Saturday, December 29, 2012


Wendy would like you to… "tell us your story ;) where are you from, who do you know, how did you get here, what do you like and don't, do you have a life beyond this blog, whatta you do for fun?? And anything else one might want to add :D and most importantly, how long have you been visiting this blog.

i say most importantly because your answers will likely be different, depending on how long you've been reading, particularily the one about do you have a life beyong this blog :P.

I remember losing a couple of months of any real world contact when it learned about this blog and USAgold, and the trail. That was a few years ago. Also my ocasional hiatus to the basement to rummage through old boxes of FOA and Another from time to time.

There's alot of amazing stuff in this neighborhood!! RTFB ;)

Just in idea ;)"

Wednesday, December 26, 2012

Countdown to 2013 Open Forum

The world didn't end in 2012 and it's not going to end in 2013, but that doesn't mean things won't change. The one constant—the only constant—is change.

"There are 31,530,000 seconds in a year. A thousand milliseconds in a second. A million microseconds. A billion nanoseconds. And the one constant, connecting nanoseconds to years, is change. The universe, from atom to galaxy, is in a perpetual state of flux. But we humans don't like change. We fight it; it scares us. So we create the illusion of stasis.

We want to believe in a world at rest—the world of right now. Yet our great paradox remains the same. The moment we grasp the now, that now is gone. We cling to snapshots, but life is moving pictures, each nanosecond different than the last. Time forces us to grow, to adapt, because every time we blink our eyes, the world shifts beneath our feet.

Change isn't easy. More often, it's wrenching and difficult. But maybe that's a good thing. Because it's change that makes us strong, keeps us resilient, and teaches us to evolve."
–Tim Kring

Is 13 lucky or unlucky?

Unlucky 13

The number 13 is considered to be an unlucky number in some countries. The end of the Mayan calendar's 13th Baktun is superstitiously feared as a harbinger of the apocalyptic 2012 phenomenon. Fear of the number 13 has a specifically recognized phobia, Triskaidekaphobia, a word which was coined in 1911. The superstitious sufferers of triskaidekaphobia try to avoid bad luck by keeping away from anything numbered or labeled thirteen. As a result, companies and manufacturers use another way of numbering or labeling to avoid the number, with hotels and tall buildings being conspicuous examples (Thirteenth floor). It's also considered to be unlucky to have thirteen guests at a table (Last Supper). Friday the 13th has been considered the unluckiest day of the month.


The Number 13 is a Karmic Number. Number 13 is the number of upheaval, so that new ground can be broken. The number 13 has great power. If this power is used for selfish purposes, it will bring destruction of the self, and in turn, this will bring dis-ease and illnesses. Adapting to change gracefully will bring out the strength of the 13 vibration, and decrease any potential for the negative.


In a tarot card deck, XIII is the card of Death, usually picturing the Pale horse with its rider.

Thirteenth floor

Based on an internal review of records, Dilip Rangnekar of Otis Elevators estimates that 85% of the buildings with elevators did not have a floor named the 13th floor. Future building designers, fearing a fire on the 13th floor, or fearing tenants' superstitions about the rumor, decided to omit having a 13th floor listed on their elevator numbering. This practice became commonplace, and eventually found its way into mainstream culture and building design.

Year 2013 vehicle license plates in Ireland

Vehicle License plates in the Republic of Ireland are such that the first two digits represent the year of registration of the vehicle (i.e. 11 is a 2011 registered car, 12 is 2012 and so on). In late 2012 there were concerns among members of SIMI (Society of the Irish Motor Industry) that the prospect of having "13" registered vehicles may discourage motorists from buying new cars due to superstition surrounding the number thirteen and that car sales and the motor industry, (which is already ailing) would suffer as a result. This concern prompted SIMI to approach the Government of the State and request that 2013 registered vehicles have their license plates age identifier string modified to read "131" for vehicles registered in the first six months of 2013 and "132" for those registered in the latter six months of the year. As of August 2012 the government, bearing in mind the potential loss in VRT (Vehicle Registration Tax) revenue on new cars, are considering the proposal for implementation. When the proposal was released to the media on 25 August, it was met with mixed reception.

American history

The American flag has 13 stripes in honor of the first 13 colonies.

Apollo 13 was a NASA Moon mission famous for being a "successful failure" in that while the crew were unable to land on the Moon as planned due to a technical malfunction, they were returned safely home.


In Formula One, the number 13 is not used. As such, the numbering goes 11, 12, 14, 15 under the current numbering system.

The number 13 is the most-commonly registered jersey number in modern roller derby.

Lucky 13

Several successful sports figures have worn the number 13.

In Italy, 13 is also considered to be a lucky number, although in Campania the expression 'tredici' (meaning 13) is said when one considers their luck to have turned for the worse.

A repressed lunar cult

In ancient cultures, the number 13 represented femininity, because it corresponded to the number of lunar (menstrual) cycles in a year (13 x 28 = 364 days). The theory is that, as the solar calendar triumphed over the lunar, the number thirteen became anathema.


The number 13 in the Coperos religion (small culture in Brazil) is like a God number. All coperos must know that this number can save humankind.

I am not superstitious. But I do wonder what will be written about 2013 after the fact on these types of pages. Will it be remembered as a lucky year, or an unlucky one?

Last year was:

Year of the Surprise

I have an idea for what to call 2013, but I'd like to hear your suggestions in the comments!

Year of the _______

And finally, there's one thing that I'm watching for the next week and a half. It could be a signal of sorts, but I wouldn't put too much stock in it.

Last year this week, during the Asian trading hours the night before Snapshot day (Friday, Dec. 30, 2011), the euro price of gold mysteriously levitated a whopping €32.89 from the previous day's London PM fix of €1,184.16, which would have been a disappointing decline since the October, 2011 MTM Party which marked gold at €1,206.39. I made a comment about the timing of this unusual overnight levitation in this post. In it I noted that "evidence from Sept. '10 and April '11 seems to suggest that year-end and mid-year might be more important [MTM parties] than the other two quarters."

