The Management of Gold, A Simple Tool for the 90s
For any currency to maintain a "reserve" status, it must be, in some fashion, convertible into gold! In the past, the US$ was freely exchanged for a "fixed" amount of gold. $20 dollars was equal to one ounce. If the country wanted to make it's money stronger, it would lower the amount of currency units fixed to one ounce. $10 dollars per ounce made the currency more valuable in the market and it would buy more things. Also, a country could decrease the value of it's currency by raising the number of units to the ounce of gold, say $40. The problem with the "fixed" gold system is found in matching the amount of gold in the treasury to the "fix"! To make the money stronger, one had to bring in gold, as it took twice as many ounces to back a currency "in circulation" at $10 as it did at $20! The reverse is true when lowering the money value to $40. Then, one half the treasury gold backing had to be removed as only half was now needed to back the dollar.
You have probably not read this "slant" on the past gold standard because it was never quoted in quite that way, nor looked at in that fashion. If you allow your mind to perceive the above, one will clearly see that it was gold that gave the currency value. In that time one did not look to see how many dollars gold was valued with, rather, how much gold was bid for each unit in circulation!
Today, the world reserve currency is not on a "fixed" gold standard, it is on a "freely convertible" gold standard. One may, anywhere in the world, convert US$s into gold. This new "freely convertible" standard does still allow the dollar to be backed by gold for those who still demand a gold "fixing". That requirement is enforced by a certain commodity, oil. Yet, there is a price for the benefit of having all oil sales settled in US$. Yes, even in this modern era, for the US$ to remain on an "oil standard" it must be on some form of "gold standard"! Regain the perception in the top paragraph. Then understand that for oil to back the dollar, the dollar must find value in gold. And the dollar finds more value if it is fixed by the "freely convertible" gold standard, to buy more gold!
This convertible gold market is old from the mid 70s but is new from the early 90s. It is old by the 70s because it is "freely convertible", but it is new by the 90s as it "is not" "freely tradable"! The US$ price of physical gold is no longer "fixed" from supply and demand, rather it is "created" through the market action of "paper gold". Truly, it is the US$ has become the "item traded" in the "paper gold" market, not physical gold. Participants have yet to realize that the gold futures, gold options and gold forward markets, worldwide, have become little more than currency trading arenas. The percentage of gold delivered against these markets has grown so small as to be nonexistence when compared to actual metal settled at closing. Physical gold does still move, and in size, but this is little or nothing compared to the "paper gold" traded.
We are brought to this point for a purpose, but how did we get here? The largest producers of gold were introduced to the use of large scale "forward contracts" by the Bullion Banks. Once the process started, good business required it to expand. Shareholders want maximum profits at all price levels and "forward deals" were good at any price of gold. Once hooked on "hedge profits" during the good times of a high gold price, the mines now "must have at all cost" "forward deals", just to survive. Some say the mines will not forward sell at these, break even prices. However, the shareholders say it's better to hedge now, for a lower price will bring doom! With the US$ price of gold holding at just above average break even levels, and the ensuing virtual bankruptcy of several well known companies, it appears that the mine owners are correct.
Understand, that many entities lend gold, but it is the CBs that started and do most of it. Their purpose was to create a "paper gold" market that would allow them to manage the "freely convertible" price of gold. The CB lends the gold to a bank that sells it on the open market. ( Usually, the gold is placed privately as it must go to the correct destination. ) Then the bank holds the money and draws interest as incremental payments are made to the mine for new gold delivered against the contract. Over the long period that a mine takes to produce and repay the gold, this money grows. To grasp the fact that the CBs had a plan, is to know that they lend the gold for only 1% or 2% while the proceeds set in a Bullion Bank and grow with interest for the benefit of the BB and the mine! And further, the lenders allow the return of the gold to be extended out for many years, as in "spot deferred". The CBs allow public opinion to think of this as "typical government stupid", it's not!
Now that the gold price in US$ is around production cost, most mines must use "paper gold" to survive. The gold industry is coming under world bank domination, without signing away any sovereignty! Slowly, the CBs are gaining the ability to manage production and price with this simple tool.
"If they want new mine supply on the market, they roll over the contract to the BB. If they want new supply off the market, they allow the BB to pay for and take delivery of the gold and return it to the CB vault." "Also, by offering ( or withholding ) vault gold from lease, they affect the lease rate and thereby control private lending as well"
Understand that the second sentence action is used because gold lending is done by many different entities. Many times a mine isn't even involved. Sometimes, gold isn't even involved, just paper. But, it's still based on the gold price! The paper price, that is.
