Monday, August 29, 2011

Treasure Chest 2 – Game Changer

Thank you to everyone who donated in support of continuing this blog for a fourth year! Donations were rolling in last Tuesday pretty much on par with my other two fundraisers. But then on Wednesday, with the $100 plunge in the price of paper promises of future gold, the flow of donations pretty much dropped off a cliff. So I'd also like to thank the CME for messing up my fundraiser. Thanks a lot, CME!

As I've mentioned in the past, one of the best parts of fundraising for me is the comments I receive from supporters. In some cases, people take the opportunity to ask me questions after I send them a thank you note. One of the most frequent questions I get has to do with converting individual retirement accounts (IRAs) into physical gold. I also get questions about how best to buy and store physical gold in amounts that are too large for the sock drawer. And people often ask me what I think would be the "second best option" to physical in your immediate possession.

These are all related questions and they are some of the toughest to answer from my hard-nosed "physical in your hands" perspective. Other similar questions I have received are what would be the best way for a managed fund (say a Trust) to invest in physical gold outside of the banking system? I have one reader who is an investment banker for banks. He finds investments for actual banks. He asked:
Do you know anything off hand about the gold rules for banks chartered in the USA? I've had more than a few clients tell me their Boards are proposing gold buys for their banks since they can't get out of their illiquid equity position.
I have another supporter who is a registered investment advisor (RIA) who just left a big firm to start his own. His client base includes a lot of friends and family and he wanted to know what I thought was a good way to move people into a gold investment that would fit the FOFOA outlook; and these are people with large 401Ks that have never even considered gold as an investment. Poor guy, an RIA who happened to stumble upon FOFOA and then realized he had his friends and family's money in the wrong stuff. What he really needs (business-wise) is some kind of true physical investment platform he can offer that will also pay him a commission to keep his business going.

I have a doctor with a lot of physical gold who wants to buy something on credit. He asked me, if you've put your savings into physical gold, what do you show the loan officer to prove you have assets? I constantly have people asking me what I think about CEF, GTU, PHYS, GLD, GoldMoney, Bullion Vault and others as an alternative to physical gold in your immediate possession. And I really struggle with all these questions because I don't like to give out financial advice. I'm not a financial advisor. In fact, I don't give financial advice other than telling people to avoid the gold dealers that advertise on TV because they'll try to sell you high premium numismatics that you don't want. That's how they can afford TV commercials.

The point is that the A/FOA/FOFOA view leads to one conclusion. You want to own actual physical pieces of gold, preferably stored outside of the banking system. You don't want to own shares in a pool of gold, or shares in a bar. If you've got enough for 100 ounces, you don't want to buy a quarter share of a 400 ounce bar. You either want your own 100 ounce bar or, preferably, 100 one-ounce bullion coins. It's a pretty simply conclusion, but it makes answering the questions above kinda difficult.

On July 2nd, Joe Y. sent me his second donation. I thanked him by email and he wrote back:
No, thank you.

I am in the process of walking away from being a successful cog in the Wall Street Machine to join a new gold company involving some big names as well as partners at some major wall street powerhouses. If it weren’t for the hours I’ve poured over your writings there is no way I would be on the precipice of this awesome opportunity. I must have spent well over 100 hours reading your stuff over the past few years and it’s been quite a ride. Thank you! I am walking away from selling one manufactured wall street product after another to help build something I truly believe in. Something that will help people through what’s coming. It’s an enormous, exciting undertaking and the reading on your site has played a not insignificant part.

Warmest Regards,

Joe Y.
I thought that was pretty neat. Well, Joe sent me another donation for my blog birthday on Tuesday and included this note:
I’m finally starting work at the gold company in two weeks, and I owe a great deal of this decision to your writings. Thank you!

So I asked him about the new company (emphasis mine):
It's, or GBI.

It is essentially an open architecture platform that allows people in the financial community to buy individually allocated gold in the form of their choice, stored at the facility of their choice (NY, London, Zurich or Salt Lake City), deliverable at the time of their choosing. All independent of the financial system. Trades are executed on a best price basis, and can be processed at up to 30,000 trades a minute. In reality, it’s the world's first physical metal electronic exchange.

We've already had one major national firm sign up and we’re currently working on bringing on more. Bullion sales through our platform have been growing every month and August was almost a double from July, it’s really exciting.

I believe this is the next step, allowing retail brokerages to buy gold for their clients, real gold, not paper gold. My hope is to take billions of physical off the market in the coming years.

I’m very excited about this opportunity to grow a firm for a cause I have a deep conviction in, thanks in large part to you.

I could chat about this all day, so if you have any questions, by all means, fire away.
Costata and I looked over the website and we were both very impressed with the model. We agreed that this has the potential to be a real game changer! One of the first things I noticed on the website was the curious list of investors/advisors: General Wesley Clark, former House Majority Leader Dick Gephardt, former SEC Chairman Arthur Levitt and John Hathaway, who I quoted at the top of my 2009 post All Paper is STILL a short position on gold. That 1999 quote comes from the Gilded Opinion page at USAGold linked in my right sidebar.

Not only could this be a game changer in the physical gold market, but if it's all it seems to be on the surface, it may well be the closest thing to physical possession outside of the bullion banking system that also provides a "transition-friendly" financial solution to all the questions at the top. The significance of this cannot be overstated. And so I had a few question for Joe.

