Will The Real Fraud Please Stand Up?

Jeanne D'Arc successfully typecast me as being the philospher here, here's an update on my investigation of the metals markets.

Last week, the Wynter Benton copywriters appear to have taken on a new project by taking on the guise of 'ANOTHER', infiltrating the FOFOA comments thread. Unfortunately for them, FOFOA is pretty sharp, recognising their true colors from the very start, and quickly sent him packing . Regardless of the motivations or intent of the FakeAnother, the imposter followed a pattern common to most cons:
  1. Locate a group of people and identify their area of interest.
  2. Establish some form of credibility (real or imagined), using any available technique.
  3. Refuse verification and discussion of key topics, using various run-arounds or ambiguity.
  4. Inject an ideas stream using credibility, while it lasts.
The payload for delivery seemed to be the old 'china is buying lots of metal' meme.

"The identity of your Big Trader matters not, do not concern yourself with speculation of events past. It was China! and it still is China. PAGE, the backdoor into the Treasury and now the LME. Yes, China holds a very strong hand and it grows stronger." [link]

The key to the imposter identification is the brush-offs regarding any authentication challenge. I won't go into it because it's yesterday's news already but for a while I wallowed in the beautiful ironic possibility that perhaps ANOTHER had broken his long silence and was chased away by the faithful. There is also still the chance that ANOTHER was an early Wynter Benton, but I won't advance that concept for obvious reasons (only to say that I'm intrigued by the possibility at a philosophical level). The trouble for anyone wanting to debunk the freegold thesis is that they must debunk a large body of resesarch which (to date) has generally held up against much scrutiny.

I don't think Martin Armstrong succeeded in debunking freegold theory. Many folk (including myself) have been writing Martin to get him to investigate the Freegold thesis, simply to see if the concept has merit in the context of his economical understanding. His recent essay titled 'The Truth About Gold & Why You Should Buy It!' disappointed me in general (pdf version). Originally I tuned out long before page 19, but Kid Dynamite made me take another look.

Martin writes: ".. The first statement I was hit with was how the investigation would uncover that mythical person who sold in effect PAPER STOCKS they did not own to force the market down. I asked how is it possible for any short to ever outnumber the longs? If at the time he borrows shares from a long and sells then to another person creating a second long, how does he outnumber the longs? He is at best outnumbered two-to-one. Now let’s take futures or naked shorts in stock. In order for some player to sell, there has to be a buyer. Everything is always evenly matched. So again, neither side can out-number the other." (page 21).


This old chestnut. It's a criticism of the 'paper gold' theory, that somehow the amounts of paper gold in circulation don't make a difference. Perhaps he hasn't read Victor's essay about Alice and Bob, but one of the best things I've learnt over the last few years is from Brian O'Flanagan - basically that if you lend something then you don't own it. More difficult in the case of naked shorting, where the owner doesn't know that the underlying security has been lent. So on their books, they will have an asset (long) and one someone else's books, they also have an asset (long). Isn't that fraud? In the meantime, the other longs have capitulated and sold off their asset because the value apparently took a nose-dive because apparently the market was oversupplied. False signal, you should have known better, etc, etc. right. Net-neutral, 'it's just trading', Yes, sure, but it's legitimate in the same way Martin Armstrong boasts (in the same paper) about how he helped the arabs side-step the religious definition of ursury, by implementing a different form of rent-seeking (thanks Martin, for your contributions to society).

I did a whole bunch of study and came up with a flowchart of how the market works. I know the diagram won't win any awards, but I also doubt it can be refuted, even by Kid Dynamite ;).



Notice here, that the market activity is all net-neutral, as is the original stock of dollars, and that the final result the same regardless of what takes place in the black box. As simple as it is, this is my current theory and understanding of the metals markets. This effect can (and does) occur regardless of whether the ETF's have all the metal they claim (which I'm absolutely sure they do), so when we are pursuing a definition of fraud, are we not required to get a better definition? Are not the concepts so deep and intertwined in our complex modern society that it requires a better definition (of fraud) than just postulating that the ETF's have no metal, or asserting that China must be buying up all the bullion? At my local bullion dealer's waiting room there were photocopies of an article by Jason Hommel stating a case for silver over $150/oz in a few years. I didn't even look at it, but I did wince. Last time I checked, JP Morgan hasn't crashed despite the MANY MANY ounces of physical silver which have been sold to the market since the idea got floated by Max Keiser and all the rest (so that particular idea must be bullshit, but who will admit to it?).

