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Old 02-15-2011, 10:16 AM   #3361
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Re: Still time to buy gold imo.

Quote:
Originally Posted by Borodog View Post
And after complementing fofoa, his latest entry is complete crankwork. Not the donation solicitation, his discussion of freegold and how gold will not be be lent.
He is not banning anything, he is describing the end result of the demonetization of gold as we have a separation of monetary functions - store of wealth and medium of exchange.

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My thesis" (based on accounts presented by Another and verifiable as Martijn's project is revealing) is that this system I am describing was developed among the top European Central Bankers over the period from 1962 until at least 1999, starting in earnest around 1978/79. I am not proposing a possible system. I am describing the one that is set to be the end result of what has already been put into motion by the euro architects of old.

This is not something that requires legislation or treaties at this point in order to unfold. It is now in the process of unfolding. The legislation that, as you describe, would simply be non-enforcement, will be a result of what is unfolding and not a cause.

I am not here at this blog to propose a new system, or legislation, or Constitutional amendment, but rather to develop and help others develop an understanding of what is actually unfolding before us
. The concept of "inevitable" or "unavoidable" that I sometimes use means that this is coming no matter what Congress, the Treasury or the Fed try.
link

His point is gold is de-monetizing and separating from our monetary system, as people recognize the inability of our monetary system to provide the key ingredient for economic calculation - a stable store of value -- and thus look outside of the system to save wealth.

A market reaction to the intertemporal disequilibria caused by artificially distorted interest rates. Interest rates coordinate action over time, and that's why store of value is key to the story, as its the store of value that is distorted.

Our current system is built on leveraging gold to allow for debt expansion (and thus the related seigniorage to fund the warfare/welfare state's expansion), and this system of debt as a store of value (aka lending/leveraging of the store of value) doesn't work.

His point is in part a response to those who suggest that banning FRB will fix the problem. His point is it will not, and the market recognizes this. Thus the evolution to fiat money for lending and spending, and gold in a separated function as a store of value.

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This is the problem with debt-based savings, even in gold, even with full reserve banking. It is not fractional reserve banking that brings the system to the brink of collapse. It doesn't help, but it is not the root cause. It is the volume (rather than value) expansion of savings. As I wrote in Freegold Foundations, it is "a system that expands in volume rather than rising in price. ...quantitative expansion of savings! If the pool of savings rose only in value and not quantity, then each new net producer would have to bid "savings" away from an old net producer, and "savings" would retain their proper relationship to the pool of real marketplace capital available for purchase."

With savings in a vehicle that expands only in value and not in volume, the expansion of currency through fractional reserve banking would be an inert nuisance. This is Freegold. And this is why the lending of gold is incompatible.
link

Not that lending (aka growing debt) will be banned, but lending/debt as a store of value is the flaw that the market is correcting. Lending of gold is incompatible with it filling its distinct role as store of value.

Debt based fiat money expansion is enabled because people continue to save in it despite its growth (and thus inflationary dilution), and this flaw is what is collapsing.

Quote:
But debt itself is not the cause of our problems today. Today we have a situation where the vast majority of excess production value (excess capital) is enabling massive amounts of global malinvestment through new debt creation. That has peaked and is now contracting. But the problem is not the debt itself. The problem is the enabling effect of excess capital not having a viable alternative that floats against the currency. The problem is the lack of the adjustment mechanism of Freegold. There is no viable counterbalance against uncontrolled debt growth today. So we are only left with credit collapse and hyperinflation of the monetary base to clear the malinvestment from the system.

It is easy to blame this on debt as a principle, but unless you don't mind being wrong, there are some deeper explanations out there. Debt under Freegold will not reach such destructive levels. "Easy money" thinkers may or may not get their debt-free money, but if they do they will suddenly realize the flaw in their reasoning. Oops! That it can only have expandable value (needed for the welfare state) if producers are willing to hold it while it expands. Without that, socialist welfare expansion will simply dilute the value of the currency and be as limp as a eunuch.

And this fatal flaw in the "greenbackers'" reasoning is, for all practical purposes, written into their Western genetic code. They won't see the flaw until it finally fails them. It comes back to the concept of money. Ever since the Dark Ages, money has been both a medium of exchange and store of value, for better or worse. They can't even conceptualize the separating of functions, so they don't bother considering the consequences. They think "all we need is free money and it will be a wellspring of value, because money is always valuable." How wrong they are.
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Old 02-15-2011, 10:30 AM   #3362
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Re: Still time to buy gold imo.

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Party X selling 100,000 shares = Party Y buying 100,000 shares, however if they buyers are winning the price game, GLD will require additional tonnage of physical. His quote is wrong.
Redeeming shares for physical gold is not the same as selling them on the open market at all. One of them requires price discovery in $ terms and the other one doesn't.

