http://csf.colorado.edu/forums/longwaves/mar00/msg01356.html
Hello everyone!

It's been a few weeks and it's time to stretch the legs again.

During these last few days I have seen several renditions of my discussions from the USAGOLD Forum circulating around. Good! Glad to see it being thought about. I just wanted to let it be known that this was a collection of several of my rambling posts. They were strung together and included some commentary of ORO and a few other good posters there. I don't know who put this together but have seen THC, Singlion, Sharfin and a host of others posting it all over. With a title of "Selling Paper Deeds for Roman Gold" it does truly hit home for gold advocates today. Food for thought in a hungry world. Thanks people, for adding your own special flavor to the currency problems we consider today.

http://csf.colorado.edu/forums/longwaves/mar00/msg01356.html

Onward

Every time the dollar price of gold is driven down we hear cries of despair all over the web. Understand that these sounds you hear are not really the noises of physical pain, rather it's the ages old wale of one person giving his wealth to another and getting nothing in return. (frown) As "Gold Advocates" we hear these same as signals that indicate more free assets coming our way. As Real Gold buyers, the feast only becomes larger and our real wealth greater! (smile)

You see, a Gold Advocate looks at gold as a wealth currency and continues to accumulate it at any better price. Follow those that "mostly" invest in Paper Gold or even the "Gold Industry" and one can only see where more losses are coming at these lower prices. Some gold mines may be a good buy here, but not many of them.

Some moaners place gold as a downtrodden relic and swear never to invest in it again. Yet, from our view, they never purchased "gold the currency" in the first place. Their idea of "hedging their wealth with gold" included a wholesale buying into the concept that "paper gold" was "real gold". It never was and never will be. Paper trading only works while the paper world stays together. A dynamic that is unraveling now!

There is a big risk difference between betting on the price of gold for a short run profit and buying real wealth currency for a long term crisis event. For myself, the largest difference will be in the real wealth gained in the future, not today. Over the last 15 years political gold policy has caused paper players to walked the gold trail like drunken sailors. As a result their assets have done likewise. One step forward in the little gold paper runs and two steps backwards while waiting for the next move. All the while giving away their dollar wealth with nothing to show for it when the real run comes. In the end, they will sober up only to find that they made little progress as most of their "gold" investments brought them full circle. About even if they are lucky! Yet, bullion holders will experience gains that make almost any investment today look tame.

Look over here

The currency of gold hasn't done nearly as bad as paper traders would have us think. As a person of the world I own many currencies (dollars included) and all of them go up and down as much as gold. Some even more so. Because gold is but one very large currency holding for me, it takes on an exchange significance.

Using very approximate values:

In January 1985 one dollar would buy 1/300 ounce of gold. At the same time it would buy 3.25 German Marks and about 250 Yen.

Ten years later, by 1995 one dollar would buy 1/375 ounce of gold, 1.40 Marks and less than 100 Yen.

Here we have two world class currencies moving well over 100% against the dollar! Yet, gold was more stable as it moved only 25%. From Jan 1999 gold has been even more stable than the Euro, today resting within 5% of it's value from the Euro starting range.

My point is that today, all currencies will run up and down in their race to full fill a fiat's destiny. Yet, in the process their percentages moves could be temporally far greater than what gold moves. Making gold look like the most stable holding of all. Even as paper gold bugs cry about how it's crashing?

In this light we must all consider ourselves like insurance companies writing risk policies by holding paper currencies. The higher the movement risk, the more interest we must receive to hold our wealth in paper form. Indeed, just as an insurance company is lucky in good years to balance it's exchange rate loses against the same interest return, currencies are not that great a deal in today's world. Physical gold becomes a fine wealth holding that pays a much higher premium than any fiat currency. It's zero interest is "high" in relation to the default (inflation) rate inherent in paper money. In the future, some will even pay a "negative" rate in the paper markets to try and acquire gold through legal force. This is called buying a gold contract in default and trying to force the counter party to produce gold. Some will, most won't!

For all of you with a mind for intrigue, the game is now on to buy gold at negative rates. ORO, the SDR is telling your story. (follow his past discussion on the USAGOLD Forum) If the US would just stop pushing paper gold boulders down the hill,,,,, and stood and watched for a while,,,,, they would see that the avalanche now has a mind of it's own and needs no help. The whole paper gold mountain is on the move. (smile)

Further we walk

All of the massive tonnage of contract gold that is owed today was never as real as investors thought. It was an illusion of paper supply. Most of the gold sold by the European and other world CBs moved no further than the next CB vault. The gold trading world brought this "physical selling" story in it's entity and in the process supported the dollar's life.

Today, Europe is the greatest supporter of "Freegold" the world has seen for some time. As they act out their policy, the paper gold marketplace as we know it priced in dollars will fail. The completely unexplainable gold sales by the BOE are only a means to this end. They are much more concerned about joining the Euro and saving some BB face than any longer saving the dollar.

