The Gold Trail by FOA - February 2001

All times are U.S. Mountain Time

(02/01/2001; 13:47:10 MDT - Msg ID: 58)
Troy and Beyond, Even to Rome!

Once again Randy, Hello and thank you for your efforts as the technical manager of this path! (smile)

Hello also, to all the others that have come to our hikes, walks and talks. We started this recent discussion, "going back into the beginnings of gold", right after our hike #54 "The Curve". There was good reasoning for stopping and camping here, because it was time to understand gold as few have ever understood it in our time. Taking a few days to overlook the valley from this spot will enhance our perceptions and prepare us for the next leg ahead.

So, grab your coffee and tea and lean back,,,,, the stars are out to light the night so our Thoughts alone may travel ---------- "The Gold Trail"!------


Going back over #56 "The Gold of Troy":

You noticed that I structured that discussion in a way that makes the independent mind wonder about. Let's pull those thoughts together and move along.

We found that history had left us with some conclusions that were, it seems, never concluded. Archaeology had never been approached by someone like us, with a different hard money perspective. Yes, all the records were there, but most every paper written on the subject appeared carbon copy. They all projected our modern sense of money into the economic structures as they existed, back then. "Of course, we are today more complicated", our history papers said,,,, so,,,,,, allowing for that difference "the ancients still operated back then the same as us now". How neat!

Yes, our teachers "called our perception of money, their money and our perception of goods, their goods" in the same context we can use now. They said "hey, they were using hard money to buy and sell from each other, just like we once did" Again,,,,, how neat"!


The Treasures of Troy, all 259 items, were hidden away since 1945 because of various war and political problems. The significance of the find was tainted with scandal until only recently. Around 1994 (or 1995?+/-) the entire lot resurfaced in a museum in Moscow and several well respected scholars were finally able to examine and evaluate the exhibit and the actual site. Their conclusions? Using modern tools of the trade showed that while Schliemann did indeed find several lost cities stacked upon each other, his find went back further in time than anyone thought.

A recent book "The Gold of Troy" (April 1996) gives even further clarification.

From the author's works comes evidence that Troy was a ------ "leading center for gold jewelry making in western Asia Minor and the Aegean" --- " Thus the largest of the Trojan Treasures were Industrial in Nature and refute the supposition that they were objects in burial sights".-----

My research into many more papers and books, like the above and other written works, further shows that the sight was more of a grand market. With numbers of craftsmen in separate offices and work sites turning out some of the very finest gold metal works one could imagine. Even by today's standards. There were metal molds and crucibles found that were used for various metal working projects. We also conclude that the city was rebuilt several times over an extremely long slice of antiquity,,,, each time performing the same function of a trading town. All done during a slice of time that said gold coins did not trade as well as the other metal ones. Gold was saved, not traded.

Once again, returning to the theme of #56, there were virtually no coins found among the priceless gold art objects. Being a big gold trading town, worked over hundreds of years, certainly some gold coins would be around? Especially if gold and other metal coins were saved and used as money. But, none were around.

Jumping back to:

The object of our viewpoint from #54 "The Curve", was to point out that gold today, has no currency price. Yet we are asked to value it on a gold for goods basis established by modern currency exchange rates. We wondered if the ratios in value between gold and goods, today could be the same as they were in ancient times and middle ages. If this ratio could be matched, we are told that the value yesterday and today would be much the same as our modern money says it is. I do wonder?

We buy and sell gold today, based upon the supply and demand of printing press contracts created on established exchanges around the world. In our present time, there is no trading price for gold based on the independent trading of physical gold alone. Or on the actual trading of gold goods, outright. All currency pricing and therefore modern accepted values for this metal is established on the paper derivatives markets.

To better grasp what we are really doing when buying real gold,,, close your eyes and imagine:

----- Today, we are simply "paying a fiat currency commission for the advantage of holding and owning physical gold metal"! ------ People that trade this paper system, exclusively, are simply betting on what that commission will be, not the eventual gold value. ------

----For actual gold obtainers, this function, that our exchange paper pricing mechanism is doing, is giving us metal for an unknown real price and value.------

I say "commission" in the above, because the total quoted price a coin dealer sells to you at, is little more than the world gold trading market's guess of the risk it is taking in supplying customers with the metal,,,,,, without a real market to establish it's currency price. It's that simple.(smile)

None of them and none of us know what the real value or price gold today is. I use the phrase; "our advantage of owning the metal", because buying physical gold for today's currency,,,,,,,is like buying a lifetime wealth option that never expires. The commission one pays for this gold coin position, in the for of what we call today's price,,,,,,, may one day go to almost zero as our paper market structure fails from the discovery of real price.

All happening because these physical gold options, we call real gold, return to actually trading for a value based on their worth in our world. It's the Physical Gold Advocate's "advantage", because while he is waiting for the real value to emerge, the real value that we know existed in antiquity has never gone away! It just doesn't have a marketplace to show it. It will.