In the same essay (page 22) Martin debunks the PAGE hype (the very thing that the FakeAnother was trying to promote) and to a large degree I agree with a lot of things he has to say. I watch with interest as the heavyweights battle out the argument for hyperinflation, especially since it's not possible for someone to be 100% correct in every opinion. I rather suspect once he takes the time to properly critique the freegold thesis, he will probably have his own 'ahah' moment.

43 comments:

Warren James said...

While editing this post, Martin Armstrong gives an update on his blog, says "... nobody is right 100% from a personal subjective manner.". Spooky. I do like the guy. My personal theory is he'll be a freegold convert within 6 months, as he wrestles with the concepts presented. I don't have a dog in the fight, but if he's honest with himself then he'll take a deeper look.

Marks said...

Armstrong made one great point. Hyperinflation has never occured in a large, core country. This point really made me think. Yes, hyperinflation happened in Argentina and Zimbabwe but these are not large, core countries that are key to the world economy. Same with post war Weimar Germany, not a core country at the time, so hyperinflation was possible.

Armstrong's key point takeaway:
"HYPERINFLATION is possible only in a peripheral fringe economy because the rest of the world around it is STABLE. That allows capital to flee outside the economy helping to create the HYPERINFLATION lacking reserves. When you are talking about the CORE economy instead of the fringe such as Germany in the 1920s or Zimbabwe, it is no longer possible for capital to flee to other nations because there is nothing stable to run to. "

James Turk needs to re-examine his hyperinflationary scenario and explain how hyperinflation is possible in all major fiat currencies at the same time. Against gold this is possible, but I cannot fathom how there can be hyperinflation in multiple core country currencies against one another at the same time. Rather rolling currency wars between countries with high inflation is a much more credible scenario than hyperinflation in all or many major countries.

Kid Dynamite said...

sorry Warren - I can't refute your stick figure flow chart! ;-)

The way the PM Ogosphere seems to be grasping at straws in their hype is worrying from a price action point of view - more desperate nonsense always makes me worry that prices are due to go lower as the pumpers are desperate...

Favorite recent example: The CME recently changed their WEEKLY gold options from cash settled to physically settled.

http://www.chicagotribune.com/business/breaking/chi-cme-to-allow-physical-settlement-for-weekly-gold-options-20120618,0,2975608.story

A few things to note: 1) PHYSICALLY settled means that they settle into gold futures contracts. 2) there is a grand total of ZERO open interest in this product. non event. it failed, so they're trying to revive it. This story couldn't be a bigger non-event.

How does the spin go?

Harvey: "Does this mean that gold investors are finally realizing that there is a cash settlement to the well connected? The weekly option holders want a physical component and not a financial settlement!"

huh? the weekly options holders, of which there are NONE, will now get futures - the very thing that Harvey has been railing for years are PAPER.

How about SilverDoctors?

"notice that a mechanism for physical SILVER settlement was not included in the change. "

lol. I don't think there ARE weekly silver options (although I may be wrong on this...)! that's why an option to change their settlement to SILVER FUTURES wasn't included...

somanyroadsinvesting said...

The problem I have with Freegold thesis is it seems hard to believe practically in the real world.

I dont get much into these back and forths of people making fun of other PM writers and their views on manipulation etc. However, I do find it odd that FOFOA and his freegold theory portends a much higher price than even the craziest mkt commentors out there.

I feel most give him a free pass because of obvious knowledge of economics etc, However, that doesn't mean its likely. I tried some back and forth on their site and you can see their arguments always go back to something that is unprovable(another, FOA comments 12 yrs ago).

Then they give absolutley no framework on timing. Well if it takes 60 yrs and most of us are dead would you really care?

Their whole case rests on the mkt for gold being just a paper price. Yet I have never really read any super compelling piece on this except for the writing of Another 15yrs ago.

Why doesnt FOFOA write a book about it and expose it to the world. My guess is because then he would have to answer a wider field of serious critique and it wold be like proving string theory, sounds interesting but completely unprovable.

Warren James said...