The US is now "in it" alone as they have lost the dollar war and the "oil war". Crude oil will not stay in this new dollar price range for long. This was politically arranged to somewhat save US face. We (US) are now calling in every favor, expending the last political capital and inflating the dollar in an end run that will soon lead to nowhere. A grand hyper inflation of prices is now directly ahead on the trail. It should be ushered in with a large "crackup" in the currency derivatives market. Once this event is "in process" the paper gold markets will quickly rush to discount against physical gold. A discount that will break our gold market pricing and physical allocation system.

Understand that the largest gold rush will be from the paper gold arena into real gold. Any form of asset allocation that took the form of:

" "hey buddy, this security belongs in your portfolio as the gold portion" "

will be dumped and the remaining value placed in hot pursuit of the real thing. Just watch how it all unfolds, you will fell the pressure.

I for one hope someone can force paper gold lower while physical supplies still sell into it. Because once paper credibility is broken, our physical markets will seem like a speck of sand washed on an ocean shore.

We were at this same crossroads almost one year ago. The same stress brought about the "Washington Agreement" as it was pieced together during the summer of 99. I expect that this time, stronger medicine will be applied and fully expect it is "in process" now with gold under $280! The only difference today is that the Euro grows more mature and oil ever more independent.

Onward to camp

Here is a post I offered on our Forum. It's a good reflection of what was just said. Read it around the fire.

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Trail Guide (03/25/00; 16:29:55MDT - Msg ID:27470)
comment

Journeyman (03/21/00; 06:32:00MDT - Msg ID:27201)

Paper/gold composite spot

I know we all pay lip service, but at times like this, it's good to remember. Also good to remember, if TC or MK was it? was correct, most of the gold "sold" actually travels around to other CBs, it doesn't really enter the market, doesn't affect the supply/demand equation except psychologically.

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Journeyman,

What MK wrote about total gold in the CBs is absolutely true. I agree with him in that we read so very little about this statistic. I think it's because it obliterates most of the theories about how the CBs are killing the gold price by selling off this unneeded asset.

I and Another pointed our countless times that the CBs were mostly playing the BBs against the market by giving "gray guarantees" to protect their (the BBs) paper positions. In reality the whole thing is a political thriller every bit equal to any 007 film.

The truth of it all is that they could never control the value of physical gold and because of this kept most of their holdings in tact. I would even go so far as to say that much of their draw down is an illusion.

We must remember that selling a real asset to the public for cash does not control anything. You get the gold, they get the paper money. It's the same for crude. The price is what you get real oil for. The lower the better. Just like gold, a lower price imparts the benefit and use of the product to the buyer. Indeed, a lower price is the loss is to the seller. Through out this 1990s gold downturn, what physical gold the new buyers obtained was to their gain. There was no control at all, the buyer gained the gold!

What this modern gold market can control is the value of contract gold. Here they (BBs) do an exceptionally fine job. They sold paper gold to everyone that wanted to only bet on it's price movement, not buy gold. To this end, they took everyone's money and the buyer got nothing in return. Yes, it did play an important role in supporting the dollar while the currency world was in transition. Just as our USAGOLD writer SteveH has said, this gold industry and the contract market it services was sacrificed. But, look at what would have happened if they didn't. Indeed, the time brought was purchased on the backs of gold bugs, not physical gold advocates. One ended up with depreciating paper and the other with an ages old world class money. This isn't the first time citizens of the world such as Farfel learned that "betting" and "owning" are two different things. It won't be the last!

This country is diving head first into a grand hyper inflation and no amount of Fed maneuvers will stop it. People that learn this early on, before the physical comes into short supply, will be miles ahead. Buying gold between $400 and $200 will be like knowing a member with Masters Tickets.

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Enough for now, unpack and lights out. We need our rest because the trail will get rough from here on out.

Thanks for walking,,,,,,,FOA/ your Trail Guide

Last year the Washington Agreement (WA) spelled the end of the modern paper gold markets as we know it. Yet, few people truly believe anything substantial has happened because gold failed to "follow through" on it's post WA price spike. Most hold this conclusion as a result of watching the ball instead of the game.

The WA was a direct response to the "dollar faction's" use of contract gold in driving the value of the "real asset" down. Prior to the Euro birth, such an extreme paper manipulation below $280 would have been meet with a different kind of WA. More likely an outright "physical purchase" of gold on the world spot markets by the BIS. They would have allocated this newly purchased gold into the same official accounts where current BIS gold flows are now placed.

But today we operate in an established, new Euro environment. The very fact that the US and England acknowledged the WA is alone evidence of this new Euro political power. In essence, an ECB / BIS alliance has placed the world "in process" to changing the way gold is traded and valued. A process that will drain "real gold" liquidity from the present london market and leave many players wondering what happened.