All the while paper gold players are playing for scraps,,,, giving up their commissions,,,,, betting on the changing price of said "commission". Indeed, one that cannot go too far up without killing the entire system. And thinking it's the real price for gold they are betting on all the while.

"You think long and hard on that one? (smile)

For us, as hard money "Physical Gold Advocates", to understand the value of gold, we must remove ourselves from present time thought and think of gold as the Ancients did. Not as money but as little tradable hunks of metal. Gold for goods, straight up, as the citizens of Troy did!


Troy and Beyond, Even to Rome!

Back then, there was no other currency. No paper moneys or banks. One had no need to save gold as a hedge or savings account. Your wealth was in the useful things contained in the world around you. Those little hunks of metal were just that, little hunks of gold that everyone knew had trading value. They were not money, not the way we think of money today. They were just a beautiful metal, gold.

In fact, that is why you carried them, to use that gold if it brought the best deal in a trade. That was worth considering because they didn't always bring the best trade. Unless most of the time you were on the road. Within local communities, at least, goods for goods exchange always traded better than goods for gold. But over distance, the town next door or the seaport across the Aegean, those gold hunks could usually do better than the flask of oil you took with you. One made the best use of gold by using it, not saving it.

Unlike today, the laws of money were turned on end from our perception. Gold was for spending (trading) and spend it people did, especially "away from home". There were many non-gold coins around then, silver, electrum, bronze, iron, copper and they did something we cannot comprehend;

----"this bad money drove good money into circulation" ---- (smile).

Yes, the little metal chunk that carried the highest trading return was spent first! But why? Because the average person's wealth and savings accounts were denominated in the real useful things you owned and consumed during your short life. (See my #56 again to get the mind working) This, my friends is the reason the vast majority of physical gold stayed "on the road" of commerce while all the other metal coins were saved for later use. Gold traded best, so it traded first.

The common repeated ratio that during most of the Greek times a 1 to 10 value existed between silver and gold was official dogma and sounded about as right then as it does today. But, like today, it was seldom tested on an established exchange. That's because the coins had no denominations and were much less traded between themselves, not to mention there was no exchange! Anyone holding gold would be a fool to trade it for silver or any other metal because a trade for goods or services would surely bring a much higher return. The same was true for silver because it was better to risk a trade for goods than be taken in a trade for gold.

Back then, gold chunks were, by far, more rare and tradable than most any other coin produced. If it wasn't traveling by night or stayed too long in a trading town, it was quickly melted into the next generation of national coinage and sent packing again. Or it temporally became the object of a Troy metal craftsman's hand. You see, those little chunks of gold, I point out again, had no denomination of currency unit on them. They were fair game to become tradable gold in any form, be it bar, coin, chain or chip. The same rare gold made the circle between coin and "use object" many times over.

All of this is supported because aside the finds of major treasures, the finds in "working towns and homes" did have tiny gold objects of wealth but rarely did they have gold coins. The presents of these other tiny pieces of gold wealth in medium size homes indicates that they would have had the resources or incomes to use gold coins as trading vehicles,,,,,,, but they did not have the resources to tie up that much wealth by saving coins of gold! That same "logic train" negates the premise that these same working people couldn't afford gold and therefore used lesser metals as coinage in equal value or in a 1 to 10 ratio of gold! They did use these other coins, but used them less. Gold finds, relative to other coins are rare because it was always spent. Place yourself in their times?

Again, people "did" often have and save "other" metal coins. So many, in fact that great numbers of these bronze, silver, etc. coins keep being found at dig sites today, all across Europe and Asia minor. Many of them found right in the same "regular" backyard saving accounts we ourselves sometimes use. Planted long ago as the next best trading item one could store and not lose too much "use wealth" during the wait. Indeed, these lesser items could afford to be put away.

But, you thought silver was more in style as a coinage then, because so much of it survived? If that were the case, those metal items would have made the exact same trip gold did. They would have been melted down and reused into jewelry and coins, never laying down for rest in such great numbers. (good logic, yes?)

(My thanks to The Smithsonian Institution, Doug Smith and many, many others that have, with the advent of the internet, placed so much of this research in public view. Also thanks to all those that have educated me over all these years)

I'll read several partials from these written pieces:


-------Some of the most interesting ancient coins were neither 'Greek' or 'Roman'. In fact, the coin producing civilizations of the ancient world spread far across Asia including people and places rarely mentioned in beginning World History classes. One of the most well known of these were the rulers of much of what is today Iran, Iraq and surrounding regions: the Parthians.----------

--------The land areas of ancient Parthia lay between the Caspian Sea and the Persian Gulf, and its boundaries included all of modern Iran and contained portions of what are now modern Iraq, Turkey, Armenia, Azarbaijan, Turkmenistan, Afghanistan and Pakistan---------

--------(it) roughly corresponds to modern Iran, was approximately 648,000 square miles, about equal to the areas of Great Britain, France, Germany and Spain together ----

