Thursday, February 27, 2014

Think like a Giant 3

"The things I tell you will not be wrong.
Better to listen, than to talk.
Don't search for all the answers at once.
A path is formed by laying one stone at a time."

-The Giant from Twin Peaks

"If you are searching for facts you will find them,
but the items you find will not be true!
Did you think that the high powered world of the LBMA
would operate in a fishbowl for all to see?
We cannot take what is on the outside as evidence
for what is on the inside. To find the answer, work with
inside assumptions and extrapolate them to the outside!"


ex•trap•o•late : to infer (an unknown) from something that is known or assumed; conjecture.

I have an extrapolation to share with you. It is backed by sound logic and Another, if nothing else. Another wrote, "To find the answer, work with inside assumptions and extrapolate them to the outside!" That is what I will do in this post.

Michael dV went to see 'The Monuments Men' the other day, which is a movie based on the true-story book, The Monuments Men: Allied Heroes, Nazi Thieves and the Greatest Treasure Hunt in History. It is about an Army unit in WWII, comprised of seven museum directors, curators, and art historians, tasked with finding stolen art and returning it to its rightful owners. Mike wrote the following to me in an email:

In the movie there is a scene when the Americans find a painting in a farm house. The farmer says 'it was a gift'… the American replies 'but your Cézanne says Rothschild on the back'.

Just thinking of Another as Guy gives me the ability to see how his point of view really is one with a long historical perspective, and one driven by a real need for humans to find a better way to manage themselves. I'm not rich but even I can feel the tribal nature of our species lining up to get my free shit. It must have been a struggle to keep what you had. One would keep a very close eye on politicians too. Being super rich must have been exhausting.

Another wrote about a two-tier gold market, where Giants were trading gold *IN SIZE* at a price that was multiples of the open market price. He wrote, "Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

There is disagreement, even within the ranks of evil gold hoarders and time misallocators, as to whether those statements should be taken literally. To make the ever-present religious analogy, it reminds me of the age-old disagreement, even among scholars, as to whether the Bible should be taken literally or figuratively.

My extrapolation—you can call it a hypothesis if you'd rather—is that what Another was revealing was not only 100% literal, but that it has been happening for centuries, not just in the 90s with an inevitable revaluation on the horizon. If you think about this idea for a moment, you'll see, then, that the much higher price at the giant level was not about an expected market revaluation; it was about something else entirely—gold's true value.

What got me thinking about it this way, as a hidden phenomenon possibly stretching back to the Middle Ages, was the "Barron" comment that was discussed recently: "This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich."

You'll have to bear with me because this will take a while to explain. What I'm conjecturing is that gold *IN SIZE* has been trading at multiples of its known price since probably as far back as this chart goes:

Another said, "At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich." I think the "now" period (Now it is large with the BIS) refers to the 80s and 90s, perhaps even stretching back to 1971, but probably not before. And notice that he differentiates "the Barron" from the "super rich". Perhaps we could take that to mean the difference between "old money" and "new money", with "the Barron" representing old money.

There is a difference. Think about the difference between income and wealth. "New money" would be buying gold with new income as it is being earned in the present, while "old money" would be trading one asset for another, wealth representing money that was accumulated generations earlier.

Of course old money Giants earn income as well, and they even acquire new assets with some of that income in the present. For that income portion, I imagine they would go to the open market to acquire assets just like everyone else. Remember that Another also said, "Think now, if you are a person of "great worth" is it not better to acquire gold over years, at better prices?"

This slow accumulation "over years, at better prices" would be done at the same price as everyone else. But once you had built up a stash consisting of, say, hundreds of tonnes, which probably took generations to accumulate, it would suddenly have a much greater value than the market price said it was worth. It would kind of be the inverse of this: "It is to say " your wealth isn't as great as your currency says it is"!" In this case, it would be to say "your wealth is far greater than your currency says it is."

Obviously, if you had slowly accumulated hundreds of tonnes a couple hundred years ago, and then dumped it onto the open market all at once, you'd lose your shirt because the market price would crash and you'd only be able to redeem a fraction of what you had put into it. So that's not what I'm talking about. I'm talking about its value in trade with other Giants, within the hidden 2nd tier Giant market.

Looking at that chart above, gold was locked at about $20 per ounce for almost 250 years. Let's say, just for hypothetical purposes, that this 2nd tier market was around 20 times the public market price. I have no idea what it would have been, but 20 was a multiple mentioned by Another. 4M ounces is about 125 tonnes. At $20/oz., 125 tonnes would cost $80M. But you'd never be able to buy that much gold all at once, especially hundreds of years ago. Or maybe you could, but it would cost you at least $1.6B!

(FWIW, according to Niall Ferguson, James de Rothschild, Guy's great grandfather and the founder of the French branch of the Rothschild family, accumulated a personal fortune five times larger than Bill Gates. So 125 tonnes would have been about 2.5% of his fortune at market prices, but 50% at a 2nd tier price of 20 times the market price, which fits my hypothesis quite well.)

Now, think about the reasons why you might overpay by 20 times the market price in order to obtain that much gold all at once. It comes back to what Mike said above: "It must have been a struggle to keep what you had… Being super rich must have been exhausting."

Depending on how developed this hidden market of Giants was—and it could have been quite developed—you aren't overpaying at all, because the higher price you paid will be redeemed later by selling it to another Giant. It was simply a different price for otherwise unobtainable, extremely large (and if sold on the open market, market-busting sized) hoards of gold.

Still can't picture it? Well, consider the insane prices the uber-rich pay for other stuff, like Balloon Dogs, $100M homes, art, cars and so on. It's really a separate market in which they exist, where prices are ridiculously high all around. They don't buy a Jeff Koons Balloon Dog worrying about having to sell it at a swap meet some day. They buy it intending to sell it to another Giant down the road. It's a Giants' marketplace, and a 125 tonne hoard of gold is just as rare as any of the other things they trade at nosebleed prices, especially 200 years ago.

I talk about a "savers' circuit" in Freegold that is isolated from the rest of the market. Well, there truly is a "Giants' circuit" that has always been isolated from the rest of the marketplace. When you're a Giant, and you buy Giant stores-of-value, your marketplace truly consists only of other Giants. They, as a whole, are the future counterparty you count on should you, or your progeny, ever have to dishoard. You can't, and therefore don't, count on the rest of the marketplace.

I can think of many reasons why physical gold would be far more valuable than other stores of value to a true, old money Giant. But the biggest one is that it can be secured for the long haul. It can be buried. Other forms of wealth are quite vulnerable to uprisings of the hungry collective. Guy de Rothschild, in one lifetime, had it happen to him twice!

Sure, gold can be stolen too, but properly acquired and stored, it can be totally invisible, and that's the very best form of security. And when I say properly acquired and stored, you will never know the details of private deals that have happened at the Giant level. They were all done in total and absolute privacy. Not "cloak and dagger" skullduggery, but simple and rational privacy.

"I tell my children, as you may tell yours: "when a thousand hungry lions fight for one scrap of food, small dogs should hide with what's in their belly."

Here's the full conversation leading up to the "Barron" comment, which I also featured in Think like a Giant 2:

Date: Sat Nov 29 1997 15:53

Something interesting happened just ago that will, in time impact the price of gold in US$. A proposal was offered to borrow in broken lots, 3.5 and 5.5 million ozs for resale. It was turned down. The owner offered to sell only, no lease. What turned heads was that someone else stepped in and took it all, at a premium!

Date: Fri Dec 12 1997 22:18
sweat (To Anybody) ID#23782:

Is there any way to find out if the 9,000,000 oz. deal really happened?

Where might the trade have taken place?

Is this whole gold trading business really that much "cloak and dagger"?

Date: Fri Dec 12 1997 22:31

What is "cloak and dagger"?

Date: Fri Dec 12 1997 22:54
sweat (ANOTHER) ID#23782:

"Cloak and dagger" is an expression I would use for an action ( or trade ) done in great secracy.

My experience as a trader has taught me to value such things as
a ) time and sales - as reported on various exchanges
b ) open interest - as reported on various exchanges

The market always moves to size, you spoke of "making the turn". I would love to see documentation of a trade that size.

No offence intended, of course.

Date: Fri Dec 12 1997 23:08

You will not see 80% or more of gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich.

Put yourself back in time. It doesn't really matter when, but sometime during the hundreds of years that gold was used as official money, and think about how the Giants might view the monetary system in a way similar to the "discount trade" Another described in the 90s.

A Giant wouldn't care about the price of gold. If he already had a Giant stash, he'd have access to the 2nd tier market where gold *IN SIZE* traded at a different price anyway. And he'd have no reason to bust the gold market because, it was, in fact, the monetary system in which he became a Giant in the first place.

If he wanted "to acquire gold over years, at better prices" through the monetary system, he could. And if he wanted to trade gold *IN SIZE* for other Giant stores-of-value, he could do that as well. Those would have been very private off-market deals because of their size. Giants can't just step into the market *IN SIZE* without extremely negative consequences, like blowing up the monetary system that is serving them well and causing an uprising of the hungry collective.

If we put ourselves back in time to the FDR confiscation and revaluation, we can see that true Giants wouldn't have cared. In fact, it probably made more gold available to the Giants by removing it from the US banking system and using it only for external payments to Europe and elsewhere.

We'll never know how much gold is held by true Giants, but we do know that it's not the enormous hoards of "black gold" that conspiritards fantasize about. We know that more than half of the gold mined throughout all of history was mined in the last 50 years. And we know that at the height of the 20th century gold standard, more than half of the gold mined throughout all of history was used as monetary reserves within the system. We know that China and India have a cultural affinity for gold and have long been the top consumers of "wearable gold", so we can make some relatively reasonable assumptions about who has the gold.

I want to make it clear that estimates of the amount of gold mined throughout all of history, currently around 177,000 tonnes, are quite reliable. (Note that estimates vary, so a reasonable margin of error, like 3% or so, should be assumed.) Here's a table from the USGS of how much gold was mined globally going back to 1900:

World Production (in metric tons)

We also have good estimates for various gold rushes throughout history. For example, the California Gold Rush in 1848 yielded around 3,700 tonnes, 570 tonnes came out of the Klondike 50 years later, and the Spanish conquistadors of the 1500s, while braving pirates in the Caribbean, brought home only around 154 tonnes from the New World over an entire century. Most of the bullion (both gold and silver) found its way back to Europe as the only practical source of goods for the New World colonies, which is why we have such detailed estimates.

For the rest of the gold, estimates are based on the tendency of gold to flow rather than hide in antiquity—a concept explained at length by FOA—and the quantities known to have resurfaced during various eras. The bottom line is that the actual scholars who have researched this subject in depth, as opposed to conspiritards who speculate wildly, believe that only around 10,000 tonnes existed prior to the California Gold Rush.

If we add up the numbers in the table above, about 147,000 tonnes have been mined since 1900. That leaves about 30,000 tonnes mined before 1900, and 10,000 tonnes mined before 1848. So about 20,000 tonnes were mined globally in the latter half of the 19th century, with 3,700 of those tonnes, or 19%, coming out of the California Gold Rush.

It should be noted that only a small percentage of prospectors got rich finding gold. The merchants serving the stampede of dreamers made far more money than the miners did during the Gold Rush. Think about that in terms of the Giants. They don't need to dig for gold. The diggers will happily hand over to them whatever they find, in exchange for the goods and services that they provide. And yes, banking is a fundamental service, even back in the Gold Rush days. It was even part of the main storyline in the Klondike miniseries.

This is all just to give you a rough idea of the amounts of gold that existed at various times, so that you can start to build a picture for yourself of how much gold we're talking about within this hidden 2nd tier Giant market. It's probably a lot less than you were initially thinking at the beginning of this post. There are, after all, only a few small handfuls of true Giants in this world, but there are certainly more today than there were 200 years ago.

In building this picture, we can look at various snapshots in time. For example, in 1845, prior to the Gold Rush, there was only about 10,000 tonnes of gold in the world, and only 84 tonnes, less than 1%, were held in central banks. 82 tonnes in the Bank of England, and 2 tonnes in the Bank of France. By 1900, there was more like 30,000 tonnes in the world, and 3,175 tonnes, or 11%, was held in central banks.

Viewed this way, we can see the rapid growth of the gold standard monetary system, and how it sucked in most of the new gold. By 1935, just after the FDR confiscation and revaluation, there were about 52,000 tonnes in the world, and 20,000 tonnes, or 39% of the total, was held by central banks. And 17% of the world's gold supply, almost 9,000 tonnes, was held by the US Treasury at that time.

At the beginning of WWII, there were about 58,000 tonnes in the world, and 65% of that gold, 38,000 tonnes, sat in central bank vaults during the war. The US Treasury alone held 19,500 tonnes at the start of the war. Here we can pause for a moment, simply to marvel at how, while the world's supply of gold grew six-fold in just 95 years, the presence of gold in central bank vaults exploded from less than 1% to 65% of all of the gold in the world during that same timeframe. The data comes from these historical tables put out by the World Gold Council:

In addition to the gold accumulated as central bank reserves, there was also more than 7,000 tonnes of gold that was minted into gold coins which circulated through the economy and within the commercial banking system as reserves during that same 95-year timeframe. But as you can see from the next table, following the FDR confiscation, most of that coinage ended up right back in the central banks.

To complete this picture, today central banks hold only about 18% of the world's gold. But even though the percentage has dropped, the absolute amount is almost the same as it was at the height of the gold standard. In 1952, what was the peak of the Bretton Woods gold standard just seven years after the war, central banks held 31,562 tonnes, and in 2014 that number is 31,320, virtually the same.

All that really changed is that we mined another 107,800 tonnes since 1952. So where did it all go?

My extrapolation is that new gold, that is, new mining supply, is always distributed at the market price. It comes out of the ground slowly, and it is acquired and accumulated slowly, "over years, at better prices," meaning the open market price. In this way, it is easy to imagine where 107,800 tonnes went over the past 62 years.

I mentioned above that we know "the East" (including the Middle East) has long had a cultural affinity for physical gold. As Another said, "It’s not that they are right or wrong to think this way, it’s that we want them to work for us! That is the problem! And when they worked for us we paid them! And who in the hell would have thought that they would have used so much of that pay to buy gold! Some bought in tiny amounts and some bought in large amounts."

And it's not just the "third world nobodies" that wanted gold. Following WWII, there was a new giant on the scene, Saudi Arabia, and its product was all the rage in the West. From 1952-1971, 23,524 tonnes were added to the above ground supply of gold. That sounds like a lot, but at the fixed price of $35 per ounce, it only represented $26.5B. Spread over 19 years, that's only $1.4B per year in surplus income needed to absorb (or corner) the entire global mining supply.

I'm sure there are much better statistics than this, but from what I found, it looks like Saudi Arabia produced about 1 mbd in the 1950s and about 2 mbd in the 60s on average. So, roughly, 10.5B barrels of oil, valued at $32B, for an average annual income of around $1.7B. Of course that's total, not surplus, income, but it does add some perspective. From a PPP trade perspective, one small country about the size of Alaska, with a population about the size of Texas, produced 20% more tradable purchasing power in oil than the gold produced by the entire rest of the planet from 1952-1971.

"But, today we come to a different period, with a different factor and circumstance. For during no period of history has an entity used a commodity to corner another commodity! The intent is not to "corner", but the result will be the same. This action is coming about because of a gross, huge mismatch of the value of gold and oil! We are not talking about the price of these items ( in any currency ) . We speak of the total amount of physical gold, worldwide and the total amount of oil worldwide. During the last twenty years, the world has made oil an absolute necessity for life as we know it. During the same time, gold has been degraded to a "kind of commodity that we may need sometime but, I'm not sure". With the public, government and the business community holding these thoughts, it is easy to understand which item is needed first and which would be dumped. In this day, people would sell gold for oil, no contest!

Consider the amount of oil that is used daily. Consider the future value that this consumption places on reserves in the ground. Compare this to the amount of gold consumed daily. Notice I said "consumed daily", not "traded daily". Clearly, the consumption of oil compared to the consumption of gold places a much higher value on oil reserves than gold reserves. With no replacement for the use of oil ( at present to lower prices ) and no "needed" use for gold in today's thought, we have the ingredients for a mismatch in value of epic proportions!"

This mismatch in value is much greater today than it was even in the 60s. As I have written in the past, the gold-oil ratio (GOR) has been roughly the same for the last 70 years, but while Saudi oil production has increased five-fold since 1965 (ten-fold since the 50s), global gold production has barely doubled. In other words, Saudi Arabia alone is, and has been for the last 25 years or so, pulling 3 to 6 times as much tradable purchasing power out of its in-ground national reserves as the entire rest of the world is pulling out of its gold mines. Not to mention other gold-accumulating oil-producing countries like Russia, China, Brazil, Venezuela, Iran and a few others in the Middle East who, combined, are now producing more oil than three Saudi Arabias.

This may not seem like a problem until you realize that the gold flow was so tight in the mid-60s that it collapsed the international monetary system by 1968, and it is more than 20 times worse today if we simply compare the purchasing power of oil coming from the BRICs plus the Middle East to new gold. "Oil is the only commodity in the world that was large enough for gold to hide in." Add to that "Big Trader" in the mid-90s—Chinese industrialist billionaires that emerged from the privatization of state-run industries in the late 80s and early 90s—who I wrote about in Seventeen.

This is a "physical flow at open market prices" problem. It's not that oil is traded 1:1 for gold, but that oil production depletes valuable national reserves, just like gold mining. So the more oil that is sold relative to the amount of gold coming out of the ground—at the same GOR—the smaller the proportion of that purchasing power that can be saved in physical gold. And "Oil", as well as emerging market industrial magnates, represents a relatively new breed of Giant that is now "acquiring gold over years, at better (open market) prices."

Again, in my extrapolation, "old money", or money earned in the past, is not a threat to the system. "New money", or money being earned today that wants to save some portion in gold, is.

Enter the paper gold market.


"Now they have created the illusion of gold in
great supply to lower its value in currency terms,
and the Americans accept this. They do not question that this
illusion was done using paper contracts, that do not hold gold
but are priced in currencies that offer a yield valued only
in human emotion terms. It is in this fashion that the
greatest folly of Western thinking will bring an end
to an era of unvalued money. In the near future
a real value will be exchanged for gold and those
that hold paper gold will bid much higher to obtain
what they thought they already had!"

Before 1971, the dollar itself functioned much as the paper gold market does today, keeping anyone who otherwise would not be demanding of only physical gold sated with a globally-recognized expandable proxy. Western Giants in Europe didn't care because, at least in my extrapolation, they had their own 2nd tier market where their large hoards were fairly valued amongst one another. And they had no reason whatsoever to upset the apple cart. In fact, they had the opposite incentive.

Nevertheless, the apple cart was rolled in grand fashion. Perhaps it was the addition of "Oil" to the Eastern "third world nobodies" that added too much pressure to the system such that it peaked right after the debut of Saudi super-wealth and collapsed two decades later. It certainly wasn't the European old money Giants that did it, even though they theoretically could have. Only a government entity representing the hungry collective, as opposed to individual European Giants, would have had the stones to raid the monetary system itself for physical gold *IN SIZE*. A couple did, they were rebuffed, and the system promptly ended.