Part of understanding "what is happening" requires us to keep our eyes "on the game", not on the ball. Physical gold advocates have but to follow the posts of TownCrier on the USAGOLD Forum. He has consistently pointed out how "Post Euro" Euroland arena gold sales are being "allocated" into BIS sanctioned placements.

Even though the WA allowed for 2,000 tonnes to be sold over 5 years, no provisions were made to officially channel that new gold into the world contract market. The upcoming Swiss sales and the more recent Austria sales make the point. Especially when one understands that the BIS does not buy gold to sell outside the CB community or it's special accounts held for certain nations.

More importantly about the WA, the total existing contracts held at signing time were allowed to continue without any draw down criteria (gold to cover) over the 5 yr. term. Over time, this will squeeze the dollar physical market in an effort to fill existing paper commitments. In effect, the BIS now has it's hand on the gold valve and is controlling the contract filling flow at will.

But most analysis misinterpret the strategy of this. It is not an attempt to drive the contract gold prices upward. Quite the contrary, it's effects are just the opposite. In our current dollar gold market, the less gold is supplied, the more it pressures the price down! Players must create and sell not just more contracts to cover expiring ones, but also sell enough paper to force the price down further. In a market that's becoming shorter of physical gold, this is the only way they can add equity to cover rollover positions. In this political game, the dollar supporting paper gold arena is being forced to kill itself. It's also the reason I proclaim that we will see rare physical gold in the thousands once the deed is done.

Looking down the trail we can see the end of our paper gold markets. This same market place that evolved from 1971 into a "contract gold currency" is now being politically forced into hyperinflation in much the same way fiat currencies are. Just as the dollar has been inflated to unimaginable extremes to protect the US banking system, so to will this gold currency be inflated until suddenly it's credibility is shaken. I think a large gold default is directly ahead and it will be forced by the BIS / ECB. Right up until that default, contract gold currency will be printed as never before. Indeed, they are printing now for all they are worth! Literally!

If contract gold prices stop around here, be assured that the US dollar supporting faction has truly hit the end of that printing "worth"! If the prices start to rise now, a canceling of the BOE gold sales will confirm a large default in the pipeline. There would be no reason to sell into their LBMA if the marketplace is lost.

Further, watch for a sudden rush of OI on comex (double ot triple of total OI). This is the same item we watched for as confirmation around this time last year. The rush to buy contracts will be nothing more than an attempt at bookkeeping hedging by big traders. Truly no gold will come into play.

Excitement is building while the game is "in process"!

FOA/ your Trail Guide

Here is a map to review as we walk.

I have read numerous times over the last year where analysts are finally subscribing to the fact that gold is a political tool. At first (1996 - 1997) only a handful even discussed this as a possibility, citing their perceptions that it couldn't be manipulated on such a grand scale. Now almost everyone knows it as a fact. Still, very, very few of them can today make the connection that the political tool of managing gold is not by selling on the physical side. In reality it's actually the "contract gold marketplace" itself where paper selling manages the gold marketplace.

We read media report after report where the CBs are dumping gold and forcing it's price down. But just as I pointed out on our last hike, in the BIS world of CB gold trading a very small percentage of gold has physically left their system during the 90s. The only thing falling has been both the "contract gold price" and that of investor perceptions of "total gold stocks" held officially. If investor thoughts have been manipulated at all they have been impacted most by "watching the ball and not following the game".

Onward

Clearly the world has broken itself into "only two" currency system support blocks. The US and the European! We have to observe these factions as a group if we are to understand their actions. Further, it's important to place nations that are outside these two groups. Are they "supporters" or destroyers of a faction. Which one is most strategic to their cause.

Japan and much of the Asian block are clearly "supporters" of the dollar faction because their entire trading structure was built on selling into a "US dollar trade deficit". Any buying of gold or Euros with dollar reserves would wreck their economy further by driving the Yen straight up. If they do elect to do this it will be in response to a much larger American economic crisis and occur further along in the dollar inflation timeline. Talk of the Yen being the third part of a "tripolar" currency world will be proven completely off the mark. Japan and any other of their close economic allies will sacrifice their money's viability for some time to stay with the dollar. In the process suffering the same full blown dollar hyperinflation effects that are coming to the US. Other Asian nations sold gold during their recent crisis not in support of the dollar so much as they were forced by the IMF to do so. In a story I have told before, their physical buying was hurting the manipulation game. Breaking them was all in an effort by the BIS to maintain a Pre Euro low gold agreement. Today, the lesser nations of the Asian block have returned to buying gold. Something that is in their culture, rather than a desire to destroy the dollar. Only this time we will not witness a political effort to stop this buying. To there credit and good fortune many (asians) will retain this wealth asset as our dollar is eaten from price inflation.

China is a wild card that uses the US for short term gain while not politically "supporting" the dollar system. Their historic trading ties face West to Europe, retracing the old Orient Express. Further, their attachment to gold is a natural draw that pulls them into the Euro faction. When the time is right and Euro trade deep enough, they like the oil producers will adopt the Euro as a reserve. That time may be very, very close!

