The Gold Trail by FOA - March 2000

All times are U.S. Mountain Time

(03/02/2000; 20:15:21 MDT - Msg ID: 9)
A Clear Path
It's a nice day to get outside! Let's walk a while.

Think back at our recent history of gold and one can build a better perspective of this "new gold market".


After the 1971 gold window was closed, the gold market didn't immediately feel the effects of major physical buying. At least until 1976. Most of the world remained shocked that the dollar was no longer backed, but perception remained that eventually gold would be brought back into the official money system. Yes, the dollar did drop in value but not so much that it would destroy the reserve system.

The world remained tied to using dollar reserves even though gold no longer backed them. Oil prices began their long march upward, but most of these early advances were more so political statements, rather than related to the dollar problem. Oil states, flush with cash, were able to convert dollars into bullion at still reasonable prices (as could everyone else). In addition, rising oil revenues were running well ahead of bullion prices and goods inflation. Producers saw little reason to overly rush into gold because some thinkers still held the prospect of a later dollar / gold relink. Especially so as gold began to sink in price after the US made it legal to own again (for US citizens).

By early 1976, gold was heading for $100 an ounce and making dollar holders less nervous. At that price gold was only a little more than double it's last official price of $42 per oz.. It seemed that the US had achieved what was largely unspoken at the time:

---------- By taking the dollar off the gold exchange system, it provoked a large increase in the dollar price of oil. As I just pointed out, most of those early price rises were political. But not all of it. There was some marking of oil to the free price of gold in a attempt to replicate any lost bullion value. Still, initially, oil prices more than made up for their (producers) now accepting fiat "greenbacks".

Oil was then and is now the life blood of our "new oil economy". For the US, this rising price set in motion a massive effort to find new untapped reserves that were unusable with the low prices an earlier gold dollar generated. Prior, without a rising oil price, the US faced the real prospect of running out of local oil and having to accept the reality of eventually importing Middle East crude for close to 100% of it's needs. What many only speculated about in the late 60s, later became reality as the Middle Eastern reserves did indeed prove large enough to supply and cheap enough to pump for everyone's needs. Their reserves would outlast and underprice our reserves, as long as we paid them in gold dollars. -----------------------

I pointed out in my "First Walk" post how oil was indeed taking over the job as an asset backing the dollar. Even with the first increases in dollar oil prices, the world and the producers were very willing to accept a dollar value based on an expanding "new oil economy". At least until mid 1976!

Look over here:

Of course, during this time there was plenty of "background noise" on the world stage. There always is and it usually distorts the picture just enough to keep us from seeing what was really happening. Like looking at a river up close, in the rapids, instead of far away. But, in 1976 :

------The IMF convened a monetary summit in Jamaica and ratified "The Jamaica Accords" in April. For some major people, this paper was the reality that drove home the golden point. The Accords formally recognized the managed floating currency system for the duration. Marking a turning point in how national super powers effect fiat currency use in our new modern economy. But more importantly, gold was "demonetized" as a reserve asset! -------------

Most everyone immediately grasped what this meant; "that gold would no longer back the currencies as it did in the old gold exchange system". However, for some 15 years to come, no one fully understood what was really said! In the Accords, the wording stated that gold would remain a " " Reserve Asset" "! Indeed, as a non currency, real wealth "reserve asset", this world class money was set free to become a backing for any economy. Even one based on a new reserve system. This my friends, was the key to perceiving what would later happen in the world gold markets. We'll get back to it later.

It's no secret why gold went wild from it's lows that year. For the first time since the 71 break, really big demand was driving the market. No it wasn't just the public's buying of coins and small bars. Nor was it the futures traders with their paper orders that caused gold to rise so much. It was the wholesale scramble by huge dollar holders trying to buy some of those "reserve assets" before it's price went sky high. This buying was in the form of 400 oz bars,,,,,,, lot's of them at a time! Some Central Banks slowly sold into the storm in a effort to manage the demand. Politics and the media did a good job of telling the story as they saw it. But the real reason for the managed rise was to demonstrate to oil producers and other dollar holders that everyone couldn't convert if they brought physical all at once. Had some banks not sold, gold would have gone into the thousands, and in the process destroyed the dollar long before it's date was due. Without a reserve system to replace it, our world economy would have crashed and burned.

Further along the path:

Without the prospects of gold ever backing the fiat money system again, a good portion of the next oil price hikes (late 70s) were dollar related. It wasn't until the mid 80s that two things occurred to lower oil prices for an extended period of time.


The incredible rise in oil prices once again took away some of the pressing need for producers to buy gold. Oil itself was compensating for price inflation. Not to mention that gold was seen as still relatively high. Further, the gold marketplace itself was evolving into more of a contract market than a physical one. Offering hope that financial demand could be channelled away from becoming physical demand.

Europe, London and the US had all joined together in a quiet effort to better manage the price of gold. All in an effort to once again buy time for the dollar. From a US perspective, this time was needed to "work out" the dollars problems. From a Europe / BIS perspective, it was time used to build a dollar replacement.

Did both of these power blocks know what the other was doing? I think they fully well did. But as is usually the case in warfare, the generals on each side think the other doesn't have a chance. Truly, the net effect of this joint effort resulted in a stalled gold market, even though the reasons for it differed.