I tell my children, as you may tell yours:
"when a thousand hungry lions fight for one scrap of food, small dogs should hide with what's in their belly"

When a Giant tells this to his children, I imagine he means something like "when the hungry collective goes on the take, we must bury our bone deep."

15 years later, a new system of satiation-by-proxy was born, only this time there was a little more demand for the real stuff from a few of the newer "giant" players.

As I said above, in my extrapolation there's a big difference between newly earned "big money" (like "Oil" and the emergence of Eastern billionaires) and "old money" (large accumulations of wealth acquired by past generations seen mostly in Europe). And when it comes to gold, the store of value par excellence among these types of people, there's a difference in price depending on the *SIZE* of the exchange.

That difference is a very real (and, I think, undeniable) value difference. To someone who has $50B in net worth/assets (but no gold) and is worried about keeping it for generations to come, your 100 ounce shrimp stash of gold coins is worthless. But 50 tonnes in a one-off, totally-private and hidden off-market physical purchase *from another Giant* might be priceless.

You see, in my extrapolation, the gold portion of any "old money wealth portfolio" would be very small if calculated at open market prices. Probably 5% or less. But it would be much more significant, possibly as much as 50%, at 2nd tier "Giant" prices. And again, in my extrapolation, this would be a totally hidden system of very private wealth exchanges stretching back centuries.

"As long as there is an open market for gold, it will not be allowed to trade above it's commodity price! It has far to much value for that to happen. You see, in much the same way that a zero coupon bond trades at a discount to face, gold is traded for it's discount of " money value to commodity price! Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

As far as confusing Another quotes go, this was a big one. But let's see if it makes any more sense within my extrapolation. First of all, he distinguishes between gold's "money value" and its "commodity price." Earlier he said that "So many people worldwide think of [gold] as money, it tends to dry up as the price rises." So the discount when gold trades as a commodity is of great value because not everybody wants a basically-useless commodity. Only a few want it as money, and so the physical gold that necessarily flows to them comes from those who think of it as only a commodity, rather than coming from others who also value it as "store of value money". [Note that Another previously distinguished between "store of value money" and "medium of exchange currency" in this line: "Some time ago gold not only was used as money but also circulated as currency."]

So the gold going to "new money Giants" or the "Superproducers" of today (as opposed to those of yesteryear) would come from someone else, primarily the miners. If that flow dried up, meaning it was insufficient at the discount-market price (and it is today), then the value derived from the discount trade would be lost.

That value was that the gold demanded by new money Superproducers was coming from someone else, someone other than the old money hoards, including CB hoards. It was coming from Western gold bugs and the mines. It was never expected to be a permanent equilibrium, only a temporary fix to buy time. But it turned out to be insufficient after only a few years, which was the reason for the CB-backed "gold for oil deals" in the early 90s.

Those deals deferred overwhelming "new money" gold demand into the future, with the help of CB guarantees, in exchange for guarantees of future oil. But if another (non-oil-based) "new money Superproducer" found out that paper from the bullion banks was being implicitly backed by the gold in the Western CB vaults and was therefore as good as a physical purchase *IN SIZE* that could otherwise not be obtained on the open market without running the price, they might take advantage.

They did, and "what looked like big money before turned out to be little money as some HK people, I'll call them "Big Trader" for short, moved in and started buying all the notes and physical the market offered. The rub was that they only bought low, and lower and cheaper. They never ran the price and they never ran out of money. Seeing this, some people ( middle east ) started to exchange their existing paper gold for the real stuff. From that time, early 1997 LBMA was running full speed just to stay in one spot! In other words paper volume had to increase to the physical volume on a worldwide scale, and that was going to be one hell of a jump. It could not be hidden from the news any longer.

This was not far from the time that "Big Trader" said that "if gold drops below $370 the world would see trading volume like never before seen". The rest is history. Now the CBs will have to sell 1/3 to 1/2 of their gold just to cover whats out there. To use the Queens English "it ain't gona happen dude"!

Everything is now upside down and reversed. The more the CBs sell outright the more the price will rise.

It's not a bearish sign anymore. They will now sell to keep the price rising slowly."

Here we have Giant-sized, non-oil-based new money Superproducers buying, at the open market price, paper gold *IN SIZE* that they think will be made 24-karat good by Western CBs, even though it is way out in front of what the mines are capable of producing anytime soon, simply because the LBMA bullion banks got reckless and took their money while creating implicitly-CB-backed paper from thin air in exchange. Another summed it up succinctly: To use the Queens English "it ain't gona happen dude"!

Two fundamental principles in my extrapolation are that 1.) "old money" Giants do not buy gold from the open market, and 2.) "new money", including emerging "new Giants" do. #1 is easy to understand. You simply can't buy more of something than is being offered at market prices without disrupting the market and running the price, and old money Giants are simply too big to participate. The small amounts on offer are worthless to them even as the giant hoards they already possess are priceless. And the value of a stable "discount market" is that the gold flowing to present net-producers comes from someone else.

Recall that at the height of the gold standard, around half of the world's gold was within the monetary system. This was the "discount open market" at the time. A "new money" net-producer who wanted gold could simply withdraw it from the banking system as a way "to acquire gold over years, at better prices." But a Giant couldn't just go to the bank and exchange a few castles full of priceless artwork for a few hundred tonnes of gold in preparation for war.

#2 is also easy to understand. As Another said, "it’s that we want them to work for us!" And with a functioning currency system, we will not have to pay them 1:1 in gold. They will work for currency and, for those who like physical gold, they will spend their surplus earnings on gold that comes from someone else. If gold had to circulate 1:1 with every exchange, then those Giant hoards would lose their very special value to the Giants. Not that they would become less valuable in currency terms, but that Giant gold hoarders would become evil villains for hoarding the life blood of the economy.

"In the real world some people know that gold is real wealth no matter what currency price is put on it. Around the world it is traded in huge volumes that never show up on bank statements, govt. stats., or trading graph paper."

So the true value of gold for the Giants comes from the way they use it, as the best way to store a large portion of their wealth for the long haul, since uprisings of the hungry collective are actually quite frequent from a multi-generational perspective. And the value of the "discount trade" for the Giants is, very simply, a functioning currency system, such that they can hoard gold without constricting the lifeblood of the economy. But following WWII, a few things changed.

As you can see from the tables above, from 1900 until WWII, 100% of the new mining supply went into the monetary system. After the war, however, there was a "new money" Giant in town; let's call him "Oil". As it turned out, for whatever reason—probably cultural wisdom or something—he liked physical gold and wanted to be paid in it. And his product was of such great value to the rest of the world that we definitely wanted him working for us!

So while all of the newly mined gold went into the monetary system before WWII (as opposed to going into private hoards), none of it did after the war. Big change, huh? Another change was that, around 1965, a few of the CBs started behaving more like clueless old money Giants, demanding gold *IN SIZE* from the "discount market" which promptly collapsed in 1968.

You should be starting to see that the real value is in a functioning international currency system, and that the only thing that matters is the flow of physical gold, not its price (discounted or otherwise). The problems come when the physical gold doesn't flow in sufficient quantities at the discount price, causing an unexpected phase transition from an international currency system based on "discounted gold" to one in which everyone suddenly views gold as money.

Such a transition could send us all into bartertown, where physical gold must be proffered 1:1 as the medium of exchange until a new monetary system takes root and sprouts its more economically-lubricating fruit we know as currency-based credit money. So it's no big stretch to imagine the European old money Giants putting their heads together with European central bankers between 1968 and 1979 to come up with a contingency plan.

Perhaps what was needed was a new international currency, one built for non-discounted gold, that was not only in use before the transition, but also big enough to bridge the gap when it came. Sounds reasonable, right? Curiously, that's exactly the picture that Another painted. As MK wrote: "If his "THOUGHTS!" are theory; they are good theory. If they are speculation; they are reasonable speculation. If they are supposition; they are well-grounded supposition." I'd say it is well-grounded supposition that he knew exactly what he was talking about from first-hand experience.

"Something interesting happened just ago that will, in time impact the price of gold in US$. A proposal was offered to borrow in broken lots, 3.5 and 5.5 million ozs for resale. It was turned down. The owner offered to sell only, no lease. What turned heads was that someone else stepped in and took it all, at a premium!"

This is very interesting, because that's 280 tonnes he's talking about. No small potatoes, even at the discount price which was around $310 at the time, or $10M per tonne. A lot that size would have been about $2.8B at the discount price, yet someone stepped in and paid a premium!

That someone could have been any broker, and the way that market works, you'll never know who the real buyer was nor where the money came from. But I think it was "Oil" behind that purchase, and that they stepped a little bit outside "The Deal" when they did it.

That much gold would have been coming from a "new money Giant" of the kind that might have been approached in the early 90s:

"How DO they do it? It's more complicated than this but here is a close explanation. In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion."

The process would have been to ask someone with allocated bullion to trade it for unallocated credits which could then be sold, traded or whatever. But 280 tonnes would have been very large even for these deals, so it sounds like the approach in this particular case was to do it in two lots, but, surprisingly, the owner of the gold simply wanted out. He didn't want any special deals or CB guarantees. He just wanted cash. Perhaps he was fed up, having watched the POG fall 20% in a year.

A CB-sized hoard like that is best sold in a quiet, off-market deal so as to avoid spooking the market and driving down the price. And since he turned down their proposal and offered to sell only, he probably thought that being approached made for a good opportunity to unload his oversized hoard all at once, at close to the market price. I'm sure he was surprised when someone took it all, at a premium.

Another said this deal "turned heads." It certainly could have been the seller boasting about the premium he received that turned a few heads, but I'm guessing that the "turned heads" Another was referring to were his own, his peers, and a few at the BIS.

"You will not see 80% or more of gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich.

It is important to understand that none of these CB sales of physical need to go to the open market at all! The BIS could take it all…

The BIS, instead of taking it outright, places it where it's needed!..

Make no mistake, the BIS knows gold in the many thousands…

We have seen the last of cheap oil in US$ as the oil states are no longer taking paper gold! I think a large purchase of bullion was just made by them. It should have been paper. The BIS must soon take a stand!"

Another made that last comment the day after he mentioned the "head-turning" purchase at a premium, which was on Nov. 29, 1997. Isn't that interesting?

"Something interesting happened just ago that will, in time impact the price of gold in US$. A proposal was offered to borrow in broken lots, 3.5 and 5.5 million ozs for resale. It was turned down. The owner offered to sell only, no lease. What turned heads was that someone else stepped in and took it all, at a premium!"

Large lots of physical like 280 tonnes are not supposed to be purchased at anywhere near the market price. The flow of physical at the market price is already cornered by "new money" accumulating slowly, including millions of "third world nobodies" who like to save in gold. It has been this way since WWII as evidenced by the fact that 108,000 tonnes mined since then have disappeared into private hands.

Before WWII, none of the new gold in the 20th century went into private hands as we can see from the tables above. This supports the idea that "old money Giants" do not engage the open (discount) market. 280 tonnes in a single purchase can only come from "old gold," meaning either a central bank or a private hoard. This also supports the idea that the rules of the game of Giants are more intuitive than explicit, at least in the last 70 years with the emergence of a new breed of Giants.

It is a basic principle that you cannot buy more of something than is being offered without being prepared to pay a premium. This is an intuitive truth to a Giant—one who doesn't have to "think like a Giant" but just has to think, period, because he is one. Extrapolating this basic principle that exists as a simple fact of life to Giants in all of their market interactions might lead one to my hypothesis even without the benefit of Another spelling it out. But I'm not quite that smart, so thank goodness for Another!

Over time, say, from the Middle Ages up until WWII, this basic principle would likely have developed into a system of sorts, for those who found themselves in a position to participate. One with a deep family history involving such a system of sorts, had such a system of sorts existed, might describe it like this: "This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron."

The fact that Another could share this so casually and candidly supports the idea that there was truly nothing "cloak and dagger" about it. So what if one Baron in 1800 paid another Baron 10 or 20 times the gold standard price of gold for a 50 tonne hoard? Would that have to be a big secret? I doubt that either party would have a single reason to boast about the trade to a shrimp, but even if he had, it's not like the shrimp could then find someone to buy his 50 ounces at the same price per ounce. Small stashes are worthless to Giants, while 50 tonnes in 1800, 0.5% of all the gold in the world at that time, might have been priceless.

This begs the question of which is gold's true value. Is the open market price a discount for smaller individual purchases, or is the Giant market price a premium on large ones? To answer this question, just think about the times when the flow of gold at the discount market price became suddenly insufficient, requiring drastic measures of one kind or another. More specifically, think about it from a Giant's perspective.

These are relatively frequent occurrences. In Guy de Rothschild's 98-year lifetime, it happened at least three times. 1922, 1933 and 1968-1971. Each time, gold was removed from the monetary system a little bit more. From a gold bug's perspective, this was, at best, cheating, and at worst, criminal. But from a Giant's perspective, those who value gold at multiples of its monetary system price and who wield the kind of influence that gets things done, this was always the desired outcome. As I said, you're a jerk if you hoard the lifeblood of the economy, and it's much more preferable to evolve the economy's lifeblood than to have to fear for your most valued possession.

Think about Nathan M. Rothschild, who twice, once in 1815 and again in 1825, gathered enough gold for the British Crown to first fight a war against Napoleon, and then to bail out the British monetary system (the Bank of England). Think about where that gold came from. There are two ways to get gold from a Giant/Baron who has no reason to ever sell his gold. 1.) Make him an offer he can't refuse (your gold or your head), and 2.) make him an equitable offer he can't refuse. Given the fact that N.M. Rothschild became the official gold broker to the Bank of England for the next 200 years, I'd say it was probably the latter.

Does that mean that N.M. Rothschild gave his own gold to the Crown? Of course not. "This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron." Rothschild would have known where to go for almost any amount of gold, and what it would cost. Who knows what treasure, favors and currency England paid for enough gold to fund an army and then a central bank within 10 years of each other, but it would have certainly been more than $19 an ounce.

True Giants have no need to ever sell their gold. And since it is not the realm of any public “wall street”, you'll never know how much they have nor where it is hidden. They sell only when approached by a peer seeking a large hoard and offering an attractive and equitable price. This is the very essence of the 2nd tier price. It is not derived from its liquidation value, but from the perpetual accumulation/non-liquidation by Giants in aggregate.

It is an intuitive truth from the Giants' perspective that, in a situation where emergency liquidation requires engaging the open market, they will never redeem even close to what they put in. This goes for gold as much as it goes for $100M artworks and other Giant wealth items. The future counterparty to the Giants' future liquidation has always been other Giants.

To put it in terms that even shrimps can understand, Giants buy and hoard gold *IN SIZE* at multiples of the market price because of the confidence that other Giants will always buy and hoard gold *IN SIZE* at multiples of the market price, because of the confidence that even more Giants will buy and hoard gold *IN SIZE* at multiples of the market price, ad infinitum.

Old money Giants don't need to save for retirement. They were born set for life. If the Giants of this world all decided to liquidate at the same time (liquidate into what, currency for milk and bread?), then they would lose most of their wealth. They know this intuitively, and they also know that it's never going to happen. They know that they can be killed, robbed, nationalized or whatever—those are real concerns—but they also know that a fantasy like Giant liquidation en masse is just a fantasy of envious shrimps. And they know that keeping as large of a proportion of their wealth in gold as possible is the best way to mitigate those real concerns. Even better if gold is not the lifeblood of the economy.

This is where gold's true value comes from… the Giants!

Consider that official (CB) gold reserves today stand at 31,320 tonnes, the same amount as in 1952. Since then, 108,000 tonnes have been mined. Who has all that gold? Certainly not Western traders today! So where do you think it went? It obviously went somewhere, because gold sells out every year.

If we take today's 31,320 tonnes in central banks and subtract 3,175 tonnes (the amount in CBs in 1900), then net CB additions over the last 114 years were 28,145 tonnes. That's almost precisely the amount of gold mined between 1900 and 1940, which was 28,142t. This means that all of the gold mined from 1941 onward, or almost 119,000 tonnes, has disappeared into private hands, while all of the gold mined before the war in that century went into public treasuries. And again, this dramatic shift coincides with the emergence of Saudi Arabia as a new money Giant. In essence, the flow of "discount gold" has been cornered ever since the Saudis demanded gold for their oil in the 1940s.

"We made an agreement with Ibn Saud that we would give him gold for every ton of oil we took out of his country, we would give him gold. And we did at first. Then we got producing more and more and more. And try to find gold schillings to meet the requirements so we could ship another ton. And finally we had to tell him that we couldn't find that much gold. There wasn't that much gold. We had now, such an enormous business that we cleaned the world of gold schilling."
-Gwin Follis, former chairman of Standard Oil of California

Beginning in 1945, the US minted special gold disks, at the discount market price of $35 per ounce, for Aramco to deliver to King Saud. This was necessary because Aramco simply couldn't source enough gold at the official price on the open market. In fact, it was reported that many of those gold disks we sent were then shipped to Bombay where they were sold for $70 per ounce, melted into bars and then resold in Macao.

In 1948 Saudi Aramco started its own airline for, among other things, delivering 8,000 lb. shipments of gold to the King. King Saud died in 1953, and in 1961, the airline ceased international operations.

That was right around the time that cracks first started appearing in the 17-year-old Bretton Woods international monetary system, due in part to the rising price of gold on the open market. And it was the same year that eight central banks—US, Germany, England, Italy, France, Switzerland, Netherlands and Belgium—resolved to covertly use their own gold reserves to fix the open market price in London at $35 per ounce. With the fix in, backed by eight CBs holding 40% of the world's gold, the Saudis could simply use their dollar profits to buy as much gold as they wanted in London.

That lasted for seven years.

During the 1970s, the "new money" Giant in town, "Oil", learned a lesson about gold. It was a very valuable lesson that prepared him for "The Deal"…

Date: Sat Oct 18 1997 21:04

I ask you now: " Is it hard to believe or hard to understand"? When it comes to money it's usually both.

Know this: "gold transcends human valuations thru time and life". . Take your time on this one!

Gold is now caught in a crossfire of world thought. The traders are viewing it as a commodity and trying to make money on its moves using various paper trading vehicles. Their opinion of the market is flawed because the "real value buyers" would never deal with these people or let anyone in that circle know they are buying gold as "money"! The major buying and selling is between CBs, nations, merchant banks, "the super rich" and the hordes of small buyers in forgotten places. That is one of the small many reasons wall street hates gold, they are not part of the real action. Comex is a side show!

Let me fill in the Xs.

First a reprint;
"You see the trading medium changed. Oil went from $30++ to $19 + X amount of gold!
Today it costs $19 + XXX amount of gold! "

If you owned a commodity in the ground that had to be sold for paper currency in order to realize value what would do? Yes, the oil in the ground may last another 50+ years but will the bonds and currencies of other governments last that long? One thing you don't do is buy gold outright, it would cause it to stop trading as a commodity and start trading as money! You learned that in the late 70s. Nor do you acquire "real gold money" in any fashion that would allow a comparison of price trends ( graphs ) ! There must be a way to convert the true wealth of oil into the outright wealth of gold. We know that oil is a consumed wealth of a momentary value that is lost in the heat of fire.

The stars blink and it is oil wealth no more!

