SLIDE_GOLD_DEFAULTHint: Because it’s the Credit Default Swap of the Next Financial Crisis

Submitted by Gonzalo Lira

Credit default swaps were the insurance—the hedge—against exactly what happened in 2008: Bonds threatened to default, during the Global Financial Crisis. So the CDS’s insuring those bonds rose in valueuntil suddenly, they didn’t: CDS’s stopped rising in value just when the markets collectively realized that the counter-parties to those CDS contracts might not be able to pay up.

What if the price of gold is drifting not because the markets don’t trust the world’s reserve currencies to continue to devalue, but because the market doesn’t trust gold?

Since everyone with any sense realizes that this is the endgame of the current race to the bottom, gold ought to be rising dramatically, but that is not happening. Gold rose steady and strong from 2000 through September 2011—but since then it’s been drifting jaggedly.
So why would gold—which is an actual, physical commodity—be acting like credit default swaps did right before the 2008 crisis?
For the same reason: Gold buyers don’t trust the counter-parties selling gold.

 

Silver Bullet Silver Shield Freedom Girl Collection  at SDBullion.com!!

Freedom Girl

 

 

 

 

Why isn’t gold higher? Two of the three reserve currencies of the world—the dollar and the yen—are on a relentless race to the bottom, and only recently have the Europeans figured out that they’d better start kicking the euro down, before they price themselves out of the global markets.

With this general fiat currency devaluation, you would think that gold would be much-much higher than it is now.

But gold isn’t higher—it’s drifting. Consider this chart of gold, over the last decade:

 

Gold 2000-2013

Gold was on a relentless climb after the 2008 Global Financial Crisis—with good reason: The markets collectively deduced that the central banks of the world would devalue their currencies, in order to get out from under the mountain of private, consumer and sovereign debt.

Individuals might have decided to buy gold for different reasons—a hedge against volatile equities markets, worries about a run on sovereign debt instruments, etc.—but collectively the market participants all acted the same way: They bought gold as a hedge. (In fact, gold has no value except as a hedge.)

Thus the steady climb in the price of gold from $750 to $1900 in a little less than three years.

So far, so good.

But then starting in September of 2011, gold prices zoned out between $1,900 and $1,600. Instead of continuing on to $2,000 an ounce, $3,000, Infinity and Beyond, gold just drifted like a lobotomized patient spending some quiet time in a rubber room.

Gold has not outperformed anything since September 2011.

The conspiracy-minded claim it’s a conspiracy, natch. The Rothschilds, the CIA, and the little green men from Mars are all conspiring to down-price gold, to the detriment of the gold-buggers.

But I’m not one for conspiracies, not since I learned in grade school that a secret between two people is never a secret for long, and a secret between three or more people is no secret at all—just ask Lance Armstrong. If there’s a conspiracy, someone’s bound to talk. Since no one’s talking, my guess is, no one in any position of power has any more clue as to this drifting in the price of gold than any arm-chair conspiracy weenie.

So if we’re discounting conspiracies, that leaves us with the numbers—and the markets.

And an idea I have: What if the price of gold is drifting not because the markets don’t trust the world’s reserve currencies to continue to devalue, but because the market doesn’t trust gold?

Which reminds me of credit default swaps.

(Yes, I know: My brain seems fairly odd in its associations. Bear with me as I untangle the mess in my head.)

Remember CDS’s? They were essentially insurance contracts taken out to hedge against a particular bond defaulting. In the run-up to the Global Financial Crisis of 2008, credit default swaps rose in value—sometimes exponentially—as investors concluded that a lot of the triple-A rated bonds were actually junk, and would soon default like junk.

Credit default swaps were the insurance—the hedge—against exactly what happened in 2008: Bonds threatened to default, during the Global Financial Crisis. So the CDS’s insuring those bonds rose in value like a mofo—

until suddenly, they didn’t: CDS’s stopped rising in value just when the markets collectively realized that the counterparties to those CDS contracts might not be able to pay up.

Because remember, an insurance policy is only as good as the counterparty’s ability to pay it off.

When all those mortgage backed bonds started to default in 2008, all those credit default swaps started to rise in value and/or needed to be paid off. This huge exposure to credit default swaps sent insurance giant AIG to bankruptcy, and credibly threatened to wipe out the entire global financial system in September of ’08.

