The Golden Phoenix

The above is from a post that FOA wrote back in 1999, prior to the Gold Trail. In it, he apparently explained how, when and why what we know today as "Another's message" began. In the post, he talked about an ongoing and evolving "report" that began sometime around the global stock market crash of 1987, when some "important people" started asking serious questions about the end of the dollar reserve system's timeline, and how best to transport wealth through such a transition.

In a later comment, he referred to it as a "study" and confirmed that he was not personally part of it, but that the $30,000 gold revaluation was a projection that came out of this "study". So without further ado, here is that post (highlights, underlines and brackets are my emphasis and contextual notes):

FOA (09/13/1999; 09:09:03 MDT - Msg ID: 13518)
Reply

ORO, Some things I know.

This work started back in 1988, not long after the 87 crash. Important people were asking some very serious questions about the timeline of the world monetary system. They expected a longterm evolving report that would expand ongoing events into a format of true life context. A context to be understood at all levels of economic exposure. In other words, it had to do a better job of explaining the (then) recent illogical swings of world economic affairs and the effects of those swings on various national economic groups. Were we progressing into a new, better age, or was our system responding in a death like downtrend? [To put the "swings of world economic affairs" he mentioned into perspective, the world's stock markets had just crashed in October of 1987. The dollar's exchange rate had reached its all-time high of USDX 164 in 1985, followed by the Plaza Accord to devalue the dollar in September of that year, the Louvre Accord to subsequently halt the dollar's devaluation in February of 1987, and the stock market collapse eight months later. Also, the price of oil had just dropped by more than half in 1986, and the Dow reached its all-time high in August of 1987, less than two months before the crash.]

Because the questions grew from a fear that the world economy would indeed contract in the future, leaders wanted to know how one could retain the most wealth during such an event. It was thought that if the basic extended family blocks of a nation could survive such a collapse, savings intact, those nations and their children would be a benefit to economic affairs of the future. In effect, negate a possible return to the Dark Ages of European history. Our time frame was outward some 20+ years. I cannot offer the full report or its complete ongoing analysis. But, the effort you have seen to date is one of sharing somewhat for the common good of all. [So Another was involved in presenting this "report" spanning or projecting out 20 years starting around 1988, which was requested by some "important people" who were concerned that the $IMFS would eventually end and wanted to A) make it through with their wealth intact, and B) avoid returning to the "Dark Ages".]

In a search for reasoning, they looked first, not only at the most broad perspectives, but ones that had the effects of history for confirmation. Often the record of historical human reactions are the only precedent that can refute the use of modern day financial theory. Especially if that Theory is in a "practice for proof" stage that might last for a generation or more. [So Another and his group thought that it was more useful for the specific purpose of this "report" or "study" (being one focused on a transition period in particular) to favor known historical human reactions over more recent theoretical economic analysis.]

1. They found one absolute repeating event that shaped the lives of countless individuals. Its effects upon the destiny and life directions of recent society had no equal. That one most striking and frightening observations was of the failure of paper money. With irony, we stood here in the middle of 1988, a time of advanced thinking using higher education for guidance and could easily document that no paper money ever put into use had ever survived. Whether backed by precious metals or in stand-alone form, not one lasted! Yet, we were hip deep in an entire economic world that based and denominated its wealth upon the further extensions of "fiat paper money".

2. The second major observation was in the evolution of what debt is. From the very beginning of time humans have borrowed and owed, from and to each other. During most of history, the period of time between a debt owed and a debt paid was looked upon as "a period of risk". The accepted longline historical concept was that the item borrowed may not be returned to the owner. In addition to this view it was ingrained that the primary real loss came from not being able to replace the "item" lent, not the secondary loss of not receiving the medium of exchange. Yet in today's world (1999), the "thing" that is usually at risk in a debt is the currency. Modern common perception stands that no one should have to accept these losses. In concept, governments nurture these perceptions only because they "can" replace the currency with ease. Yet the actual physical structure of the debt (the economic good that the loan was based upon) is never regained. This engine alone is a major force in the destruction of currency systems. Its effect is to shrink the platform that creates real wealth and expand the financial instruments whose value depends upon that platform's continued function. Indeed, it is a complete conflict to historical, natural human interactions.