Canada is seen selling it's gold stock in support of the US. This is an easy one to understand because everything they do is US related. Like Japan, if the US sinks Canada will ride the ship down. Their small gold holdings were nothing compared to standing in the American shadow. Selling it helped keep liquid our contract market. Still, I think most of their sales ended up in BIS and CB accounts anyway. Indeed, North American gold that will eventually support the Euro. The irony of it all!

South America has been in an extended financial crisis for what seems like forever. For the moment they also have tied their economic fortunes to the dollar and sold much of their gold in it's support. Yet, tragically this whole continent continues to operate as an economic "play thing" that is used by whatever world "currency block" that's in power. They will be dropped off by the dollar train and picked up by the Euro train at the next "crisis station". But because of the gold ties that Euroland will employ, South America as a whole will eventually prosper as they are forced to painfully break from the dollar induced inflation cycles of the past 20+ years. In time the Euro will be good for them.

England was not only part of the dollar faction, it was the dollar faction and is clearly becoming a "run a way" nation. They are moving towards the Euro and leaving our dollar world. But, unlike many other first tier Euroland nations that joined and quietly sold gold into private accounts, Britain is selling it's gold in an obvious "retreating action" from the dollar. Truly, their government has a long history with the "who's who" in LBMA and I suspect owes more than a few favors. Their little gold sales are specifically designed to allow some "backing out" room before the dollar based contract gold markets fail. Once in the Euro, England will enjoy the shelter of a free gold market that supports the Euro system. Still, after saying this, I would not be surprised to find that a good portion of those bullion bars ended up filling contracts owed to BIS accounts.

Editor's note: It's amazing to recall just how few knowledgeable people even had even heard of the LBMA prior to 1996, let alone know how it impacted the gold markets for years prior. I remember reading how many "big time" internet gold writers were asking "what's the LBMA" when it first made public it's trading volumes. These same "political gold analysis" today know "all about it". It's all part of the learning process we "physical gold advocates" are gaining by as their cheap physical gold is sold for the wrong reasons (smile).

A view of the Mountain

The game we should be watching (instead of the ball), has been changing from the spring of 1999. The early joint manipulations of contract gold has broken apart and left only the US standing alone in the wind. As I said further back on the trail, the US dollar faction is now hyper inflating contract gold in a last ditch effort to block a dollar destroying rise in "physical prices". Many people (Cavan Man, USAGOLD poster?) do not understand why the Euro/BIS group just stands there and allow this to happen. The fact is that they (Euroland) have the gold in the BIS system (never really sold it outside) and do not care what happens to the prices of contract gold expressed by the US or LBMA marketplace. Those contracts (as the gold currency they represent) (SDRs?) will eventually fail.

This is a simple concept that so confounds and hurts investors and traders in the "gold industry" today. They are mostly on the "failing" side of the war as their purpose remains to bet too large an amount of their hard portfolio on the price movement of contract gold, not own physical gold itself! I would say that the opinions expressed on most of the internet come from traders trying to time a paper trade in a failing marketplace. Even those buying gold mines can be compared to my "Paper deeds for Roman Gold" analogy. Betting on a rise in the price of real estate then selling it for Roman gold coins before the city (gold marketplace) falls.

"Truly, the ECB / BIS have made sure that there will not be enough Roman Gold to cover the property sales before the city falls"! Physical gold will not follow the same ratio to mine equity it did in the 70s. If a mine goes from $10 to $300, bullion will have gone from $300 to $15,000++.

The contract marketplace for gold has for years given the illusion to Western investors that enough gold exists to maintain the old ratios. So they continue to follow this mistaken precedent and follow their chart points. Points that can only represent the trading realities of paper. All the while planing their move that will make them some retirement money. Sadly however, once the paper gold system is broken, we will all experience an evolution in the true value of physical gold as it is expressed against mine equity, currencies, all real things and most certainly paper gold equity. Something this dollar world of investors have never seen before.

Just as Koan (a USAGOLD poster) long ago expressed bewilderment at how gold moved as fast or faster than silver and most gold stocks after the WA, the coming true break in the system will make that even percentage comparison to paper look like nothing at all. Investors that do not believe this should rejoice for the experience, it will be a chance to see something few ever get to see (smile).

Honestly, during most of our investing "timeline", we as Westerners have never understood that owning gold itself "IS" the profit one makes when a reserve currency system fails! The price of physical gold in said failing currency is "meaningless" because that price can no longer express any long term value!

Back to the main trail (extending from my first paragraph)

They (paper gold bugs) "now" rightly warn everyone that this "political control" of gold is coming to a dangerous end and council investors to "be in" the gold markets for this ride. But most "gold bug traders" stick to "the paper facts" and maintain strict "paper trading" discipline. I submit they will completely miss the "real profit" of owning gold at an advantageous currency price. Their trading with factual information about this "paper marketplace" will eventually net them only more paper gold or currency in a cash settlement. Both of which values will fall completely behind a soaring physical market.