Then, last May, I posted two cryptic tweets:

I will now explain those tweets. The following is almost verbatim from an email I sent Warren back in May explaining my tweets:

Jumbo Shrimp selling 95% of his gold was my Freegold Puke Indicator (or FPI) which fired.

At the time of my tweets, the euro price of gold was €1,211, already below the April and January MTM party numbers. And it was only about €5 above the October MTM party. So my Goldhog day prediction on May 16th was that if we had a June 29 snapshot of around €1,216 or less, it was game on for Freegold. The "window of opportunity" would be open! But if it would be €1,243 or higher it meant another 6 months of kick the can. There’s more to it than just that, but with Jumbo Shrimp’s prediction of the paper gold price collapsing, I thought this was a good opportunity to take the temperature of official support for paper gold.

The thing is, paper gold is so relatively valueless that it’s no wonder when the price falls. The real wonder is when it rises. It’s almost as if someone is supporting paper gold. Remember my old Timing is Everything post? The theory there is that the Eurosystem CBs are actually supporting the paper gold price somehow. That theory came straight from Ari, and it has held true so far. On Dec. 29th 2011, the euro POG magically levitated in the middle of the night from €1,184 to €1,216 so as to beat (in the eleventh hour no less) the October MTM party which recorded €1,206. In the April MTM party it was up again to €1,243.

I don’t necessarily think that there is some target rate of appreciation like 18% p.a. If the Eurosystem CBs are supporting the paper gold price at key times like MTM parties and GLD pukes, I think it would naturally show up as some sort of an emergent pattern. But that doesn’t mean there’s a specific target. It’s just the average of what whoever is doing it considers a reasonable amount: not too high/obvious and not too low/meaningless. Over time, the average would emerge as a steady long-term appreciation in the gold price.

So why would Eurosystem CBs be supporting the paper POG? I have some theories on that.

June 29, 2012 was mid-year Snapshot day and my Goldhog day. Gold was €1,211 on May 16th and I predicted that if it was €1,243 or higher on June 29th it would mean six more months of kick the can. If it was €1,216 or lower it would mean "the Freegold window of opportunity" was open. If it closed anywhere between €1,216 and €1,243 on June 29th it would be too ambiguous to be predictive one way or the other. Of course we got €1,246.62 on June 29th which meant six more months of kick the can.

Well, my FPI fired again last week and now we are a week and a half out from another Goldhog day and, as of this writing, euro gold is languishing at €1,255.94. That's a full €121.48, or almost 9% below October's MTM party, yet still €9.32 above July's. So I'll take another stab at the predictive powers of Goldhog day. But first, here are the results from the last six MTM parties:

July 2011 - EUR 1,043.38
October 2011 - EUR 1,206.39
January 2012 - EUR 1,216.86
April 2012 - EUR 1,243.45
July 2012 - EUR 1,246.62
October 2012 - EUR 1,377.42

This year, because New Year's Day falls on a Tuesday, Snapshot day is actually Friday, January 4th (it's usually in December) and the results will be released the following Wednesday, January 9th. So here's my "prediction" (and remember that I hate doing this stuff):

If the recorded price on Friday, January 4th, 2013 is EUR 1,246 or lower, it's game on for Freegold meaning that the window of opportunity is now open because official support for paper gold has apparently ended. In other words, there may be no system support the next time something breaks. But if the recorded price on January 4th is EUR 1,389 or higher, it's six more months of kick the can. And if it's anywhere between EUR 1,246 and EUR 1,389 (which it is today) then the €PoG will be too ambiguous to be predictive one way or the other.

This is not your typical TA-based prediction. I hope you can tell the difference. If I was interested in TA I would be looking at the $PoG and not the €PoG. This is simply a moment in time when we can apply a specific theory, one that Ari alerted me to two and a half years ago, and take a fresh reading. Like I said, it's just something I'm watching that could be a signal of sorts, but I wouldn't put too much stock in it. Here's a chart of euro gold that will update each time you reload the page:


Saturday, December 22, 2012


My Christmas present to you this year is AFTER (THOUGHTS!). It is what I mentioned in these three comments, and it is a complete chronological archive of all of ANOTHER's and FOA's comments that came after (hence the name) ANOTHER (THOUGHTS!). It is more complete than what I previously posted by at least 700 pages, and that's not counting the Gold Trail posts which are also intermixed with concurrent A/FOA comments that remained separated from birth until now.

In total, these five pages, which are also linked in the sidebar, contain 1,428 pages (in Word) of A/FOA comments in the same order and basic context as they were written, which is also the order that they were read by those who were following the Trail in real time between 9/20/98 and 12/16/01. To read them in this order was a challenge even when USAGOLD still had the Discussion Forum online, a chore which I never attempted, and impossible now that the regular forum is missing. Yet here it is, dropped in our lap like a present from Santa himself!

AFTER (THOUGHTS!) 9/20/98 – 8/18/99
AFTER (THOUGHTS!) 8/19/99 – 2/08/00
AFTER (THOUGHTS!) 2/09/00 – 9/03/00
AFTER (THOUGHTS!) 9/03/00 – 4/23/01
AFTER (THOUGHTS!) 4/23/01 – 12/16/01

It's not as pretty as USAGOLD or Ron M's Air-Friendly PDFs, but it's all there (possibly TWICE as many A/FOA comments as we had available yesterday), and soon it will all be searchable on Google. The links to my copy of Martijn's archive are no longer in the sidebar, but they still exist and can be accessed at the bottom of that post because A) they are already searchable on Google, and B) they may contain a few comments by ORO (and others) that are not in AFTER (THOUGHTS!).

But this is not meant to be your only Christmas present this year. There's one more surprise that I hope to slip under the tree for you before Christmas! ;D



I just added pdfs to the links in the sidebar. The archive is divided into two pdfs which are beautifully formatted and even have live links just as they appeared on USAGOLD. The first one covers parts 1 and 2 and is 659 pages. That's basically all of the posts between the end of Thoughts and the beginning of Gold Trail. And the second pdf is parts 3, 4 and 5, 769 pages which starts two weeks before the Gold Trail.

