Law of Supply & Demand Is Dead for Gold & Silver

I’m going to preface this article by warning you that this is one of the longest and most important articles I have scripted in many months. During the recent gold and silver correction that began on July 14, 2008 and which perfectly coincided with the miraculous surge higher in the U.S. dollar, there was a massive story unfolding that should have been a lead story in every financial magazine, newspaper and website. Yet the media responded with silence. The story was so big, as a matter of fact, that every economics textbook should now have to remove the Law of Supply and Demand from their pages because if free markets still exist, the recent behavior in gold and silver markets strongly obliterates it.

Before I begin with that story, make no mistake that we have just experienced a steep correction and not the end of the gold and silver bull. Also make no mistake that this recent dollar rally is a miraculous rally because fundamentally nothing has changed about the U.S. dollar that could explain such a quick surge higher. In my last post, though I described calling the bottom of the gold markets a “sucker’s bet” that was a waste of time when markets are so blatantly manipulated, I foolishly took the bet anyway and was wrong about predicting the bottom (I’ve now learned my lesson about taking a sucker’s bet when I know it is one! Still, my subscription members well know my updated position about the short-term direction of gold and silver markets since this last public posting). But on to the meat of this article.

The Law of Supply & Demand is Broken: Demand Soars and Prices Plummet!

Consider the following. As gold and silver prices started to plummet on July 14th, surging physical demand for gold and silver continued to lead gold and silver prices markedly lower. For the first time in history, record demand in a commodity was helpless to stem plummeting prices and in fact, contributed to further price declines. In July, India bought 22 tonnes of gold. In August, according to Reuters, India increased its gold purchases by more than 350%, buying more than 100 tonnes of gold.

This figure also represented a 56% increase in purchases when compared to purchases during the same month from a year prior. In Dubai, demand surged as well.

“We are definitely witnessing a surge in demand for gold in Dubai and physical shortages have been reported by many dealers,” said Ian MacDonald, the Dubai Multi Commodity Center’s executive director for gold and precious metals. “We are also seeing demand being driven by currency concerns in the region as many investors perceive the precious metal as one of the few strong currencies.”

Gold jewelry sales in Abu Dhabi soared 300 percent in volume and almost 250 percent in value in August from a year earlier after the metal dropped to nine-month lows, the emirate’s industry group said on Monday.

“It was the best month the market has seen in almost 30 years and it compensated for any drops we have seen earlier this year,” Abu Dhabi Gold and Jewelry Group Chairman Tushar Patni told Reuters.“We had never expected (emphasis mine) that if gold fell below $800 an ounce we would see a 300 percent increase in volume and 250 percent in value, especially as many buyers are abroad on holiday.”

In the United States, the stories were the same. Many gold and silver bullion and coin dealers reported record sales in August and shortages of supply. I could quote fifty other stories similar to the ones above, but for the sake of brevity, I will not. Global sales of gold and silver would have to be at record levels in August for gold and silver prices to be pushed much higher for that month, and all preliminary indications are that global sales in August for gold and silver were indeed at record numbers. So how can it be that record demand and sales in the physical gold and silver markets would cause gold to plummet from a price of $910 an ounce at the beginning of August to less than $750 an ounce, and silver to plummet from a price of close to $18 an ounce at the beginning of August all the way down to almost $10 an ounce?

When this inexplicable anomaly was pointed out (at least inexplicable according to the supposedly irrefutable Law of Supply and Demand), gold and silver analysts employed by Wall Street to spread disinformation responded only to stories of shortages being reported in the United States and did not address record sales of physical gold in various countries in the Middle East and in Asia. They responded to reported U.S. shortages of bullion and coins by stating that dealers had supply but were simply not being honest about their supply numbers because they did not want to sell any more stock at such depressed prices. This certainly could have been a very reasonable and logical explanation that adequately explains some of the shortages that were reported by gold and silver dealers. However, this was not “mystery solved” as these demagogues employed by Wall Street claimed.