By sticking to the "facts" dictated to them from trading in a hyper inflated paper contract market, they cannot see the "reality" of a coming "politically induced" shortage of deliverable gold. Just because a contract is governed by the Crown's laws, doesn't mean it will retain the value of physical settlement. As the dollar holders prior to 1971 thought they held a receipt for warehouse gold, the dollar's gold market today will leave traders completely out of the greatest gold bull ever to occur! This my friends is understanding the politics of gold in it's fullest context.

The great dollar hyper inflation is only just beginning. Convulsions in all paper markets will be the norm from here on out.

Next item today: a response to the points of Aristotle and TownCrier (USAGOLD posters)

Thank you for reading and hiking

FOA/ your Trail Guide

Hello Aristotle,

Your message #ID:28580 was very interesting.

It seems that some have walked this trail before me as my "Guiding" is following the echo of USAGOLD posters (smile). The fresh air must be doing everyone some good!

This day in time is a unique period in real money history. Seldom, if ever, has the world found itself in the grips of a possible, complete fiat reserve breakdown! Especially one that impacts the way 70% (???) of the worlds current assets are valued. What a wonderful mess for a well connected financial sleuth to be born into, right? (big smile)!

We will all look back on this and see that most of our trusted measuring sticks were useless to decipher the situation. If we truly do not know what a "dollar credit" (DC) is, how can we know what it is worth in purchasing power? We do not even know approximately how many DCs are out there, let alone their demand to satisfy debt service. What is really starting to spook the big world players is that no one now knows what kind of currency intervention is in the pipeline at any moment in time. This is having the effect of making one's real debt in international dollars an "unknown". The same thing goes for dollar assets?

You could owe one million in value today, then find that an evolving political agenda has changed that amount to 5 million in real value tomorrow. All of this was glossed over for many years by employing derivatives to hedge. Now that arena has grown so large that there is a real threat that the derivatives need hedging too! I laugh about it but it's a real event, happening in real time. It's scaring the hell out of a bunch of people and they are not taking if as being funny.


The camp fire is burning now and everyone is here:


Did you ever see the movie "Havana" with Robert Redford? It was a great tale about a card gambler that often went to the casinos in Cuba. It takes place just before the revolution when Havana was a real swinging place. I don't remember the exact lines in the show but he often made reference the the laws of probability. Saying "anything is possible, just not always probable". To that end he explained to his girlfriend why there was a lump in the skin in his forearm. It seems he had a diamond sewed under the skin, "just in case"!


It was an excellent example of human interaction with the laws of probability. It seems that inside all of us lies a fear that what the world is telling us (the marketplace) may not be real. Just like ORO said what if "there is no spoon" and our financial process is the trading of illusions! We all expect life itself to be chancy, and fully expect to lose some in the effort. But no one wants to be "busted out" because of a freak, once in a generation "revolution in the way wealth is counted".

In reality,,,, in the real world,,,, big players never tell their whole tale,,,, not like the persona of our little trader/gamblers talking their book on the Internet. In the big arena that really counts,,,,,, real players all keep most of the wealth "off the table" and "under the skin". So what does this have to do with the BIS?


Remembering back:


Something that Big Trader or Another said a long time ago about trading gold off market in the thousands. Trust me, it's there somewhere way back in the pre USAGOLD days. It seems that gold was then and is today traded between countries, CBs, special accounts,,,,,,, at not only contract prices but in the "perceived prices" that would exist in a non dollar world. Hard to believe? Don't be so quick to laugh. We are talking about gold traded in large amounts on the "possibility" of a no dollar reserve world,,,,,, gold moved from "under the skin" to "under the skin" so to speak.

In some cases more than a few people have "done the math" and come up with some startling probabilities and possibilities. In some perceptions, it's a political certainty!

Imagine, if you will that gold,,,,, tomorrow,,,,,, was "marked to the market" and slated for 30 day physical settlement. Most Western thinkers and investors would say that there is plenty of gold out there to cover all that paper. At worst it's price would go to,,,,, say,,,,, $700 in the squeeze. Well, that is assuming this event happens in a world like today where the dollar and our US economy is still running.

But these Western investors don't understand the real human world. Gold being marked to market would be the result of an economic revolution of sorts. A currency transition, if you will.

Most of the big talkers you here in the bar,,,,,, saying they would sell at $1,000 and buy some land,,,,,,, would be the very last scared kittens to cut that diamond from under their skin! Believe it!

Under the circumstances,,,,,,, miners would do their best to "stop mining",,,,,,, dealers would mostly be making a market on the buy side only,,,,,,, and our bar room paper gold trading friend,,, with all his bravado would be telling everyone,,,,,, "Gee, I sold too early and wish I hadn't"!! All the while wearing a long sleeve shirt on a 90 degree night in Phoenix,,,,, just to cover the lump that's under his skin!