Also, another reader just informed me that he has a copy of ALL of the USAGOLD comments from 1998-2006. He says it's such a large mass of files that it's difficult to reorganize, but that any individual day of comments is easy enough to pull up. So I'll take a look at what he has and see if one of our database or internet experts can figure out a way to make it all at least accessible to everyone.

UPDATE #2 (12/23/12):

I now have a copy of the entire discussion forum archive that is missing from USAGOLD! It is pretty large, containing 3,145 folders each of which contains a day of comments from late 1998 through early 2007, about 8 ½ years' worth of comments. The folder names are the dates.

Here's a sample. I picked one random day in 1998 and threw it up as a sample page.

If anyone else would like to download this archive file, it will be available at this link for the next five days, at which point the link will expire. The d/l is a zip file that is 92MB which expands to something like 280MB. It looks like, since this is a free file sharing site, there are only 100 downloads available. [Correction, only 20 free downloads! Check comments for new links if the limit has been reached.] So first come first served! :D

Update #3 (12/24/12):

So far at least 46 people have downloaded the archives from the transferbigfiles website. And here are two more links with unlimited downloads:

From Google docs -Thanks Aquilus!

From Amazon s3 (d/l will start immediately) -Thanks Winters!

Or, if you know how to use a torrent, here's the torrent link:

Tuesday, December 18, 2012

What is Gold?

Let's take a poll. What is gold? Is it money, currency, an investment or wealth? For clarity, I'll give you my definitions of each with links to some of the posts in which I've used these terms.

Money is credit (i.e., it is the way the economy uses credit balances to lubricate the flow of tradable goods and services).

Currency is what denominates money. It is often issued or at least standardized by the sovereign or a representative of the collective. The private economy trades using mostly credit (money) denominated in these standardized currencies, credit that is issued and cleared by private institutions using the currency itself for clearing. Currency itself also doubles as the "in your hand," "on the run," "money to go" element of the money system, so that discrete (and discreet!) "amounts" of said money-system can be transferred among individuals conveniently while operating temporarily outside of the institutional monetary ledgers. And currency is also exchanged directly with other currencies through a network of currency exchanges, often with the clearing function provided by private institutions, to facilitate equitable trade between regions that use different currencies.

An investment is something that you buy expecting a gain or return. It is a way of putting your money at risk in the hopes of obtaining more money. When an investment reaches an expected "top" or some level of overvaluation based upon the calculations of the investor using common metrics like earnings, interest or the sum value of its components, the rational investor is likely to sell that investment and move the funds into something he deems undervalued at that time.

Wealth is simple. It is literally anything physical that you can possess or at least own unambiguously. Tradable wealth is that which many people value similarly, therefore it is tradable. Durability makes some forms of tradable wealth a better store of value than others which can decay and perish over time. Common forms of durable tradable wealth include fine art, antiques, classic cars and many other collectible hard assets.

My poll is over to the right in the sidebar, and it is open to anyone, even those who have no "gold". I even made it possible to vote for more than one choice, in case you think that gold is two, three or all of the choices.

I cast the first vote on behalf of A/FOA. How did I know their vote? They made it crystal clear in one of their earliest comments:

"Gold is not money, not currency, not an investment, it is wealth."

I think this is the essence of all of this, of Freegold, of (THOUGHTS!), of The Gold Trail, of my blog, the key, if you will, to unlocking the view. But from the last thread of arguments against Freegold, it is obvious that some of you still think gold is just another investment. That's fine, because that's all gold is to almost everyone in the West, so you're certainly not alone in your opinion.

If we could get everyone in the West to vote in this poll, I think "gold is an investment" would win in a landslide. If we could get everyone in the precious metals blogosphere to vote, then "gold is money" would probably win. So, to most Westerners, gold is an investment. To the gold bugs and HMS crowd, gold is money. And to the bullion banks, gold is a currency (ISO code XAU) upon which credit is issued and traded. So what did A/FOA mean by the statement that gold is wealth, not any of these other things? I mean, surely gold is whatever its users think it is, subjective use value and all, right?

Actually, that's exactly right! Gold is whatever its users think it is. And the point A/FOA was driving at was that the vast majority of the above-ground gold, today somewhere around 165,000 tonnes, is held by people who understand it as wealth. And, in fact, the only opinions about what gold actually is that will matter on the day after the Freegold revaluation, the only "votes" that will count, are those who carried (i.e., possessed or unambiguously owned) that gold through the transition.

The real vote for "what is gold", the only "poll" that will matter, will not be like a democratic election with universal suffrage. You'll only get a vote if you have some, and your vote will be weighted by how much you have. This concept is highly relevant to Freegold, especially in the context of the last thread.

Probably (to us) the most relevant conclusion drawn from the abstraction we call Freegold (which is really just the end of the use of gold as a currency denominating credit) is a future gold price that is more than an order of magnitude higher than today's price… in real terms/constant dollars. This is also the conclusion that sprouts most of the arguments against Freegold. And the main argument against such a shocking revaluation is that it won't stick because of supply and demand.

There are two schools of thought on the organic emergence of Freegold. The one that I don't subscribe to is that it will be demand-driven… from the ground up. This school of thought says that we will only see Freegold once the average man on the street understands how precious physical gold really is. It says that the demand for physical gold will someday undergo a phase transition thereby overwhelming the supply flow and bringing us to a new, physical-only price range (in real terms).

The other school of thought, the one that I do subscribe to, is that it will be supply-driven… from the top down. My school of thought says that the average man on the street will only understand how precious physical gold really is after Freegold is revealed in stark relief. It says that the supply flow of physical gold will someday undergo a phase transition whereby it goes into hiding due to the crashing price of its paper proxies. It says that physical gold, during this phase-shift, will further consolidate in the hands of only those who understand it as wealth and nothing else, bringing us to a new, physical-only price range (in real terms).

In future hindsight, looking back on the transition, it may be commonly held as a chicken and egg question as to which came first, the new price range for gold or the change in demand. Cause and effect is sometimes tricky that way. At the top of Moneyness 2 I wrote:

What will change is how we view money and wealth
Everything else in Freegold flows from that!