----------The Parthians created an empire which, at its height, presented Rome with a serious challenge for the control of the Middle East west of the Euphrates river. They were the only civilized power to withstand the might of Rome at its height- the same Romans who had conquered Carthage, Macedon, the Seleucids, and the Gauls. So, who were these Parthians, whose empire stretched from the Hindu Kush to Mesopotamia? ----- (They) created an empire which lasted for almost 500 years (and) have been so nearly forgotten ----------

---------The Parthian kingdom began with the election of Arsaces I to the kingship of the Parni in 247 BC.--------- In 238 BC, Arsaces I succeeded in defeating the Seleucid governor of Parthia and establishing the Parthian kingdom. With his accession, ***** the coinage of Parthia begins, and would continue, with only a short break, for the next 500 years. This coinage has proven extremely important for Parthian history for several reasons; primarily because of the scarcity of written records - the Parthians themselves did not leave behind any written legacy---------------- For the majority of Parthian history we have to rely on a combination of fragmentary literary sources and references, archaeology, and the coinage itself to create a coherent, though incomplete, story.****

------------- *** Their coinage formed the medium through which western, in particular Greek, ideas of coin design were transmitted, and transmuted, in the Middle East from the Euphrates to the Indus and beyond. The Parthians developed one of the first recognizably feudal systems on record- which was transmitted to the Sassanians, and thence to the Arabs. **** The Persian epic history is now thought to include lengthy portions from the Parthian era - the Parthians had a great oral tradition, in keeping with their nomadic background, and greatly valued BARDS and story-telling. The Parthians also left a legacy in art and architecture, creating a style that mixed Hellenism with native Persian influences, particularly in ornamental metal work. There is even a small literary legacy with the "Parthian shot" - a phrase taken from Parthian horse-archer tactics in which the archer would feign flight, and, while riding away, fire over the back of their horse -----------

---------Their economy and success was based on taxes paid by traders using the 'Silk Road' that connected Rome and the West with China and the East. Parthian finances depended greatly on Rome's failure to make direct contact with China until the late second century AD. Parthians were known for being men of their word and their coins continued to be issued with fair weight of good silver long after Roman silver coins were being debased.------------------


here we find a major civilization that existed during most of the early BC Greek periods and crossed well into AD Roman period. We have found that their coinage tells set the pace for much of that time.

Most of the coinage, we have dug up today, from that period and part of the world was in the lesser metals of silver, bronze, etc.. Even the Persian, preceding the Parthia, had most of their coins in silver form. This, no doubt, lead to our present hard money education that silver was as good or better than gold, back then. The fact is, as we are concluding, that gold and gold coins were made back then and circulated more widely because of their value. The mere existence of gold coins (those little hunks of tradable gold) supports this concept of their use. Indeed, their rarity today indicates their value, back then as most of them were recoined. Leaving only lesser coins behind.

The Persian king, Darius The Great, did issue gold Darics right along with silver Sigloi and did so as early as 500 - 490 BC. This we all know and agree. But so few of them survived, modern thought created the view that gold was far too scarce to be much used as a complete tradable unit back then. But this view takes on the same arguments we hear today, always leaving out the possibility that gold value was much higher. Carrying a larger share of wealth with less metal. It was scarce, but that isn't what erased their record of existence. Gold was used so well and needed so much that it was always "in trade" and "on the road". If it wasn't, it was melted into Another countries wealth.

However, it was the recent discovery of Parthian gold coins that best supports a change in concept for hard money followers. It was thought that gold was not used in that land and trade from Greek nations was always done in the lesser Parthian metals.

In 1982, in an archaeological dig at Tillya-tepe, a real Parthian gold coin was found (a Gotarzes I (95-90 B.C.). Later in 1991, several Vonones I (A.D. 8-12) were found as authentic! While the archeological significance of these coins is still hotly debated, I am aware that there is a supporting passage in an Ashmolean Museum piece, where around 94 BC the process of working gold is mentioned in Parthia. The existence today, of known gold working and trading, in this era, opens up the entire hard money proposition about the evolution of gold as wealth. If gold was traded, there was enough for coinage trade too. The Parthian find completes our supposition that gold moved freely between nation states then. Indeed, the workings of gold at Troy, a stop off on a major trade route between these cultures, adds to this. The fact that Greek coinage, in gold, was also widely used, even as it was rare in that nation's borders, means that Greek gold and coins had to have also come mostly from supplies "on the road" as they passed through the region. This concept demonstrates that gold moved and during that movement was coined, often.

In fact the earliest Greek gold coins (The Head of Zeus) came from their colonies on Sicily and in Tarentum on the Italian mainland. Not on their local soil.

The same argument was applied to gold use pertaining to the Greeks. Because gold was indeed hard to find around their local area, many concluded that the few Greek coins produced in this early time were done so from necessity and as a last resort. As we pointed out before, Troy changed that perception because gold is now known to have been a long established trade item, subject to the craftsman's hand. In fact, several examples of gold coins with holes in them indicate they may have been hung as jewelry in chain. Gold was rare and was melted if it held still too long. But, it carried a higher value in trade than any other coin across all of middle asia.

