Thursday, January 5, 2012

Party Like It's MTM Time


The ECB published its "Year of the RPG" year-end quarterly revaluation ConFinStat yesterday, and the trend continues. Here are the relevant results:

In the week ending 30 December 2011 the increase of EUR 3.6 billion in gold and gold receivables (asset item 1) reflected quarterly revaluation adjustments, as well as the sale of gold coin by one Eurosystem central bank.

Quarter-end revaluation of the Eurosystem’s assets and liabilities

In line with the Eurosystem’s harmonised accounting rules, gold, foreign exchange, securities holdings and financial instruments of the Eurosystem are revalued at market rates and prices as at the end of each quarter. The net impact of the revaluation on each balance sheet item as at 31 December 2011 is shown in the additional column “Difference compared with last week due to quarter-end adjustments”. The gold price and the principal exchange rates used for the revaluation of balances were as follows:

Gold: EUR 1,216.864 per fine oz.

USD: 1.2939 per EUR

JPY: 100.20 per EUR

Special drawing rights: EUR 1.1867 per SDR



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Sidebar

As I noted here last Friday, during the dark of Thursday night, euro gold mysteriously levitated itself up a whopping €32.89 from Thursday's London PM fix of €1,184.16, which would have been a disappointing decline since the October MTM Party which marked gold at €1,206.39. This, of course, begs the question (once again) that was implied in this post as to how important "Snapshot Day" really is to young central bankers. (Evidence from Sept. '10 and April '11 seems to suggest that year-end and mid-year might be more important than the other two quarters.)

But this is neither here nor there which is why I put it in a silly little sidebar. It is simply a curious observation.
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Sidebar #2

It is funny to see how pathetically little some in the euro-skeptical media really understand about the Eurosystem. Here's the Wall Street Journal's Marketwatch headline relating to yesterday's MTM Party:

ECB balance sheet grows, gold reserves increase

The flaw in the headline is compounded in the body of the article:

"The value of the Eurosystem's gold and gold receivables holdings increased by EUR3.6 billion to reflect quarterly revaluations as well as the sale of gold to the ECB by another euro-zone central bank, the ECB said."

First of all, that's not what the ECB said. This reporter's statement that one of the NCBs (National CBs) sold gold to the ECB carries obvious implications which are not only wrong, but very misleading. Someone in Europe emailed me last night asking:
"Did you notice that one European CB sold gold to the ECB? My guess is it was Italy."
Someone else posted this comment on a forum after reading that article:
"Gold of a Eurozone CB sold to ECB ... If I am not mistaken-correct me if I'm wrong-this does not happen very often?

More gold on ECB balance sheet in exchange for buyout sovereign debt perhaps ...?"

Here are the problems with that article. The ECB is simply the core of the Eurosystem. Actually, there are two systems. The ESCB or the 'European System of Central Banks' which is comprised of all the CBs in the EU, even those not using the euro as their currency. And then there's the Eurosystem which is comprised of all the CBs using the euro, with the ECB at its operational core.

The ConFinStat, put out weekly with quarterly MTM revaluation, is the balance sheet of the whole Eurosystem which includes all of the NCBs using the euro. It is not the balance sheet of the ECB. If you'd like to see the ECB's balance sheet, you can find it in the Annual Report for the ESCB and the Eurosystem which is published every year at the end of the first quarter to be presented to the European Council, Parliament and Commission. In last year's report, which can be found here, the ECB's balance sheet appears on page 214.

The actual ECB balance sheet includes 16,122,143 ounces, or 501.5 tonnes of gold which was valued at €17B as of December 31, 2010. That gold comes from the "foreign reserve asset" capital subscription to the Eurosystem by the NCB's of which at least 15% of the subscription fee had to be in gold. And the amount of each member country's fee is based on a “capital subscription key” which reflects the respective country’s share in the total population and GDP of the EU. These two determinants (population and GDP share) have equal weighting. The ECB adjusts the shares every five years and whenever a new country joins the EU.

The ECB marks its 501.5 tonnes of gold to the market price each year, but the unrealized gain from the revaluation goes into a special "Revaluation Account" which is credited to the NCB's according to the subscription key. In other words, the NCB's own the ECB, use it as their system's operational core, and benefit directly from the revaluation of their share of the ECB's assets including its gold.

So hopefully you can see why it makes no sense whatsoever that, as the Marketwatch article says, a euro-zone central bank would sell gold to the ECB. And even if gold had been transferred from an NCB to the ECB, it wouldn't show up as a change on the consolidated balance sheet referred to in that article!

Furthermore, the amount of gold *coins* that one of the NCBs sold last week was all of €1 million. What's that, 820 coins? Most likely it was simply a net sale of gold coins to the public.

Finally, try a Google search of the first part of that Marketwatch headline, "ECB balance sheet grows", and you'll see just how many analysts are incorrectly referring to the Eurosystem's balance sheet as if it belongs to the ECB. And if you can't quite see how this seemingly-innocuous incorrect view is detrimental to the usefulness of one's analysis, just ask Texan any question you want to about the ECB. (j/k Texan ;)
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Sincerely,
FOFOA



222 comments:

1 – 200 of 222   Newer›   Newest»
Tyrone said...

Here is a pre-emptive,
"Aristotle, reveal thyself".

And gimme FreeGold.

Cheers!

jlrchrds said...

FOFOA, THANKS FOR EXPANDING MY MIND OVER THE PAST FEW MONTHS. HERE'S TO WALKING IN THE STEPS OF GIANTS. JLRCHRDS

Nickelsaver said...

Costata,

Before I go ahead and read FOFOA's, I just want to replay to your last comment on the previous post.

Are you backpedaling? Is this a concession that the USA will be on par with Europe under Freegold?

I thought gold was cornered. I thought the point was that the USA didn't have its gold anymore.

I'm confused...can i get some help here?

Flore said...

Thanks Sherlock Holmes !!

Nickelsaver said...

Costata,

It may be the USA that pushes the button on Freegold-RPG when they are ready.....Having completed a de facto default through HI a debt free USA, with massive gold reserves, would be a formidable economic force. And if their imperial ambitions are curtailed and overseas bases are closed then America should recover even faster.

The big winner out of this transition (on a nominal basis) will be the USA. The "people who matter" will be fine. It's the middle class in America who are going to be decimated.


Someone who understood American politics would never say this.

There is no way a standing American President or anyone else representing either political party would "push the button" on Freegold. It would be political suicide.

America will push the credit balloon until it bursts...and then blame it on Europe or the Chinese.

And even if you could find a President that might do that (cough, Ron Paul, cough) this is and election year...it aint going to happen.

And seeing as how FOFOA has explained MTM in the post here...that begs the BIG question. How much gold does the USA have? does anybody really know?

costata said...

Hi Nickelsaver,

I'm mystified as to why you would use the word "backpedaling".

A/FOA were adamant that the USA would ultimately adopt the Freegold-RPG architecture. Of course America's economy will ultimately be "on par" with Europe, or at minimum recovering rapidly, after hyper-inflation makes the USG debt-free and the gold revaluation recapitalizes their system. Devaluing the currency will default on all of that debt and those entitlement obligations.

Everyone holding their wealth in US debt and dollars is going to get shafted - not the USG.

I stick with what I said:
The big winner out of this transition (on a nominal basis) will be the USA.

The key word is nominal.

You wrote:
I thought the point was that the USA didn't have its gold anymore.

IMO they have the gold. Sure, some years ago, I gave credence to the claims that the US reserves didn't exist anymore. But that isn't Uncle Sam's modus operandi. I reviewed Rob Kirby's research on gold sales by US allies and puppet states. It was US allies etc who gave up their gold reserves.

I thought gold was cornered.

I subscribe to the view that it is. The USA has about 8,000 m/t out of around 165,000 m/t of aboveground stock. All of the gold whose location is known represents a fraction of that pool.

All that is generally available now is the flow of mined gold and scrap. That flow is a low single digit percentage of the stock.

costata said...

Hi Nickelsaver,

I didn't see your second comment on this topic until I posted my reply.

You wrote:
There is no way a standing American President or anyone else representing either political party would "push the button" on Freegold. It would be political suicide.

This is not how the game is played. IF it was "political suicide" then either someone else would be blamed or it would be engineered in such a way as to give the Administration "plausible deniability".

But having said that, Why do you think it would be political suicide?

And others might like to join the discussion here on this question: What could make Freegold-RPG a vote winner in the USA?

Nickelsaver said...

ok. maybe a dumb question, but, if the oil states contracted for future gold as payment for oil, wouldn't they have the legal rights to all of that gold?

And if by default, you mean that the USA will not honor those contracts...but the EU, having their gold on balance, does not owe that gold to anyone...

So the USA is going to get a pass?

Another also spoke of the time that Gold would stop in trade and oil would skyrocket. Do you think the USA is going to go cold turkey on oil?

To me this all adds up to the USA going down fighting, and going down hard.

Nickelsaver said...

political suicide because the majority of americans are middle class...you might as well say that the American experiment will end...which it most likely will...but it will not but done willing

Nickelsaver said...

[willingly]

costata said...

Hi Nickelsaver,

You wrote:
...if the oil states contracted for future gold as payment for oil, wouldn't they have the legal rights to all of that gold?

That was future gold from the gold miners hedging programs. This is an old story that hasn't applied for some years.

Another also spoke of the time that Gold would stop in trade and oil would skyrocket.

Oil bottomed at $10 per barrel. What is it now? $100. The increase in the price of oil commenced in earnest when the last of the gold miners hedge books were being closed out. This was one of the factors that bought the $IMFS more time. Instead of cheap gold the ME got more expensive oil.

Do you think the USA is going to go cold turkey on oil?

I posted a comment about this the other day. The high price of oil is reducing the US dependence on oil imported from outside the North American continent.

And BTW have you noticed that Obama has been ratcheting up the rhetoric about Venezuela lately. America reactivated the southern fleet some time ago. What do you think the military intervention in Haiti is all about? Humanitarian aid? Haiti has some of the best deepwater ports in the region and it is in spitting distance of Cuba and Venezuela.

Which country refines most of the Venezuelan oil? America. Who else can process heavy crudes in high volume like America? No one. So it's Canadian oil sands one and Venezuelan heavy crude two in my opinion.

By "default" I mean that currency devaluation will reduce the value of all of those US$ denominated debts to a fraction of their current purchasing power in terms of US economic output and assets.

So the USA is going to get a pass?

IMO the USG is going to give itself a pass.

...political suicide because the majority of americans are middle class..

Please name one (1) US government policy that has favoured the middle class in America in the last 20 years. It doesn't matter what the American middle class "wills". It's all but game over. I was reading this piece by Naomi Wolf a few minutes ago:

http://lewrockwell.com/orig11/wolf-n3.1.1.html

NW writes:
Congress has now passed the National Defense Appropriations Act, with Amendment 1031, which allows for the military detention of American citizens. The amendment is so loosely worded that any American citizen could be held without due process.

The language of this bill can be read to assure Americans that they can challenge their detention – but most people do not realize what this means: at Guantanamo and in other military prisons, one’s lawyer’s calls are monitored, witnesses for one’s defense are not allowed to testify, and one can be forced into nudity and isolation.


I'm sorry Nickelsaver. It is what it is.

Nickelsaver said...

I wasn't aware that gold was not still flowing east to pay for oil.

You say that oil Has skyrocketed, $100 a barrel? That is high, yes, I would not say that it has skyrocketed though. $500 a barrel would be a skyrocket.

Maybe someone else can help us with some USA oil consumption figures...my understanding is that we are completely dependent on foreign oil. As for utilizing local oil sources, the environmental left has prevented that from happening. We are addicted and cannot supply our own fix.

Indeed the USA will give itself a pass. You think that everyone else will be ok with that...as long as they have Freegold?

78Rubies said...

Comments...

JoyOfLearning said...

Hiya, everybody. Thank you so much for all your insightful discussions which I always follow with great interest, and of course to our gracious host and inspiration. I would humbly like to ask a question to the brilliant community here as I know no better place of people I admire & respect to ask for it:

I'm thinking about moving with my family to Germany for work. How do you see the country from a freegold perspective say 2-5 years down the line? 2012? Immediately after freegold should the price spike happen soon? I think I was reading a comment (was it here?) once saying that there 1 in 4 people has gold. Seems too good to be true. Then there's the other aspect of it: I have a lot of respect for german values per se... but I can't help but worry for the security of my family: they were at the center of 2 recent world wars, what do you think, does this make it more or less likely for them to be in a 3rd?

Another thing I've been wondering about: a lot of the financial media, keynsians as well as austrian economists have at one point or another hinted that they think germany would break away from the euro. From past posts and comments I get that this is not a view most freegolders here believe in... still, I had to ask since I assume that would cause serious trade problems, prices/shortages/taxes... again raising the danger for violence (particularly worrying should you be an immigrant minority in another country)

Thank you so very much for your patience. Any and all comments are highly appreciated! This is a big life change for us, and it is done in no small measure based on guidelines we've been blessed to learn from this great community here, but I wanted to double check and maybe get some contrary opinions/discussions. Thank you so very much for everything! You've touched our lives in many deep and long lasting ways, from thoughts to insights to even book and reading suggestions. Thank you for helping us grow in wisdom!

DP said...

.

costata said...

Hi Nickelsaver,

You wrote:
I wasn't aware that gold was not still flowing east to pay for oil.

Of course gold is still flowing East. But gold has risen in price too. No cheap oil unless gold is cheap and available. That is what broke the earlier deal - lack of sufficient supply at a cheap price.

You say that oil Has skyrocketed, $100 a barrel? That is high, yes, I would not say that it has skyrocketed though. $500 a barrel would be a skyrocket.

I did not say that oil has "skyrocketed". But it has gone up by 10x since the lows of $10 per barrel. Gold has gone up how much? 7x - so is gold expensive in terms of oil? But for oil users that 10x is a pretty hefty increase.

