Of Interest

Loading...

Tuesday, April 23, 2013

The Secret World Of Gold After the Flash Crash

In a wide-ranging look at the history and present of the barbarous relicCBC's Brian McKenna and Ann-Marie MacDonald have gathered many perspectives (pro and con) on gold. The following documentary moves from historical shipwrecks to Nazi 'death gold' and England's war chest to recent years where widespread economic uncertainty has given the yellow metal a "new lustre in the world of high finance." Valued for its permanence, beauty and scarcity, people will lie, cheat, steal and kill in the name of gold; and the clip provides color on many of the market manipulations of the last few years. As MacDonald says, whether it’s a few gold coins or gold bars stored in one of the many vaults around the world, many investors are taking a shine to gold. But there’s not a lot of it. It is said that, even melted down, there would not be enough to fill an Olympic swimming pool. Some claim that much of the gold held by the Bank of Canada, the Bank of England, the Federal Reserve and Fort Knox is gone - that for every 100 ounces of gold traded, there exists only one ounce of real, physical gold. So, where is the gold - and who really owns it?


The recent gyrations in precious metals, commodities, and both the dollar and yen stem 
from correlated deployment of vast liquidity resulting from quantitative easing around the 
world. Some of the correlations are just due to the same people stir-frying the same stuff, not 
economic reasons.
As the quantitative easing around the world continues, such flash crashes will recur. It is 
possible that mass panics, resulting from such flash crashes, could change the trajectory of 
some economies.
The most important case is that, if the Japanese government bonds and/or yen holders panic 
over the Bank of Japan's (BOJ) QE policy, the resulting chaos could trigger a financial crisis in 
Japan, and the resulting yen crash would push East Asia and the world into a crisis.
Gold has bottomed. The recent price gyration is manufactured to benefit big speculators at 
the expense of gold buyers in emerging economies. Physical gold demand is from emerging 
economies, but the financial market resides in New York and London; it is a heavily manipulated 
market. Retail investors must be on guard for manufactured panic-euphoria cycles to fleece 
them.
Abenomics has triggered a massive reorientation of speculative capital in the world. Shorting 
the yen against multiple currencies has become a consensus trade. The Australian dollar and 
euro have risen due to this trade. The BOJ recently released massive QE, almost doubling the 
quantity and increasing risks in asset purchases. It has reinforced the shorting-yen consensus, 
furthering liquidity flowing into this trade from other trades.
In addition to lifting some currencies without supporting fundamentals, the liquidity 
reorientation sucked some away from gold. One justification for the decline in gold price is the 
rising dollar. Its historical correlation with gold is negative. Wall Street has been pushing the 
negative gold story for some time. I bet that the people who have been talking down gold will 
turn positive soon. It's a game to fleece credulous retail investors who follow the trend but are 
always several steps too late.



We're already in the endgame of fiat, but it'll be a long slide to the final destination. The implosion of paper gold and gold manipulation is a milestone event, to be sure, but not the end of the road. Don't underestimate the ability of the fiat magicians to pull out new rabbits. As I noted the other day, the exits are being locked. Let's assume that paper gold goes away tomorrow and physical's price jumps to $10K, $20K, whatever, because none of it is available for sale, it's irrelevant. Paper gold, or paper oil, stocks, bonds -- all will get cheaper -- because it has no value and no trust behind it and people want to escape.
What do you do with your fiat, does it actually just go away? No, it doesn't -- it can't escape the system due to the locked exits. All you can do is sell paper investments for paper dollars. The investment prices plunge. Welcome to deflation.
Once you try the exits and can't leave, what do you do with your fiat? You buy.
You buy everything tangible that has a hope of retaining value -- real estate, cars, food, anything you CAN buy. You don't want the fiat, you want out! When everyone feels the same, velocity of money skyrockets. Welcome to hyperinflation. That's the endgame. Past experience says this will take months to years to play out completely.