For a "Timeline" view of these cultures - link above. -

At that site, we can see how the Parthians walked right along side the Roman development even as they passed through Troy along the way. All during the same era. Their timeline use of gold coins now offers an counter concept against accepted hard money thought based solely upon Greek and Roman history alone.


Following the death of Philip II of Macedon, his son Alexander The Great spent the last 13 of his 33 years life changing the world. The gold coin of "Macedon, named Alexander the Great, stater, (336 - 323 BC) became "The Coin" and standard of the world for some time. He set the precedent of "recoinage" by melting down the gold of other nations into his stater piece. It is in our view that his practice had more of an impact on perceived known gold stores than most everyone accepts. His people did work the mines for gold, but produced far less of it than imagined. Rather, his mints were ordered to melt and restamp any and all gold that passed their way. Most of it was "gold on the move" as was the custom of his time and before. Rather than adding greatly to the existing gold supply, he just better identified what was already being used in commerce.

That practice was something the early Roman era planers would not understand until after most of their Roman Republic years had passed. Truly, Roman stamped gold during the Republic years, would be very rare (as it is today). At first relying greatly on other's gold coinage as a tradable unit. Only later did their armies melt captured gold for government storage. Following in the "Footsteps" of a process that continues to convert existing gold into identifiable gold. Even into our day.

It wasn't until the era of Roman dominance that they recognized the need for Roman tradable gold. Gold in their name for use away from home by their armies. During this time the first Roman "aureus" were struck by their armies. Coins created from "taken" gold, already in use, was formed into the very best trading chunks a soldier could have. The coin "Lucius Manius" (82-81BC) aureus, was one of the many created after the Roman Senate allowed their generals to coin "taken" gold as trading money. Thus begins one of the greatest gatherings and usage of gold known at that time. Some of it the very same gold we use today.

If one read my posts during the Washington Agreement period, you will recognize the phrase "On the Road"! Beyond the obvious political reasoning we often present here, the case for "to little gold today" has been behind our motivations for some time. The gold in our world is not as great as so many suppose it is. I hope to demonstrate why this gold "on the road" concept will further influence our political currency situation as it evolves.

Let's stop now and continue later.

Thank you all for your support and kind words.


(02/09/2001; 14:24:03 MDT - Msg ID: 59)
Current background

Hello everyone!

I was going to post this on the Main Gold Forum page because I didn't want to break the chain of thought here. But, because it's so long,,, I'll post here and reference this item on the trail later.

If a gold advocate reads Michael's wonderful piece (see link above), all the reasons for buying gold should be clear. His sound purpose is certainly clear to me. But, far too many savers have been lost in the blizzard of conflicting stories about gold. With all the changes that are taking place now, many have just backed away.

After giving my talk about "the curve" (along with other talks), I hope that at least a firm perception is in place as to why our current gold prices are little more than a facade. A currency price based mostly on the trading of contracts, not gold itself. Most of you grasp this, yet wonder why the "facade price keeps falling?

I'll use some things from the Carl H post the other day (Carl H (02/07/01; 20:05:56MT - msg#: 47727)

Hi Carl, I'll comment first them start into your post:

From where I sit:

There were two distinct parts to our (Another and my words as added) commentary over the last several years. Political history buffs would have recognized it right off and spotted where we were going with it. For the most part, all of this discussion was centered around the decades old combat between the Old World and our Western World. I'm talking about the combat for economic domination.

For those of you too young or not versed in recent history, during the last 30 years, most of Europe has been trying to work itself out from under American financial influence. This has shown itself so often it would take an entire documentary to reproduce or explain. Perhaps, larger than History of the world vol 1 thru 17 (smile). For us, though, the most important aspect of this has been in the slow formation of European economic unity. In fits and starts they have worked their way through various currency blocks that embarked on all sorts of fixed exchange rates and trade agreements.

The metamorphosis of their most recent 20 year struggle resulted in today's Euro and the expanding zone of financial structure it represents. This is only the most recent example of an effort that started somewhere back before our time. Perhaps the European Economic Unit (ECU) could pinpoint the modern beginnings of this struggle. Again, this represents the most recent 20 year segment.

The world's economic timeline will no doubt look back and mark this period in a way that we mark ancient history. I think most scholars will use the BC / AD reference as a way to describe it. Perhaps BE / AD, meaning "Before EMU" and After (dead) Dollars. The currency birth and political movement we have just witnessed will indeed have just such an impact on our Western lives and truly require a time stamp to reference it.


In the BE period, gold was the only other world currency. Yes, this dethroned metal currency and wealth asset was still used the world over as a last resort. A last resort against a failing dollar, that is. Gold values, BE, went through many convulsions as the dollar's use and stability ebbed and flowed. All the while, the world held gold "just in case".

As the political motivations to create a "Euro system and currency" grew, many nation states found themselves at economic risk. They hedged their economy between dollars and gold, but wanted the new possibilities another economic zone could offer. It was a new way to break the total economic control of our dollar reserve system. Everyone, it seems were watching and maneuvering as EMU approached.

