Hello all,

That was some weekend hike, yes? Let's talk while we rest a while.

Is BILL Murphy not heard? No not really, not yet. While it's true that his ongoing presentation is still not on the center of "anyone important's" desk, one has but to spin 180' in their chair to find a neat stack of it on the "boss's" credenza. Very close by, so to speak. (smile)

I know, they get a lot of flack from the trader crowd and spend a lot of time defending the gold cause. It's important time and well spent because a broad base of people must understand GATA's position if they are to help with the PR. But that bunch will never be the ones that actually transition the market. What I'm saying is that whether "The" report drives their personal trading is meaningless. It's the broad political position that counts. Harsh statement? No real life and real politics.

The same holds true for the media. That venue is never telling anything the real players didn't know two years ago! So, if the media appears to be downplaying the GATA news, it's OK. Because the story has been out for a time now and it's truly moving in a wider circle! Remember, the most damaging knowledge is the stuff that moves quietly, behind the markets. Seemingly before the fact in the eyes of regular citizens.

We said a long time ago that Bill didn't need to really do legal action to blow this wide open. We also felt they were doing something for the marketplace that was above and beyond their "stated aim". Truly, they only had to keep talking until the game is almost over to have a devastating impact. What's so important about that?

Well, most of the "big gold" world knew about the derivatives and all, for some time. But no one really knew when it would reach it's political limit. In the very same view that no one knew where the end of the dollar's rein would be, either. In a very simple way of saying it: both of these paper currencies would expand until there was no one else left to fool!

Just as soon as paper dollars and paper gold become political liabilities, the perception of the game changes. Today we see that perception changing. For the first time ever, the US dollar faction is in a trap brought on by the Euro and it's backers. With the European world operating in a more closed circuit fashion than the US, their financial and economic engine can continue to run without the supporting American drive intact. This makes their Exchange rate values less important in maintaining real local economic growth. Even today, after a huge, economic supporting decline in their currency, price inflation is still less that in the US! Confounding the currency trader bugs that present themselves as knowing just how a currency should act. Further to their discredit, a new Euro carry trade is creating massive new Euro liabilities that are based on the successful record of the Yen carry trade. A serious mistake, because that yen trade was done using a single nation currency that greatly depended on the US. A big difference!

The political agenda in both Japan and the US generally supported the outcome of borrowing Yen to invest in dollars. Mostly because the Yen must eventually be inflated in supply to keep the Yen in a competitively down stance to save market share. In a long view, both currencies will inflate together and balance that carry trade. Even if they both hyper inflate.

In contrast, the Euro does not need to inflate to remain competitive. We have said all along that the ECB is allowing the markets to do what the Japanese have struggled a decade to accomplish. That being having a weak (in exchange rate only) global currency with low inflation relative to the reserve dollar. This supports the internal economy of Europe without having to drive interest rates to zero (like Japan) to do it. Every day that this Euro / dollar currency mismatch continues, it expands the coming Euro Zone financial dynamics. The longer that dynamic is in place and growing, the less impact an eventual failing dollar will have on them. This is the fatal flaw for the dollar in this ongoing "currency war". When the dollar death signs are signaled by our Fed raising rates further, it also outlines the significant difference the Yen carry has with the Euro carry. Truly, the ECB will not have to inflate the Euro currency supply in an exchange lowering rate battle with the dollar in order to maintain "market share"! This will trap the Euro carry in a diminished currency supply situation that will literally decimate their (the carry trade) program. It will also gun the Euro!

The Fed cannot raise rates high enough or restrict reserve creation enough to slow the US economy without cascading our financial markets. This is a seldom seen typical function of a failing currency system off the gold system. Such a Fed action that would drive business into the Euro Zone sector at the exact same time that currency and it's economy is rising. And rising as local Euro rates stay the same. Today, the political perception of this risk is raising the dollar's political liability.

If the Fed does nothing, they remain on a full blown inflation track. Right where Europe want's them. A track that every important player in the world has "slightly" hedged by taking the long side of those billions in paper gold derivatives GATA has shown is out there! Yes, this is the very same super demand for gold that has been with us for most of the 90s. It's just that the physical demand is a little above supply while the rest of the demand has been channeled into a paper leveraged position. Even as many of these bullion holders elected to trade old physical holdings for leveraged paper accounts, they helped transfer the price making dynamics towards these dollar faction paper creators. With new (old) gold supply on the market joined with the unlimited supply of paper contracts, price discovery started on it's now well known down trend. A trend originally started in a joint effort between Europe and America. Our past discussions outlined their current split.