From these two grand perspectives we view the unstable trend lines of our modern economic structure. It is from this present structure, that many entities, both large and small now attempt to retreat. But, in order to transport wealth with assets intact, they had to understand these money dynamics as an ongoing breakdown of our economic system. A breakdown that ebbs and flows with a political posturing that makes this journey very uncomfortable without a stable, long term grasp of the process. As the river Nile floods and withdraws in its endless rush for the sea, so too will the energies of paper currencies be eventually absorbed into the ocean of history.

Onward:
Michael Kosares of USAGOLD knows well the very early coins of gold. Money coins that by their very existence today prove victory over the past creations of mankind's fraudulent commerce. The value of these coins now reflects an even higher value as art. Another minor means of wealth transportation that has historically outperformed money gold.

But, in distant times past these same coins performed a far more noble role. They remained the only existing money stock after "major economic societies failed". This particular function of gold is not important for 99% of time that economies function. One small evidence of this is present in the old Gold standard. With ragged inefficiency, paper currency circulated as gold deposit receipts along with gold coins during the course of normal financial dealings. However, after we endure that once in a "several centuries failure", the gold money stock becomes the vital building block of the next generation. History has shown that during that brief time, the owners of every ounce of gold provide the only efficient medium of exchange that rebuilds the marketplace. In transition, these latter day gold owners never rule the financial world. Rather they perform the act of energizing a dead economy by transporting buying power into the next expansion. The history of past human interaction was never one of hoarding money so much, as it was that of trading to gain life's things.
Life goes on.

Viewpoint:
It was pointed out that one need not invest in gold to negate the effects of an inflation. All we have to do is buy real things that increase in currency value faster than the loss of buying power. True, in that light gold is but one of many things that should keep us at least even. However, we are in the process of experiencing a "breakdown" or at the very least a major change in the entire financial system. Not just an ongoing inflation during a phase of a longline expansion. Our goal for certain individuals, is to show this dynamic at work as the real life events unfold and document its progress. For private individuals that read these pages [that's you and me!], historical purpose and present day logic will build further support for the holding of physical gold as these events reveal the true season. In this light I offer Another's direction given some many years ago, "in this special season, let others buy things to hedge their present worth, let us buy gold in support of our future generations".

Onward:
After reading ORO (9/8/99; 8:24:51MDT - Msg ID:13029), I wanted to at least be more direct in offering this ongoing discussion of events. You do a wonderful job of writing and I often find my information is just a reword what is said:

---- "In order to gain action from people, one needs to provide a timetable for the events (within my nephew's lifetime, mine, my parents' or my grandparents', or before the year turns, any time now...). This is the kind of support that I myself required before I was willing to accept the need for putting resources into "gilded insurance". The same need for support with numbers and charts that I am working on filling is needed to induce the financial pros to give their clients direction. The issue is a patriotic one. Small business America will not survive without small capital hoards. The same problem they had in the depression. The reason for the length of the depression, was the confiscation of gold. The inability of small businesses to find capital pools in an atmosphere of credit unwinding, and the simple death of the money supply in lew of the indestructible gold that was confiscated was the cause for an extra decade of suffering. The only way I see to avoid it is to convince people to build these pools now or end up working for a foreigner for the rest of their lives, since only foreign pools of gold capital will be available (India, perhaps Europe, Arab countries, Asians from countries that managed to pick up the pieces most quickly)."-------- [GIMME THE TIMING, DAMMIT!! :D]

ORO, on these points I completely agree. However, all that is left to drive the last remnants of this world engine is the "American Dream". The leverage to attain that "Dream" is presently stretched so far that any withdrawal back into reality will implode the dollar with amazing speed. The time may be already past for any large scale building of gold stocks based upon reality. But, still the effort is not lost. [OH NOOOOOO, it's now 2015 so he must have been WRONG ABOUT EVERYTHING!!! :D (I don't think so)]

Also:

---- "The key to the numbers is that set of numbers that quantifies the issues. Particularly important is the understanding of how the international dollar system works, how leveraged it is, how that makes it susceptible even to small shocks, how a dollar collapse in international markets would play out in the US. Once the arguments and the numbers are shown and it is possible to convince a professional of the dangers facing the dollar both as reserve currency and the currency of the US, only then is it possible to make the argument for gold as anything other than another paper airplane to ride in the markets. Perhaps you will start a presentation of the qualitative issues regarding the dollar (rather than gold), interspersed with the data you may want to quote. I am currently working on the data to show the details of the situation."------------- [I NEED THE DEEETAILS, DAMMIT, AND THE TIMING!!]

Onward:
The best indicator one could find to advance the warning of a reserve currency breakdown is the fall away of price inflation after decades of local currency and debt expansion. To observe the history of paper money is to view its constant loss of value as expressed in the price of daily things. Whether backed by gold or nothing but "a dream", no world economic power has ever let its currency increase in value for the long term.

The only way any currency can, in the short haul become price inflation neutral is through the demise of its competing moneys. This effect is seen as an increase in the holdings of one major currency and the corresponding sale (increase in trading velocity) of the displaced foreign money. In the case of the modern world reserve currency, the dollar, we look to the net increase of foreign holdings of US treasury debt. The proxy for holding US cash. [Hmmm… that's a pretty good description of what's happening right now! ;D]

(Note: A table of this recently appeared on the Investech web site. I cannot reproduce it. Perhaps someone else can.)
From 1979 through 1994, the increase was always positive, but never in fully manageable amounts. From 1995 till mid 1998, the accumulation exploded off the chart as money competitors became the spending currency and the dollar the holding currency. It's well documented how this effect has kept price inflation in terms of the local US markets from rising. However, this long trend also had the effects of denominating almost all world debt in dollar terms. This was seen throughout the 90s and is considered the end time event that will break the dollar. Because the local American economic structure has always been finite, it cannot defend its currency with the exchange of real goods nor represent the value of the debts of the entire world. The downside, not discussed result of this will be the complete destruction of the dollar as a reserve currency. This begins as an attempt is made to reverse the dollar holding process. The same chart above also presents a massive decline in net foreign US debt purchases beginning in 1999+/-. The trigger of this action was the successful establishment of a larger competing reserve currency, the Euro. [Of course we know what happened when China picked up the ball in 2001 that Europe dropped, but what he's describing is happening again RIGHT IN FRONT OF OUR VERY EYES!!! :D]

Because a world reserve fiat currency can only represent the tradable value of its local economic structure, the world markets will now devalue most all debt based upon the dollar. This effort will begin a real "catch up" phase on the US price inflation front, even as dollar debt is burned with a vengeance world-wide. This loss of the dollar vehicle will also bring the destruction of many contemporary derivative markets that priced commodities for their value as trading items, rather than their traditional good use.

More in a later time. Thank You FOA

Right after that post, Cavan Man asked FOA who he was referring to as "important people":

FOA (09/13/1999; 18:52:08 MDT - Msg ID: 13574)
Comments!

Cavan Man (09/13/99; 09:43:46MDT - Msg ID:13521)
FOA
I do not read "important people" wanting to know as being academics of any stripe. Am I correct?

Cavan Man,
To the best of my knowledge, the ones that initiated this were major oil producers. Strange as it may seem, the very first questions came from a US natural gas producer in 1985+/-. Later the initiative came from outside the US. Again, all of this was some time ago.

I find that last bit about "a US natural gas producer" intriguing! Who do you think FOA might have been talking about? My guess (and it's only a guess) is Peter Munk, because I recall that Barrick Resources switched from oil and natural gas to gold mining around 1983 or 1984. From Wikipedia:

"After suffering huge financial losses in oil and gas,[3] principal Peter Munk decided to focus on gold."

Footnote [3] is from the book, Golden Phoenix: The biography of Peter Munk by Richard Rohmer. Peter Munk is an interesting person. And whether or not he is who FOA was referring to in that post, we do know from Another and FOA that his company was an integral part of the development of a new kind of paper gold market in the 80s. So I decided to check out the book and see what I could find.