The night is getting very still:

Today, gold is worth far more than it's traded contract price,,,, and has been for some years. That's the reason some players have owned it while giving up any interest and stock gains they could have enjoyed.

Listen to this and listen closely: "the real value of gold today is based squarely on the probability of weather the US dollar can survive as a reserve currency"! No problem, you say? Well, you may think a little different in a few weeks or years.

Considering the trade deficit of the US, CB dollar reserves and the interest they earn,,,, are worth between $.50 and $0 in real good buying power.

Now, would you sell your gold into the BIS system for dollars,,,,,, at the market price today to have it returned in Euro gold credits reserves at the real price much later?
Just as TownCrier says in his daily commentary:

the IMF gold leaves at one price and returns at "Another" ,,,,,,,, it travels far but never moves,,,,, while the BIS holds the value for a later use in time.

It seems a neet "gray concept" to have just popped out of nowhere, no? Was that plan already "in process" somewhere ,,,,,, someplace,,,,,,,, think about it?

Then think about the dollar price of gold today? In fact, "think long and hard about it"?

Fires out

Thanks for hiking. (be on the forum later or tomorrow)

FOA/ your Trail Guide

Because the group has had a good night's sleep and a fresh cup of coffee, I wanted to say a few things to fresh minds before we get started.

People hike the gold trail for the understanding they gain along the way. For some it's to make a profit using the reasoning gained. Others find reinforcement about the historical asset insurance gold provides against other wealth. Still others do it to further an ideological standpoint that gold wealth is more a direct reflection of true reality in life. Whatever the reason, for many people gold holds and maintains a real image of stability even beyond it's currency price. A rare concept in this modern world full of financial fakery.

Whatever your purpose in joining us may be, understand that neither I or us make the trail. We simply follow it as it winds it's way through our evolving lives. Gold, an entity of mother earth's making has a fluid value that's an ever changing perception of what wealth represents in the minds of men and women. Over time the wants and dreams of humanity along with their need to retain them are the forces that shape this path. The actions of ourselves and the governments that represent us create this trail as we grasp just how much in life is real and how much is not.

To date, we see a large segment of Western society that has accepted most of our modern paper as their wealth and reasoned that the value of gold itself is little more than an illusion today. In time most of these "new reality" believers will join us here and contrast their life's experiences with other hikers. In these recounts, many will profess that they lost "what they never really owned"!

Observations

A few days ago I offered this post: Trail Guide (4/18/2000; 7:00:01MDT - Msg ID:28918). It can be found on your laptops in the USAGOLD archives.

I presented a perception of the changing image of Gold Bugs as they appear to other would be gold investors. Many of whom see the strategy of the old TGBs (trader gold bugs) as something to avoid as it produces nothing but loses. A wealth destruction that seems unending as the evolution of the gold market itself continues. This evolution of over twenty years has proven to many that our market place was never as free as many played it for. Indeed, the growing perception today is that the gold industry and this paper market place have become little more than a leveraged game inside a manipulated concept. Rather than a contract market that represents the sum total of knowledge and therefore value of our physical gold supply. In the beginning this concept once held gold trading to be the same as free physical trading. It never was then and is not today.

New, "would be" physical gold investors are not looking at the gains made from shorting or going long paper gold as profits made from operating in the same arena that dealers use to sell physical from. Rather profits and loses from trading all paper representations of gold are seen only as they apply to our current paper market. While profits and loses from owning physical gold are found only in the physical market. To date the profit and loss difference between these mediums is striking. In the face of massive distortion of facts, figures and contract supply, physical gold has suffered a very reasonable discount when compared to investments in it's leveraged paper side.

Seeing this, the question is presented: why trade a gold industry security or gold derivative paper when I can make and lose just as much playing the established fiat stock markets? Truly, if contract paper gold is being inflated with supply in order to mask bullish fundamentals on the physical side, why bet on a rise in physical gold using a leveraged derivative? If the world stock markets are in trouble and I need to hedge my wealth, why hedge using an arena that will tend to be manipulated down even more so as equity markets fail?

Further, if this official paper gold market is not the free place we thought it was why not buy the product that's in short supply and the subject of said paper manipulation? In this regard, Physical Gold Advocates are gaining the upper ground of "sound reasoning" as we speak! New investors see through the fog and don't want any part of an investment that's already killing many investor assets. From my post:

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"The distinction between gold stocks, contract gold and physical gold investments is widening as the relative "soundness" of these asset classes is further exposed daily. In the past, as long as all gold vehicle valuations held within a tradable ratio of each other "Trader Gold Bugs" could hide within the "Gold Bug" community and proclaim all the fine attributes of a "physical gold advocate". But this current protracted political involvement in the gold "paper marketplace" is dividing "Gold Bugs" into their two clear different groups and showing their two clearly different reasons to be in gold.

