Posted on 11/13/2009 6:45:21 AM PST by SeekAndFind
The past two weeks have brought two massive paradigm shifts to a Gold market that has been morphing literally on a daily basis for the past few months. During this time, the pundits and purveyors of misinformation and tripe have done their best to ‘student body left’ Gold back into obscurity as an ancient, barbaric relic. They certainly get an ‘A’ for effort. Now that Gold has made its debut above $1100 an ounce, they’ve switched their tactic and are now calling it a bubble. We’ll deal with why this cannot be the case in a bit.
For the past 9 years now, students of history and common sense have been literally shouting from the rooftops that Gold was the place to be as the monetary tradewinds shifted back in 2000 and the fiat inflationary cycle began to go parabolic. While the multi-trillion dollar deficits might be a surprise to many, for those who understand how these things work, it is just a mundane repetition of history and yet another confirmation that man cannot alter the laws of economics or his own intrinsic predilection to ignore events past.
From 2000 up until recently, there was a constant battle going on. Central banks and the IMF would sell off their physical Gold to suppress the price. Between 1999 and 2002, Gordon Brown, then England’s Chancellor of the Exchequer made the extremely wise decision to sell a good chunk of Mother England’s Gold (395 tonnes) in the $275-$300/oz area. The people were so enthralled by this obvious economic genius that they made him the Prime Minister. All sarcasm aside, this was only one prong of the tactic to suppress Gold prices.
The second prong consisted of large New York and London banks mercilessly shorting Gold in the paper futures markets. For most of the last nine years, the bulk of these futures contracts were rolled over or settled in cash; taking delivery wasn’t really en vogue. There have been many people such as Jim Sinclair working hard in the trenches to educate people on the merits of taking delivery and fighting the cartel by taking their playing chips off the table. Gold in your possession cannot be leased out by a central bank to various third parties, nor can it have futures contracts written against it.
Despite even these Herculean suppression efforts, the price of Gold made the journey from $275 to $940 in fairly short order. Surely, there were many gut checks in there; days when the metal lost 5% and the pundits would scream the bubble had burst and it was all over, now please buy some mortgage backed securities. There were some epic struggles like the Battle for $700 shown below.
Through the past nine years the game was played under the rules of central banks and the IMF. In the past two months, countries, large players, and even Gold producers have turned the game on its head. Suddenly everyone wants physical metal, not paper promises. And don’t give us the 90% bars either; we want the good stuff. Suddenly, there are instant buyers for IMF sales that were previously guaranteed to suppress prices. Suddenly an IMF sale sparks a rally to a new all-time high. China tells NY and London banks to take a long stroll off a short pier by issuing a directive to its state banks to walk away from commodity derivatives contracts. And, even more telling, central bank selling has been dropping steadily over the past few years and has been nearly nonexistent in 2009.
And finally, Barrick is closing its infamous hedge book. What was once a 20 million ounce boat anchor on the price of Gold has become a multibillion dollar boat anchor around Barrick’s neck and they’ve finally had enough. The book, now around 3 million ounces will be closed by next year according to Barrick boss Aaron Regent.
Oddly enough, it is not the collapsing US Dollar that is driving this decision, but rather a realization that Gold production likely peaked in 2001 and that even a tripling in exploration budgets across the mining sector has yielded precious little in the way of new discoveries. During this entire time period, demand for Gold has been rising consistently, thanks in no small part to the continual abuse of paper currencies by governments around the globe. The existence of serious supply-demand dislocations immediately rules out the prospect of a speculative bubble. Granted, there are plenty of smaller players who are dabbling in Gold without the slightest bit of understanding as to why they’re doing it. The next correction will undoubtedly send many of them running back to mainstream newsletter writers demanding a refund. After all, they were supposed to be living on the beach in 6 months; the advertisement said so!
The shattering of the old paradigm as it relates to Gold is very similar to a paradigm that was shattered with regard to stock investing nearly a decade ago. In that case, the conventional logic was that the market always went up in the long run. And for 18 years, that had absolutely been the case. Even the crash of 1987 hadn’t done much to derail the bull market. However, when we crossed into the new century, the paper paradigm changed with the major indices going nowhere in the past 9 years and change. Yet many conventional financial professionals are still investing as if it were 1995 then blaming the markets for client losses when they should be blaming their own inability to see that our world has changed dramatically.