Peter Munk graduated from the University of Toronto in 1952 with a degree in electrical engineering, and in 1958 at the age of 30, he founded a high-end electronics manufacturing company in Canada, but that business went sour by 1970. Then, in the 70s, he founded a large hotel chain in Australia from which he made his first real money when he sold it in 1979. From the hotel chain sale, he was left with about $100M which the book says was "burning a hole in his pocket." So, in 1981, he went into oil and natural gas production. That investment quickly went sour, and within a year or two, he had lost a good portion of his 1979 windfall.

By 1983, according to the book, Klosters, a ski resort town near Davos in Switzerland, had become a central part of his life—a place "for reflection and review." In the chapter titled The Move To Gold, the book quotes Munk himself:

"At Klosters I have made some of the most important business decisions of my life. Because when I'm there I can see the forest, not just the trees." His move from oil to gold was decided there…

"I certainly now believe that Klosters is a very important part of why I'm maybe a bit different from other executives, because there I have a vantage point. I go at Christmas and come back at Easter; I have a little office, but I don't work that hard. I like to ski for four or five hours…"

Here's what Wikipedia says about Klosters:

The Klosters ski resort has long been the winter destination for the British Royal Family for over 3 decades.[9] Prince William and Prince Harry grew up in the village learning to ski and were often spotted at their usual haunt Casa Antica.[10] Among other historic notable usuals include the likes of Paul Newman, Gregory Peck, Yul Brynner, Lauren Bacall, Juliette Gréco, Irwin Shaw, Robert Capa, Greta Garbo and Gene Kelly… In more recent history other regulars include, Lord Mandelson, billionaires Nathaniel Philip Rothschild,[13] and Peter Munk[14]...

Can you imagine Peter Munk, perhaps in the winter of 1982, in Klosters asking one of the Rothschilds about how to preserve intergenerational wealth, since he'd just made and then lost a fortune in the previous three years? Clicking on Nathaniel Philip Rothschild, we learn that there is indeed a connection between him and Peter Munk. Nat is "a member of the International Advisory Board of the Barrick Gold Corporation."

With a quick Google search, I also found that, in 2011, the 83 year old Peter Munk showed up with his 140 foot yacht named the Golden Eagle at Nat Rothschild's 40th birthday party. Incidentally, Munk's yacht was named the Royal Eagle before he changed the name in 2010 to Golden Eagle. Nathaniel Philip Victor James "Nat" Rothschild would have only been 11 years old in the winter of 1982, but his father is Nathaniel Charles Jacob Rothschild who would have been 46, and who made the news just last month.

But Peter Munk was not only hanging around with the Rothschilds and other European elite during this time, he also counted some powerful Saudis among his friends and investors. From the book:

[by 1983] Munk had enlarged the stable of investors in Barrick Resources to include not only Adnan Khashoggi, Prince Nawaf, Joe Rotman and Norman Short, but also Kamal Adham, a former financial advisor to the Saudi Royal family.

From Wikipedia:

Adnan Khashoggi is a Saudi Arabian businessman. At a peak net worth of up to $4 billion USD in the early 1980s, he was considered one of the richest men in the world. Khashoggi along with Kamal Adham was one of the founders of the gold company Barrick Gold Corporation, established in 1983.

Kamal Adham (1929 – 29 October 1999) was a businessman and former director general of Saudi Arabia's Al Mukhabarat Al A'amah or the general intelligence directorate. He served as a royal counsellor to both King Faisal and King Khalid.

Nawwaf bin Abdulaziz is a senior member of the House of Saud and was a close ally of the deceased King Abdullah.

During some time he spent in Australia in 1982, Peter Munk claims that he "learned how to do a profit-and-loss of a gold mine on the back of an envelope." And in 1983 and '84, through Barrick Resources, Munk started buying up gold mines and dumping his oil and gas investments, and he was only interested in producing mines, not exploration companies.

By 1985, he was actively improving the efficiency and productivity of the mines he was buying:

With the funds already in hand, Barrick closed on the Mercur deal in June 1985.

