All times are U.S. Mountain Time
[Editor Note: To view an auxiliary page containing these five posts CLICK HERE]
Trail Guide (08/28/00; 20:35:52MT - usagold.com msg#: 35674) The big trade!
Trail Guide (8/26/2000; 21:44:27MT - usagold.com msg#: 35584)Reply Hello Henri,
Trail Guide (8/26/2000; 19:16:31MT - usagold.com msg#: 35569)Hello Cavan Man!
Trail Guide (8/25/2000; 6:04:33MT - usagold.com msg#: 35504)Oh Aristotle
Trail Guide (08/21/00; 21:04:03MT - usagold.com msg#: 35283)Hello SLF
Thanks
Trail Guide
---------Both manipulated and free!-----------
If you are suffering from not understanding all of the above, then it's because your mind set is running parallel with Western Hard Money Thought. Truly, you are running in the wrong crowd. You are playing a game that the Political Will of this world say's you cannot win! Today, the gold price everyone watches is little more than the influence of paper printing on quoted prices. Because it is not the the REAL reflected value of bullion, it will slowly fall away from too much paper supply.
To better understand and grasp what this means, read the USAGOLD post by Aristotle at:
(09/06/00; 20:34:12MT - usagold.com msg#: 36150).
He does a wonderful job of laying out what is now waiting for all hard money advocates that have isolated themselves in Western Thought.
Hard money advocates that take a more worldly, political view have already come to understand his meaning. Indeed, most of them did so long ago. With today's politically created paper gold pricing system, they know why being a "Physical Gold Advocate" is the only path for "Protecting Their Wealth" in the long and short run. Watching the current traded gold price is useless to them except to buy more gold at ever cheaper prices. We know how investing in vehicles that demand that paper price to rise "can be disastrous" in this evolving market!
To quote Aristotle:
----To be sure, it is not confidence in physical Gold that is slipping, but is rather a failing of confidence in the inflated supply of paper Gold that is at this time calling the tune and being reflectively priced into Gold by the structure of the marketplace.
Just as it always has before, complete failure of the paper equivalency awaits. The paper portion dies, and only the physical Gold remains to deliver your wealth to the other side.
In a nutshell's nutshell: The price of Gold is falling because we are witnessing the end days of the timeline / lifespan of a "currency system" known as Paper Gold. I expect considerable volatility until the "bitter end." ------------
Nice job Aristotle!
People, I fully well expect that most Western style gold bugs will become more violent and inflammatory as the influence of political will on quoted gold prices increases. More and more the line of difference between Physical Gold Advocates and Hard Money Investors will become a valley as said leveraged gold substitutes wither. Indeed, in the future that valley will mark the difference between haves and have nots in the coming super bull market in physical gold!
Some will ride their paper roller coaster all the way to it's conclusion. Yes, they will be rich, but none of them will collect. I submit that physical gold buyers that can grasp the political nature of this will come out the very best.
As an often repeated example I again explain:
---- Whenever the world gold price threatens to run away, whatever pricing system in use at that time is officially forced to fail. It does so not because the system cannot adjust to the new higher values. It fails because the runaway value exposes the political manipulation of gold inherent in that time frame and system. There will be no difference between officially forced failures of yesterday and today.
The only difference between then and now is in fashion! It's possible that this present Western generation is more interested in being "in style" with their hard money views than with actually coming out ahead in the crisis that awaits.
In 1971, the simple solution to adjusting the over expansion (inflation) of the dollar money supply would have been to simply raise the dollar price of gold to a level where every dollar (a contract for gold) was worth it's equivalent. But this would have exposed the manipulation of the dollar (over printing of contracts) that occurred prior to that happening. Not to mention it would have bankrupted many important players (like Bullion Banks today).
Back then, like today, gold in the form of paper contract dollars, traded in a far higher quantity than the actual physical that was delivered against total contracts (like LBMA, no?). In fact, it was far in excess of all bullion in existence at dollar prices at that time. As $35 was a paper price for gold then,,, so too is $270 or even $50 a paper price today! It had no real contact with the real value of gold. Sound familiar? Is this sinking in?
Today, like yesterday, any rise in the "paper quoted" price of gold, will have the same effects on the dollar contracts written and the major player that create these paper traded gold vehicles. Just as in 71, when official dollar contracts for gold were frozen at $42?? while physical eventually soared overseas,,,,,,, Our current bullion banking system will be officially frozen in US terms while physical soars. ----------- It will do this much much more today because the paper price is even further away from reality. Gold at thousands and thousands an ounce is in our future!