@KD, fully agree about the straw grasping. The metals don't appear to be moving in pace with inflation, which becomes a hard sell, even for a bull.

@SMRI, FOFOA's economic model is one of the best I've seen so far and it explains many observations. But you're right, the fact that the model can't/won't predict timing which indicates that the model is not complete. But bear in mind that we work every day with limited and incomplete models of reality, so that is permissible, and it comes down to how effectively we can utilize that model within our own frame of reference.

@Marks, agreed. Martin & FOFOA at least agree on the importance of preservation of capital. If I could take the best points from each author and have them reconciled then I think that would be a winning combination. Hopefully we'll see something like that in the next six months or so :)

victorthecleaner said...

Kid,

what do you think, how much money can all the Harveys and Silver Doctors move around? $10 million maximum? The daily volume in the OTC gold market is more than 2600 tonnes or about $130 billion. I'd say it is safe to ignore the goldbug cult when you think about the price.

SMRI,

it is my position that anyone who makes a strong claim about timing, immediately becomes suspicious. This is simply because predicting the timing is usually impossible. The fact that FOFOA does not claim to know the timing, preserves his credibility.

Concerning the OTC market for paper gold in relation to the market for physical gold, we have a pretty good estimate of the trading volume.

Annual mine supply is about 2600 tonnes per year or about 10 tonnes per trading day. All other physical gold trading (including recycling) is the trading of the existing above ground stock. How much of this goes through the banks?

Above ground stock is around 150000 tonnes. A lot of this is in artefacts (does not trade), jewellery (trades outside the London market except for a part that's melted down), central bank reserves (unchanged for decades), retail coins and bars (unchanged for decades, a small part trades in the secondary market, but very little goes back to the banks as 400oz LGD bars). What's left is an investment stock of perhaps 20000-30000 tonnes. Some 1500-2000 tonnes are in the ETFs, and we know their inventory changes.

What is the velocity of the stock of 400oz bars held by private investors? It is perhaps turned over once per year although I doubt even that. Even if 10% were turned over annually, this gives only about 10 tonnes per trading day.

So let's say the banks trade 10-15 tonnes of physical gold per day. From the Loco London Liquidity Survey, we know that more than 2600 tonnes are traded OTC each day. That's quite impressive, isn't it?

Victor

somanyroadsinvesting said...

Victor said:

"it is my position that anyone who makes a strong claim about timing, immediately becomes suspicious. This is simply because predicting the timing is usually impossible. The fact that FOFOA does not claim to know the timing, preserves his credibility."

In my readings of the trail they certaintley came across as EXTREMELY confident w emphasis that after the Euro was established that the dollar system would begin to collapse. I don't remember seeing a date but I got the sense we were talking about yrs not decades.

My pt is if you are predicting something and can't narrow it down to at least 10 yrs then the prediction becomes much less useful.

If the whole price is completely paper related then I would think this should really scare you because if it has gone on this long I see no reason why it can't go on forever. Its like they are shorting a stock because they think its running out of money but they refuse to analyse at what pt the company will burn through all the cash.

Kid Dynamite said...

Victor - you wrote: "what do you think, how much money can all the Harveys and Silver Doctors move around? $10 million maximum? "

ohhh no... Look - these guys are positively not THE driver of silver/gold prices, but look no further than retail transactions in the metals for an idea of exactly how big this snake oil scheme is...

Look at Sprott's funds... look at small size coin/bar sales from all over...

as Warren noted in the piece:

"At my local bullion dealer's waiting room there were photocopies of an article by Jason Hommel stating a case for silver over $150/oz in a few years. "

that's what I'm talking about - the entire retail industry - it's the greatest scam going. A problem is that even some of the dealers don't know - I have a friend who is a bullion dealer and numismatist - he's actually big time - and even he forwards me ridiculous paranoia from the Metals Mafia asking "is this real?"

and no - it's still not THE price driver, but it does matter.

Mostly I feel bad for the people who find blind religion in the lies they are being fed by those purporting to help them see the light while explaining that everyone else are sheep... these "newly enlightened" then get fleeced as they form a new reality for themselves where every selloff is a cartel manipulated scheme to extend the paper ponzi world, and they can't escape their own Matrix-like reality and get back to the real world - where the simple facts are that if the Metals Mafia can't convince enough people to buy gold and silver, then the price goes down...

milamber said...