Smith and his team immediately went to work installing new high-tech equipment with the financial assistance of the Bank of America. A $10-million state-of-the-art autoclave unit was the major piece. When it was installed, processing went from 3,000 tons per day to 5,000 tons; morale among the workers took off, the cost of recovering the gold out of the ground was down from US$285 to US$199 per ounce.

This reminded me of something Another said about what the CBs expected to happen in the mining industry in the mid-80s:

The BIS and other various governments that developed this trade ( notice I didn't use conspiracy as it was good business, as the world gained a lot ) , thought that the paper gold forward market would have allowed the gold industry to expand production some five times over!

More from the book:

Production and productivity went through the roof.

In February 1985 Peter Munk had announced his strategic goal for Barrick Resources: in three years its mines would be producing 300,000 ounces of gold a year. In 1984 the production was 34,000 ounces.

As 1985 closed out, Peter Munk was beginning to maximize the leverage that only ownership of the gold reserves of producing mines could bring. He borrowed (at 2-percent interest) 77,000 ounces of gold against Mercur's reserves. He then sold that bullion on the open market for US$25 million. Those funds were used to pay off the total short-term debt to the Bank of America, leaving only $8 million in long-term debt for the Mercur acquisition.

Munk's involvement in pioneering gold-backed financings was emerging.

You might be thinking, like I was, that if Peter Munk was the one who asked the "first questions" that FOA was referring to, then why was he buying mines and not physical? Does this make sense? Does it fit with the storyline we learned from Another and FOA? I think it does.

First, understand the difference between a company and an individual. Companies don't ask questions, individuals do. And companies don't have intergenerational wealth, individuals do. Companies are groups of people doing things together in order to make money, not simply to avoid losing wealth that was previously attained. So even if Peter Munk learned something about preserving intergenerational wealth in physical gold in the early 80s, I think it also fits that he took his company in the direction he did.

Consider that, in 1983, Munk was maybe personally worth around $10-$20M (just a guess based on what he'd just made and then lost). Then he got into gold mining and became a billionaire over the next 10-20 years, even while the price of gold was declining from $500 to $250. How on earth did he pull that one off?

Well, for one thing, he left the actual gold mining to his employees while he engaged in money mining! More from the book:

During the remainder of 1987, Munk focused on raising capital for American Barrick Resources. He left the mining development to Bob Smith and his professionals. Munk and Gilmour, with their expert number-cruncher partner, Bill Birchall, would orchestrate the money mining.

How he did that was groundbreaking. One almost wonders if the BIS was involved behind the scenes as Another said. In fact, in the book, there's a curious story about a big Canadian bank (also a bullion bank) who, in 1986, suddenly did an about-face and started courting Munk.

In 1985, Royal Bank of Canada (RBC) was in a fight with Barrick over $74M, and the bank accused Barrick of dishonesty. Then, a year later, the bank suddenly apologized to Peter Munk in grand fashion and made nice, and then a year after that, the same bank made the largest gold loan ever to Barrick. Here's how Peter Munk described it:

A year later, in 1986, Brian Gregson, one of the top people of the Royal, came from Montreal and gave a beautiful lunch at the Royal Bank dining room. There were all the big shots from the Royal Bank. Gregson said, "We're giving you this lunch in the most prestigious of the boardrooms in the Royal Bank to tell you how wrong we were and how right you were. And we're here to tell you that we at the bank don't very often apologize, but we apologize." Because of that, the Royal Bank remains our favourite Canadian banking institution. Two years later, we went to them for the largest gold loan ever done in the world, 1,050,000 ounces. We sold the gold for US$450 million. It was because of that single action, the lunch and apology. It was a very gentlemanly thing for them to do.

How often do banks come cap-in-hand and throw a fancy lunch in their finest boardroom to apologize to a client? It makes me wonder if someone wasn't pushing them to make nice with Barrick. Here is Another discussing these deals where he makes it clear that the CBs were behind the deals:

Date: Sat Feb 21 1998 23:47
ANOTHER (THOUGHTS!) ID#60253:

A CB lends gold at 2% to a producer for a better purpose than make money on idle asset. This gold loan is now the gold asset with a mine behind it! Such assets are traded and create solid paper for oil. If reason for good return was real, it would look like below. Read ABX page and consider, please.

