The Gold Trail by FOA - March 2001

All times are U.S. Mountain Time

(03/10/2001; 20:58:11 MDT - Msg ID: 61)
On the road!
Hello everyone!

Well,,,,,,, things are not as before,,,, are they? (smile)

In my last post USAGOLD Forum post (#48858) we noted that the paper gold game was reaching it's limits. The BOE was almost asking "what do you want us to do"? The answer came as plain as day as the paper price was driven a little lower in return for a gold sale reduction. Yes, clear as a mountain stream,,,, the unwinding has begun! It will continue until the big event when the gold rules are officially changed. Not much different than when the dollar hit it's credibility limit in 1971. As Randy has often pointed out; the US printed gold contracts back then until they (dollars on the gold exchange standard) lost their mathematical ability to be converted into gold.

Everyone that is expecting some huge paper short covering rally has got to ask themselves one question; "do ya feel lucky"? (smile) It's important to consider this because today's paper gold contract market is in the same credibility position as the dollar in 71. There is simply no way the Bullion Banking markets are going to allow our current marketplace to adjust to this mismatch by marking "This New (paper) Gold Market" to market against any true "delivered" physical gold value. Forget it! It's never going to happen during the dollar reserve era.

Just as in 71, this modern fiat gold market will be disconnected from the real gold market. Back then the dollar remained at $42 / ounce +/- as a somewhat free physical market exploded into the hundreds. Today, considering the magnitude of the mismatch we have attained, the paper market will probably never pass $360, even in the worst possible short crush. The dollar forces will call $360 the right level just as they called $42 correct??? All the while physical gold will slowly gravitate completely away from any connection to the real demands for delivery.

Even such a rise toward $360 would occur only after the BBs decided not to sell into the paper market any further. It all depends on how the rules are changed later. We shall see.

What's coming in 200?:

Let's see, spot gold is at $358 plus the physical premium of $2,200,,, so that equals $2,558 per K rand. Oh,,, you say that's crazy??? You will just demand delivery of your contracts at at $358? Or call your gold accounts for full allocation? But wait, didn't they just declare position limits, cash liquidation only for all out months, a $4,000/oz premium for spot conversion because of the shortage and forced customer reserve requirements triple the actual physical value for all converted BB physical accounts? And you wonder how or why anyone in their right mind today could pay in the future a $2,200 premium to a coin dealer? Ha! Ha! That's just the warm up, my friends.

What's in process now??:

The Washington Agreement placed in context where the Euro system is going with gold. That pronouncement drove home the fact that our Dollar gold pricing system was going to die with the dollar reserve function. The WA placed us "on the road" to high priced physical gold and low priced contract gold. It could have been the end of the LBMA pricing structure, right then and there, except that it would have clocked the global financial structure too fast.

Indeed, our Euro friends helped the system out by giving it some more of the same poison, more paper gold inflation. Yes, all the while since the WA, people have been falling all over each other trying to explain why so much new European gold has entered the market through lending. Yet, all that was mostly lent was more paper credits built upon a failing dollar gold pricing system. You see, they left the maintaining of system credibility to the dollar faction. Kind of strange how gold keeps showing up as part of the US trade deficit? Even is it's only a trickle.

Gold bugs cry that the paper market is not free because government endorsed inflation in this arena is killing it's price structure. Almost as if they want fiat gold that less inflated? Well, that's great if your "gold" money is in our modern gold producing industry and that's hip deep in committing it's product to satisfy these same paper contracts. Yes, this mistake of "hard money" allocation by western savers, is the result of ignoring history and how currency systems evolve. Gold industry investments work if the current fiat system is remaining "in use", but showing price inflation. However, when currency systems fall "out of use" while moving into super price inflation,,,,, the next competing system will side with physical gold! It doesn't happen often, but when it does real wealth in one's hand becomes worth many times investments in "almost gold". Truly, the dollar price of physical gold is going higher than anyone expects.

To make this clear:

It makes no difference if the current paper gold price bottoms here or is sold into the dirt. Just as soon as the dollar paper gold system begins to lose credibility in matching physical gold value,,,,,, gold bullion and gold bullion alone will out perform every possible hard money competitor. That includes all the other metals! "Noone" will need to teach this dynamic to the public then. All we will have to do is watch it all unfold. Believe it!


It's coming time for our next talk about gold in antiquity. Walking the GoldTrail becomes all the easier when we understand just how little of it is truly out there. Far, far less than the paper pushers would have us think.

Until then;

"We watch this new gold market together, yes?" (smile)



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