KD said,

"where the simple facts are that if the Metals Mafia can't convince enough people to buy gold and silver, then the price goes down..."

KD,

Can you put a timeframe on that comment please? IE are you saying that the retail buyer being influenced by the Metals Mafia is the price driver is is true all the time? Or just post 2002 or 2008? Or some other time period?

Thx,

Milamber

somanyroadsinvesting said...

Not really sure if there is any unique dynamic here. Stock brokers want to sell stock, real estate brokers want to sell houses, bullion dealers want to sell bullion etc. I think on any metric the amount of money from the mass public going into metals is tiny compared to stocks, bonds, real estate etc.

Look Buffett and Fink tells everyone they should be in 100% stocks, i think that is reckless but no one in the mainstream seems to call them charlatans.

Seems like there are always these inter mkt intellectual pissing contests. I used to be a member of VIC many yrs ago(have to submit an idea that the owners like to be accepted). The majority of ideas were and are equity related. Even there some company would come up and people would have these endless threads on how they are looking at things wrong etc. And this was a limited group of around 200 of the smartest fund managers in the world. Just think its human nature, people want to try to convince others that everyone else is wrong and they are right. Its hard to convince people if you sound wishy washy so you have to come out sounding very confident.

Marks said...

Victor, do you know whether the World Gold Council or someone else keeps monthly or weekly "ETF & Similar products" data. WGC apparently only publishes quarterly data for this line item on Table 3 of their quarterly data. Here is link to Table 3:
https://docs.google.com/open?id=0B8M35pDaJTqkakhqbGxFNENRWVE

Kid Dynamite said...

@Marks - the ETFs themselves update that holding data daily

@Milamber - all I meant by that is that without "investment demand" (including the ETF demand that @Marks mentioned), there is a surplus of available gold and silver with respect to demand... Even simpler: industrial use of each metal is in deficit to annual supply.

As Victor's comment was attempting to note, I think, the retail buyer isn't THE price driver, but I don't think the retail buyer in aggregate is insignificant.

Bron Suchecki said...

When you rejig the WGC/GFMS numbers and convert some jewellery demand into investment (many Asians don't buy just because its pretty), this is what you get for 2011:

Recycled Gold - 1701t
Indust & Jewellery Demand - 1839t

Mine Supply - 2839t
Investment Demand - 2701t

On the positive, much of the investment is strong hands.

Bron Suchecki said...

A suggested improvement to your flowchart http://goldchat.blogspot.com.au/2012/06/before-and-after.html

Bosco said...

A couple of points may I add:

1) On MA - He's probably right in that on one single core economy has experienced HI, but that's only true in modern times. China has numerous HI scenarios on record back to the days of say 1000 to 1500 and it was a core economy back then.

2) KD - who cares about industrial demand/deficit for gold, when you have 170K tonnes above ground stock. Your view is precisely that of a commodity guy.

3) KD - you are almost as annoying as those like Harvey, Jason, James Turk by implying that the decade long bull market is just a metal mafia trick. Who freaking know/cares about these mafias in China and India? Perhaps someone in Russia CB has a direct line with Harvey Organ? Give me a break here.

Victor The Cleaner said...

Kid,

I agree that retail demand plays a role, but I don't think that the show is run by Sprott and friends. I'd expect that retail demand depends on how people perceive their economic situation, on what stories are in the news at that time, etc. In Europe, the phases of strong buying are probably completely different from those in North America - not to mention Asia.

An interesting idea came up at FOFOA's: The gold price in rupees seems to play a major role (more so than the silly comments by their FinMin). In some sense, the Indian trade and capital accounts and their balance of payments make that country a huge levered hedge fund that holds physical gold on margin and that keeps levering up further.

In that sense, their FinMin is perhaps not that 'evil'. He is just calling for a little prudence. Remember, if you trade on margin ....

Here is FOFOA with more on details on India:

http://fofoa.blogspot.ca/2012/02/indias-gold.html

Victor

Marks said...

In regard to India, my take has always been that Indians prefer to wear their bank accounts around their arms, fingers and necks. This is especially true for rural India that is dependent upon agriculture, and have a mistrust of banks...