thank you
A Noble Purpose, This Oil For Gold
When one considers the merits of a specialized world oil currency, the thought usually turns immediately to "send in the military and stop them". I must ask, why? If an oil currency is born before or out of the shambles of an financial meltdown, and it offers great benefit to all, again I ask, why stop it? Look at the merits of such a move:
In a very real "currency sense", oil will be devalued in terms of gold. As one makes a currency weaker by increasing the money units per ounce of gold. Oil will become very cheap in gold, as the amount of gold paid per barrel will fall dramatically as compared to today's ratio. There will be much more than enough gold worldwide to quantify a "world oil currency". To that end, the world paper "reserve currency" at use in that time, will continue to be traded for oil at an extremely low price relative to today. The only change will be the addition of a "unit of real value" added to each trade, a "world oil currency", gold! However, in terms of today's currencies, gold will be "upvalued" to perhaps $10,000 to $30,000 an ounce. So as not to rewrite what is already an excellent piece on this coming readjustment, I will repost part of Mr. Allen ( USA ) 's perfect article on the subject along with his requested changes per his :
Date: Mon Dec 15 1997 11:06
Allen ( USA ) ID#246224:
Date: Sun Dec 14 1997 18:59
Allen ( USA ) ( More ruminations re: ANOTHER's recent posts ) ID#255190:
Last one on this topic until more ANOTHER posts. I'm not sure that it would be necessary to have that large a cabul in on the "offer" of oil for gold. Given the rather small market in gold in comparison to oil/currencies it would only take one or two well endowed oil states to pull this off. Here's why.Let's say the Saudi's have been accumulating gold through the back door ( approx. 5,000 tonnes ) . They sell say 20 Mln Bbl oil a day. Close enough. At one ounce of gold per thousand Bbl oil that's 10,000 ounces of physical gold per day. That's a lot of physical gold.
The first few moments after the Saudi's proposal to trade oil for gold at a very steep discount of 1000 Bbl/oz ( approx. 1.5% of current US$ price ) there would be roars of laughter. One fast thinker after another would think "Hey. I buy some gold at $300/oz, trade for oil to receive 1 Mln Bbl, then sell the 1 Mln Bbl for US$ 10 Mln. Net profit is
$10,000,000-$300,000=$9,700,000. Easy money." .
Everyone at once turns to the gold market to buy, which promptly shuts down. Now no one is laughing. Because everyone realizes that gold is now worth at least $10,000 per ounce and no one is prepared for that revaluation. Whoever has gold now has 66.67 times the purchasing power in that stockpile. What appeared to be a stupid offer has now become a complete revaluation of all gold stockpiles vs all currencies.
Who has the gold?
( per corrections :Date: Mon Dec 15 1997 11:06 Allen ( USA ) ID#246224: )
Saudi stockpile guest-imate 5,000 metric tonnes = 5,000,000,000 GRAMS not ounces. Gold now at US$9.65 per gram revalued by multiple of 66.67 = US$643.37 per gram x 5 Bln grams = US$3.2 Tln.
Germany 2900 metric tonnes = 2.9 Bln grams, revalued to US$1.8 Tln.
USA 8,085 metric tonnes = 8.1 Bln grams, revalued to US$5.2 Tln.
Is this plausible??? How is it possible by making one little change in oil dealings could this ever happen? It is simply the very intelligent use of the scarcity of gold and the necessity of oil. It is the desire of one party, who is big enough to swamp the gold market, to make it the preferred vehicle for buying oil. In fact if not one ounce of gold is ever transacted for oil, but the offer is continued intact, then gold will be revalued simply by the possibility of trading. Those who are in a bad way in their currency situation can always get oil with their gold.
What would the impact of this revaluation of gold and currencies do? It would instantly shift economic and financial power into the hands of those who own large amounts of gold: CB's, Saudi's, Roths et al. It would mean that gold/oil would be THE CENTRAL POINTS OF ECONOMIC REFERENCE. It would mean that currencies would be devalued by a factor of 1000 in relationship to the new standard of gold ( as a proxy for oil wealth ) It would upset an awful lot of people. There would be no TARGET to shoot at or take over, however, because all other oil producers would immediately jump on this band wagon. Its a simple matter of what an interested party is willing to receive for their goods. Venezuela, with gold and oil reserves and production capacity, would be one of the wealthiest nations on earth. The world would be turned upside down geopolitically, wouldn't it. Literally "..the 'have-not's of the world will become the 'have's.."
Mr. Allen ( USA ) ,
Another thanks you for this thinking. It should be read by everyone with an interest in this area. It should also be studied by students wishing to learn of market dynamics. We also offer this piece as an addumnum to the above, also by the same author.
Date: Mon Dec 15 1997 10:49
Allen ( USA ) ( Quick Note to JTF re: 23:05 post - US$ oil float ) ID#246224:
US$ price of oil is floating. The "proposal" to offer oil for gold at say 1000 Bbl/oz is far below the present float price in US$. The gold market is SO SMALL that if the oil nation that made this proposal was pumping enough oil the gold market would be swamped by oil buyers who were looking to make a few ( !! ) US$ on the discrepancy in price. In effect this would revalue gold by inserting an entire different group of buyers into the gold market who have ALOT of money.
Why is it the oil nation would not just buy at market? Same as above. Their effect in the open market would basically shut down the market thereby frustrating their efforts to buy gold. Conversely, why would they then make the "proposal"? Because either they have enough gold to buy the world at the new price, there is a crisis in which they feel it is to their advantage to do this ( such as a US$ crisis ) or they might have a geopolitical rational. In the new valuation the US$ would still be intact. But its monopoly role would be altered. Its not that currencies would become worthless but that gold would become worth much more in relationship to paper currencies.