Oil has not "skyrocketed". Neither has gold. Another was talking about a different phase of this transition.

Maybe someone else can help us with some USA oil consumption figures...my understanding is that we are completely dependent on foreign oil.

Maybe you could help yourself. They are easily found. The key issue is that the US is slightly less dependent these days - from 60% to 50%. And the dependency is more localised on the North American continent eg. from 19% supplied by Saudi Arabia in the early 90s to around 13% today.

This is a very strange thing to say IMO:

As for utilizing local oil sources, the environmental left has prevented that from happening. We are addicted and cannot supply our own fix.

America the victim from environmentalists? Talk to us about that little problem in the gulf a few months back. There isn't much that powerful interests want "exploited" that isn't being exploited in the US these days. Take a look at how they mine coal in the Appalachian mountains.

Indeed the USA will give itself a pass. You think that everyone else will be ok with that...as long as they have Freegold?

No, but what choice does "everyone else" have.

Matt said...

Joy of learning - for what my opinion is worth, Germany is and will remain a strong economy. If they leave the euro it will be for their benefit. If you are thinking of the best places in the world to live and work over the next 5 years, Germany would have to be high on the list regardless.

As for security, keep some cash and PMs - enough to buy your leave at very short notice and you will be fine.

costata said...

DP,

You are a sick puppy.

Cheers

Texan said...

Edwardo,

Yes, it is absolutely a referendum if you thnk there is going to be a peaceful and orderly transition. Because that is a political process.

Someone has to pull the trigger and kill the dollar.

Who is that going to be Edwardo? Please, educate me.

Michael H said...

comments ...

tripper said...
This comment has been removed by the author.
Nickelsaver said...

Costata,

First of all. When I said America, I was talking about the USA, not South America, Central America, or Canada and therefore, oil for gold in those terms.

Oil, Gold, Currency have all gone up.

Percentage of foreign oil dependence is 50% = http://www.eia.gov/energy_in_brief/foreign_oil_dependence.cfm

What is the whole point in saying the ECB has MTM gold if the USA has gold and and will usher in RPG?

I am only arguing that the US will not usher it in peaceably.

jlrchrds said...

Joyoflearning...

I am a new poster here. You will not find much out about me on the web since I'm not comfortable sending postcards to the world (other than thank you notes) but you've asked a question that hit home. The children part motivated me since I'm a parent as well.

About a decade ago, I lived for a number of years in Berlin and Munich Germany working for a large German Multinational and Large Foundation. My background is finance. I lived there with my wife before we had kids. This does pertain directly to Freegold, but does pertain to economic issues and collapse. I had a wonderful life there, but...

1) Although I do not know what your job will be and employer, IF you work for a German owned business, you will likely not get visa extensions IF unemployment skyrockets or the economy tanks. You, or your employer, will have to prove to state agencies that your unique talents cannot be replacement by a German with skills. Don't think for a minute the state agencies want you there... they don't. If and when you have direct contact with the local visa folks they will let you know it.

2)Regardless, of your color and background unless you are a German you will never be a German. While I grew up in a "German" family and fit the profile, you will ALWAYS BE A FOREIGNER NO MATTER HOW WELL YOU SPEAK THE LANGUAGE! This will play into events you'd never expect.

3) Take a look at what Jim Rickards believes may happen to German gold in the United States vaults. I wouldn't let that impact your decision, but I would keep in mind if things begin to implode and you need to get out of dodge.

I bring this to your attention mainly since children are not as flexible in uncertainty.

Germany is a wonderful place to live as are it's people. Unfortunately, however, you absolutely have to keep the above in mind due to having children.

jlrchrds

JR said...

"That's the choice. You can collapse your currency against the non-economic good gold, killing the paper gold market and driving up the price of physical in advance of hyperinflation by buying it up. This gives you some hope of avoiding the worst of hyperinflation by providing a real outlet for unwanted surplus dollars.

Or you can wait until your currency collapses against economic goods and then you will have to buy back your own currency with your gold, also at Freegold prices. Even if you start a new currency you will still have to make a market for it because your credibility will be shot by that point. "


FOFOA

JR said...

"So if the biggest debtor in all of history suddenly acknowledges that he still has an asset of real value, that asset might explode in price to heights that would almost cover his debt just from the act of publicly acknowledging it? Hmm.

Let us think of analogies. I know someone who is buried in debt. A large mortgage and HELOC, two car loans, lingering student loans and a baker's dozen of credit cards. A prime candidate for bankruptcy. But let's say he also has a hidden asset that, even though it is not collateral to his debt, is still valuable enough to almost cover it. He hasn't filed for bankruptcy or stopped paying on his debt yet, so even if he reveals the secret asset, his creditors won't have a claim to it. Yet if he reveals it, they may actually extend him more credit that he will then use to keep rolling over his debt, because his books will no longer look so underwater.

Or how about this? I know two people, each with a million dollar debt hole. One guy has no assets and can't get any more credit, so he'll probably have to declare bankruptcy. The other guy has two million in assets and he has no trouble getting more credit.

Now I'm not saying that rolling over debt is a good way to manage one's finances. I'm just saying this is an interesting concept that you've brought to the table. That if Congress were to publicly reveal this U.S. asset, that it would suddenly skyrocket in value. So how would that translate into a repudiation of the U.S. dollar worldwide? Or hyperinflation? Actually, I think the U.S. proactively ushering in Freegold (even if they didn't know what they were doing) could potentially be the ONLY way to possibly avoid the worst of those things.

A dramatically fast and public rise in the price of gold, the kind you say they will never allow, would absorb a lot of the monetary pressure and keep it away from essentials like food and gas. That's the best and highest function of gold. To absorb. To consolidate. To sequester monetary pressure. To bottle it up and put it on display for all to see.
For all to not only marvel at, but to partake in as well. And to do so in a way that doesn't affect vital economic commerce. This is the elegance of the ECB/MTM party concept. This is the elegance of Freegold!"


FOFOA

JR said...

FOFOA discussing the suggestion that the USG revalue its gold in the comments to Open Letter to Ron Paul"

"Furthermore, there are many ways the option of monetization could be used. Retiring debt is one way. More from It's the Flow Stupid:

"And then, if they let the value of the gold float, anytime the price rises, they could issue more fancy dollar-denominated gold certificates to the Fed and be credited with new dollars to spend. In fact, at a Freegold price of $55,000 per ounce, Congress could retire the entire US national debt without giving up a single ounce of gold, merely monetizing what it already has through the Federal Reserve. But what will really happen someday soon is the additional step of opening the vault and allowing that gold to FLOW again, but at a floating price. With this one move Congress wouldn't have to retire the entire national debt because credibility would be reestablished.

You see, the European gold reserves are far better, far more credible than the US gold reserve, simply because they engage in a two-way gold market, and have for decades. The US gold has been hoarded and locked away for more than 30 years, never deployed in case of emergency. The European CB's took a lot of flak for selling gold over the past two decades, but that action is precisely what makes them so much more credible (and valuable!) than the US gold hoard. Any trading partner knows full well that if all else fails, gold will be paid."


It should be fairly obvious that this post was not meant as a three page magic bullet. But it's not meant to be a trap either. I actually think it would be a step in the right direction. For a couple years now I have proffered that getting out in front of Freegold is the USG's only chance of avoiding the worst of what's coming. Of course, like anything else, it could, and probably would be abused by the spendthrifts in Congress. But I don't see how it could possibly make anything worse. Do you?"

Jaqship said...

Costata

Your view of US and Freegold is important, but I wonder about the emphasis you give to the resulting boost to US income from mining, as opposed to the boost to the US balance sheet to which JR just referred. My quick computations say that the resulting boost to US annual income from mining would be less than $1/2 trillion; that's not chump-change, but it's still a fraction of the annual deficit.

Do I read you right to mean that the US middle class will lose because most of its "wealth" hinges on $-denominated obligations which will be inflated into chump-change, while "people who matter" have effective control of the USG's gold?
If so, will the gold held by us shrimps be there for the (STEALTH) confiscating?

Texan said...

Yes JR, that is indeed FOFOA's opinion.

Others, like Nickelsaver and myself, while lauding the idea, have a different opinion of what the "reaction" would be.

But who really knows? This is the "known unknown" I referenced before. And i am sure there ahost of second and third derivative "unknown unknowns".

If the USG acknowledges all its gold, NO ONE knows what will happen next. That is a completely unacceptable risk for the USG to take. It wold only be taken if there was clearly no other way out.

Now WE may think there is no other way out (some sooner, others later) but THEY obviously don't. Whenever i feel like i need my head to explode, i go read some Krugman. His views are widely held in the USG. There may a small minority that is kinda getting that "it aint working" and "freegold" might be a solution, but if there are, I am not aware of them being vocal about it. Not even Ron Paul
talks about our gold reserves. I find that strange.

So yes, the Treasury and the Fed could come out tomorrow and kill the dollar. Anything is possible.

But do you think they will? And if they don't, in order for RPG to happen as a top-down implemented process, call it Bretton Woods 3, will require basically everyone else to repudiate the dollar and agree on gold as the new RPG. I don't see any major political powers doing that, with the exception of maybe Russia (which in itself tells me how the USG would react).

So - answer this question: who wants RPG NOW? And if not NOW, then WHEN, ie under what conditions will the time for the "transition" be right in an orderly way?

To be clear, I think we may have RPG someday. But I don't know how the transition happens in an orderly fashion without a lot more pain first, and a fair among of signaling in the MSM. I don't see any of that - au contraire.

Nickelsaver said...

JR,

Everything you say makes sense. Getting ahead of the game by ushering in Freegold would be the best option for America, and a smart move provided it really does have 8000 m/t of gold.

But we are talking about a political machine that can't even freeze its spending, let alone trim it.

As an American, I am absolutely 100% certain that it will take economic collapse, or the immediate threat of that collapse for the congress to act. Look at the debt ceiling debacle back in August.

The president could act on his own utilizing emergency powers. But this is an election year.

The other point I wanted to make, going back to what Costata said about USA defaulting on its credit obligations. If they are going to default on there obligations and revalue against gold, why would they need to revalue lopping of 12 zero's as FOFOA suggests. If they default they default. They wouldn't need to revalue. What choice does the rest of the world have? The choice to trade or not to trade with the USA again.

It's one or the other, default or revalue is it not?

ciaoant1 said...

Hello FOFOA,

I have been reading your blog for some time now, and you have helped me a lot since then. I have read Another's writings even before i found out about your blog, but yyou certainly helped clarify and analyze a lot of things for me. I've been blogging about this crisis since 2005 in Greek, my native language, but now i lost my job and i have to move to Australia to get anew one, so i've decided to create a new blog, this time in english. Maybe you will find it interesting - here are some of my articles:

-What is "money"? Is it the same as "currency"? What about gold?
http://whataboutmarx.blogspot.com/2012/01/what-is-money-is-it-same-as-currency.html

-Oil wars - The stakes are higher than just Iran
http://whataboutmarx.blogspot.com/2012/01/oil-wars-stakes-are-higher-than-just.html

Take care FOFOA and keep up the good work,
John

Jeff said...

The chain of custody behind the [gold] price setting mechanism appears to be breaking…the CME and comex futures market mechanisms are clearly nonsense, [investors] are leaving in droves as you would expect…I’ve labeled 2012 as the year of [gold] deliverance.”

http://bullmarketthinking.com/ned-naylor-leyland-the-chain-of-custody-behind-golds-price-setting-mechanism-appears-to-be-breaking/

Jeff said...

goldman preparing gold bond filing

http://bullmarketthinking.com/breaking-news-goldman-sachs-group-inc-files-8k-form-initializing-15000000-in-gold-linked-bonds/

Nickelsaver said...

ciaont1,

I see that you are a Marxist. you should read this post:

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html

FOFOA goes into how Marx had it wrong on class struggle not being between Rich and poor, capitalist and labor...but rather between debtors and savers, easy money and hard money.

Jeff said...

Nickelsaver says: But we are talking about a political machine that can't even freeze its spending, let alone trim it. If they default they default. They wouldn't need to revalue.

FOFOA sez: Here are a few simple principles that will save you the hassle and embarrassment of constantly being surprised by the actions of politicians and central bankers. They will never sacrifice the system to preserve the value of the currency. But they will always sacrifice the currency to save the system. And there is a very simple formula for how they do it.

There are four players to keep in mind; the debtors, the savers, the banks and the printer. They never print and give the money directly to the debtors to pay off their debt. Instead they print and give the money to either the creditors (banks) or the savers (e.g. pension funds) in exchange for the older bad debt which they then put on the public balance sheet to socialize the lost value.

So they "bail out" the banks and the savers nominally, which in turn (through currency debasement) actually bails out the debtors and screws the savers. The banks come out even because they only require nominal performance. But the retirees and pensioners that require real performance at the supermarket get screwed.

ciaoant1 said...

@Nickelsaver:

I've read it - both the "hard money" and the "easy money" camp support private property. So maybe they are two opposing factions within the same camp.

I will write something about it in my blog in the future. For now, maybe this is of some interest:
http://whataboutmarx.blogspot.com/2012/01/leveragingdeleveraging-give-me-lever.html

Victory said...

Victory,

@nickelsaver
Can I borrow some of your gold?

I’m not a business looking to borrow large sums of money at low rates to finance short-term liquidity needs.


@doctoroctagon
Victory - you said "When the cash loan is due the collateral is returned unless of course the borrowed cash is not repaid at which point this would be no different than a plain old vanilla cash for gold sale."

So the bank loans out the cash, and takes physical possession of the gold. What do they do with it while the loan is outstanding? Do you think banks will just keep it in a vault somewhere? This is not what banks do.


