this you must be
mentally prepared to not end up a victim of meaningless signals.
The current façade of stability is highly manipulated and controlled,
but cracks are opening and we are starting to see through the curtain to the
wizard at the controls on the other side. Things are not as they seem.
Signals are much more confusing in times like these.
Debt is the very essence of fiat. But as debt fails, the fiat currency can
spike sharply in response. Expect the end game to look very different from
what you have been told. The dollar as rated by the USDX, a flawed rating
system, may rise briefly to something like 150, a level certainly not
expected for a currency on the verge of a hyperinflationary collapse! The
COMEX gold price, which is really just the price of paper, may drop to $200
or lower before trading is halted.
You can expect this kind of "spiritual experience" price volatility
to be heralded as proof that the goldbugs were wrong all along. But don't be
fooled. Many a strong hand will turn weak at the worst possible time. Many a
bug will be lured by the warm glowing light only to be electrocuted. Don't be
one of them.
Remember that ANY volatility is the enemy of the system. Even the price
movements that don't go your way are still bringing down a system that has
become a complete farce. Hold tight your gold wealth for a brighter day
comes. The world of paper debt is, and has been, circling the edge of a
lavatory vortex from which there is no escape.
The
“PRICE” of short-term paper simply “cannot” be seen
to go above PAR …as that in itself rings the death-knell of the System.
Yield in the short-end is essentially determined by how much you pay NOW ..to
get back Par over the time period. When you pay $1001 to get back $1000 in 3
months …you're in negative yield. Of itself an oxymoron …and
declaring for all the World to see …there IS no monetary Future.
Can ONLY happen in a “Global” Fiat construct FOFOA …the
likes of which holds sway at present.
This System is unique in that we've "never" had an arrangement in
place before where there was "no escape" monetarily speaking.
In the past, when the economic situation in (say) the UK deteriorated, one simply transferred to a stronger currency ...or Gold ...or Silver
...as they were all monetary functionaries of specie ...or at least
"some" of the available currencies were.
We now have the situation where the entire System is stressed beyond coping
...with the $US/Oil configuration back-stopping said System.
It (the REALITY) will permeate ALL facets of
"future-derived" valuations FOFOA. Bonds, Stocks, Real-estate
...and even our beloved PM's. (as they are NOW priced with a futures-leaning
bias)
The closer you get to the Kernel however (short end of the curve
...<6mo)>DX
...that's why it's SOOO important NOW to dis-associate mentally from the
$US pricing of PM's.
We KNOW they're "worth" more ...what we have to realise is ...they're
essentially "priceless" under the current regime
...despite what the current market tells us.
What is being priced as Gold ...TODAY ...and what you hold in your hand
...are vastly different. (but you already KNOW that ;-)
-Topaz
Sincerely,
FOFOA
FOFOA is A Tribute to the Thoughts of
Another and his Friend
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