Disagree with Bron when he says that this gold jewelry is in strong hands, believe it is rather in very strong necks, fingers, and arms...! :)

FWIW, I like to follow India monsoon season and always hope for plenty of rainfall to ensure good crops and thus gold demand from India. Here are some links:
http://www.imd.gov.in/section/hydro/img/seasonal-rain.jpg
http://www.imdpune.gov.in/mons_monitor/all-India.gif

Monsoon is running about 10 days behind schedule this year, but appears rainfall should be around normal again this year:
http://www.imdpune.gov.in/mons_monitor/mm_index.html

Marks said...

At the Mint Directors Conference - Conference of 46 Central Bank Mints in May 2012...
____________________
As I noodle this through, think US Government may well allow gold as a currency for transactions/buying things, as long as it is e-gold such as a GoldMoney account that uses a debit card… Really should not matter to US Government, as long as the revenue and expense are recorded and 1099’s sent for the revenue. Now the US Government may well want to ban gold coins being used, as this could still be part of an underground economy, and not reported. But using e-gold is certainly feasible, and would be similar to Ron Paul/Hayek proposal-position regarding competing currencies. (Note, IRS would still want to tax capital gain on gold, and goldmoney would have to use FIFO basis to calculate this gain, but entirely feasible with today’s computer technology). And yes, I am conveniently ignoring the Big Brother and privacy issues.
___________________

ROSS: That was kind of one of the plans that was floated. And if I could change gears for just a moment, Jim, one of the things that has been popping up and has been talked more and more about that is now coming into play is not even so much even printing currencies, it’s having electronic money. And at each of the mint conferences in the last 10 years that I’ve been privileged to attend, the electronic currency where your currency is put onto your smart phone; they’re even now printing up money that has a computer chip where you can download monies. And looking at the demographics; now, people of your and my age we like to have our billfold in our pocket and we like to pay in cash; we like that anonymity that comes with paying in cash. But the younger generation, especially in Europe and now in the United States, they don’t like cash; they don’t like to carry cash. And the mints are responding to that by developing all kinds of electronic currencies. And we saw graphs and talk about how most of the paper currencies and the coin currencies would be a thing of the past by 2025 or 2030 and it would be almost all electronic money for the convenience. And some of your younger or more techno-savvy listeners may know that you can now pay with your smart phone, you can pay with other electronic means. So that’s where it’s moving. And what that means for my industry is a lot less money is being printed, both coined and printed.

And the reason that this trend is making governments happy is that would give governments more control and it would also capture the underground economy. There was a tremendous amount of talk about the additional revenues these countries would capture and would help their economies and their struggling deficits by taking somewhere between 10 and in some places 20 and 25 percent of the economies and putting them back into play for taxes because you have places like Spain where they estimate up to 40 to 50 percent of the economy is underground. So if you have to deal with electronic currencies, there would be no hiding any of these revenues. And it would also give the government great control because they could merely shut your chip off if you fell out of favor. There were lots of smiles with people in the know. [10:48]

Bron Suchecki said...

Interesting, how did you get hold of that?

Marks said...

Bron, added you to my Google+ circles, check your messages for full article.

FWIW, our friend Eric Sprott also plans to start offering an e-gold type bank.
http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/sprott-makes-a-bet-on-a-different-kind-of-bank/article621430/
http://www.canadianbusiness.com/article/54869--an-ancient-idea-for-a-brand-new-bank

Kid Dynamite said...

@Bosco:

"when you have 170K tonnes above ground stock...."

yes - of course- that's even more in favor of my side of the argument about supply/demand. I was just pointing out that even if ZERO of those above ground stocks decide to sell each year, there is ALREADY a surplus.

and no, as I noted, Harvey Organ and his band of morons are not the driver of the gold or silver price, but if you think that the purchasing power of the collective Metal Mafia doesn't matter, I think you're missing a big piece of the puzzle.

ps - Please don't EVER use my name in a comparison to Jason (I assume you meant Hommel) again... ;-)

milamber said...

@KD

Thanks for the answer. A follow-up if I may. You wrote,

"...there is a surplus of available gold and silver with respect to demand."

Taking silver out of the picture and just focusing on gold, of the 170K Tons of above ground “surplus” gold “that's available", why don't we ever see the vast majority of it move?

If it is truly available and subject to the same supply/demand arbitrage as any other commodity, wouldn't we see more movement in the above ground stocks?