When that point came, credit default swaps no longer were rising in price. Rather, they were jagging up and down, like the monitor readings of a heart-attack patient—which made perfect sense: Some market participants expected the CDS’s they were holding to be paid in full, while others weren’t sure that AIG or whatever other counterparty they were working with would be able to honor the CDS’s once the bonds they were insuring went bust.

So price discovery of the CDS’s was impossible while the crisis was raging. The prices of credit default swaps ran up relentlessly, as it became obvious that what they were hedging again—bonds defaulting—was going to happen. But then CDS prices went jagged immediately before and during the crisis itself, when no one was sure if the contracts would be honored.

In its shape, it’s identical to what’s been happening with gold: A relentless climb in price during the run-up period to the crisis—then jagged drifting right before the crisis.

We all know and understand what’s going on with the global economies and the fiat currency system: The global overindebtedness is forcing central banks around the world to devalue their currencies, so as to make the debt burden less onerous.

Many people—and I happen to be one of them—believe that this policy will lead to an inflationary crisis, which will spiral into an uncontrollable hyperinflation event. The key assumption in this scenario is that the only cure for runaway inflation—raising interest rates higher, and hard, like Paul Volcker did in ’79—will never be implemented by the world’s central banks, because they believe (with some justification) that higher rates will shove the global economies into a deflationary death spiral.

Thus a spike in inflation will bleed into hyperinflation, and by the time the central banks wake up and raise interest rates to stop it, it’ll be too late.

In such a case, gold would be the perfect hedge against inflation and eventual hyperinflation. In fact, even better than a hedge, gold would be the perfect investment, an investment that would outpace all other asset classes, because market participants would anticipate this inflation scenario, and thus pile into gold so fast and in such numbers that gold prices would spike parabolically, far outpacing the fiat currency devaluation.

Since everyone with any sense realizes that this is the endgame of the current race to the bottom, gold ought to be rising dramatically.

But that is not happening. Gold rose steady and strong from 2000 through September 2011—but since then it’s been drifting jaggedly.

So why would gold—which is an actual, physical commodity—be acting like credit default swaps did right before the 2008 crisis?

For the same reason: Gold buyers don’t trust the counterparties selling gold.

Because after all, most gold markets are paper markets, not bullion markets.

The various gold ETF’s, gold certificates, etc.—they are all based on the trustworthiness of the counterparty issuing the paper. The gold bullion is stored in vaults, and paper receipts against it are being issued.

But as more than one precious metals commentator has pointed out, there is more paper issuance of gold than actual gold bullion.

What does this mean? It means that the global precious metals markets are essentially a game of musical chairs, with far fewer seats than players—far less gold than gold holders.

And market participants collectively know this. Which is why they don’t trust their counterparties. Which is why gold isn’t rising like a shot.

There is only one market in gold, not two. There is no way to segregate gold bullion holders from gold certificate holders, and thus create two markets, one for the real thing, one for the paper thing.

Thus the current spot price of gold is reflecting market uncertainty as to who has actual gold, and who has worthless paper certificates of gold.

Do recall: The prices of credit default swaps quickly reached their market prices after the 2008 crisis had passed. They reached those actual market prices once the insolvent counterparties, like AIG, had been identified and isolated.

But before and during the crisis? When it wasn’t clear which credit default swap would be honored and which wouldn’t? CDS prices were jagged—like gold’s is today.

In the long run, assuming that central banks don’t manage to raise rates in time to prevent high- or hyperinflation, gold prices will go parabolic. But between now and then, gold prices will continue to drift, because the markets don’t really know whose gold is real, and whose is worthless paper.

 

I discuss in greater detail what will happen when hyperinflation hits the world’s economies at my Strategic Planning Group. If you are interested, please check out the preview page.

Strategic Planning Group

  1. The author’s reasoning is flawed! The price of gold/silver cannot be predicated upon the counterparties ability (or lack thereof) to deliver. The “lack of trust” is not of the gold, but of the counterparty who hypothicated the gold. As a matter of fact, just the opposite of the author’s premise should be true. The price of gold should rise commenserately with the devaluation (QE) of fiat currencies. The fact that counterparties cannot be “trusted” to deliver tells you that the true supply of physical cannot meet demand and therefore should move the price even higher.

    The only thing the author is correct about is when he says “Bear with me as I untangle the mess in my head”!!!!!