A repurchase agreement is a privately negotiated contract, there are most certainly clauses which can prevent collateral in a repo from being sold or lent while under the terms of the agreement. Look up the difference between hypothecation and rehypothecation. Also take a look at tri-party repurchase agreements.


@doctoroctagon
Here's another take - if someone has savings in the form of gold, and they need money, what's the advantage of getting a loan and putting up the gold as collateral, compared to simply selling the gold? If they go the route of a loan, then they have to pay interest to the bank on top of the value of the gold, in order to get their gold back later. If they simply sell, then they get the same amount of cash as the bank would have provided, but once they no longer need the cash, they can just buy gold again on the open market for the same amount they originally sold at, assuming stable prices. No interest.

A repurchase agreement is essentially what you are describing but on a short-term basis. Hence the term ‘repurchase,’ it is a matter of degree/semantics but at it’s core you can say that this is the near equivalent to a gold owner selling his gold for short term liquidity purposes and then buying it back later.

You ask why pay interest on a repo when you could just sell and then later buy back your gold on the market. One word ‘premium.’ Can you buy and then sell you’re gold at the same price, no of course not there is spread. Ok so you pay the spread to sell and then buy back your gold on a short-term basis - if you were to annualize the transaction costs on this spread it would be many multiples the cost of paying interest on a repo.

Let’s not forget we’re not in a world of FREEGOLD yet, gold today is priced in the $1,600’s. We have to go from A to Z. What I’m pointing out is that along the way to Freegold, if gold were to find itself playing an expanded role in the repo markets it could help to ultimately usher in FREEGOLD - if it’s use in the repo markets cause market participants to differentiate between good and bad gold collateral (allocated vs. unallocated)

Robert said...

Joy of Learning,

I think you should go, provided that you have enough savings in cash, gold, and real goods that you can ride out a storm about as well as you could in your home country.

With freegold, nobody here knows when it is coming. Throw out all of your expectations about timelines. You can walk the trail and learn to recognize signposts along the trail, but the trail might be much longer than you expect right now. Your kids might be all grown up by the time freegold comes. Then again, it might come next week.

Go ahead and live your life in the meantime. Hedge your bets, not putting all of your eggs in one basket, and making sure that you hold onto some physical gold and enough other stuff to get you through 6 months of real crisis -- and you will be fine. Have a little faith.

Nickelsaver said...

Robert,

Your words speak to me as well. Finding that sense of calm is something that I consciously force myself to do.

Thanks for the reminder.

Edwardo said...

Spot on, Costata, about the condition of that great endangered species known as the American middle
class. I'm also glad that you mentioned the hideous NDAA
in conjunction with the ever shrinking NDAA. It should be crystal clear what and who that act is intended for. We are know officially and unquestionably a police state. In the meantime regarding the putative powers of entitle, see the renewed leases for BP in The Gulf.

Edwardo said...
This comment has been removed by the author.
Edwardo said...

Pardon my error... With the ever shrinking middle class. And another typo, entitle should be enviros.

Edwardo said...

Jeff, regarding the Naylor interview, I thought the PAGE had been deep sixed?

Chico_hawk said...

I have posted this question before but haven't seen it addressed (may have missed the response tho I doubt it).

In the ECB ConFinStats, it shows Gold & Gold Receivables as one line item under the same classification.

This amount then includes any gold that has been leased or loaned out & is owing to (or receivable by) the ECB, in addition to actual physical gold held & in the bank’s possession.

Perhaps the ECB are simply following the Bundesbank’s lead, which also lumps gold & gold receivables together as one and the same single asset class, (see http://www.goldmoney.com/gold-research/germanys-gold-its-time-for-an-accurate-accounting.html ), on the basis that the IMF’s reporting standards supersede generally accepted accounting principles (GAAP) and therefore combining the two is perfectly reasonable, however, if that is the justification, it is pretty lame (as Turk points out).

This practice of combining of gold with gold receivables is contrary to GAAP and is troubling in at least two respects.

1) It serves to obfuscate the delineation of actual physical bullion held from claims on physical gold (i.e. paper gold)

2) This obfuscation appears contrary to GAAP and is intentional.

Clearly the amount of actual physical bullion in the possession of the ECB represents the reserve backing the Euro and it is particularly ironic that in this day & age where financial counter-party risk (eg MF Global) is heightened and the importance of holding actual physical bullion (as opposed to paper claims on physical gold) has never been greater, that such a simple, fundamental reporting flaw by the ECB could go unnoticed or unchallenged.

Unless and until the simple, but fundamental question of how much of the gold & gold receivables is actually physical bullion in the possession of the ECB (and how much of it is represented by paper claims on some physical gold held somewhere by someone else), the ECB (& the Euro) is no more credible than the IMF, the $US, USG, etc.

Victory said...

Chico_hawk,

well said

Biju said...

Gold lease rates falling again. I don't know what to make of it.
Even 1 yr rate gone negative.

Gold lease rates
6-Jan-12
Change
1-month -0.25% 0.0074
2-month -0.13% 0.0057
3-month 0.00% 0.0155
6-month -0.64% -0.8019
1-year -0.69% -1.1184

Jeff said...

FOFOA: When you think about the message that the lease rate sends, it is directly tied to the liquidity the dollar desperately needs...

What the bullion banks do is they take a piece of gold and they inflate it 1,000% and sometimes up to 10,000% so it appears to be a SUPER BID for dollars. And they prefer to do this by LEASING gold (borrowing your gold) rather than buying it outright. It's a lot cheaper that way.

But right now the signal going out to the marketplace is "we don't need to borrow your gold, and if you insist on us borrowing it from you, it'll cost you." It is a completely bogus signal, and has been for more than a year now!

And just as with all bogus signals that the government, the Fed and Goldman Sachs create, the response is the same. The marketplace withdraws from games with bogus signals.

costata said...

Hi Jaqship,

A $500 billion boost to the US current account would wipe out most of the deficit. If the deficit on that account is eliminated then the US wouldn't need to import capital to balance the books. This would negate the need to borrow from foreigners.

In regard to the middle class (and foreign US$ reserve holders) a huge swathe of their "wealth" is in US$ denominated securities - bonds etc already.

As per those quotes JR provided, if the USG revalued gold it would recapitalize the existing currency/debt structure. Then provided Congress balanced its budget the USG could pay off its debts over time. The debts owed to the middle class would be safe.

Alternatively the USG can continue to lower (weaken) the dollar until they destroy the confidence that supports it and bring on hyper-inflation. That would wipe the USG debts inside and outside the USA.

Then the USG could "save the day" by revaluing gold to halt the HI. Once they are debt free and the US dollar is recapitalized the politicians can issue debt again to fund their schemes.

So option A is revalue and pay down existing debt and stop deficit spending and borrowing more. (Continuing to borrow would negate the benefits of the revaluation.) But nobody gets shafted.

Option B is default on the debts through HI, revalue/recapitalize and start the borrowing process again once the dust settles. (Like other sovereign defaulters throughout history.) Everybody gets shafted except the USG and the insiders who got out of the current system before it blew up.

Which option will they choose? (Assuming of course the USG doesn't sleepwalh into a resolution.)

victorthecleaner said...

costata,

What could make Freegold-RPG a vote winner in the USA?

If the collapse of paper gold is seen as a case of fraud by the commercial banks? I think that would word fine. The question is whether any USG would deliberately hurt Wall Street. But it could certainly be made to happen 'by accident'.

Nickelsaver,

Do you think the USA is going to go cold turkey on oil?

I agree with costata. They have played dirty tricks in the 70s in order to raise the price of oil, and so why wouldn't they do it again? It is the little Joe who is going to pick up the bill. Also, this might explain their current behaviour in the Iran question.

Victor

costata said...

Hi Texan,

You wrote:
...in order for RPG to happen as a top-down implemented process, call it Bretton Woods 3, will require basically everyone else to repudiate the dollar and agree on gold as the new RPG. I don't see any major political powers doing that, with the exception of maybe Russia..

At least one other major power, the EU, would agree. So that's 40 per cent of the world economy - day one.

If the USA and the EU can bring their allies along for the ride then that would account for about 75 per cent (give or take).

To be clear, I think we may have RPG someday. But I don't know how the transition happens in an orderly fashion without a lot more pain first..

FWIW I agree 100% - lots more pain.

costata said...

Victory,

I understand your point. I think what you describe could be part of the process taking us toward Freegold-RPG.

Particularly tri-party repos with allocated gold as one leg. I suspect the clearing members of the LBMA are either doing this now or are moving toward being able to offer this service.

Robert LeRoy Parker said...

Chico Hawk,

Receivables likely represents gold leased on paper, and the gold itself has never moved from the vault. In the advent of the collapse of paper gold, the physical holders could simply force majeure cash settlements at the phoney baloney paper price.

If the ECB knows the true value of gold is represented by its physical form, and the receivables are in the same vault, why not put it on the same line? It can almost be viewed as an FU to the bullion banks.

costata said...

Chico_hawk,

I think you are barking up the wrong tree. The ECB is at the centre of a group of 17 CBs known collectively as the Eurosystem. These CBs own the ECB collectively.

It is quite likely that the ECB has an unallocated pool of gold to facilitate transactions between those CBs. So gold receivables and obligations could legitimately exist that remain entirely within the Eurosystem.

I can't think of an argument that an auditor would offer for breaking them out of the accounts as separate line items. And CBs are rather attached to the notion of keeping their activities confidential.

You write:
Clearly the amount of actual physical bullion in the possession of the ECB represents the reserve backing the Euro...

It's part of the reserves backing the ECB's balance sheet and there is no link whatsoever to the Euro. As Wim Duisenberg stated the Euro has severed its link to both gold and the nation state.

There is a lot more that could be said but I'm kinda tired of the "do they have it or don't they have it" discussions. Turk or no Turk.

BTW James Turk should come clean with his GoldMoney customers about their legal standing (in a worst case scenario) in relation to the PMs they "own" IMVHO.

costata said...

Hi Biju,

Check out Bron Suchecki's blog - goldchat - for an in depth discussion of negative lease rates.

Cheers

Aiionwatha's Nation said...

Interesting tidbits in here about America's view on gold standard. I wonder if these pollsters were clued in to the magnitude of the gold price needed to make it work?

One thing that is interesting is there seems to be a possible majority support for any monetary policy that reigns in big gov and the fed.

My guess would be that a poll of USA giants would produce inverted results.

I doubt most of the folks polled know the differnce between an exchange standard and a free flaoting reserve asset so I don't think this goes against the big message.

http://americanprinciplesproject.org/2012/01/advocating-gold-standard-could-change-outcome-of-2012-presidential-contest/

Edwardo said...

Texan, The road to Freegold didn't start as the result of a referendum, or even as the result of some ostensible consensus, and given that the entire planet is involved in this evolutionary process, the idea that there will be an orderly, or even disorderly, political process to allow Freegold to become fully realized just seems fanciful.

Texan said...

Well then Edwardo, you and I basically agree.

Which means the ECB is NOT going to be the one to "implement" RPG. Nor the USG. Nor the Chinese gvt. Etc.

Costata, I don't think "the EU" (hardly a cohesive bloc) wants to take down the dollar.

Dante_Eu said...

@Texan:

Or it will be all three, ie. the Human Global Superorganism.

costata said...

Euro Short Bets

This could get interesting in the next few weeks. Getting massively lopsided in a bet that the Euro is toast is like painting a target on your forehead in these rigged "markets" IMVHO.

As Tyler points out the Fed doesn't want a "strong" dollar. Last time I looked the dollar index was casting longing glances at 82. FWIW I've also seen some TA that has a top around 88 for that index.

What is curious that unlike previously, when an increase in EUR bearishness implicitly meant a increase in USD bullishness, this time that is no longer the case as net spec USD contracts actually declined, and are trading at relatively subdued levels.

Overall, this means that FX specs are not playing relative currencies off each other, but are piling into a global European short.

Which leads us to the following precautionary observation: just like when a price collapse in gold is required, usually enacted by the reflexive relationship between futures and the underlying, in the form of a margin hike, we wonder how long before Europe, or even the Fed which most certainly does not want a strong dollar, directs the CME to hike EC maintenance margins by some ungodly amount.

Because whatever works to keep paper gold weak will most certainly help to keep the dollar even weaker. And with a net drawdown of nearly 250,000 contracts from EUR highs in April to current lows, a EUR margin hike may have as profound an impact as QE, considering the massive amount of shorts currently holed up and demanding the collapse of Europe.


http://www.zerohedge.com/news/euro-shorts-surge-new-record-high-ec-margin-hike-approaching

Time to review Uncle costata's rigged market dictum methinks:

Those who can be screwed will be screwed.

costata said...

Hi Texan,

You wrote:
I don't think "the EU" (hardly a cohesive bloc) wants to take down the dollar.

I agree, but the Fed and the USG do. The questions are about method and timing, not intent IMO.

You cannot abuse a currency the way these folks do and be oblivious to the ultimate outcome.

Cheers

Aiionwatha's Nation said...

Or, they abuse it so because they are oblivious since no one is in a position to call them on it. Only the global collective.

The dollar needs a LOT of support and it looks like it is working it's way down to the fat lady.

Pretty clear there will be no takedown from outside, just declining use. Although as argued above, the USG should sack it before all of its gold gets sent off to Asia over time at between 1/30th and 1/2 of its unencumbered value.

Does anyone have any thoughts on declining lease rates being the result of growning gold ownership ambiguity issues? Did I miss that?

costata said...

AN,

A commenter at ZH posted this:

"We're Just Going To Kill the Dollar"; Kyle Bass (11/7/11 interview) 1/2/12

http://www.youtube.com/watch?v=7K-R7VSmQRMAccording to Kyle Bass

According to Bass this was said to him by those charmers on Capitol Hill.

Edwardo said...

It doesn't necessarily follow from what I said that the ECB will not end up acting in way that ushers in Freegold.

costata said...

Something Wicked This Way Comes?