Once the evolution of this supposedly free gold market was seen by oil as backing the value of the dollar (with a stalled gold price), production was increased in the mid 80s. The combination of OPEC's added supply and the new supply created by the price induced US drilling, all forced oil prices down. The whole process was seen in the media as the world's dealing with OPEC and forcing the dollar down their throats in the process. But no one ever made the connection that they didn't have to take dollars for settlement and the world would still buy oil. But support the dollar for a purpose they continued to do!

Oil still had it's political ups and downs over the years and the same reflected in it's prices. But supply was mostly assured from a level to falling gold price. During the next ten years form 85 through 95, few really noticed that although gold and oil charted in the same direction, they never flowed in the same direction. Nor did they grasp how the gold market was engineered to supply gold for this very reason.

With most of the dollar oil problem licked, the G-7 began an effort to keep the dollar in play. Even though it's debt had aged it and it's timeline was running out. In 1985 they started a series of currency moves that would last until the early 90s. From the "Plaza Accords" (85) to the "Louvre Accords" (87), it was all an effort to stall and stretch out any crisis of the dollar. It seemed that no matter how much the dollar was inflated or how much debt was built upon it, it would be supported for all the world to see. Not even the gold market would be allowed to reflect any portion of this ongoing currency crisis. Showing their full colours in managing this "new gold market", the $500 price in late 87 was quickly brought down. Indeed, the evolution from a bullion marketplace into a mostly "new paper marketplace" was well underway. The later fall in price after reaching a Gulf War peak, was even more stunning.

It was right about here, in the early 90s that some major players began to stop trading gold. Instead they started slowly buying physical. It seems they finally understood what the "Jamaica Accords" of so long ago really meant. Indeed, it was worth leaving all the "winnings to come" on the table! Because, no matter how high dollar assets would go, physical gold was destine to go much, much higher.

In December of 1991, twelve members of the original "European Economic Community", now called the EU (European Union) signed the "Maastricht Treaty". It spelled out the process where they would establish a full currency union, called the EMU (European Monetary Union).

Once the EMU process was signed into law, we could see that there was indeed a purpose behind the formation of the "European Economic Community" in the early 70s. Because it closely followed the 1972 "Smithsonian Agreements", signed in Washington, declaring the dollar / gold break an official act by the US. Nor was it a coincidence that the very first discussion of a Pan Euro currency block in the form of a "European Economic Unit" was first heard of in 1976. The date of the "Jamaica Accords". The EEU, a precursor to the Euro, soon became official in the early 80s.

On January 1 1999, the Euro was born. On the headlines of almost every paper, the new Euro currency immediately became the topic of speculation. How high or low would it go,,,,,,, will it last,,,,,, what good is it,,,, and on and on. Yet, completely hidden from view and outside most speculator interest, one important item was overlooked. Once this competing reserve currency was formed, the two major power blocks of the world no longer shared the purpose of maintaining a paper gold market! Established, maintained and supported for the purpose of absorbing the demand for gold, it's price damping effects were no longer needed.

What an overview:

From a Euroland viewpoint, the dollar no longer needed to be supported by a low gold price. With the Euro in place and holding a large portion of the worlds new, non currency "reserve asset" for support, they no longer had a reason to buy at $280 or sell at $480. Indeed, they told the world they were backing out of the paper gold game with the Washington Agreement. We fully expect that during the 5 year time frame of that agreement, physical gold will soar from lack of supply as they trade it outside the London dominated paper markets. We also expect a convoluted workout of the left over contract markets as they fluctuate between $0 and $infinity. Further, the greenback could now go as high or as low as world traders would like to take this now "on it's own" currency.

From an oil producer viewpoint, with the physical gold market now only a shadow of the total "paper gold market", they can now only float a few dollars in sufficient amounts back into physical gold. With half the gold market supporting players retreating into the Euro umbrella, the present market will revert to little more than a paper float. With this in mind, it should be no surprise to anyone that crude prices began rising almost immediately after the EMU. Eventually, even $30 oil will disrupt world dollar debt to a point where the dollar exchange rate collapses. Forcing a run from dollar settlement and into Euro or a Euro + gold pricing basket for crude.

Prior to this they watch the same drama today you and I see. An ongoing dollar liquidity crisis that had long ago reached the end of it's timeline. Now it grows worse, brought about by not only the loss of most of it's Euroland financing function,,, but also it's Pan European support. Truly, this crisis demand will drive the dollar ever higher. A hyperinflationary trigger, not completely unlike the one facing Japan today. Day after day one has but to watch the US Fed ever pumping reserves in a effort to reflate a world dollar tire that's full of Euro holes!

From a gold bullion viewpoint: the Jamaica Accords signalled a permanent shift from holding gold and fiat currencies in competition with each other. Yet, the eventual good effects of such a shift would only happen once the sick dollar system was killed by it's debt load. Untill 1999, one of the two world's power blocks had a purpose in keeping it alive. Until a fall back replacement could be formed, a dead dollar would leave gold alone in the currency roll and sent the world into a depression. Truly, with talk of the EMU falling apartin 1997, oil wasn't the only entity that would have bid on gold if the Euro had failed.

But it didn't. Soon, bullion will return to doing what it did centuries ago. Representing the value of the worlds assets and productive wealth. Only, with the world having far more in the way of modern things than ever before in it's history, "Freegold" trading as a "reserve asset" will be valued as never before.

You ask, what are the dynamics of such a position?