    • Physical sales are up. “They” are doing it quietly. Billionaires don’t become Billionaires by “Blowing-Up” markets. They do it quietly and descretely. Eventually, “They” will not be able to get anymore. That’s when they will let it run to it’s true value. Governments, central Banks, Billionaires are all colluding to buy physical. When they’re done, grab your ass and watchout. Where Gold goes, Silver will follow. Paper schemes are alive and well in the metal markets. Buy physical while the prices are depressed. I like reading Lira and it seems to me he hasn’t posted in awhile. Interesting analogy he makes and quite plausable too. I put nothing past the Cartel and for the time being, lets play along and stack too. I feel sorry for the masses who don’t own physical. Change is coming. Get ready.

    • “Governments, central Banks, Billionaires are all colluding to buy physical.”
       
      So are we.  Keep stacking, brothers and sisters.
       

  2. So, Mr. Lira…..how many years did it take for the PROVEN conspiracy in LIBOR to be outed?  How many THOUSANDS of the highest level players are being indicted as we speak in that global, criminal skinning?
    How many years did Mr. Madoff make off with tens of billions of dollars, with help from dozens, if not hundreds, of HIGH LEVEL bankers(like JP Morgan, who is currently being threatened with state sanctions if it keeps refusing to turn over their documents detailing their business dealings with him during said time)?
    People don’t trust gold?
    China and India alone, imported about 1,600 tonnes last year.  Or 2/3 of all the gold mined anywhere.
    Bullion is tightening rapidly and disappearing from the face of the earth…because it’s chronically underpriced, and it’s chronically underpriced because it’s not a freely traded market.
    Sir, with several Mt Everests of evidence now proving the mega banks are all conspiring to rape humanity via this perpetual debt/ponzi/derivative tower of death….you’re going to have to do better than “I don’t believe it….cuz folks can’t keep their mouths shut” rationale. 
    That no longer holds any water, if indeed it ever did…

  3. One step further… unlike CDS’s, honest to goodness real precious metals can be had for the simple excercise of free will and market capitalism by exchangeing paper for them, for now. If you were foolish enough to be caught with a mountain of CDS’s or like JPM et al. be so leveraged as to be insolvent with all sorts of worthless paper…the only way to stay afloat is to con, cheat, lie, coerce and steal your way and buy more time. Time for what you may ask?! Time to get the hell outta the avalanche’ of paper you loudly proclaim to be real assets and buy up all the PM you can with that worthless paper you’ll peddle untill you cant, thats when the SHTF and PMs and only PMs mean anything. If we see it…they see it on that and only that you can trust. The full faith and credit BS worked for quite a while till the greedy banksters and their crony political hacks went too far. Bands done playing, fiddler needs a paying. Glad i bought some phyzz yesterday…almost makes me look like i know what im doin ;-)   

  4. and just one more thing… the TBTFs are gonna keep playing this game of build up and smack down till they cant…you dont think somewhere they are doing all they can to buy on the smack, wait for the pump and smack it down again and again and repeat untill enough of what passes for intelligent humans wake up and figure it out?! You bet your sweet ____ ( submit in the blank your favorite PM ) they are ! Im not preaching to the choir …im just venting… my apologies, carry on 

  5. This guy is a tool.  This guy calls us “arm chair conspiracy weenies.”  He makes the statement “gold has no value except as a hedge.”   That premise right there is wrong on so many levels.   I don’t have a problem with his thesis that the COMEX and LBMA aren’t rising because many market participants don’t trust it and don’t want to get in that sandbox.    But to suggest there is no conspiracy to keep PMs down is either childish moronic naivety or he’s just lying.   I disagree with another premise: that there is only one gold market.   Clearly there are different markets for gold.   I can’t buy gold or silver ANYWHERE near the COMEX price.   If the rumors are true that the bankers often offer a cash sweetener to COMEX long contract owners (when they win) to persuade them to not take delivery, then his premise is moot.   
    This passage made me laugh out loud at it’s absurb imagery: “Instead of zooming to $2000,3000, Infinity and beyond, gold just drifted sideways like a lobotomized patient spending some quiet time in a rubber room.”    
    I can’t figure out what this guy’s agenda is.   On one hand, he derisively name-calls and pokes fun at PMs, but on the other hand he says he expects outright hyperinflation.

  6. This is the kind of thinking that is super-flawed:

    “But I’m not one for conspiracies, not since I learned in grade school that a secret between two people is never a secret for long, and a secret between three or more people is no secret at all—just ask Lance Armstrong. If there’s a conspiracy, someone’s bound to talk. Since no one’s talking, my guess is, no one in any position of power has any more clue as to this drifting in the price of gold than any arm-chair conspiracy weenie.”
     