FOFOA: Thanks, Joe! I do have some questions for you, because I have several HNW readers who are constantly asking me about options.

Joe: I’ll do my best, thank you.

FOFOA: First of all, how is this different than Bullion Vault or Gold Money? I think I know, but I’d like to know your answer.

Joe: We are different from bullion vault and gold money in that we do not sell you a “share” of a bar, we do whole bars/coins only. You have the choice to buy gold in whatever form you want. Krugs, Eagles, Pamp Bars, Kilo Bars, all the way up to 400 oz bars but it’s never a share. GBI created this model because we don’t believe owning four ounces of gold that is a part of a larger bar qualifies as actually owning gold. We want clients to own whole bars with zero counterparty risk. We really want to democratize the ownership process. Until now only the ultra-wealthy could order whole, allocated bars, stored in non-banks, audited and insured by a real firm. Now, literally, anyone can.

FOFOA: Is it true allocated storage? Do I have bar numbers on my statement? In other words, am I technically just a creditor of GBI, or am I hiring you to find, buy and store a specific, discrete product for me? And what happens if GBI goes bankrupt?

Joe: The specific bars are allocated to specific clients. If GBI went bankrupt, or if any firm purchasing gold through our platform went bankrupt you are NOT a creditor of GBI or those firms. The metal is held in your name. We have the ability to show serial numbers on statements for larger bars if requested.

FOFOA: What are the barriers to me taking physical possession of my gold? Can I come in and see my bars or coins, touch them, spend some time with them? Say I buy some gold bars through GBI and ask to have them stored in SLC, and then something happens in the world that makes me want to drive to SLC and walk out with my bars. Can I do that and how much would it cost? One concern I have is how variable conversion fees could potentially be used as a deterrent during the decoupling of the unknown value of physical from the known, official paper price of gold.

Joe: Delivery or take-out! We strongly, and I emphasize strongly prefer to deliver the metal to you at a set modest fee plus actual delivery cost, either through UPS up to $250k or armored transport for more. The reason behind this is we store with commercial, non-bank vaults. The issue is that they are primarily commercial facilities. They aren’t really set up with a customer service agent waiting for people to drop in, and they already request 24-48 hours notice before someone comes by, only because if someone “drops in” they may or may not have someone there authorized to even enter the gold vault that may only be accessible by some people at set hours of the day.

That being said, you are free to go to the vault, see your gold and touch it. If you want to take delivery in person there'll be a nominal fixed fee no matter how much gold you're picking up. That's to dis-incentivize those with say 10 coins in storage, but it would be a very modest take-out fee for someone storing few kilo bars.

However, if you store smaller amounts, if you come to look at your gold, you'll have to take it. What we want to avoid as a business matter is every guy out there wanting to stop by and see his 10 Krugerrands. So what we’ll likely do is if you want to see it, you need to pay the fee and take it, or just let us ship it to you. Obviously for larger amounts we will accommodate a free viewing, but from a business standpoint we’d prefer to discourage that so as not to have a problem with our custodian.

The bottom line is clients will always have the ability to have their gold delivered, always. This point is key to who we are.

FOFOA: Would GBI be an acceptable investment in physical for an IRA? I get this and similar questions a lot. Owning physical gold in a "transition-friendly" account can be problematic depending on the third-party restrictions placed on some funds.

Joe: GBI does accept gold through two different trust companies. The IRS requires a trust company to hold the bullion in your IRA. And yes, we do handle trust accounts. I hope that answers your question.

FOFOA: I have an investment advisor that wants to recommend physical to his clients. But it’s hard to make a commission off that. Will you have such arrangements with small RIA’s?

Joe: Yes, yes a thousand times yes. We envision this platform being utilized by advisors and banks, foreign and domestic, to offer gold accounts alongside traditional checking, saving and brokerage accounts. GBI is in discussions with many of these institutions now, and my job is going to be reaching out to more, large and small in this country and around the world. We fully integrate gold holdings into the client statements, and placing a buy or sell order will be as easy as entering it from the workstation at the branch, or of they prefer, a privately labeled web portal for their clients to do real time transactions.

The whole purpose of this platform is to give financial professionals the ability (wirehouse, RIA’s, etc) to provide their clients physical, allocated gold, with live trading and best price execution with storage independent of banks and financial institutions. When I started interviewing at GBI they were up front that in their mind, they were a technology company first. They are on a mission to create the first, most efficient real time physical exchange that can be fully integrated into clients' financial accounts. My job is to market this platform to financial institutions, and at some times, to the advisors themselves. The technology is fantastic, and the platform is extremely user friendly. I placed an order through my own account just to see the prices. They were very competitive and when placed through an advisor will, to some degree at his discretion, depend on how he prices his business.

I gave up a very comfortable job and a great situation to take this position. I truly believe this has the potential to be a game changer. No one does what we do, and as we add more and more firms, I believe the sky is the limit in terms of potential. The growth is really just starting. We are starting to see unsolicited demand from overseas clients, and chatting with the CEO the close ratio on the meetings he’s going on is very high. I believe that’s because once these institutions see what we offer, it’s something they have never seen before, but they’ve been looking for it.