How are world investors prepared for this event?

I'll tell you my view,,,,,,, next time on the trail!

Thank you for walking with me,,,,,,, FOA/ your Trail Guide

(03/10/2000; 10:51:52 MDT - Msg ID: 10)
A Fireside Talk

We have walked a ways since our last chat, 03/02/00. Let's expand on what was said in each of these rambling talks.

"Introduction Post"

To understand gold we have to look at it through worldly eyes, in a very "broad context". This is important because gold has a better history of storing true net worth over people's lifetimes. More so in a generational sense, not just in the decades span most of us choose to see it in.

Even though fiat currencies often record it as a poorly performing asset in the relative short run, it has far outperformed every paper money system. That's because every paper money system has eventually died from old age while gold lives on.

During both the short and long haul, physical gold is wealth insurance for our extended families. This holds true because even holding gold in the early successful stages of a currency's life, war, politics and natural disasters can work to destroy any nation's assets. This includs ones personal wealth that's denominated in the business structure of said destroyed society. Gold mines included!

Over time, one could never compare the returns of investing in stocks and bonds to owning gold. This is simply because when gold is entangled in currency schemes, it's fiat value is falsely presented while the currency system ages. Only the commodity use of gold is reflected, not it's much higher wealth "reserve asset" function.

However, this present era has become one of those unique periods in paper money history when gold will take a great leap in value during the relative short term. Perhaps we can define it as being between 1990 and 2010. Having covered the accumulation phase of the first ten years already, the next five should be one for investors to just sit back and watch. The last five will be a time where we spend some of our physical gold wealth.

This will occur in a transition from an ageing currency that's still entangled in gold valuation schemes and politics, into a new currency reserve system that's positioning itself to let gold run. In this new venue, we are going to see gold become a world class "reserve asset" that's not tied directly to any official money system.

Again, once physical gold is swept clear from paper moneys, it's value in real life terms will soar.

The modern gold era never changed. Banks lend the currency that is invested in South Sea - like companies. Then the companies and governments create ever more currency debt at the request of the populous. At first the currency is a receipt for gold, then it becomes a receipt for more receipts. Then more currency is created to save these same failing debts receipts, but no gold is there to back it! The endless cycle goes on, all the while hiding our modern value of gold in the process. As the game reaches the end, we even begin to think that the "natural things" and "real things" of life are not the only wealth. Rather, a contract can also be held as one's life savings. It will end!

As paper debt increases, it ages the currency by always generating more "fiat receipts" than human production can ever service. Then, at the end of the "currency timeline", in a great flood of human emotions, we reach for "natural conclusions" to a non retractable financial problem!

One of the conclusions we reach are that physical gold can replace the lost values we once placed in fiat debt and equity, even the loses in paper gold and gold equity! In this drama these same fiat values that we once traded as wealth receipts can no longer be valued at par with real earth things. Once at this point we reach for natural real wealth on a epic scale.

In the process the entire society, including the government structure and it's outgoing money system are all carried with us in an emotional flood to the sea. Sweeping away the whole format of our worlds currencies and real wealth. We will watch this new format unfold.

This is why so many fail to see why one should hold physical gold at this time, in this closing era. They ask, why now? What is different from 20 or 60 years ago? Seeing only the jewellery value of gold in contrast to past official fiat currency rates (dollar at $42 in gold) as enough appreciation to be fair. We think a move to $600 is enough and invest for that outcome. Locking ourselves out of the real surge.

These questions and perceptions arise because we can only review the recent history of gold. As such it was unnaturally priced in the fiat currencies of pounds and dollars, not traded "next to the currencies" and valued as a "real wealth" "reserve asset". In a price discovery process such as is coming, gold in the past would have reflected all the great wealth advances that have happened sence the early ages of European gold coinage.

Again, for most of us this recent period offers only a fiat value comparison and leads us to accept it's present low fiat valuation. Yet, gold's fiat values over this era were only relative to it's manipulated price during an extended Anglo-Saxon currency timeline. A period that saw the dollar take over the pound's role of representing and dominating all world wealth. Including gold wealth!

During this whole period, gold's value did have small shifts up and down. Even our recent 20+ years are representative of these small shifts. Yet, because of our fiat perceptions we see these moves as large bull and bear runs for the metal. While all the time a truly great value leap in gold was building, waiting for the present dollar lifetime to end. Once the dollar gold entanglements are ended, gold's relative worth in modern world wealth and production abilities will return. In our modern day, the old adage that "gold is worth a mans suit" will prove far, far too low a value.

While we think about this, I'm going to eat some fresh trout. Then, tonight, under the stars we can come closer and extend the next "Foundation post" and others.

FOA/ your Trail Guide

(03/10/2000; 17:00:46 MDT - Msg ID: 11)
A Fireside Talk (continued)

Hiking a gold trail usually requires us to ramble on as we walk mentioning any points, commenting on good views and taking notes as we proceed. But, after the end of several days on a trail, around a quiet fire, we put it all together. This is the format we take. Our first fireside talk was just posted. It and these (continued) posts will expand on our walking "Thoughts" before we continue the hike.

"Foundation Post"

From several viewpoints we proposed the same question: Why did so many of the world's nations continue to support a dollar reserve system after it went off the gold exchange standard?