    Just because one refuses to believe in a ‘conspiracy’ does not mean that the conspiracy does not actually exist.  If someone is relying on their grade-school education to determine whether something is a conspiracy or not, they’ve got bigger issues to deal with than trying to educate others about the Gold and Silver markets.

  7. *Editor note.  While we disagree with Gonzalo that the gold market is freely traded (and last year’s LIBOR manipulation demonstrates precisely how pervasive market manipulation is among the TBTF banks and central banks), we do agree with this thesis that counter party risk concerns may be affecting the price of gold futures. 
    Overall, Gonzalo is massively bullish gold, as are we at SD.

    -Doc

    • Doc, while i do agree that the price of futures may be in question BC third party risk, hypothication, re-hypothication ad infinitum… i fail to see why anyone would continue to hold the paper in question whilst there is phyzz to be had?

    • Doc,
      From a small stacker perspective, the article makes sense.  So I have to agree with you.  It is the fear of not knowing that would tend to keep gold from becoming the go to commodity for wealth preservation.  While I understand the manipulation is real and also contributes, Gonzalo’s theory is no less real.
       
      There is no rule that I am aware of that says multiple factors cannot be in play at the same time. 

    • “…i fail to see why anyone would continue to hold the paper in question whilst there is phyzz to be had?”
       
      Yes, it is indeed a puzzle but maybe I have a partial answer.  
       
      Some people have invested in paper all their adult lives and essentially live in a paper world.  To them, investing in things that rise in price makes sense, so they buy stocks, mutual funds, ETFs, and (egads!) even bonds.  To them, GLD IS GOLD and SLV IS SILVER.
       
      Unless one owns a LOT of these, of course, they are not.  Guys like Soros and Paulson can invest tens or hundreds of millions of dollars in these ETFs and you better believe that they have 1st call on the phyzz stored in those ETF vaults. You can also bet that they have inspected the vaults and the books of these ETFs before handing over that kind of money.  
       
      Small investors, however, cannot receive metal in exchange for their GLD and SLV shares so are SOL should the ETFs or the US dollar ever crash.  
       
      Finally, there people who have most of their money in their retirement plans where it is difficult to buy phyzz.  Instead, they can buy metals and mining funds and ETFs.  They probably figure that these are better than no PMs at all.  Considering the gains that have been made by gold and silver over the past dozen years, they could be right about this.  They have had some very nice profits on their investments.  If they have realized these via selling them, they have done well.  I have as well, particularly on the PPLT ETF.

  8. So far, so good.
    But then starting in September of 2011, gold prices zoned out between $1,900 and $1,600. Instead of continuing on to $2,000 an ounce, $3,000, Infinity and Beyond, gold just drifted like a lobotomized patient spending some quiet time in a rubber room.
    Gold has not outperformed anything since September 2011.
    The conspiracy-minded claim it’s a conspiracy, natch. The Rothschilds, the CIA, and the little green men from Mars are all conspiring to down-price gold, to the detriment of the gold-buggers.

  9. Most of the public haven’t a clue what this man-made financial instrument is, the CDS. But they do know how to go down to the local market place to buy a coin a bar or a piece of jewelry. The Turkish population for instance, collectively owns 15000 tons of gold excluding what its government owns – that’s almost twice as much as the bullion hoard in the Federal Reserve. The CME, Wall Street and its bankers set the price of bullion, but that’s all they do; the physical supply travels far away from the confines of this esoteric group of price setters.

    • I knew Turkish people were big gold holders (along with the rest of the region) but I had not heard a 15000 ton number.   That’s about half a billion ozs!   Turkey population is about 80M so I don’t know if I can buy over 6 oz per capita!    Maybe if their banking system is used by people in neighboring unstable countries similar to the way Americans and Europeans use the Caribbean banks perhaps.   I’ll bet it is far more common for people in that culture who are very well to do to have hundreds or thousands of ozs.    Shopkeepers and professional classes there probably try to store surplus earnings/savings this way.   Here in America those who can save real money, they trade in the SUV for a newer shinier one, spend it on expensive vacations, updated pop gadgetry, enormous tuitions for the children, and cosmetic surgeries LOL.   I’ll bet there’s a lot of people (millionaires) in the Western World who think because they have a Monster Box and a little pile of gold coins and that’ll be good enough.   Especially deluded are the ones who pay big for the numismatic coins.   You know these guys who think it’s a good deal to pay over $100 for silver or $3000-5000 for an oz of gold LOL.     I think the 5-10% weighting number a lot of financial advisors use is a really weak.   Maybe 5%-10% gold and silver EACH!  A mixture of gold, 1 oz rounds and silver bars and some Constitutional silver (aka junk silver.) And then perhaps some of the equities. Look how absurdly cheap some have become.   Or platinum Eagles/Maples which I think will outperform gold Eagles/Maples… JMO  

    • I knew that Turks liked gold and have quite a bit of it but 15,000 tons seems like a REALLY big number.  
       