We're already in the endgame of fiat, but it'll be a long slide to the final destination. The implosion of paper gold and gold manipulation is a milestone event, to be sure, but not the end of the road. Don't underestimate the ability of the fiat magicians to pull out new rabbits. As I noted the other day, the exits are being locked. Let's assume that paper gold goes away tomorrow and physical's price jumps to $10K, $20K, whatever, because none of it is available for sale, it's irrelevant. Paper gold, or paper oil, stocks, bonds -- all will get cheaper -- because it has no value and no trust behind it and people want to escape.
What do you do with your fiat, does it actually just go away? No, it doesn't -- it can't escape the system due to the locked exits. All you can do is sell paper investments for paper dollars. The investment prices plunge. Welcome to deflation.
Once you try the exits and can't leave, what do you do with your fiat? You buy.
You buy everything tangible that has a hope of retaining value -- real estate, cars, food, anything you CAN buy. You don't want the fiat, you want out! When everyone feels the same, velocity of money skyrockets. Welcome to hyperinflation. That's the endgame. Past experience says this will take months to years to play out completely.



A months-long examination by The New York Times, including tours of gold mines in the American West, Latin America, Africa and Europe, provided a rare look inside an insular industry with a troubled environmental legacy and an uncertain future.
Some metal mines, including gold mines, have become the near-equivalent of nuclear waste dumps that must be tended in perpetuity. Hard-rock mining generates more toxic waste than any other industry in the United States, according to the Environmental Protection Agency. The agency estimated last year that the cost of cleaning up metal mines could reach $54 billion.
A recent report from the Government Accountability Office chastised the agency and said legal loopholes, corporate shells and weak federal oversight had compounded the costs and increased the chances that mining companies could walk away without paying for cleanups and pass the bill to taxpayers.
This month a Philippine province sued the world's fifth-largest gold company, Canada-based Placer Dome, charging that it had ruined a river, bay and coral reef by dumping enough waste to fill a convoy of trucks that would circle the globe three times.
The world's biggest mining company, Australia-based BHP Billiton, sold its profitable Ok Tedi mine in Papua New Guinea in 2001 after having destroyed more than 2,400 acres of rainforest. Upon leaving, the company said the mine was "not compatible with our environmental values."
"You can mine gold ore at a lower grade than any other metal," said Mike Wireman, a mine specialist at the Denver office of the E.P.A. "That means big open pits. But it must also be easy and cheap to be profitable, and that means cyanide."
That kind of massive operation can be seen at Yanacocha, a sprawling mine in northern Peru run by Newmont. In a region of pastures and peasants, the rolling green hills have been carved into sandy-colored mesas, looking more like the American West than the Andean highlands.
Mountains have been systematically blasted, carted off by groaning trucks the size of houses and restacked into ziggurats of chunky ore. These new man-made mountains are lined with irrigation hoses that silently trickle millions of gallons of cyanide solution over the rock for years. The cyanide dissolves the gold so it can be separated and smelted.
At sites like Yanacocha, one ounce of gold is sprinkled in 30 tons of ore. But to get at that ore, many more tons of earth have to be moved, then left as waste. At some mines in Nevada, 100 tons or more of earth have to be excavated for a single ounce of gold, said Ann Maest, a geochemist who consults on mining issues.