The beauty of our platform is that it’s completely white labeled, in that to an "Acme Financial" client and advisor, it looks like Acme's own program and we’re content keeping it that way. The same would be the case with any client we bring on. We privately brand our platform for any client we bring on and we have the capability of fully integrating it into their systems. There are many applications to hedge funds as well, specifically that we can set them up with their own web portal and they can make real time transactions to buy and sell physical. It may not be how they do their very active trading, but I don’t see why every hedge fund wouldn’t want to buy and custody their core gold position this way. It’s much more simple and cost effective than trying to broker the transaction, transportation, storage and insurance themselves.

I hope none of you think this is an advertisement or a paid endorsement of GBI, because it's quite the opposite. I asked Joe if I could have his permission to write about it. He even asked me to take some of the best stuff out because, unfortunately, it is proprietary non-public information. But I thought it would be easier to write it up in a post than to email all the readers individually who I thought would like to have this introduction. That's what this post is. A DYODD introduction to Joe and GBI.

I have no stake in this company, I have not been paid, and I will not be buying gold through GBI myself. I still recommend taking delivery and keeping your physical in your possession (or at least under your immediate control), but I do understand that this is not always the most practical advice for some of my HNW readers, nor is it practical for some types of funds under various restrictions. So I'm happy to announce that I have finally come across an alternative that I believe rises above the rest in terms of being "transition-friendly".

What do I mean by that? Well, if you take the time to really understand Freegold-RPG, what I write about here, you'll know that getting there consists of three phases: a stasis followed by a punctuation followed by a new stasis. And it is during the punctuation phase or "transition" that I believe we will have a brief period of "peak risk". What risk, you ask? Well, it is the risk that your expected transition gain will be taken (or simply kept) by someone else, and you'll be cashed out at the official, legal price of gold; a price at which no physical can be found at that time. I'm not going to say much more about it here. But as ANOTHER would say, think long and hard on this. [1]

[1] I believe that allocated storage at the Perth Mint would be a comparable solution for restricted money if you physically reside in Australia. But for residents of Europe and the US, I would personally choose the storage facility closest to me. I like knowing that, if conditions suddenly warrant it, I can drive or fly there to pick up my coins or bars for a fixed fee; a fee independent of the size or value of my stash. I would not request delivery, though, during the "transition" while the official price of gold backed by the legal system cannot fetch any actual physical gold. I'd either leave it there with everyone else's (ride it out) or pick it up in person.

But what I found particularly post-worthy about this topic was that we have a true insider at this company! Joe has been reading FOFOA for more than two years now, and that's what gave him the confidence to leave a very nice job in order to pursue a golden dream. And as he said, GBI is primarily a technology company, an electronic trading platform integrated with actual physical off-take, which is why they hired Joe for his physical gold market savvy. To me this is a brilliant opportunity for both him and us. The company is still new enough that Joe's presence there is shaping its structure. My emails with Joe have already influenced company policy. Granted, it was in a very small way (sorry, can't tell you exactly how), but it was beneficial to the durability of this business model from a "transitional" perspective. So yay, it's already more Freegold-friendly.

There are three main points that caught my attention:

1. This business model/trading platform has the potential to be a real game-changer in the physical gold market. It opens a door to a massive pool of potential demand that was previously cut off from the accumulation of physical gold in true, *UNAMBIGUOUS* personal (or institutional) ownership, outside of the opaque and dubious bullion banking system. I could even see this as a good way for all types of corporate entities to hold real gold assets safely through the transition.

As the CEO says in the videos below, it democratizes an important method of physical gold accumulation that was previously a difficult, expensive and sometimes-exclusionary process. It makes including real gold in an investment portfolio by individuals, IRAs, Trust funds and institutions as easy as stocks and bonds. Best of all, for the first time, it gives money managers a financial incentive to recommend unambiguous coins and bars in a portfolio rather than trying to steer clients away from physical gold.

2. It answers almost all of the toughest questions I get from readers and supporters.

3. There's an FOFOA reader inside this company who understands the principles and concepts we explore, and he's in at the ground floor (or close to it anyway).

Here's a video that Joe sent me of Savneet Singh, the CEO, and Peter Custer, the Chief Technology Officer, explaining their new gold trading platform at Finovate last May in San Francisco:

And here's another one of Savneet on Bloomberg last week:

In one of his first posts back in 1997, ANOTHER wrote the following:

"The LBMA problem"

I can now make clear for all to see.

Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.

Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services.

The idea of physical gold sitting somewhere in a centralized vault and only its ownership changing hands is not a new concept. Neither is it an essentially flawed concept. I believe it is perfectly safe today (as long as the wheels stay on this bus) to store your gold with a credible custodian. And I believe it will be perfectly safe, and perhaps even preferable, to do so in the new monetary system of the future. But the time of "peak risk" will be, I believe, that brief period of phase transition between the $IMFS and Freegold-RPG.

It is in preparation for this transition that we want to be holding our gold in the most *unambiguous* way possible. And the most unambiguous way is paid in full, in your hand ownership. But when that's not possible or at least practical, we'd like to own our gold in unambiguous lots (either specific coins or numbered bars) outside of the bullion banks and their opaque networks built upon the flexible concept of ambiguity.

When gold is finally revalued, it will happen in the dark. You won't be able to see it happening on your ticker. And the de facto transfer of wealth that will occur will only flow to specific ounces of physical gold, not to ambiguous claims on some amorphous thing called gold. Ambiguity leads to more people thinking they have exposure to the revaluation than the amount of value there will be to go around. It also leads to the potential for the abuse of claims, since for a brief time the price backed by the legal system may be very different than the value of the actual physical in custody.