Our old friend and wordsmith, Charles Hugh Smith, shares his perspective on stocks and the US dollar (my emphasis):

Reportedly 16 out of 16 stock market mavens see nothing but rally ahead--and we all know unanimity is astonishingly accurate in predicting stock prices.

The U.S. dollar has traded on a see-saw with equities for years; recently, both equities and the dollar have surged. So either the see-saw has broken or this is the mother of all divergences.

Maybe short interest is at recent lows because it's now painfully obvious that equities have broken out into a new rally and only fools feel the need for hedges against downside.

Commodities such as copper have led the market for years; recently they've rolled over while the stock market surges higher. Once again, either historic correlations have been decisively severed or there is a gargantuan divergence that's about to be resolved.


http://www.zerohedge.com/news/guest-post-pricking-equitys-thumbs-something-wicked-way-comes

So another couple of potential profit opportunities for God's workers. Let's keep a tally of the candidates:

>> Euro shorts
>> US stock longs (then Up bigtime perhaps?)
>> US dollar longs

Edwardo said...

Stocks are going higher for approximately another week or so, but I don't think the first half of '12 is going to be good one for shares. In short, I am arguing in favor of the divergence resolving in favor of the present direction of industrial metals.

victorthecleaner said...

Texan,

I don't think "the EU" (hardly a cohesive bloc) wants to take down the dollar.

In 1999, they made a very serious attempt to do precisely that. Between 1993 (roughly) and late 1998, all the continental European CBs had leased gold to the BBs, officially in order to support the US$. Then, once the Euro was implemented, within a couple of months, the German CB said "no more leasing!" which resulted in the Washington Agreement in fall 1999. It was even seriously offending to the US to present this Agreement on US turf during an IMF meeting in DC. The next day, the London BB system was basically belly up, and only with serious help from ???, the BBs were rescued.

If you believe what Reginald Howe claims that Edward George told to Nicholas Morrell (Lonmin), then both the Fed and the BoE sold quite a bit of gold on order to avert the collapse in 1999.

Looks like a rather hostile move by the Euro CBs to me.

Victor

victorthecleaner said...

costata,

You cannot abuse a currency the way these folks do and be oblivious to the ultimate outcome.

There is a very fitting quote in Jim Rickard's 'Currency Wars':

Hyperinflation produces fairly predictable sets of winners and losers and prompts certain behaviours and therefore can be used politically to rearrange social and economic relations among debtors, creditors, labour and capital, while gold is kept available to clean up the wreckage if necessary.

By the way, Rickards said that he expects a sort of QE3 should the Euro fall below the 1.20 US$ mark (the low when Greece got into the headlines in spring 2010). But he does not expect ordinary QE with a fix amount of bonds to purchase, but rather nominal GDP targeting - in some sense QEoo (infinity).

I don't always agree with Rickards, and I don't know whether he just reads Zero-Hedge or whether he has some true inside knowledge, but he has called the previous Fed actions quite accurately.

Victor

Chico_hawk said...

@RLP

Thanks for the response.

There is good reason why the accounting profession (which has otherwise discredited itself by suspending mark to market rules for US banks) requires different asset classes like cash to be reported separately from accounts receivable - they are very different assets, that have different risks associated with them (eg. difference in liquidity, collection costs, risk of bad debts, etc.) Thus they need to be disclosed separately so that shareholders & other users of financial statements can properly assess the viability and value of quality of the assets, their liquidity and the overall financial effectiveness of the entity as a whole.

This should be so self-evident as to be incontrovertible. As an accountant/auditor, I can tell you there is no good reason to combine them and several good reasons for segregating them.

@Costata - I normally hold your comments in high regard, but am surprised at the flippant reply with regard to this critical issue.

You say "It is quite likely that the ECB has an unallocated pool of gold to facilitate transactions between those CBs. So gold receivables and obligations could legitimately exist that remain entirely within the Eurosystem."

If receivables and obligations were entirely held within the Eurosystem, they would then net (i.e. cancel) each other out & there would be no net receivables (or obligations) - so there would be no need even to refer to any Gold receivables.

My read is this classification includes gold that is owed to (receivable by) the Eurosystem by/from someone outside that system - i.e. paper gold.

Your dismissive comment "I can't think of an argument that an auditor would offer for breaking them out of the accounts as separate line items." is naive (or worse) - see my above reply to RLP

I would expect someone from the Fed, SEC, Treasury or Goldman Sachs to express something like that to support their own self-interest. I thought & expected more from an open forum here that seeks to to learn what is true & real (as opposed to what likely or probable or possible) and separate fact from fiction.

And dissing Turk to somehow support your views rings very hollow & reflects more on you than on him.

Whatever Turk's motivations, the facts & arguments he presents in the article I referenced regarding the Bundesbank & its reported gold holdings are valid & legitimate, whether they fit your view or not.

Re: Eurosystem Gold reserves & the Euro you said

"It's part of the reserves backing the ECB's balance sheet and there is no link whatsoever to the Euro.

From just an intuitive sense, this seems too simplistic and dismissive of a view.

The reported gold reserves of the Eurosystem as reflected in their balance sheet most certainly helps establish the level of credibility of its banking system & its currency, otherwise, why even bother having or using gold as a reserve?

If I understand one of the key concepts espoused here, the anticipated massive gold revlauation to come (in part due to multiple paper gold claims on the same physical bullion) is supposed to separate the euro from other fiat currencies such as the $US, which is not backed by gold and does not mark its gold to market.

I'll need to review A/FOA/FOFOAs comments more in this regard, but as I understand it, the Eurosystems' marked to market gold reserves will serve to help establish the fiat value of the euro vs other fiat currencies and ensure its continued use as fiat. So while the value of gold and the euro don't necessarily have to be linked, in reality, they will be seen to be.

In any case, I think the importance of the distinction between gold bullion & gold receivables (i.e. paper gold) is incontrovertible and fundamental concept central to this blog, whether it be for individual shrimps like most of us or giants or bullion banks or central banks. To simply dismiss it out of hand reflects more about the dismisser than the dismissed.

victorthecleaner said...

Aiionwatha's Nation,

Does anyone have any thoughts on declining lease rates being the result of growning gold ownership ambiguity issues? Did I miss that?

I said it before. I think the observed lease rates are garbage because the banks fudge LIBOR in order to cover up their funding difficulties. The problem is that the stated GLR values mix two counterparties: one in the GOFO quote and one in the LIBOR quote.

The only data you have that are at least somewhat reliable is GOFO because that's both sides of the swap with the same counterparty.

Victor

victorthecleaner said...

costata,

So another couple of potential profit opportunities for God's workers. Let's keep a tally of the candidates:
[...]
>> US stock longs


I agree that a serious drop of the USD is well possible. I am not sure shorting US stocks is a good idea though.

It is true that, according to fundamentals, the S&P is expensive in a historical context. But this need not mean that the market is inefficient. It may just be that a part of the coming inflation is already priced in. (The inflation is not priced into the US bond market, obviously, but then you better not fight the Fed).

Victor

victorthecleaner said...

Chico_hawk and costata,

on the reporting of allocated gold and gold receivables on the same line of the balance sheet. There are only two CBs that distinguish between the two: Portugal and Switzerland.

Portugal lost a part of their physcial gold when Drexel-Burnham-Lambert went bust. They got burnt and have a good reason. Switzerland is probably just very organized and does it properly. Some reasons why the other CBs don't do it might be
1) to cover up their gold leasing before 1999
2) because only some of them (including Germany), but not all of them (e.g. Belgium) have managed to close all the open leasing positions. So they don't want to show whether/how vulnerable they are.

Victor

costata said...

VTC,

Interesting quotes from Rickards. Thank you.

I noticed that shift in Rickard's posture on QE in the last couple of interviews I saw him doing. Nominal GDP targeting would give the Fed more latitude.

Robert LeRoy Parker said...

Chico Hawk,

I'm all for transparent accounting rules, but we all know transparency does not apply to the world of bullion banking.

My point is that the ECB could easily be in possession of all the gold including that which is technically leased and classified a receivable.

But I could be wrong.

Nickelsaver said...

COSTATA,

Had to think about my answer to this:

Please name one (1) US government policy that has favoured the middle class in America in the last 20 years.

My answer, the continued funding of entitlements, social security, unemployment, medicaid and medicare. These are certainly not designed for the wealthy. Although, I must admit that I think that entitlements are a too large, but not at all unnecessary at the right level.

Interestingly, the budget always seems to come down to entitlements vs military spending.

if their imperial ambitions are curtailed and overseas bases are closed then America should recover even faster.

If it were just about budget balance we would have seen it by now, don't you think?

In my view, what has and will ultimately be the demise of the American experiment is the inability to reconciled these two extremes.

Michael H said...

Nickelsaver,

Regarding SS etc:

1. Their continued funding is not a problem when they are cash-flow positive, as has been the case until recently. I believe that now that they are cash-flow negative, calls for 'reform' will intensify.

2. The change in the CPI calculation method in the 90's was a stealth cut to SS.

Robert LeRoy Parker said...

I should caveat what I said about possession to the gold being within central bank vaults, given the overseas nature of so much European gold.

enough said...

I see a picture perfect inverted head and shoulders pattern in gold forming.

Left shoulder 1565/head 1520/right shoulder forming with a drop next to 1585ish/neckline 1630.

A break of the neckline would target a minimum of $1740 which is just above the declining trendline.

Normal H&S tops are a dime a dozen and rarely work out but the inverted ones have had good predictive results.

Also ties in with risk off going into Fed meeting later this month and some kind of QE anouncement.

As I stated yesterday, there will need to be a serious risk off episode to give Bernanke the political cover to print.

costata said...

Hi Nickelsaver,

I think we'll just have to agree to disagree about whether those programs you listed have benefitted the middle class in America or not.

Cheers

victorthecleaner said...

I'd say these programmes benefited the lower class. Not the middle class, i.e. those who earn a consistent surplus during their working years.

That's a big difference.

Victor

Wendy said...

Victor,
"In 1999, they made a very serious attempt to do precisely that"

had ??? (BIS?) not stepped in and demand a compremise (WAG) there's no way I would have been able to afford a single ounce of gold when I started buying. Gold would have shot to the moon and all paper gold would have burned.

victorthecleaner said...

Wendy,

had ??? (BIS?) not stepped in and demand a compremise (WAG)

Why are you saying BIS stepped in and demanded a compromise? What do you think is the evidence in order to support that view? I am curious because my conclusion is different.

I thought the Europeans took the BBs to the slaughterhouse, and the US faction (US plus BoE) struggled in order to bail the BBs out.

Are you saying the compromise was that the CBs officially sold the gold that they had already lent rather than demanding it back? Well, they would have never gotten it back because it was already cast into jewelry in India, shipped to the gulf and to Hong Kong and what not.

The leased physical had left the vault before 1999 (I don't have the numbers here, but I think Dimitri Speck estimated some 5000-6000 tonnes using the FRBNY vault inventory data). Then, in the early 2000s, another 14000 tonnes of paper (Veneroso estimate) were still open in the forward market. This must have been forward sales and hedges by the miners plus whatever the speculators (hedge funds etc) had borrowed and sold short.

Are you saying the fact that the CBs did not demand the gold back from the BBs was the compromise? Might be the case. Do you have any references to support this interpretation?

Victor

victorthecleaner said...

Silver with zero contango today at the COMEX. LBMA still quite normal.

Victor

Wendy said...

Victor,

I've been looking through the archives of Another and can't find what I'm looking for.

Basically Another at the time said that there was a crisis at hand ... lots of arguing behind cosed doors. And then voila, WAG.

Also we have discussed this at some length within this blog. Can't find that either ATM. It looked like Buba was about the throw uncle sam off the cliff.

I'll keep looking. JR has an intimate relationship with the search function, perhaps he can be of help.

Aiionwatha's Nation said...

@Costata

I saw that exchange. Does make you wonder how someone who set the standard for overindebtedness could say something like that.

@VTC

So I can chalk that rate up to something like a 2% 10YN in the midst of a recovery?

My own belief is that the system is dead. They set the allocations in 2008 and said have fun with the house money in the meantime. If you get some real capital with your paper, Bravo. See you on the flip side.

oldinvestor said...

Motley Fool said"

"I can no longer be angry at other people for making mistakes; I simply have to allow them to do so. I do not have the energy to waste."



The best way to educate people is to allow people to experience the consequences of their mistakes.

costata said...

Hi Chico_hawk,

I'm not going to pursue this discussion about the ECB Eurosystem treatment of gold on their balance sheets.

I think RLP and VTC have been more clear headed than me on this issue. What the ECB should or should not do is really not the issue. If the recent past is a guide to the future then they will not break out the numbers in the way you would prefer. The discussion is moot.

Regarding James Turk, I stand by what I said. I think he should make full disclosure of the risks his customers are exposed to. Even more so since they recently announced that customers would no longer be able to transact in PMs with each other. That was one of reasons given for founding GoldMoney and a unique feature of their services.

Customers of GoldMoney hold a "security" that is notionally secured against a portion of an unallocated pool of metal. I understand that was the conclusion of regulators in the Netherlands reached and there is legal opinion to support this view in other jurisdictions. In the event of bankruptcy their customers could be cashed out rather than receive metal. IMO cash out is the most likely outcome if GoldMoney went bust.

In the worst of worst case scenarios in a bankruptcy the customers could be deemed to be unsecured creditors and rank behind any secured creditors.

Unlike BullionVault, who match buyer and seller offers, GoldMoney acts as the market maker. They issue the buy and sell quotes. This opens another door to an unscrupulous operator in the event that the company is bought out, wound up or the paper gold market collapses.

To me, their fee structure and procedures seem to be designed to discourage customers from taking delivery of metal.