      I just read last week that the people of India own an estimated 18,000 tons of gold.  Indians LOVE gold and there are 1.3 billion of them, so this number does not surprise me.
       

    • In Turkish Indian and other similar cultures, gold represents generational wealth passed on over many years. I haven’t done the survey personally to verify the numbers, but they seem entirely credible to me.

  10. Exert taken from this blog: http://www.usagold.com/goldtrail/archives/another1.html
    Very interesting read but……..read the whole thing in total, then things make sense!
    Date: Sat Oct 25 1997 10:24 
    ANOTHER (THOUGHTS!) ID#60253:
    Why do the Swiss want to sell gold over many years when they could sell the entire lot in a week? Yes, the worldwide trading volume in gold could take the whole load and not drop the price below Fridays close! The reason for the “many long term selling announcements” is to keep the price down over time. The CBs would have you think that their selling would “crush the price”! The real effect would be exactly the opposite. The major world buyers would line up at the door to buy “the last sale of the century! Have you heard any CBs putting out “Proposals to Sell” for their entire stock of gold? Of course not, the response to buy would give off the absolute wrong signal and cause a revaluation of gold .
    It is a far better use of a public asset when they use a small anount of it over time to ensure a reasonable price for OIL! If all gold was sold quickly, there would be no trading medium for deals! How far do you think an IOU would go if it didn’t have gold in the background worth perhaps a 1,000 times it’s current commodity price?
    So what good is this information to the small investor? Not much if you run out and buy gold options, gold stocks, gold futures, etc.! Did you think the following quotes were good for those assets:
    “That is why some “Big Traders” are holding ONLY gold as events unfold.”
    ” One last note: No form of paper wealth will survive the financial crush once the CBs stop selling! NOTHING! ”
    “The market is changing now,,, it will go up but you will not be happy with the outcome.”
    “What is happening now is far, far larger than the interest of a few traders or mining companies. They will be stepped on!”
    Gold bullion is being accumulated and cornered on a worldwide scale not seen before! UNDERSTAND THIS: The people who are buying do not expect the price to rise until the CBs slow their selling. They do expect the value of gold to increase in the future even as the banks sell into a rising market. This will happen as the sheer volume of trading completely overwhelms the entire worldwide market! The big buyers fully well expect gold to stop all trading as the governments enact DRACONIAN MEASURES to deal with a worldwide currency problem. The public in general will ask for these measures and to that effect, all paper connected to bullion will become “fair game”!
    My projections and —–:
    The gold market is not the same as it was in the past, so throw your charts and TA away! Nor will the gold market be the same in the future as it is today, so don’t use paper substitutes! Today, gold is much more valuable than it has ever been! During your time a straight forward investment in “bullion only ‘ will far surpass any other asset you could hold!

    • @Eboy75  Think how many times the IMF jawboned the market by repeatedly announcing they were going to sell 400 tonnes of gold.  Over and over again.  Then when they finally hit the sell button it was snarfed up in a nanosecond by India.  ANOTHER understood all of this and made the call in 1997.

  11. Seasoned PM investors–remember when you weren’t ALL in and how long it took you to get there? Yes, most folks still invest in paper PM and they don’t trust it. I have to agree with that. My own step dad has lots invested in paper PMs and wont switch to physical–it’s like a mind block or something against buying the stuff out right. I actually think he would rather sell his paper PM instead of having the metal in hand. Until that those PM nuerons start connecting in people’s heads the COMEX does represent paper by-in-large and people are waking up to the “musical chairs”–very slowly. I think when you’ve reached buying physical you’re finally admitting, implicitly, that financial institutions as we know it are sunk and the trust is gone. I think most people don’t want to go there just yet.

    • I agree, Max, and am wondering whether or not this anti-phyzz mentality will survive even a single bank holiday.  My guess is that it will not but we will see.
       