If you can understand Aristotle, then you can grasp where we have been and where we are going. In fact, read all his fine works!
In recognition of our fine host, Mr. Michael Kosares and the CPM people I add this:
In the future, a relationship with a good """ world marketing""" bullion and coin dealer will be more valuable than all the paper gold you could ever own.
Believe it!
Thanks
FOA/ your Trail Guide
Michael Kosares,
It has taken some time to send this, but now I can also offer my thoughts to your questions.
Your statement: (from MK) "As a matter of long term policy, do you believe that ECB will "sell" gold to defend the Euro or "buy" gold to defend the Euro? Each of course would entail a different course of action with respect to reserves of the new national bank. Along these lines, will ECB buy gold from its member treasuries, or will it simply force them to transfer it to ECB coffers if needed to defend the Euro? I am prompted to ask this question in view of your assertion that there will be much selling of Euros to defend the dollar. If the Euro, as you suggested, is being printed to buy dollars isn't this just another manifestation of the U.S. exporting its inflation? It appears to me that the Euro will need to be defended -- and not with dollars -- but with gold! "
======================================
Well Michael,
The ECB and Duisenberg have it right.
It's the dollar that's too strong (compared to it's management policy), not the Euro is too weak (compared to it's management policy)!
Everyone,
Under recent circumstances; using the dollar as a trade reserve it was the policy of all CBs to save most of their positive foreign exchange. This was in an ongoing defense of their domestic currencies value. We must grasp that just saving the excess trade reserves constituted active dollar support.
Simply put, when a nation state does a good job of manufacturing and runs a balance of trade surplus they are receiving more dollars in trade. This mandated a dollar surplus in their economy's banking system from where more local moneys were printed against those saved reserves. In other words, if you're trade positive you are supporting dollar values by default. But why save dollars as a reserve?
In the good old days; when our country (USA) printed too much money and that money overflowed it's borders as buying power, the selling of that excess currency by our trading partners (lowering it's value) to balance trade differences would force the printing nation (US) to slow down it's money creation. If they didn't, price inflation in the domestic (US) market would begin to catch up and reflect said overprinting of the money. So far, so good.
Today; if our (USA) trading partners allowed those dollars to flow back into the world markets (actively buying their local currency with dollars) this action raised the exchange value of their currency and penalized the international pricing structure of their goods. Their goods would cost more and slow down their exports. Yet, if your currency management is strong (as the Euro's is) and your people (read that economy) work better than their foreign US competitors, the exchange rate system shouldn't hurt your goods pricing! But, it does. You see, selling these extra dollars today would have the effect of hurting a competitive producer that has good money management. But this is not the way our dollar system was supposed to work!
It's not a situation where your currency should get stronger if you're doing a good job. It's the other currency (dollar) that should get weaker because they are doing a bad job! In this a "Western Style World where "the dollar market system's" trading price was seen as the only real price for anything" (see my last post below),,,,,,,,,, the currency doing a bad job can and is manipulated to higher values than their manage policy should dictate.
But it is the over printer that should have been forced to slow down because of their policy of currency inflation (not the under printer). If you are a "Positive" trading partner of the US, your exports should slow because the US is sending less dollars out to buy things from you internationally. In this dynamic your competitive pricing structure should remain the same even as USA demand for your goods slows.
Again, the whole reason this all worked backwards stems from the US's ability to manipulate it's dollar value through currency and gold derivatives, even as our dollar has super inflated it over the years. If we (as US citizens) can see this happening, think how foreigners see it? Our interest rates are way under where this money printing should have them. Our domestic economy is swollen fat with hyper spending for any and all forms of ancillary, nonessential goods. Yet the real US prices we all pay comes nowhere close to reflecting this money creation (I'm talking real life pricing today, not the government CPI). Debt creation (the machine of dollar creation) is surging as our domestic economy runs away on goods priced low by foreign exchange rates.
If this is not bad enough, who wants to hold their neighbors debt as a wealth reserve? More from my "old bones":
==============================================
I believe the most difficult part in understanding the modern gold market is overcome by seeing all the various political factions involved. Essentially and basically, the largest pro gold groups are those who want a world currency that is not subject to the performance of the American economy. At this moment and in this period of economic history, all currency reserves held by foreigners (non-Americans) is a debt of the US Government and by extenuation through tax collection, a debt based on the ability of the American economy to function profitability!