Also, is there any other “commodity” that behaves in this manner?

Thanks,

Milamber

somanyroadsinvesting said...

Bron thought your recent interview with FSN was informative. Would like to hear more about these issues.

Thanks

Kid Dynamite said...

@milamber -

sorry for the confusion - I was simply speaking about the gold version of this table (which I can no longer find at the moment!) for silver:

http://www.silverinstitute.org/site/supply-demand/

above ground stocks are something completely different, and yes, gold is unlike other commodities in this sense. However, these ample above ground stocks don't really help the supply/demand argument, as they are, at some point, what constitutes massive additional supply (impossible to measure when/where, of course, which is why it's kinda futile to debate that part of it)

Bron pointed out recently, contra more snake oil from Eric Sprott, that the price at which this above ground supply becomes available is really the determining factor in gold prices once demand exceeds annual supply from "regular" sources like mining and recycling, etc...

http://goldchat.blogspot.com/2012/04/student-of-physical-market-demand.html

milamber said...

@ KD,

Thanks for answering the followup. If you would indulge me further, I have a few more questions & would love to get your (and any other gold trader's) response.

“above ground stocks are something completely different, and yes, gold is unlike other commodities in this sense. However, these ample above ground stocks don't really help the supply/demand argument, as they are, at some point, what constitutes massive additional supply (impossible to measure when/where, of course, which is why it's kinda futile to debate that part of
it)”

Can you explain *why* gold is different? Why it is impossible to measure? And if you have already covered this on your blog, just point me to it & I’ll shut up :)

I am new at trying to understand the gold market, but in looking back to 1999 (when the WGA came in force) I find it odd that in a market where the price of a commodity has gone up from $300 to $1600, existing above ground supply has not mobilized to meet demand to keep the price down.

I always approach markets with the understanding that the cure for high prices is high prices. But that doesn’t seem to apply to the gold market. I would love to hear your speculation (as a trader), Why?

If my facts are correct, here is a rough break down of above ground gold supply (In tons):

World Official Reserve Holdings 31,282

Non official holdings 138,718

Any idea who owns that 138,718 TONS of gold? Weak retail or strong hands?

If a price move from $300 to $1600, doesn’t shake that gold loose, what will, In your opinion?

“Bron pointed out recently, contra more snake oil from Eric Sprott, that the price at which this above ground supply becomes available is really the determining factor in gold prices once demand exceeds annual supply from "regular" sources like mining and recycling, etc...”

Yes. I read that. But where is the bulk of the demand coming from?

Retail Investors being whipped up into a frenzy by the Metals Mafia?

Or strong hands steadily accumulating?

And at what price will this above ground gold get mobilized? I have to think that if I was a gold trader, the answer to that question would be very, very important.

Thanks for any and all thoughts!

Milamber

GM Jenkins said...

Good questions milamber

And at what price will this above ground gold get mobilized?

I think I've got a good handle on this one. It will start getting mobilized when KD starts trading in his chickens for eagles ;)

Marks said...

Am trying to determine the math between Victors numbers and the numbers used in the LBMA Survey Table 1. Victor's comments:
"So let's say the banks trade 10-15 tonnes of physical gold per day. From the Loco London Liquidity Survey, we know that more than 2600 tonnes are traded OTC each day. That's quite impressive, isn't it?"

If I use the 173,713,000 ounces London Daily Average and divide this by 32,151 troy oz per tonne, then I get 5,400 tonnes per day rather than Victor's 2,600 tonnes. Is this correct, or where did I go wrong in my calculation? (Is this because half are buys and half are sales, and thus 5,400/2 = 2,700?)

Also, can someone explain how one gets from the 1,183,459 LPMCL Clearing Statistics to the 173,713 London Daily Average and/or what the difference is between these two line items. Thanks!

Bron Suchecki said...

Milamber, if I knew the answer to "at what price will the above ground gold get mobilized" I wouldn't be working as a Govt employee at a Mint and would have retired by now.

It is impossible to measure because the majority of gold is traded over the counter and not on exchanges.

The reason high prices don't moblise above ground supply is because gold is monetary.

There is not other commodity that behaves in this manner. Any commodity with around 60 years of annual new supply above ground would have a price close to zero.

Kid Dynamite said...