To answer the "military" question, asked at the begining of this article, I say:
The massive increase in the "reserve currency" price of gold would, no doubt be ushered into the USA house of congress as a godsend answer to Americas debt problems. With the "full production" of oil, now viewed as a sure thing, The world may well see the USA send the military into the Middle East just to ensure that this "deal" is not disturbed. After all, it is oil that will be massively devalued by gold.
Thank you
Change
I would like to start with a post from a gentleman from the Kitco forum as it sets the tone for this article:
Date: Fri Jan 23 1998 22:57
Junior ( @ ANOTHER & Change ) ID#248180:
I am reminded by ANOTHER'S comments regarding "Change" of a profound statement by a spokesman from the Middle East Oil Producers during the mid seventy's ( approx.1975 ) He said: "My Grandfather rode a camel, my Father rode in a Mercedes, I have numerous Jet Aircraft, my Son will ride a Camel." It provokes thoughts that the countries of the Middle East and China are not as nervous about change as the consuming and material minded nations of the West.
Mr., Junior, thank you for that deep thought!
During the span of ones life we must consider weather we really do experience changes or are we just experiencing a rebirth of old values from the past, repackaged for this modern world. In times past, real money did not earn interest unless it was lent out. Yet, it retained value relative to all things. Today, paper currency, also does not earn interest unless it is lent out. However, it does lose value against real things, over time. In this light one must also grasp that a currency unit, in hand, is "lent out already"! It is a credit, to be paid in the future. Truly, cash, outside the banking system is a receipt for "lent out money" that just doesn't earn interest!
Much of the discussion of today, evolves around; How does one recognize real money? My answer is, find the largest store of financial units, held by banks, that is not lent out and does not earn interest. It is by far, gold! There is no other unit, in the world today,that meets this criteria. Even with the current mobilization of bank gold, it is still the number one holding of "non paper credits" that is not lent for return! Some would point to it's price in US$ and say, it does not hold value relative to real things. That would be true, but gold, while allowed to be "freely convertible" into any currency, is not allowed to trade "freely". It's price is managed. It is "The" "political metal"!
We can find one entity in this modern world that firmly holds that gold is "the real money amoungst moneys". That entity is the BIS. They are the only bank in the world that can buy physical gold and become financially "stronger" with this act. They are "The Bank" and their central holding is "The Money" of today. Other CBs buy gold and show it's value as a liability as it is not marked to the market. Yet, they can hold capital of the BIS and it is as a 100% asset!
In this modern financial world, a person of little business knowledge, can make an investment of "world class" proportions! He may, if you will, "walk in Anothers footsteps" and in doing so receive a value for a lifetime of work. The coming change in perception of money will reward courageous buyers with a return unseen in these times!
To use a sophisticated paraphrase from the Kitco Forum, "go gold"!
thank you
REPLY TO:
Date: Sat Mar 07 1998 13:58
Carl ( Another ) ID#341189:
In your scenario as I understand it, gold would only buy oil, nothing else, because the physical gold market would be shut down.
Mr. Carl,
This is a misunderstanding. See the words from "The Management of Gold, A Simple Tool for the 90s ". They show how the price for metal is now made by the paper gold market. It is this "paper gold" market that will be destroyed, first!
As Mr. Mozel has shown in his post of :
Date: Mon Feb 16 1998 17:55
mozel ( The United States Empire ) ID#153102.
"The second threat is, I believe, more out of sight, but more serious. This is the threat from derivatives, the $100 Trillion crazy aunt in the attic. "
Please reread his write. When a "world oil currency" is formed, it will bring forth a great turmoil. Even physical gold will not trade for some time! But, as paper loses are resolved, the governments will form some kind of real gold market. Perhaps, the BIS will make the market for the world, in much the same way as the LBMA. Understand, the new gold physical market will be not as a commodity, but as a free currency!
Date: Sat Mar 07 1998 14:10
mozel ( @Another ) ID#153102:
If this thing were to come to pass, it will not end with contracts for oil only in gold.
Mozel,
you have a good grasp for the currency issue. I ask you, can you see the benefits?
Date: Sat Mar 07 1998 14:20
Delphi ( ANOTHER - a long-term question ) ID#258129:
Mr. Delphi,
In the time from where you speak, gold will have become as, common use for all! No country or entity will not use it for all trade. Do you not agree, it is good for our families and children?
Mr. Old Gold,
The US$ price of gold is, now held between several extremes. In Nov. of last year, a understanding was reached that the "paper gold" market was out of control. The private market was using this medium in a way not intended. Gold was to be taken and held in the $320 to $360 range. This was good for all. As the down trend was not seen in price yet, it was known that trading was in place to drop the price. Perhaps, even below The BIS capital level! Several very large physical buys were made in the off market ( see Date: Sat Nov 29 1997 15:53 ANOTHER ( THOUGHTS! ) ID#60253: ) as a warning. At that time the CBs started a slowdown in lending and sales. The market came close to a major resolution. In Jan. the BIS was close to a large open move, it would have caused a paper panic.