      Know what you mean about parents as well.  I have talked myself blue in the face to get my folks (they are in their 80s) to get their money out of the local JPM bank but will they listen?  No, of course not.  They don’t realize just how sticky the fingers are at some of the BIG banks and figure that the Gov (FDIC) will protect their savings.  :-/
       

  12. Gonzalo lost me at “consiracy theory” … sure, LHO killed JFK by shooting him in the front and back of the head at the same time (even the House Assassination Committee concluded consiracy before they closed the hearings, before all the witmesses got murdered…lol); Sirhan still does not remember a thing about shooting RFK; and JER was clearly set up in the MLK assassination (and the family agrees), to name just a few.
    The Fed (and their WS partners) are responsible for the “drift” in Au and Ag. As if we needed more proof, the three month long daily takedown since the Fed announced QE4 in Sept, would seem to close the deal for anyone informed on the subject.
    This is the second time this week I’ve wasted my time on a preposterous negative gold post (last one tried to use over 100 years of data to argue stocks were much better than gold… lol). I’m always happy to invest my time on informed contrary opinion, but this time… not so much.

  13. Good grief.  Gonzalo, you’re smarter than this.  
     
    It’s high time analysts and public intellectuals stop being chickenshits when it comes to the subject of conspiracy.  The manipulation of the gold and silver markets is moderately hidden public policy, not conspiracy theory.  There are plenty of official documents that openly talk about the gold swap market, documents with DIRECT admissions by the leaders of central banks themselves and on and on.  It’s only peer pressure and the fear of public perception against the conventional perceived norm of not touching subjects labeled “conspiracy” that keep Gonzalo and others from having the huevos to not give a crap about what the mainstream sheep have still been unwilling to examine.  The documentation is all there.  We’re not talking conspiracy theory.  We’re talking about public policy, which is adequately documented for anyone to see.  Period. 
     
    I’m going to come out of my hole and write something big this weekend.  The level of confusion in the precious metals community has never been higher in my estimation (with the possible exception of the late 1990s) and even I have had some trouble figuring out what the heck is going on.  But I think I’ve got all the pieces of the puzzle fitting together well now.  I’ll write an article to explain, but it will take some time to crank it out.
     
    For the time being, I’ll just say that any notion that the world has lost faith in gold as insurance is just idiotic.  It’s a valid question to ask — and we never want to get dogmatic in our thinking.  But that clearly is not what is going on here.   The main reason why gold is down has everything to do with:  1) selling of paper gold;  2) a temporary shift in thinking about the real and valid prospect for a bit of global recovery over 2013 that will indeed surprise some gold bugs but is NOT going to end up killing demand for gold because gold demand will shift from those fearing a deflation crash (yes, that’s right — a big part of gold’s buying was on account of crash fears regardless of what most people think and what the media told you about deflation and gold) to market demand driven by inflation fears. 
     
    I will unpack that last paragraph and go into great detail, filling in the argument.  Those of you watching these markets closely will already understand part of where I’m going with this, but I’ll need more typing time to flesh it out for everyone – including dear Gonzalo.
     
    See you this weekend.
     

    • Sic’em, FW!  lol
       
      As far as the media is concerned, I don’t think that it’s a matter of being chicken.  It’s more likely that there is BIG money backing the paper investing world and they want and need the media to play along and talk up paper and talk down PMs.  I’m sure that this has been thoroughly explained to those who own or manage the media outlets and that they have “an understanding”.  We are all well aware of the fact that gold and silver get very sketchy, if any, mention on the CNBC and Bloomberg business programs.  They also mention it more when PMs are down than when they are up.  At the same time, if there was a stock that was up 600% in the last 10 years, they wouldn’t be able to shut up squawking about it; but when gold and silver do that, it’s ho-hum time.

  14. I have a simpler, more intuitive explanation as to why silver and gold are stalled where they are and it’s … three cents. Stick with me, though this gets a little ‘Bix Weir’ish.
     
    Folks on this list (and going way back to Doug Gnazzo’s ‘Honest Money Report’) who actually read what I rail on about, know that I view the American banknote from its residual purchase power expressed in it’s original physical form, or, three hundredths of a metallic dollar.

    Now, the truly brain-dead financial zombies who STILL believe that government is on the level (however clandestinely), actually take the numbers ‘fifty’ and ‘one’ stamped on gold and silver coins seriously. Consequently, if you multiply 1670 times 0.03, the result is … 50. Then you multiply 33 by 0.03 and the result is about a coinsiding 100 (cents). THAT’S the ‘back of the napkin’ calculation that’s got gold and silver stalled where they are. The three cent figure is a ‘bona-fide’ data point from the Board of Labor Statistics and that divisor has become an indelible mental imprint for all the idiot-savant ‘rocket scientist’ whiz kids on Wall and Threadneedle Streets. I blame this obsession on the fact that they haven’t yet fully apprehended the ultimate doom of the banknote scheme and thus predicate their ‘expectations’ on the delusion that banknotes can survive (albeit in a ‘gold-backed’ guise) the superior force of supply-demand through their sheer pith.
     