Nowadays IMO GoldMoney has many of the features of an ETF without any of the advantages. For example it doesn't trade on a public exchange and the proprietor is the sole market maker. ETFs and GoldMoney are audited so on that score they seem to be equals. But my issue is not whether the gold is there rather it is the question of whether customers can obtain their metal in a crisis.

For someone who values transparency as much as you obviously do GoldMoney, I would have thought, should have a closer resemblance to the opaque, unregulated OTC "markets" created by the major international banks.

Cheers

Wendy said...

oldinvestor,

I think for the record he was quoting costata. Costata's new years resolution last year was to not be so cranky ............

costata said...

Hi Wendy,

...to not be so cranky..

Mission accomplished?

Texan said...

Edwardo,

Clearly the ECB will take action to facilitate the rise of gold. As will every other CB. That action is called "printing money". What I don't expect them (or any CB) to do is to openly bid for gold and usher in "RPG".

Costata,

In case you havent noticed, Americans like to exaggerate for effect. No one in the US wants to "kill the dollar". They want to devalue it yes, but not destroy its status as the world's reserve. On the former point, I would say that if the USG can't even bring itself to say "we no longer support a 'strong dollar policy'", then the likelihood of them telling me on Monday morning (or any morning) that gold had been revalued is zero. On the latter point, it should be self-evident that the USG would not support this changing. The USG can print at will precisely because it is the world's reserve. This incidentally is the problem the euro planners have. There isn't a snowball's chance in hell the USG is going to willingly give up that privilege.

VTC,

I don't know what you are talking about, or if you have correctly understood what transpired, but I will take your word that something happened that pissed off the US. I find it hard to believe though that they tried to "destroy the dollar" or "usher in RPG". If so, it wasn't much of an attempt, was it? In any case, that was 13 years ago. A lot of things have changed since then, and as far as I can see the ECB and the Fed seem pretty cozy with each other
now, what with the friendly AIG bailout whichlargely
benefitted european banks, and now the massive swap
lines.

Chicohawk,

You are very astute. What are gold receivables? It would be interesting to read the "notes" on the gold line of the ECB's balance sheet. Alas, they don't provide them.

FOFOA said...

"notes" on the gold line of the ECB's balance sheet

Texan said...

So FOFOA, are the ounces that are "held" by the ECB (curious word) in the form of physical ounces? Or IOUs, aka "gold receivables"?

This isn't a "note" in a GAAP sense, which was CH's point. Receivables would be broken out, as in any corporate balance sheet "Cash" and "Accounts Receivable" are two separate line items.

FOFOA said...

Hello Texan and Chico hawk,

"What are gold receivables?"

Obviously they are claims against some else denominated in gold by weight. The important questions are how many claims are still outstanding post-CBGA, and where is that lent gold physically located, i.e, who has physical possession of it? Do you think maybe the CBs could have lent "gold credit" in the same way they lend currency reserves to banks for interbank clearing purposes, electronically?

Gold is used as a lending and borrowing denominator. You can borrow "gold" and then pay back that "gold" without ever moving actual physical gold. Your loan is simply denominated in ounces and settled in currency at the going price of gold. If the BBs are engaging in "gold ounce denominated credit banking", then borrowing "reserves" (gold credits from someone who actually has the physical gold) from the CB with the same denomination (ounces) makes sense. They don't need the physical, just a "CB certificate" because the CBs actually have the gold. Just like Fed liabilities are as good as dollars, because the Fed actually has the only printing press!

Chico, if the physical gold that was leased out was still in the CB vault (let's say), would that justify in your mind the listing of Gold & Gold Receivables as one line item? I'm just curious. It kind of changes the risk factors, doesn't it?

Texan, what leads you to believe that the gold that was leased out by a CB was physically moved? Is that how you think the large bar gold market works?

Date: Thu Oct 09 1997 19:00
ANOTHER ( THOUGHTS! ) ID#60253:

From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services.


Large bars don't circulate (physically) as much as small coins. They stay locked up and the ownership changes on paper. Or do you think the CB gold went out to be melted down into jewelry or electronics or something?

Date: Sun Nov 16 1997 10:20
ANOTHER (THOUGHTS!) ID#60253:

It is not only important to understand this question, but also to ask it in context!

---Date: Sat Nov 15 1997 20:14
Crunch ( Question for Another ) ID#344290:
Another, a question, please: When gold is borrowed from CBs, what collateral is required by the CB to be assured the loan will be repaid in full?---


…Does a CB have collateral to lend its gold? Understand, they only lend their good name on paper, not the gold itself. The gold that is put on the market in these deals belongs to someone else! The question is not "Are the CBs worried for the return of gold?" but, "Has our paper been lent to the wrong people?".

The BIS will not allow the distribution of all gold to settle claims.


Cont…

Dante_Eu said...

"They want to devalue it yes, but not destroy its status as the world's reserve."

You can't be a little bit pregnant. Either you are, or, you aren't.

FOFOA said...

2/2

This is the way it works mostly for large amounts of heavy gold. It rarely moves physically. Even GBI works this way. You first pick the location where you want your gold stored. Then you place your order. GBI bids it out only to dealers that already store their stock at your chosen Brinks or VIAMAT location. Upon purchase, the ownership is changed on paper. When you sell, they again put your sell order out to only those dealers storing at your location. The gold never moves unless someone asks and pays for delivery.

Gold is fungible, so even if some is moved, what could make you think that the CB gold would be the first to go? They certainly aren't lowest on the totem pole. As Another said, "The gold that is put on the market in these deals [physically moved out of the system] belongs to someone else!"

So if the CB gold is still on the same pallet in the same vault as it was before it was leased, who do you think will keep the gain from a Freegold revaluation? Will it be A) the BB holding the paper lease (owing "gold ounce denominated credit" back to the CB), B) the customer who holds a gold-denominated claim against the BB, or C) the CB with physical possession of the leased asset?

Date: Sat Apr 18 1998 19:18
ANOTHER (THOUGHTS!) ID#60253:

Now, what if CB hold one ounce of gold, and sell it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOU for gold, value it at the multiple of leases/sales made against reserves.


That's right, there's a difference between you and a CB. While you may get screwed out of your "gold receivables" from the likes of MF Global, the CB won't. In CB-land, "gold receivables" are as good as gold. Possession! That's an important concept.

5/3/98 Friend of ANOTHER

Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!


What does that mean? Well, I think it's kind of like what I wrote in Treasure Chest 2:

"Well, if you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time."

It's also kind of like this.

Maybe, just maybe, Gold Receivables at the CB level is simply a technical classification for some of the gold that's still in the vault, because "certificates" are out on it. And I wonder if it's even more than 1% of the total these days.

Sincerely,
FOFOA

FOFOA said...

Texan,

""held" by the ECB (curious word)"

The gold never moved. It's still wherever the NCBs had it stored before it was "subscribed".

Even the subscribed foreign currency reserve assets are still with the NCBs in most cases.

But all operations affecting foreign reserve assets including gold and foreign currency reserves within the Eurosystem are subject to approval by the ECB. So in effect, it is the consolidated amounts, not the ECB's subscription, that matters.

Sincerely,
FOFOA

poopyjim said...

@costata

Thanks for the info. on goldmoney. I personally have about 4% of my gold position there (the remainder being in my possession) and was thinking of getting rid of even that.

That is disappointing what you say about goldmoney customers' position in bankruptcy. I was also disappointed they got rid of the customer-to-customer metal exchanging feature, though I never used it.

A quick note for anybody living in the US who may plan on taking delivery from goldmoney. I have done this before. First, it is very expensive to do this with the goldmoney fees. Second, it was a HUGE hassle because of US Customs. Customs sent me a "request for information" demanding a picture of the bar & its fineness (despite earlier charging me a ~$30 customs examination fee when it reached the US!). What was really annoying about it was that the bureaucrat handling my case was not "allowed" to communicate with me about it, as I was the consignee. They could only speak to FedEx, who delivered it. I attempted to comply with the request for information but never got any confirmation whatsoever that my response was OK, either from FedEx or customs, despite making inquiries. For all I know any day now I might get my door kicked in, my gold confiscated, and my person sent to Guantanamo Bay.

Texan said...

FOFOA, interesting. Thank you.

Edwardo said...
This comment has been removed by the author.
Edwardo said...

Texan, to me it beggars reason that someone or something, in this case The ECB, would, over the course of many years, openly take some untold number of steps towards an inexorable conclusion, and, then, finding matters to be right on the cusp of the inevitable, in this case, freegold, would avoid taking a final step because it was going to be politically risky.

They've already shown their hand long since and many times over. In that light, bidding for gold, which would indeed be a kind of a coup de grace, isn't nearly so monumental.

Nickelsaver said...

Maybe a very simple way or looking at this gold receivables question but...

Is the German gold sitting in US vaults part of that calculation?

enough said...

Is the EGCB's greek bond holdings larger than it's capital?

What happens to EGCB WHEN Greece defaults in march?

Greece needs a bigger debt 'haircut'-German adviser

Jan 7 (Reuters) - A 50 percent write-down on Greek debt holdings, part of Greece's debt swap deal, is not enough to put the country's huge debt on a viable footing, an adviser to Germany's finance minister Wolfgang Schaeuble told a Greek newspaper.

Banks and investment funds have been negotiating with Athens for weeks on a bond swap scheme which aims at cutting Greece's debt-to-GDP ratio from 160 percent to a more manageable 120 percent by 2020 and is a key part of a second, 130 billion euro bailout package for the country without which it risks default.

Under the so-called "private sector involvement" (PSI), investors will voluntarily accept a nominal 50 percent discount on their Greek bond holdings in return for a mix of cash and new bonds. But talks have been held up by disagreements over the real cost of the haircut, through factors such as the coupon and maturity of the new bonds.

In an interview with To Vima's Sunday edition, Clemens Fuest, who is also an academic, said the Greek debt haircut should be higher than the agreed 50 percent to help Greece repay its debt.

"This (50 percent) rate was accompanied by the idea it would be associated with a long-term economic consolidation programme, which would reduce the accumulated debt to 120 percent of the annual gross domestic product in 2020," he said.

"But such a reduction is not enough. We had already (a debt of) 120 percent at the beginning of the crisis. So the reduction must be higher than 50 percent."

Greece wants investors to voluntarily sign up to the PSI to avoid triggering a credit event for the country but Fuest said this was putting the deal at risk and that the swap should be compulsive.

"To my view, Greece has already defaulted," he said. "I believe that the best thing would be if one honestly says that the Greek government cannot repay its debt. In such a way, a better settlement could be achieved".

Greece is racing against the clock to put in place long-delayed reforms and meet the terms of the European Union and the International Monetary Fund for continued funding ahead of a crucial visit of the "troika" of its international lenders in mid-January.

A Greek finance ministry official said last week the PSI scheme is expected to be completed around mid-January so that Greece could then conclude the negotiations on the terms of its second bailout.

But Fuest warned that the PSI by itself could not help Greece unless it reformed its economy and did not rule out the nation quitting the euro, saying: "I only hope this won't happen".

Echoing Fuest's remarks, Deutsche Bank Chief Economist Thomas Mayer told another Greek newspaper that Greece should put its finances in order to stay in the euro zone.

"Even after the (debt) restructuring, the prospects for the Greek debt remain a big challenge," Mayer told Real News. "It is clear that only a comprehensive programme of economic reforms can save Greece from exiting the euro." (Reporting by Angeliki Koutantou; editing by Ron Askew)

ciaoant1 said...

Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says

http://www.bloomberg.com/news/2012-01-07/iran-russia-replace-dollar-with-rial-ruble-in-trade-fars-says.html

sean said...

Re: Goldmoney, I have previously asked them specifically what would happen in the event of bankruptcy, and for those who are interested, I post verbatim the reply of the senior relationship manager below. Obviously I can't vouch for its accuracy, but this is what I was told.

"If for any reason GoldMoney stops operating, you will receive your precious metals balance in physical metal in any of the gold, silver, platinum and palladium bars we offer, provided you have a Holding balance greater than one bar. This includes the London Good Delivery Bars, as well as the GoldMoney 100 gram and 1 kilogram gold bars. Alternatively, you can receive the equivalent value of your metal in one of the national currencies we offer. Payment to you is assured by a court appointed administrator who would complete the winding-up process. Please see Clause 16 (Winding-up or bankruptcy of GoldMoney) of our Customer Agreement for a detailed explanation: http://www.goldmoney.com/customer-agreement.html

The link below provides information about the gold, silver, platinum and palladium bars stored by GoldMoney: http://www.goldmoney.com/good-delivery.html
Further information on the 100 gram and 1 kilo bars available for delivery can be found here:http://www.goldmoney.com/100-gram-1-kilo-gold-bars.html
Information on GoldMoney’s security procedures is available here:http://www.goldmoney.com/metal-security.html

The important point is even if GoldMoney goes bankrupt, GoldMoney Creditor's cannot lay claim to our customers' metal to pay GoldMoney outstanding liabilities because the metal held in our vault belongs to our customers' and not GoldMoney. The metal held in our vaults on behalf of our customers' do not form part of GoldMoney's balance sheet, meaning it cannot be targeted by GoldMoney outstanding Creditors.If you own 198 goldgrams in your Holding then you can only have 1 x 100 goldgram bar for delivery. You will be required to sell the remaining 98 goldgrams to a national currency.

Motley Fool said...

comments..

sean said...

Readers may also be interested in the following reply from Goldmoney regarding a technical aspect of how exactly they allocate new purchases. I wondered how it would work if, during a transition to Freegold, for example, there is no gold available for purchase (when it is "in hiding"), and yet there are many people wanting to purchase gold from Goldmoney - would they be sold gold, effectively diluting the gold already "owned" by goldmoney members, or is gold in goldmoney accounts truly allocated to the current owner, avoiding this scenario. This was the reply:
"2, We cannot credit gold to a customers' Holding if the physical bullion has not been deposited into the vault. Therefore, if we cannot fulfil a buy order of metal because we cannot obtain the metal from our supplier then the order will remain unfulfilled. We can only fulfil customer buy orders once we have physically obtained the metal from our supplier and has been deposited into the vault.