They definitely had a choice; continue to use the dollar or go back to using gold. They choose to use the dollar! I pointed out how this policy flew in the face of common sense, and especially did so as the US only embarked on a policy of continued monetary expansion. In effect, inflating the whole world's currency systems right up into the end of 1997.

My point was that their actions can only be justified from a position of "buying time". Most of the major World and European countries had economies and currencies that could stand on their own in a competitive world. Yes, their transition from a dollar reserve would have been painful. But, compare that loss to the percentage of lifestyle gain they paid as a tax to the US by artificially maintaining the dollar exchange rate. Their Central Banks support polices were a decision to waste their citizens productive efforts in a process that held together a failing currency system.

They could not be this dumb! As I pointed out in the Foundation post:

-----For the more developed gold owning countries of the G-7, they had a different question in mind. Again, if taking in inflated dollar reserves was the act of importing US dollar inflation into ones local economy,,,,, and in the process creating a market for your goods overseas,,,, why not just print your own currency without taking in dollars - - In doing so give the same buying power the US citizens have in your market,,,,,, to your own people?------------

The other side; why not create a market for your own goods by selling them to your own citizens, using your own currency as a reserve?

Clearly, after 1971 the result of a failed dollar reserve system would have delivered a healthy dose of "real" price inflation to the US. Not just the 10% or 13% we experienced! But at least for the major European countries, with their money systems expanding on their own over the next 20+ years, their citizens would have brought their own lifestyles somewhat relative to their efforts. At least this was more reasonable than paying slave taxes in the form of dollar support. Or maybe it wasn't ?

Indeed, the whole world would have slipped further down the inflationary scale had the dollar failed. Everyone's lifestyle would have slipped a lot more than it did. More in the US, less in Europe. But more importantly, the whole international house of trade would have slowed tremendously without some form of world currency reserve. It's possible, that once we left the reserve system, the return to an increasing momentum of world trade flows would not have been seen again for several generations. Such is the case a world financial fracture on this scale could have created.

Yet they didn't return to gold! In the eyes of many, gold had been discredited as a controlling force that could regulate world finances and trade flows. Yes, gold was an option then, but we had just seen how modern superpowers can just walk away from the discipline of gold. In my post:

----Even if we have a pure gold system, human nature will find a way to turn it into securities. In doing so we will - - come hell or high water - - lend more gold than we have and borrow more than we can pay back. One has but to return to the history books to see it all in plain print. Over and over again, we start with a solid gold foundation and soon degrade it into trash. It's not just the American way,,,,, it's the world's way. ------------------

It seems the only explanation for the continued support of the dollar came in the form of "buying time": time to recreate a world reserve currency. But this time, make it subject to a whole group of diverse nations of conflicting political wills. In this format no one country can call the shots for the world. In addition, take away the need to compete with gold. Let gold be a supporting "reserve asset" that trades in a free market, unlent and non monetary so as to circumvent it's manipulation.

In this position a modern digital fiat currency can only represent the productive efforts of the nation blocks it represents. No different from the fiat schemes we have endured for 60+ years. Only this time without an illusion of gold backing and it's discipline. As such, a free market for gold will, on a ongoing basis, constantly devalue any and all currencies of the world. Just as in a somewhat similar concept where the stock markets of the world today currently discount the inflation of their local currencies.

Perhaps the payoff will be worth the past sacrifice of so many productive assets and savings. Perhaps we will never know just how far the world would have sunk had they written off the dollar back then. Without that knowledge as a measuring stick, we cannot compare if the recent loss was worth it.

Today, dollar support is winding down in the growing shadow of a Euro currency. This will eventually have a tremendous negative impact on all paper assets denominated in dollars. Whether they are viewed as hard paper assets or soft, the coming price inflation will wreck the use of dollar trading vehicles. Hard gold, owned as physical gold will make all the difference in the world.

Next, how oil was used to mask the motives of building the Euro, even as it supported it's creation. We will next extend the "First Walk" post. But first, more logs on the fire.

FOA/ your Trail Guide

(03/11/2000; 08:26:08 MDT - Msg ID: 12)
A Fireside Talk (further continued)

Expanding from the: "First Walk Post"

Many political problems confronted any drive towards an EMU. In order to build a consensus for a Pan European currency, the architects had to have time, years of it. The last thing they needed was a world-wide economic downturn brought on by a failing dollar system. Working between 1976 and 1982, the software for such a system was only just beginning to really take shape. It was a slow, hard process because during this period and many years prior, the dollar was already experiencing convulsions. They needed at least another ten years, but without something to make the dollar more acceptable even five years was too long.

Working within a large group of nations required painstaking discussion of all ideas out in the open, so their agenda had to offer something for everyone. In addition, this new currency could not be seen as a competition for dollar use, otherwise the US would most certainly try to split the group.

It's important to understand that most of the world wanted to at least see another currency that could share some of the dollar's function. It didn't have to replace it. To this end, most every country gave some philosophical and political support in it's creation. But, by supporting a dollar that was now completely removed from any commodity backing system, would require the help of some major players.

Another group was extremely interested to see how this new currency would turn out. The major world oil producers. Prior to 1971, they were secure in selling oil for US gold dollars, even if it's true worth in a modern oil economy wasn't completely understood. At least gold had a long history of eventually defining it's value as equal to modern advances. Better said, if oil did more for the economy, then that increased value would be reflected in a stable value of gold. But after 1976 they found themselves selling a resource for far more than they realized it would bring and doing so in dollars of unknown future value. In the unfolding economics of it all, these people saw the same thing we did.