But something is very wrong with this picture today? If the political risk is now on the dollar side,,,, and your gold inflation hedge is discovery priced with contracts created with unlimited dollar supply,,,,, how will paper gold rise in a dollar hyper inflation? In addition, how will any gold supplier that must sell into these markets, profit during an inflation? We have hiked this path before, no?

As I said, GATA keeps putting two and two together in this derivitive game as players keep re-thinking their position. Eventually, everyone will begin to reach the same conclusion:

" " I have to dump the contract derivatives game and buy real gold,,,,,,,,, AGAIN!" "

In that process, the world gold markets, as they are 95% dollar paper today,,,,, will crash in the face of unbelievable physical gold demand. Derivative and contract values in all positions will be crushed in the race to transition out of them. Not exactly the end most investors had in mind!

We watch these developments.

So we see,,,,, it was never a war between the dollar and gold. The US won that game long ago by playing to Western gold bugs taste for paper! No, now you understand with all we have discussed why gold will run because of a fiat currency war. Not a gold currency war. Indeed, this war is waged between different views of what money should be. A currency war that will transition gold into a different world from our perceptions today.

Keep talking BILL, I said they started sweating over a year ago. Now even the shoe laces are wet! (smile)

Thanks

FOA/ your Trail Guide

The gold poker game as seen at Camp:


My bet for you card players: "Did any in our camp ever express that the Euro would be backed with gold using the current paper system?"

No.

The whole concept behind the Euro thrust was politically driven to specifically include only physical gold in a future "non currency" function. Not intertwining the present dollar paper gold system in some form of currency backing. This position was driven home by the lessons oil learned in the 70s and 80s. It was included in the Euro because a real threat to use gold as a currency for crude would have resulted if it wasn't. This explained the early warnings (years ago) from Another that "All Paper Would Burn" as gold soared in value.

With a future Euro backed by a "free trading" physical market in gold, gold's real value would be later seen! Upon hearing this, almost every analyst took the ball from us and immediately ran with it in the wrong direction.

The usual explanation built on the fact that the world paper gold markets would burn up in a paper short squeeze. There by delivering our projected "soaring gold value". Well, there is something to be said for that, but such a process would be short lived and certainly not be the real play that's coming.

The current paper gold world will die (burn) as it's value to users erodes, not increases! We have to remember that some 85% (or more) of the long side of our world paper markets will not (perhaps cannot) take delivery of physical gold. If the paper trading price is driven ever lower from new derivative supply, these longs simply "trade out" and take their cash hit. The major banks and players in this arena know this and therefore are not at risk from expanding their positions. Truly, they are only playing behind the real political game today.

Indeed, if the Euro function will ultimately burn the dollar and it's paper gold markets and replace it with a physical "free gold" market, then selling paper gold is free money! Right? This is but one segment of the coming currency transition and to date it's progressing right along!

Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction. They are trying to understand just how the Euro zone players are going to get out of our current gold market liabilities when the Euro makes use of the dollar gold market! These same thinkers are looking for some kind of "work out" of our system so it's price discovery function will value gold where it should be! My observation from the "Euro Makers "is that one should "forget this notion"! "Noone" gives a hoot about holding "price discovery" paper contracts as the real thing. Except for those with the real power to trade something for full payment! OIL!

Today, paper gold derivatives are for selling because they will eventually be politically defaulted once their discount to physical drives their value next to nothing.

So who is in danger of being hurt as this unfolds?

That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical.

This stampede out of "paper physical" by the "big boys" will first discount that medium as all the selling comes to play. Then the real buying of physical will ensue. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it's the long that will be dumping and forcing the discount!

Yes, the Washington Agreement gunned the paper price and was the political signal that gold was "on the road" to super high prices. But, when we said gold we were talking about the same "physical gold" we always point to. The process that agreement started was really marking the death of our current paper gold market place, not it's new use beginnings!

Whether the paper market was about to default and burn then (as we thought it could / was)or next year, the point of all this is that it's destruction is politically written in stone!

Still, not one Western Gold bug in a thousand fully grasps the impact of this. Most of them frantically search for a ray of light that shows how our "price discovery" paper market will advance in value.

All the while major players unload on investors all the derivative gold we are willing to bid for. At the same time world traders are buying all the physical gold that comes their way.

Eventually, "Physical Gold Advocates" will own a real wealth asset that's fairly marked to market in a "free gold" Euro Zone marketplace. The same marketplace value that will back the new Euro economy by pricing "free gold" in the many thousands. A new world class currency backing a new
world class currency!