It has become "the debt of nations " now owed to you. Gold on the other hand is not a commodity as many assume, as it is truly "the wealth of nations " meant to last thru the ages! A wise oil nation can strike a deal with the paper printers and in doing so come out on top. Go back a few years to the early 90s. Oil is very high, you offer to lower the US$ price in return for X amount of gold purchasing power. You don't care what the current commodity price of gold is, your future generations will keep it as real wealth to replace the oil that is lost. Before the future arrives gold will be, once again valued as money and can be truly counted on to appropriately represent all oil wealth!

The Deal:

We ( an oil state ) now value gold in trade far higher than currencies. We are willing to use gold as a partial payment for the future use of "all oil" and value it at $1,000 US. ( only a small amount of oil is in this deal ) And take a very small amount of gold out of circulation each month using its present commodity price.

If the world price can be maintained in the $300s it would be a small price for the west to pay for cheap oil and monetary stability.

The battle is now between CBs trying to keep gold in the $300s and the "others" buying it up. In effect the governments are selling gold in any form to "KEEP IT" being used as 'REAL MONEY" in oil deals! Some people know this, that is why they aren't trading it,, they are buying it.

Not all oil producers can take advantage of this deal as it is done "where noone can see". And, they know not what has happened for gold does not change in price! But I tell you, gold has been moved and its price has changed in terms of oil! For the monthly amount to be taken off the market has changed from $10 in gold (valued at $1,000) /per barrel to the current $30 in gold /per barrel still valued at $1,000! Much of this gold was in the form of deals in London to launder its movement. Because of some Asians, these deals are no longer being rolled over as paper!

What is happening now is far, far larger than the interest of a few traders or mining companies. They will be stepped on!

Date: Sun Oct 19 1997 09:42

There is only one oil state that counts! Only one! They have made it very clear how important gold is to them. If they had started buying outright, gold would have gone to $5,000+ in days. And only a very few million ozs. would have been purchased! The message has been for some years, "we will accumulate thru the back door, using paper deals if you keep the price at or below the cost of production". Do this and oil will remain THE driving force of the world economy!


You see, gold is not a commodity. The CBs have used every weapon to keep its price low . Understand me, Gold is now, today, a devalued currency being used in world trade!

Do you think the CBs are selling gold to keep the dollar strong? They don't have to sell to accomplish that feat! CB gold ( one billion ozs.? ) valued at its current commodity price is only worth 300 billion, it's nothing in that price range! They know what it's US$ price is worth in terms of oil! They are not stupid as they show.

Date: Sun Oct 19 1997 13:41

If you are searching for facts you will find them, but the items you find will not be true! Did you think that the high powered world of the LBMA would operate in a fishbowl for all to see? We cannot take what is on the outside as evidence for what is on the inside. To find the answer work with inside assumptions and extrapolate them to the outside!

Think now:

Would the world CBs really have kept gold this long if they only valued it at its ongoing commodity price? Cannot only the offer of gold have some value in a deal? Can paper gold that has a commodity face value of, say $300 be traded for its true value of many thousands? Indeed, if your worldly investments ( US stock market? ) are valued in the long run by a full supply of oil, would not future gold in a Swiss acct. make a good trade?

Date: Sun Oct 19 1997 17:26

Where are my THOUGHTS leading?

Yes, Mr. Cole you are correct. The Central Banks have known for quite some time the true value of gold in today's paper world. In a very real sense they are on our side. Let's take their side if you will. They are not dumb or stupid, in fact many of them are the best of the best! You see, the world grew up and ran away from them, totally out of control. It has left in its wake a money system of colossal debt and political mismanagement. They know it is over…

The Asians are the problem, by buying up bullion worldwide and thru South Africa they created a default situation on all the paper for the oil / gold trade! Now the CBs are selling in the open to calm nerves but it's known that they will never sell enough. It was never their intent to provide the gold, only the backing until new mining technology could increase production. Over time the forward sales, such as ABX's should have worked. But LBMA went nuts with the game and the whole mess has now accelerated.

Another wrote, "The Central Banks have known for quite some time the true value of gold in today's paper world." How long was "quite some time"? He also said, "the world grew up and ran away from them, totally out of control." I imagine that the world grew up and ran away from them during the period from 1968 (the collapse of the London Gold Pool) through 1979 (the IMF meeting in Belgrade). This fits my hypothesis perfectly! I wrote above: "So it's no big stretch to imagine the European old money Giants putting their heads together with the European CBs between 1968 and 1979 to come up with a contingency plan."

So some in the BIS knew. Life usually delivers us lessons the hard way, but once in a while we are graced with wise counsel from "another". "This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich." "Now" (ever since the 70s) it is large with the BIS… And the BIS came up with a plan!

As I said, a fundamental principle of my extrapolation is that "new money" (money earned through present net-production) gets to buy gold on an ongoing basis ("is it not better to acquire gold over years, at better prices?") at the (discount) market price. The flipside to that principle is that you can't just accumulate other assets for years, like a trillion in USTs, and then expect to convert them all at once into physical gold at the open market price. Giants understand this principle intuitively, even if others don't.

Understanding this principle, the BIS plan to support the $IMFS, until an alternative currency could be launched, included allowing "Oil" (really just the Saudis) to accumulate real physical gold at the market price for as long as it took. The problem was that oil is so valuable to the world that there wasn't enough gold flow at market prices to suffice. So the plan was to sell them the gold that was still in the ground, knowing it would someday come out!

So a paper market was created that was backed by forward sales from the mines and, to an extent, performance guarantees from the CBs. The CBs in aggregate held more than 35,000 tonnes at that time, equivalent to almost 18 years of global mining supply, so a CB guarantee had some serious credibility. But the euro took longer than expected, and the BIS plan had some flaws, like the expectation that mining production would quintuple with the help of additional financing through forward sales.

Even so, the BIS plan had worst case scenarios covered:

"The gold, while indirectly backed by the CBs would actually come from the mines of the future. With the oil money making a ready market for gold priced at a premium ( contangoed out many years ) , the mines could make a fair profit even with spot gold priced below production. All would win! And for some time, we did! I am able to know some CBs, they are not evil, their minds are for the best that can occur. But, I THINK the world ran away from them. The paper world of gold is now a mess with no resolve! […]

The BIS will not allow the distribution of all gold to settle claims. The mines of the world will be forced to sell to the BIS at the "locked" existing commodity price of gold. This will happen over many, many years as no other "official" market outside the BIS will exist. […]

There is one oil state that no one will play for a fool. The CBs will sell all of their gold or the nations will nationalize all mines and operate them at a loss. One way or another, most of the paper gold market will be honored. Why? Because oil will bid for gold if they do not! We are not talking about an oil embargo or rising oil prices. Indeed, oil will become very cheap for those that can supply physical gold. This deal will not require the agreement of all oil states. Only one can start this, the others will gladly follow. […]

In that day, "good money" will become "bad money" and "derivatives" will be paid to the holders of "derivatives"! In that day, a gold mine will also be paid in "derivatives", for its gold will be for the benefit of all."

The worst case scenario didn't happen. Even though the anticipated increase in annual mining rates didn't pan out, the BIS knew that, at the end of the day, "the deal" would be fulfilled with someone else's gold. Quickly or slowly, with or without revaluation, the gold that had already been sold would come from the mines. And it did!

In 1997, the CBs in aggregate had 33,894 tonnes. They sold a bunch, and even dropped down to around 29,000 tonnes in 2008, but now they are back up to 31,320t in aggregate, a net loss of 2,574t since 1997. During that same timeframe, another 40,792 tonnes were mined. Mining plus what the CBs sold comes to 43,366 tonnes since 1997. So where did all of that gold go?

It's impossible to know how much of that gold went to Western shrimps and "hordes of small buyers in forgotten places" versus Giants, but I think we can get a general idea of the scale by looking at a couple Western shrimp aggregates. Some 1,000 tonnes went into new coins (coins are for shrimps!). Another 2,100 tonnes (net to date) went into ETFs and other tradable funds (ETFs are also for shrimps!). But the majority went into "jewelry demand" which is a euphemism for "third world nobodies" who have "kept the gold market bought up" for the last 50 years or more, even squeezing out the "new money Giants." And the remainder probably went to "Oil" and a few other "new money Giants." That's 3,100 tonnes that went to Western shrimps and traders, and ~40,000 tonnes that went to those who view gold as (store-of-value) money and don't care about its currency price! (Assuming a considerable margin of error, of course!)

The WGC, which is the market development organization for the commodity-gold industry, does a great job of tracking the supply and demand "facts" for the gold market. I'm going to mention some of them, but first I want to remind you of what Another said about gold "facts": "If you are searching for facts you will find them, but the items you find will not be true! Did you think that the high powered world of the LBMA would operate in a fishbowl for all to see? We cannot take what is on the outside as evidence for what is on the inside. To find the answer, work with inside assumptions and extrapolate them to the outside!"

The WGC lumps half of the annual demand for gold as well as half of all of the gold in the world into the "Jewellery" category which, as I mentioned, is a euphemism for "third world nobodies" who have "kept the gold market bought up" for the last 50 years or more:

In their latest publication, they summed the "facts" up nicely:

"The gold market became polarised in 2013 as 21% growth
in demand from consumers and value-seeking investors
contrasted with large-scale outflows from ETFs. The net
result was a 15% decline in full-year gold demand in a year
where jewellery, bar and coin demand reached an all-time

Let’s get physical: record breaking year
for consumer demand

Consumers put on an impressive show of strength last year,
generating a 21% increase in demand for jewellery, small bars
and coins (collectively referred to as ‘consumer demand’) to
a historic high of 3,863.5 tonnes (t)."

I stopped there because of that number: 3,863.5 tonnes. "Consumers" as the WGC calls those who view gold as (store-of-value) money, or "jewellery, small bars and coins (collectively referred to as ‘consumer demand’), " what I would instead collectively refer to as shrimps and "third world nobodies," demanded 3,863.5 tonnes last year, even as the currency price declined 28%. Only after factoring in Western trader demand for paper gold can the WGC turn a 21% increase in physical demand into a 15% decrease in overall demand. "If you are searching for facts you will find them, but the items you find will not be true!"

Anyway, mining supply was HUGE last year, even as the price of gold dropped below sustainable levels. Apparently the mines are in survival mode—like an organism that consumes its own body and signs deals with the devil in hopes of surviving one season—which doesn't bode well for them long term. But even at 3,018.6 tonnes, a 12% increase over the three year average, they still fell short of demand from shrimps and "third world nobodies" by 845 tonnes. Of course I am ignoring technological demand (gold used in electronics) and recycling supply (scrap) here. Combined, they probably cancel out each other plus the additional 845 tonnes demanded by "jewellery." So let's just say that supply met demand last year amongst the commodity-gold industry and the shrimps, both East and West. In essence, shrimps and "third world nobodies" already have new gold cornered today by themselves, so what about new money Giants?

"To find the answer, work with inside assumptions and extrapolate them to the outside!" Another gave us so many great little details, and one of them was how much gold Saudi Arabia was buying in 1991! He wrote: "What quantity of GOLD, paper or physical, has OIL traditionally purchased on an annual basis? From 1991, appx. 20m/oz./yr., now it is more."

Extrapolating, that's about a 10% savings rate on their total oil production. If we extrapolate that further to all of the non-dollar-bloc gold-loving oil producing nations, that's (conservatively) 3,200+ tonnes per year at today's prices. And that's not only to point out that it's more than the mines are supplying right now, but it is also on top of no supply left after the shrimps and "third world nobodies" get done with the carcass. Add Big Trader on top of that (how much gold is China importing these days?) and you can start to picture a rubber band stretched to the brink of its breaking point.

I understand deeply, how difficult it is to picture a significant revaluation of gold, or that the value after revaluation is already present. But it's not about the price. It's about the relative value of other real things. It's about the relative value of an ounce of gold to, say, a barrel of oil. And therein lies the disconnect between gold and everything else.

There is nothing intrinsic to gold's primary function that makes a greater weight more valuable or useful than a lighter weight to those who use it as a wealth reserve. This is what separates gold from commodities. There is, in fact, an essential quality in the use of commodities that makes a greater weight more valuable than a lesser one. More oil is more valuable than less oil because it burns longer. More pork bellies are more valuable than less because they can feed more people. More copper is more valuable because you can pipe more houses. But gold is the opposite. A lesser weight of gold, if it had the same price as a greater weight, performs its primary function more efficiently. This is not true for commodities.

Think about this in terms of Giants hypothetically storing intergenerational wealth in hoards that are 20 times lighter than they would be at the discount market price. Is it not easier to hide 50 tonnes than 1,000? It is certainly more efficient to dig a smaller hole, or build or rent a smaller vault. So, again hypothetically, if they were able to store value in such a way and redeem that value later from other Giants, a lesser weight is intrinsically more valuable than a greater one.

The "inside assumption" I'm using here comes from Another's inference that such a 2nd tier market does indeed exist, and that it at one time belonged mostly to the Baron. Baron, as it is used here, is a generic term referring to the kind of nobility, power and influence that sprung from being a tycoon, magnate or mogul of industry as opposed to simply being of royal blood.

The royals ran the country. They were, in essence, the government, and it was essentially their gold that circulated throughout the economy as they had a legal claim on the kingdom. But the baron's wealth, by contrast, was a private treasure that needed to be secured and protected. As I mentioned above, Baron Nathan M. Rothschild was called upon twice by the British Royal Crown to source and deliver large amounts of gold. And he did.

This is the problem with a "discount market" in gold, whether it's as currency or a commodity, that periodically (quite frequently actually), larger weights than are otherwise available at the market price must be provided to satisfy demand. This was the whole purpose of the London Gold Pool which began when the BOE noticed it was having to supply its own reserves in 1961.

If the market operator doesn't have sufficient reserves, or doesn't want to use his own, then they must be sourced from someone else. In N.M. Rothschild's day, a king, like a CB today, would have been able to pay the 2nd tier price, without the pain of work, through favors, treasure or currency. But such third party sourcing, when it is for the purpose of supplementing the discount market supply, must be done off-market in very private deals for obvious reasons.

If you're using your own gold to supplement the discount market supply, as the CBs have done in the past, it can be done in basically three ways. It can be done in the open market covertly, as in the Gold Pool. It can be done in the open market openly, as the US Treasury and IMF did in the late 70s and the BOE did in 1999. Or it can be done in off-market sales to specific buyers to keep them out of the open market.

In the late 80s and early 90s, the CBs learned that even the offer of future gold from a credible source who has lots of gold can have value:

"Would the world CBs really have kept gold this long if they only valued it at it's ongoing commodity price? Cannot only the offer of gold have some value in a deal? Can paper gold that has a commodity face value of, say $300 be traded for it's true value of many thousands? Indeed, if your worldly investments ( US stock market? ) are valued in the long run by a full supply of oil, would not future gold in a Swiss acct. make a good trade?"

In addition to the promise of future gold in a Swiss account, they also sourced large hoards from 3rd parties wherever possible, again with just the promise of CB sales if they became necessary:

"In the beginning the CBs didn't sell their own gold. They ( thru third party ) found someone else who had bullion. That "party" sold to a broker who sold forward for a mine or speculator or government ) . In the end the 3rd party had the backing from the broker that he had backing from the CB to supply physical if needed to put out a fire."

They may have even sourced some at 2nd tier prices through the Baron:

"Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

But by 1997, all the 3rd party private stockpiles that could be sold were gone, and the CBs had to become the primary suppliers with their own gold:

"The world private stockpiles that could be sold have been. The CBs are heavy into their own stuff now and are over their heads if they had to make good on all the private deals."

In 1997, due to the spike in paper trading volume, "Oil" stopped rolling its paper forward and started buying physical wherever it was offered:

"Because of some Asians, these deals are no longer being rolled over as paper!"

Here we can see what was possibly the exodus of "the world private stockpiles that could be sold" from London in 1997:

And here we can see the CBs using their own gold to supplement the discount market. Notice that it ended in 2010, the same year that GLD inventory plateaued:

Another made three things about the CBs using their own gold quite clear. 1.) They didn't want to use their own gold:

"Now the CBs will have to sell 1/3 to 1/2 of their gold just to cover whats out there. To use the Queens English "it ain't gona happen dude"!"

2.) They valued gold "in the many thousands" even as it was trading at $300:

"Make no mistake, the BIS knows gold in the many thousands."

He later told us how many thousands:

"The selling of old dollar reserves, alone will reprice gold in US$ terms of at least $6,000/oz! It's present interbank reserve value."

And 3.) what they did was not meant to be a permanent fix. They were just buying time:

"Westerners should not be too upset with the CBs actions, they are buying you time!"

From my shrimp perspective, thank goodness they did, for they bought time for me to buy gold since I didn't start buying until 2008! But thinking like a Giant, this picture, perhaps, reveals a new angle on "support for the paper gold market," doesn't it? The 2010 reversal of CB gold sales in the chart above looks like blatant removal of support in this light, does it not? Remember what Ari told me in 2010?

ARI (via email Dec. 2, 2010) - For the past half-decade, many international policy stirrings gave every indication to me that 2010 was to be the targeted year...

If the CBs "bought" time until 2010, would that mean we are now on borrowed time? ;D

There are a couple of important concepts I want to discuss in the context of this Giant extrapolation. The first is the concept of the dynamic phase transition. If we look simply at my hypothetically potential physical demand numbers above, compared to the amount of new gold being produced, it looks (roughly) like a 3X revaluation would resolve the hypothetical supply and demand mismatch.

In other words, it seems like if the price of paper gold could rise, in isolation (which it can't), to around $4,000 per ounce, then global mining could supply "new money" demand from "Oil", "Big Trader" and "third world nobodies" who seem to be the only ones who want physical. There are several problems with this view, but one of the big ones is that phase transitions are dynamic:

"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."

"History has shown that when paper assets start to be revalued downward by gold ( gold rises ) , it's physical supply dries up!"

This "hypothetically potential physical demand" I'm talking about is the "value mismatch" that has the physical market "cornered." It is what has, to quote Another, kept the gold market "bought up" ever since WWII. It is the ever-present tension that threatens to start a phase transition to a much higher price, but it is not sufficient for projecting what gold's true value is. For that we need some of Another's "inside assumptions," which brings me to the second concept I want to discuss.

Let's call this second concept "the Western lottery winner concept". I project a 40X revaluation which means a large windfall for those who hold physical gold through the transition. The naysayers often argue that, even if such a revaluation happened, it couldn't stick because the gold holders would act like lottery winners, try to sell their gold to lock in their windfall, and the price would crash.

There are a few things to mention here. The first is that most of these naysayers are projecting their own Western trader mindset onto those who have bought up 108,000 tonnes of gold while the real price of gold (the GOR) went nowhere. And also, most of the naysayers have very little physical gold themselves, for the very reason that the nominal price (all they really care about) has been going nowhere for a couple of years now.

The Western lottery winner is a gambler, and has become a caricature of the Western trader mindset that is always looking for the next lucky score. The issue with lottery winners is that they usually overdo it, blowing their winnings in short order by suddenly "living large." There will clearly be a "wealth effect" for those who suddenly find their long term savings are 40 times more valuable than they thought, but that doesn't mean they will behave like Western lottery winners, Western traders, or even Westerners in general who, on the whole, seem to prefer living large over saving for the future.