Oil will not accept the position, as is. Gold must come back into range as oil falls no further. Any loss of perceived control by the CBs will trigger a bid by oil. It would be better for time to pass and allow a natural change to the new oil currency ( perhaps 1 1/2 years ) . However, it is now my view that the CBs have lost control! I expect a break above $360 to create an allout run to infinity, before year end. Physical gold should be purchased for a lifetime holding, not a trade.
thank you
ALL:
I must be gone for a short time. Please return for discussion at appx. 19:00 CST/USA. A good amount of time will be for this talk!
Mr. Old Gold, I have many thoughts for your reason, but must make connections from far. Prehaps, 19:00?
thank you
REPLY:
Date: Sat Mar 07 1998 15:47
Delphi ( @ANOTHER ) ID#258129:
What will happened with oil price in long term, when reserves of it will be mostly consumed?
Mr. Delphi,
A good thought, sir! Perhaps, oil will be replaced in 20 or 30 years? Oil has a very short history when compared to gold! I would say, my oil should be replaced with gold for that time to come!
Date: Sat Mar 07 1998 16:32
chas ( Another re "gold in the ground" ) ID#342282:
Mr. Chas,
During the time that must come, all forms of paper ownership of things will come into question. Many persons have accepted the "wall street/gold stock" way as a true holding of gold, it is not the right holding for our new future! This new gold market is not as before and will bring much confusion of the "perceived values" that mines represent. Indeed, a mine may hold the value of $1.00 as all other things fall to $0.00, but it offers no safety of worth, if you purchased it at $20.00. It will be a bitter lesson for gold investors with a short history of life. good luck
Date: Sat Mar 07 1998 17:11
Jack ( MR. ANOTHER ) ID#252127:
Is my reasoning correct?
Mr. Jack,
The outline you have given, will no doubt, only be the beginning. I must ask anyone, if gold went to even $10,000/ oz.in current purchasing value, would that not be enough? History has shown that persons that hold gold during times of change, do always find a better life. Think now, if you lived in 1975, would a 8,500 Dow not have looked as "not a real expectation", but thinking and perception of value does change!
REPLY:
Date: Sat Mar 07 1998 18:19
WetGold ( @ANOTHER ) ID#243180:
What do you know of the Dinar comments posted from the Islamic Mint ?
Mr. WetGold,
I understand it. I do think of it as the beginning of a change in the perception of value by all persons.
Date: Sat Mar 07 1998 19:22
SWP1 ( @ANOTHER ) ID#233199:
Mr. SWP1,
Please study the history of wealth as it has moved thru time and change. What your perceptions of value are now? Follow in the footsteps of times past, trace it's steps in the minds of others. You will find the value for your future lie in gold today!
Date: Sat Mar 07 1998 19:30
Snowball ( @ANOTHER ) ID#234218:
Mr. Snowball,
Please read the:
Date: Sat Mar 07 1998 15:10
ANOTHER ( THOUGHTS! ) ID#60253:
Gold will become a currency "of choice" by all, for the benefit of all. Those of "lost paper wealth" will not remove coins from the world. They will use this deep currency as a building tool. Coins are good!
Date: Sat Mar 07 1998 20:01
Neophyte ( Another - ECB gold holdings? ) ID#390249:
Do you know how much gold the ECB will hold as part of its reserves?
Mr. Neophyte,
I do not know. I have knowledge of some discussion for 15% with a individual country holding that is very high. If this is as a final outcome, many CBs will be forced to call in lent gold and buy. I have reason to find this to be as fact!
Date: Sat Mar 07 1998 20:02
BillD ( ANOTHER...PERHAPS an unimportant question...but ) ID#261269:
What do you foresee for silver ???
Mr. BillD,
It will not be purchased as a currency replacement. But, in the minds of persons with private holdings, it will be as a currency in time of change. I think it will gain much, but only after a trading halt by gold. Percentage wise, it will not equal gold as many expect.
Date: Sat Mar 07 1998 20:17
Psilver Psyched ( @Another ) ID#216217:
The USA has been openly courting Venezuelan oil?
Mr. Psyched,
Please reread the most recent posts from Another. Your question should be: Why would the USA buy most of it's oil from Venezuelan when it would be far cheaper to buy it from the ME using gold? It is possible that the new oil bid will come about with the introduction of the EURO and give that currency the oil backing!
All:
If the EURO is backed with gold in a large way, oil may be purchased with EUROs and even a smaller amount of gold!
Date: Sat Mar 07 1998 20:55
Lurker 777 ( Another ) ID#317247:
Mr. Lurker,
As a person learns, so to does he act! As in all things of life, it is more safe to follow a well walked trail. Truly, many have walked this path of gold. But, as no two men can take the same step, each must gather wealth as his experience will allow.
There is no standard percentage of gold for all persons.
Also, the CBs may start to call back their leases. Together, we will read this new book of gold.
Date: Sat Mar 07 1998 22:16
mozel ( @ANOTHER ) ID#153102:
The benefits are plain to see.