During this Correction, Gold & Silver Steady or Much Higher Many Days in Asia, Down Markedly Lower by Close of New York Markets

How can record sales, the strongest in 30 years, and shrinking supply in other regions of the world like the Middle East and India, cause prices of gold and silver to plummet steeply as well? Clearly, since price is a function of supply and demand, rising record demand for gold in India and the Middle Eastern markets should have stopped the downward slide in gold and silver markets dead in its tracks and led the price higher again. And indeed this is exactly what happened. But it happened only in the futures markets in Asia. Last week MarketWatch reported a story that gold experienced one of its worst months ever in this bull run because August had not one day where gold closed higher in price; however, this article only told half the story as the media so often does. Gold experienced many days in August were it closed higher in Asia and significantly higher, often piling on gains of $5 to $10 an ounce. These gains were only lost once London markets closed and New York markets opened; only then, were gains quickly sold off and then transformed into deep losses within a span of 24 hours.

If one constructs the 24-hour gold and silver charts for every day during this correction, one will discover an overwhelming amount of days when gold and silver were significantly higher in futures markets in Asia, but then were sold off harshly at nearly the exact same time (within a 30 minute time frame) when London markets closed and New York markets opened. How could this have happened? Simple. The price for gold and silver that you see plastered all over financial tickers everyday is established in the paper futures markets and not in physical markets where REAL gold and silver actually exchange hands. In the futures markets, only 1% of all futures contracts are closed out with actual delivery of the physical commodity. Instead 99% of all futures contracts are closed out with the purchase of another paper contract. In the case of gold and silver, futures contracts represent digital bytes of gold and silver flying around in a paper market, not real ounces of gold and silver that exist in the physical market. Thus it is entirely possible to utilize this discrepancy to create two entirely different prices for the same commodity. In other words, if not properly regulated, futures markets provide a gateway to manufacture massively fraudulent prices non-reflective of the buying and selling volumes that are occurring in the physical markets!

Two Parallel Markets For Gold & Silver: Paper Markets & Future Markets

Thus, the world can end up with two parallel markets that act differently: a papers market for gold and silver and a physical markets for gold and silver that establish significantly different prices for the same commodity over short periods of time, odd as this may seem (I say short periods of time because unless perpetually manipulated, free markets will eventually work out such massive distortions over time). The recent actions that were coordinated in the futures markets for gold and silver beginning on July 14th would most likely have been impossible to replicate in the physical world of gold and silver. To any veteran investor in gold and silver, the manufacturing of this correction was as plainly transparent as a two-ton boulder falling out of a clear blue sky. Though I won’t discuss the other mounds of evidence that explain how this correction was manufactured, these other specifics deal with large U.S. institutions that piled on huge short positions in the futures markets for gold and silver in an incredibly compressed period of time around July 15th.

Again, the gold and silver analysts paid by Wall Street to spread misinformation spoke out against the manipulation theories, simply stating that the dollar was overdue for a bounce and gold and silver markets were overdue for a correction. I have stated multiple times myself over the years that bulls never rise straight higher and will correct, and that bears never plummet straight downward and will experience bear market rallies. This much is true. Still, what transpired starting this past mid-July was far beyond the realm of a free-market inspired U.S. dollar bear market rally and a free-market induced gold and silver bull market correction. The meteoric rise of the U.S. dollar since July 15th and the panic inducing slide in gold and silver prices reeks of manipulation and not a natural free-market rally and correction for many reasons.

For instance, try explaining this. I know for a fact that certain gold coins that were selling in the low $700 range when the price of gold bullion was at $680 an ounce a couple of years ago were still being priced at more than $1,100 by gold coin dealers even when gold slid all the way down to $750 an ounce during this current correction. When I inquired as to why the prices of these gold coins had not also slid to $780 or so (as would have been dictated by the spot market price of gold), but were instead still selling for well over $1,100 a coin, the dealers answered that demand, not the spot price of gold in the futures market, was setting the prices of these coins. Since demand was off the charts, the prices did not reflect the monumental drops in price in the futures markets. When I checked the market for silver coins, I discovered the same massive disconnect between prices set in the physical markets for silver and in the silver futures markets (that only comprise “paper” silver). Silver coins were selling at prices sometimes 60% to 70% higher than what would have been indicated by the spot price of silver determined in the futures markets.