Over the last three years, Trader Gold Bugs (TGBs) have fallen further and further behind "Physical Gold Advocates" (PGAs) as their leveraged investments are more percentage impacted by a falling contract gold system. No longer able to keep quiet, the pain that their leverage brought them is forcing an ever more vocal (and irrational) response to the movements in gold prices.

Every $2 drop is seen as a total failure of gold and every $2 rise as pathetic and proving how gold is done in for the count. Truly, these are the perceptions of investors trading either a "Paper Gold Market Place" or a leveraged "Gold Industry". Not the feelings of a Physical Gold Advocate holding a sound world class financial asset! One that's holding it's own strongly in the face of massive official manipulation." " "

----------------------

This full post was aimed squarely at the failed paper gold investor of the past. Whether buying into the gold industry or the contract gold arena, the flaw in this strategy is that leverage gold today is and has been for some time opposed to official policy. An investor can "wait out" this policy time frame or buy directly into the part of the gold market that cannot be controlled. Physical gold!

The real leverage today is found in the understanding of just how this current "wind down" of official policy will impact the two markets for gold.

Whether doing the bidding of "official policy" or just trading paper gold short, the major makers of short contracts cannot and will not "just walk way". If they have created so much supply that it is "uncoverable", they have no option in stopping their writing. In a last ditch effort they may make every trader aware that they will create a bottomless pit of supply if necessary to stop any rise in contract prices. Regardless of the physical price! Especially if a rise in contract prices is the only accepted agent they must mark their margin to! In the end, no speculator, commercial trader or gambler in the world will buy into a contract that must end outside physical settlement. The end of out current gold markets may end this way:

"""""""""" If physical gold spikes and is trading in the dealer market for $3,000 an ounce,,,,,, and a major trader stands ready to sell contracts in any number,,,,, to all comers,,,,, for $200,,,,, no one will buy if the obvious settlement will be for the full equity of the paper gold marketplace!!!! Truly an amount that may only bring $400 or less (an ounce) in negotiated cash to cover the "end time" hyper inflated contracts issued. """"""

This my friends is the full picture seen by not just old money in gold but new gold money also! It's also the reason so much "Physical Gold" is leaving the US today. Please see Mr.TownCrier (4/19/2000; 17:59:41MDT - Msg ID:29050).

Western gold investors have lost the real "Gold Spirit" rooted deeply in their past as they chase profits instead of reality. Mr. Farfel made this comment (Msg ID:28931) that so aptly describes this modern Western phenomenon:

" " You seem to have the mentality of a trader, with no rooted beliefs in anything other than that which makes you profit." "

Onward The Trail:

The gold industry today is in a position to take advantage of and profit from this changing view of gold. To do this they must sell their product to the public, not their shares. Microsoft did not get where it is today by selling it's stock as an alternative to owning Windows. It sold it's main product first to a public that wanted and needed it. It's stock value followed.

Two thirds of the modern gold market creators have walked away from further manipulating the current pricing system. The ECB / BIS position has evolved into letting the remaining market inflate itself into oblivion. If the gold industry is to survive this coming reckoning of a crashing system, they must move now to break their product away from filling paper commitments. Only a small handful will have this choice. The move by some players in creating "goldavenue.com" is a major first step. But it's not enough.

The companies that will survive must make their product into registered form. Then sell only to users that will certify and prove that gold's end use as jewelry, coin or private bar. Registered bar sales, must be stored in bonded warehouses that can identify a mine's product bar. If the paper industry or fabrication process is to use this gold they must remelt it, absorb the cost and pay a fee to the mine of that numbered the bar.

Very few mines will make this shift. But it's the only way they will profit enough to overcome the taxes and regulation that's coming.

The gold industry must make every effort to educate investors that their mine shares are not a substitute for owning gold. Demonstrate why persons should own and utilize their software (gold) for personal financial safety first. Only later (as profit potential prescribes) encourage persons to invest in microsoft stock (gold shares).

The few companies that can follow this lead today will be amazed at the outcome tomorrow!

Further:

The paper markets give the illusion of a fat gold supply that says, "there's plenty to go around". Yet, once our paper markets finally price in their own destructive tendency, the illusion of supply will vanish along with the available product. The price change in physical gold will be fast and brutal, to say the least. Leaving virtually no chance to convert any paper profits into real gold on a one to one basis.

To this end, "PGAs" (Physical Gold Advocates) today enjoy the very best of all worlds.

The "wind down" of our official paper marketplace has begun with the Washington Agreement. An accord that began with the first private acknowledgment that IMF gold would have to be revalued through either sale or official revaluation. We are on the road to very high priced gold, but will not arrive "publicly" at these values until the paper markets destroy themselves.

London is clearly in the wind down process as their volume slows. The dollar faction is alone in representing itself as the defender of low paper gold prices. I give the odds of contract gold spiking and holding it's gains at one in ten. If the paper gold market can end it's days in a rapid rise to bankruptcy, it will take a major portion of the banking system with it. The same banks that the mines must work through today.