But, it is not clear that gold mines would lose value. Oil wells will not, so why should gold mines ?
Mr. Mozel,
The USA placed a special "windfall profits" tax on domestic oil during the last major rise in prices. I do think the oil stocks would have shown a greated value had this tax not been in place. Because gold will soon become a currency, mines will be taxed in a much greater way. Also, domestic mines will be asked to sell directly to the treasury at the "preceived commodity value" value of gold, plus an opperating margin. As no private company will be allowed do your treasury job, "produce money". Gold in the hands of the public will be thought of as a good thing, as citizens are asked to "pull own weight" as the government is much under.
Are you of this mind?
Date: Sat Mar 07 1998 23:41
Neophyte ( Another ) ID#390249:
My mistake! Will not use the Mr. or Ms. in the future.
REPLY:
Date: Sat Mar 07 1998 23:43
Logical ( Oil getting out at the top? ) ID#320219:
Logical,
Yes, this journey will be as one never traveled, for many! Indeed, a fit body and strong mind will be needed to carry gold down this economic mountain! The weight of gold will cause some to fall, even as others find this load helps to place the foot firmly on ground.
Traders say, "gold go to $250 or $200", if yes, then they are right and I an wrong! But, when gold turns as in a storm, I will "own them" for all of their days! Time will prove all things!
REPLY:
Date: Sun Mar 08 1998 00:17
Lurker 777 ( ANOTHER ) ID#317247:
Sir, a day will come, when those who have sold gold they do not own, will be forced to buy it back. It is the nature of men, to once in life do a foolish deed for gain. Some walk away, with understanding. Some stay to long and are made to walk low without wealth. Today, our world is fat with stolen profits in a paper world, even as poor ones starve.
In that day, men such as I, will take from those who make simple ones hide! You will find not the lies of paper in my house.
thank you
I will be gone for a size of time.
ALL:
The purchase of large physical stocks of gold in Nov. did send a message to the CBs. They did begin slowdown of sales/easing. The "management tool of gold in the 90s" ( see Date: Sat Mar 07 1998 13:08 ANOTHER ( THOUGHTS! ) ID#60253 ) is now to go into reverse! A large purchase, now, is sending another message, "bring gold back into $320 to $360 US$ range. We should see this in five to ten days. This will be a hard thing, as it may create a crush to cover. Let us watch this "new gold market", as it is not as before.
I will post later in march!
I hope all persons could see the "new" true nature of the Central Banks this week. I call it "The change that did happen"! If you read the post of Sat. Mar 07 1998 13:08 Another, that was written for me, it speaks of it all. The banks do want gold to rise now, and they will pull in physical gold to replace leases, even if they must "pay high on the market". They do not rollover these loans now.
It was never the intent, for gold to fall from $320 / $360 range. The fall happened as the paper gold market is "out of control"! As physical is brought back into this range, much will be done to hold LBMA together. We watch togeather, yes?
Also, see the post of Fri. Jan 23 1998 18:03 Another. There was offered the intent of crude oil going to $12.00 US range. That price was found "this week". Hear me, twelve dollar oil does not want or need gold under $320, I know!
Also, I am shown how many persons did understand my last post. These same may not agree, but they do understand the "intent" of THOUGHTS. I do understand the ways of ones who are "hot against" my writings. This is good, as "proof is never found in the agreement of all persons", and it is so, that this justice is found not only in my home but my country!
I will offer a post on Sat. 21 if possible. I wish to converse on Kitco with Mr. Allen ( USA ) and Mr. Markus sometime in the future, if I may. It would be as thinking for "all".
thank you
Do I learn from persons at Kitco? Yes. Will persons learn from these discussions? I do not know. As Mr. Kitner is the judge, I ask for "latitude" in this discussion. My intent is to bring the "reality of gold" into a better focus, thru oil.
Mr. Allen,
I ask for your time and personal thoughts on this "now to be", ongoing discussion of gold. In my world, " To understand gold, one must start with oil"! Let us go back in time, to the early 70's. Many did view the oil market as an attempt at a "cartel" to keep the price high in USD terms. My view, from the where I stand, did show a "cartel" for public image. However, the oil market was never controlled to move the price higher! It was controlled to keep the price down! Even "back then", oil was managed in much the same way as gold is today. Yes, oil became "gold" from an economic viewpoint, "black gold" if you will! In that time, as today, oil and gold had to be managed to keep their true value, in terms of currencies from destroying the free market financial system based on low prices for both. Politically, there is much more to gain, by producing countries, by "managing" it's price down, than by "allowing" it's price to rise thru freemarket use!
( there is more to this point, do I continue, or do you wish to add/debate/discuss, now? )
Mr. Allen,
Many view oil and gold with basic "commodity eyes". But, I ask you, does supply and demand create the price of these items? On the surface, it does, just as any item. However, look under the cover of public reporting, and we find that, what is being traded is not the actual commodity, but a paper proxy, contracts usually expressed and settled as "various currencies" not the item itself! I offer this consideration to all, would oil or gold hold the same currency price if no paper future market existed? Think long and hard on this, if oil and gold were bought and sold "marked to the market" physical for cash, would the USD price stay the same in todays economy?