@milamber:

"But where is the bulk of the demand coming from? "

well Victor's point in his initial reply to me was that no - the bulk of the demand is certainly not retail investors swayed by the Metals Mafia. I agree, but I my point was simply that the retail component is non-negligible.

as for at what price all that above ground gold is for sale?

impossible to answer... We could ask the same question about all of the MSFT shares in existence, although it's possible to at least put some sort of valuation on MSFT shares. That exercise is much harder for gold, of course...

I think that a lot of the gold is increasingly held as an asset class: not central banks, not retail, but big money: you see it with Kyle Bass and the Texas retirement fund, with Einhorn, Loeb, and all of the other hedgies that own gold...

for a fun exercise, ask yourself this: how does a VALUE investor like David Einhorn make gold one of his largest positions? my answer: he thinks he can sell it to someone else at a higher price, of course. What that price is, though, I wouldn't dare guess at.

The Big Setup said...

Kid, are you basically suggesting that I trade in my $250 purchased Gold and $4.50 Silver ( My purchase price NOT KIDDING) for fiat? Bottom line, its better to hold fake fiat?

Kid Dynamite said...

@TBS - huh? if you're holding gold now, you're not buying it at $250.. you're buying it at $1570... and you're not buying silver at $4.50 - you're buying silver at $27...

Maybe you want to do that - I have no idea. I don't though.

ya know, I owned silver too - not from $4.50, but from $7, $9 and $11... a crapload of it... but just the "paper" kind - SLV... when it ripped to the moon last April, I sold it...

This thread is neither the time nor the place for me to debate the "Realness" of fiat, but gold/silver are no more "Real" than Fiat, oranges, or sea shells are.

I will make one claim, though, just to give some people some more crap to argue with: SILVER will not be a part of any monetary system at any (FUTURE) time during the life of anyone reading this today...

/SleepingVillage/ said...

Haha, KD! I'd have to fully agree with you on the silver thing. Sold my silver around the same time as you, got me a few free ounces of gold in the end:)

Fiat is as "real" as it needs to be for transacting. It's made of paper/plastic or electrons and it's easy to carry around and stuff. Yep, it's real:) If you save in fiat, you may have a "real" revelation one day, though...

Kid Dynamite said...

@Sleeping Village:

you wrote:

"f you save in fiat, you may have a "real" revelation one day, though... "

indeed. that is possible. I

it's also possible that your "real" gold "savings" will lose 80% of their value...

I find it hilarious that (some) goldbugs don't want to own stocks because of the possibility that they might decline in value. That's absolutely a true possibility - and it's the same reason why others don't want to own gold!

Warren James said...

Hey KD, I also agree with you on silver/monetary thing (that's an easy bet).

The bet surroundingregarding the better store of value - that's subjective and the situation evolves. From where I stand for this financial year, my stocks are down 60% (yeah, I'm a muppet), but gold position is still strong, regardless of the price weakness.

Are you suggesting gold is ready for a terrifying slide?

Kid Dynamite said...

Warren -

stocks down 60%!?!?! ahhh - you must own gold miners... *gulp*

am I suggesting gold is ready for a terrifying slide? No - not at all. Just that gold is not infallible, and, despite GM's new post about it's "intrinsic value," it has the potential to tank just like stocks do.

I have zero interest in getting into that whole *intrinsic value* debate again, but I'd rather own PRODUCTIVE assets (that's what Buffett was talking about, remember?)

seriously - I'm not going to argue this point again here -you can see my comment thread on it if you're interested, but I think you already followed it (as did GM)...

http://kiddynamitesworld.com/buffett-waxes-poetic-on-gold-and-other-asset-classes/

GM Jenkins said...

KD - gold's intrinsic value is its intrinsic value! [...hit from bong...] Think about it man! Maybe one day you'll join us, and the world will be as one.

Warren James said...

No gold miners ... check out ASX:POK (formerly ASX:TRH). A potash miner with massive upside potential, but a sad story if you bought last september like I did. Anyway, I've been blooded.

KD, with your statements about silver and call for a potential collapse in the gold price you are closer to freegoldianism than you realise. Join us, and we will rule the galaxy together as father and son (no wait, that's a movie, sorry). GM, what did you load in this Shisha?

Kid Dynamite said...