Last month it was clear that the Law of Supply and Demand was dead for gold and silver markets. Soaring physical demand for gold and silver were not factored at all into the prices set in the PAPER gold and silver futures markets. Incredibly, soaring physical demand created a greater acceleration of losses in the prices in the PAPER gold and silver markets. One way to interpret this disconnect between physical and paper gold and silver markets that clearly happened last month is this: If a bushel of corn were selling in the September futures market for $1.40, but if you were to go to a farm in Anytown, USA and had to pay $3.10 for a bushel of corn, what would you conclude was the REAL price of corn? This is how you can determine the real price of silver and gold today. Look to the physical markets, not the paper markets, for the real price of gold and silver. Who cares what the paper futures markets are stating as the spot price of silver, if I still have to pay 60% more than this price when buying silver coins in the real world? The price is simply what I have to pay for the real physical silver, period.

The Usual Suspects

The most likely culprits of this manipulation are all members of the U.S. President’s Working Group on Financial Markets (the SEC, the Commodities Futures Trading Commission, the U.S. Treasury, and the U.S. Federal Reserve). A massive disconnect between the price of gold and silver in physical markets and the price in paper futures markets, of the extent that happened last month, either means that the Law of Supply and Demand has just been proven to be invalid, or that massive fraudulent manipulation just occurred. I will let you make this conclusion. However, let me be clear that the evidence of manipulation was so overwhelming this time that it was not just the usual suspects, including yours truly, voicing these opinions. It must have greatly dismayed the mainstream analysts that try to cover up evidence of manipulation in commodity markets, particularly in gold, silver, and oil, that a member of the mainstream investment community attributed the recent gold and silver decline to manipulation.

It also must have dismayed these same analysts that four U.S. Senators who are key members of Congressional energy committees recently stated that the Commodities Futures Trading Commission “obviously knew that underlying data used to prepare the interim report was seriously flawed.” (emphasis mine) (The report referenced by the Senators was a key report distributed to U.S. Congress days before a legislative vote to close commodity trading loopholes that allow massive manipulation of commodity markets. The report stated supply and demand was solely responsible for the recent run up in oil prices to $147 a barrel. The seriously flawed data that was contained in the report, after it was corrected, demonstrated that manipulation was responsible for the run up in oil prices. Based upon the deliberately falsified data provided by the CFTC (the Senator’s words, not mine), Congress voted to keep the loopholes open. Read the whole story here).

Don Coxe, chairman and chief strategist of Harris Investment Management in Chicago, one of the top respected investment groups in the United States, called this recent manipulation of gold and silver markets that broke the Law of Supply and Demand a “brilliant” plan executed by the U.S. Federal Reserve and U.S. Treasury. My reply to Mr. Coxe? Let’s not get carried away. If I was in charge of the U.S. Treasury and could direct the CFTC, the SEC and various Wall Street firms through the President’s Working Group on Financial Markets, I could have pulled this plan off in my sleep. If the plan was executed in the manner that Mr. Coxe speculates, there was nothing brilliant about it. Let’s call the plan for what it was. Fraud and a shameful dismantling of free markets and capitalism. Plain and simple.

But in today’s world fraud is the name of the game. When the Law of Supply and Demand was broken in the gold and silver markets in August, for a comparable story of similar magnitude to exist in the scientific world, the Law of Gravity would have to be disproven. If it was reported that in California, a man ran down the street, threw his hands in the air and flew for a length of 200 meters while 10 meters from the ground, don’t you think that reporters would be scrambling to report this story? Yet gold and silver markets just proved the Law of Supply and Demand to be no longer relevant in August 2008, and ZERO members of the mainstream financial press deemed this story to be newsworthy.