There is much with this question!

Why doesn't a CB enter into a "reverse spot deferred gold contract" from the same Bullion Banks it lends gold to? Conditions:

1. CB lends gold at 2% to the Bullion Bank.

2. The Bullion Bank sells the gold at $300US.

3. The BB earns interest on the proceeds.

4. One year later, if gold is below $300, the BB buys in the gold and the CB gets its gold back plus the contango.

5. OR, if gold is above $300, the CB invokes the "spot deferred" clause and lends more gold at $300+ to the BB. The first deal is deferred until another time as intrest builds.

6. In this process the CB will bypass the gold companies and gain more return.

Read the ABX hedging page, we discuss at another time!

www.barrick.com/f-hedge.htm

You see, Barrick was essentially selling gold that it hadn't yet dug up for $428.50 an ounce. And as we now know, the price fell to $250 over the next 13 years. The more mines Barrick could acquire and the more in-ground reserves it could claim, the more paper gold it could sell! Here's more from the book:

Munk had successfully completed, in September (of 1986), a deal with Merrill Lynch Canada Inc. for the sale of C$43 million worth of units of American Barrick's common shares and gold purchase warrants. Each unit offered consisted of one common share and two warrants to purchase gold at US$460 an ounce. For those who had faith (or were prepared to bet) that the price of gold would rise beyond US$460 by September four years later, the enticement was complete. Merrill Lynch had no trouble selling them.

[…]

On March 13, 1987, an ad in the Wall Street Journal announce the sale, worth US$50 million, by Barrick Resources (U.S.A.) Inc. of "2% Guaranteed Gold Indexed Notes due 1992"; redeemable for (a) a cash amount indexed to the price of gold or (b) at the option of the holder, gold bullion, and unconditionally and irrevocably guaranteed by American Barrick Resources Corporation.

[…]

On Thursday, October 29, 1987, Barrick arranged a gold loan of 263,713 ounces from the Toronto-Dominion Bank. This was a major deal that TD chairman Dick Thompson was pleased to approve, and it allowed his friend Peter Munk to authorize the immediate sale of that gold by Barrick into the market for about C$160 million. The initial interest rate for the TD loan was a phenomenally low 1.65 percent annually.

By this time, the cash in hand and short-term investments of American Barrick were over C$300 million. Peter Munk had funds substantially in excess of the planned capital spending programs for both Goldstrike and Barrick's Holt-McDermott mine in Northern Ontario.

For Peter Munk, at Klosters with Melanie on the eve of the New Year of 1988, there was ever reason to celebrate…

All kinds of paper gold! It's amazing, Barrick was essentially in the business of selling paper gold and delivering the real stuff later. The declining price was not only good for Barrick, but as we now know, this process of expanding the paper gold supply had a hand in making the declining price happen by diverting real demand from physical. Barrick shares did very well, "oil" got "solid paper" and some physical gold, and Peter Munk, the "golden phoenix", became a billionaire in the process, all while the price of gold was declining. Can you see how it makes sense?

Date: Sun Apr 19 1998 15:49
ANOTHER (THOUGHTS!) ID#60253:

It truly started with Barrick, in Canada in the 80s. It was a "thin market", but grew big in oil.

FOA (5/15/99; 21:38:42MDT - Msg ID:6212)

One of the first signs that a new gold market was being created was when bullion banks were allowed to sell Central Bank gold "ownership invoices", for cash to the benefit of Barrick. The CBs got only a very small rate of return for this risk. The money set in a bank account and interest was made. The new owners of the gold paid cash but let the gold set in the CB vault. All that happened was that Barrick could earn interest on its unmined reserves and call it "the higher price they were getting for gold"! In addition, the CBs said they could roll it forward for ten years +/-, if the price of gold rose! Really clear eyes could see that the CBs were paying mines interest on unmined reserves if they would replace the CB real gold with mine collateral. Because the gold didn't really leave the vault, the new securities were used to match the mine future assets against the new owners of the gold!