In the eyes of new Gold Bugs, all risk today is in paper held in lieu of gold. The choice is clear. Buy into a bear market in paper or ride on a new concept for our changing modern world.

The future belongs to the PGA. Physical Gold Advocate!

Thanks for walking

FOA/ your Trail Guide

Hello ALL:

This is a pre - weekend office review before our hike.

Here is some context from today's WSJ that reinforces what we have been talking about. I'll put it in my words but read it yourself in their paper.

In the World Watch section, under ECB Rate Rise:

----Inflation in the Euro zone may have peaked in march and now declining. ------ The CPI in all 11 countries rose 2.1% in march, year over year. ------- But analysts expect euro zone CPI to fall back to 1.8% this month and to 1.3% by end of year. ------ Three German states reported that prices were unchanged or fell in April / March. ------ Two other states reported similar data last week. -------- Italian cities reported inflation in April had declined from month before. -------

OK,

Does this sound like the major price inflation that was suppose to impact Euroland as their currency has fell for over a year? That's right, it's not! This is because the Euro Zone economy is "benefiting" from a sound currency structure. It's the Dollar that's is being driven ever higher into over valuation as it's reserve status is transitioned. The ECB / BIS are doing the same thing to the dollar that they are doing in gold right now. Allowing the Western Dollar faction to inflate and export (if able) the paper version of both items until they burst from supply.

In this process US interest rates must retain a large premium over Euro rates to support and over value the dollar as it's supply is pumped. This in turn drives performing financial structures (real world goods creation) into Euro assets because a sounder currency allows lower operating costs with the same or lower current price inflation. By this measurment, short term exchange rates are not the "use" deciding factor. If this continues, Euroland has the potential to take the lion share of world finance, and goods settlement. We are on that road today as a forced high dollar exchange rate is fueling our trade deficit! Yet, all of this is hiding under cover as the media only reports on the loses that traders take in the Forex markets.

Further from what I read in the WSJ under Foreign Exchange:

------ From an economist in New York ------ The European economy is strengthening. ---- European rates are rising. ------ And Europe is at an earlier stage in the business and restructuring cycle than the US, which suggest greater potential for price gains in the intermediate term. ------

Again,,,,,

Breaking the dollar's hold on world reserve status means forcing it into a major price inflation at the end of it's timeline. This is done by tying the hands of policy makers so they can only create (pump) more dollar assets into the world system. That "tying of hands" is done by creating for the first time an alternative currency structure that does not fail from continued dollar "crisis strength" or "crisis weakness". The world economy will run to just such a system as their current system (the dollar) fails.

The US is now trapped because they cannot lower rates to bring down dollar exchange rates without gunning their stock market and economy into an obvious hyper inflation. Yet, they cannot raise rates any further without causing a complete landslide of investors into using the lower cost Euro system.

Hence the little 1/4 point rate rises Alan is doing. He and the dollar are now trapped from all the outstanding dollar debt in the world. The whole mountain is now slowly sliding down the slope as we watch. Is it no wonder that gold leaves our shores in record amounts.

In the past, no one would rock the boat in such an obvious way as the ECB / BIS is doing because everyone would lose as the dollar eventually was discarded. But today, the Euro Zone system has taken a second step to backup their Euro banking reserve structure when the fall comes.

In an ever so obvious event they told the world that the Dollar based world paper gold markets are "on the road" to being phased out. That event was the Washington Agreement. If you have read my earlier "trail walks", you know how this action is slowly drying up supportive gold supply that gives credibility to the paper gold markets. The eventual outcome of this is to allow the current contract markets to be supported by the US and it's backers alone. To date, without world support there is not enough gold supply to keep these contracts at par with spot bullion prices.

In a desperate attempt to keep dollar gold prices from spiking, the dollar faction must inflate it's contract market to the same extent that the dollar itself is being created. Without this paper supply, the paper gold markets would show a discount to physical just as world dollar debt would discount dollar price inflation without more created dollars to buy existing debt supply.

The stage is now set for a fall in the dollar and a corresponding leap in the "dollar reserve replacement value" of gold held in the BIS system. The point is clear for all to see,,,,,,,, when a crashing dollar exchange rate comes from dollar price hyper inflation,,,,,, and drains world liquidity and value from dollar holdings,,,,,,,,,,, gold and Euros will fill that void. The Euro system is completely braced to accept a US self induced transition of world reserve status from the dollar into Euros. It's no accident that the breaking of the world gold market structure and dollar price inflation will come about just as the Euro comes to center stage. Euro depth grows every day and brings in ever more players seeking opperations value.

Now you know what "Another" has know for some time. Now you know why gold is and must rise far, far higher than anyone expects or predicts. Now you know why our paper gold contract market is about to fail as a "freegold" physical market takes over. Gold in the many, many thousands is in our future as the transition to Euro reserve status is set to begin.

Another:

"We watch this new gold market together, yes?"

Thanks for hiking

FOA/ your Trail Guide