These people who bought all of the new gold for the last 60+ years already view physical gold as the only real (store-of-value) money, so as far as "locking in their windfall" goes, it's already locked in with what they already have. So the question for them, since they are savers and not traders, is not "what other asset should I buy with my gold to lock in my windfall?" Instead, the question will be whether to keep it locked in (in gold) or to unlock some of it and start consuming more than before.

The "wealth effect" means that they will feel more wealthy. But whereas lottery winners often have a hard time keeping their windfall for the rest of their own lives, let alone passing it on to future generations, I think that it is much more likely that the vast majority of today's gold holders will strike a more careful balance between living large now versus allowing their newfound wealth to become intergenerational, even if on a small scale. That's the beauty of gold. It is naturally intergenerational wealth.

"I ask you now: " Is it hard to believe or hard to understand"? When it comes to money it's usually both.

Know this: "gold transcends human valuations thru time and life". . Take your time on this one!"

The point here is that of course many shrimps and "third world nobodies" will sell some gold given the obvious wealth effect that a 40X revaluation will bring, but not "to lock in their profit" as is the way of the Western trader. Instead, they will sell slowly in order to unlock some of that purchasing power and improve their lifestyle, though not quite as rapidly as a first round draft pick in the NFL.

Giants won't do this, simply because they have no need for improvement in their lifestyle. Neither will they "trade out" of gold to lock in their profit. If anything, I think they will trade more of their wealth into gold, because now, for the first time in history, they will be able to do so in any proportion they desire. Think of all the fine art just sitting in wooden crates in expensive Freeport vaults, some of which is simply uninsurable and always vulnerable to fire. Would it not be better to slowly move some of that unseen wealth into a more efficient and durable form?

You see, what Freegold represents is the consolidation of a two tier market into one, for the first time since antiquity. Picture it as the removal of a divider, or the dissolving of the membrane that separates the two markets. The true value of gold that comes from the way Giants have used it for centuries will flow into the open market, but the value added to the whole will be a two way flow. It will truly be phase transition of epic proportions, like a fusion that puts out more than went in.

Because of the fusion of these two markets, both Giants and shrimps will benefit, and the added value of this benefit will go into gold. A Giant who wants to buy gold will, for the first time, have unlimited access to the open market to move any proportion of his wealth into gold, whereas in the past he could only do so through other Giants who already had large hoards. And a Giant who needs to sell will, for the first time, have an entire planet of savers as his counterparty, not just the limited pool of other Giants.

Giants in aggregate, both new money and old, are in a state of perpetual accumulation when viewed as a whole. Ordinary savers, on the other hand, tend to accumulate (save) during their productive years and then live off those savings in retirement, passing whatever is left over on to the next generation. So ordinary savers have each other as their counterparty when viewed as a whole. But if we combine the two, Giants and ordinary savers, we should find a much larger whole that is, in aggregate, in a state of perpetual accumulation. See?

The icing on the cake is that the phase transition will introduce a whole new group of savers to gold, all of whom are still in the accumulation phase of their lives. They, along with the Giants, will more than offset any short term post-reval "Western lottery winner" behavior.

It matters not how much gold there is in the world today, because it is all already owned by someone who likes physical gold, just like it will be after revaluation. It's not like it's a product piling up on store shelves, waiting to sell, which suddenly becomes 40 times more expensive. The product has already sold out. It's its resale price that will change.

People often ask how I came up with my $55K gold projection back in 2009. Now I will tell you. It was the result of working with inside assumptions and extrapolating them to the outside. One assumption I have carried since the beginning was that Another knew what he was talking about from personal experience. My second assumption, which is a corollary to the first, is that whenever Another mentioned specifics, he wasn't just being pretentious and pulling them out of his backside. Rather, he was actually revealing valuable insider assumptions.

My price projection is an amalgamation of Another's occasional specificity. It was never about the currency price. It was always about the revaluation multiple in real terms. Gaze in wonder and reflect upon my two FFPPDC's from way back in 2009:

In 1998, Another praised a post by "Allen (USA)" which Allen wrote using assumptions previously mentioned by Another. Allen's GOR of 1,000:1 came from this earlier statement by Another: "If Arabia says, "I will sell oil for $10US a barrel or in gold valued at $10,000" what do you think would happen?"

Allen's post mentioned a revaluation multiple of 67X, gold at $20,000/oz. and oil at 1,000 bbls/ounce. For comparison, I'm currently using a more conservative revaluation multiple of 40X, gold at $55,000 and oil at 550+ bbls/ounce. I decided to use 1,000 bbls/oz. as the high end of the spectrum in my oil FFPPDC, and an order of magnitude lower as the low end.

Another did say, a few times, that the 2nd tier price of gold was $6,000 at the time that paper gold was trading for $300, a 20X differential. He also clearly stated once, and often implied, that $6,000 (aka 20X) was the low end of possible revaluation prices. He wrote: "The $6,000 valuation of gold can only be true if currency deflation destroys enough dollars to bring it down to that range."

Another (and FOA who was writing on his behalf) mentioned $6,000/oz., implying that it was the 2nd tier price at that time, 14 times. Meanwhile, the number $10,000/oz. was mentioned 43 times, and $30,000/oz. was mentioned 55 times. This gave me an anticipated revaluation that ranged from 33X to 100X in nominal terms. Being overly conservative, I decided to use Another's low end ($10,000) nominally and his high end in real terms, giving me a wide range. Working with $1,000 gold in late 2009, $10,000 was 10X, which was safely under Another's extreme low end of 20X. And $100,000 at the high end, or 100X, fit nicely with oil at $100/bbl. giving me the same high end as the oil FFPPDC.

So, coming directly from Another, we have revaluation multiples of 20X, 33X and 100X, with 20X clearly indicated as the low end. For oil, we only have limited mentions of 1,000 bbls/oz. which corresponded to a 67X revaluation for gold. But Another also said that, after revaluation, oil would be relatively "cheaper" for those who had gold, implying that gold's revaluation multiple against oil would be higher than it would be in absolute real (non-oil) terms. This told me that my target was probably somewhere between 33X and 67X.

My primary assumption was that Another had a reason for the specifics he shared and repeated so many times. I think that the reason he used specific numbers repeatedly is because they were the assumptions being used by those who were in the best position to make such projections. So I figured that a probability curve which encompassed his high and low end projections would give me a reasonable estimate based on true insider assumptions.

Obviously I wanted to be conservative in my estimate, so I used his highs as the absolute while stretching the low end well beyond his lows, knowing that my curve would give them extremely low probabilities anyway. If I rerun the numbers today, using my same conservative range, the projected price is $73,000. If I disregard the conservative end of the spectrum and simply go with Another's range, it comes out to $80,000. Those numbers represent 55X and 60X revaluation multiples respectively.

Upon further reflection, I still like $55K as it now represents about a 40X reval, which is why I have never revised those images. I hope I am low, but 40X is nice and clean because it represents a simple doubling of gold's true value to the Giants in the 2nd tier market that exists within this extrapolation.

In any case, both 40X and 55X lie comfortably within my target range of 33X-67X, with 50X being the dead center. Remember that it's not about the currency price, but simply about the revaluation multiple. In oil terms, the price of gold has hardly changed since WWII. The GOR hovered around 15 when Another was writing. Today it is 13, and historically (over the last 65 years) it has averaged around 14.5.

That's all $55K ever was, an extrapolation from an amalgamation of Another's Thoughts. And the probability curves were simply my way of expressing how I view it as a range of probabilities rather than a specific prediction. Thinking like a Giant can be fun when you really put your mind to it. And it makes me want to buy some more gold right now!

So here's my extrapolation using "inside assumptions" provided by Another (and a little common sense) in a nutshell:

Physical gold's true value is 20 times higher than its open market price and has been for centuries. The reason for this "two-tier" gold market was neither nefarious price suppression nor "cloak and dagger" secrecy. It's just the way it was. It's just the way gold's usage developed and matured over time.

The two tiers are soon to be united as one and that will mean a doubling of gold's true value which equates to a 40X revaluation relative to the open market price today. Love it or hate it, it doesn't matter. It is what it is.

Freegold will, for the first time since antiquity, combine the shrimp and Giant gold markets into one single market. The benefit/windfall for shrimps versus Giants will be totally different.

A much higher value of gold already exists for true Giants, so they will not gain as much value from the revaluation. Only the shrimp side of the market will gain windfall-sized value. The value gain for the shrimps flows from the way the Giants have always valued their gold (that is, market-busting sizes of gold hoards) at multiples of the market price.

What Another wrote about Giants trading gold *IN SIZE* at multiples of the market price should be taken quite literally, and it goes back centuries.

The bottom line is that Freegold represents shrimps receiving the flow of a much higher value from the Giants and the way they use gold. The Giants won't gain as much value, but they will gain the ability to store as much of their wealth in gold as they want to at any given time, something that has been difficult if not impossible for centuries.

The Giants will gain some value in their gold holdings, though, because they will have the entire world of savers as the counterparty to the gold portion of their wealth rather than just the very limited pool of other Giants. Compare that to a Cézanne or a Koons Balloon Dog. Only other Giants are their future counterparty for those. Part of being a Giant is that you never actually need to dishoard. You only ever need to acquire more solid wealth because the only alternatives are to either give it away or stop net-producing. As a Giant, you aren't saving for retirement like the rest of us. You are either net-producing or not, and if you are, then you are either buying wealth items with your surplus or you are giving it away.

Yet if misfortune befalls you and you do need to dishoard in a hurry, then you'll not get full value for your wealth simply because you have so much of it. That's just part of being a Giant. So the high value for Giant hoards of gold comes from the buy side (Giants wanting to buy large hoards must approach other Giants who already have large hoards) and not from the sell side. Giant sellers only sell because an offer was made at the proper multiple of the shrimp market price, not because they need to sell.

But Freegold will make it more likely that a Giant who falls on hard times will be able to dishoard more rapidly without losing value than he would have been able to in the past. In the past, the true value of gold for the Giants came from their ability to retain it even through revolutions (like the French Revolution) and wars (like WWII) when everything else they had was easy pickins for the uprising masses. You can bury gold, but castles and art can be destroyed, and land and businesses can be taken away by the government with the stroke of a pen, something that happened to GdR in 1940 and again in 1981.

This two tier market structure has been around for a long time, but it has always suffered from the frequent need for emergency supplemental supply in the discount portion of the market, supply that must come from the properly valued side, one way or another. We've seen this dynamic in action at least half a dozen times over the last 200 years. We know where we have been, and now, perhaps, working with inside assumptions and extrapolating them to the outside, we know where we are going.

"If you are searching for facts you will find them, but the items you find will not be true! Did you think that the high powered world of the LBMA would operate in a fishbowl for all to see? We cannot take what is on the outside as evidence for what is on the inside. To find the answer, work with inside assumptions and extrapolate them to the outside!"

I recommend rereading ANOTHER (THOUGHTS!) from the beginning after you finish this post. I think you may see everything in there in a different light this time, whether it's your first time or your fifth, as long as you remember to think like a Giant!


In keeping with the theme, I thought I'd conclude this post with "Much Ado About Money", chapter 1 in Guy de Rothschild's 1983 memoirs, "The Whims of Fortune"…

Everyone has some; no one has enough. People despise it when they lack it, yet they welcome it with open arms. Reluctant to discuss it, they think about it constantly. Lifeblood of the economy, source of all activity, key to success, symbol of strength, it is the essence of power. It cures, it destroys, it saves, it kills, it is idle, it circulates, it fertilizes, it vanishes, it corrupts, it grows, it changes hands. It is fairly—or unjustly—earned. It is used, dreamed of, hidden, shown off, squandered, scorned, worshipped. Hoarded, it is a treasure—only to become sterile. It is reviled, repudiated, coveted. People invest it with their own intimate feelings: their rivalries, triumphs, frustrations, ambitions, resentments. At night it grows into something living, overpowering, enlightening, protective, crushing. It is a phantasmagorical god whom we both pray to and dread. It is the scapegoat for our misfortunes. Created as a convenience, it is burdened with our emotions; it is a means, but it has become an end.

What has not been said about money? What has not been attempted by politicians to tame it? Taking equality for justice, the socialists want to ration it and try, without much success, to reduce its power. Liberals, more realistically, want to use its potential as an incentive. Yet both seek the well-being, the security and happiness, of mankind.

How amazed I was when the newly elected French prime minister Pierre Mauroy, addressing Parliament in 1981, criticized the leaders of “big business” for endeavoring to make their companies earn money, which is precisely what the heads of firms are meant to do and what they are paid for! If the managers of Air France, Renault, the big banks, and the nationalized companies heed these remarks and ignore their balance sheets, the French, who will have to foot the bill, will hardly look favorably on Mr. Mauroy’s angelic idealism. Because those who do not gain, lose—and most often lose heavily.

The socialists dream of abolishing capitalism but they can’t, for since the Marxist mirage has vanished, there is nothing to put in its place. If they were fair, they’d accept the rules of the game, and as long as people are allowed to make money, they would refrain from denouncing those who succeed. Everyone wants to be better off: The minimum-wage-earner wants to make more, and so do those who earn twice his salary. So why in the world brand someone who is paid four times the minimum a “sordid materialist” the minute he wants to make six times the minimum? There will always be someone poorer than oneself, and there will always be someone richer. Admittedly, there is an intolerable discrepancy between those who can afford more than essential needs and those who fall below the level of survival; but this contrast appears mostly between industrial societies and those of the Third World, rather than within Western nations. Making money doesn’t oblige one to forfeit his honor or conscience.

In France, of course, money has never been honorable, except perhaps during the nineteenth century. The Church put it on the Index in medieval times, and ever since the age of industrialism, socialists and Marxists have held it responsible for every evil. It is a foregone conclusion that money will always remain impure.

And yet, how herculean the efforts to acquire it! The French—whether hypocritical or irrational, it doesn’t matter—have no trouble in getting around the contradiction: They simply cherish their own possessions while condemning everyone else’s. Among all peoples, their love of money is doubtless the keenest, as every Frenchman suspects every other of being motivated by selfish, materialistic considerations. Property, savings, and inheritance are sacred; money and finance are suspect. The French cling to the pathological distinction they make between their own little nest eggs and anonymous riches labeled “finance.” This fantasy provides an excuse for the inventors of the wealth tax, euphemistically referred to as the “tax on large fortunes,” levied on an aggregate of static property, impossible for the most part to divide or liquidate; whereas only those profits earned through the dynamic flux of the country’s economy qualify for annual withholding.

In the final analysis, societies, like individuals, involve their whole nature in their relationship with money. The rich are regarded with ambivalence. Less affluent people want a kind of paternal protection from them, and simultaneously envy and reject them. People expect the rich to feel superior, and then revolt against this imaginary humiliation. No one sees the rich as brothers. They are regarded as members of another species; money isolates them. In their own eyes, however, the advantages money brings them are too easy; the wealthy value only what they earn by personal merit.

Mere mortals made of blood, flesh, and bone, the Rothschilds from birth symbolize money and everything it represents: luxury, fame, power. And should any one of them be so ill advised as to boast about it, he would immediately be as unpopular as he is well known. It’s hardly their fault if, among the many “wealthy few,” they are singled out as a showpiece. What little prestige they might have gained from their relationships with statesmen like Rene Mayer, and particularly Georges Pompidou, was entirely fortuitous, as the Rothschilds knew these men before they became public figures. Any analogy that might be drawn between those friendships and the special relationships the Rothschilds enjoyed in the nineteenth century with Europe’s leaders would be quite mistaken. A temporary illusion appeared, however, for a moment to revive a legend from the past. And it is one of life’s fatal ironies that shortly thereafter the Rothschild Bank was nationalized, thus sweeping away what had been for two centuries their professional identity.

Seen close up, the Rothschilds are decent people. They fulfill their obligations discreetly and without arrogance. They are referred to as "the Rothschilds"; it is only collectively that they are a symbol. Condemned to solidarity by ancestors who chose Concordia, Integritas, Industrie as the family motto, they are forever worrying that one of their own will damage the family reputation, each member regarding the shortcomings of the others without indulgence. Among themselves, of course, they are equals, like Roman citizens, for the similarity of their fates erases any individual differences. The inevitable disagreements usually end with everyone sitting down to a meal prepared with infinite care, out of mutual affection as much as culinary competition.

I have no idea what a poor Rothschild would look like. I suppose he would vanish in anonymity. In the meantime, precious few of them are driven by a money-making obsession or by and urge to rebuild a fortune comparable to that of their ancestors. They tend to make the best of what they have (and now and then a little more), each according to his particular tastes. Their styles of living, however, as well as their choice of homes and art, are remarkably similar. The emphasis put on beauty, the importance given to the quality, to elegant hospitality, are characteristic of a family tradition that gives precedence to refinement over luxury. How long can this last? It doesn't seem to go with the trend of history.

As far as I'm concerned, life may have spoiled me in many ways, but I have never forgotten the restrictions and humiliations suffered by my ancestors, who knew only hard, obsessive work. This memory has helped me face situations in which I saw how easily I could lose material security as well as the social pride generations have acquired.

Bathed from childhood in the embarrassing limelight of celebrity, the Rothschilds can hardly avoid a certain narcissism, which prompts them to justify by their behavior a reputation they would like to deserve. Some may even secretly fear they are not quite up to it. But when all is said and done, conscious of the favors heaven has bestowed upon them, they gallantly bear a symbolic name, accepting with good heart the whims of fortune.



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gull_mann said...

Awesome article FOFOA. I really enjoyed it. Just need some time to digest it. :)

Beer Holiday said...

Great article FOFOA ! And great vid freegoldtube.

Indenture said...

”So the true value of gold for the Giants comes from the way they use it, as the best way to store a large portion of their wealth for the long haul, since uprisings of the hungry collective are actually quite frequent from a multi-generational perspective. And the value of the "discount trade" for the Giants is, very simply, a functioning currency system, such that they can hoard gold without constricting the lifeblood of the economy.” FOFOA

Cole Henningsen said...

The question is, will they place a windfall profit tax on us "shrimps", so we can't benefit from the revaluation?

burningfiat said...

Surely another cornerstone has just been layed in the path of understanding.

Thank you so much FOFOA!
I know that everyone is supposed to know where we have been. Still my knowledge on the subject seems to deepen tremendously after a post like this.

If possible the Freegold lens has become even clearer by holding up GdR as Another-candidate and following the logical consequences of that possibility!
After reading this, it now seems kinda obvious that there must have always have been a two-tier market. This must have gone way back. At least since officialdom started to stamp (too low) numbers onto physical gold-pieces. Giants could either choose between breaking the official monetary system by their large trades and risk their head in a revolt or pay the premium in secrecy and make their family live to see another day.

It fits well with this new perspective on the small-dogs tale... The grubby collective are the 1000 hungry lions. The wealthy family is the small dog keeping a low profile (and paying the premium) to facilitate intergenerational survival. I like your thought-provoking perspective FOFOA!

The A/FOA/FOFOA narrative just makes more and more sense...

PS. Good job FGtube

Phat Repat said...

" I'm not rich but even I can feel the tribal nature of our species lining up to get my free shit."

Well stated. Tracking...

Roacheforque said...