This is a simple statement of demand-driven cause and effect, but it doesn't say what will cause the change in demand—how we will view money and wealth. For this I think we need to look at the supply side; who will have the gold, whose vote will count when gold is suddenly $55K/ounce (in constant dollars) and the question is asked, what is gold?

Above-Ground Supply

It is actually quite a bit easier for me to describe the people whose view won't change because of Freegold than to convince you of everyone else's view changing because of Freegold. You need only understand the distinctions between the views, what sets them apart, to draw your own conclusions.

It is possible that some of you at this blog who still view gold as an investment may indeed make it to the vote that counts, depending on how it all unfolds. But if you are lucky enough to get there while still clinging to the idea that gold is an investment to be sold at the top, or that "asset allocations under Freegold" should be rebalanced away from "toppy" gold, then your vote will be in the tiny losing minority of those who reacted like lottery winners. But based on some of the comments in the last thread, I bet that most who view gold as an investment will cash in that lottery ticket too soon. And even if that's not you, most others will and will thereby surrender their vote altogether, diminishing that tiny voting block even further.

I want to tell you a story about one of my readers. We'll call him Jumbo Shrimp. Jumbo Shrimp started reading my blog in 2009, and he was one of the very first people to send me a donation when I put up the button that year. It was a sizeable donation, and it was repeated several times. Turns out that Jumbo Shrimp is quite successful as a financial market analyst of sorts. He's about my age, maybe a few years older, but his net worth is around $15 million.

Jumbo Shrimp first got interested in gold almost a decade ago, and he bought himself quite a bit of physical with an average purchase price in the $500s. From what he told me earlier this year, he had accumulated around 1,700 ounces of physical which he kept in his immediate possession. He even sent me a picture of himself holding a 10kg (320 oz.) coin worth about a half million at the time.

We had many conversations over a couple of years. We even talked on the phone occasionally. And one thing I could always tell about Jumbo Shrimp was that, even though he loved my writing, he never quite understood my view. He still thought of gold as an investment, one of many, and he considered the idea that paper and physical could ever diverge leading to a revaluation of physical to be a conspiracy theory. His rationale for owning some physical was simply eliminating counterparty risk on a portion of his "wealth".

As I said, Jumbo Shrimp is a financial market analyst, and his method of analyzing his personal gold investments (which consist of more than just physical) centers on tracking the mining shares. His fundamental operating principle is, in his own words, "Gold stocks ALWAYS lead gold."

Anyway, back in early May I received a flurry of emails from Jumbo Shrimp which also went out to a lot of other people, making a very bold bottom call regarding the miners. I quote from the first email: "As low risk/high return as I have ever seen." He was making a technical call, a buy recommendation, and also putting his own money on the line. Unfortunately it moved decisively in the wrong direction just a day or two later.

I don't know if it was because of his personal stake in it, or from the sting of having made such a bold prediction to so many HNW people that went so wrong, but six days later he threw in the towel on gold, emailing me, "It was a fun ride while it lasted. I sold 95% of my gold at $1,645."

He certainly did make a nice profit. If my math is right, he must have booked a gain of around $1.8M on a physical investment of less than a million. My apologies to Jumbo Shrimp for airing his story, but I think it will be helpful to others and I actually hope that he reads this and reconsiders. He is much luckier than others will be in that it's not too late for him to buy back in.

My point in sharing this story is that calling and then catching the top in gold is a fundamental part of viewing gold as an investment. Jumbo Shrimp was early with his call, but whether the price of "gold" keeps climbing from here or falls off a cliff tomorrow, everyone who views their physical gold as an investment will eventually be put to the test at some point before "the only vote on what gold is that counts", just like Jumbo Shrimp was.

I want you to forget for a moment whether or not you think the Freegold revaluation will actually happen. The question I want to table is simple: If it happens, can it stick long enough for everyone's perception about what gold is to change?

I'll give you a quick "what if" hypothetical scenario to help you visualize the question. It is not important whether this scenario happens because there are many possible scenarios that I can imagine leading to the physical gold revaluation, some quite different from this.

Here's the scenario: Imagine that we have another financial market collapse like September, 2008, only this time the price of gold keeps falling even as there is no physical to be found. The market collapse leads to an emergency print-fest by the USG in an attempt to "stimulate" or shock the economy and markets back to life. Trading is stopped to interrupt the free fall atmosphere. "Gold's" free fall is stopped at $500 per ounce and over the next few weeks, anyone holding a claim that was previously exchangeable for physical gold is cash settled in the spirit of fairness. At the next quarter-end MTM party we find out that the Eurosystem has marked its gold reserves at the equivalent of $55K per ounce in constant dollars. We also find out that this price (in real terms) was derived by averaging actual trades mediated by the BIS and ECB during the blackout after the paper markets crashed.

So we have a sudden step up in the (real) price of physical gold from $500 to $55,000 dollars. It is basically an "overnight" revaluation, even though it wasn't literally overnight, because $500 was the only known price in the interim. Any trades of physical gold that happened during the interim ("gold in hiding" period) happened locally and did not affect the price of gold because it was technically frozen at $500.

I'm happy to conclude that this news (the new MTM price) will be a shock to almost everybody, especially to those who missed out on the revaluation, and that their initial reaction to the shock will certainly not be to rush out and buy tiny gold bars at $55K per ounce. That particular change in demand will take some time to manifest in any scenario I can imagine. So I think it is really more a question of supply as to whether this new price range can stick in the immediate aftermath.

And this brings us to the vote for what gold is! The two main contenders will be 'investment' and 'wealth', because those choices represent the two competing schemes of action that will be faced by those who actually did participate in the revaluation by carrying physical gold through the storm, and who therefore get a vote. In fact, action is the voting method, which is precisely why only those with gold will get a vote.