So how will these big derivative players make out on their paper gold loans and paper gold shorts?

I think they will make a fortune because they understood Another better than the Western Gold bugs could!

Thank you for camping.

FOA/ your Trail Guide

The gold poker game as seen at Camp:

My bet for you card players: "Did any in our camp ever express that the Euro would be backed with gold using the current paper system?"

No.

The whole concept behind the Euro thrust was politically driven to specifically include only physical gold in a future "non currency" function. Not intertwining the present dollar paper gold system in some form of currency backing. This position was driven home by the lessons oil learned in the 70s and 80s. It was included in the Euro because a real threat to use gold as a currency for crude would have resulted if it wasn't. This explained the early warnings (years ago) from Another that "All Paper Would Burn" as gold soared in value.

With a future Euro backed by a "free trading" physical market in gold, gold's real value would be later seen! Upon hearing this, almost every analyst took the ball from us and immediately ran with it in the wrong direction.

The usual explanation built on the fact that the world paper gold markets would burn up in a paper short squeeze. There by delivering our projected "soaring gold value". Well, there is something to be said for that, but such a process would be short lived and certainly not be the real play that's coming.

The current paper gold world will die (burn) as it's value to users erodes, not increases! We have to remember that some 85% (or more) of the long side of our world paper markets will not (perhaps cannot) take delivery of physical gold. If the paper trading price is driven ever lower from new derivative supply, these longs simply "trade out" and take their cash hit. The major banks and players in this arena know this and therefore are not at risk from expanding their positions. Truly, they are only playing behind the real political game today.

Indeed, if the Euro function will ultimately burn the dollar and it's paper gold markets and replace it with a physical "free gold" market, then selling paper gold is free money! Right? This is but one segment of the coming currency transition and to date it's progressing right along!

Again, most everyone in the Western Gold bug game is running with the ball in the wrong direction. They are trying to understand just how the Euro zone players are going to get out of our current gold market liabilities when the Euro makes use of the dollar gold market! These same thinkers are looking for some kind of "work out" of our system so it's price discovery function will value gold where it should be! My observation from the "Euro Makers "is that one should "forget this notion"! "Noone" gives a hoot about holding "price discovery" paper contracts as the real thing. Except for those with the real power to trade something for full payment! OIL!

Today, paper gold derivatives are for selling because they will eventually be politically defaulted once their discount to physical drives their value next to nothing.

So who is in danger of being hurt as this unfolds?

That's right, the Western paper gold long! I'm not talking about just the US market! This is about the entire world gold market as we know it today. The real play will be for the ones that get out in front of the move by owning physical.

This stampede out of "paper physical" by the "big boys" will first discount that medium as all the selling comes to play. Then the real buying of physical will ensue. It seems every Gold bug sees only half the trade and has great faith that contract law will favor a short squeeze. Yet, none of them see where it's the long that will be dumping and forcing the discount!

Yes, the Washington Agreement gunned the paper price and was the political signal that gold was "on the road" to super high prices. But, when we said gold we were talking about the same "physical gold" we always point to. The process that agreement started was really marking the death of our current paper gold market place, not it's new use beginnings!

Whether the paper market was about to default and burn then (as we thought it could / was) or next year, the point of all this is that it's destruction is politically written in stone!

Still, not one Western Gold bug in a thousand fully grasps the impact of this. Most of them frantically search for a ray of light that shows how our "price discovery" paper market will advance in value.

All the while major players unload on investors all the derivative gold we are willing to bid for. At the same time world traders are buying all the physical gold that comes their way.

Eventually, "Physical Gold Advocates" will own a real wealth asset that's fairly marked to market in a "free gold" Euro Zone marketplace. The same marketplace value that will back the new Euro economy by pricing "free gold" in the many thousands. A new world class currency backing a new world class currency!

So how will these big derivative players make out on their paper gold loans and paper gold shorts?

I think they will make a fortune because they understood Another better than the Western Gold bugs could!

Thank you for camping.

FOA/ your Trail Guide

Hello ALL,

I noted in my last two USAGOLD FORUM posts (5-13-00) that I will be traveling for a while. Some of the time will be for research, but most will be as "time away". Will bring a laptop to follow the flow of gold discussion while away. It will be quite a few weeks before I return to this trail so please help yourself to our path.

If all goes as expected, we will have a lot of ground to cover when I return.

thanks

FOA/ your Trail Guide