Oil is managed from the standpoint of "supply" not demand, as demand is infinite for this now indispensable substance. The world economic need for oil has build our modern financial structure as an upside down pyramid, on oil! Every business, asset, debt, currency and army is "priced in currency terms" that reflect a "full supply of cheap oil"!
But, what is cheap oil? It is defined in two terms, a currency price that allows a country to operate it's economy in a competitive way, and, in another real commodity price that allows producers to value their product as an asset, not subject to the valuations of the world economy, gold.
From this standpoint, one can see the value of managing both oil and gold. For the oil field owner, operating in a "oil consuming" country, there is no value in this form of management! But, from an "oil producing" country, holding world class reserves, a low USD price offeres all the advantages. It produces an ever "dependent" economic system, that, "in real terms of need" "upvalues all inground reserves" with a far higher "future need". That "future need", as expressed in a drive "to maintain current asset values ( dow jones ) " creates the political drive to manage oil prices!
( there is more to this point, do I continue, or do you wish to add/debate/discuss, now? )
I must stop here. We can continue another day, yes?
Thank You.
ALLEN ( USA ) ,
I ask also, if we may "pickup" where we leave this? I have questions for you in addition to answering yours.
Thank you
Allen ( USA ) ,
I will continue some at 19:00cst. Will address some others thoughts/questions from past posts with this write. Also, questions for you.
thank you
Allen ( USA ) ,
I will pickup from my last post ( Date: Sat Mar 21 1998 15:59 ) , but must add this. I did find humor in the post from SDR_er, "that the resulting high price of oil was an "unintended consequence"! This was of the early OPEC, yes, it was truly that way. Some thoughts on this later.
Mr. Allen, the "Beirut Resolution" was real. In that time, the threat was to price oil in all currencies, not just US$! When the US$ went off the gold standard, the problem was not that oil would buy gold. The gold "free"market was very small for oil. In the back rooms, all talk was "how to keep oil prices and "settled" in US$! As the dollar was the reserve for all countries, a move from oil in dollars would have destroyed it and the financial systems of most large economies. With the US$ just off the gold system, it was very susceptible to any loss of usage.
The price rise of oil was much more than many thought would hold ( SDR_er ) . We found that it was the fear of "oil not priced in US$s" that kept the price rise in tact. As the resulting price of oil in dollars, after it's removal as "oil reserve currency" was the true reflection of pricing in the, then current market. Not the oil supply cutbacks. All knew that high price from cutbacks, "alone" would have never held!
To hold a dollar backed oil system, the governments agreed to create a liquid "free" gold market. They did this by selling much gold over years and allowing it to rise to $200 US. Then, as now, free dollar reserves could go into gold. As the US treasury did no longer back US$ with gold, it hurt not the currency. In a very real way, the dollar went onto a "oil standard" to replace the old "gold standard". As $180/$200 was to be the limit, for gold ( the BIS set at $180 then ) , in 1978 the US did bomb the gold when it went to $250. The market went out of control and rest is history.
For many years, gold was kept high for the price of "oil standard", after gulf war this system fell apart. But, I am ahead of self, questions / comments?
my post take much time to transmit, apologize.
Allen ( USA ) ,
Many have thought that oil is in short supply/reserve and someday we run out. In that time the price will rise due to shortage. This is not true for your lifetime. There is a great deal of energy/oil, for a very long time. The shortages will not come true, look even to the past important reports that say oil run out in 1989! As the crude oil will be fueling your economy for many years, one should look to the "market for oil" not the supply. It will be the "change of this century" as oil finds a new "medium of exchange". Even the SDR_er looks for producers to cut back:
"Perhaps you refer to a price that is sufficiently high to compel conservation on the part of the consumer? Thus restricting sales of the producers? " "But would this not allow the producers to produce at a moderate level over a longer period of time? What am I not considering?
Oil does not look to cut back, but to supply more! What is now found, is a currency that will allow full supply without loss of wealth.
Mr. Allen, do you see the EURO as a help in this area? Would you use EUROs as a currency in your land, side by side with the US$?
Allen ( USA ) ,
Your thoughts, they are true American. I ask a honest question; Do you feel the future is at risk if you must use another currency for trade? If yes, why? I ask this for others, in lands apart from yours. They use your US$ and feel that "it works", and the future is not at risk.
Also: Your question?
"The Persian Gulf war part has me a bit confused"?
Yes, it did bring a different outcome from what was expected. I will write of this next time.
I will make commits to other questions, later.
Thank you
REPLY,
Date: Wed Mar 25 1998 14:31,
PH in LA ,
Part of the problem for last night was on my end. Two of my post held at one computer and were sent to europe. I will no longer try to "converse" on a "quick basis" as the thought is lost over time. Will address individual posts as able. Some writers offer much thought, but I am unable to speak of each. The "Peat" does do much!