During "normal times" this is not an issue. Today, as well as after the transition, if you store $100K in gold you hold $100K worth of unleveraged real money. But it is during this dark, hidden transition that the unleveraged becomes hyper-leverage. ANOTHER wrote:

Our history will read, that persons of simple life, will find they have made the greatest leverage investment ever seen and thought of it as only a small trade. When gold moves from "bottom to top of world currencies", many will find their assets in the "Estate Of Kings"

And here are a few FOA quotes on the hidden leverage in unambiguous physical gold ownership:

Today, physical gold advocates are the real gold bugs as they now possess the real leverage paper players only think they have!


Well, I can tell you that the further we travel this trail, the higher the eventual cash settlement of all gold paper will be and the less that settlement will be allowed to match any "free physical" price.


By holding physical gold you are owning a super leveraged
"derivative" that will be exchangeable against the value of real things at a par level lost to the minds of most investors. Today, physical gold purchased in dollar values is discounting its worth by perhaps 100 times. For us PGAs, that is a leverage worth "playing the physical game for"! (smile)


It is from here that we can understand the awesome leverage contained in holding but one ounce of gold. Here, on this ledge overlooking the entire golden valley, we can see this truth! Yet, it is a revelation to gold buyers as much as a curse on gold industry and leveraged paper investors. They spend their days, consuming their wealth, betting on a price that cannot represent gold until it fails. Destroying all they wait for.

From here, we understand why the current prices for gold do not have any bearing on the buying habits of the major players that walk this trail. As Another has said "The price you know, it be your price, not my price".

It is true, we are buying gold, not to trade for a paper value created today. Rather, to hold it beyond the paper destruction that must come tomorrow. Gamblers, traders and gold substitute players will all witness a colossal shift in world wealth that degrades their holdings. Even as their bet on half the process is proven as a folly very typical in human nature. Only unseeable as it exists.


The leverage today will be in a physical gold position, not any other form of gold ownership. By accumulating physical gold today, we are truly walking in the footsteps of giants; advancing with them as they work thru this singular, long term political move.

In this game of musical chairs, unambiguous, discrete pieces of physical gold are the chairs. Do you have your chair? Or do you own a claim ticket good for a portion of a chair? How will the newly revealed value be distributed? Will those that could potentially keep it for themselves hand over your fair share? Another wrote:

The BIS will not allow the distribution of all gold to settle claims.

And then FOA:

Somehow, the BIS and the major private gold holders know the total claims, as does Another. The Euro group is going to force those claims into real bids instead of just claims!

Again, what do you have? Do you have your chair, or do you have a claim check that's supposedly good for a chair? And when will the music stop? I don't know and I don't care, because I've already got my chair. The greater "precious metals investment" industry has many different products to sell you. This is a big discussion and one that lends itself to a lot of different viewpoints. In reality, it all boils down to risk assessment and your personal situation. But I don't know anywhere else on the net where you'll get more straight talk than here.

So what do you think of GBI? Am I correct in my three points above? Is there anything they could do to make GBI more Freegold-RPG transition friendly? I know that Joe will be following the comments here with great interest, so please let him know what you think.

And if you are one of those who would have supported this blog last week had the market not puked on Wednesday, it's never too late. It's not just about FOFOA's third anniversary. It is a contribution to keeping this blog and discussion forum alive in the hope that others may experience the benefits you have received.

For some it has strengthened their "weak" hands, it has gotten other people out of paper and into physical, for others it has reset their valuation of gold above levels they would have already sold at long ago and for others it has helped to crystallize their thinking about the importance of gold in preserving their wealth.

And it provides a continuing benefit to all of us as a forum for discussion, intellectual stimulation and a place where we can get a confidence boost when the dreck from the MSM rattles our nerves.

Maybe you had an "A-ha moment" as a result of this blog and realized that your small stack of gold may someday have the same purchasing power as an LGD bar at today's prices. If so, then please click on my small, but most definitely *unambiguous* stack of gold coins and make a contribution. Thank you! :)


Tuesday, August 23, 2011


Yay for Forum 1900, but now I have a much more significant milestone for y'all to celebrate. As of today this blog is three years old. I can hardly believe it. Here's what a chart of FOFOA might look like:

The only secret to writing this blog (which is obviously not a secret) is that I stand on the shoulders of Giants. To me, the archives linked over there to the right have been a gold mine. They contain more deep truth than all the books I've read since getting interested in gold and money back in 2008. And in my opinion, they have more relevance to our future than any of the contemporary analysts I read today. And that's because they contain the paradigm for what is unfolding. All I do is test and retest it through this blog.

For the last two years, ever since I first put up the donation button, there are a select few of you that have faithfully and consistently supported me in my effort to continue unwinding complex but vital concepts. You guys (and a few gals) are the only reason I'm still here doing this for free. Thank you! For the rest of you, please click on the three tonnes of gold if you'd like to send me a little blog birthday present and help keep this thing going for another year:

My gift to you for now, until my next big post, is the following. These are my favorite song choices from the last nine months of posts. I call it FOFOA playlist #2. Playlist #1 can be found here.

FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios

From FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios last November, here's 'Boulevard of Broken Dreams' by Green Day. The reason I chose this song was partly for the chorus line "I walk alone" as it relates to FOA's parting words. But I also liked this song because I could relate to the lyrics myself as the Freegold foundations explored here are not very popular in the precious metals community for various reasons:

"I walk a lonely road
The only one that I have ever known
Don't know where it goes
But it's home to me and I walk alone…

Freegold in the Proper Perspective

From Freegold in the Proper Perspective in early December, here's 'Firework' by Katy Perry. A Friend heard this song for the first time and quickly sent it to me as a contender for the Freegold theme song. I agreed and put up a poll at the end of the post pitting Perry against Petty. But Firework was a brand new song at the time and it lost the poll. Since then, many others have come to agree with me and my friend that this song really strikes a relevant chord to those that get what I'm writing about: why you should follow in the footsteps of Giants through a monetary transition. Here's Firework with lyrics:

Focal Point: Gold

From Focal Point: Gold later in December, here's 'We are the Champions' by Queen. Focal Point: Gold is about the game theory concept in which there can be only one winner, and I thought the lyrics fit the post:

"…it's been no bed of roses
No pleasure cruise
I consider it a challenge before the whole human race
And I ain't gonna lose…

Kicking the Hornets' Nest

From Kicking the Hornets' Nest also in December, here's 'In the End' by Linkin Park. Hornets' Nest was a post about the "silver warriors" (hornets) that didn't like my Focal Point: Gold post. Perhaps you remember them; those people that were going to crash the TBTF bank JP Morgan by buying used silverware and bidding it all the way up to $36 per ounce which was the magic price that would bankrupt one of the largest global banks. I thought the lyrics were befitting these toy soldiers:

"…even though I tried, it all fell apart
What it meant to me
will eventually
be a memory of a time when

I tried so hard
And got so far
But in the end
It doesn't even matter

I had to fall
To lose it all
But in the end
It doesn't even matter…

Reference Point: Gold - Update #1

From Reference Point: Gold - Update #1 in January, here's probably the greatest gold-related movie soundtrack ever. 'The Ecstasy of Gold' by Ennio Morricone is a classic from the 1966 film 'The Good, the Bad and the Ugly' starring Clint Eastwood. Reference Point Gold (RPG) is another name we use for Freegold. It comes from an FT editorial by Robert Zoellick, president of the World Bank:

Freegold Foundations

From Freegold Foundations here's 'The Way' by Fastball. I had just finished writing this post and was thinking about some song choices. I play music while I shower in the morning and this song came on. I hadn't heard it in years, but the lyrics really struck me:

"But where were they going without ever knowing the way?
Anyone could see the road that they walk on is paved in gold…


From Indicium in March, here's 'Crazy' by Gnarls Barkley. I guess you just have to really understand what I write about to see how Crazy is probably one of the great Freegold theme song contenders. I ended the Indicium post with this line from ANOTHER: "And gold? You will never know its price. It will stop all trading as it slices thru $10,000+." And as Cee Lo Green said in the song:

"…it wasn't because I didn't know enough
I just knew too much
Does that make me crazy?

Deflation or Hyperinflation?

From Deflation or Hyperinflation in April, the post that inspired 30-year deflationist Rick Ackerman to write a response titled "Hyperinflation vs. Deflation: I Concede", here's 'Wake Up' by Arcade Fire. This is one of my favs of the bunch. Admittedly Arcade Fire takes a bit of getting used to, but it's well worth the effort. I thought this song was perfect for a hyperinflation post (check out the lyrics at the post), but this particular performance at Coachella was even more perfect. It was shot only 7 days before my post went up, and I loved the glowing balls falling on the fans as a visual analogy to FOA's front lawn dump:

The Return to Honest Money

From The Return to Honest Money in May, here's a great live version of 'It's the End of the World as we Know it' by R.E.M. TEOTWAWKI has many connotations today ranging from Mad Max to Mayan Apocalypse. But the way I meant it is the end of FOFOA's dilemma, which is… the world as we know it. That'll be enough! Trust me. ;)

From the Treasure Chest

From From the Treasure Chest in June, here's 'Not Afraid' by Eminem, a must-listen:

Forum 1600

From Forum 1600 on July 18th, the day gold closed over $1,600, here's 'Under Pressure', a collaboration between David Bowie and Queen. I hope that more explanation is not necessary for this one:

Forum 1800

And finally, from Forum 1800 just a few days ago, here's a fantastic Metal version of Ennio Morricone's 'The Ecstasy of Gold' by Metallica:



GLD puked again today.



8/24/11 - Another puke today. Two days in a row. First such cluster since the 2008 lows.

Monday, August 22, 2011

Forum 1900

For Aaron:

Thursday, August 18, 2011

Forum 1800 - Part 2

Monday, August 6, 2001 - GOLD @ $267.20 - FOA: "The result will be a massive dollar price rise in gold that performs over several years, as the reserve function transition politically begins."
Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700
Thursday, August 18, 2011 - GOLD ABOVE $1800

Monday, August 15, 2011

The Long Road to Freegold

On this, the 40th anniversary of the Nixon Shock, you will probably see the video below of Nixon closing the gold window at some of your favorite sites. Most will call it a crime for the purpose of promoting their expectation of justice defined as turning back the clock to the old gold standard. But it may be more instructive to think about this momentous occasion, 40 years ago today, as one of the many necessary—yet painful—steps on the long road to Freegold. So I thought I'd present this same video in a more appropriate context.