For example, those who somehow made it through the revaluation process while still thinking gold is an investment will, upon seeing it gap up from $500 to $55,000, either cash it in like a lottery ticket or at least rebalance their investment portfolio away from gold. And if too many people do this all at once, supply will flood the newborn physical-only market and the new price range could falter unless the Giants and CBs step in with unlimited demand. It is possible that the Giants and CBs would do this, but the point of this exercise is to explain why they won't have to.

Those who understand that gold is wealth, on the other hand, will react differently. People with durable, tradable wealth generally have everything else that they need. Wealth is what you buy with your excess. And if you need to tap into that wealth, for whatever reason, to support or improve your lifestyle, then you sell it in drips and drabs as needed. Or, if your wealth preferences change, you can also trade wealth for different wealth. So here we have three actions that the wealthy take with their wealth. They accumulate it, they sell it in drips and drabs for consumption purposes, or they trade it for other wealth.

I'm sure this seems like a ridiculous distinction to those of you who view everything as an investment. That's really a Western shrimp perspective, and I think it's probably why you are struggling to understand Freegold. So let's take a closer look at it from a couple different angles. Michael H pointed us to this comment from FOA just the other day:

FOA (12/13/99; 19:15:01MDT - Msg ID:20954)
Mr Gresham (12/12/99; 14:04:52MDT - Msg ID:20807)

" " "Econ 675, Advanced Graduate Level Money and International Banking: Market Disequilibrium Scenarios, otherwise known as USAGold Forum" " "


Hello Mr. G,
Ha! Ha! That is some class you are taking. One of the things Another wanted to accomplish is happening. That being, getting Western citizens to reconsider exactly what gold was in the eyes of other real people. In order for that to happen, people had to understand the evolving modern politics of gold and how it has created a "New Gold Market". One far different from the one goldbugs of the 70s had grown to know and love.

In the beginning, many readers had no basis for comparison when reading most of Another's Thoughts. Yet, we walk this evolutionary trail of gold today with eyes wide open and better able to grasp the impossible road ahead.


I have seen one sure sign that Westerners don't really know what has happened to their wealth. This is demonstrated when one "bemoans the loss of good times" if gold goes very high. It comes across the same every time; " " "if gold goes to $30,000 we won't have a dime and everything will fall apart" " ". Well, Another made his point that the dollar said your wealth was worth more than it really was. Let me demonstrate.

Like this:

Ever been to a high priced auction. They bring out the "Strad" violin and start bidding at $500,000. After a while it goes for $1 million flat and it's over. After that we listen to the perceptions around the room.

One guy in the back, who has 10 million cash, thinks the Strad was cheap at one mill and will pick one up next year. In fact he may get ten if they are offered. Some rich woman has 3 million and she figures her wealth is equal to three "violins" if she ever wanted them.

All around the room the feelings are the same as perhaps 100 million in assets are represented. They all equate their buying power to this one auction. Even though only one walked away with physical, everyone knows they are "strad rich" in wealth. Each goes home for the evening cognac and relishes in this knowledge. Their lifelong effort of hard work and shrewd investing has positioned them to own the wealth of many rare violins. Life is good, very good.

The one problem with all of this is that they based their "wealth holdings" on the outcome of just one auction. Truly, had they all bid, the violin would have gone for much more and their wealth would seem "not so much".

In much the same way our world of dollar assets carries the same risk. All of us stand in the same world auction room and watch the daily bidding for goods and services. We watch the prices of cars, gas, houses, clothes, etc. and conclude our wealth balances based on what we could acquire at this auction should we choose to bid. We see our economy in a light of infinite goods and services but fail to balance this with the potential of others to bid, "in mass". In this light, few have a valid perception of just how many dollar assets are out there. Indeed, without this grasp of "dollar inflation" we blindly consider our wealth and position in life using the present price structure of "things". A system in which we trade paper IOUs of infinite number for real things of finite number.

So, our belief that life is good, largely rest not on the confidence in the dollar. Nor is it in the confidence that others will value and accept our dollars. Life is good, because all of us do not "bid" at the same time! If we did, our life would not be as good as our dollar wealth says it is!

This is the deception in our Western grasp of what wealth is. Our life savings are valued at what they can buy today, even though, in reality it is based on an unknown purchase price in the future. Just as all of the wealth at the violin auction was a phantom in self delusion, so too is our present good life and bank account numbers. The evolution of a people that once gripped gold for the real wealth money it was, has proceeded to the hoarding of bookkeeping entries of account credits. History has proven that once humans begin to question the value of this dollar "wealth owed them at a future unknown price" they run a race to outspend their loved brothers. Buying goods now at the "known" price quickly balances the books so no one is any longer fooled. The currency equivalents remain as a trading medium, even as real things are held in the background for value proof.

No, a high price of gold will not rob us of our wealth. It will rob us of this perception of money value that was but an illusion in the clouds. Wealth for tomorrow is found in this context for today; one cannot lose something they never owned. Buying physical gold at today's prices ($200 to $500) will not help you maintain this modern illusion of wealth we never had. But will allow us to later spend the true value of gold that presently exists today. A value few will accept or believe.

Thank you all,,,,,,,,,,,,,,,FOA

FOA made some great points in that comment, but I want to draw your attention to one that I think was inadvertently made. The reaction of the millionaires observing the "Strad auction" illustrates the paradoxical nature of Giffen or Veblen goods which seem to violate the economic law of demand. These observers didn't have their own Strads, but as the price rose and the auction settled, they instinctively imagined buying their own Stradivarius and they also considered their own wealth in Strad terms—how many Strads they could buy.

These types of goods are sometimes called positional goods or status goods. It has been observed that rather than people diversifying away from these goods or substituting other goods as the price rises, the opposite tends to occur with world-class durable, tradable and collectible wealth items.

You've probably heard of the wealth effect as it was applied to the housing bubble. It says that people tend to spend more when they actually are richer, objectively, or when they perceive themselves to be richer. The point here is that the behavioral change effect comes from the perception of wealth, not the liquidation of wealth.