Fannie Mae (FNM) and Freddie Mac (FRE) committed fraud for years and nearly triggered the collapse of the entire U.S. housing market. When their bailouts finally became necessary, people that ingested the force-fed spin that this bailout was “for their own good” and don’t understand the implications, cheered the fraud that allowed the Fannie Mae and Freddie Mac CEOs to retain their tens of millions in salary and bonuses they collected from engineering this fraud. Furthermore, for their roles as architects of this fraud, Freddie Mac CEO Richard Syron and Fannie Mae CEO Daniel Mudd are to respectively receive a severance payout of approximately $6.3 million and $7.3 million, respectively. When Stan O’Neal and Chuck Prince were respectively ousted from Merrill Lynch (MER) and Citigroup (C) for their terrible leadership and participation in creating the most massive financial crisis the U.S. has seen in decades, what were their rewards for leading investors of their stock into financial ruin? A $160 million and a $40 million golden parachute, respectively.

The reason this current story is so important is the following: The very acceptance and nonchalant reactions to this fraud by billions of people worldwide poses an equally serious threat to the health of the U.S. and global economy as the actual perpetrators of these fraudulent actions. Though I’ve never asked any of my readers to take action before, I urge you this time to email the link to this article at my investment blog, theUndergroundInvestor, to every single person that you know that has ever had so much as a ruble, a dollar, a peso, a real, a Swiss franc, a Euro or a pound invested in stock markets. Knowledge is power, and only knowledgeable persons can prevent these same shenanigans from happening in the future. As this financial crisis deepens and we have only seen the very beginning of it, the intensity of disinformation campaigns will increase at an exponential rate. To solve the crisis will require aware and knowledgeable investors, and masses of them. Thus, we must begin spreading awareness today and not a day later.

The Likely End Game: Re-Capitalization of the U.S. Financial Sector at the Expense of the Individual Investor

I’ll conclude this article with my theory of why this manipulative scheme was executed in the gold and silver markets, for I have not seen another analyst give any credence to this theory as of today’s date. This sell-off in gold and silver and the U.S. dollar rally wasn’t engineered just to stem the record rate at which foreign central banks were dumping U.S. Treasuries (another huge story that somehow the entire mainstream financial press somehow missed). Furthermore, this scheme wasn’t hatched solely because it was a necessary step to save the global financial markets as Don Coxe speculated. Both are fine reasons, but ultimately, unlikely to fully explain why this scheme was hatched in July. With the failure of Fannie Mae and Freddie Mac, the failure of Merrill Lynch (just announced Monday), the likely failure of Lehman Brothers (LEH), and the likely failure of a huge U.S. financial institution on the imminent horizon, all these failures are about to place a serious squeeze on the already hemorrhaging balance sheets of some of the world’s largest financial institutions. With foreign interest in increasing ownership in these institutions quickly dissipating and weak share prices unable to translate secondary offerings of stock into significant amounts of capital, some of the largest financial institutions were absolutely desperate to find a channel in which to raise significant amounts of capital (not hundreds of millions, but billions of dollars) very, very quickly. What just happened in the gold, silver and oil markets accomplished this goal, and thus may have been integral in preventing a global financial collapse.

Let me explain. During this recent gold and silver correction, gold and silver markets were higher, and significantly higher in Asia before drastically turning significantly lower in New York almost on a daily basis. The creation of these huge arbitrage opportunities could have been exploited by large financial institutions to reap billions in profits in an incredibly condensed period of time. The type of arbitrage opportunities that existed during this recent correction in gold and silver was absolutely enormous. Unprecedented 2% to 5% swings in the price of gold and silver bullion from their highs in Asian markets to their lows in New York markets happened time and time and time and time and time and time and time again during this recent correction (if you were unaware of this action or don’t believe me, simply search out the 24-hour charts for gold and silver for the entire month of August and you will be absolutely dumbfounded from what you will discover). These swings in prices were so enormous that daily swing trades in futures markets, given these arbitrage opportunities, could have produced hundreds of millions of dollars of profit in a single 24-hour trading day. During the past few weeks, these arbitrage opportunities may have produced profits in the tens of billions of dollars, if not more, for just a small handful of firms.