Please take the time to understand FOFOA's dilemma if you'd like to grasp the importance and significance of the long-line Trail exhibited below:

FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers. FOFOA's dilemma holds true for both gold and fiat, the solution being Freegold, which incidentally also resolves Triffin's dilemma.

The Last Gasp of the Failed Scheme of Government Price-Controlled Bimetallism – 1896

The Last Gasp of the subsequent Gold Standard – 1933

FDR explains the Bank Holiday – 1933

FDR explains the new US gold scheme – 1933

Birth of the new Bretton Woods Gold Price-Fixing Scheme – 1944

Charles de Gaulle foretells a Bretton Woods gold price-fixing scheme crisis – 1965

Nixon closes the US Gold Window – August 15, 1971

The Euro-Freegold project launches after decades of planning – 1999-2002

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700

Happy Anniversary!




Some of you will remember Lance Lewis' "GLD Puke Indicator" and its nearly flawless record at marking lows in gold. Please review my January post Who is Draining GLD? for a more complete explanation. When I wrote that post I emailed Lance for permission to use part of his newsletter.

Anyway, I just received the following email from Lance:

FYI... GLD Puke Indicator triggered another buy signal last Thursday ...

Last Thursday, the GLD gold ETF fell over 2 percent on the day, but the more important piece of information was the fact that its bullion holdings fell a whopping 24 tonnes (1.8 percent) to 1,273 tonnes.

That 2 percent 1-day decline in bullion holdings triggers our “GLD Puke Indicator” once again (see the chart below), in which one-day declines of over 1 percent in the GLD’s bullion holdings (or clusters of such declines as in 2008) tend to occur at or within days of important lows in the price of gold.

You can read my past discussions of this indicator to see “why” I believe it works the way it does, but the point is that it works. The last time we saw this indicator flash a bottom signal for gold was on January 25th. As you can see below in the chart of the “GLD Puke Indicator”, that signal occurred within 2 trading days of gold’s 2011 bottom on January 27th. Coincidence?

In short, there’s a high degree of probability that the pullback that began last Thursday in gold is going to be a short-lived one and has likely already seen its low with Friday’s low print of $1725.80 in the December contract.



Thanks to one of my readers and supporters, Warren James who posts at Screwtape Files, and his GLD bar-tracking investigation, we now know which bullion banks have custody of the 24 tonnes puked up by GLD. Here's the fax Warren stumbled upon accidentally:

Playing along with the title of my January post, Who is Draining GLD?, I'll add one coincidental observation:

24 tonnes of gold were redeemed from GLD (in London) exactly seven business days after South Korea announced it had purchased 25 tonnes (in London). I'm not suggesting a direct connection, merely making a "flow" observation.


Wednesday, August 10, 2011

Forum 1800

H/T to REDHILL for the awesome new HD version!!

After gold hit something like $1,775 on Monday and then fell back a bit, Patrick, a Belgian banker, emailed me this:

In times as these it is great to have a vision... that way you just stay put. Otherwise I would have sold already...

I replied with this:

Exactly. You’ve got to understand the Orbital Launch Pattern aka The Inverted Waterfall Effect. ;)

Bubbles don’t occur when the shoeshine boy hasn’t even heard of gold yet. So this parabolic rise has nothing to do with the blow off phase of a bubble. It’s the paper bubble just heading over the event horizon of the waterfall. Long way down, and then very little bounce. Gold is simply the inverse of the bubble that is just beginning to pop.

English is not Patrick's strongest suit, yet he replied with:

The funny thing is.. I understand all the things you are writing in this mail...

And I replied with:

That’s because we share an uncommon understanding! ;)

Patrick's last email to me was this:

These are the days when you are a very happy person who has walked the trail

But... and this is important... it is NOT too late to join the trail! This is a one-time event we expect. It may be starting, but it hasn't happened yet.


PS. I'll add the updated list once we get a fix or a close over $1,800.

It Just Might Be a One-Shot Deal

Once in a Lifetime



PPS. Our friend Julian is using his vacation time in Barbados to reread some FOFOA and sends in this picture to go with the other ones from the Grand Canyon and Santorini posted here!

Sunday, August 7, 2011

Forum 1700

Tuesday, January 1, 2002 - Launch of euro notes and coins
Friday, February 8, 2002 - GOLD ABOVE $300
Monday, December 1, 2003 - GOLD ABOVE $400
Thursday December 1, 2005 - GOLD ABOVE $500
Monday, April 17, 2006 - GOLD ABOVE $600
Tuesday, May 9, 2006 - GOLD ABOVE $700
Friday, November 2, 2007 - GOLD ABOVE $800
Monday, January 14, 2008 - GOLD ABOVE $900
Monday, March 17, 2008 - GOLD ABOVE $1000
Monday, November 9, 2009 - GOLD ABOVE $1100
Tuesday, December 1, 2009 - GOLD ABOVE $1200
Tuesday, September 28, 2010 - GOLD ABOVE $1300
Wednesday, November 9, 2010 - GOLD ABOVE $1400
Wednesday, April 20, 2011 - GOLD ABOVE $1500
Monday, July 18, 2011 - GOLD ABOVE $1600
Monday, August 8, 2011 - GOLD ABOVE $1700

Technically I need a London fix or Comex close over $1,700 to update the list. But what the heck. Feels like a Forum 1700 night tonight. Enjoy the show! $1,701 right now.


