Posted on 11/13/2009 6:45:21 AM PST by SeekAndFind
The past two weeks have brought two massive paradigm shifts to a Gold market that has been morphing literally on a daily basis for the past few months. During this time, the pundits and purveyors of misinformation and tripe have done their best to ‘student body left’ Gold back into obscurity as an ancient, barbaric relic. They certainly get an ‘A’ for effort. Now that Gold has made its debut above $1100 an ounce, they’ve switched their tactic and are now calling it a bubble. We’ll deal with why this cannot be the case in a bit.
For the past 9 years now, students of history and common sense have been literally shouting from the rooftops that Gold was the place to be as the monetary tradewinds shifted back in 2000 and the fiat inflationary cycle began to go parabolic. While the multi-trillion dollar deficits might be a surprise to many, for those who understand how these things work, it is just a mundane repetition of history and yet another confirmation that man cannot alter the laws of economics or his own intrinsic predilection to ignore events past.
From 2000 up until recently, there was a constant battle going on. Central banks and the IMF would sell off their physical Gold to suppress the price. Between 1999 and 2002, Gordon Brown, then England’s Chancellor of the Exchequer made the extremely wise decision to sell a good chunk of Mother England’s Gold (395 tonnes) in the $275-$300/oz area. The people were so enthralled by this obvious economic genius that they made him the Prime Minister. All sarcasm aside, this was only one prong of the tactic to suppress Gold prices.
The second prong consisted of large New York and London banks mercilessly shorting Gold in the paper futures markets. For most of the last nine years, the bulk of these futures contracts were rolled over or settled in cash; taking delivery wasn’t really en vogue. There have been many people such as Jim Sinclair working hard in the trenches to educate people on the merits of taking delivery and fighting the cartel by taking their playing chips off the table. Gold in your possession cannot be leased out by a central bank to various third parties, nor can it have futures contracts written against it.
Despite even these Herculean suppression efforts, the price of Gold made the journey from $275 to $940 in fairly short order. Surely, there were many gut checks in there; days when the metal lost 5% and the pundits would scream the bubble had burst and it was all over, now please buy some mortgage backed securities. There were some epic struggles like the Battle for $700 shown below.
Through the past nine years the game was played under the rules of central banks and the IMF. In the past two months, countries, large players, and even Gold producers have turned the game on its head. Suddenly everyone wants physical metal, not paper promises. And don’t give us the 90% bars either; we want the good stuff. Suddenly, there are instant buyers for IMF sales that were previously guaranteed to suppress prices. Suddenly an IMF sale sparks a rally to a new all-time high. China tells NY and London banks to take a long stroll off a short pier by issuing a directive to its state banks to walk away from commodity derivatives contracts. And, even more telling, central bank selling has been dropping steadily over the past few years and has been nearly nonexistent in 2009.
And finally, Barrick is closing its infamous hedge book. What was once a 20 million ounce boat anchor on the price of Gold has become a multibillion dollar boat anchor around Barrick’s neck and they’ve finally had enough. The book, now around 3 million ounces will be closed by next year according to Barrick boss Aaron Regent.
Oddly enough, it is not the collapsing US Dollar that is driving this decision, but rather a realization that Gold production likely peaked in 2001 and that even a tripling in exploration budgets across the mining sector has yielded precious little in the way of new discoveries. During this entire time period, demand for Gold has been rising consistently, thanks in no small part to the continual abuse of paper currencies by governments around the globe. The existence of serious supply-demand dislocations immediately rules out the prospect of a speculative bubble. Granted, there are plenty of smaller players who are dabbling in Gold without the slightest bit of understanding as to why they’re doing it. The next correction will undoubtedly send many of them running back to mainstream newsletter writers demanding a refund. After all, they were supposed to be living on the beach in 6 months; the advertisement said so!
The shattering of the old paradigm as it relates to Gold is very similar to a paradigm that was shattered with regard to stock investing nearly a decade ago. In that case, the conventional logic was that the market always went up in the long run. And for 18 years, that had absolutely been the case. Even the crash of 1987 hadn’t done much to derail the bull market. However, when we crossed into the new century, the paper paradigm changed with the major indices going nowhere in the past 9 years and change. Yet many conventional financial professionals are still investing as if it were 1995 then blaming the markets for client losses when they should be blaming their own inability to see that our world has changed dramatically.
Unfortunately, another of the very negative sides of the attack on Gold have been the ad hominem attacks on proponents of Gold-backed currencies and those who promote the reality that Gold is in fact real money. The attackers use the term ‘Gold Bug’ to paint a picture of little men sitting in fallout shelters wearing tinfoil hats with stashes of food, water, and enough weapons to make the debate about Iran seem pretty foolish. That just isn’t the way it is. Simply put, a Gold bug is someone who understands Gold’s historical role as money and seeks to educate others in this regard while protecting their own assets from the abuses heaped on paper currencies by their custodians.
So today I, an admitted Gold bug, ask: Now… do we finally have your attention?
You could also drill and plug a small void in the tungsten bar to make the fake exact.
My preferred approach would be to cast Tungsten cores into gold bars, so you had only 10% gold, and a millimeter (or so) of real gold on the outside to provide an assayable veneer.
It would probably take some serious technology to get gold to bond to tungsten (maybe the copper over lead bulletmakers could help?). Imagine the shock of dropping a big gold bar, and seeing its gold skin split open, revealing a dull grey interior monolith. It would make a good scene in a movie!