Date: Tue Mar 24 1998 21:23
Thomas ( Doubts ) ID#372400:
"I would agree that the idea of oil-exporters demands to provide gold as payment for oil is not impossible, provided that Another is right on a major assumption -- that oil-exporters have the control to dictate oil prices. he game looks rather plausible -- oil-exporters keep prices low to make stronger the future shock of huge price increases. "
Sir,
Producers do not create the price for oil, the world economy does. Producers can and do "controll" one thing, "full production"! They hold the controll to offer "all out supply" and the $4.00 price that would bring! THAT "controll" is all that is needed to create "correct" political and economic conditions. What creates your "future shock of huge price increases"? A currency system "that no longer values real things" on equal basis to preceived value of "economic trade"!
Also, you write,
"If some "very simple minded" people in oil-exporting countries decide to blackmail West with oil -- what would be the outcome?"
Sir, I offer you my posts of past, if this is "blackmail", I should think your army would be sent to enforce such!
Date: Sat Jan 17 1998 22:22
ANOTHER ( THOUGHTS! ) ID#60253:
REPLY:Date: Sat Jan 17 1998 22:06
Schultz ( ANOTHER ) ID#288349:Schultz,
Your view is a good one. The perception of the US is one of your view from where you stand. Many do not hold America as a "taker without cause". At a low ratio of gold per barrel, with gold priced high enough, the USA would no doubt receive oil, relative to today at perhaps $8.00. The Us gold reserve and in ground reserve would last a great while. Also, the US gold reserve value would increase a great deal!That, your Washington would understand, VERY WELL!
Date: Sat Jan 17 1998 22:07
ANOTHER ( THOUGHTS! ) ID#60253:
REPLY:Date: Sat Jan 17 1998 21:35
Tyler Rose ( ANOTHER ) ID#373164:
If, as you say, a major oil producer were to say that they value oil at $x per barrel, and we will take payment 1/2 in dollars or eurodollars and 1/2 in gold, then it would be to the benefit of that oil producer to "value" gold aslow as possible, in order that they would receive more gold for the 1/2 of the payment in gold.Tyler Rose:
At this point of time the drive would be to make a usable currency. Thiswould require a high value for gold. For gold to trade with oil on a physical basis would also require perhaps a small fraction of gold/bl.All would gain from this. The intent is not to destroy the oil market.
REPLY,
Date: Tue Mar 24 1998 20:58
Logical ( ANOTHER ) ID#320219:
" Your proposing an upheaval in international currency- is that why the EMU will be backed by so much gold or do we look else where for the future international currency? Your earlier posts had a much more urgent tone has oils plans been pushed to the right or is the increased gold backing of the EMU a workable solution for the interim? "
Sir,
The large gold backing for the Euro and the "much greater" gold reserves for the individual countries of the Euro, is a direct result from observations of gold buying by oil! If it is well known by the BIS that a move by oil to bring crude to $10.00 US, is a precursor to an "new world oil currency", then it is well known to the Euro makers! Gold will be managed back to a range of $320/$360 with much hope for participation of Euro as "the" "currency/gold" payment for oil. My knowledge is that the new range will bring a breakup to the London operation, with the ensuing run by gold to infinity. We will watch this, together, yes? I offer my past thought:
Date: Sat Mar 07 1998 23:16
ANOTHER ( THOUGHTS! ) ID#60253:Neophyte ( Another - ECB gold holdings? ) ID#390249:
Do you know how much gold the ECB will hold as part of its reserves?Mr. Neophyte,
I do not know. I have knowledge of some discussion for 15% with a individual country holding that is very high. If this is as a final outcome, many CBs will be forced to call in lent gold and buy. I have reason to find this to be as fact!Date: Sat Mar 07 1998 20:01
Mr. Psyched,
Please reread the most recent posts from Another. Your question should be: Why would the USA buy most of it's oil from Venezuelan when it would be far cheaper to buy it from the ME using gold? It is possible that the new oil bid will come about with the inroduction of the EURO and give that currency the oil backing!
All:
If the EURO is backed with gold in a large way, oil may be purchased with EUROs and even a smaller amount of gold!
REPLY,
Date: Wed Mar 25 1998 10:53
jonesy ( Re. Escapism / ANOTHER / Dow Bulls / Euro / Titanic / Sluts Endeared / Violins ) ID#251166:
Sir,
Your post was of much interest for me. The new country, "America" was also a fantastic dream for many. However, for some, this "dream of a great nation" did come true! For all you find to look down on her, she is still held as the "best of the best". I find this to be a true feeling for myself, also. The greatest changes in history were always found with much confusion and anguish by the very persons that made "just history",
"great history"!
"find our new world the same from before, as history will look back to see when men changed the perception of value"
thank you
REPLY;
Date: Wed Mar 25 1998 22:44
clone ( Another - a different view... ) ID#269245:
Sir,
I respect your view as it makes much right. But, I ask you, what if? In response to a world wide currency crisis and possible depression, Oil offers to sell it's reserves for a much lower price than today. For your eyes, I will say, they "drastically devalue oil, using gold"! One producer offers to accept a currency price of $8.00US and a tiny fraction/oz. gold. With all CBs holding much gold, the market dynamics would raise the reserves of many nations several thousand %. Would this not be a welcome to a cash strapped world?