Imagine a painting that was purchased for $10 million and sold a decade later for $100 million. We have seen a rise in the price of fine art over the last few years, so why haven't we seen all fine art flood the market like a bunch of lottery tickets trying to get cashed in? When a wealth item like that rises in value and that new value is revealed at the margin (the auction house), the wealthy people holding similar items simply feel a little more wealthy. But they understand that wealth is not a lottery ticket. Perhaps some people view fine art as an investment, but not the majority, otherwise we'd observe something different than what we've observed.

The point is that Giants, who hold a good portion of that 165,000 tonnes of above-ground gold, view physical gold as wealth and not as an investment. No matter where the price goes, they will not sell it en masse, or even in mass. They already have everything they need to live an exceptional life style and they understand that the best way to dishoard wealth is in drips and drabs over time as needed or as individual preferences change.

But we are not all Giants, are we? Some of us are likely to want to "upgrade" our lifestyle if our gold is suddenly revalued, right? Will we do so in drips and drabs as needed, or will we decide to dump it all at once to catch the top and lock in our profit? Well, let's look at this "upgradable lifestyle" portion of the vote. In the West it will be an extremely tiny contingent. In Eastern countries like India, it is likely to be a fairly large contingent.

First the West. When I say tiny, I'm talking about maybe one person in a million tiny. Someone who has, say, 2% to 5% of his wealth/savings in physical gold—and is able to hold strong through the transition without cashing in that lottery ticket or panicking out along the way—is really only going to stay even or see a small gain (e.g., see Michael H's revaluation/rebalancing exercise here). So in this Western group of "voters" who will be faced with the choice of drips and drabs versus all at once lottery ticket are really only those who have a substantial enough portion of their wealth in physical gold that they will see what could be considered a life-changing windfall profit.

The bottom line is that this Western group is too tiny to even matter in the final vote for "what gold is" after the transition. And the dynamics of the transition will likely shake out all but the strongest hands which are more likely to consider gold to be wealth like the Giants do.

In the East they already view gold as wealth. So even though they will have the ability to improve their standard of living, they will likely continue to accumulate, only choosing to dishoard as needed. This would be a good question for Anand. How many of the gold holders in India do you think consider gold to be wealth versus how many consider it an investment that you should dump at the top? And how will the average Indian react to a gold revaluation? Will she sell it all at once and live large like a lottery winner? Will she sell a little in drips and drabs as needed to improve her quality of life? Or will she continue to accumulate while feeling (knowing she is truly) wealthy?

I suppose it will depend on each person's individual circumstances, but we generally aspire to that which is already present in our vicinity. So I can imagine that a general improvement in the standard of living in India would play out more gradually than it would for, say, an American lottery winner or an NFL draft pick.

So who else is there on the supply side that will get a vote on what gold is? Oh, yeah, the central banks! They use/view gold as a reserve asset, which is to the monetary system as wealth is to the individual. So I don't think we have to worry about them dumping their gold like an investment "to catch the top".

I guess that about covers all those whose opinion will matter (except maybe governments, but we'll get to them in a moment). The opinion of those who don't carry above-ground gold through the transition won't matter, but it will be forced to change specifically because it won't matter! Think about that while we move on to gold in the ground.

Gold in the Ground

While there are an estimated 165,000 tonnes of above-ground gold, each and every bit owned by someone, a recent estimate revealed known and recoverable in-ground deposits to be another 67,500 tonnes spread out all over the world.

The distribution of these in-ground deposits is as follows:

North America 34%
South America 17%
Europe 2%
Africa 17%
Russia/Asia 17%
Australia 12%

The average rate of extraction for the last five years, according to the WGC, has been 2,602.2 tonnes per year.

One of the arguments against Freegold is that all of this mining supply, if it went to market at $55,000 per ounce (or thereabouts), would constitute a dump requiring an offsetting demand of $4.6 trillion per year (in real terms—global net production) to maintain that price. This is a powerful argument that, in my opinion, deserves some more discussion.

To understand the counterargument, there are a couple of things you need to know about the differences between in-ground gold and above-ground gold. First of all, gold that is still in the ground is not worth as much as gold that has already been mined. Gold in the ground is worth the market price of above-ground gold minus the cost of pulling it out of the ground and then refining it. The second thing is that, while every bit of above-ground gold is owned by someone, the ownership of in-ground gold is not what you think, especially in extremis. Let me explain.

It is a pure illusion today that the owners of mines also own the gold in the ground under their mines. It is an anachronism, a relic of a bygone era and it can only last as long as the price of gold and the cost of extraction are in relatively close proximity. Here's what ANOTHER had to say about it:

Date: Sun Apr 19 1998 15:09

The governments will revalue gold and "demand" that the public carry it and use it! It will be the source of all gold, the mines, that will be controlled! That's Controlled, with a capital "C", not confiscated!

When confronted with the argument that governments are slow-moving leviathans and will therefore be slow to tax the mines with some sort of windfall profits tax, FOA remarked:

FOA (6/7/99; 7:45:04MDT - Msg ID:7282)

Steve, on this issue, they will move no slower than with the speed of one who finds a gold coin upon a sidewalk!


Mining companies are sitting ducks. Hat tip to reader "B" for this recent quote from Doug Casey:

"All the governments in the Western world are really bankrupt and are, therefore, going to be looking for more tax revenue. Mining companies are going to be in its sights because mining companies can't move their assets; they are the easiest thing in the world to tax. The good news is that makes mining stocks very volatile, and sometimes extremely cheap. Volatility can be your best friend."

Mmm, cheap and volatile thanks to being sitting ducks for the government! Here's some more FOA:

FOA (10/25/99; 19:57:57MDT - Msg ID:17447)
elevator guy (10/23/99; 21:30:08MDT - Msg ID:17282)
Why will gold stocks be a risky place to be?

Hello elevator guy,
We have covered this area many times before. Simply put, when this new gold market runs as never before seen, shares will under perform bullion because they only represent the ownership of a business not money reserves. As a mining business, they must overcome the negative effects of a banking crisis, massive cost inflation and taxes old and new. Their dividends will never return the equivalent of the increase in bullion nor will the equity. Most investors do not retain a good historical perspective between government confiscation and government regulation. Production regulation and taxation are a different control of mine reserves that greatly impacts stock values. Many stock promoters often try to inject the "confiscation issue" as one for bullion holders while ignoring this other dynamic as it pertains to mine shares. The race will be for bullion and large international players will discount the leverage of mine reserves in terms of the crisis financial atmosphere they must invest in.