The problem for many wealthy states was: how to continue within world economic trade, save your currency exchange wealth in reserve and not be killed if this new Euro system became a huge success? For some, gold was the main conduit to hold your excess reserves in, that way you were between currencies. But there were several problems.


The dollar had already approached it's useful life several times. By the early 90s, it was a basket debt case of super currency expansion. Ready to fail, right then and there! It was kept alive through CB participation, because it remained "the" world reserve and we could not operate without it. As the modern world evolved, digital currencies of fiat nature were and will remain the number one way to do trade. No matter the costs or problems entailed in their use, or how often these worthless papers come and go, humanity uses and demands their presence. We have but to go no further than into several of today's currency inflating nations to see where the locals still use paper money. My point here is to not expect a return to hard money. Hard wealth as savings, yes. But hard money? Never again. See my other posts for further explanation.

Make no mistake, CB support for our US unit is the only reason it's exchange rate didn't plunge, throwing us into a massive, local price inflation. And, because most other countries held dollars as a reserve, they would have inflated also. All this support was done in order to stop a complete economic trade breakdown before EMU. A decades long wait.

The trick for the CBs was to keep holding dollars and even expanding those holdings as needed to balance US trade deficits. Deficits, by the way that have not only been negative for a long time, but have grown explosively during the 90s and right up and thru EMU. This dollar support made sense because holding reserves in a failing currency, while building a new one offered little loss potential. Yes, once the new system began to function, your dollar holding's value would eventually be reduced almost to nothing. But those reserves only represented support for the system itself, not actual buying power in the native currency's land, USA. You see, once a permanent trade deficit becomes structural to the function of the currency's economy, those dollars,,,,,, those units of reserve buying power,,, can never return for the purchase of anything! Without killing the exchange rates and native economic structure first. Yes, in the case of what comes first (chicken or egg), you cannot send dollars home to buy useful goods at a reasonable price if the whole trade structure fails. In the US's example, used here, local inflation would drive the dollar prices of everything we export through the roof, long before all the goods were brought. Completely, negating any and all exchange gains from a falling dollar exchange rate.

So,,,,, once the Euro was functioning and morphing into it's new reserve roll, the ECB would,,,, like in the US's present roll,,,,, have no need for excess foreign cash reserves. However, some wealth structure would have to be present in the asset reserve category to replace those lost dollar values as they failed. That structure would be gold. More problems.

Prior to and just after EMU, many oil producers and a whole host of other wealthy nations / individuals, were not going to buy into the Euro first off. What if it failed? Or worse, because the dollar was on it's last legs of support already, any failure of the Euro system package would also lead to a total break away of continued support for the dollar. In this dynamic, even dollar holdings could dissolve! This was the background from where Another's Thoughts were being broadcast. During the BE period, about five years before, there was indeed a near failure to proceed with EMU! After some 20+ years of effort, such a failure would have sent us back to the gold standard (and worse) of days gone by. Many of you can remember this during the 1995 area. The effort seemed to be falling from political bickering. It was critical to oil wealth producers and many others that the Euro be born. If it didn't, an all out bid for real gold by everyone would ensue and I mean everyone. More problems.

Part of the support package for continued use of dollars revolved around oil. If for any reason, oil prices rose prior to EMU, it would break what little economic life that remained. It was well known that the entire local US structure depended and was built on reasonable priced oil. Later, this position and it's pricing dynamic would begin the movement of commerce settlement away from dollars. But, not yet. Actually, in the years prior to EMU, oil needed to plunge in dollar value in order to prop up the system. It did, boy did it,,,,, but not for free as so many thought.

It was well known that gold could buy oil, or better said,,,,, a cheap gold market price would buy cheap oil! But forcing down the gold price for the benefit of private sales would be some effort as long as people were buying in mass prior to EMU. That mass buying process would feed on itself from the fear of a dollar / Euro transition. Thereby, negating the whole cheap gold for oil game. Yet, the ECB (and the BIS) already knew this gold market of ours and knew it well. You see, our dollar gold market has evolved over many years. Long before the 90s, it was well on it's way to becoming a virtual paper market place. An easy trading market that basically held "it's paper gold price" well within the commodity use function of gold. Around $400 to $600 was considered about right. With Western views sliding into complacency as our world dominance grew, we as investors grew to see "trading gold" as the best use of our wealth. If we wanted to engage hard money thought at all, we just traded the price, not own the gold. In this atmosphere the mine industry exploded with easy capital. See my post about Mr. Parks great article below. So we as private gold owners unloaded tonnes of gold many started down the road of owning leveraged gold securities instead.

In this backdrop, new mine supply was more than what the world needed, at least the Western world. All the CBs, both American and Old World, began a policy of discounting gold. All for the purpose of supporting the dollar reserve system. Yes, the US played this game, knowing full well the currency reasons behind the Old World purpose; to hold the dollar steady until Euro birth (EMU). You see, we (USA) thought this was great because we gave the chance of EMU a one in 100 shot! This truly backfired and now the BIS / ECB have the US fed in an inflation trap.