    If readers have ingested my FURTHER related contemplation on the RATIONAL value of a metallic dollar itself, you’ll recall that it has a three century historic ‘price discovery’ of a day’s average wage, relative to two day’s average sustenance in goods. This is the  genuine ‘key’ that unlocks the reasonable, RATIONAL ‘targets’ for silver and gold … after Armageddon. That calculation has silver still stupidly undervalued, so keep stacking!
     
     

    • @UglyDog
       
      Presuming you mean ‘Obsessive Compulsive Disorder’ … in a way, yes. That’s one characteristic of the idiot-savant phenomenon. Their capacity to nearly ‘hard-wire’ information instantly, makes them vulnerable to false imprinting. They have to engage a huge struggle to ‘re-code’ data they’d subsequently discovered to be correct. I know … I once worked with an absolutely fascinating fellow like this and watching him struggle with the daily tasks of ‘over-writing bad code’ he’d absorbed, kept me constantly intriqued. Up to then, I envied folks with ‘photographic memory’ … thereafter, I saw it was as much a curse as a gift.

  15. Who cares if its volatile not volatile, snake oil is snake oil. If you got it sell it and say it will fix all ailments. As long as the punter believes in it, then the placebo effect will fix the patient.
     
     
    Gold is useless, it always is, always has been. Only thing I have seen Gold used for in Ernest is in Satellites.
     
     
    I have stacked both Silver and Gold and I hate the fact that I have to to protect my wealth and maybe make some money.  
     
    Gold and Silver in my humble opinion, and I only qualify this as such, is being suppressed actively by Central Banks. In Americas case, it has to be done, else the cover is blown on the fact that inflation is higher than stated. If Gold and Silver for that matter actually represented the true value of the Dollar, through price discovery, then I think that this conversation would be null and void.
     
    I was only reading today about Zimbabwe, the only way they could fix their hyper inflation problems was by adopting the Dollar. Imagine what would happen world wide if the game was up for the Dollar. All prices world wide on all products, commodities ans assets would need to be rediscovered in a different currency. This would be a major world wide disruption.
     
     
    Gold and Silver will go up in value, the suppressors will let it rise, in a reasonable amount, in a reasonable amount of time. You will not wake up tomorrow with silver suddenly jumping to £100 an Oz.
     
    I have to disagree with the author. Gold and Silver are not being let to roam free and a true price has not been discovered. Too much Central Bank intervention is muddying the price. In some respect I am glad that the price hasn’t been discovered because if the day comes when it is realised on mass by the populous then I think that this would be the end of the current Fiat currency crisis and even worse the end of the dollar being the reserve currency.
     
      

    • “I was only reading today about Zimbabwe, the only way they could fix their hyper inflation problems was by adopting the Dollar.”
       
      At one time, the Zimbabwe dollar was printed to extinction, hyper-inflated, and died as a usable currency.  When that happened, people were trading goods in US dollars and in EU euros dollars.  That was back in 2008-09.  Not sure what has been going on there lately, other than that a lot of people there are scratching and panning for a few gold flakes to buy food.  Theirs is an absolutely failed country and every bit of that failure can be traced right to the incredibly poor economic policies of Robert Mugabe.

    • In the news today the Zimbabwean gov’t is down to their last $217.  Sad fact is that is $16.4T more than the U.S. gov’t has to its name.
       http://www.guardian.co.uk/world/2013/jan/30/zimbabwean-government-bank-balance-down

  16. You guys NEED to read this blog:

    http://www.usagold.com/goldtrail/archives/another2.html

     
    The ‘discovered’ price of gold was approx $35,000 back in 1998.
     