In essence, America has told the world that as long as the business of this country is functioning, your wealth, as represented in Marks, Yen, Pesos, etc. is backed with performing US debt. It's like saying, "as long as your neighbor, next door, does not loses his job, you will not lose all your money! Most people would be surprised at how clear this is, outside the USA sphere of influence. This, the largest of the pro gold group, is largely made up of countries with economies that have no need to sell most of their production to the US. The business of these communities would not totally fail without the American engine. Yes, they would slow down, but not collapse, as trade with other countries would continue. To add what was said before: If your neighbor loses his job, you can still trade with the other people in the town, as long as the currency system is not based on your neighbors debts!
This group, made up of much of Europe and the Middle East, is not looking for a return to the old Gold Standard, but perhaps something far better. They do not see any advantage in holding the currency bonds of one country, as a reserve asset of future payment, over holding physical gold as a reserve asset in full payment. The fact that the debt reserve asset pays interest is little more than a joke in these banking circles. Any paper currency, the dollar included, can fall in exchange value against your local currency far more than the interest received! In today's paper markets, the only true value in exchange reserves, held by a government as currency backing, is found in it's effectiveness for defending the local currency from falling against other currencies. In other words, use the reserves to buy your countries money. But, this is a self defeating action as sooner or later the reserves are used up! This fact is not lost on many, many countries around the world, as they watch their currencies plunge, lacking reserves as defense. Ask them how important the factor of earning interest on reserves is under these conditions.
====================================================
Looking down the trail:
This is where the ECB is offering a different currency animal to combat our failing monetary order.
By not selling dollars to buy Euros, they are making an end run around the exchange system no other currency has had the option of doing. Think about it. The dollar reserves they hold are really worthless in a new currency system. If their Euro is as Duisenberg puts it, a new reserve for Europe, not the world; they don't need dollars or the buying value they represent. A super hyperinflation can take the dollars value to zero and the ECB will lose nothing. It already has it's dollar reserves in the form of Euros and gold.
Using the logic above; if they don't use reserve dollars to bid the Euro exchange rate above it's domestic pricing structure, the dollar system has no alternative but to slow itself down through competitive default. With nothing to stop it, through such a default the dollar will be force hyper inflated in a real world act. That dynamic will lower it's exchange rates. For good!
So how will the ECB give further backing to it's currency? Back to the burial tree:
===================
On the other hand, buying gold on the open market, using your local currency, works as a far different dynamic from selling foreign bond\reserves. This action takes physical gold off the market, and in doing so increases it's value in dollar terms. Gold is and always has been the chief competitor with the dollar for exchange reserve status. The advantage here comes from the fact that governments do not run out of local currencies to use in buying gold, as opposed to selling foreign currency reserves to buy the local currency on the open market. Of course, the local price of gold goes sky high, however, in this action you are seen as taking in reserves, not selling them off.
Also, as gold begins to rise against the dollar, the local gold reserves are seen as assets of increasing value, backing the local currency. Under these conditions, with a stable currency, citizens will purchase more gold as it is seen as a positive asset. Not unlike a rising stock, everyone wants an increasing investment. Contrast this action against that in Korea, where everyone sold gold as it increased in an unstable currency!
==============================
Let's consider
To those that think the ECB lacks the resolve to do this, just have a look at the exchange rates of the German Mark against the dollar. Between 1979 to date, the Mark had one instance where it lost 45% against the dollar. I submit that if the Mark and/or Germany didn't fail from that experience, this Euro and all of Euroland will not fade away from a little 20%+ fall we see today. From a recent Mr.Wim Duisenberg comment; "Weakness of euro is not one of the "exceptional circumstances" that would justify intervention" !
Indeed, it was the US that first initiated the accords in 1985 that broke the dollar's high value. They were worried then but there was no alternative currency to work against them. They are trapped now.
Today, the ECB can use not only it's excess dollars to buy physical gold sold from other banks, they could use Euros printed outright to buy physical spot delivery. If their currency continues to fall before the dollar begins it's terminal phase, this option is wide open to them. Certainly, "Free Gold" is not going to compete against them as it would against the dollar because it's their policy to mark all it's rise to the market. Because Free Gold will not be an official currency, it's wealth building power will compliment the bank's reserves. In addition, national citizens would own gold as a wealth savings, not a currency.