So, the dollar got support from CB's holding more of it as a reserve,,,,,, the dollar got support from a falling gold price,,,,,, the dollar and the economy behind it got support from crashing oil prices. All of this leading up to a huge change. A change that to this day is still mostly behind the screens.

The next part of the play came as world paper gold traders starting making use of a good thing,, falling dollar gold prices! Never mind that the real gold movement behind the paper market was becoming a tiny fraction of this paper trading. Never mind that the dollar would eventually step back from world reserve status,,,, changing the settlement function of our paper gold market overnight and killing everyone's paper holdings. They said:

----"Why,,,, we know why gold prices are falling, the CBs of the world want it down,,,,,, but we don't believe all this talk of Euro success",,, "there are a hoard of other reasons", "besides, we are making tons of money playing this paper game"!-------


Now, I'll pause to introduce some items from Mr. Carl H's post.

Section 1 -- Bullion Banks Establish the Gold Carry Trade

From what I have read, it seems that a few years ago a number of Bullion Banks started borrowing gold at interest rates of around 1% from Central banks. This gold was immediately sold on the spot market and the money and invested it in higher yielding investments. This type of operation is referred to as a carry trade. This practice went unchecked and has reached a point where at least 6000 tons and probably as much as 10000tons of gold are owed to the central banks. To put these numbers in perspective, annual world wide mine production is estimated to be about 2500 tons.

Thank You Carl.

Yes, they did introduce the gold carry trade then and the timing was no accident. I also have to point out that Another was the very first to mention (post) a gold lending number anywhere near that level. He said it was around 14,000 many years ago or would soon approach that level. Everyone, except those that knew the game, said it was NUTS! Now, the 10,000 figure is on every desk in the world.

Central Bank lending of gold for low rates made absolutely no sense. A fact almost every hard money writer expresses. But, they fail to bridge the conclusion. If a low gold price was wanted, and they did indeed want it, the CBs could have sold the gold outright, driving it down. Then brought it back later. With the growing public perception, so well outlined in Mr. Parks article, no one would have minded it as the stock markets were all the rage. Why buy into a diving market and hoard all this excess gold for long.

Further, in a different light, the CBs could have simply used the mining industry strategy and apply the interest gained on the cash sale proceeds to buy the gold back later at higher prices. Indeed, this is exactly what the mines are doing now.

Further: They didn't need to lend it, just sell it. Later, they could have just printed new money, that is, create near money securities for their own account and apply them to long term contracts from the industry,,,,, buying new mined gold to replace the sold gold. No need for the lending equation at all. But, you see, there was a need.

So,,,, the only reasonable, legal reason for the banks to create a world wide gold lending structure was to grow a paper facade that the real gold buying, Another spoke of, could hide in. All perfectly legal, but very political. Again, I point to Another's long ago post that said; "the reason gold prices are falling is because so many people are buying it". Ha! Ha! That one was greeted with total disbelief and ridicule. But, boy a lot of money was lost by people that turned from that message.

Now, back to my post:

In the middle of all this new paper trading environment, people didn't notice what was happening. Way back when CB lending was just beginning, some smart people starting taking just a little bit of the action. Besides being big buyers of CB gold sold outright, they were also buying some of the borrowed gold. The same gold that was lent into the market by the CBs and other big players. You know, the gold that's borrowed, sold to create a pot of money. Then that money draws interest until it's used to buy the new mined gold and replace the loaned stuff. The same process that also makes the gold carry trade in our currency markets.

Well, that real gold off take, done by these major gold advocates, was not all they they took (smile).

Now,,,, a lot of these people started thinking. "We already have a lot of gold and our demands in the decade prior to EMU may drive the market way up. So, why not help the CB's purpose (and ours) by always bidding low at outright sales. And because our money is tied up in gold, drawing no interest, why not play the CB game for them? We'll take some of our buying money and use it to create the cash pot for the BBs,,,, for use in their gold lending deals. They can skip the borrowing and sale of gold part and just commit our money to pay for the new mined gold. Drawing the standard few percent in return. The mines don't need to know that no gold was sold. Further, the BBs will need to hedge a fall in price to protect themselves in the deal. In doing so the public will see the derivatives price of gold fall, just as if some was sold.

Note: The BBs (in this small niche of deals) must only protect their interest from a falling market because that is the only function that would threaten the mine's future repayment of gold,,,,, a to low gold price. If their collective actions did drive the paper trading of gold to the floor, killing 90% of the industry's ability to continue operation, their profits from their paper hedge could at least cover the liability. Yet, conversely, any rise in price would be no threat to this particular deal structure.