We have in the past reduced the amount a customer can purchase in precious metals during high volatile market conditions.

When a customer places an order with GoldMoney, we ensure there is sufficient metal or currency in our inventory to process the order. However, at times it is necessary to enter market trading to obtain the required commodities. If market conditions change unexpectedly the market value of metals and currencies is affected and, in turn, the number of orders to be processed by GoldMoney may increase or decrease. GoldMoney is required to adapt to variable conditions. This is why we inform our customers that we may lower these Spot Price Limits at any time during periods of unusual market activity or high order volumes. In such cases, we may need to enter trading to acquire metal and currencies to meet demand.

We constantly monitor both metal and exchange values, and our inventory. The accumulated amount of metal orders and the existing inventory at a given point in time determines whether the Spot Price Limits need to be adjusted. Limits are adjusted when unusual market activity takes place and/or a high volume of orders is placed. As these kinds of exceptional situations are hard to predict, it is impossible to know in advance if and when the Spot Price Limits have to be changed.

For example, a customer can fix 2,000 goldgram at the current spot price. During high volatile conditions, we may lower the fix rate to 1,000 goldgrams. In other words, the customer is aware there perhaps is a shortage during the buy order process, not after.

GoldMoney has appropriate tools in place to monitor all unusual market activity and order volumes. We will inform you of any adjustment in the Spot Price Limits when you place a buy, sell or exchange order. The limits are automatically adjusted back to the usual Spot Price Limits when market conditions stabilise and the order volumes received by GoldMoney return to typical amounts."

I hope this helps.
Of course, nothing beats the security of having your gold in your own possession... but personally, the number of burglaries I have heard about recently makes me nervous about that alternative.

sean said...

Oh and lastly, I would encourage anyone with concerns about Goldmoney to email them directly and ask them, as I have found them very approachable.

Aquilus said...

Just musing on the conversation about the timing of "pulling the plug" for freegold, and who would do what.

In my mind, no "plug" will be pulled consciously, but rather it will be just another day at the office, when some seemingly "normal" disturbance that the system has handled hundreds of times before, finally pushes things over the "confidence" wall, and things unravel from there.

The $IMFS is in and excessively complex state which requires so much to keep going nowadays in terms of guarantees, insurance through derivatives, off-balance sheet instruments, shadow-money, etc.

To some extent all of those things are like piling low-grade nuclear rods into a pile. You can make a pretty big pile without it going critical, but put one extra rod in that volume, and the chain reaction starts. It's not the size or shape of the new rod, it's the fact you finally hit critical mass...

As for the reaction of the individual players once critical mass is hit - well I'm pretty sure given lots of intelligent people in high places - that there are plans in drawers ready for action at that time. Especially since they can make it look like a knee-jerk reaction to something that "no one could have seen coming"...

costata said...

Sean,

Thanks for presenting GoldMoney's perspective on their position in the event of a wind up.

Cheers

Wendy said...

I think you've done very well costata
;)

costata said...

Aquilus,

I was thinking about your analogy of the fuel rods while reading Doug Noland's latest bulletin.

I think we move to a critical phase when the illusion of control is shattered. This could be characterized as the unintentional resolution as opposed to intentional resolution of the GFC. I think I will adopt this styling of resolutions into two categories in future.

I see only one event that would prompt the sponsors of the Euro project to initiate an intentional resolution. The nuclear option of attempting to instigate Freegold-RPG rather than letting nature take its course. I think a credible threat to the Euro's role as a MoE would force their hand.

I think they would, in some explicit fashion, put gold on the other end of the demand "rope" if the general public appeared to be loosening their grip. Gold bidding for Euro as it were. I don't see this threat on the horizon given the amount of Euro that is being withdrawn from banks in the more troubled states of the EU and the demand for currency that deleveraging in the banking/financial system creates.

Now on the other hand the list of potential candidates that could prompt an unintentional resolution seems lengthy to me.

In passing I would also note that it is interesting that Australians spontaneously adopted the expression Global Financial Crisis (GFC) to describe events. This description was adopted nowhere else to my knowledge.

I think it is an apt description. Perhaps a superior insight from this branch office of the superorganism due to the incredible diversity of the racial and cultural mix in this country. For those here with eyes to see and ears to hear there is a strong sense of connectedness with the rest of the world.

costata said...

Thank you Wendy.

I will continue my efforts in 2012 just to please you.

Cheers

d2thdr said...

I got all the answers I was looking for in this post. Thank you FOFOA.

Texan said...

Ah yes Edwardo, the ECB is so obviously all about "inexorable".

Anyway, If you are right, I guess we'll find out soon enough.

I once asked JR to give me an outside date for when Hyperinflation would occur, and to my knowledge, he never did.

Do you care to take a stab at when the ECB will usher in "RPG"? Next month? Next year? 2020?

costata said...

Texan,

They have no reason, as yet, to attempt to "usher in" Freegold-RPG.

But they have already ushered in RPG. They do it every quarter.

Incidentally I hear La Nina is getting a grip in your neck of the woods.

http://www.noaanews.noaa.gov/stories2011/20110908_lanina.html

“This means drought is likely to continue in the drought-stricken states of Texas, Oklahoma and New Mexico,” said Mike Halpert, deputy director of the Climate Prediction Center. “La Niña also often brings colder winters to the Pacific Northwest and the northern Plains, and warmer temperatures to the southern states.”

costata said...

Gold

January 5 – Bloomberg: “China, the world’s second-largest gold jewelry market, may boost consumption of the precious metal by 35% in 2012 to a record on rising incomes and continuing urbanization, according to Frost & Sullivan.”

A snippet from Doug Noland's latest bulletin.

Wearable bullion. Everything else being equal we'll be revisiting $1,900 just on Chinese demand alone. Price = Supply.

Edwardo said...

I think that we'll see the transition within three years, Texan.

Aaron said...

Oh hell yeah! Who can pass up an opportunity like this!

From Texan: "Do you care to take a stab at when the ECB will usher in "RPG"? Next month? Next year? 2020?"

C'mon everyone, place your bets. What's your prediction for RPG+Freegold? Wendy? DP? Indenture? Tyrone? C'mon Costata -- you know you want to!

Mmmmm....I'm gonna say August 2012. Sounds very Shockish to me. ;-)

Closest bid without going over wins a bottle of my homemade Apple Mead!


--Aaron

costata said...

Hi Aaron,

Having made myself horribly unwell on homemade scrumpy many moons ago I'll need to approach your kind offer of some apple mead with some caution.

Beware, however - some varieties of scrumpy can have an alcohol content of as much as 15%, which is more than three times that of the average beer!

http://www.squidoo.com/scrumpy

Aaron said...

FOFOA?

;-)

costata said...

Towards The Paranormal

This is a must read from PIMCO's Bill Gross IMHO.

http://www.pimco.com/EN/Insights/Pages/Towards-the-Paranormal-Jan-2012.aspx

The Old/New Normal
But before ringing in the New Year with a rather grim foreboding, let me at least describe what financial markets came to know as the “old normal.” It actually began with early 20th century fractional reserve banking, but came into its adulthood in 1971 when the U.S. and the world departed from gold to a debt-based credit foundation.

Some called it a dollar standard but it was really a credit standard based on dollars and unlike gold with its scarcity and hard money character, the new credit-based standard had no anchor – dollar or otherwise. All developed economies from 1971 and beyond learned to use credit and the expansion of debt to drive growth and prosperity.

Almost all developed and some emerging economies became hooked on credit as a substitution for investment in tangible real things – plant, equipment and an educated labor force. They made paper, not things, so much of it it seems, that they debased it....

enough said...

march 2012 ......

hard greek default...

other piigs follow....

nuclear option to follow.....

UBS' Releases Most Dire Prediction To Date: Greece To Experience "Coercive" Restructuring With CDS Triggering Around March

Wendy said...

Aaron,

I'll hitch my wagon to the experienced train.

Randy S formally of USA gold predicts in your face freegold in 2013, with the caveat that it could unfold in an instant at any time if circumstances dictate it.

These days black swans are looking whiter, by which I mean that they are becoming a new normal. I'll bet they can kick the can for another year or so.

M said...

@ Aron

Mark me down for February 12th

I still think that the re-pricing of gold has more to do with the US treasury market then anything else. Unless there is trouble in the treasury market, the DOW will probably creep up to a new high, the Canadian and Australian housing bubbles will continue to grow and Japan will be on its way to 500% debt to GDP.

Wendy said...

m,

Canadian housing "balloon" is deflating, and it's about time

See globe and mail online!

Aaron said...

Indeed Costata. ;-)

I can certainly agree with that sentiment. Mead can be very dangerous. For parties interested the bottle I pledge was corked just this evening and as such alcohol content is determined -- taste however -- is not. I wonder if there some similarity there to...nevermind. It probably doesn't mean anything.

Ok so we have Wendy long at 2013 with hedges along the way (gun included, which she doesn't know how to use).

Costata has left us with "no comment".

M is going with a very specific Feb 12. That's a bit exciting.

Enough is going with March, Club Med debt and all.

I'm up for August...

Wendy said...

Aaron,

I don't think "the closes bid without goin over is fair. How about just the closes bid?

I WANT THE PRIZE!!

Aiionwatha's Nation said...

... I came to realize that Kenya was poor,
not because of anything internal, but
because the wealth produced by Kenyans
ended in developing the western world... .
Their aid, loans, and investment capital
that they gloat about are simply a chemical
catalyst that sets in motion the whole
process of expropriation of Kenya's wealth,
with, of course, a few leftovers for the
'lucky' few....

James Ngugi 1977

Aaron said...

Aiionwatha's Nation

Keyna is but one of many.

Gassho

--Aaron

Aiionwatha's Nation said...

I know. I spent some time studying colonial literature and slavery era as well. It's sometimes amazing to see the similarities in the breakdown of culture, values and understanding to today's developed world.

I read somewhere long ago that the old African chiefs gained prominence by providing for their people. Sad to see where that ended up.

Slightly off topic, but maybe worth a side note.

Be well.

Boefke said...

Why should we try to put a date on something, when all they do is buying us time?

Of course it's not easy to live in a world that's not completely yours any more, but we simply got to deal with it.

Motley Fool said...

This is curious to read from a FreeGold perspective :

http://halfpasthuman.com/discontinuity.html

My half-serious estimate was that by the end of this year we should have arrived. Who knows.

TF

costata said...

The US Housing Market

It seems that folks are hankering for predictions. So it's time for Uncle costata to step up and put his off-topic 2012 prediction peg in the ground.

The US housing market has been carving out a bottom in Q3 and Q4 of 2011. By the end of 2012 it will be complete. Any localities that have defied regional trends thus far will correct and by year end it will be clear that the overall bottom is in.

Return to real growth? No way. Adjusted for inflation prices will be flat for at least a decade, if not longer. Keep an eye on replacement cost as an indicator of the potential price inflation/deflation after the bottom is in.

Forget about bank mortgage finance figures as an indicator of a bottom too. History teaches us, or tries to, that really distressed RE markets clear for cash.

The government sponsored, non-market based finance programs could still present a false picture of the state of some markets for a while longer but delinquencies will ultimately curb these programs. So along with the rate of new delinquencies, cash buyers are your primary indicators of a market that has bottomed.

Fundamentals will, again, be the dominant influence in the residential RE markets across America. Rental income will be front and centre with investors for obvious reasons. Rental cost versus mortgage repayments (and individual risk tolerance) will be the main driver in the owner occupier market again. Beyond this key consideration buying a home to live in will be a lifestyle decision, not a get rich quick scheme, for at least a generation or two.

We live in political economies so the politically driven intervention in the markets will still be with us. In 2012 the market will again demonstrate that the only way intervention can enjoy lasting success is if the market supports the intervention - not the other way around.

So policies that failed miserably to arrest the downtrend could suddenly appear to start working when the market supports them.

costata

mr pinnion said...

I ll go for 4th July 2012.

Regards
Ozzy

Max De Niro said...

I think that there is too much inertia around US Treasury debt, it will be the go-to asset class until the paper gold system breaks. The majority of large investors will continue to park their capital there, as there is simply no other choice as a deep and liquid "quality" market.

So my prediction is based on the breaking of the paper gold markets and I have absolutely zero idea on when that will break. They have managed to keep a cornered market working for over a decade, so why not a decade more?

I'm going with Freegold in 2020.

Dante_Eu said...

RPG date?

Relying on nothing but my 6th sense: December...2013...last two weeks.

Take it for what it's worth. ;-)

Edwardo said...

I'm glad someone else mentioned HPH instead of me doing so again without naming them. I'll repeat the following tidbit, some number of years ago their "work" came up with a very freegold number for the yellow metal of $75,000 per
ounce. Silver had a $600 an ounce handle. In short, from here, if that data point is still valid in their work-and it hasn't been discussed since-that represents a 20x revaluation for silver and a 46x for gold.

DP said...

I hope Max is closest the bull, but I agree with FOFOA: it's impossible to know when it might happen, in advance.

Let's hope it's not before breakfast tomorrow.

burningfiat said...

Freegold on the day of mayan calender wraparound on most significant digit. Why not? It would be just as good of an excuse for throwing a party as the boring end world stuff :-)

/Burning

Aquilus said...

Guessing Freegold timing reminds me of this funny sign at a bar.

It always advertised: "Free beer tomorrow"

I guess I already voted on the timing - one perfectly paranormal day (thank you Bill Gross for that) a small failure will cascade, confidence will not be there from the private sector to stop the slide, and more money from the Fed will be seen an monetization instead of backstop. Boom!

Timing that? Like trying to guess the next earthquake...

matrixsentry said...