If I were a large financial institution with a critically hemorrhaging balance sheet due to massive losses created from insane foolish and risky bets on MBS (mortgage backed securities) and CDOs (collateralized debt obligations), and I wanted the quickest way to recapitalize my balance sheet, how would I do it? Through gross manipulation of commodity markets, in particular the gold, silver, oil and agriculture markets. Of course, I would need the help of certain regulatory agencies to achieve this and wouldn’t be able to accomplish this on my own, but I’m going to speculate that this is exactly what just happened. This correction was not only just about shoring up the U.S. dollar and U.S. Treasuries, but also about recapitalizing Wall Street and huge banking institutions. Though I haven’t covered the oil and agriculture futures markets, there is more than ample evidence that the same thing has occurred in these markets as of late as well (and again, the evidence is blatant enough that U.S. Senators have demanded investigations into much of the curious behavior I have delineated in this article). Again, if you are someone interested in putting an end to the regulatory and government schemes that continue to reward CEOs for their incompetence, dishonesty, and disloyalty to shareholders, and you care about the future of the United States, I urge you to forward this article to everyone you know.

Comments

[Chris B:]

Coin-hoarding by gold bugs and jewelry purchases by third world countries are a drop in the bucket of the precious metals market. They constitute such a small percentage of the daily volume, they shouldn't even count as anecdotes.

Thanks to ETF's like GLD, metals can now be traded just like stocks, so you can expect similar price fluctuations. No one asks what happens to the supply and demand of GE or XOM shares or comes up with conspiracy theories when their market cap drops by billions of dollars. Get used to it. Just save me the survivalist rants.

2008 Sep 15 04:07 PM

[flashrob01:]

Thanks for the post, I know very little about governmental manipulation but would not be surprised if something of this sort happened. In Jan 2008, I put $22K into a gold mutual fund (Toqueville) but the value has dropped to $14.5K since then. I'm mystified why this happened, but am optimistic the price will revert soon with people seeking a haven from fiat currency.

2008 Sep 15 04:14 PM

[Wefwef:]

Your coins were expensive because the dealer had bought them at super expensive price. The dealer duped you with a quick lie about 'supply' and you believed. Dealer 1 You 0.

If you want your gold at spot price buy from a spot price dealer on the net, or buy those depressed price futures and take physical delivery, or buy GLD shares and convert into physical (might be out of your buying power).

Don't get mad get smart.

2008 Sep 15 05:06 PM

[iyamwutiam:]

Chris B- it would be nice if you actually took time to inform yourself of your opinions before you formed them. Here is a link www.research.gold.org/.../.

Mr. Kim is correct in the breadth, scope, research and conclusions of this article. Please in the future take time to research and not have an opinion till AFTER you do the research. Mr. Kim kudos to you for deciphering this puzzle (I was also wondering what is/was going on).

It would be nice - if you could inform us -what events will occur. Since the US has the largest gold reserves in the world- over 5000 tons - also - it has been noted that many European banks are selling large quantities of gold to keep the price down as well- Spain is a documented example of this. Obviously there is strain -in the sense that there will be a willing cooperative of Central Banks to continue the fiat monetary system - as with out this 'confidence/perception... by the general public at large - the debacle of fiat currency could ensue - and so there are a lot of resources - not just US collaborating to keep the price of gold low.

2008 Sep 15 05:38 PM

[elwind45:]

Only a couple more weeks and central banks will have to stop sales, unless they find away to get around rules. What are the chances of central banks following rules. None! By the way guys the sky is falling. Follow the tube and sell sell sell! LOL is there a U.S. bank that actually hold gold reserves. The central bank printing money to buy financial stocks to defend the MARKET what a hoot? 50k in dollars or 50k in gold?

2008 Sep 15 06:00 PM

[dlaw:]

This post is absolute lunacy.

It is conspiracy theory, and therefore the author is a counter-indicator.

What the author does is start with some good observations and then come to all the wrong conclusions.