Warren - Sorry about your loss in POK. Hopefully, you didn't invest Metals Mafia style with 100% of your net worth in one idea..

ps - YOU ARE NOT MY FATHER! NOOOOOOO!

Jeanne d'Arc said...

(Great discussion, post, etc.)

Oooh - there's nothing like a bit of Star Wars to drag me out of retirement... I've been thinking quite a lot in those terms a bit recently, what with Turd's and others' obsession with the Evil Empire and all. Classic 'good versus evil'. The trouble is, everyone thinks of themselves as the Rebel Alliance, and those who have a different view are labelled as the Sith. And once labels are applied, then rational debate quickly dies.

I feel a bit of a flippant post coming on about this... @Warren: Any chance of a helping hand with the pictures...? ;-)

milamber said...

Bron Suchecki said...

"Milamber, if I knew the answer to "at what price will the above ground gold get mobilized" I wouldn't be working as a Govt employee at a Mint and would have retired by now.

It is impossible to measure because the majority of gold is traded over the counter and not on exchanges.

The reason high prices don't moblise above ground supply is because gold is monetary.

There is not other commodity that behaves in this manner. Any commodity with around 60 years of annual new supply above ground would have a price close to zero."

Bron,

Sorry for not responding sooner. I was going to, and I simply forgot, and then I had to wait to wipe the beetle's turd off my feet & then stop laughing at the http(s) Silveratti Clone Wars that have sprung up. :)

I would like to draw you out on your comments above, but from a different perspective.

“It is impossible to measure because the majority of gold is traded over the counter and not on exchanges.“

Based on your comments above & what I have learned from your blog, is that a good ballpark figure of gold flow is 2000-3000 Tons annually. And that the Perth Mint does roughly 300T of said gold flow. Is that correct?

Assuming the numbers are ballpark correct, with an above ground stock of 150,000-170,000 TONS of gold, doesn’t that allow us to measure the trading flow? IE if I throw those numbers in Excel I get a flow of .0176 percent to .02 percent.

Aren’t we then able to conclude that 99.9% of gold Is not moving? That is, as FOFOA writes “it stays very still”?

“The reason high prices don't moblise above ground supply is because gold is monetary.”

Can you clarify what you mean when you say "monetary"? That word can have lots of different permutations depending on context, and I am unsure what you are meaning here.

If you are meaning that gold is monetary (IE gold standard view, gold is a currency, etc) Wouldn’t it be more logical to view the vast majority of gold as a wealth preserve as opposed to “monetary”. What I mean by that is the US Dollar is “monetary”, but it flows like crazy. Granted velocity has come down, but the dollar is certainly no where near as quiet as the 99.9 percent of above ground stock doesn't trade.

“There is not other commodity that behaves in this manner. Any commodity with around 60 years of annual new supply above ground would have a price close to zero.”

Absolutely. And I am thinking that the fact that 99.9 percent of that above ground stock doesn’t move is the key to understanding golds role as a wealth preserve as opposed to being "monetary".

Thanks,

Milamber

Anand Srivastava said...

milamber:
I don't know if you will read this comment but all the above ground gold cannot be mobilized for any amount of money. Because it doesn't make sense. It is mobilized only when the owner needs money. Its not mobilized because it is expensive.

This is one of the very basic difference between gold and other commodities.

Actually all of the gold in the world will be mobilized if it became common knowledge among the large stock owners that it is about to become worthless. This would happen when we find an synthetic way to create gold.

If we discover an asteroid with millions of tons of gold, will still not mobilize this gold, but it would decrease the value to a fraction of current value. But once the extra gold is absorbed the value will rise once again though not anywhere near current levels.

Blondie said...

"...at what price all that above ground gold is for sale?"

For the bulk of it, no price.

milamber said...

Anand & Blondie,

Thanks for the replys.

My question was really for the traders "gold is a commodity" mindset folks. As someone who looks at physical gold as "payment received, counter party irrelevant", I am trying to understand the mindset of gold traders.

The fine folks at Screwtape, Bron (who is not a trader, but who has to sell product in response to a price set by traders), KD, etc who "trade" gold, do it when there is a 60 yr oversupply hanging out there. How does one factor that into one's mindset when trading gold? Or do you just ignore the 99% of the stock that sits very still, and focus on the 1% that moves?

Milamber