"they are forever worrying that one of their own will damage the family reputation"


Fine inductions there FOFOA, or "extrapolations" as per A.

Perhaps another way of viewing is to say that gold in size moving from one Giant to Another has a geo-political "value" (advantage, benefit, purpose) than its commodity price per single ounce.

We have often marveled that "all the gold in the world can be bought for (some ridiculous price)." But can it really? In theory yes, but in practice?

Gold in size has a uch different utility in large transfers of ownership that happen "all at once".

Perhaps this is why gold is flowing so "relatively quickly" to the East, but still within the realms of reason in terms of a 2 -tier market with a "little help from the West". Yes, to reposition geopolitical utility without destroying the system.

Well said, and many fine points made. I salute you!

MatrixSentry said...

This post is going to answer quite a few questions.

Excellent post.

This is the time when the regulars go to the DONATE button and urge the others to do the same. Please consider the value of this post as well as over 5 years of material.

ein anderer said...

A giant post for shrimps AND giants. FOFOA at its best! Thank you!

ein anderer said...

sorry, but I know that you (and all the other shrimps) endowe their coins to the beggars on the street in the moment they buy. Guaranteed! No coins, no tax!

ein anderer said...

And great job, FGTube!

Knotty Pine said...

Fantastic post FOFOA! Thank you.

Another great video FGT! Thanks for your efforts.

@Cole H
The subject of taxation has been covered. I would suggest reading The Gold Must Flow.

Polly Metallic said...

Somehow I had a feeling a new post would be up last night! I had been thinking about it all day. If only my premonitions would extend to the timing of Freegold ;-).

If Another's explanations are a lens with which we obtain a clearer view of the true gold market, and of the $IMFS, then this new post is like having my prescription updated so my vision is clearer than before. The logic of the two tiered market came into sharper focus as did the benefit to giants and shrimp when the transition to Freegold is completed.

You're right, FOFOA, few people, no matter how intelligent, could have extrapolated the inner workings of an opaque gold market and learned what we have from Another and FOA's writings. We are very blessed indeed to have been given a chance to "follow in the footsteps of Giants."

Indenture said...

Think like a Giant
Think like a Giant 2

Indenture said...

”It is good to see bullion transactions happening - this shows that our currencies are still alive.” Ender

I have been pondering this quote from Ender for a long time but it is only now, after reading ‘Think Like A Giant 3’, that I can truly appreciate the meaning of Ender’s words. I have been reading the sentence from the wrong perspective. If I read it from the perspective of a Giant, with the hidden meaning revealed from FOFOA, it sounds like:
Two Giants relaxing by the fire with a fine brandy. One casually says to the other, ‘It is good, my dear friend, that we can see the shrimps trading gold at the fiat price. This shows that our currencies are still alive’. I had always read the word our from the super organism point of view, but when read from a Giant talking to a Giant it also shows another meaning to the word see. FOFOA just explained that the second-tier gold transactions are never seen, they are invisible, so in this conversation between Giants the bullion transactions that are seen are those between shrimps trading physical for fiat which proves the life of the currency. Currency acquires it’s value from it’s ability to be exchanged for gold visibly and these visible gold transactions prove a currency’s worth.
Great post FOFOA!

BaronSilverBaron said...

Once again fantastic analytical prediction of the 'reset' price of Gold
Could it be possible to apply the same analytical skills to a bell-curve of the date when this happens?

Michael dV said...

So if I have the 'deal' right...the Saudis were getting gold for oil and they were happy. They could have let oil go higher in price but as long as gold was priced at or near production cost they were content with the arrangement.
If any country had tried to mess that up by trying to straight gold for oils deals, the Saudis would have been pissed off.
Allegedly Sadam and Gadaffi both considered this. It is hard to remember but did the House of Saud have issues with either of these guys? Issues that could have arisen due to these gold for oil deals?

/SleepingVillage/ said...

Thank you, FOFOA:-) I really enjoyed this one.

Jump Thru The Golden Ring

FoNoah said...

Another Masterpiece FOFOA. It just keeps getting better and better. Thank you.

Freegoldtube said...

Think of this place as a fine eating establishment. Our host offers up large, nutritious, multiple course meals to those who hunger for knowledge which is not to be found anywhere else.

Most meals are so abundant, they can scarcely be consumed in one sitting. This meal is no exception. So take your time, a seat at the table is always open to finish off every last morsel on your plate.

And a reminder, even though these meals are free, please don't neglect the gratuity. For every worker is worthy of his wages.

(see the little button below the stack of gold coins)

As for our host, I would like to thank him once again for a fantastic meal and also for the privilege and opportunity to serve up the dessert course.

FOFOA, je vous remercie!

Bon appétit tout le monde...


FoNoah said...

@Freegoldtube - Another great video. Well done and thank you too.

@Burning - thanks for Another perspective on the hungry lions tale. I had always thought that the 1000 hungry lions were the "big boys" (Giants) fighting over the remaining physical, and the small dogs were us shrimps.

@Indenture - thanks for your always very insightful comments.

In fact - thanks everyone. Today I am feeling in a very uplifted and expansive state (after being down in the dumps for far too long!)

burningfiat said...

FoNoah, exactly! That was also my interpretation up until now. This "Thinking like a giant" stuff seriously messes with my baggage! :D

Let me second you! Thanks to all in this great forum!

MatrixSentry said...

Attention evil gold hoarders, jerks, time misallocators and brainwashed cult members:

The 2014 FOFOA Compendium is now in works and can be found at the My blog in portable PDFs link under "If you'd like to read more..." at the right of the blog.

Sam said...

An interesting thought to ponder is that there are those that know, right now, what the true value of gold is. I'm not talking about the fact that they know it is worth a whole lot of currency more than the discount market. I'm talking about people that trade large hoards of gold on the 2nd tier market could tell us exactly what the "freegold price" is as of 2-28-2014. I wonder if the price is stable, perpetually climbing, or swinging up and down. No doubt it will find itself much more stable in price when the rest of the shrimp savers and third world no-ones are added to the pool.

shamash said...

Great post FOFOA.

You continue to provide muddy clarity for my overtaxed brain. My brains fault, not yours. :)

anand srivastava said...

My mind blown away!!!
Thanks FOFOA

InowB4 said...

"If you appreciate this blog, please support it.
More support means more effort on my part."

We must have donated A LOT! :-)
YOU have the X-factor, baby.... TYSM

Phil S. said...

Devil's advocate.. so a two-tiered market now existed in one or another working fashion for many centuries.

But it has to inevitably unify any day now, right? They thought in 68-71, in 97-01, and in 08-14.

Anyone asking for timing, think in such dimensions. Yes, it will eventually happen. But might happen to your grand-children for all we can tell. Of course, some will always say "but the system is so very very tight now, it must snap soon". But there were always many folks thinking and saying that.

I don't doubt the A/FOA/FOFOA story one bit, it's the most plausible, it's the most backed-up by evidence, it's the most likely, it's the most sensible narrative. But as a long game playing out over *centuries*, I'm now after this post more than ever convinced that everyone can keep stacking at around production costs for many years to come.

Dante_Eu said...

@Phil S:

Well, back then they didn't have € with its Mark-to-Market physical gold reserves. Well, start they did, but then 9/11 happened that probably pushed forward the timing.

1 century or 1 year left? Maybe not even the superorganism knows?

Great post and even better video!

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

You have a perspective very much worth considering, Phil, and one which, if you’ll permit me to put it into question form, may be expressed as follows:

If a two tier (bifurcated) market in physical gold has been extant for centuries, functioning over a wide array of epochs (each with its own special profile, but all exhibiting, at least for a spell, some greater or lesser monetary upheaval) without ever collapsing into one physical gold market, why should our present period be expected to see the end of a condition that extends as far back, perhaps even further back, than The Renaissance?

What is different now from, say, conditions during the late Middle Ages, the early or late Renaissance, The Enlightenment period, or early Modernity? It's quite a lot to ponder isn't it? I’m sure for a lot of folks there are many differences between those periods and now that immediately spring to mind. However, before one delves into that deep water let us consider that my question, what is different now from then, might be a bit more incisive were it posed thusly: What makes the present period unique from all those that have come before it such that there is at least one key difference that necessitates the imminent death of the two tiered physical gold market?

Before I engage in trying to answer that 64 trillion dollar question, allow me to divert the discussion ever so slightly by asking you to consider that Phil’s proposition rests on something like a flawed premise. The world has already experienced the near death of the two tier market approximately forty years ago during the hallowed decade of the seventies. In fact, I'd say it did die, but, like those rare number of folks who have been pronounced dead for some very brief period of time, only to resuscitate, the two tier market was revived because there was nothing else to fill the void that would be left in the wake of its demise.

Edwardo said...

Part two

Paper gold, as we now know, became the crucial and key instrument of revival for the dollar system. Equally, it would seem to have also breathed new life into (what is conjectured here to be) a many centuries old two tier gold market. So, at the very least, the pillars of this longstanding ongoing artifact of antiquity, namely the two tier gold market, have come under a near fatal assault during the lifetime of many of the folks who read and comment on this blog.

In the intervening forty some odd years since physical gold was (briefly) set free, the world has, like never before, become interconnected and interdependent in a way scarcely imagined by our forefathers. Lamentably, courtesy of the $IMFS, that means we are treated to a state of being that all to often manifests as constant crisis where fragility here (as, for example, in the U.S.) means even more fragility there (aka the rest of the world, particularly that part of the planet referred to as the developing world). There was a time-before the 20th century- when the goings on in a place like The Ukraine had little if any impact on folks in Western Europe, let alone in western North America. Those days are now long gone. And this brings us back around to that which constitutes the key difference between our period and those that have come before us, and which bears chiefly on the pivotal 64 trillion dollar question implicit in Phil’s proposition:

What makes the present period unique from all those that came before such that there a key difference bears directly on the prospects for an imminent death of the two tiered physical gold market?

I propose it is a combination of the severity of the malady afflicting the planet’s monetary and financial system coupled with the unique condition of interconnection that now exists on this orb. The hazardous state that defines our present monetary and financial system now makes its deleterious effects felt, profoundly so, in every corner of the globe. There really is only one best remedy to this insufferably awful state of affairs and it entails physical gold flowing like a great river where it now merely moves as a paltry trickle. And the physical can not flow like the mighty Amazon until the two tier market becomes a single tier market. The necessity is greater than it has ever been before.

Joe Vanderbilt said...

Great post FOFOA, you never cease to amaze. A very well deserved donation will be going your way!

My take on "why now": it could not be done without a big enough fiat system in place that is designed to be just the MoE and UoA, leaving the SoV function to gold. Never happened before in history. Why taking so long? Some countries saw it in their interest to support the US ExPriv a little while longer, but that seems to be changing now.

Phil S. said...

Thanks for the well-reasoned reply Edwardo, quite enlightening indeed. Good points, as are Dante's and Joe's remarks.

We watch, as ever!

Phil S. said...

The problem I see is this. Edwardo states correctly:

"There really is only one best remedy to this insufferably awful state of affairs"

However, it is not so awful for the media and political circus who likes and needs "the malady afflicting the planet", or for the military and intelligence industries who thrive on such malady, plus the giants like the two-tiered gold market as it means they're not seen as the "evil hoarders of vital economic life-blood" that they are ;)) now FG is suggested to be not a grass-roots, bottom-up 'revolution' by masses of shrimp-savers but a top-down initiative, but do the 'top' (giants and what silly conspiritards call "the elites & TPTB") really desire this. No doubt the ECB + Euro were designed to withstand the world dropping the $IMFS but not to themselves dump it. The US can spy on them and "fuck the EU" but they're all "let's do an FTA with them".. China is in recent months seen as following the $IMFS blueprint to the letter themselves. Trillions of debt? Who cares. Makes for good headlines and the world has gotten used to the number of digits increasing every decade or so. "It's all just a measure of our modern productive ever-growing economies", isn't it.. third-world nobodies? They get the same instabilities as they have for decades, by now it's a natural state of affairs. They can dollar-peg or not, they will be screwed either way, just in different ways.

On the one hand I agree with you all, on the other hand, given how much A/FOA/FOFOA focused on "real human nature vs. theoretical ideological mirages of how things might be worked out so much better", we might have to apply this very same mindset even to the A/FOA/FOFOA narrative itself ;)

InowB4 said...

@Joe @Edwardo
IMHO there's another factor to be considered:
the raising mass-awareness of and therefore decreasing trust in the fraudulent money system that puts A LOT of pressure on TPTB to make changes.
If they want to keep the central banking and fiat money train running, they will have to introduce Freegold.

Michael dV said...

My grandchildren are already I do expect them to see it ...soon.
The problem of timing is made urgent by 2 factors. the first is the supply of physical gold. For a 2 tiered system to function the cheaper tier must have physical even though it is mostly a paper market. When the demand for physical exceeds the supply there must be a resolution. The introduction of paper gold was part of the solution but now it seems to be failing as the relative demand for physical gold increases.
The second problem is the price of everything else. The solution to the debt problem has been to introduce more currency into the system. It solves the problem when debt is extinguished by default. They just make the junk the banks hold worth ore and keep the book looking solvent. This increase of money into the system can, does and will lead to a problem in the physical plane as those who are now flush with cash (when they should be broke and out of business) begin to spend it. This will lead to rising prices and a crisis amongst the population who do not have access to the money.
We have recently seen many commodities come back to near their 2011 highs. This could be the beginning of inflation.
Ultimately the world we live in since 2008 has not been the one we were in before then. None of what we are seeing is normal in the usual financial sense. If someone from 2005 were to see the condition of the world today they would not know what to make of it. They would not believe that the USA was using the tricks of a banana republic.
The stresses of this new way of dealing with the financial are largely hidden. Most people listen to the news and hear that everything is fine. Even those who are big movers in the market see a rising price for stocks.
Ultimately one must believe that we can all get rich just by printing more paper, if one follows the news.
We have been in a depression for 5 years if you subtract out the feds contributions from the GDP.
We are in new, uncharted territory. Have the masters of the universe found a way to make defaulting debt unimportant?
Can we keep doing malinvestment without any problems? I don't think so.
No one I have read has convinced me that they know what will cause collapse. Black swans, the collapse of the monetary plane, China not getting its gold, rising prices for food, war, rising consciousness of the proles....any of these could shake the foundation of the already shakey system.
It seems like we have been waiting a long time for a terminally ill system to die. The money managers seem to have found new life extending treatments. In the end the disease we have is always fatal.

S P said...

Let us look historically to see how those time periods were all different.

The early 70s was just the initial warning shot. There was still massive amounts of energy to be developed, and middle class growth happening in the emerging countries. And of course something happened then which needed to happen, and that was the official decoupling of the fixed gold/dollar exchange rate.

The late 90s/early 00s was clearly a turning point but there was still massive growth in China to come, and the wars in the Middle East in the attempt to free up more oil.

Our situation now is extreme. Massive reflation by the central banks, growing worldwide demand for physical gold, political unrest seemingly everywhere, climate chaos, all of this points to a very different world now. We get close to the end. It's 15, 16 years, tops from here. That's nothing! 14 years ago was 2000, and Another started writing in 1997. The blink of an eye.

I would be surprised if the system lasted more than a few more years. So look, you people need to start to spread the message slowly, carefully. The time actually is sort of running out to acquire real, physical gold above ground.

Michael dv: interesting comment and I agree.

Motley Fool said...


I will add my few thoughts on your very good consideration to those of Edwardo above.

What is it that is different to the past that would make the disconnect disappear?

Today we have one large entity that is using the MTM methodology.

The system resets and fails every so often (about 40 years or so). For gold not to be revalued during the next reset the ECB would have to abandon the MTM concept. We have seen much evolution in market structure and use for gold over the last 100 years. All we are truly waiting for is another inflection point, and this has little to do with gold but rather the mathematical inevitability of the failure of credit money every so often.

At present we are overdue another failure in credit. We do not have to wait decades for another inflection point to arise. The only question is whether the ECB will abandon MTM during the next one. I submit that since they have much greater understanding of gold, and that the euro was specifically created with the intent of holding fast during the next collapse, that they will not alter course.

As Edwardo rightly points out, today the world is more interconnected than it ever was before. In the past such crises were local and could be weathered. If we had one such today without something filling the vacuum of the dollar, the modern world will collapse and many would die. The euro-founders foresaw this, and did what they could to prevent this outcome in their creation of the euro.

So to my mind also, I do not see this lasting for decades more, though it could take a few more years for the current credit market to break completely.


David Reischer said...

Phil S. said...

Great thoughtful answers all, greatly appreciated!

vizeet srivastava said...

Excellent post. In India I have seen what happens when villagers become rich suddenly. They buy a big car which can carry more people not very costly, they drink more alcohol/meat, and they buy gold and land. Nothing else changes. Because as FOFOA has written here they are not lottery winners. There thinking is not like westeners or middle class metropolitan Indians.

Phil S. said...
This comment has been removed by the author.
sitnhere said...

One small step for the Giants, and one giant leap for the Shrimps. That about sums it up. I assume when speaking in terms of Gold, we are also referring to Silver as well....perhaps even moreso.

sitnhere said...

Great read and one that is so plausible. One small step for the Giants, and one giant step for the Shrimps when the reset occurs. There will be many casualties in the chaos that results, but at least FOFOA points to a methodology that will contain it and restore financial order to the world and future generations.

burningfiat said...

sitnhere, you assume wrong.
When FOFOA says physical gold you have to take that very literally. It means gold and only gold. Regarding the Freegold revaluation, only gold is expected to experience this leap. Nothing else!

Perhaps this is a decent place to start:

Motley Fool said...


It's an interesting idea. I will however play devils advocate.

'Now, think about the reasons why you might overpay by 20 times the market price in order to obtain that much gold all at once. It comes back to what Mike said above: "It must have been a struggle to keep what you had… Being super rich must have been exhausting."'

Hmm. Aren't you taking a bit of a dim of giants here?

No great fortune is made overnight.

In terms of reason for being willing to overpay, it would be that of some crisis happening and being caught with your pants down( though even here one wonders if what you have in trade is of value due to imminent crisis), or making your fortune faster than you can convert some small percentage of profit to gold at market price.

Assuming that wealthy families are aware of occasional collapses, and the time it takes to amass great fortunes, it would make more sense to me if they acquire over time, so as not to wake up one day with oddles of cash which they want to convert to gold and would then have to do at great premium.

It is true that scarcity means one has to pay a premium to obtain things of value, but 20 times as much??! That seems a bit of a stretch. On the other hand I recall Another speaking of the interbank value of $6,000 at the time gold was around $300. So perhaps it is not too much of a stretch.

Since giants don't need liquid assets, as their income generating capcity is enough, why would they be willing to sell 100 tonnes to some new giant? What would they do with the money generated? And even if some old house was to fall on hard times and able to get a much higher price in this private market, I do not see them liquidating all their holdings at once.

You later mention them exchanging it for other forms of wealth...but since all other forms of wealth are inferior to gold, for the reasons you mention, why would they make the trade?

“That difference is a very real (and, I think, undeniable) value difference. To someone who has $50B in net worth/assets (but no gold) and is worried about keeping it for generations to come, your 100 ounce shrimp stash of gold coins is worthless. But 50 tonnes in a one-off, totally-private and hidden off-market physical purchase *from another Giant* might be priceless. “

I posit that this giant is very stupid, and I wonder how one so dim could acquire so much wealth.