There was manipulation in commodity markets - by traders - at least to the extent that there was a bubble.

Gold has gone contrary to physical demand - that is a GREAT data point - for the short side. Just like the reaction to the crimp in oil supply in the Gulf.

There HAS been huge demand in countries where people culturally use physical gold as a hedge against inflation - in THEIR currencies.

What they were buying today - in addition to gold - was dollars.

I want to thank the author for doing a lot of excellent work. Honestly. Being wrong is no sin if you push the discussion forward.

This is a really interesting article, if magnificently wrong.

2008 Sep 15 06:02 PM

[Brutto:]

Manipulating the commodities market to bulk up banking profits seems a pretty complex undertaking to me, especially given the incompetence of the banks and monetary authorities in other matters - I doubt they are up to it, and it certainly didn't work for Lehman.

Cutting interest rates is a much simpler strategy of instantly strengthening bank balance sheets and profits, and one the Fed is used to executing - so watch for a rate cut, possibly this week.

Still, gold is a better store of value than greenbacks just now, so probably worth buying: maybe worth waiting until end of September, when some hedge fund bets have been shaken out by quarterly redemptions ...

2008 Sep 15 06:09 PM

[nononameo:]

You are right on. The fundamental problem is that they know they can't fix a problem of too much debt by creating more debt with the stroke of a pen. That is inflationary. So, if you use brute force on the inflation indicators, then you have a free lunch..for now at least. This story however, does not have a happy ending.

2008 Sep 15 06:10 PM

[Ivan the Cr...:]

"I’ll conclude this article with my theory of why this manipulative scheme was executed in the gold and silver markets, for I have not seen another analyst give any credence to this theory as of today’s date."

You might want to check out the guys at financialsense.com, and listen to their show; they talk about this.

2008 Sep 15 06:27 PM

[Soonersavvy:]

No conspiracy? No fraud? What do you call fractional-reserve banking? Altruism? Mr. Kim has just about nailed it.

Unfortunately, there is no efficient open outcry market in spot precious metals, so there will large arbitrage premiums on coins and small volume bullion. Nevertheless, even the premiums are distorted downward from the free clearing prices. Just buy these bargains and take delivery. Flee into real goods, dump paper.

2008 Sep 15 06:40 PM

[Mioracle:]

If the author's thesis is true, is this not a buying opportunity as the market eventually works out these price discrepancies and the commodity goes higher? It seems to me (what do I know, Dammit Jim I'm only a doctor) that all the conditions that caused $1k gold are still here in spades, and we'll get that cover of Time magazine spike sooner or later

2008 Sep 15 07:04 PM

[Lionheart:]

While what the author is saying is true.......I can't help but say "WHERE have you been the last two months"???????

But alas.....it allows one to buy more. I was lucky enough to pick up 10 100oz bars today from a major supplier for a buck over COMEX spot. 12.19 a bar is pretty hot dam to me....

2008 Sep 15 07:09 PM

[huskerbob:]

ChrisB: "No one asks what happens to the supply and demand of GE or XOM shares"
Maybe you would if the price for the actual printed paper shares was higher than the quoted market price. Or if sales of the paper shares were repeatedly suspended "due to unprecedented demand" when the quoted price was high and later when the price dropped.
If "Coin-hoarding by gold bugs" is only a drop in the market, where is all the physical gold and silver?

2008 Sep 15 07:15 PM

[quicks:]

Even if the physical demand mentioned by chris b. were a drop in the bucket (coins, jewelry, which it isn't as the last poster has said,
DON'T you know that prices are made at the margin? Thus, a supply / demand imbalance in favor of demand as today, has that marginal effect you claim does not exist.

As to paper Ag/Au, yeah right, just try to take delivery on the COMEX? Ever heard of Nelson and Bunker? Far from being anything like manipulators, they were the ones who were manipulated out of billions.
GLD/SLV: 50,000oz of SLV, that's for Joe Average for sure to take delivery of.