From my "First Walk" post:

------Prior to the US going off gold in 71, our whole (USA) economic structure was expanding because we were gaining massive leverage through cheap oil. Back then, oil was literally changing our lifestyle for the better, and doing so because it's dollar price was so incredibly low relative to what science was doing with it. Modern science had made oil worth so much more than we paid for it, we could extrapolate our debt and money supply growth far into the future and still figure that productive increases would cover it (the lost value due to money inflation). In effect, the US was targeting it's economy and money value to future oil flow value, not gold.-------------

After 1976 they (oil producers) jumped into gold but soon found that their excess dollar flow could never even partially be shifted into gold as it was traded on this new commodity arena. For them, gold wasn't just a "trade", it was payment in the form of real "reserve assets". Oil assets for gold assets! If the CBs hadn't sold into the storm, gold would have went to the moon from oil flow alone. So they, and everyone else soon found out that there was a world of difference between trading "gold dollars for real gold" at your Central Bank and "buying commodity gold in a trading arena". In truth, the gold market was only a free market for commodity trading. It was never allowed to trade as a "wealth reserve asset".

The options were few. Buy gold outright and see it's price run past it's "money for oil" value, or include gold in a currency basket for payment of oil. In essence saying: "straighten this currency problem out or you will be the one buying high priced gold"! They optioned for a third way. Continue to sell oil for ever cheaper dollars, all the while waiting for something to replace the failed reserve system. So they watched as the US said they would fix the dollar and Europe said they would replace it.

It was clear that the US would continue printing money as long as it got oil flow at a price that created an increase in American lifestyles. To this end, the dollar economy would eventually crash if oil was not priced cheaply in dollars. In addition, pricing oil in a currency basket with gold would just as easily crash the system. It was here, between 1980 and 1985 that both the US and Euroland proved that they could keep gold on an even level if oil could play the game.

Higher oil prices had indeed brought forth more oil flow and crude reserves for the US. This alone did wonders to extend the US dollar economy and the extra load of debt it was building. From this position alone, producers could justify supporting dollar settlement for oil, but only for a decade or so. The US and Britain were busy building a contract gold marketplace that would channel money away from real gold, thereby freeing up more physical to partially exchange for excess world dollars their oil imports produced.

Still, this didn't explain all of the game. It brought time for the EMU to build, but who was going to carry all the eventual excess dollars that would flow from a booming US? By 1986 a booming US economy was the result of still cheap oil. It was being sold to them and everyone for expensive dollars that flooded the world in an ongoing trade deficit!
From my "First Walk" post:

------It worked in a broken pattern for a number of years. Oil and gold defied all predictions of higher prices as they retreated from every advance. Central banks gorged themselves with worthless dollar reserves and prevented a hyperinflation of the dollar in the process. They did this, because they knew that gold had the ability to completely replace any and all loss of dollar reserve value once a new system was in operation. -------------

In this new format (post 1982), the US and it's dollar system would only work if oil was sold to them cheaply and in dollars. It's no secret that cheap oil is created by opening the valves. But, dollar settlement without gold was a political agreement just waiting for a reason to change it's mind. Foreign Central Bank support for the dollar was the key that kept this temporary condition working. Still, without the added kicker of a world cheap gold price along with a significant revaluation of that gold in the future, oil would have went for settlement in a Euroland basket of currencies + gold, long ago.

The US had already proven that it could not be trusted with any form of gold currency. At least most of the major European countries still had a good record of trusting gold. This is where we saw the impact of oil in the building process of the EMU. If they were to be at least attracted to a new Euro system, it had to accommodate a new attitude in dealing with gold. They looked at the 1976 "Jamaica Accords" and said, "why not use it as it's written, keep gold as a "reserve asset" not a "money asset". Once outside the money system, at a high enough price, it could become a possible world oil currency without destroying anyone's economy."

These were the early thoughts that have continued to evolve through today. But the trick was in keeping the gold market functioning between now and then. It had to supply some gold to exchange excess dollars, keep the price within reason and maintain the major mining structure for supply. The last was most important because the BIS knew how the dollar faction was using gold to try to fix the dollar. Their agenda worked with the EMU process, but was outside the EMU agenda. Both factions wanted the dollar maintained, but the US was willing to sink gold if it brought ever cheaper oil. It was a short sided political process, but it brought votes.

The BIS was willing to maintain gold above $280 until the EMU. If they didn't, they would lose the support of oil for the Euro system. It wasn't just the fact that this price kept most of the major mine supply online, it was that crude at around $8.75 in gold was their bottom price.

When the Hunt brothers were going around talking about "an ounce of silver was worth a barrel of oil" they were closer to reality than even they thought. Prior to 1971, the lowest oil value was pegged by producers at around one gram of gold (at $42 that was around $1.30). At one gram per barrel today, $280 was still the bottom price. It's no strange thing that the real dollar price of oil never stayed around this level either. In any event, this was the reason for all the arm twisting in the summer of 1999. Even though the EMU was a done deal, the Euro was still too young to float partial oil settlement. With gold being driven home by the US faction, oil support for both the dollar and Euro was in limbo. The Washington Agreement not only took care of that, it officially announced to the world that the paper gold markets were ending. Indeed, it was paying the way for Euro Crude!