“True Giants have no need to ever sell their gold. And since it is not the realm of any public “wall street”, you'll never know how much they have nor where it is hidden. They sell only when approached by a peer seeking a large hoard and offering an attractive and equitable price. “

As per above, this does not make sense to me. Even at an attractive and equitable price.

(part 1)

Motley Fool said...

(part 2)

“You will not see 80% or more of gold deals. If it was done with all to see the discount value would be lost as the world price would explode. This is not the relm of any public “wall street”. At one time it belonged mostly to the Barron. Now it is large with the BIS and super rich. “

The Barron isn't that old, that we could assume 1200's or before. Mayer Rothschild established a bank in the 1760's, and can assume it took quite some time for him to grow fabulously rich, so maybe circa 1800? Industrial giants have only been around since around the French Revolution. Nobility have been around longer, but they weren't subject to the same collective forces, they exerted that force with blessings from the monarch. At worst they would have been targets in international wars.

“Clearly, the consumption of oil compared to the consumption of gold places a much higher value on oil reserves than gold reserves. “

Hmm. Well idk. If we compare reserves for reserves, then mining and selling one or the other depletes such reserves.

Looking at the numbers there are about 1.5 trillion barrels of oil currently in reserves, and perhaps 250,000 tonnes of gold we can viably mine. That equates to about 185 barrels of oil for every ounce of gold. Much less than I thought it to be, and certainly not in the 1000 barrels per ounce range. Of course as oil is used up and gets scarcer it's value will go up, while for gold the same amount will remain in reserves.

“Think that I a fool, because I trade gold for thousands US an oz.? You will think much on this in the future."

This is indeed a confusing quote. I took it to mean buying gold today for what he knew it would be worth in the future post revaluation ( or close to it).

“In fact, it was reported that many of those gold disks we sent were then shipped to Bombay where they were sold for $70 per ounce, melted into bars and then resold in Macao.”

I'm a bit confused by this. Here is a chart I found for gold prices in this period...nothing like $70 an ounce.

If they were accepting these in payment for long term wealth storage, why would these be circulating? Even if they sold some to capture the premium difference(which didn't seem like much), then since there was such a shortage of gold that these disks had to be minted by the USG, where would they find the gold to capture this 'profit' in gold again?

Anyhow, enough ramblings. :)


Jeff said...

Overpay is a poor choice of words. It's paying the market rate for gold in size. If you became suddenly aware of the truth about gold (China), even buying too aggressively at the discounted price you can blow up the market, or you end up carrying the West a decade longer. How much does that cost, in the long run? What if the West unhelpfully devalues your bond hoard in the meantime? Who has the leverage, you or your debtor?

'No great fortune is made overnight.' But it may be lost overnight, at the stroke of a pen or an ax. 'Behind every great fortune lies a great crime.'- Honore de Balzac. If too many of your countrymen believe this statement, you may have a big problem. Nobility and monarchy both exist at the pleasure of their subjects, and if they forget that they go the way of the czars and the sun king.

Sir Tagio said...

1 of 2


This is a very good post, and is great detective work, thank you very much! I continue to be astounded by the research, and careful identification of assumptions and careful logic that underlie your very informed viewpoints and perspective. I am especially grateful that you explained the basis for your revaluation estimates, and the lower and upper bound likely range. I also very much appreciated your identification of the benefits of the revaluation to Giants. For me, this was another one of those “a-ha” moments akin to the time you explained (in your brilliant reply to Rick Ackerman, “Deflation or Hyperinflation”) why the banks and other powers that be did not fear hyperinflation, because it made preserving their balance sheets all the easier.

Phil, thank you for sharing your observations on the timing of FG, and the possibility it could be many years away, and Edwardo, thank you for formalizing Phil’s implicit question. FWIW, another factor of what’s different now is peak resources. This will lead us to store less value in debt instruments, which are promises predicated on future performance and future production, because production will have peaked. I expect that this is a 10 – 40 year proposition, however.

I second Phil’s observations that, while believing that FG is “inevitable” (insofar as that concept applies to anything that has to do with human beings), Fofoa’s identification of the long, historical nature of the two-tier gold valuation system provides some support for the idea that the FG revaluation may be many years, possibly a decade or two, away.

For a long time it has seemed to me that the twin Fofoa points of view that (i) having a printing press is more valuable than gold, and (ii) FG will be a top-bottom revolution, not a bottom-up revolution (the “top” being Giants who want but can’t get physical rather than the Evil Elites per se) have indicated to me that FG would be ushered in only if and when it was the last possible option. The $IMFS is just too good a game to leave the table before every last bit of getting can be gotten. As I believe Phil pointed out, even China plays the game to max out $IMFS benefits while it can. Clearly no one is rushing to enter into the new era to save their crashing societies and for the more balanced world FG would initiate.

The FG position is that it is the ability of physical to flow in sufficient quantities to satisfy the needs of the “hungry Giants” (as opposed, of course, to the “hungry collective”) that will ultimately usher in FG. While this latest post indicates how little physical supply is left to meet demand, and that we are near the breaking point, Fofoa’s analysis leaves out – not a deficiency on his part, it is incalculable and “unextrapolatable”– the effects of fraud, pillaging and war, which could further prolong the final day of reckoning.

Sir Tagio said...

2 of 2

For example, does anyone still think that Libya has its gold? Or consider, Russia’s demand for gold might be diminished by having to pacify the Ukraine, causing Russia to devote considerable resources to securing that country, and diminishing the surplus available to accumulate gold. Not saying that the West initiated a coup there for this reason – no, that would be full conspiratard! – I only indicate a possible side benefit from the perspective of managing gold flow.

Fraud also has great potential for prolonging the day of reckoning. Jim Willie’s latest story is that the West is selling off Saudi gold stored in the West to make money by selling it to the East, and that the Saudi gold will soon be gone. Sounds crazy, but who knows. Willie has a flair for hyperbolic drama because his livelihood consists in selling newsletters, which depends on keeping his audience believing they are inching ever close to skyrocketing gold values.

Nevertheless, as crazy as it sounds, the potential for such fraud exists. People who store gold in allocated gold storage accounts don’t have gold, they have a contract for gold, just like people who deposit cash in banks don’t have cash in the bank, they have a receivable. Breaches of contracts are not criminal, they are civil matters. If a party breaches, you have an action for damages against the breaching party, and the limit on recoverable damages is usually their insurance coverage, after which they quickly become “judgment proof” because there is nothing to go after, and you just rage against the machine, chew your liver, swallow your bile, wonder how you could have been so stupid, and/or blow your brains out because you lost everything.

While selling off Saudi gold may not assure a long and prosperous life, since the Saudi royals presumably have abilities to extrajudicially “enforce” contracts, the current system does permit the possibility of this type of abuse, prolonging the day of reckoning, and leaving people like us scratching our heads wandering where all the gold is coming from to meet the demand.

I believe that in the long run this supports Fofoa’s idea that the “dual gold market” will unify under FG. Once the epic fraud and abuse under the current system sees the light of day when the credit system collapses, physical ownership of gold will, I think, again become part of “household management,” as it was in antiquity, and not left to the financial “services” industry, whose reputation will have to be re-earned over decades of actual prudent, Caesar’s-wife style management.

However, if the FG market is unified and broader, this in my mind argues for a less than 20x revaluation. If Giants operate in a 20x market, and if the market deepens and is broader and more liquid, the reval factor should be lower, no? Maybe 10x or 15x. Fofoa is right. For me, the huge reval is the hardest part to believe, or see, in FG. The only way I see that we get a higher multiple is that gold becomes a bigger focal point for all saving. Which I know is part of the FG “doctrine,” but FWIW it seems to me that gold becoming the focal point for saving is the second necessary component to achieving the much higher reval, not mere “overshoot” in response to having the ability to manage the physical flow, as seems to be suggested in the latest post.

byiamBYoung said...

Great, thought provoking essay, FOFOA! And kudos for playing devil's advocate, MF. Great Sunday reading!

It all seems to boil down to the balloon dog, really. Paying 20X the open market price for 100 tons of gold is reasonable if in the future you can sell that 100 tons of gold for the same price or even more.

It's mind boggling, but we know for a fact that balloon dogs sell for $50 million+ even though that is a completely ridiculous price. If that is true (and it is), paying 20X shrimp price for gold in size is not so unreasonable, especially since the shrimp price can never be the giant price because the shrimp market can't tolerate anything close to giant volume.

Add the fact that gold is more discrete than balloon dogs or castles, and more liquid as well, and it seems quite logical.

Sam said...

In the beginning FOFOA used the words "overpriced" to set up the question. In the end it should be understood that tiny amounts of gold are discounted (for a limited time while supplies last!) and large hoards are not overpriced but priced correctly. This is an abstract idea that requires some thought at first, but once understood, it will be seen as a painfully simple and logical concept.

Indenture said...

"Tiny amounts of gold are discounted to prove a currencies worth. Brilliant.

Aurora said...

This string of thoughts is amazing. FOFOA opened the door and some great comments have surfaced here on this one. Thanks to you all for sharing. I love this blog......Cheers!!

Woland said...

"You don't, in the 21st century behave in 19th Century fashion
by invading another country on completely trumped up pretext", Mr. kerry told the CBS News program, Face the Nation.

yeah,…..that's sooooooo….. 20th Century

Edwardo said...

I'd say that when the golden moment arrives, a revaluation price of 10x present values will fall woefully short of achieving one of the necessary items on "the agenda." What I am speaking of is the imperative of CBs to entirely cover their dollar denominated holdings which will be vanishing into money heaven like no one has seen since the good old Weimar days. We've seen what CBs have done on behalf of other entities and and their enormous portfolios of no hope debt, (can you say entirely covered dollar for dollar) well, rest assured, that CBs from here to Timbuktu, over to Bora Bora and beyond aren't going to skimp even a little itty bit on making themselves whole when the time comes. You best believe them balance sheets are going to balance better than a Walenda on a tightrope.

And finally, a word or two on Jim Willie who is at least as mad as a hatter. He's pulling stuff out of (not a hat, but his very bony ass) in what seems to me to be an even more frenzied and lunatic fashion than ever. Saudi gold's being stolen? Think, freaking, again. It ain't happening, Jim. Not now. Not ever, except in your confused head.

Sir Tagio said...


Thanks for your comment, I had forgotten that part of the "agenda." Makes sense.

Blake said...

@ Edwardo --

Regarding Jim Willie, he is most certainly left of middle but my interest is piqued when he discusses backdoor/real size of QE as it fits well with the theory here that QE must increase as foreign CBs have clearly stopped absorbing USG debt.

byiamBYoung said...


"You best believe them balance sheets are going to balance better than a Walenda on a tightrope."

Artfully stated, sir.


Michael dV said...

yes Willie loses some entertainment value when he wanders so far from the probable. I view him as I do UFO Youtubes… a grain of truth, a dash of blurred image, a few wild hypotheses…presto… I've been amused.

Michael dV said...

Sir T
I came up with a 250,000+ value for gold…if all the holders of treasuries bid for the remaining GLD inventory one gets that kind of figure. There is a lot of wealth perceived t be owned at this time. Unless huge losses are to be taken those valuations have to reside in something.
I just can't picture a system in which gold stays near production costs. It would mean the kind of losses we 'should' have seen in 2008.

Sam said...

To keep mining the same output as 2013 after cutting capex funds and ramping up production on the cheapest mines would mean a "production cost" of around double in 5 years. Why waste the energy. All the gold the world needs is already above the ground and below the ground makes an excellent storage facility for the rest.

anand srivastava said...


I think the >20X is probably valid for the current times. Currently there are a large number of paper giants. It is possible to believe some of them think that they might lose their wealth. These people would be willing to trade their wealth for gold at a much higher premium. They know they cannot get a lot of gold in a short time.

The real problem is assuming somebody will sell their gold. But it is possible that some guys who inherited their fortunes but didn't understand gold. And wanted to sell it. These would be very rare transactions. The long 20 years decline in gold can cause some not so intelligent inheritees to do this.

Obviously the premium would be much smaller in older times. They might be also traded for favor to the kings in times of stress. I also think when the gold based (or any other for that matter) currency is introduced, it must have a premium over the base metal.

The premium as I see it is because the trade goes out of the eyes of the rulers. And this allows them to avoid confiscation when rulers change due to conflicts. Still this would be much less important before rulers started to monitor all trades ie before modern times.

The bigger question for me was why would this premium resolve after the crisis. Since in present times the premium is because of the market busting quantity. I think the physical quantity being traded over the year will not change much, as it is basically determined by mining. If the mining went down then sure the trade volume could further reduce.

The reason why the premium would vanish after freegold event, is that the 40x multiplier would make a market busting gold stock to become so big that rare giants will be able to afford that much, much less pay a premium on it.

anand srivastava said...

BTW what's up with GLD these days.

It's not making any sense. Could it be that they are collecting for some coming requirement? Still it is going too slow.

Josh R said...

Thank you FOFOA for another great piece!

My question is:

If Giants who buy in size know they have to buy in bite sizes(smaller tonnage) rather than gulp up what is available as far as the gold in flow, couldn't the game keep going as long as the Giants who are purchasing were told "right now there is limited tonnage to buy"? Isn't the logic of buying over time in smaller quantity a door to this excuse?

Will the gold stop flowing when those who are supplying from their own Giant stack to supplement the discount market to keep the game going if the flow of gold is not enough for those who are purchasing?

I am trying to reconcile the thought of a giant say China keeps getting gold but not as much but gets some, like an allocation method. And will they go along in order to keep buying more at a discounted price since the discounted price is a bargain of a lifetime.

Edwardo said...

I think this piece seems relevant and interesting.

tEON said...

Brilliant stuff, FoFoA! Thanks.

So, I can't helping thinking that if I am a Giant - the 'play' is getting shrimp Gold. How to encourage shrimp dishording? Wouldn't a great side business for Giants be 'Cash 4 Gold' stores in the west? Since 1/2 the gold is jewelry - as the economy tanks - desperate people sell. I wonder how much 50, or 100, locations of those businesses (I always assumed it was a franchise, but have no idea) could obtain in gold weight annually? Everyday people walk through those doors and sell necklaces, rings, broaches inherited from a passed grandmother etc.. Everyday. 5 ounces a day? 10? - so, 100 locations buying 'discounted' (below even SPOT) gold - 182,500 - 360,000 ounces a year? from 100 locations. Of course, I am just guessing. Would owning those businesses not be discreet enough (too transparent) for Giants? I suppose. Sounds like a lot of, potential, Gold, though.

anand srivastava said...


The play is not really getting shrimp gold.
But storing excess wealth into gold.

Till now, with gold running at lower prices, it was also to not eat so much that it caused gold price to increase.

For them gold is a store of wealth (the best one) for times when it gets tough, but not the most important thing. And for those times, you just need enough. If a smaller amount will give you enough so much the better.

Don't get me wrong. They will still add more, but it will not be urgent. Just a way to store the excess they are producing. For this they will not spend too much effort. They would prefer buying easily and in bulk. Dealing with shrimp outlets is a waste of time for them.

Aurora said...

The bulk of the "Cash 4 Gold" train left the station in the west in 2008 & 2009 & 2010. Literally hundreds of thousands of westerners sold as gold sliced thru $1000 per ounce spot price and folks jumped on the train. That market peaked then and once people sold their stuff, it's gone for good. It was most likely the final clean out of real size from the general non-gold caring public. Jewelry of all kinds was scrapped and melted in exchange for fiat to continue to fuel bill paying during the downturn by the masses. The scrap Au/Ag business peaked during that time, now the volume has fallen off significantly. Most of the businesses were independent coin guys, many of which have down sized now or are seeing much less volumes today. There are no more "Cash 4 Gold" commercials on TV lately because that big opportunity pretty much dried up. The scrap business in bulk may well be in terminal decline from here forward. That fruit has been picked!!

Sir Tagio said...

Michael dV,
Those calculations (conversion of Treasuries into gold) are interesting, but the main problem is that there are far more claims to "wealth" than there are underlying real assets and real future productive capacity, and we will eventually have a massive deflationary collapse where these illusory "assets" vanish into thin air. ("All paper will burn.") I don't think the goal of a FG reval will be to preserve all existing claims to wealth on a 1:1 basis, since this is impossible. However, per Edwardo's point, the CBs (those who have Au on their balance sheets) will certainly want a reval that preserves THEIR balance sheets and ability to function and when push comes to shove the US Gov will want a reval that gives it an ability to continue to import oil and other strategic resources while it re-orients its economy to the new realities.

jojo said...

Nice comment.
Is gold always striving to coalesce in large hoards?
Like there is a gold super-organism overseeing the reunification and movement of all those gold atoms scattered to the winds on this planet.

When I was a kid playing Monopoly I would upgrade to the red hotels as the ultimate expression of my "wealth". I kept getting the image of the red hotel in my mind while reading this post. Acquiring a large gold hoard, regardless of "price" would feel similar I think. *

*To this shrimp

Michael dV said...

Sit T
I agree completely. In doing my calcs I used 5.8 trillion in treasuries....not 17 trillion (or so) actually outstanding. 5.8 trillion is what is held by CBs. Considering 800 tons at the number is $232,000/ oz. And that number is if they all agreed to play nice and divide it according to treasuries held. In a panic, with rapid bidding it could be higher.
Of course these numbers are meaningless but there remains the issue of how to keep CBs whole. This calculation also assumes all other treasury holders (and other bond holder such as those issued by Fannie and Freddie) get....nothing.
My advice is to get your share before the CBs decide they are a tad short on their share.

Michael dV said...

that should have read '800 tons at the GLD,'

Motley Fool said...


I think they will simply settle their debts in devalued paper after hyperinflating the such calculations are meaningless imo.

What is of more import in the pricing is the value needed for gold to serve as stable store of value in present times. A much harder sum to be sure.

Nickelsaver said...

I agree with TF. Using gold prior to hyperinflation is not a logical act. They don't want to monetize debt thru gold. There has been enough of that already.

Have you ever wondered why FOFOA drew a line in the sand with regard to calling gold "money"? It isn't just a matter semantics.

Gold has been monetized (tied to currency on the same side of the balance sheet) for as long as anyone living can remember.

Some think that when Nixon closed the gold window, gold was demonetized. Not so. Had gold been allowed to trade freely at that time, without the interface of a paper gold market, we would have seen it. But gold was kept from demonetizing, not by the US, but by the the very same entities which allowed gold to be monetized via USD in the first place. And that was to buy time.

It's rather counter-intuitive on the surface. Gold trading as a commodity = monetization.

Gold held purely as a reserve asset without interchangeability (pegging, or holding gold on the same side of the ledger) and without commoditization (fractionally reserving gold via a commodities market designed to give access to the price movement of gold thru the currency alone) = demonetization.

Many think perhaps if gold is held by CB's, it is monetized. Think again. How it is held is all the difference in the world.

Gold is NOT money. To treat it as such is to suppress its value. Is it any wonder that Old World Giants understand gold at its demonetized value?

The word "transcends" comes to mind.

burningfiat said...

Excellent NS.

"gold transcends human valuations thru time and life". . Take your time on this one!

We always, somehow, come back to this one, yes?