Even so, some mines will be sought after as they will be perceived as the best positioned of the lot and the last to be interfered with.

Anyway, it's a long hard subject that many will pay dearly for as this transition proceeds.

We will talk again on this. FOA

Imagine if the mine owners actually had as strong of a claim on the minerals under their mines as most people think they do today. With a market price of $55,000 and an extraction cost of only $1,500 or less they could literally "spare no expense" on all the modern mining technology and equipment needed to blast and dig those lottery tickets out of the ground and cash them in as fast as possible! They'd surely run up the extraction rate a bit and put a strain, if not an outright crash, on that Freegold price range.

But they don't have that strong of a claim. The sovereign or the collective (i.e., the government) does. The catch word here, a word you will learn more about, is "royalties". It's not unlike the oil in the ground that the House of Saud allows American oil companies to extract and bring to market in exchange for… royalties.

Even at today's price of only about $1,700 per ounce, some in government already have their fast eye on FOA's "gold coin upon a sidewalk"!

Levy on gold could be budget windfall, U.S. lawmakers say
WASHINGTON | Wed Dec 12, 2012 5:49pm EST

(Reuters) - Revising a 19th-century U.S. law that governs the mining of gold and other precious metals could add billions of dollars to federal coffers at a time of tight budgets, according to some Democratic lawmakers and a government study released on Wednesday.

Taxpayers receive no royalties on metals pulled from federal land, and officials drew a blank when they tried to find out how much gold, silver, copper and other valuable metal is sold.

"Federal agencies generally do not collect data from hardrock mine operators," said the report from the nonpartisan Government Accountability Office, which looked at the market in 2010 and 2011.

But applying a metals levy of 12.5 percent - the benchmark government share for other resources - could deliver hundreds of millions of dollars a year to taxpayers, according to independent studies and U.S. Representative Raul Grijalva, who sought the report and other data from the mining industry.

"As we face these fiscal challenges, these are the pennies that we should pinch," said Grijalva, the leading Democrat on the panel that oversees public lands.

Grijalva, of Arizona, and Senator Tom Udall of New Mexico, who jointly called for the GAO report, say taxpayers should also benefit from a gold price surge that has boosted the bottom line for miners.

Applying Grijalva's royalty formula on the 1.1 million ounces of yellow metal pulled last year from Goldstrike mine in Nevada, the largest in North America, could have yielded $150 million to taxpayers, according to a Reuters tally of industry data.

Barrick Gold Corp (ABX.TO), the mine operator, said only a fraction of Goldstrike is on federal land, and the company's taxes have already quadrupled in the five years of climbing gold prices.

Taxpayers are entitled to a royalty from metal sales nevertheless, lawmakers said.



The 1872 mining law that drove prospectors into western states such as California still governs much of the industry.

But this no-royalty law is a costly anachronism when mining giants can stake a claim on federal land for a few dollars an acre, Udall said. The coal, oil and gas industries, by comparison, have no such exemption.

"We are giving our gold and silver for free and don't even know how much we are giving," said Udall, whose father, Stewart, was secretary of the Interior during the 1960s and called mining law reform his great unfinished work.

Lawmakers who have occasionally tried to reform the mining rules have never cleared all the hurdles to pass new laws, as the industry has strong political allies.

Senate Majority Leader Harry Reid, a Democrat, counts on mining support in his home state of Nevada, and lawmakers say it will be difficult to persuade him to take a bite out of the industry.

But on Wednesday, the two top senators on the Energy and Natural Resources Committee said they were open to considering reform.

"There's been agreement for a long time that the 1872 Mining Law should be updated to include a royalty" and reduce paperwork, said Senator Lisa Murkowski, the panel's top Republican.


State and local governments often catch a windfall from mining revenue, and Udall said Republican lawmakers from the West might be persuaded to increase the federal take.

"Everyone agrees we need a balanced package to find new revenue," he said, "and this seems like the right time for reform."

So the "production regulation and taxation" of the mines as FOA put it, or "Control with a capital 'C'" as Another said, will effectively transfer the vote for "what gold is after the revaluation" from the mine owners to the sovereign or the collective (i.e., the governments of the world). Will the governments of the world view gold as an investment or a lottery ticket? Or will they view it as a wealth reserve/monetary reserve asset? This is the question that you need to answer for yourself. I know my answer.

From FOA above:

"The currency equivalents remain as a trading medium, even as real things are held in the background for value proof."

Currency issuing governments like the USG can simply spend money into existence. The credibility of this common government system is generally maintained by three government abilities—the ability to tax, the ability to borrow and the ability to sell off or rent out public assets. To such an entity, the differences between windfall profits taxing gold miners and selling off public gold that is already in the vault are minimal. So if you believe that they will let all that newly mined gold hit the market for just a little extra revenue, you should also believe that they will simply sell their existing gold reserves outright in exchange for the same cash that they can print.

You see, a functioning printing press is infinitely more valuable than gold. Gold, as FOA said, is simply "held in the background for value proof." I can, however, imagine that a country like the US would want to keep its mining companies well-oiled and properly maintained. But that can be achieved by simply transferring in-ground reserves to the vault at some regulated pace.

A country like Canada which has more than 13,000 tonnes of in-ground reserves (the most of any country) and yet only has 3.4 tonnes in the vault would likely transfer at a higher pace than the USG which has a better balance between above- and below-ground reserves. But this transfer of gold from the ground to the vault would not pass through the gold market, even though the government would pay the mine owner the market price and then tax back most of the profit.

Similar principles apply to governments that are not currency issuers, like those in the Eurosystem, in that there is little difference between selling gold in the vault and selling gold in the ground via windfall profits taxes on the miners. One difference could be that, because of their membership in the Eurosystem, they cannot unilaterally choose to sell gold in the vault. But remember from the illustration above that Europe only has 2% of those global in-ground deposits. So even if half of those countries used their in-ground gold as a lottery ticket, that would only represent an additional flow of about 26 tonnes per year hitting the market. An amount that small could, and most likely would, be directly absorbed by the ECB.

