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.