Nickelsaver said...

Ty Burning. Yes!

(pegging, or holding gold on the same side of the ledger)


(pegging, or holding gold on the same side of the ledger as the currency)

which is the same thing as saying "gold is a debt, not an asset"

Woland said...

Hmm. In this "game of chess", how to interpret the remarks
today of Sergei Glazyev re: the US$? Disavowed by Kremlin,
but only after being "allowed?" to make them.

Woland said...

FT beyondbrics, Sept.23, 2013
"Russia adds pressure to Ukraine with predictions of default"
citing Glazyev

Indenture said...

Russia vows to switch to other currencies over US sanctions threat - Glazyev

Knotty Pine said...

Looks like it could be one regime change too many. The last straw?

Woland said...

Versus, another view:
TheEconomist, Sept 24, 2013
The other Yalta Conference
"A Global Elite Gathering in the Crimea" provides an excellent
background piece.

Edwardo said...


"Never believe a rumor until it's been officially denied"

- Otto Von Biamarck

Knotty Pine said...

B.O.R. knows what to do!

(Intended for comic relief only)

Woland said...

b.b.but he's not as smart as B.O.R.A.T!

Edwardo said...

Bill O'Reilly says thump Russian banks
So much better than taking on tanks
The dollar's the bet
To make Putin say, nyet!
And the whole freaking world will say, thanks

Biju said...

knotty pine : comic relief indeed from Bill O Reilly showing Obama on a bicycle and Putin on a horse shirtless.

All Obama has to do is ring the bicycle bell, the horse is startled and Putin is lying on the ground.

Bill O Reilly does not deserve a talk show. BTW I am neither a Republican or a Democrat. These shows are just crazy and they have no business talking foreign policy. In my opinion, for now USA/West has wrestled Ukraine from Russia's orbit, USA 1 - Russia 0.

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

@ Motley Fool

I posit that this giant is very stupid, and I wonder how one so dim could acquire so much wealth.

My nominee for a foolish giant award would be the Reserve Bank of New Zealand.

Although they recognise the importance of gold by listing it (on line 4) of New Zealand's International Reserves and Foreign Currency Liquidity spreadsheet, the amount is zero.

Some combination of bungling bureacracy and political short-sighted decision making lead to the RBNZ selling off most of their gold during the 1960s, and the remainder in 1991.

If anybody can point to some documents that describe the thought processes at the time, then I would be grateful.

Gold Kiwi said...


Pure speculation on my part, but perhaps the Bank of England needed some gold in a hurry and the Reserve Bank of New Zealand was happy to oblige? New Zealand had extremely close economic relations with the United Kingdom back then.

As for selling off the remainder of the gold in 1991, perhaps the BIS needed to move that gold elsewhere and the Keynesians at the RBNZ had no problem with that?

At least we still have plenty in the ground.

Phil S. said...

Date: Sun Apr 19 1998 15:49

If they sell gold, a way is clear to "bring gold back" for the nation! Canada has local mines, Australia has local mines, Belgium has South African mines!

Woland said...

I'm looking at a comparison between the change in the 10 yr
UST and the average of Italy+Spain, over the past 6 months.
The former has fallen 8 basis points, the latter 106, for a
difference of about 100 basis pints. The spread is now just
about 70 BP. Is this all ECB buying? It cannot be carry trade
arbitrage, with such a low spread, so what does it represent?
A surge in confidence in Italy/Spain's recovery? I would
doubt that. So, what's left? any thoughts…….

Joe Vanderbilt said...

Woland, my wild speculation is that if China does not buy UST anymore then it must buy something else big enough to absorb all that flow... why not EU bonds? Are the odds of default really that high? Maybe they believe that in the end the ECB will print, and given that the magnitude of euro printing necessary is much less than dolar printing then in the end the euro might still be worth something. This would explain a bit why the euro remains so strong vs the dollar, they would have to buy euros before buying EU bonds.

Or maybe they believe gold will the revalued soon and these stressed EU countries can just ship a few tons. ;-)

Tony said...

Amidst a real tragedy that transcends dollars and cents, Bitcoin is dealt another blow...

Josh R said...

Is the ROW now being provided with a clear choice between a non dollar world with Russia and China flexing their muscles and having to support ExPriv? Which is the lesser of the two evils?

Edwardo said...

Josh R,

I'd say that, at a minimum, the world is being presented with the prospect of a world in which the dollar system no longer dominates.

Josh R said...


Ahh yes very true. Correct perception will be possibly formed as the future for the US in power and strength is being viewed as diminishing.

mrbeyond said...

How to host a party like a Giant ? Note the horned "giants head" mask. the

Michael dV said...

some of those photos were in Guy d'Rothschild's book Whims of Fortune. He did not mention the Illuminati however, maybe they weren't invited to that one....or maybe Tom Cruise throws better secretive parties.

/SleepingVillage/ said...

Damn, that looks like it was a groovy party.

O M G the one lady had a bird cage on her head... a bird cage! The horror! Must mean she worships the ancient god quetzalcoatl!! Ahh!

Or it could be a form of expression... sometimes known as art...


Jeff said...

frankthetank said...

germany must be full of illuminati. in the last weeks you could see them walking parade in thousans of cities masked as witches, demons and sometimes the devil himself.

Sam said...


Interesting that most of those companies focus on exploration. Large companies that are further away from bankruptcy have also cut exploration funds in order to stay solvent and even look profitable short term to keep the what muppet traders they have holding on to their shares. What do you call an industry that's pumping out a scarce resource at record levels, at depressed prices, and isn't really investing in and looking for future projects?

Archer said...

Who needs junior mining, or senior mining for that matter? Answer: No one. There's more than enough supply. And when one weighs the imperative of a new monetary system that features physical flowing freely against the continued existence of the gold mining sector, at least in any fashion other than as a state utility, it's nolo contendre. It should give a 'tard pause.

Archer said...

What do you call an industry that's pumping out a scarce resource at record levels, at depressed prices, and isn't really investing in and looking for future projects?

A barbarous relic?

tEON said...

Another 'Bitcoin bank' bites the dust... HERE

Archer said...

Fluxcoin, eh. Filchcoin would've been more appropriate.

t au said...
This comment has been removed by the author.
t au said...

Gosh, I sure hope the Twins are alright.

Edwardo said...

They may be a bit poorer.

Blake said...

" So don't look for massive printing to see hyperinflation coming. Look for the monetization of bad debt and the first signs of real price inflation, even in the face of apparently deflationary forces" - Just Another Hyperinflation Post - Part I

Prescient words from FOFOA. $CCI is going parabolic since the beginning of the year despite the deflationary forces that persist now more than ever... Could we finally be witnessing the beginning of the end?

Michael dV said...

If the S&P were part of the CPI we would be having the worst inflation in American history...6% a month!

Andreas Van de Kamp said...

Thank you very much FOFOA ! I wonder, how much time you had to spend to put together a post like this (and how many times you had to change your mind with respect to the minor details ;)
Please await my first humble donation next week! Andreas

KnallGold said...

Let's be all be illuminated!

"(Argent) Feb 05, 22:43 on GE

The following 13 families (in alphabetical order) constitute the illuminati and rule the world:

de Medici

Rothschild is the leader of the 13

Underneath those 13 are the "committee of 300" families who do the will of the other 13. "

But right now I'm watching the $ and bonds, so much noise to set aside currently...

Franco said...

Blake said: "$CCI is going parabolic..."

What's $CCI?

Blake said...

Franco --

It is the Continuous Commodity Index. The index comprises 17 commodity futures that are continuously rebalanced: Cocoa, Coffee, Copper, Corn, Cotton, Crude Oil, Gold, Heating Oil, Live Cattle, Live Hogs, Natural Gas, Orange juice, Platinum, Silver, Soybeans, Sugar No. 11, and Wheat. The 17 components of the CCI are continuously rebalanced to maintain the equal weight of 5.88%. Since CCI components are equally weighted, they therefore distribute evenly into the major sectors: Energy 17.65%, Metals 23.53%, Softs 29.41% and Agriculture 29.41%. While other commodity indices may overweight in certain sectors (e.g. Energy), the CCI provides exposure to all four commodity subgroups.

Sam said...

for those that think they are being ruled by the illuminati:

Varys - "Power is a curious thing, my lord. Are you fond of riddles?"
Tyrion - "Why? Am I about to hear one?"
Varys - "Three great men sit in a room, a king, a priest and the rich man. Between them stands a common sellsword. Each great man bids the sellsword kill the other two. Who lives? Who dies?"
Tyrion - "Depends on the sellsword"
Varys - "Does it? He's not the crown, no gold, no favor with the gods"
Tyrion - "He's got the sword, the power of life and death"
Varys - "so then why do not sellswords rule the realm?”
Tyrion - "I have decided I don't like riddles"
Varys – “Power resides where men believe it resides. No more and no less."

Jack Tarragon said...

Freegold: One small step for giants, one giant leap for shrimps.

jojo said...

1 month to go Sam :)

Josh R said...

Interesting article: Russia and Ukraine had an agreement of troops/military presence after fall of USSR

Josh R said...

Referring to above article: The agreement may have been breached. Due your due diligence. Not an expert on the issue, trying to get a better grip on it. Seems like a climax event of USA desperation.

M said...

Ted Naylor-Leyland was just on RT.

He was basically saying that the EU is supposed to follow the new IOSCO principles on financial benchmarks by law. If gold is to be used as a tier one asset, then the LBMA and the gold "fix" is in contravention with 12 of the 15 benchmarks. So the LBMA gold fix in its current form, cannot continue to operate in the EU if gold is to become a tier one asset.

From :

Global securities regulators are calling on financial benchmark administrators to comply with its new principles by July 2014, in order to address concerns raised by the London Interbank Offered Rate (LIBOR) manipulation scandal.

The International Organization of Securities Commissions (IOSCO) issued a communique Wednesday, which encourages benchmark administrators "to take all the necessary measures to comply" with a set of principles for financial benchmarks that were issued earlier this year. It also requests that administrators disclose the extent of their compliance every year.

Interesting find by Ted but i'd imagine it will lead to a whole lot of nothing. This would be the equivalent to the nuclear option.

Wouldn't it ?

Nickelsaver said...

Paper gold or real gold as a tier one asset? The former would constitute support would it not?

M said...

@ Nickelsaver

It doesn't matter the way I see it. Both paper and phys are officially priced by the LBMA.

Nickelsaver said...

"It doesn't matter the way I see it. Both paper and phys are officially priced by the LBMA."

That and...

"Not all freegolders share the same opinion as to how freegold will be ushered in. Some think it will be through a paper price breakdown and some believe it will be when paper gold is shooting up. Another himself said, it will be when paper gold slices through $10,000 an once.

I think/hope it will be on the upside to revive some of my jr. mining plays."

...are evidence that you are not seeing what the freegold lens is showing. Perhaps your baggage is too precious to put down?

Good luck

Grinners said...

Great post FOFOA.

Made my first donation. Thank-you for your work. I thoroughly enjoy it.

I just cannot wrap my head around a discounted price (by such a large amount) having been around for decades (centuries) and nobody taking advantage of it (bringing both prices together).

I understand why Giants would not benifit from the two prices combining, but mega shrimps (mini-Giants?)? Surely a few of them would have taken such an arbitrage position.

M said...

@ Nickelsaver

I only meant that as an answer your question. (will paper or phys be counted as a tier one asset ?) The regulators only see one price of gold.

But now that you have changed the subject, I'll weigh in on my "baggage"...

Using the freegold lens to try and make sense of what is going on in the short term and to make predictions is a waste of time. Recall in 2011 when most of us were cheering the price up because at the time, we thought that this was the move to freegold. My takeaway from the 2011 run up and crash was that this market will move on sentiment and the usual bullshit until it breaks. For no good reason. If its been able to sustain itself this long on the way down without breaking, it won't break on the way down.

Same thing happened In the 70's and 80's. Paper gold crashed by 50%. Mining stocks got destroyed. People had all their reasons as to why. Then,some price inflation and the US treasury bear market kicked in and gold went on its run.

This will likely be how freegold ushered in this time. Some price inflation, a treasury bear market and a paper gold run. Then, unlike last time, the USD will not be able to sustain the treasury bear market and the Fed won't have a hope in hell of attracting money back into US debt by raising interest rates. Paper gold will shoot up until something breaks. There will be some "stop logic" market halt in the paper gold pits for a day or so , physical will be AWOL and that's when the revaluation happens. In the days after that, governments will be talking about gold mine nationalizations and the whole industry will be in a state of uncertainty.

Luke said...

Look at Nickel trying to earn some freegold e-cred. Instead he just looks lame.

M, I think it is at least interesting.

Sam said...

The whole "gold as a tier one asset" thing is all about banking and not really something that will affect Freegold either way.


Many have taken advantage of gold's discount by slowly accumulating with full knowledge that quickly accumulating would lead to a broken market and little gold to be had. The point of the "think like a giant" series is to give the logical perspective someone of great worth would have. When it comes to small piles of gold it would be like you or I working tirelessly to collect pennies (while simultaneously risking the destruction of the penny market) because their melt value is 2.5 cents. Better to privately buy large blocks of copper at a premium because to us 1 cent or 2.5 cents are both such a small portion of our vast wealth. Buy the way if we all buy up enough copper it will crash Bank of America!...just kidding silver bugs don't get excited.

Nickelsaver said...


This coming from the one who said "Paper gold requires physical gold to a point. But to expand paper gold supply, it doesn't require more physical to be added."

Paper gold either requires physical gold flow or it doesn't. There is no - "to a point"

Obviously the dollar has been hiding inside an illusion that no flow of gold is required. But it did that thru the erection of the paper gold market.

Paper gold on the other hand offers the illusion that there is way more flow than what is actually out there. It has done this by hiding inside of oil. And only because actual gold flowed to oil. Stop that flow, and the veil on paper gold will be lifted. And you can expand it all you want at that point. Zero goes an awful long way!

Dante_Eu said...

Looking at that Gold Price chart, how come none of my relatives ever considered to buy some physical gold? They been through WWI, WWII, a couple of local wars, couple of hyperinflations, nationalizations... And there is whole spectrum from farmers to professors.

My best answer is they been walking with these on their heads: Ostrich pillow

No joke it's a real product! :-)

Grinners said...

Sam said:

"Many have taken advantage of gold's discount by slowly accumulating with full knowledge that quickly accumulating would lead to a broken market and little gold to be had."

I could understand this, over a 10 years period. I could understand it at a 2x price.

But over 200+ years, this 'slow accumulation' at 20x more physical per currency unit than a giant buys would really start to add up.

Woland said...

I'm reading the comments ( above ) in response to M's
comment about the Ned Naylor-Leland interview. They both
refer to the issue of the proper processes, as determined by
the standards of the IOSC, for determining the value of any
asset which is to be used as a benchmark. (in this case, gold)

Naylor-Leland referred to the fact that the London Gold Fix,
by the nature of the way it is determined, fails 12 of the 15
standards set by the IOSC for the determination of financial
benchmarks, and that the PRESENT method will have to be
revised BEFORE EU legislation on financial benchmarks
come into force. Onward to the Rosa Abrantes-Metz study:

"Bloomberg News reported in November 2013 concerns among traders and economists that the "fixing banks" and
their clients had an unfair advantage, because of information
gleaned from the calls that provided an insight into the future
direction of prices, and banks can bet on spot and derivatives
markets during the call." ( me: so what else is new? ) BUT:

In their NYU study, "Abrantes-Metz and Metz (her husband)
screened intraday trading in the spot gold market from 2001
to 2013 for sudden, unexplained moves that may indicate
illegal behavior. From 2004, they observed frequent spikes
in spot gold prices during the AFTERNOON call. The moves
WEREN'T replicated during the morning call, and hadn't
happened BEFORE 2004, they found."

"Large price moves during the afternoon call were also
overwhelmingly in the same direction: down. On days when
the authors identified large price moves during the fix, they
were downwards at least 2/3 of the time in 6 different years
between 2004 and 2013. In 2010, large moves during the
fix were negative 92% of the time, the authors found."

"There's no "obvious" explanation as to why the pattern began
in 2004…………………." and it goes on, but here I stop.

There are many coincidences in life. I recently told Jeff about
one I had found, and this may be just "another". But, it does
seem to me worth at least noting, given the title of the current
post, that 2004 was also the year ( in April ) when N,M. Roth-
schild quit the London gold fix, the year that GLD was born,
and the year that the unusual activity in the afternoon fix
began. cheers.

Woland said...

a small post script. In 2010, paper gold rose from $1120 to
1370, the year the afternoon fix was lower 93% of the time.
Imagine what might have happened without that help…….

tEON said...

From THIS ARTICLE attempting to find co-relation in Werner Heisenberg's quantum formulae and the London Gold Fix:

Unlike quantum particles this is not difficult concept to grasp. If I were a greengrocer, and you asked me for one banana, I'd probably charge you 20 pence. If you asked me for 10, I might give you a discount, and sell for £1.90 (19p each). If you asked me for 500 I might charge you a premium, because I'd have to get in the van and go and purchase a lot more bananas – so maybe £110 (22p each). But if you asked me for 1,000,000 there is no price. I don't want to sell you 1,000,000 bananas because I wouldn't know where to get them, and I certainly don't want to spend my week in the van hunting them down and paying ever larger prices for the diminishing stock! As you can see the price varies according to size.

tEON said...

Beer Holiday said...

Interesting first sentence in that article TEON.

The world of very small spaces and particles is ruled by matrix mechanics, but as you may remember from your school mathematics, in matrix multiplication (A * B) * C is not the same as A * (B * C)

I think we must have gone to different schools! I was taught matrices are Associative, but not commutative (AB != BA).

Not off to a good start. No doubt that article is full of gems, beyond the first sentence.

Michael dV said...

BH as my last math class was in 1969 I have to ask..AB! is AB factorial?

Beer Holiday said...

Oh Sorry, I meant to say AB not equal to BA. I think that's what "!=" means in some programming languages? I might be wrong - we all make mistakes :-)

I think they got it wrong in the article by stating that for matrices (AB)C not equal A(BC) which is not true.

AB is not equal to BA is true, and I was guessing they meant that.

IMVHO it's not the only mistake at the outset of the article.

Sir Tagio said...

In an earlier post I pointed out that, although it seems we are near the crisis point, the timing of a FG based on the inability to deliver physical to new giants was still indeterminate because of the unknown effects of fraud, plunder and war.

Case in point: Ukraine's gold, some 33 tonnes, was - possibly - just moved. The news article could of course be disinformation, but probably indicates that whatever has happende the gold is no longer where it once was, and that it's ownership has now become fluid and indeterminate.

Jesse's commentary: "I find this one hard to believe. I am informed by high reliable people that no one cares about gold anymore. And very important analysts claim that transporting many tonnes of gold (Ukraine is said to have about 33 tonnes) is very difficult, and so unwieldy and fraught with peril that it must be a multiyear project. [Sir T editorial comment: this is Jesse sarcasm, a thinly veiled reference to the US's refusal/inability to return German gold.]

But if the Ukraine's gold was taken away for safekeeping, it may be so safe that they will never see it again for a long time. Just ask Germany."

Jack Tarragon said...

Libya was liberated from the tyranny of Khadafi for its gold as well.