Neat trick. After the public bought it as "the CBs earning interest on a nonpaying asset", the gates were opened. It wasn't long before gold was lent without any gold at all! No different than "fractional reserve" banking. The mines were (are) being used to expand the gold trading arena and they don't even know what is happening. Now, as the price has fallen, all mines must earn interest on reserves, just to survive. The dollar bears are, in effect, nationalizing the mines gold reserves at ever lower prices. Tell me the CBs are dumb???

FOA (5/16/99; 13:50:14MDT - Msg ID:6244)

Why would anyone conclude that Barrick was a "passive foil" of the BIS? At the time, they made a smart, innovative move that allowed them to earn interest in unmined reserves…

It was never done before on this scale, but that is only because the CBs never had a reason to lend gold for almost zero return. I am taken by the naivety of the public and the boards of these companies. It shows the extent that greed holds when no one asked why the CBs were suddenly giving away gold to lend. Remember that interest rates were much higher when all of this lending started.

Trail Guide (11/02/00; 08:07:42MT - usagold.com msg#: 40451)

The original "gold deal" as it first came into play involved lending the gold, the borrowers (BBs) selling it for cash and then they (the BBs not the mines) pooled that cash in a holding account. There it was held in interest bearing instruments, not delivered as financing to the gold mines. That pot of cash grew with its added interest and became the ever increasing per ounce price the mines sold their production to in later years. Fulfilling their contract.

Having entered into these contracts that guaranteed a pot of cash to buy their gold production, the mines could use these contracts as fixing their profit margins to borrow money against and expand their operations. OK;, so this is how it started. I think American Barrick was the pioneer of this back in 1986??

But, as I opened with above, this was just a lead-on sanctioned by the governments to create a market for paper gold dealings. All the rest that followed we have discussed endlessly. However, my main thrust in this is that the CB did have a political return to gain by starting this, it wasn't done for free.

Now, if this was a real lending operation with the intent to get some return on their idle bullion, they could have easily structured it far differently. As it is they lent the gold into a contract scheme that gained them far less then the actual rate returned. The mines would have been happy to create the deal even if it fetched a static guaranteed gold purchase for them. Thus giving the CBs a much higher return. You see, the mines motive was not to receive a higher than market price for gold, rather receive a stable price for gold so financing could be arranged. The fact that gold prices fell made Barrick (and many others) look real good and their staff stood for all the praise. When in fact they didn't know it would work this way (back then).

Today, and over the last few years, with gold ever falling, all sorts of gold deals have bee worked out that have no connection to the CBs. A lot of it is completely outside the mine industry too. It's been carried so far that much of the stuff is just naked financing based on gold's price. The real return was in playing the official stance that gold must fall a little every chance it had to encourage dollar settlements for trade. It's that simple.

Trail Guide (06/27/01; 17:51:32MT - usagold.com msg#: 57005)

ABX has evolved into little more than a banker's extension. One that trades gold for their gain. On ABXs side,,,,, I see their massive paper short position as a financial tool that allows them to make a return on in place reserves without mining them in total,,, at once. That is all their program is really doing. It's a product of banker's games.

The greatest risk for them could be that a good portion of their dealings may not have involved CB gold sold short,,,, and they didn't know this for a long time. The other side of those trades were real cash buyers that simply wanted to work their money in government debt while waiting for the mine to produce gold. The buyers were willing to do this because an outright buy would have gunned the market…

Ha! Ha! It's kind of a joke when one thinks about it. The mine was leveraging their unmined assets to produce a simple return and telling their investors it got a higher realized price for gold production (and it was) ,,,,,,,,, while locking out any chance for profit if gold ran.

FOA (10/15/01; 07:49:09MT - usagold.com msg#120)

It's no accident of nature that our world monetary structure embraced derivative expansion as it has over the last ten or twelve years. I think we can say that this modern creation of risk management began around 1988 or so. ( It's funny, but I remember living in San Diego and reading a paper about a gold company called Barrick that just started only a few years earlier?)

Sincerely,
FOFOA