The giveaway for me that the story as written is bogus is the "certain detail" (sic) concerning 400 oz tungsten blanks, being plated in a paper thin layer of gold. No way. The fraud would be too easy to discover, even by humble vault employees during normal stacking and counting.
If this story said that 300 oz tungsten blanks were molded inside of 100 oz of gold, it would be more plausible. Then, fraud between willing players might work. (But both sides would have to be aware of the fraud, and have a reason to keep quiet about it.)
But a 400 oz tungsten blank with a few mills of gold plate?
No frikkin way.
The way I would write this novel, a vault employee who is also a university student accidentally uncovers the secret. The people he tells begin to die, and attempts are made to bump him off “accidentally.” He tells the CFO about the tungsten bars, but learns that the principals already know. He doesn’t learn this immediately, but only after his girlfriend is poisoned (meant to be his drink), they attempt to kill him during a “mugging” etc.
Great potential there for a novel or screenplay.
In 1980, 20 oz of gold would buy you a $16,000 car.
Maybe you should look at annual averages to get a better grasp of economic reality.
(Funny how those with “Gold Derangement Syndrome” are like the global waring nuts. First, it was “warming”, the equivalent of (”you’ll lose money on gold!”) Then,when the contrary occurs, they retreat to “Climate Change!” or “price volatility!”
There are lots of investments that others have liked but I have thought were stupid over the years. As a mentally healthy person, I haven’t invested any energy crusading against them. I let the market do the work.
I advocate the progressive new idea of letting the market decide. I know, letting the market run the monetary system rather than a cabal of czarist central state planners is a radical thought for a conservative such as yourself. Hope I don't scare you too much. ;-)
The market could and should decide not only the price of money, but what is used as money itself, including credit money.
Of course this would mean that banks that made bad decisions would have to eat their own losses. But hey, the market can't do everything.
Monetary anarchy! Hundreds of currencies circulating side by side. Great idea! LOL!
The creator of this Youtube video is pretty good at reading the tea leaves.
I suspect that one could develop a reliable test that involved a computer analysis of the timbre of bars when struck in a controlled way (think xylophone), and the harmonics of a tungsten-loaded bar would be vastly different than anything in the range of normal gold bars.
Then again something like an ultrasound or Xray would probably be simplest.
I don't think X-rays would penetrate very far into a gold bar.
I agree. But no matter what test is used, the fraud will only work until it is suspected. Any outfit that suspects they have been sold a bogus bar will simply melt one down in the presence of unimpeachable witnesses, immediately after taking delivery. The gold will melt off quickly, leaving a perfect tungsten block for all to see.
The sellers will then need to be on a jet for Patagonia, under new names. They and their firm will be out of the gold business forever.
Swing - you nailed it precisely. The bankster apologists (toddster, panama, et al) believe in the free market for everything but money, which is logically inconsistent.
Somehow the market is smart enough to figure out the correct pricing for oil, wheat, steel, copper, corn, cars (oops not anymore), houses (oops not anymore).
But the price of money (i.e. interest rates)? NOOOOOO. That has to be managed by a Soviet command economy style process. Big Ben and Timmy (and let’s not forget mister bubbles himself, Greenspan) have done such a great job, haven’t they?
I have to hand it to the banksters though, they have done an excellent PR / brainwashing job here - they’ve convinced almost everyone.
Forget, for the moment, Fed targets for overnight interest rates, what about the money supply?
Guilty as charged. Hundreds, dozens or (probably) just a few. Multiple monies have circulated in this country in the past and the country not only survived, it even grew! But then, thank goodness, they thought of a better idea - the fed - with one of it's stated purposes being to stabilize prices. Great job they've done with that, huh?
Great idea! LOL!
It IS a great idea, huh? Glad you agree! ;-)
Ben has decided with a few keystrokes to massively increase the money supply.
http://research.stlouisfed.org/fred2/graph/?chart_type=line&s[1][id]=M1&s[1][range]=5yrs
So you think:
1) he knows that it needs to be increased and by how much?
2) he knows what the $ should be worth?
3) he should be able to devalue MY hard earned dollars with a key stroke by increasing the supply massively?
I’ll take gold, thank you very much. Can’t be created at will by soviet style command economy central planners (read: The federal reserve). It’s a better form of money, pure and simple. Look at a 10 year chart of gold vs fiat currencies - the trend is your friend (maybe not yours).
You think that is good?
Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system, and protect the credit rights of consumers.
So you'll have one bank account for your "Amex Dollars", one for your "JP Morgan Dollars", one for your "Visa Dollars" one for your "WalMart Dollars" etc etc?
It IS a great idea, huh?
No.
Nope, I wouldn't have any JP Morgan Dollars... wouldn't trust 'em.
Yes he did.
So you think: 1) he knows that it needs to be increased and by how much?
You don't think the Fed has control over the money supply, do you? You don't think the Fed has control over interest rates, do you?
3) he should be able to devalue MY hard earned dollars with a key stroke by increasing the supply massively?
Your hard earned dollars are worth more than they were last year, even after the money supply increased. How is that possible?
I’ll take gold, thank you very much
Are all your assets in gold?
It’s a better form of money, pure and simple.
When you go to the gas station or grocery store, how do you pay for your purchase?
Which of the hundreds of new currencies would you use?
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