Today we are still on track for crude oil settlement to begin happening in Euros. Oil prices have continued the rise we predicted once the Euro was created. What is left of the gold market is but a huge paper float that's slowly losing it's credibility from the loss of over half of it's past major supporters, Euroland. To date, many of the major left over gold contracts are being shifted into Euro based settlement. It's only a matter of time until the illusion of a falling Euro is suddenly erased by a crashing US stock market along with it's dollar.

Next, we expand my "Clear Path" post. Then we will hike again, while talking about real events today.

Here are a few parts of Another's Thoughts as some time ago. They give us a different view. We are on his trail today:



--------I think, over time, the gold derivatives market did "break" the control of the BIS. Gold is held by many world class entities, as a capital asset. These "Giants" did understand the purpose for $350 gold. In this range, the gold mining industry and many capital reserve gold assets would survive. Gold below $300 was not wanted, as even the BIS would be forced to move with the price much below $280. The last small gold war ended in the early 1980s, as the choice was to use the US$ or go to a gold based economy. No other reserve currency existed, and gold lost the war as all continued to buy dollar reserves.

Today, a new currency is formed. It offers a way to break the dollar valuation of gold without the total destruction of world-wide currency markets and economies. In time, oil producers can offer their low cost reserves at true valuations, that support industry and commerce in exchange for a revalue of real money, gold, in a real currency, Euros!----------------------------


-----From the day of our birth we are taught to value all things using the one factor alone, currency! Can one contemplate the value of all possessions in other terms? Do you not have to think first as to "how many dollars is that worth" then "how many dollars is this worth" to compare two items? If it is deep within our mind, that we can know value only in terms of paper, to this I ask, can one know value at all!

The Western mind does focus on "what I buy today for the lowest price". Yet, in this modern world economy, the lowest price is always the function of "the currency exchange rate"? The Yen, it is compared to the dollar today, and used to purchase goods. One year later and the Japan offers these goods for much less, as the Yen has fallen to the US$. The currency value of this purchase, was it "true " today or a year ago? Understand, all value judgements today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian?-------------------

-------One should grasp that "today, your wealth, is not what your currency say it is"! In this world, paper currency is for trade, only! It is for the buying, selling, earning and paying, not for knowing the value of your family holdings! Know this, "the printers of paper do never tell the owner that the money has less value, that judgement is reserved for the person you offer that currency to"! Again, I ask, how can we know a true value for our assets, when they are known only in currency that finds it's worth, as in the exchange rate for another currency?-----------

---------Many will "think long and hard on this", but will find little reason for this position. For it is in your history to know only "things valued in paper terms". Some say, "I hold investments of great increase these past years, and am much ahead of the inflation, if it should come". I say, "your investments, world-wide, have moved little, as it has been the currencies that denominate your assets, that fall a great deal". The price inflation that comes, it is larger than your vision can see! Your past, holds little of knowing value outside of currencies, this does block the good view!-----

-----There is more: Today, the world reserve currency holds the exchange rate of one dollar equals one three hundredth of an ounce of gold! It is this rate, that makes the dollar, not as the Indonesian currency. Perhaps a secure thought? However, even this 1/300 rate is also subject to "exchange rate competition"! This new rate was purchased by the acceptance of the "new paper gold" as equal value to "the physical gold"! This large, new paper gold market was created to increase the supply of "traded gold". The physical gold supply alone could not be increased to bring the dollar into the mid to lower 300s exchange rate area, there by making it "strong in gold". But, as in all new markets, for the "traded gold arena" to accept a "paper gold item" in great amounts, it required new collatteral / assets to give this paper item "integrity"! That "integrity" was found in oil-------

-----Some say, "gold fall because noone was buying it". I say, "gold fall because many were buying it"! They buy as the "trading market" was made "much fat" with added paper! Understand this: The US$ price of gold could only fall if a market existed for paper gold priced lower each time of offer! If the price did not fall, this paper market "could not function" as "it would not be profitable to the writer"! It was, for many years, in the good interest of all, for the dollar to find a gold price close to production cost. That time has now much passed!---------------

------One day soon, this "paper gold item" may lose it's "integrity from oil" by way of "competition" from a new reserve currency! In that day, "paper gold" will rush to become "physical gold" as "dollar gold contracts" rush to become "Euro gold contracts". You see, the value of the gold lost from the Euro CB sales will return in the form of a "Euro strong in gold". The "gold reserves" held for the EURO will offer strength, but it will be the total destruction of the dollar gold market that does make " this currency go home"!-----------

-----When the future comes, and one holds asset values in dollar terms, many may discover, there wealth was not as this currency said it was! In that day, you will know your assets, as expressed in the real money of our fathers! This new dollar/gold exchange rate will end your search for the

"the true value of gold"

Thank you


(03/17/2000; 09:16:57 MDT - Msg ID: 13)
A Fireside Talk (last one before we hike the trail in "real - time" context)

Expanding some of my "Clear Path" post #9.

We are only just now arriving at a time period that will bring about "The Currency Wars". Everything prior to this was only a preparation period to build an alternative currency. The years spent traveling this road were done to prepare the world for an escape medium when the dollar finally began it's "price" hyper-inflation stage.