Unfortunately, another of the very negative sides of the attack on Gold have been the ad hominem attacks on proponents of Gold-backed currencies and those who promote the reality that Gold is in fact real money. The attackers use the term ‘Gold Bug’ to paint a picture of little men sitting in fallout shelters wearing tinfoil hats with stashes of food, water, and enough weapons to make the debate about Iran seem pretty foolish. That just isn’t the way it is. Simply put, a Gold bug is someone who understands Gold’s historical role as money and seeks to educate others in this regard while protecting their own assets from the abuses heaped on paper currencies by their custodians.
So today I, an admitted Gold bug, ask: Now… do we finally have your attention?
So how much of that commodity is sufficient?
The Handbook of Chemistry and Physics, 64th Edition, lists both Gold and Tungsten as 19.3 to one decimal place.
How would one go about checking a variance of 0.155% on a 400 oz bar (without destroying it)?
..........a Gold bug is someone who understands Gold’s historical role as money .................
This means that a world without gold is anomaly. The last hundred years or thereabouts are a historical digression. The world in now reverting to the mean where the natural order of gold is the standard.
Put the drill through the middle, TP. The fraud will be exposed after a few holes. Much easier than detecting Korean “super bills,” for example. And whoever provided the fake bars will be arrested or at least put out of the business. Once the rumor of a tungsten fraud has gotten around (and it has) then detecting fake tungsten cored bars will be easy.
The GLD ETF may have a big problem with their credibility, if folks wonder about their physical gold. One of the many reasons I never touched PM ETFs. PM ETF just scream fraud potential in a dozen different ways. The only real gold is physical gold that you own.
If you read my other posts, you will notice that I call gold “flight capital.” People own gold for the same reason they have insurance, a gun, and a fire extinguisher.
It’s so they are not left high and dry IF the dollar blows up....like many other unbacked fiat currencies have, since at least the Romans.
Specific gravity is only one measure of gold and tungsten, and it's the only one where they are similar. In hardness, thermal qualities and electrical properties they are very different. Once the fraud of tungsten coring is suspected, it will be very easy to detect, with thermal, electrical and hardness testing. For example, a simple 1/16" drill bit will go into gold like butter, then hit the tungsten and stop or break.
For anybody in the big leagues who is buying gold at 400 oz a pop, these tests will be as simple as telling a hershey bar from a piece of dog turd....even though they are both brown and both have similar density.
+1!!1
If the tungsten slug is only 10 oz in a 400 oz bar, it might take you more than a few holes to hit it.
Consult the men who stare at goats?
All irrelevant. No one reading this forum owns or will ever see or touch an LBMA 400oz bar.
Stick to 1oz coins and gold mining stocks and you won’t have a problem.
If it turns out that the banksters have salted a significant amount of circulating LBMA bars with tungsten, who cares? That will just precipitate a much faster run on real gold.
Sufficient for what? Are you implying that the "right" quantity of money in knowable or can be calculated? I don't get your question.
I look at money as a commodity, the value of which is determined by it's trade value. Right now the dollar isn't very good money, because it's trade value is diminishing and seems likely to continue to continue to do so over the long run given the propensity of the government to borrow, "print" and spend.
Gold is better money right now. It's perceived as a better store of value than the dollar. That's why its price in dollars is rising.
Sufficient for what?
Sufficient to back the money supply.
Whatever the market decides. It's the market that should decide, not a group of statist academic economists wallowing in their fatal conceit.
The market should decide how much gold there is to back the money supply? Is the government still printing the convertible notes you want? Or do you want private coins and notes? Or both?
You are so funny, TP, as you get walked back into logical corners.
Let me save you typing your next "come back."
"What if there is only one atom of tungsten in the gold bar? How are you going to find it then?????"
You always give me a good laugh.
A simple drill would discover the fraud.
Ever see the cartoon (I think it was the Underdog opening titles) where he bites the coin? I think that was an old habit to test if a coin was gold and soft to the tooth, or fake.
My read is that it has never been alleged that anything other than 400 oz. bars have been the subject of Tungsten fraud. Coins are not a factor, although lead fakes are well-known, and easily detected with a scale and a caliper.
This would make an interesting plot element in a novel, however. Presidents funding their corrupt future by defrauding Ft. Knox ad the Chinese. James bond-level of clever field detection of fakery. Etc.
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