I hope I've shown you that it doesn't matter what the rate of extraction will be in Freegold. It could be the same, higher or lower than today. All that matters is how much of that newly-mined gold is dumped onto the market like a winning lottery ticket, relative to the demand.

So let's take a poll. What is gold? Is it money, currency, an investment or wealth? What will your vote be when the time comes? And will you even have a vote?


Monday, December 10, 2012

Arguments Against Freegold

Someone suggested a post on arguments against Freegold. I thought it was a great idea, but then I couldn't think of any arguments that hadn't already failed. I've been at this task for four and a half years now, and I've read almost all of the 12 years' worth of archived debates and arguments (now missing) at USAGOLD as well as the random debates that pop up elsewhere and someone inevitably links them here or brings them to my attention via email. And yes, I feel like I've seen it all, but maybe I haven't. So here's your opportunity to present your best argument against Freegold.

A reader and supporter of mine, an American medical doctor and surgeon named Jeff Allen, once commented on his view of what it is that I do here and why this blog is "so striking to so many people." I wanted to mention this in the context of this post not only because I loved the way he explained my logical approach to Freegold and its necessary conclusions, but also because I think this is the only way you're likely to succeed at debunking Freegold if that's even possible—by presenting a competing premise through principles, expressed in precisely defined, non-contradictory concepts that are grounded in reality, which lead to inevitable conclusions that necessarily exclude those of Freegold even when viewed from a variety of perspectives.

So good luck with that!

I'm combining a couple of different comments here, but what Jeff Allen said was that "the defining attribute of an objective manner of thinking is the ability to--more deeply, the recognition of the necessity to--think in principles. To see reality as it is, then to grasp reality in non-contradictory conceptual form.

But thinking in principles will not succeed unless its elements--the conceptual terms in which the principles are expressed--are solidly grounded in reality. This is where the term "objectivity" arises. You best reveal your own appreciation for this fact by the manner in which you validate your unwinding of the concept "money."

This is not the way most people think, and this is why your blog is so striking to so many people. But it is only your fellow thinkers-in-principles who possess the capacity to respond in this way. Those who don't get it, including those commentators to which you refer, lack that capacity. Ayn Rand called these the "anti-conceptual mentalities." The anti-conceptual mentality has been fostered and nourished by Pragmatism, the philosophy which dominated U.S. academia the first half of the 20th century, and dominates our educational and political systems still today. We swim in a sea of Pragmatism.

All new knowledge is inductive. Deduction is secondary, and depends on the validity of one's prior inductions.

From whence comes your syllogism's major premise, "All fiat currencies are eventually worth no more than toilet paper?" Was it deduced from a prior generalization, or was it induced?

The answer, of course, is that it was induced. Your deduction merely applies that general knowledge to the specific case of the dollar. If your inductively generated major premise is not necessarily true, then neither is your deductively generated conclusion.

From what prior principle did Newton deduce universal gravitation? Newton's theory is the product of a grand induction, an integration of prior inductions made by Kepler and Galileo, based on observations of planetary orbits, and of the behavior of physical bodies on earth.

Freegold, too, is a grand induction. Your method of approaching the issue from a variety of perspectives, all leading to the same necessary conclusion, after precisely defining your concepts, is essential to a proper inductive process (which, by the way, the mere enumeration of swans is not)."

It occurs to me that TA-based and GSR-based gold and silver trading is probably an example of Pragmatism. I'm no expert on Pragmatism, but Wikipedia says it "describes a process where theory is extracted from practice, and applied back to practice to form what is called intelligent practice."

The "grand induction" (Jeff's term) that we like to call Freegold was not my grand induction. Nor do I think it was Another's. Another merely shared it with us along with some of its "necessary conclusions". Why did he do that? I don't know, but I have a few ideas.

As for the "grand induction" itself, I think it was a European group effort that teased it out in the 1960s and 70s leading up to and also following—and as a result of—the abrupt and predictable end to the Bretton Woods monetary system in 1971. I won't go into the details here because I want to keep this post under 100 pages, but the main point is that I didn't come up with it.

Freegold is just a name. I didn't come up with the name either. But if you don't understand what we're discussing and extrapolating upon here at a conceptual level, ignoring the convenient name, you're going to have a really hard time debunking it. In fact, I don't think you can, even if you do understand it. That's one of the most remarkable things I've observed about Freegold—that those who make the effort to really understand it on a conceptual level not only fall in love with its elegant simplicity and obvious inevitability, but they also start buying physical gold hand over fist. And again, that's only because of one of the "necessary conclusions" that are (IMO) irrefutably drawn from it.

I will temporarily and conditionally lift the ban on the five commenters that have been banished from this blog over the last four years so that anyone is free to take their best shot. But only for this one thread, and only if they behave. I will not put up with abuse, hate, spam or personal insults. In other words, Art, AD and anyone else are all welcome in this thread only, unless and until they abuse it.

But don't expect me to personally debate each and every argument. I'm not going to waste my time on arguments that miss the mark like poor Skippy, our "'A' for effort" dog at the top, or on those arguments that have already been dealt with. There is one argument, however, that I hope shows up to the party. And if anything worthy comes out of this thread, I'll add it below in the space between the lines for the permanent record.

Just beware that Freegold is much easier to dismiss on superficial grounds than to defeat on deep, logically-consistent conceptual ground. So if you really want to avoid becoming another evil gold hoarder, jerk, time misallocator and brainwashed cult member, you should consider simply dismissing Freegold on the surface-level ridiculousness of its necessary conclusions rather than taking up the challenge in this post. Forewarned is forearmed.

And finally, you can't judge the worthiness of your own argument. That judgment, like credibility, can only be made by others. As for what ends up below in the space between the lines, that judgment is reserved for me, but I will consider the opinions of others who I think understand what I think I understand in making any decision. ;D




Monday, December 3, 2012