Silly barbarous relic...

Michael dV said...

If I keep thinking about math I'll start dwelling on 'one to one and onto' functions and soon after go crazy as the guy in Zen and the Art of Motorcycle Maintenance'. I will then refer to myself as Phaedrus.

vizeet srivastava said...

Jack Tarragon,
US does it everywhere. They produce so much dollar. They fund the social organizations all over the world. They buy media. These social organizations funds self righteous groups which does peaceful protests. Then US pays to Pakistan, UAE, Dubai, Quatar to promote extremists groups. Suddenly these peaceful protests are taken over by the extremists and whole country is brought down.
When US goes into HI, world will be liberated from these extremists groups. I am not fan of Russia but they are far better than US, atleast they are not using proxies these days. Historically Russian have also used Proxies.

Jonas said...

And there goes the Ukrainian gold...

KnallGold said...

For 33t, this all sounds overblown. Or is that all whats left? China needs 4 digit figures anyway.

Ukraine is a lame conspiracy theory if you ask me.

vizeet srivastava said...

Certainly not for 33T. US does this because they produce lot of dollars which lands into their defense and Arab countries. This is not a conspiracy theory, because it happened several times in the past.

Michael dV said...

view the 33 tons at a much higher the near does it seem important?
If you chart gold on a per capita basis it is only .02 ounces per person for the Ukraine. Even Latvia, just admitted to the EU got in with 7 tons but at .08 per person. It would seem the Ukraine was gold poor. I wonder if the EU has a minimum for admission.
The EZ over all, the USA and even Greece are all over 0.5 oz/person.

Lisa said...

Mike and KG

Looks like Ukraine has gold in the ground - up to 900 tonnes if this article is correct

Freegoldtube said...

"Oil is the only commodity in the world that was large enough for gold to hide in."

Then is paper gold the only proxy large enough for the dollars value to hide in? Or is it hiding somewhere else?

vizeet srivastava said...

Another thing, it appears to me that Russia is not in a position to capture nations without any important reason. Its disadvantage is Russia has very big border. And size of Russian force is not huge. They are having lot of nuclear weapons and arms but probably that is not enough. So probably taking over Crimea has to do with legitimate fear.
Sorry for getting off the topic.

Michael dV said...

I remember reading (Another?) that the ECB felt it had to subdue Russia and prepare for the dollar's demise. I wonder how it views the godless reds these days.

/SleepingVillage/ said...


I've enjoyed a few of your comments:-) Please remember that there has been no "invasion" or "capture". I've only seen a lot of propaganda, if I were to get my news from the TV.

Russia is permitted to have 25K troops. There will be a vote soon... if the people decide to stay with Ukraine, and the Russians don't leave after the people decide... then I will consider it an invasion. Otherwise, it's democracy - and a two-way street.

For a different view on things, check out Dr Paul Craig Roberts.

Jonas said...

Well, Germany can now at least get 33 tons of "their" gold back...

Woland said...

How the Ukraine ends
by Henry Kissinger, Washington Post, WP Opinions
published March 5, 2014
thanks to Mortymer for the link

Woland said...

oh, and, just for fun…

"AIS files class action suit against gold fix banks"
it will be interesting to read either:
a. The judgement issued in dismissal of the suit, or
b. The list of expert witnesses called, should discovery be
allowed. ( Rosa Abrantez-Metz, white courtesy phone…)

and, if you get bored waiting for news of where this is going,
(which, for the foreseeable future will be…nowhere) there's
a VEWY intewesting April 20 IMF meeting coming up………
something about a deadline for acting on the 2010 promise
of quota revisions and voting rights changes. but, Congress
is in a standoff with Jack Lew, because they don't want to
cede any power at the IMF. Maybe they won't have to……..

there is a smell of unglue in the air

Lisa said...

Woland and SV

Thanks for very interesting reading. I've added clickable links below to your suggested readings (because it always amazes me that I can make that work)

SV's link to Paul Craig Roberts led to (among other things) a translation of a conversation Vladimir Putin had with reporters. Both
Paul Craig Roberts summary and
Putin's conversation are worth reading.

as is Woland's reference to
Henry Kissinger's column

It's refreshing to see a dialog where journalists ask hard questions and get responses which are more than sound bytes, and to hear the opinion of a secretary of state who understands international politics.

Woland - I agree - things seem very unsettled around the world these days

Woland said...

minor update ( not that it matters, just to be "technically" correct)
AIS Capital Management says they did not "bring" the suit,
which was "initiated" by the Washington law firm Hausfeld
LLP., but that they "agreed" to allow the lawsuit to go
forward "on their behalf", as well as for such other plaintiffs
as may wish to join. ( WTF that means, I dunno) Greetz!

Woland said...

and finally, from the "dept. of things" so far above my pay grade I can't even comment: (Beer Holiday, et al, this is 4U)

DP said...

financial computations like finding the future value of an investment

Oh boy! ;D

Edwardo said...


Apparently some folks are apt to make a big deal about the IMF's 2010 Code of Reforms as, in my view, they vastly exaggerate the importance of the implementation of the pending reforms.Here's an example of someone who is way out in the weeds laboring under a rash of mistaken notions connected to the aforesaid.

Woland said...


I think Christine Lagarde made a "big deal" about it in Oz just
recently, and China, Russia and Brazil, among the BRICs,
have as well. So, as to who else is apt to be making too big
a deal about this issue I cannot say. I'd rather hear your own
specific opinions on this subject, as all I gleaned from the
link above was some detail on the congressional conflicts.

Edwardo said...


As the head of the IMF, I imagine Christine Lagarde devotes whatever time she can emphasizing the importance of implementing the 2010 Code of Reforms that are now languishing courtesy of congressional Republicans.

The BRICS understandably echo Lagarde's views since they stand to gain voting rights via the reforms.

My perspective is that the
Code of Reforms
is much ado about very little with respect to the next $IMFS unless and until what is a largely symbolic change...that is said to have the potential to change the culture of the institution translates into a very different mode of operating with respect to physical gold. Perhaps, in time, that will occur as net producers who have a very different ideas about what constitutes a wealth reserve asset take on a bigger role in the governance of the institution.

M said...

About the Belgian treasury purchases awhile back..

From Alt Market

13) China's retreat away from dollar denominated investments has left a hole in the U.S. bond market. Recently, that negative space was filled by an unexpected source; namely Belgium. A country whose GDP represents less than 1% of total global GDP buying more U.S. bonds than China? The whole concept sounds bizarre. Here is the capital coming from?

Think about it this way - Belgium is the political center of the European Union and a haven for international financiers. There are more corporate cronies, lobbyists, bureaucrats, and foreign dignitaries in Belgium than in all of Washington D.C. But more importantly, Belgium struck a deal with the IMF in 2012 to begin pumping SDR denominated funds into "low income economies". I would suggest that this funding flows both ways, and that now, the IMF is feeding capital into Belgium in order to buy U.S. Treasury Bonds. That is to say, the IMF is going to start using smaller member countries with limited savings as proxies to purchase U.S. debt using IMF money.

I don't really get it to be honest...

Woland said...

Hi Edwardo;

I thought, after my reply, that your observation was probably meant to be taken "within the context of the advent of Freegold", and in that sense, I certainly agree. On the other
hand, there is a difference between a "cause" and a "trigger",
in the James Rickards sense of, which snowflake "triggers"
the avalanche. It is, of course, the long build-up of instability
which is the cause, whereas the one thing of which we are all
most uncertain is the timing and triggering of the event. I like
to think of it as the dissipation of turbulence in a fluid, just played backwards.

on another, entirely unrelated note, ( and my knowledge of
music is somewhere between a negative and imaginary
number ) I just learned that the name of the lead singer for
the band "Tool" is; Maynard James Keenan

I guess if things don't go well for him musically , he can
always switch to economics! {;<)>>

jojo said...

"( and my knowledge of
music is somewhere between a negative and imaginary
number )"

I suppose then, Woland, it is unfair to inquire as to whether you like prison sex?

Edwardo said...

Speaking of timing and triggering, Woland, it appears that the situation in The Ukraine may be evolving into something like a trigger of sorts, if you'll pardon the pun.

Daniel Yu said...

I can't help adding this smart aleck remark ... after reading all the Triggers to an avalanche (by Rickards, et al) on the snowflake that triggers it - They are all missing the truth !!! All these talk and all of them (experts) miss what is the true trigger of an avalanche - GRAVITY !!!

Woland said...


Your musical "link" citation just shed a whole "new" light on
one of my old favorites, Tony Clifton singing "Tie a Yellow Ribbon 'round the old Oak Tree". Do have a listen, with your
new interpretation in mind.

Jeff said...

You're both right.

FOFOA: The best analogy I can come up with is a steep, avalanche-prone ski area. The ski patrol knocks down some of the snow after every snowfall. Because if you let it pile too high, and get packed, the whole lot will come down all at once. Either by gravity, or by a ski patrol cannon, or by skier, or by a deer farting. Any way you cut it, it all comes down if there's too much of it packed on the mountain. Gravity does all the work.

This snow pack is to the mountain what global debt is to the dollar. There's no way to do a centrally controlled devaluation of the dollar at this end stage of its life. It prices and denominates too many things, too many contracts, too much debt in the world today. This is the real essence of the dollar. Its "unit of account" function is, not its medium of exchange quantity.

And the physical plane that underlies it is completely unaligned with this precarious 'snow pack'. It is not representative of reality, therefore it has no sticking power. It's ready to come down on its own, so shhhh... be quiet and very still and let's hope the wind doesn't blow.

Ashley said...

Since no one else has mentioned it here, Tulving has apparently ceased operations as of March 3rd:

M said...

@ Ashley

Goes to show that it doesn't pay to buy from these dealers. Why not buy from the bullion banks ?

Can Americans or Europeans buy physical from JP Morgan or HSBC ? Because Canadians can at the only BB here... Prices were lower then 1% depending on how much you bought but last year, they upped the prices to the same as the online store , Scotia Moccata.

M said...

The quantity of marketable US govt debt outstanding surged to 12 trillion from 4.5 trillion at the end of 2007.

The punch line.....

The price went up.

Archer said...

Goes to show that it doesn't pay to buy from these dealers. Why not buy from the bullion banks?

This comment suggests that all retail coin and bullion dealers are pretty much the same. I can tell you from first hand experience that they aren't. Tulving, the person, and his damnable operation are/were, by all accounts I've been privy to, particularly egregious.

M said...

@ Archer

The bullion banks sell popular coins like Maples and Eagles. Either way, I think its better to just deal with the BBs then any of these random coin shops. At least if something goes wrong, you have someone to sue.

Aaron said...

Hello M-

How much physical gold are we talking about?

If we're discussing 10-20 tonnes of gold, I'm right there with you. I can see the need for insurance that only bullion bank distributers such as Brinks can provide in large transactions by weight.

But 10-20 ounce bullion purchases? I don't see the advantage to buying from someone you can sue while you wait to settle your paper into what amounts to small change in metal.

Perhaps you are thinking about holding the paper long term?

Don't get me wrong. I value your perspective and enojy reading your comments. You've been commenting here for over 3 years now and I have to say I have learned much from your perspective. Whenever I see a comment from M on FOFOA's blog the first thing that comes to mind is, "Cool! That's the oil industry guy. I wonder what he's thinking about all of this!." After all when we're talking about gold in this current climate, we're also talking about oil.

As such I'm interested in why you would still consider a counter party to sue for contract gold you own more important than physical possession of your gold in the first place.

Why not just buy physical gold?

What advantages exist to placing a counter party between you and your gold?

M said...

Hi Aaron

I was mainly referring to personal amounts of physical gold or even large shrimp amounts of gold

. In my experience, most of the time they (Bank of Novascotia) have gold and sometimes you have to wait and pick it up later. In the case of waiting or even if you are worried about tungsten filled bars, there is just more peace of mind when you are buying from a recognizable brand. And if they sell you tungsten or are unable to get you gold, they won't just disappear like some small dealer can.

Phil_O_Dendron said...

I don't think there is anything wrong with buying from a major dealer that has a good reputation and has been around for a long time. Buy small amounts often so that you never have too much money at risk at any one time. Also, if possible buy with cash over the counter so you can check the product on the spot

vizeet srivastava said...

Nice to find my comments getting appreciation. I liked the link. All these extremists groups gets weapons, training and money from across the border. They use schools for teaching extremism. We are not in WWII when every country used to have huge forces. Today monitoring large border is a huge problem for most countries. So only way this can stop if countries don't have free money to insight violence on other's territory or we have drones to monitor our borders or disturb areas.

vizeet srivastava said...
This comment has been removed by the author.
vizeet srivastava said...

(March 12, 2014 at 9:06 PM)
Do you mean IMF is reducing its reserve? or
Do you mean Belgium is it getting it from US so as to reduce FED's bond buying?

Woland said...

latest detail; March 12 - Federal Judge Edward Davila places
temporary freeze on assets of Tulving Co. and Hannes Tulving. I think, with respect to the 3 month "claw back" issue
for recipients of either metals ( or cash, if you were a seller) this is the relevant date. OC Register is the only newspaper
reporting on this - for now.

Woland said...

sorry. It's March 10, the date of the bankruptcy filing.

Victory said...

Does anyone remember the post were FOFOA explains why the fear of the USG/FED moving to a cashless system is not warranted?



MatrixSentry said...

Tulving is a criminal. He was a criminal long before his latest problems. This time he is likely headed for prison, along with his lovely daughter.

He operated the oldest scam in the book, made famous by Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi.

I warned readers of this blog on numerous occasions that this guy was a crook and his Ponzi scheme was living on borrowed time. I came to this realization the hard way after sending $60,000 of my hard earned money to this psychopath. I had to retain a lawyer and urged the State of California to initiate an investigation. After threatening Tulving with this (I already had initiated, but led him to believe I hadn't) he relented and found a way to fill my order that had been outstanding for more than 6 weeks.

It was my complaint, along with 2 others, that got the ball rolling. I believe as a consequence of the investigation, Tulving could not operate with impunity anymore. That and a market that turned against him was likely the final nail in the coffin.

I really hope the sonofabitch dies in a bleak prison cell somewhere.

Lisa said...

Woland - I was able to find the following by accessing the PACER system (requires an account)

The Tulving Company filed a Chapter 11 bankruptcy in the Central District of California, Case No 14-11492, on March 10, 2014.

Most of the Bankruptcy schedules (the particular details regarding assets, creditors, etc) have not yet been filed, and must be filed within 14 days.

The minimal documents filed show the following summary:
Number of Creditors - 1 to 49
Assets $0 - $50,000
Liabilities $1 million - $10 million

Regarding the "Clawback". This is technically called a preference action, and the theory behind it is that any creditor who received funds (or more relevant in this case, precious metals), in the 90 day period prior to the bankruptcy filing, received preferential treatment. Therefore, under bankruptcy law, they are required to return what they received to the bankruptcy Trustee, so he can more fairly divide it amongst the creditors of Tulving.

The Bankruptcy Trustee will generally file "preference actions" to recover the funds/metals. These would then be liquidated by the Trustee, and the proceeds paid out according to bankruptcy priority rules. For example, unpaid taxes and employee wages would have a higher priority than claims of unsecured creditors.

The measuring date is the date the bankruptcy petition was filed, March 10, 2014. So anyone who received metals or payments within the 90 day period prior to March 10 is at risk. There is a one year look back period if you are an insider who received funds or metals.

Matrix - is "Karen" the daughter?

Lisa said...

Woland, one further update

The case you referenced with Judge Davila, is a class action lawsuit filed on March 6, 2014, Hannan v. Hannes Tulving Jr. and The Tulving Corporation. That class action case was filed in the Northern District of California, case No 14-01054.

Once a bankruptcy is filed, the automatic stay provisions of the bankruptcy code require that all collection proceedings immediately stop.

The bankruptcy filing on 3/10/14 was probably a protective filing, to (among other things) stop any and all lawsuits against Hannes (individually) and the Tulving corporation. This will allow a more orderly liquidation of assets - which appear minimal.

This also explains why many of the typical bankruptcy schedules have not been filed - the case was filed very quickly, with just the minimal information, to trigger the automatic stay protections of the bankruptcy code.

Motley Fool said...


Woland said...

Hi Lisa;

Thanks for posting all the relevant detail. I'm sad to say that, in all probability, the largest single asset for partial restitution
of creditors will be the proceeds of those preference actions.
There is a deadline for creditors to document their losses with
the trustee. It would be helpful if someone could get that fact up on a widely disseminated gold site. To date,
has done almost all of the "heavy lifting".

(my point being that FOFOA readers have had ample warning,
and are thus among the least likely to benefit from this info)

DP said...



Michael H said...


I find it suspicious that the chart shown in the ZH article only goes back one year, but on a longer timeline the drop also looks significant:

Jeff said...

Politics or poker? Perhaps the US release from the SPR the other day was a shot across the Russian bow: 'we might tank the oil price'. Putin responds with 'we might dump dollars'. Check to the US. Here comes the river card.

DP said...

Did someone just call for 'the subterranean stream card'?

Motley Fool said...

Michael H

Yes, one has to read Zh a lot more carefully these days, as they have their own propaganda. Still it is a better source of info than MSM. Thanks for the longer term chart.


Biju said...

Vizeet said
"When US goes into HI, world will be liberated from these extremists groups. I am not fan of Russia but they are far better than US, atleast they are not using proxies these days. Historically Russian have also used Proxies. "

I prefer not to get into a discussion of politics, but could not pass this up. you mentioned USA uses proxies and Russia no longer does. One Question - would you prefere to live in a nation that is a neighbour of Russia or USA. For an answer, you can take a vote among people of canada/Mexico/Cuba/ or Ukraine/Azerbaijan/Poland/Romania etc. you will find USA is a benign power unlike any other seen in history.

Alien said...


don't start a political conversation, otherwise you will hear some very unpleasant observations!
I only say IRAQ!!!
And I am a white European therefore I would would answer in Nuland's words: "F..K USSA"!

Biju said...

matrixsentry said
"Tulving is a criminal. He was a criminal long before his latest problems. This time he is likely headed for prison, along with his lovely daughter."

I remember your warning. was it early 2013 ? I bought from him in early 2011 and it was good. I got the shipment in 4 days after wiring money.

your warning defintely helped me since I never thoguth about buying from Tulving again, even when I have a big order. I sticked with another APMEX then, but maybe it is better to buy from your local dealer. Good job.

nearlynapping said...

Biju I think your analogy is valid. In my opinion Iraq was a mistake and U.S. foreign policy is inconsistent and overly interventionist. But it is also my opinion that Russia and the U.S are not moral equivalents.

Archer said...

My local dealer is out of business. I suspect it's getting harder and harder to find local dealers. To DP, as per his comment at 9:32, let it be so.

Biju said...

Alien, nearlynapping : We will stop politics from inflitrating.
But to clarify : I am not saying USA is totally benign, but just comparatively.

About IRAQ : IRAQ was always an enigma for me. Why would USA take out IRAQ and place it in IRAN's orbit. Now there is a Shia stretch all the way from IRAN, through IRAQ, SYRIA ending in LEBANON. I have been baffled about it. No one has been able to answer this properly. was Iraq played, to bring out Iraqi oil to market ?

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