So,,,,,,in the middle of all the gold carry trade, naked shorting, gold sales from regular investors and, in general, a blizzard of paper gold trading,,,,,, some major players were building real gold buys and not driving the markets as they did it. The success of this operation created the dynamic that allowed physical gold to be purchased off the radar screen and the flow of oil to continue. Once again, no manipulation outside our standard paper arena! As Another was oh so fond of saying: "gold and oil will never flow in the same direction". (smile) Now, more from Mr. Carl H:


Section 2 -- Lining up the Gold to Unwind the Carry Trade

I consider the above paragraph to be fairly well established information. Now, I will speculate for a moment. If I were the bullion bankers and was in this situation, I would want to get my hands on a tremendous amount of physical gold at cheap prices. As far as I know, only the central banks and mining companies have large amounts of physical gold. In the case of the mining companies, it is still in the ground. I will assume here that the central banks would be very reluctant to let the bullion banks default. It would show how stupid or corrupt the central bankers are and it might be a big enough scandal to change the outcome of some elections. Ok, so this means that I have to convince the mining companies to sell me all the gold they produce for the next several years at prices close to what they are currently. So, how would one go about convincing the mining companies to sell their future production? Youíd either have to convince them that the price of gold was going to stay low for the period of time for which you wanted them to sell you the production or you would have to coerce them into selling future production. To accomplish this, you would have to convince them that there was a large supply of gold that was going to be dumped on the market. As stated above, the only other large holder of gold is the central banks. So, you have to convince the central banks to drive down the price of gold and act like they are ready to dump much more gold.

So, the question then is how to separate a central banker and his gold. Simple, create a potential crisis of a magnitude that it will force him to sell gold to prevent it. This is easily done by simply writing a huge gold call options (or surrogates thereof). Then, if the price of gold rises, the Bullion banks will fail and probably take the financial system with them. This compels the central banks to cap the price of gold at a level that less than the cost of production for many mines. This forces those mines to hedge or go bankrupt. The Bullion Banks can then acquire the forward production at prices near the cost of production, or to acquire the bankrupt mine. What is even better is that hedging will help hold down the price and force other mining companies to hedge.


OK,,,,,,,,,, again thanks Carl.

Your view above is very clear. But it is based on several lines of thought that don't exist.

(First), the BBs are not really at risk. Yes, in my macro view, if the gold system was to default out of sequence, world trade flows would indeed, break most of the BB, but do it from the regular economic side of their structure. However:

It's the function of the marketplace, itself, along with the entire gold marketplace that's at risk. In the event of a total run on gold, induced by a huge surge in gold demand, the banks would force their clients, on the short side, to post so much collateral that it would force them into bankruptcy, on the spot. Most of you may not know it but all the mines and even gold industrial players have margin thresholds that, when reached, go up like a rocket. Even ABX has a $600 point that requires massive additional collateral beyond that level. Any short run in the paper gold markets would be almost overnight and go thru $2,000 like butter. In that event, even ABX would not have the collateral to cover it. Remember, below ground valuations are not deliverable in a gold run that demands three day delivery!

The bank's short positions are, as our good poster ORO once pointed out, always hedged in paper positions. If the market ran away, the bank's demands for performance on those positions would crater every arena they function in. Once, again, the banks play the market forces against each other. If, in the course of operation the whole realm of forces are played to zero, the banks just stand aside. I know, of course, that they would be impaired, but the bulk of the blast would be endured by everyone that plays in this marketplace.

The point of my presenting this is that the whole object of the paper gold dynamic is and always was to function for industry hedging habits, not so much to deliver gold to the public. Yet, because this maze was encouraged by the CBs to grow so super large, it's goal was so that political gold could be moved. One day, this entire structure will have served it's useful purpose and then it will be allowed to fail. That day is approaching.

To bring us up to present:
To date, that purpose has been served largely because it succeeded in keeping dollar supporting oil prices down, extending our US economy,,,,, until EMU. As evidence to the process, notice how oil prices began their dollar rise only 6 months into post EMU. Clearly, there was no longer a need to support our dollar economy once the Euro was established. Indeed, just like a turning supertanker takes time, so too does the higher energy prices take time to work their will. Make no mistake, the world has seen the very last of cheap dollar oil. The next dynamic of that process in the transition of oil settlement support into Euro denominations. Notwithstanding Iraq's move as a convenient trial balloon, the mass of this transition will not begin until the US has clearly embarked on a slowdown. And that slowdown, energy induced as it is, will, this time, force the fed to fight it with a super inflationary buyout of anything and everything that defaults. Right down to your shoe laces. This, my friends is the inflation dynamic unleashed once a currency is removed from reserve status.

Further; its no mistake of identification in understanding the ECB / BIS roll in all of this. That the ECB has started cashing in all it's interest on dollar reserves points to a new direction in currency warfare. Our own Randy@ The Tower has documented this for some time. In addition, their marking gold to market is a prerequisite to following the Fed's new inflation stance by scoring the dollar against the Euro gold price once the paper gold markets fail.