Update: Well, I guess it's official now. $1,718 at the close.

Photos from The Onion

Wednesday, August 3, 2011

Go Go South Korea

The Bank of Korea released its new foreign reserve statement yesterday, which can be downloaded from its website here. In it the BoK disclosed the purchase of 25 tonnes of gold in July (or possibly June and July as reported elsewhere). It also reported a $6.55 billion revaluation gain which it attributed mainly to dollar weakness as reflected in its yen and pound-denominated reserves. Its "deposits" line shows an increase of $6.45 billion, which appears to correlate with the $6.55 billion gain.

Likewise, the $1.41 billion decrease in "securities" appears to correlate with the $1.24 billion gold purchase. The BoK describes its "securities" as "including government bonds, government agency bonds, international financial institution (IFI) bonds, financial debentures, MBSs, ABSs, and others." It also points out that "securities" make up a whopping 88.5% of its reserves.

Since the BoK reports its reserves in their dollar-denominated value, changes in the value of the dollar will affect its yen and pound reserves, but not its dollar reserves. So I feel it is fair to surmise that its yen and pound reserves reside primarily as "deposits" (which rose) while its dollar reserves are held mostly in "securities" (which fell, probably because of sales). Furthermore, it would appear that the BoK decided July was a good month to sell some US dollar bonds and use the proceeds to buy gold for the first time in more than a decade.

I know a few of you were incensed by parts of the news reports, particularly the part that said the BoK "entrusted all of its gold holding to the Bank of England for possible use in gold lending and other related transactions in future." I actually think this makes perfect sense in the context of the BIS that I learned from ANOTHER. I'll get into this a little more below. But first, a bit of Korean history is in order.

A part of the news reports that I found quite misleading was this: "During the 1997-98 Asian financial crisis, patriotic Koreans collected the precious metal as part of a campaign to boost the country's foreign reserves, when it was on the verge of a sovereign default."

I'm sure many people that don't remember the real story read this part to mean that patriotic Koreans hoarded gold during the Asian financial crisis. But actually it was quite the opposite.

The Asian financial crisis spread via contagion from Thailand to Malaysia, to Indonesia, to The Philippines and ultimately to South Korea. As the crisis reached Korea, the currency markets put downward pressure on the won in the bet that the BoK wouldn't have enough foreign reserves to defend its currency. The bet paid off.

In 1997 it was believed that South Korea's $25 billion in foreign reserves was enough to defend the won. Even Alan Greenspan thought so, as he wrote in his book The Age of Turbulence: Adventures in a New World:

"Korea's central bank was also sitting on $25 billion in dollar reserves- ample protection against the Asian contagion, or so we thought."

But as it turned out, only about $9 billion of the $25 billion was liquid enough to be deployed in defense of the currency. The rest was tied up in, among other things, government guarantees on foreign debt lent to Korea's debt-addicted industrial titans—family-owned companies like Hanbo Steel, Daewoo and Kia that soon went bankrupt and were dismantled or sold off. So, finding its foreign reserves sorely lacking, the government asked its citizens to chip in and defend the won with the last line of defense, their gold jewelry!

As my regular readers know, any gold inside a currency zone, public or private, is a viable reserve. And as the won was tumbling on the foreign exchange market, gold priced in won was rising. So the desperate government implored its citizens to dig out their gold and sell it into the rising price. Millions of patriotic Koreans literally lined up around the block to sell their rings, necklaces and other gold trinkets which were melted down and sold into the international gold market in defense of the won. Some even turned in their gold for free, in support of their country. Here's a poignant quote I found:

"I sold two gold rings and one necklace", said Lee Suk-ja, a housewife. "It was a small amount, but I take a great pride in taking part in helping the country in time of need."

In all, the people of Korea spewed around 250 tonnes of gold to the outside world, about a quarter ounce for every adult in Korea. But it did no good other than to rid Korea of her reserves. That's ten times the amount of gold the BoK just purchased last month. But at $300/oz. in 1998, it was barely a drop in the bucket. That was a mere $2+ billion in US dollar value to add to the $9 billion in foreign currency the BoK was able to deploy.

Here are some quotes from ANOTHER during the Asian crisis:

Date: Fri Dec 12 1997 21:33

Even Korea will find out that oil is all that counts. Their paper will die! Gold would have helped them in a different world, but for now gold is in the background as the IMF tries to add more paper to this inferno. If one owns real gold, it will be with ease to view the world currency developments. They will be truly of biblical proportions!

Date: Wed Feb 04 1998 23:23


Mr. Studio. R.,
Will several ( or many ) bullion banks fail?

"when one cannot repay a loan, it is done" !

Are the bullion banks bonded?...

In the real national/ world there is no such thing as "bonded".

Look to Korea for proof!

Date: Sat Apr 18 1998 19:18

But, how can this be, you ask? It is done, "right before your eyes" and we see it not! I ask you, if you have one ounce of gold, and sell it on the market for $300, it is worth $300, yes Now, what if CB hold one ounce of gold, and sell it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOU for gold, value it at the multiple of leases/sales made against reserves. This leverage, it is held for performance on bank part. The BIS, it force performance, on any economy! You ask Korea about gold, yes?