More from our diggings:
=========
Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold.
==========
This takes us back to his recent large speech, Duisenberg said:
-----"First, the "euro project" is to be seen as a further logical step in the European integration process, which started more than half a century ago, immediately after the Second World War. Its objectives were not - and are still not - purely economic, as European integration aims not only at the creation of a prosperous but also a stable and peaceful Europe. For a large part, trade, economic and financial integration aimed at the removal of all barriers to free competition has been the engine of this process. In this context, the euro is to be seen as a major contribution to the completion of the Single Market in Europe.--------
I repeat, ----Its objectives were not - and are still not - purely economic----
Truly, a new world reserve currency in the making!
Further:
The present dollar overprinting (already in the system) is enough to force the US to further print in order to stop a cascading default. Again. this current dollar strength is killing it's trade and exploding the foreign exchange deficit. The final trigger for all this is in the prices of two international goods that are synonymous with real wealth, gold and oil.
Oil now doing it's two part thrust to drive the US into hyper status. Thus ending it's reserve roll for good. High oil prices are forcing the trade deficit to alarming, derivative busting levels. In addition, these same oil prices will completely break the ability of American goods to be priced competitively. At some point our domestic economy will roll over and the above mentioned cascading defaults will begin. Rather than raising local interest rates to slow our dollar flood (as the fed would do in the past) they will, like Japan drive rates to almost zero. All in a mad attempt to save the system and keep the world away from Euros. It will not work.
Contrary to what many hard money advocates expect, In such an atmosphere the dollar / gold market and it's gold banking system will completely fail. As part of the current dollar derivative system, a hyper inflating US price structure will fracture the credibility of paper gold. The paper gold prices we watch every day will go directly to the floor!
Just as in every inflation in history, credibility only goes so far. Then it's time to settle up. Trading volume on the world paper gold market is now falling away just as paper gold derivative supply is driving ahead. Truly, even a corporation cannot continue to get away with issuing more stock privately as public trading dries up. In the same light paper gold derivatives are being inflated as volume slows. In the end it's pricing structure that always fails. Today this paper gold price continues down into market failure. At some point, a full "Free Gold" physical market will appear and it will be used by the ECB to support the Euro Banks with a super high free gold price. This is something Physical Gold Advocates know is coming.
The ECB is going to support gold in a major way. They may be doing so now through the BIS sales of Swiss gold but none of this will break into the open until the dollar begins it's inflation and it's derivatives fail.
As all of this is going on, inflation in Europe will more than likely bring their trade status with the US to an even neutral basis. But by then, the Euro (through comparison) will have become the candidate as a leading reserve currency holding worldwide. Not only will the ECB be buying gold with dollars, so too will any other positive traders with the US. Most everyone will be asked to use Euros to buy oil and the oil producers will be buying gold hand over fist with excess dollars.
Right around here, the ECB will begin buying dollar reserves from other CBs. Of course using Euros. It will be seen as a defense of the dollar, but by then such an action will be just a political ploy.
Ok, let's place this little guy back into the ground under our burial tree. We will meet here next time to see how these oil for gold deals will benefit the further expansion of Euro use.
We do live in exciting times for Physical Gold owners. Exciting times.
Thanks
FOA/ your Trail Guide
USAGOLD - Centennial Precious Metals does not endorse, assert or stand behind the accuracy or reliability of opinions, advice or statements made by any of the participants of this forum. These postings do not purport to give legal, accounting or investment advice. For that the services of a competent professional aware of your specific situation must be sought. USAGOLD / Centennial Precious Metals disclaims any personal liability, loss or risk incurred as a consequence of the use and application, either directly or indirectly, of any advice or information presented herein.
© 1997-2012 Michael J. Kosares / USAGOLD All Rights Reserved
Hello ALL!
Let's hit the trail!
While we walk view to the southwest:
Is Gresham's law no longer a law? You know, the one that say's good money will drive out bad money. One may look at our modern gold markets and say "help, it's not working". Indeed, if gold is the good money and dollars are the bad money, how come gold has gone down for all these recent years? Worse yet,,,,,, aside from price considerations, gold does not seem to drive out the bad money as people accumulate more of the yellow stuff!