    @ulgydog – yes. Only discovered this blog recently after becoming disillusioned by the ‘experts’ and needed to find the real story. http://www.preciousmetalspete.com covers it as well in a compacted manner ie easier to read lol
     
    Date: Mon Feb 16 1998 14:40 
    ANOTHER (THOUGHTS!) ID#60253:
    We will have a “change of events”, please read,
    “The Time Is Right For A CHANGE OF EVENTS”!
    They traveled a long road to get here. Back in the early 70′s they ran out of gold after printing too many dollar commitments. If they couldn’t use gold anymore, what else could be used? You know and I know that the buck would have been dumped real fast without something behind it! All the talk back then and now, “everybody’s gona hold the greenback because of the USA economy and it’s military might”, yea, right. Didn’t see any coverage on the TV, showing the behind the door financial rooms. Truth was, everybody was going to move straight to the hard currencies and gold! Dam the effects on the world economy, figure that out later.
    But, look here, the oil states said, “we will settle all oil payments in US$” ! Buy the oil in any currency and rate, but when you make the check, dollars please. The US agreed to float gold up to $250 if they went along. At that time, oil agreed because they held a hunk of gold in the NY fed bank valts. Looking at it back then, 250 looked to cover anything! Well , anything happened and the Carter had to slam gold in 78 when it crossed 250! Guess the US thought oil would just stop buying gold with excess cash, per the “agreement back in 71″. Anyway, the rest is history through the 80′s. Everybody learned to “love the dollar and hate the Russians”!
    Everything changed in a hurry during Desert Storm. Remember how gold got hammered, big time! War in the oil fields and gold down? Looked good on the TV news, “America is winning, the dollar is good” Gold? No need! Here’s what really happened.
    In a very real way, the US dollar was inflated so much that even oil couldn’t back it! Yes! The US ran through the gold backing in the 70′s then went to a much larger oil backing in the 80′s. But, even oil couldn’t contain the huge expansion of dollar commitments that were created by the early 90′s. Back to the drawing board. This time the US had to add gold to the oil backing mix, if the dollar was to remain on top!
    A little political thought first, then we continue.:
    Do you really think the US is the only country that will stand a military in the oil fields? What if they told the US, NO, we want someone else to defend us? You think there are no other takers? The truth is, everyone is lined up to offer defense. The price of “oil backing the defenders currency” is worth almost anything! All the deficit spending you want, goes to the defender! Even Russia, if you can believe it! As my friend would say, “you think long and hard on this”!
    Now, back to gold. The deal: you may stand your army for us, in return, ” oil will back the dollar, if the dollar is made strong by gold” “in as much as our people may replace the lost value of oil with gold” “in as much as we will produce oil in amounts to equate a gold/oil/dollar ratio close to that which existed at out previous agreement in the 70′s” And, pray tell, how does the USA make the dollar strong in gold ? The BIS leads the creation of a paper gold market that will lower the world price of gold to the extent that it remains above “production costs”.
    Guess what, it worked! Contrary to all expectations of oil shortages, inflation, debt collapse and what have you, It Worked! But, there is one small problem?
    The BIS and other various governments that developed this trade ( notice I didn’t use conspiracy as it was good business, as the world gained a lot ) , thought that the paper gold forward market would have allowed the gold industry to expand production some five times over! Don’t ask where they got this, as they are the same people that bring us government finance and such. But, without a major increase in gold supply, the paper created by this “gold control operation” will either be paid by, 1. new supply. 2. the central banks. 3. rollover existing. 4. cash? 5. or total default! As the Asians started buying up everything last year ( 97 ) , number 5 and 5 started looking like the answer! When the CBs started selling into this black hole of demand, the discussion of #5 started in their rooms also.
    What is really interesting is how gold is being viewed and traded in some areas. Some people are using it’s future “reset price, in terms of oil” as a value discount. In other words, they use paper gold to buy things based on the new oil/gold relationship perceived as a given in two years or less! It is assumed that this proportion of paper gold held by oil, will be converted, no matter what? We are talking, many thousands an ounce here!
    So where are we now? I’m’ not sure! How much gold paper is out there? If you look at the comex ratio of average daily volume to open interest, it’s sometimes around 8. Funny thing that ratio is close to the gold commitments traded in London. Multiply, say 40 million ozs by the ratio of 8 and we get 320,000,000 ozs. of gold. Now, the money is in this gold paper, paid up. Just no gold yet, I think? That’s about 10 tons, I’ll be dam! That’s a lot of IOU gold, don’t you think? Add to this, that between the IMF and what CBs could sell, only about 1/3 of it is available at a much higher price, if at all! Then again, I’m not in any position to know this, am I?
    Wonder if anybody else knows or thinks this? Sure could mess up a sweet deal for the world economy. Does anybody have a plan, a currency plan, if things change? But, then again, just like in the early 70s, nothing changes. Does it?

Leave a Reply