The case for gold vs paper is pretty clear cut. In case it was not beyond obvious, paper means unbacked credit and not paper receipts for deposits or otherwise claims on unencumbered metal.
Paper currencies end simply because they are currencies and as such lack the function of a permanent long term store of value. Currencies present the facade and appearance of money but in reality are trojan horses that convey a means of taxation and government power, in conjunction with excessively sized corporations that profits from the system and not from the free market and thus grow larger than could be sustained on a free market basis. Anyone who is against backing currencies with gold and proposes non-backed currencies are afraid of the discipline of gold. They cannot handle it. They want to steal, deceive and act as parasites on productive citizens. They will do everything they can, intellectually and through violent means, to suppress information and transformation towards a gold backed system. They will find every enumerable excuse possible. And I for one, stand firm against this recklessness and sloppy thinking.
There is no middle ground to be found. The gold is either there or it is not. The question is, how much gold is really there. In a floating exchange rate system, nobody knows, but most likely, less than yesterday.
The second point about the Nazi gold is just outright below the belt. How do you have the guts to bring in war crimes as a reason for anything? Do not you understand what Nazi Germany was all about? The whole story started with a certain person called Hitler, and do you know how he came to power? Surprise, he was voted in democratically by an improverished middle class! How did they get impoverished? Have you ever heard about the German hyperinflation, you intellectual moron? Had Germany not issued excess currency, the German economy would have adjusted prices lower, and ordinary Germans would have been able to afford daily necessities. Instead, the Weimar government plunged into outright money printing, destroying trust, stores of value and entire swathes of society in the process Hitler never have be able to obtain the mass political support he got. So do not bring in the "Nazi gold" crap because you are missing the entire point.
Somehow, all these problems existed before, and there seem to be patterns in history. We are dealing with something fundamental here, which is a combination of human behavior, incentives, marginal utility, tragedy of the commons and corruption of power. Your fundamental problem appears to be that you take for granted that human behavior is evil, which it is not. By establishing institutions, such as the gold standard, proper behavior will follow. Gold is, when applied properly, the soundest institution known to man that stands in the way of perverted incentives to deceive by currency debasement, parasiting on the common good and trust in the societal medium of exchange. It is also an institution that stands in the way of the type of resource consolidation needed to wage large scale wars, thus indirectly also being conducive to a more peaceful world. Rome expanded beyond its means, primarily through conquest and territorial war campaigns, living on surplus generated by others, forcing it to debase its currency. The decline of the empire went hand in hand with the debasement of the currency. Had Rome lived within its means, history would have been very different. We might as well all have been speaking Italian.
There are no countries in the world that have been able to build a sustainable economy that has generated high yielding productive capital by expanding the money supply. Rising prices means decreasing prosperity and reduced yields, not increasing prosperity.
There are no economies where fiat money excesses and overleveraging has not caused immense economic destruction, personal hardships and vast tragedies.
The point about not having to mine the remaining gold was, of course, in its most essential form a philosophical argument, but fundamentals imply that this is what will happen in reality and this predicament will have monetary policy implications in years to come. Ore grades have now declined so much that it is no longer possible to increase mining production. Despite high gold prices, mining production is declining. Within this decade, much if not most production will go offline due to increasing costs and energy requirements. Do not take my word for it. Look up production data and geological information. Try to understand what is driving mining companies into bankruptcy. I and the analysts that point this basic fact out will be found right, and the world will have to do the best it can with the gold it already has. This will happen within one to two decades due to physical reality. And it better do.
Anyone can choose whatever they want to use as money. The main problem is that everyone is forced to use national currencies by decree. Who am I to tell you what to use? Keep using national currencies issued by your leader, if you will, but do not imprison or otherwise legally go after those who wishes to transact and account with honest weights and measures.
Using paper or electronic receipts that are backed by gold does not "inevitably lead to fractional reserve banking and fraud". There are no grounds for making this statement and similar thoughts keep popping up within various anti gold communities which serves to reveal your own bias rather than add substance to the debate. Instead of conjuring your own postulates that have no backing whatsoever in historical facts, we can look at the last country that left the gold standard: Switzerland, that has had a highly viable gold standard, direct democracy, personal freedom, gun ownership, sovereignty on an individual and international level and many other things. And do you know what happened in Switzerland? The people were seduced by international bankers, read, IMF, to sell their gold and go off the gold standard, as their currency was being pushed up higher and higher by the ECB printing EUR recklessly. This was not an inevitable event by any means, but a consequence of people giving up their national sovereignty to unelected officials in the EU, ECB and IMF to run their lives for them.
There is no problem in having people "self select" professions and acting in their own self interest. The issue here is to establish an institution of money that can outlast individuals. We can not rely on the brilliance on individuals to sustain prosperity. It has to be backed by something more fundamental. To talk about this as some form of inevitable cycle just goes to show that you have abandoned your own hope, visions and passion for the future, and serves to present you as a lackluster, dull and rather uninspiring individual who is not willing to stand on principle on one of the most important questions of our time.
You can speak for yourself in case you support these things, but many people do not, and if they had their will, we would not be in this mess.
Finally, I just want to confirm to the crowd that the metal shops in HK are ridiculously over crowded.
These are local retail establishments that sell gold jewelry and other PM nick knacks. I have never seen them as busy.

No comments:

Post a Comment