Quote:
No, GLD intends to track 1/10th of the spot price of gold.
This is a silly nit and you are wrong anyway. GLD tracks the changes in the price of gold which is what it means to track something. The cost of an individual share is almost meaningless (if individual share prices are to high it could cause an illiquid situation, otherwise it is pretty much meaningless) to the question of if GLD tracks the spot price of gold.

Quote:
GLD requires more gold when the price goes up, roughly 100 tonnes per $100 in gold price appreciation.
Requires is completely the wrong word. GLD is not required to buy more gold when prices rise, and they are not required to sell when prices fall. They can choose to create new shares (or to provision for new share creation upon deposit) and exchange it for gold but there is no cash flow that is created when gold prices rise. Your graph actually almost shows the opposite- that GLD purchases gold ahead of large moves up in the price of gold, not the other way around.
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Old 02-15-2011, 02:14 PM   #3363
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Re: Still time to buy gold imo.

Quote:
Originally Posted by J.R. View Post
He is not banning anything, he is describing the end result of the demonetization of gold as we have a separation of monetary functions - store of wealth and medium of exchange.


link

His point is gold is de-monetizing and separating from our monetary system, as people recognize the inability of our monetary system to provide the key ingredient for economic calculation - a stable store of value -- and thus look outside of the system to save wealth.

A market reaction to the intertemporal disequilibria caused by artificially distorted interest rates. Interest rates coordinate action over time, and that's why store of value is key to the story, as its the store of value that is distorted.

Our current system is built on leveraging gold to allow for debt expansion (and thus the related seigniorage to fund the warfare/welfare state's expansion), and this system of debt as a store of value (aka lending/leveraging of the store of value) doesn't work.

His point is in part a response to those who suggest that banning FRB will fix the problem. His point is it will not, and the market recognizes this. Thus the evolution to fiat money for lending and spending, and gold in a separated function as a store of value.


link

Not that lending (aka growing debt) will be banned, but lending/debt as a store of value is the flaw that the market is correcting. Lending of gold is incompatible with it filling its distinct role as store of value.

Debt based fiat money expansion is enabled because people continue to save in it despite its growth (and thus inflationary dilution), and this flaw is what is collapsing.


link
No, it isn't.

All of this makes zero sense to me. Lending someone a hunk of gold is not "incompatible with it filling its distinct role as a store of value." FOA and FOFOA seem to be making a straightforward error; that lending gold is somehow inherently inflationary. It isn't. At least not if you are actually lending it and not levering it up through a fractional reserve system.

We talked about this before and it made no sense then either. The idea of using fiat currency for medium of lending/exchange and gold as the store of value is silly. Either the currency is 100% redeemable, or it is inflationary and destabilizing, by definition. If it is 100% redeemable, then you may as well just use the specie instead of the paper. Money is the medium of exchange, it is the store of value, it is the unit of account. It is all of these things. That's why it works the magic that it does. The market acts to destroy fiat currencies (fake monies) because of this. And when the fiat currencies are burning, there will be gold: store of wealth, medium of exchange, unit of account. We may not be able to prevent the cycle from starting over again if we can't drive a stake through the heart of fractional reserve, but that doesn't mean that a fiat medium of exchange has any hope of long term stability. I mean, it sounds like what you're describing is the classical (i.e. FRB) gold standard. That was much better than what we have now, but it (of course) imploded due to fractionalization.
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Old 02-15-2011, 08:11 PM   #3364
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Re: Still time to buy gold imo.

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Originally Posted by tolbiny View Post
Redeeming shares for physical gold is not the same as selling them on the open market at all. One of them requires price discovery in $ terms and the other one doesn't.
Selling shares of GLD into the exchange is somehow analogous to selling physical into the marketplace, only the AP's get paid in GLD.


Quote:
This is a silly nit and you are wrong anyway. GLD tracks the changes in the price of gold which is what it means to track something.
Uh, that's what I said, plus the following,

1/10th and 1, big difference, correct?

Quote:
The cost of an individual share is almost meaningless (if individual share prices are to high it could cause an illiquid situation, otherwise it is pretty much meaningless) to the question of if GLD tracks the spot price of gold.
No, If the share price is greater than the NAV, it is only a short matter of time... add physical and issue new shares (not an illiquid situation).


Quote:
Requires is completely the wrong word. GLD is not required to buy more gold when prices rise, and they are not required to sell when prices fall. They can choose to create new shares (or to provision for new share creation upon deposit) and exchange it for gold but there is no cash flow that is created when gold prices rise.
Before GLD issues new shares, it delivers the necessary gold back to AP (authorized participants). But yeah, I shouldn't have typed required.