All:
I ask you, why did the world go off the gold standard in the early 70s? You have an answer, yes? For all the problems this created, could the countries not just revalue gold upward, to say $300 ( back then ) ? What was the real reason the world entered a period of "freely traded" "managed gold"?
Thank You
REPLY;
Date: Wed Mar 25 1998 23:13
Junior ( ANOTHER @ ) ID#248180:
Copyright © 1998 Junior/Kitco Inc. All rights reserved
It appears to me that the strongest position of Oil Exporter Nations outside of the USA is the "Threat" or actually the "Move" to full production resulting in very cheap oil for an extended time period. Does this equal the "Change" or trigger the "change"?I do not understand?
You state: "The USA/IMF and its' Hegemoney currency could not withstand cheap oil prices."
Mr. Junior,
Be very sure to understand this: They can "stand cheap oil prices". But, it is the loss of having the US$ removed as the "world reserve currency" that makes them "fight" a lower oil price, and the new "world oil currency" that it would bring!
Bring this thought into focus and you will inderstand why Iran and Iraq did fight so long. And why Iraq invaded. The warships are an attempt to keep prices from "falling"! You think long and hard on this!
REPLY:
Date: Wed Mar 25 1998 23:44
Myrmidon ( @ Another ) ID#345268:
"Sir, Those countries whose CB's do not hold much gold, how are they going to survive in the event of a significant upvaluation of gold?"
They will work and produce as all do. See the Japans, they own no oil? Yet, somehow they make much wealth. We must clear our minds of gold as a commodity, it is a money, and money is used to BUY! The oil producers will not keep all gold, as they do not keep any currency. Gold will move, but it will move with honor!
I ask you to read the ( Fri. Jan 23, 1998 22:57 ) written for me. It offers a true "feeling" for gold.
Thank You
REPLY:
Date: Thu Mar 26 1998 00:14
Interesting Times ( reserve currency shift ( ANOTHER ) ) ID#423355:
"currency nuclear war"?
Sir,
If one closely follows "in the footsteps of giants" ( not the book ) , he will also be preparing for a "currency war"! Time passes, thoughts change, people consider and value is perceived differently. Persons say, "the seasons are all the same", but we know "the weather is never the same". A storm approaches YOUR SHORES from across the pacific!
Mr. Lurker 777,
You have much leverage with gold, yes? Your tomorrow, it does not come soon enough? Even some countries are as such! Gold will find a new range, if the CBs say so.
They say so!
I must be gone for a time.
Thank You, very much
All:
On March 18, the Belgian Central Bank said it sold 299 tonnes of gold last week. This sale/purchase was ongoing, completed and announced during the time frame of my post ( of Date: Mon. Mat 09, 1998, 07:55 )
This purchase was completed by the BIS for it's account and held in five CBs. It was made at appx $305us. As this transaction was made public within the 5 to 10 day time frame, did that mean gold would move to it's new range of $320/$260 in that time also? No. What it does show, is that the BIS has made a decision to "no longer support the LBMA gold paper with CB gold"!
The central underlying questions from the beginning of these "Thoughts", was always, "will the CBs become the primary gold suppliers in the continued support of low oil prices" and " will the oil producers accept a world gold market that supplies only "non-mined" gold"? In the process of traveling to this point in time, the world governments found this new oil/gold arrangement, so successful for "paper asset" prices ( Dow Jones? ) , that they allowed the markets to supply any and all "gold paper" possible! Now, with the world awash in "US dollars" and "gold paper", a new asset is being formed to "draw" the oil producers closer to Europe! The offer is the "exact opposite" of the "US dollar agreement", this new offer will drive gold to a value that will allow it to become "the world oil asset and currency" if the producers use the "Euro" as the "oil trading currency"! In this process the Euro will become as solid as the reserves that back it.
Gold in $320 to $360, will be a time of much concern for any and all US dollar and US dollar asset holders. At some point, oil may say "yes" to the EURO, even before it is official, and gold will break to into the thousands with no hold back by CBs. Oil prices in US dollars will explode, even as prices plunge for Euro based currencies, and the US economy will implode. The world US dollar based economy is about to change, and America will find "no point" for warships in the Gulf. I ask you now, "who will defend Arabia"?
Many metal traders see gold as "a lost value from the past" and "a poor investment for simple persons"! I say, these traders have no experience with this new market of gold, as it is as "none before"! Many will find this "asset" was "worth the time of waiting".
Thank you
ALL:
I will wish for thinking and reply, this day ( April 04 ) . Have been shown the article "Oracle Of Alberta" on "eagle site" and will reply!
Thank you
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With this post of:
I offered, that these thoughts would be as "morning sun thru the fog of night". Today, this sun does shine. Kitco does offer a public right, for all to see. We step forward and make this "right" as day. Please read the post that soon follow:
The Management of Gold, A Simple Tool for the 90s
A Noble Purpose, This Oil For Gold
Change
At appx. 19:00 USA /CST I will offer a post for "Price".
thank you