(02/09/2001; 14:29:38 MDT - Msg ID: 60)
Background part 2

Further; its no mistake of identification in understanding the ECB / BIS roll in all of this. That the ECB has started cashing in all it's interest on dollar reserves points to a new direction in currency warfare. Our own Randy@ The Tower has documented this for some time. In addition, their marking gold to market is a prerequisite to following the Fed's new inflation stance by scoring the dollar against the Euro gold price once the paper gold markets fail.

To the point:

However, there were still outstanding gold deliveries on all sides that needed to be addressed, even after EMU. So,,,, around early 1999, the BIS decided to allow the erosion of the paper gold markets to continue to conclusion without fighting it with outright buys.

LeSin's post today (# 47852) about someone noting a BIS offer to take England's gold is to the point. (Hi LeSin, how is your French Sorrel growing? (smile)) That was the last offer before a changed position. They would not do it today. Look at your charts and see where this market the time where gold was finally allowed to drop below $280. It is indeed strange that it hasn't fallen much further.

Where once they stood ready to buy gold outright, in order to stop the wholesale reproduction of contract gold from driving the traded price too low, and degrading the very asset that gave oil producers reason to support the dollar,,,,,,, the market itself would now be allowed to kill itself. All so the final gold contracts could be delivered. That process was evident in the Washington Agreement and the years it would take to complete that workout. (see my Macro below for further explanation)

Where I had seen the WA as a breaking event, Another had long before seen it as an extension of the process that would eventually drive paper gold credibility to Zero. Indeed, he said (posted) that well before WA. As an aside, he always said that all paper would burn. In retrospect, prior to EMU, if it didn't happen, all paper assets were subject to destruction and now I see his point. Post EMU, just gold paper is now in the hearth. He does think EuroLand is the future and I respect that position, greatly!

In my Macro view told in a slightly different way:

We all thought that one day the whole gold system would explode in some huge short covering rally. Indeed, if the Euro failed,,,, producing no EMU, the sudden demand for gold would have driven the paper market sky high until it too broke from financial failure. Making million airs the world over of countless gold owners,,,,, and billionaires of any leveraged player that brought mines, futures or options. Well, maybe billionaires for those that cashed in while the shorts still had money to pay. But,,,,,,,,,,, it never happened. Thank the EMU folks for that.

Now we entered the AD era,,,,, the European Monetary Union (EMU) was a success,,,,, the Euro was formed. This was a political sea (for me also) change regarding gold. It was around spring 1999 (that time again), was when Another made a point I will never forget. It was posted here on the USAGOLD forum. Now that we were in the AD era, the decision was made to let the dollar paper gold market kill itself. We all posted endlessly as to why it could /could not and would /would not happen, but there was one other aspect left out at that time.

As I mentioned above; most of the major gold buyers,,,, the physical gold advocates,,,,,, those that want it as a wealth reserve,,,,,, were gathering physical gold all prior to EMU. Even after EMU, as we worked our way into the early Euro era, gold ownership is intended to bridge the transition away from dollar reserve use. For these nation states and individuals just want gold,,,, not for trading now,,,, nor for use now,,,, and they don't care about it's dollar price now.

We thought that after EMU, dollar paper gold prices would slowly climb as physical demand impacted the paper marketplace. But the problem with that is that such a climb will destroy the ability of the BBs to function and complete that portion of contracts that require delivery. Remember, we now have countless major Euro players waiting for gold deliveries from mines and other contracted sources. Overall a small portion yet, all within the trading noise of this huge arena. Yet, this gold is a major part of the Euro system of the future as it will be a replacement asset for nation states that stand outside the Zone but will trade within it. (as a contrast to Britain that will join)

From the time of the Washington Agreement until it's end (three years left out of four+/-),,,,, the dollar paper gold world will be allowed to do the equivalent of a currency inflation. No nation or government CB will now stand in the way. You see, the only way the physical deliveries can be completed is for the market place to have it's way. In doing so, by continuing to short the market in a piling on stance, liquidity will remain for delivery. Remember, the gold recipients do not care what the dollar paper price is at delivery, only that their gold buys can be completed. And for that to happen, the BBs must have an ever lower price. Hence the contradictory nature of the major ECB bank, regarding gold.

Yet, the real message must not be lost. Between now and then (perhaps tomorrow or in a year or so), physical gold will embark upon it's own road. A GoldTrail if you will. A drama seldom witnessed ever, much less seen in our time. I state flatly and for the record that the premium paid on the purchase of physical gold will climb through the roof in the days, weeks, months and years ahead. Between us Physical Gold Advocates, we will know it's but a reflection of the free market to come and a true account of where it's value really stands. For the paper trader, it will become the curse of lost wealth.

This, my friends is the face of a failing paper gold market. A market that evolved far beyond what it originally was used for. A "New Gold Market" built for the support of a currency's ending timeline and allowed to die of it's own misconception.

From here we can see the "advantage" of physical purchased for an unknown value. Gold held as the ancients held it.

No denomination necessary until it is allowed to trade,,,, "Free" once again!

Then our journey will be done. Then our wealth will be complete.

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

Thank you all for your time


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