Few investors can "grasp" that in reality, our dollar has already been hyper inflated , but without the higher price effects. Years of deficit spending, over borrowing, debt expansion have created an illusion that the dollar was immune to price inflation. This illusion is evident in our massive trade deficit as it carries on with no negative effects on dollar exchange rates. Clearly other investors, outside the Central Banks were helping in the dollar support process without knowing they were buying into a dying currency system.

The only thing that kept this process from showing up in the prices of everyday goods was the support other Central Banks showed for our currency through exchange intervention. As I pointed out in my other writings, this support was convoluted at best and done over 15 to 20 years. Still, it's been done with a purpose all this time. That purpose was to maintain the dollar for world economic trade, without which we would all sink into depression. Indeed, the mainstay of this support required an ever expanding world dollar base. There is simply no way the old dollar debts along with the new ones could have been serviced without this money expansion.

The entire long term process is / was very clear to a few major financial players as they prepared for the dollar's retirement as a reserve. Their main strategy for dealing with this was found in several positions. One was a long term buying of real physical gold. The other was the acceptance that all trade and investments would eventually transition away from dollar use. To combat this they began to denominate their paper assets and business transactions in other currencies (now the Euro holds the main transition flow). This was done because, as the dollar prices of real things first show real signs of rising, all forms of dollar derivative contracts would begin to unravel. Better said, the process of dollar contract failure would show up in the form of discounts on these derivatives from par value. Because most of our "end time" dollar world has built itself into a huge derivative game, this discounting will occur across the board in almost everything we deal in. Not just gold.

The first signs that official dollar support is winding down is seen in real world pricing and official policy. The most obvious "first" price sensitive arena to reflect a "real coming inflation" is not gold as so many think, it's the stock markets. Their long term bull run, mostly starting around the early 80s completely reflected this official sanction of world dollar expansion without price inflation. It's only in the last year that we can see where equity markets are telegraphing a transition into dollar expansion "without world support". Better said, major price inflation is coming on a level equal to hyper status. Many stock markets have headed straight up in reflection of this.

Another area where we see this change is in crude oil. For years, every rise in crude prices was quickly shut down from added supply. Done to add the producers portion of help to the dollar support effort. Even war in the oil fields was not allowed to create a dollar destroying price rise. Once the Euro was born and seen in operation as a possible "backup" currency, added crude supply to keep prices low was no longer available. Prices have risen and fallen in a broken fashion that will continue it's upward bias. This policy change is not only a vote of confidence in Euroland, it's also a Euro reserve support function that will lead to much higher physical gold prices later. Oil around $30 (and $45+ later) now values gold upwards to $930 using the old one gram = one barrel from a pre 1971 gold dollar price ratio. This has fueled ongoing trade in gold by the BIS as it seeks more physical gold supply outside the LBMA paper contract world. A process that can only further destroy the present contract gold illusion as expressed in a paper dollar gold marketplace. Eventually, $930 gold crude will become the absolute bottom pricing range as real dollar price inflation begins.

The most recent example of official policy change toward the dollar was found in the Washington Agreement. It marks the end of Euroland support for the paper gold markets that helped maintain a dollar / oil settlement bond. In the beginning (1980s) it was a joint effort by at least two factions that has today become only a single effort by one faction. The US / Britain.

Even with this, the US accepted a reworked IMF gold structure. Because of this, they (US) are today operating two policy positions that contradict each other. One tries to use an escalation of the gold price to maintain IMF support for foreign US debt, while the other tries to keep the "gold trading desk" of several market makers solvent through an even lower price.

This places Euroland, the BIS and major world physical gold players on a direct collision course with the US backed contract gold marketplace. The effects of this will "most likely" be seen in a literal flood of new paper gold entering this arena in an effort to maintain "bookkeeping" credibility for the market makers. Today we see the beginnings of this change impacting the market as it is evolving into little more than a large paper float that exists mostly for this "bookkeeping" purpose. It will stay viable until dollar price inflation dries up to physical supply that to date still sells into this market. No doubt, the mine companies will become the very last sellers to support this arena. Possibly, selling into it's paper pricing all the way down.

For years, gold bugs have figured that gold would be the next dollar escape mechanism. Not another currency. They gave little thought to the reality that our modern world could not, would not price gold as a "reserve free trading asset" without a digital paper money reserve to do it in. Once the dollar begins it's decline through price inflation, it's use as a reserve and more importantly it's use to establish a gold market will stop. This will cause an unexpected delayed positive impact on gold values as gold's paper marketplace goes through tremendous convulsions. We may see dollar price inflation in all things, yet gold values fall as contracts fail from constricted supply. Eventually, even the mining sector will be forced from shareholder loses and poor contract price economics to abandon the dollar pricing contract system. I expect that during this time the physical price of gold will be soaring as it's lack of trade constricts supply. Most paper gold traders today, don't understand how a real dollar price inflation shrinks physical gold trade, no matter how high or low the price goes. Further, they continue to use the various dollar gold derivatives even as their paper supply mushrooms. A process that forces the contract gold price down. Yet, all the while they are proclaiming that they are "in the gold market" and bemoaning how the manipulation of the metal is giving them loses.

It's important for new players to understand that no government or private banker in the world today can manipulate the dollar price of traded physical gold once real price inflation begins in the reserve currency. A failing currency system would find governments and bankers selling into a virtual "black hole" of demand.