Well, in truth gold can't compete because our modern world of gold mostly consists of the same bad money paper that currencies are made of. That's right, this modern world of paper gold very much functions as the same IOUs that currency is based on,,,,,, not much different from fractional reserve dollars.
So this is the same failing gold markets and resulting prices we all hear and read about. The same markets gold bugs watch with increasing despair as Gresham's law works it's will. By saying "paper gold cannot drive out paper currency" this law is proving that hard money investors have hitched their wagon to the wrong horse. A paper horse! Today, more than ever, investing in an industry or paper vehicle that requires a functioning gold banking (paper) intermediary will be devastating as this modern gold market evaporates.
Make no mistake, physical gold already contains many times the value these paper markets have established for it. When the price of physical traded gold runs far away from this imploding paper gold arena, the value of real money will them truly reflect where our bad money exists today.
Obviously, we are talking about dollars.
True, gold will reset itself in value compared to all world fiat currencies. But, that percentage reset will be viewed in a different context than when gold money was ordained by governments. Gresham's understanding applied more to gold as a bankable currency, not an asset holding "in and of itself". This is the future of "freegold" in our time. It will be much like comparing an advancing stock to the currency it's denominated in, a rising asset,,,, not a competing money!
Now look northeast, into the valley:
What will make this "modern gold market evaporate"? Well, value in a paper contract is a funny thing,,,,,,, it can change radically when no market bids exists for it to trade in. Like paper dollars, contracts have no value without a trading market demand. Walk into any store,,,,, if everything is suddenly priced in a physical trade format, our dollars suddenly become worthless, no?
If the gold market was to shift to say, 5 day hard delivery, how could one trade their contracts for gold? Yes, you guessed it, paper would trade all right,,,,, at a huge discount. But in short order, as a spiking price lunges upward into the thousands,,,, and doesn't come back to earth,,,,,, what counter party on the other side of your contract could deliver? Further, how could the bullion banking system match liabilities and make good on a cascading default?
Stop here and see how it could happen two ways (or a combination of both):
You see, all it takes is for one or two government and/or private entities to pull the cord. Most all of you long ago came to the same conclusion; a Dollar / Euro currency dispute could set this off. Outside parties begin buying gold with dollar reserves,,,,, on the barrel head for 5 day placement. It begins with twenty or thirty 100 ton orders ,,,,,, a billion$$ or so each! Not derivative orders, mind you,,,, hard delivery orders that aggravate and outline the soft nature of modern gold banking. They keep coming,,, days on end! Then, suddenly the paper markets "are no more".
OR:
The price of oil rises until price inflation can no longer be contained. Unmined physical gold is withheld from the markets to such an extent that even limited demand runs the physical price to a large premium. More and more investors pay a larger escalating premium to get physical "now". Such a premium overwhelms and discredits the function of paper market pricing. Bullion Banking must revert to currency banking to cancel out it's contracts. The run begins.
Let's check our political map to see where we are on the trail:
The wonderful recent essays by Mr. Howe expose and document a system as it currently stands,,,,at the end of it's timeline of usefulness. The purpose, need and use of gold banking has run headlong into a world class political storm. This end time battle has been in the making from before Another ever started writing. Truly, this Gold War will be about a transition from world dollar dominance.
As I stated in an earlier USAGOLD post (listed as #35569):
----- Today, oil flow has moved from playing a fundamental game of pricing "use value" with supply and demand to pricing it's "monetary value" in supporting any major currency block. Concessions are now there for the taking by oil producers. Dollar prices for oil can rise considerably higher with the US giving behind the scene support for this action. In addition, the world paper gold markets can and are being dismantled as a further concession to retain dollar settlement of oil. -------------
It's easy to see today that most of the major world oil reserves have had their value politically converted by the Euro's successful birth. The current trading value of the Euro is a small factor compared to this "existence" worth in our political currency wars. This Euro has broken the "cheap dollar" value placed on oil by our one currency world and now allows dollar oil prices to soar without constraint. Oil has indeed been rising after the Euro's first few months of existance The prize of this master play on our Chess Board ,,,,? This new pricing thrust, unlike early OPEC drives of the 70s and 80s, will crush the modern paper gold banking game and place the dollar and Euro on a level playing field.
And so the contest begins for real,,,, no longer must we talk in a future mode,,,,,May the best man win!
Thank you
FOA/ Your Trail Guide