I think war will extend the credibility inflation engineered by the US. I am guessing RPG happens somewhere beyond 2012, but likely before 2015. It could happen any day, but I hope to acquire another 50 ounces before the reset.

Aquilus said...

@costata

Yes, an intentional resolution is too risky to be tried for anything but a last ditch emergency.

I think that reflects on human psychology, and politicians/elites have always used it.

Even today, say in the US you had someone like Ron Paul as president, that say would actually go through and implement deep, deep cuts. Once the mob has a target: "He did it! He's the one that took my money for food! He's the one that cut my job's funding!" you are pretty assured of some Bastille-like events.

But much easier is to accomplish the same thing through debasement and eventual hyperinflation. Everyone can then pretend that they could not possibly have seen it coming, but at the same time the crisis allows for programs to continue at the old NOMINAL value, and the crisis justifies restructuring/elimination for future recipients as "money is not available, but at least we kept our promises". Like that, the mob has no direct target, and the same result is arrived at (with much pain for savers in fiat of course)

enough said...

Aquilus,

next earthquake....

march 2012.....one kind or another :-)

Nickelsaver said...

On predictions...

The Mayan date is fun as a self fulfilling prophecy. It also falls between the US election and the inaugeration.

I really see Freegold RPG as the result of repudiation of the dollar - a bank run followed by a bank holiday, followed by gold in trade freezing and market crash.

Its coming...

enough said...

90% of Dutch Gold Reserve Is Held Abroad

Klaas Knot, the new president of the Dutch central bank, De Nederlandsche Bank (DNB), seems to be taking calls for transparency to a new level.

http://www.marketupdate.nl/nieuws/valutacrisis/90-of-dutch-gold-reserve-is-held-abroad/

Jaqship said...

Hey Costata

Gripping response from you, esp. about options A and B.

"Which option will they choose? (Assuming of course the USG doesn't sleepwalk into a resolution.)"

Please explain what sort of resolution they would sleepwalk into.

Knowing them (controlled by "the right people"), they'll choose option B.

My fear is that they will at some point mess with what is left of the middle class, e.g. by imposing a punitive tax on gold sales -- to intimidate regular folk from using gold to protect themselves from HI. Maybe likewise on sales of silver and platinum, although to attack those largely- industrial metals may bring unacceptable immediate harm to real production in the economy.

Max De Niro said...

Costata,

You wrote:
"Adjusted for inflation prices will be flat for at least a decade, if not longer."

Does this take into account a possible hyperinflation of the dollar?

Are you saying that during a hyperinflation, the housing market would retain its current real levels?

Similarly, are you saying that a crack up of the US credit markets and a subsequent cash-only market for housing would not affect the price on the downside from the current levels?

Or are you saying that hyperinflation or Freegold (or both together) are more than a decade away?

Indenture said...

Hey Guys & Wendy:

Blogger doesn't like me so when I post FOFOA has to retrieve it from the trash and post it himself. Sad. So I haven't been posting.

But I'm still here and since Aaron asked I will pull out my 'Kreskin Hat'.

I think September 19, 2012. Why the 19th? Because it's the day I stopped drinking so the world might as well change with me. :)

Aquilus said...

@enough I'll hold you to it ;-)

@Indenture wow, awsome, you quit drinking 9 months in the future from now? What else can you tell us? (just kidding - couldn't help myself)

Nickelsaver said...

Enough,

Rickards was all over that dutch gold article...tweeting it and all.

What do they say about elephants...they never forget?

I ask myself...if physical possession is everything to the PGA in the private sector...why would it not be so in the public arena.

All's fair in love and war...even a currency war?

J said...

Edwardo may find this interesting

"Smuggling of gold, which had almost stopped post liberalization in the early ’90s, has made a comeback, especially in South India after the price of the yellow metal hit an all-time high in India. “Gold smuggling is back again after almost 20 years with Customs and Revenue Intelligence agencies reporting regular seizures of smuggled gold from Sri Lanka to South India.”

The biggest haul was in November last year when Customs officials seized over 150 gold biscuits worth Rs 4.5 crore, allegedly smuggled from Sri Lanka, from a car in Nagapattinam district in Tamil Nadu. The gold was being smuggled to the Chennai airport via Kodiakarai in Nagapattinam. “On November 26, the Directorate of Revenue Intelligence intercepted two passengers from Tamil Nadu at Bengaluru International Airport and seized gold biscuits weighing 2.4 kg worth around Rs 69 lakh, which they had concealed in their rectum”, said an official.

“A couple of days ago, 1.4 kg of smuggled gold was seized at Kochi and similar seizures have been made from Tuticorin and Trichy,” said the officer. In 2011, over 63 gold smuggling cases were registered at the Chennai airport between April and December 2011 as against 45 cases in 2010. “Rectal concealment of gold biscuits is an old modus operandi, which has made a comeback. These are trained couriers, who are paid a commission of around `10,000 and return tickets for carrying out the job.” “They normally take short distance and short duration international flights and travel without baggage”, the officer added."

Yellow metal lure has smugglers active again

Nickelsaver said...

e pluribus rectum

Wendy said...

Hello Indentured,

Your comment made me smile.....

I only suscribe to this blog and another forum that is completely unrelated to what we discuss here, but I'm always the only woman. Sure the odd one shows up now and then............. I don't get it.

Same at work, I work at a heavy industrial site for a multinational mining company.

I might google something like "pedicures are us" tomorrow to connect with more women.

Congrats on your sobriety.

costata said...

Hi Jaqship,

I'm glad you found my response interesting.

Please explain what sort of resolution they would sleepwalk into.

An unintentional resolution. Something that triggers the waterfall event.

Obviously I think that Plan B is the likely choice. History demonstrates that the State doesn't pay up if it doesn't have to.

Let's assume for a moment that Plan B is active. I doubt that the planners would need to have broad based support for such a plan in Congress. Just a few key people. So let's assume that it is a merely a matter of timing.

But an unforeseen event could occur that takes the timing out of their control. Like I said, there is a long list of potential unintentional resolutions.

ephemeral_reality said...

FOFOA,

interesting observations on Euro system and the ECB!

The discussions in comments run much longer than the post, most of the time. ;)

cheers.

costata said...

Max De Niro,

Let me respond to your questions in a different order.

Similarly, are you saying that a crack up of the US credit markets and a subsequent cash-only market for housing would not affect the price on the downside from the current levels?

No I'm not saying "cash-only. There are markets in the US right now where cash transactions are happening in volume. That's an indicator that the bottom is already in for those markets. Cash RE buyers are almost always smart money.

Are you saying that during a hyperinflation, the housing market would retain its current real levels?

In the interests of brevity I didn't discuss HI. Please read the comment in terms of the status quo for the moment. If there is sufficient interest from readers of the blog we can discuss this topic in more detail later as more data emerges to show if my prediction is on the money.

Or are you saying that hyperinflation or Freegold (or both together) are more than a decade away?

No, I'm saying that the price of RE will be static for a decade at least in real terms ie. after deducting inflation from the nominal price. Remember HI is not inflation on steroids. It's a different animal altogether. So nominal prices could be higher due to inflation during that period.

BTW I'm not trying to insult your intelligence here. I'm just trying to avoid a presumed knowledge problem.

Do you understand the distinction between nominal and inflation adusted?

Cheers

costata said...

Time For Another Peg In The Ground

Hey Edwardo,

The boxes in Uncle costata's silverbug-lose-your-mind-time checklist are being ticked off one by one. IMHO public exchange "tapes" are being painted in glorious technicolor. In short the scenario I have in mind is a pump - with a surprise ending - No Dump.

In the scenario that is unfolding in my mind silver runs again but it holds station in the mid-forties. More to follow in a few days.

FOFOA said...

Hello Wendy,

"but I'm always the only woman"

Just so you know, you are, by far, not the only woman. Two of my top-ten benefactors are women. I'm talking more than $1000 in donations, and in one case, more than $3000. And there are many more women among the hundreds that have donated. As far as commenters go, Zenscreamer is a woman! One woman supporter, a lawyer at a big firm, is married to a surgeon who is too busy to read blogs. But he loves to hear about what she read on FOFOA. Take a look at my followers on Twitter and you'll see a few female faces. I don't mean to kill your sense of specialness, only to let you know that you are not alone! ;)

Sincerely,
FOFOA

mortymer said...

A Conversation with Tommaso Padoa-Schioppa (Video)

http://anotherfreegoldblog.blogspot.com/2012/01/tps-conversation-with-tommaso-padoa.html

http://www.youtube.com/watch?v=wob7V7j6ZUY

TPS
12:00
Process of adjustment... Market driven/policy?... All can happen in orderly way... how orderly...?

Max De Niro said...

Costata,
I made my comment in the understanding that you were assuming ceteris paribus, but perhaps I didn’t make clear that my intent was to understand more about why you made this assumption.

I must try to explain myself better, I did ramble somewhat.

I do understand that HI is a different animal, and it was for precisely this reason that I made the comment. I suppose I had made an implicit assumption in my comment that you were expecting HI at some point during the next decade, as this is a common viewpoint amongst this group of blog commenters.
I made this assumption as I don’t understand why it is even worth considering making a prediction based on a set of circumstances (ceteris paribus) that seems highly unlikely.

My comment here expresses my sense that TA is a useless technique in the medium/long term from this point as I expect the fundamental rules of the game to change so drastically and for there to be discontinuities on the charts of many assets.
Perhaps this assumption is wrong and there is some value to making the sorts of forecasts that you mentioned. I assume you think so, as you made the comment, I am interested as to why you think it is worth considering?

Max

PS, nominal price is the quoted dollar price and the inflation adjusted price is the nominal price quoted in constant dollars. No offence taken.

Edwardo said...

Interesting, Costata. I look forward to hearing more about your silver pump sans dump scenario. I have been contemplating buying some silver for a spec play so your timing is interesting. Thanks, J for the smuggling information.

mortymer said...

Repost:
Antal Fekete Interview Paris Dec 2011

http://neuralnetwriter.cylo42.com/node/4383

"What is your key argument in favor of gold"

"Gold is not an investment as much as it is an insurance... you should not be disappointed if the house does not burn... probability of the house burning down is very high and therefore we need insurance... we should be happy if the house does not burn down..."

Drewski said...

@costata:
I'm not sure it's possible to have a bottom in the US Real Estate market without the typical 'feelings' that accompany such a bottom. And by 'feelings' I refer to the utter disdain for home ownership. That hasn't happened and, while we are on the topic, it hasn't happened in the stock market either. Until such a time, we have no bottom.

Now, on another topic, I too look forward to your comments on Silver. I still hold a substantial amount that I haven't converted as of yet so that would be a welcome opportunity for me to do so. TIA.

J said...

The Yuan is spreading across Asia like wildfire

The Philippine central bank’s monetary board has approved a plan to allow the country to invest some reserves in China’s currency as part of diversification, according to Governor Amando Tetangco.

Any investments in the yuan will be part of the central bank’s non-reserve assets until the currency is fully convertible, Tetangco said in an interview today.

Philippine Monetary Board Approves Yuan Holdings, Tetangco Says

South Korea's national pension fund, the world's fourth-largest, said Sunday it will begin investing in yuan-denominated Chinese assets, in a move to diversify its portfolio amid the U.S. dollar's weakness.

The Korean National Pension Service said it received approval from China for a Qualified Foreign Institutional Investor license, which would allow the Korean fund to buy Chinese securities such as A-shares and bonds.

The pension fund's move to trade in yuan-denominated stocks and bonds is in line with its commitment to diversify its holdings and decrease its exposure to assets denominated in the U.S. dollar, which has been losing its value as a result of the U.S.'s loose monetary policy.

Korea Pension Fund to Invest in Yuan Assets

mortymer said...

Zurich, 9 January 2012

Swiss National Bank Chairman, Philipp Hildebrand, resigns with immediate effect
Effective immediately, Philipp Hildebrand is resigning from his office as Chairman of the Governing Board of the Swiss National Bank.

http://www.snb.ch/en/mmr/reference/pre_20120109_1/source/pre_20120109_1.en.pdf

enough said...

Edwardo.

FWIW....I expect an imminent DUMP in paper G&S followed by a last gasp rebound to 1685ish/33ish respectively and then the bottom falls out.......maybe a minimal tightening of the G:S ratio on that last leg up.....

Nickelsaver said...

J,

Interesting piece about the yuan considering it pegs to the dollar.

Enough,

I expect nothing, but would be surprised if both gold and silver did not reach new levels before the break.

enough said...

marked 9:19am comment

gold 1622/silver 29.15

Hope I'm wrong. Much more to gain if I am but I am short paper gold from 200 DMA from late last week.

we watch together, yes

best E.

Nickelsaver said...

When you say much more to gain...I wonder if that is true. My understanding is that current pricing is irrelevant to what gold's value really is, unless your a finished acquiring gold or your playing gold and silver swaps, then the GSR is the number to watch.

The only thing I hope for is a narrowing of the GSR so that I can swap some of my silver for gold.

That and I would like the current system to stay together as long as possible. The meltdown will not be pretty, even if you do have gold. IMO

enough said...

hey Nick,

as Bron says....spot is the price of physical...of course until it's not. But for now a rise in the spot price is a rise in the value of my treasure in my currency terms. At some point the value of my treasure may not be indicative of spot but for now it is. So my desire to be wrong on paper price is completely logical.

I have bought physical from Q4 2008 with last (highest) 10% purchase cost basis $1705.

Next stop 1575 to reset the daily stochs and form right shoulder of Inverse H&S (see my prior post)

Then rocket up thru neckline at 1630 targeting 1700ish.

At least I dont fear sticking my neck out. Enough may be rough around the edges but he calls it like he sees it :-)

then all hell breaks loose

Victory said...
This comment has been removed by the author.
Victory said...

If the ESCB gold on the other end of those leases is lying still then who are the BB's giving paper to?