Prior to dollar price inflation effects, the impact of official policy can only manipulate paper contract prices. Just because traders are willing to sell physical gold for a paper settled contract price doesn't mean that's the real gold value in the world today. More to the point, this is simply a temporary condition that could exhaust itself before price inflation, once physical delivered against paper prices dries up. Thereby forcing contract prices into discount and destruction.

This modern paper market is relatively a new concept in world gold trade. It was created by banks, western traders and mine operators themselves over the last 15+ years. They supported this market by buying into it instead of buying and trading only real gold. True, the paper promoters may have been dishonest in presenting the effects of this process, but no one was forced to use it! Without user cash flow giving credibility to these paper derivatives, the market would not exist in it's present form. Yes, it's true that the Euroland and dollar faction agenda, along with oil interest and indeed physical gold traders all benefited from this investors market making cash flow! But this is reality for any investment where a buyer of a contract abrogates the security of present real ownership into a paper position with counterparties risk. Even today, call option buyers give their money away in support of this illusion, instead of buying coins outright. Truly, western gold paper traders and gold stock investors today a have evolved and in no way represent what the term "gold bug" used to mean. Today, physical gold advocates are the real gold bugs as they now posses the real leverage paper players only think they have!

To close, I offer two post from the USAGOLD forum.

The first is from Mr. Kosares and presents a true picture of how real gold flows have moved over the recent years. It collaborates my point made long ago that CB gold was never flooding the market as traders and the media thought. In reality it's been the evolution of investor use of the paper markets that have set lose so much private gold. Thereby playing into the hands of official policy.

This second post is from Mr. Solomon, who offers up a wisdom that is so very relevant to this fireside talk.


USAGOLD (3/8/2000; 15:05:37MDT - Msg ID:26541)-------
Interesting Fact....
According to the World Gold Council's Demand Trends #30 released a few weeks ago, theofficial holdings of gold were 1106.0 million ozs in 1996, and 1080.6 ozs in October, 1999.

In other words, central banks over the past four years have lost in the aggregate a mere 25.4 tons-- or a little over six tons per year.

That after countless mainstream press articles bemoaning the surety of central bank sales, the Bank of England dishoarding, Dutch and Belgian central bank sales, Canadian, Russian, Malaysian ,Jordanian sales -- and others.

What the mainstream press fails to point out consistently is that while some central banks have been selling, others must have been buying. I want to thank my good friend, Voyager, for prompting me on this subject.


Solomon Weaver (03/14/00; 21:11:52MDT - Msg ID:26846)--

I remember a comment by Another which stated that dollars (cash) was a "derivative" first I was confused.. but over time...I started to understand.

Money "derives" its value from what it can move.

Anyone, with half a sense for history and culture, who sits down and ponders the most recent few hundred years of mankind's developments, comes to the dizzying realization that we have developed a massively new epoch in the total history of our the last 300 years we have truly tasted the fruits from the tree of knowledge..and on some levels have indigestion.

The primary common denominator to our survival is knowledge (and its partner, wisdom).

Until about 120 years ago, oil was not very valuable...but the more we discovered how to "burn" it and how to "form" it (chemicals, plastics), the more valuable it became.

Like others here at the forum, I think that gold and silver are due for a return to hard asset category, and given their lackluster performance in the last 15 years, in a time with immense economic progress, can only enjoy a solid recovery (both in price and popularity).

On the other hand, I think we all have to consider that (all paradigms aside) humanity has entered into a world where the physical survival of 50% of our population requires the continuing functioning of a very complex set of physical and economic flows. These folks live in a derivative world. Milk is in cartons. Heat comes in over wires. Wheat arrives baked.

We see the rumblings of reemergence hard-liners in China and Russia and the "idea" of future wars is discussed....The problem with this is that with so much of our ability to create wealth tied to knowledge (techknowledge), invasion of the rich no longer generate the spoils they did before. I think that if we are honest, we will recognize that the extended use of emergency executive orders by the President would accomplish the same thing as having America invaded.

Would any President really want to be the one to do this? When Roosevelt called the bank holiday in the 30's and confiscated gold, does anyone think he wanted this???? He was a decisive man, stepping into a new office where he realized we needed some real bitter medicine. Gold was targeted because it was the "accepted" place for people of all nations to "park their wealth" in pockets "outside of the formal banking system". Back then, there was no highspeed digital money,and a large portion of money was, when you move money it goes from "your bank" to "counterparties bank". It is almost a pure derivative money. Even if gold were to rise in value such that it could be valued close to the same as today's fiat pool, most of us would die quickly if the digital fiat system did not work.

We look at the divergent paths of gold metal vs. gold paper. When gold paper becomes worthless, gold metal will have value because it holds inherent credibility. But given its very scarcity, that gold metal will need "another currency" to move its value into in order to transact purchases. In a dollar crisis in a digital world, there is really nothing to gain by "confiscating gold"....the primary concern should be to keep the "remnant of the dollar economy" stabile enough that "gold will flow back into it". Perhaps I am naive to believe that our leaders will understand this...if they don't then they are not only fools they are derivatives of fools. I like to hope that this might be one of the reasons why the very intellectually astute monetary mind of Mr. Greenspan decided to stay in power...I think he may be one of the few who understand the problems of foolishness (particularly when viewed in the magic mirror made of gold).

Poor old Solomon


Thank you for reading

FOA/,,,,,, your Trail Guide

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