Quote:
Your graph actually almost shows the opposite- that GLD purchases gold ahead of large moves up in the price of gold, not the other way around
The purchases are rather inexact in timing imho.
Yeah, I shouldn't have typed required
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Old 02-16-2011, 08:36 AM   #3365
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Re: Still time to buy gold imo.

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Selling shares of GLD into the exchange is somehow analogous to selling physical into the marketplace, only the AP's get paid in GLD.

That is exactly the point. If I sell GLD for dollars there is price discovery in terms of dollars. The price, in dollars, will be lower for GLD than if I hadn't decided to sell. When I exchange GLD for Gold there is no price discovery and it does not impact the price of GLD or Gold in terms of dollars. This is the distinction that is being made and this is the reason that selling GLD for dollars is bearish for prices but selling GLD for Gold is not.

Quote:
No, If the share price is greater than the NAV, it is only a short matter of time... add physical and issue new shares (not an illiquid situation).
This is an arbitrage situation, nothing more. It probably exists because for people who own 100,000 shares or more GLD is as good as gold while for people with less it is not as good as physical. The NAV difference is created by a preference for physical, not by the rise in the price of gold (though the first could lead to the second as well).
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Old 02-16-2011, 07:31 PM   #3366
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Re: Still time to buy gold imo.

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Originally Posted by tolbiny View Post
That is exactly the point. If I sell GLD for dollars there is price discovery in terms of dollars. The price, in dollars, will be lower for GLD than if I hadn't decided to sell. When I exchange GLD for Gold there is no price discovery and it does not impact the price of GLD or Gold in terms of dollars. This is the distinction that is being made and this is the reason that selling GLD for dollars is bearish for prices but selling GLD for Gold is not.
I agree with some things here. Look up analogous ftw (granted you aren't really defending FOFOA's point, understandable).


Quote:
This is an arbitrage situation, nothing more.
No, but the opposite situation would be in theory.

Quote:
It probably exists because for people who own 100,000 shares or more GLD is as good as gold while for people with less it is not as good as physical.
Indeed. If they don't deliver gold, GLD and many major player lose a lot of face, and they are properly motivated to get all available gold to those (with a viable amount of shares) who choose to hold it in physical form.

Quote:
The NAV difference is created by a preference for physical, not by the rise in the price of gold (though the first could lead to the second as well).
I'm not sure you know what Net Asset Value is (no offense). NAV = (assets – liabilities)/shares outstanding and has very little to do with preference for physical in this particular case.

Monthly GLD Premium/Discount


Sorry I picked you to "gripe" about the fofoa stuff tolbiny, you are always a good sport.
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Old 02-16-2011, 08:21 PM   #3367
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Re: Still time to buy gold imo.

FWIW there is nothing incompatible between GLD "not having the gold" and big fish redeeming GLD baskets in order to gain allocated physical. It is quite possible that the gold held by GLD custodians and subcustodiams has multiple claims on it, and even that some significant fraction of it is no longer in custodial or subcustodial possession. This does not mean that GLD cannot access ANY physical. Thus far redemptions have been quite small. There's no problem getting ahold of unallocated to convert to allocated . . . until there is.
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Old 02-17-2011, 12:34 AM   #3368
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Re: Still time to buy gold imo.

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Originally Posted by Borodog View Post
There's no problem getting ahold of unallocated to convert to allocated . . . until there is.
I like that.

There are gonna be some interesting problems. Nice to have bullion as it unfolds imo.
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Old 02-17-2011, 11:49 AM   #3369
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Re: Still time to buy gold imo.

omg silver!!


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Old 02-18-2011, 10:43 AM   #3370
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Re: Still time to buy gold imo.

Another day, another silver rally. Life is good!
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Old 02-18-2011, 10:47 AM   #3371
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Re: Still time to buy gold imo.

Silver just crushing
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Old 02-18-2011, 10:56 AM   #3372
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Re: Still time to buy gold imo.

On the back of a margin hike no less...
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Old 02-18-2011, 11:39 AM   #3373
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Re: Still time to buy gold imo.

$32.70 !!! Just insane
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Old 02-18-2011, 12:17 PM   #3374
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Re: Still time to buy gold imo.

Gold finally got above $1390- if it holds look for a break above $1420 in the next 2 weeks.
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Old 02-18-2011, 12:59 PM   #3375
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Re: Still time to buy gold imo.

Silver has a silver lining?

Yeah, this is insane but FWIW I'm convinced that you ain't seen nuthin' yet.
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