If this was the mortgage derivative meltdown of '08 who is playing Dusstledorf (dumbmoney) in this version, hehe

FOFOA, do you have a guess as to who is holding large bags of paper(unallocated), somebody has a lot of it?

ANOTHER

"...The gold that is put on the market in these deals belongs to someone else! The question is not "Are the CBs worried for the return of gold?" but, "Has our paper been lent to the wrong people?".

"...Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!"

DP said...

Looking forward to meeting you in due course, Aristotle.

Aristotle (10/17/02; 02:29:28MT - usagold.com msg#: 87615)
Stepping through the looking glass...
...I'm a proponent of many real things (Gold, sandwiches and patio furniture to name a few) and I heartily endorse entrepreneurial efforts and any other eyes-wide-open stock or bond investments. My lasting frustration, however, is with the widespread failure of the many promoters and participants in the wide Gold market to reach FULL DISCLOSURE on what's actually "good as Gold" (uhhhh... that would be GOLD, sir, and NOTHING else) and what's merely "Goldish... sorta... and only during good times."

But hey, let's drive my point home to bed. I've got no problem if Standard Bank wants to offer, and you or anyone else wants to invest in, a £10,000 financial product that pays 2% per annum with a 10% kicker if the price of tea in Shanghai (or pint of ale in London) goes up by 27%. I see nothing terribly objectionable with that.

= = = = Moving right along to the main point = = = =

Let's step through the looking glass now, shall we?

Hold on to your hats and maybe take a Valium or two. If you're willing to follow along this is gonna be a helluva thing.....


Continue reading the rest of his interesting little exposition here.

Go on, you know you want to.

Matt said...

> DP: I wanted to and did. Phenomenal.

Edwardo said...

"Gold is not an investment as much as it is an insurance..."

I suppose it depends on how one defines one's terms, but it strikes me that given Fekete's stance on financial matters, this seemingly bland statement strikes me as something approaching a betrayal.

The financial system is so utterly *&%#ed in its present incarnation that no traditional investments can be seen as remotely safe, and, since the game is now down to "insuring" return of capital as opposed to return on capital, the gold as insurance line is, at best, misleading.

One Bad Adder said...

http://stockcharts.com/h-sc/ui?s=$TYX:$IRX&p=D&b=5&g=0&id=p58451744768

...and so (it would seem) fizzles out the "January effect".

DP said...

@Matt, "gold bonds, anyone..?"

DP said...

What do you want to buy gold for? It's so boring. But not boring enough for you, why not buy a nice gold bond instead - even more boring than the real thing!

costata said...

Thanks DP,

Loved that walk-through of those notional transactions by Aristotle.

I hope Aristotle will do an update of that scenario eg. with the Central Bank of GLD factored into it.

Cheers

www.gregor.us said...

The buzz in markets today is that the CME is in trouble, as a corporation. That it might either be forced to break up, or at the very least, face a long and burdensome period in which it faces scrutiny from regulators in its connection to the MFGlobal debacle. I am neutral on these fears, but would add that the CME recently raised market data fees into the face of declining trading volumes. That may sound minor, but it point to a familiar pattern among corporations that are coming under pressure: they often try to raise prices instead of looking at the larger trends that are negatively affecting their profits. More broadly of course, the implications here are obvious: something is not right with US capital markets in general, and one wonders that trading of many futures products is headed to some other country or an array of other countries.

G

Edwardo said...

gold bonds require bold gonads, if'n you catch my drift. In the meantime, the stock market is displaying fascinatingly epic (in)action.

2000 Flushes said...

For those interested, Gold Bond is also available in convenient cream form. The packaging suggests that it's effective against insect bites and minor cuts & burnes. I don't see anything about vampire squid tentacle orifice violations, but it's worth a try.

Unknown said...

Hey FOFOA. Here is an snippet of Kyle Bass being asked about gold. You will like his answer!

http://www.youtube.com/watch?feature=player_detailpage&v=5V3kpKzd-Yw#t=2523s

Nickelsaver said...

IDK about goldbond, but perhaps those smugglers could use some preparation H.

Wendy said...

hello FOFOA,

I am given to exaggerations from time to time =8o}

J said...

Global strategist at the Deutsche Bank sees Dollar remaining dominant even after China's economy surpasses the U.S.

Article also contains a history of the monetary system and solving Triffin's Dilemma with Opium.

"In fact, the only clear historical solution to Triffin's dilemma can be seen with the 'triangular trade' system between Britain, India and China in the 19th century. Under this arrangement, the British sold manufactured goods to the Indians and purchased opium. The opium was then sold to the Chinese in exchange for goods that were then sold back in Europe."

US dollar to remain dominant global currency despite its economic travails

Looks like he wrote something similar to this back in Nov. Dollar Groupie?

J said...

MUMBAI: Reserve Bank of India has allowed four more banks, including Yes Bank and Bank of Maharashtra, to import precious metals, further spurring competition in the world's biggest importer of bullion.

City Union Bank and ING Vysya Bank have also been included in the list, bringing to 35 the number of banks allowed to import bullion, data on the website of Reserve Bank of India showed.

Gold is a regulated sector in India and the federal government allows state-run and private banks to trade in bullion at the wholesale and retail level.

India allows 4 more banks to import gold, silver

Maybe this will cut down on the need for smugglers coming in from Sri Lanka =)

J said...

The Bank of Ghana (BoG) has suspended its decision to invest 5% of foreign exchange reserves in emerging markets.

According to information from the Treasury Department of BoG, the increasing volatility of the emerging markets does not make it safe for the BoG to invest.

The decision would have seen the Central Bank invest part of the 5% in the Chinese Yuan to follow in the footstep of Nigeria.

The whole debate about investing in the emerging market erupted when economists around Africa supported the Central Bank of Nigeria to invest between 5% to 10% of its foreign reserve in the Chinese currency, Juan, following the continuing weakening of the US dollar last year.

According to Nigeria, the Juan will become an international currency while the debt turmoil in the EU adds to the urgency of diversifying its reserves.

There have been calls in Ghana to follow suit but an economist and director of the Centre of Policy Analysis, Dr. Joe Abbey, advised the Bank of Ghana against the move, advising that it should rather invest in gold if it feels threatened by the currency instability in the US and Europe.

BoG suspends 5% foreign reserve investments in emerging markets

mortymer said...

@J: This reminds me the quote from Mundell that we need only 3 major currencies.

mortymer said...

@Edvardo: Yes, it depends how we define "investment" and "insurance". It has been many times repeated here that it is about "preserving" your capital. So in this light IMO it is rather justifiable. In freegold system the option to hold gold is "insurance" against bad economical policies. From Fekete´s video I liked the part where he spoke about the need to have a standard weight gold coins for EU/Euro (?) countries.

mortymer said...

@costata: I feel sorry that in the previous post you shot down the paper and speech from Delors so urgently in full. Sorry but it is no good we allow only those news which support and strengthen just our direction without looking at the landscape. If you do not like some parts, please use factual level. I respect your opinions. The reason I put it up was not that dis/agree with it 100% but because it had some interesting parts worth to look at. E.g.:

"...A little indispensable history: the pioneers of European cooperation were haunted by the past and had a vision for the future: “Never again will there be war between us.”..."
[Mrt: It supports the case of Another, right? so what else is in there?]
"...The Eurogroup is not independent: the finance ministers of the euro area meet on the night before an Ecofin Council which includes all EU members. To me it seems indispensable to have a distinction between what we can and must do as 17, and what we do as 27..."
[Mrt: Isn´t this thought worth to think about a little? Especially because this is connected to the objective of the Fofoa post about Euro/ESCB reserve system?]

costata said...

Musing About Rigged Markets

First a snippet from Bron's explanation for gold's weakness.

http://www.perthmintbullion.com/BlogUploads/Reason_Gold_Weak.pdf

While demand in tonnes has been lower during 2011, in value terms it is up, indicating that Indians are spending the same amount of Rupees on gold, but as a result of higher Rupee gold prices that money is buying less ounces.

A rising gold price, where demand (in currency terms) is constant, functions like an increase in supply. Price = Supply. Since the US market represents around 8 per cent of investment demand (by some estimates) you cannot focus exclusively on US$ prices to evaluate gold's weakness or strength.

Another golden snippet from Bron:

The Perth Mint can confirm that towards the end of 2011 we experienced a complete halt in bar demand from India and Asia (the traditional destination for most of our refining output) to the point where we were shipping 400oz bars to London.

There would be no doubt that bullion bank trading desks would have seen this weakening Indian demand. By way of explanation, Bullion banks supply physical to, and fund, Indian gold wholesalers, who usually seek 180 day payment terms necessary to distribute gold throughout India.

As a result, bullion banks would be the first to “see” the drop in Indian demand ahead of other players and officially reported figures. In positioning themselves to ride this trend they would have thus magnified the impact on the gold price.


With no risk at all of causing the market to have a cardiac arrest through a lack of supply to other markets. As long as, for example, demand elsewhere is constant or weakening due to FX movements.

And the Indian dealers could of course have taken steps to profit from the impact on the paper gold markets knowing how much of the demand India represents. So their brokers would have immediately seen any trades the dealers put on as well.

And of course the BBs might have warned their gold producer clients to hedge against price weakness as well.

Oh, that reminds me the major BBs are also globally integrated international banks, brokers, traders etcetera, etcetera. So they would "see" what all of their respective clients are doing. Like spiders in the middle of their webs sensitive to every vibration.

Luckily for the shrimp traders there are intrepid souls (you know who) poring over COT data from the Comex to keep the little guy ahead of the pack.

costata said...

Hi mortymer,

Ignore my reaction to the Delors piece. The politics and diplomacy annoy me at times. It is only to be expected and at another time, in a different mood, it would have left me unmoved. My apologies for the cranky response.

You wrote:
...it is no good we allow only those news which support and strengthen just our direction without looking at the landscape...

Absolutely agree. In fact a well argued contra view is a welcome find. Perhaps when you post a link you could include a short precis of the subject matter and why, specifically, it should command our attention and reading time.

Armed with that introduction we might avoid disappointment.

Cheers

mortymer said...

@JamesGRickards - Your: "Fascinating how officials & journos trashing the #euro are always from countries not in the euro. Now #Czech's turn"
http://www.reuters.com/article/2012/01/08/us-czech-cenbanker-idUSTRE8070RP20120108

I do not understand how M.Singer is "trashing" Euro, please explain. IMO he calls for stopping the delaying game which hurts Euro "trustworthiness of Europe" in his words. I read that he writes about Greece either to leave or to get a support.

"The crown isn't one of the currencies regularly followed by wealth adviser Louis Boulanger, so he was surprised to see it has performed better over the past decade than any of the currencies he does follow. Boulanger is a goldbug, and by his measure, the crown has lost "only" an average of 9% per year against gold for the past 10 years, considerably better than the dollar (-16%) or euro (-13%)..."
http://www.fsfinalword.com/data/FW110218.pdf

[Mrt: maybe there is something the CNB does right?]

http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-czk.en.html

Change from 15 February 1999 to 9 January 2012 = -12,379 (-32,4%).

mortymer said...

@costata - np, no need to appology, just wanted to clear that out, here it is/(interesting parts were highlighted):
http://anotherfreegoldblog.blogspot.com/2012/01/notreeurope-jd-euro-in-historical-and.html

Delors has a socialistic background and his position is clear, no offense, we need diversity in politics. His proposals for supporting young in employment make sense to me, he also stood for and gave hand with Erasmus program - which is a success IMO. He is certainly closer to the happening of BoF than we are and so we should carefully check his words. Well, after distilling it. :o)

On this one I posted I found interesting the last part about the China:
http://www.notre-europe.eu/uploads/tx_publication/Speech_J.Delors_CEPII-June2011.pdf

"...Yet obviously, at the same time, we cannot “tell the President of China what to do. Other peoples want to preserve their values, and we want to preserve ours. This is the great challenge.”..."

[Mrt: we know that BdF was the leader in the changeover of the IMS and organized many int. meetings with China included so there are talks about where things should go. So do I see that there could be some disagreement between the Euro block and China wanting some other direction?]

mortymer said...

In case somebody was wandering what Trichet is up to:

"November 22, 2011
Washington, DC - The Group of Thirty (G30) today announced that Jean-Claude Trichet, former
President of the European Central Bank, will become the next Chairman of the Group of Thirty
(G30), the international forum of public and private sector financial leaders."

http://www.group30.org/images/PDF/G30%20November%2022%2011%20Press%20Release%20FINAL.pdf

mortymer said...
This comment has been removed by the author.
mortymer said...

"...Mr. Trichet stated: “This is a time of exceptional challenges to the global economic and financial
system, and the G30 will continue to make significant contributions to the policy debate and
enhance understanding of the critical paths to stability and to economic growth.”..."

J said...

Thanks, Mrt.

G30: The group is noted for its advocacy of changes in global clearing and settlement.

Here's the wiki which gives a list of it's members G30 Wikipedia

mortymer said...

@J: From G30 web page you get latest version with comments:
http://www.group30.org/members.shtml

noticed the group long time ago:
http://anotherfreegoldblog.blogspot.com/2011/08/introducing-think-tanks-2-group-of.html

But for a long time I thought G30 was rather in the IMFs camp. Hmmm. The Trichet there is interesting for me and TPS was not in the focus at that time yet...

...and btw I have noticed there is available this paper which I wanted and could not find (for 1 day heh, did not resisted long).

http://anotherfreegoldblog.blogspot.com/2012/01/g30-tps-explaining-euro-to-washington.html

...if somebody wants here is the list of publications by year:
http://www.group30.org/publications_byyear.shtml

mortymer said...
This comment has been removed by the author.
mortymer said...

I have noticed that:
Warren's Screwtape Files
http://screwtapefiles.blogspot.com/
were added to links.
Good.

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