I hope these quotes from ANOTHER make a little more sense now that you have the context in which they were written. And now back to the BoK gold purchase.

The news reports said the BoK "entrusted all of its gold holding to the Bank of England for possible use in gold lending and other related transactions in future." That sounds like an "interbank IOU for gold" doesn't it? Perhaps it's even in a BIS sight account!

Now, what if CB hold one ounce of gold, and sell it twenty times, that one ounce is now worth $6,000, no? The difference between you and CB? The persons that hold "interbank" IOU for gold, value it at the multiple of leases/sales made against reserves. This leverage, it is held for performance on bank part. The BIS, it force performance, on any economy! You ask Korea about gold, yes?

Aww gee, do you think maybe there's a difference between you and the CBs when it comes to gold? Could it be? I wonder why the CBs call their gold "monetary" gold while your gold is commodity gold or non-monetized gold.

Physical gold is different than modern currency. At the CB level, it rarely gets moved. This was a big reason for the creation of the BIS in the first place. If you think about the purpose of the BIS as a clearing system or gold broker for interbank sales, it makes perfect sense that most of the gold deposited with the BIS would be sight or unallocated.

The purpose is so that CBs can transfer gold around the world without having to physically ship it. Avoiding the cost and risk of physically shipping a heavy metal is an important service provided by the BIS. And it does this mostly in unallocated form. When the BIS physically moves gold, the risk is shared, i.e. the risk is on the BIS.

The BIS is owned by its customers, the CBs. They set it up and subscribed to it (bought in) so it could provide services like this. The BIS's own gold is still owned by the CBs because they own a proportional share of the BIS.

Say you want to give me a hundred dollars. You go into your bank and deposit a hundred dollar bill. Then you fund your Paypal account and send me $100. Then I send that $100 from my Paypal to my bank and I can walk in and take out that $100 bill. You’ve just sent me a $100 bill but no one actually physically shipped it across the ocean. It was an unallocated deposit in one location and an unallocated withdrawal in another. This is what the BIS does with gold.

Out of practical necessity, privacy and security, most BIS gold activities are with unallocated gold. The main difference between the BIS and private bullion banks being that BIS sight accounts are fully reserved. Being "reserves" is the very definition of CB gold.

Date: Thu Oct 09 1997 19:00

Background; to understand the following you must rethink your basic knowledge of money and investments. Get your aspirin ready.

Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services. You have all read the articles about how paper receipts for "gold money" were later circulated and became paper currency receipts, then paper currency, then just currency.

The western world today, as we know it does not use money! They use "paper currency". To fully understand what that really means you must come to terms with this fact. "When you use paper currency you are placing a value using another persons concept of value" You are using a thought as a means of value!


Question: **Along these lines, I too believe that currency movements will flow through Europe because the Euro currency will be gold backed. Where does that leave Japan with over $200 billion in dollar reserves, let alone its massive U.S. Treasuries' holding? **

ANOTHER: Perhaps, they be like Korea? Rich in paper until the world says, "this paper, it is not good"!

Question: ***Your associate says that BIS helped China increase its gold holdings. Please tell me what the source of that information is, or is it simply a speculation on his part. ***

ANOTHER: The BIS is the gold broker for all interbank sales / purchases. Bullion Banks are for sales to other entities. I think, at first, China was leverage against the oil producers. Then Arabia was allowed into BIS for Euro.


Understand, all value judgments today are as subject to "exchange rate competition"! It is in "this exchange rate valuations" that the private citizen does denominate all net worth! A safe way to hold the wealth for your future, yes? You should ask a Korean or the Indonesian ?

One should grasp that "today, your wealth, is not what your currency say it is"! In this world, paper currency is for trade, only! It is for the buying, selling, earning and paying, not for knowing the value of your family holdings! Know this, "the printers of paper do never tell the owner that the money has less value, that judgment is reserved for the person you offer that currency to"! Again, I ask, how can we know a true value for our assets, when they are known only in currency that finds it's worth, as in the exchange rate for another currency?

8/10/98 Friend of ANOTHER

Also, as gold begins to rise against the dollar, the local gold reserves are seen as assets of increasing value, backing the local currency. Under these conditions, with a stable currency, citizens will purchase more gold as it is seen as a positive asset. Not unlike a rising stock, everyone wants an increasing investment. Contrast this action against that in Korea, where everyone sold gold as it increased in an unstable currency!

Basically, this is the direction the Euro group is taking us. This concept was born with little regard for the economic health of Europe. In the future, any countries money or economy can totally fail and the world currency operation will continue. What is being built is a new currency system, built on a world market price for gold. Michael, you are absolutely correct in that the USA will see a hyper inflation of its currency and a gold price in dollars that reflects it. Unfortunately, for most investors, the gold price rise will be sudden and also hyper fast. as it will occur just after a rapid plunge in dollar based assets including, stocks, debt and the entire banking system. This action will destroy virtually all gold based paper assets as they are also dependent on a functioning economic system.

Looks to me like Korea learned a lesson. BTW and FWIW, the popular name that caught on in Korea for the 97/98 crisis is "The IMF Crisis". If you'd like to learn more about the Korean crisis and the IMF involvement in it, there's a great series of blog posts here, here and here.