Paper PM's only reason for being is to channel investor demand for PMs into a paperform, to make it just as susceptible to all sorts of dealings as any other paper promise. You buy it because it is convenient, and thus trade your security away for it.

2008 Sep 15 08:38 PM

[grishmoney:]

DOES ANYONE HAVE THE ANSWER???

In light of the current increase in physical gold/silver demand and prices not being reflected by current gold spot prices. How is that discrepancy going to affect miners revenue ? Revenues are typically reported based on averages spot prices for the quarter. Will miners continue to post their quarterly sales based on numbers of the paper futures market or the actual physical market ?

2008 Sep 15 09:18 PM

[lnardozi:]

Here's the thing that gets me - all these intelligent comments and yet not one answers the 'What if I'm right/wrong' dichotomy. If I buy gold because I think the economy might collapse or hyperinflation might occur and I'm right - I'll have a literally priceless cache of real value I can use to build real wealth as opposed to worthless paper. If I'm wrong, I might still make a fair amount of money. At worst, my money will diminish slightly and I will have lost the opportunity to make some profits - maybe 10% a year.

Just curious, but to you which is the worst worst case scenario? Which is the best best case scenario?

2008 Sep 15 09:47 PM

[Cesato:]

The article deserves an applause for its length and extensive research but even the author got caught in the BUY setup of 99% of brokers, Gold is a sell until the end of September then you can buy for a medium term profit and regardless of what they tell you a sub USD 700 dip can't be ruled out and if yo buy don't fell in love with your Gold, there is always room for the unexpected. Actually if every single currency and metal (except Gold) has gone through a 100% retracement from September last year, why Gold should not? Because these gentlemen who bought Gold at higher prices based their short-term analysis in wishful thinking, which is a quiet common emotional behavior in financial markets, exercise patience, Gold may come to you at USD 650 or so, if it doesn't at least you are not exposed short-term, if it does then you can control an eventual drop from USD 650 much easier, however bear in mind that the relation GOLD/OIL/USD has not been lost as of yet, when you see a G/O/U above 6 then there may a good chance of Gold being decoupled and becoming a cash safe haven

2008 Sep 15 10:36 PM

[dlaw:]

The other thing people should keep in mind is that there is ALWAYS a premium on coinage above bullion.

And for the people who talk about fractional-reserve banking, you're basically saying the same thing as people who didn't believe airplanes could really fly.

Just because you don't understand the math, doesn't mean it doesn't work.

2008 Sep 15 10:54 PM

[nononameo:]

There's always a premium of coinage above bullion, but the premium is increasing, as the price is falling.

The thing that a lot of people don't understand is that the physical dealing in gold is a small fraction of the notional value of the derivative trading. Therefore, it's almost trivial from a monetary standpoint for the FED to have a few of their banks short the futures to cap the price.

They were all saying a few months ago that the big problem was "inflation indicators" and that something needed to be done. They just took the direct approach. They shorted the market down to whatever price they chose.

What would blow their scheme out of the water? If a large player wanted physical delivery on the contract, then you can't deliver what you don't have and it would cause the mother of all short squeezes.

So when the Chinese of a few of the Saudis decide they want a lot of the real thing, if they just stood for delivery in the futures markets they would basically wipe out the western banking system because the price of gold would soar, indicating a complete loss of confidence in fiat money and the currencies would be defacto collapsing against intrinsic value.

2008 Sep 15 11:07 PM

[Novista:]

Some historical perspective: if 'the barbaric relic' is so useless, as the debunkers would have it, why are governments so keen on getting it?

FDR seized citizens' gold "to prevent hoarding" at first ... then decided to keep it, paying $20.47/oz. And next, he set the official price of gold at $35, effectively devaluing the then dollar. By the end of WW2, it's said the U.S. owned 80% of the gold reserves of the world.

Over the next quarter century, that gold provided great prosperity for the American economy. Until 1971, when the BoE redeemed 3 billions U.S. dollars for gold. And one might assume that U.S. reserves had significantly depleted -- because Nixon trashed Bretton Woods: no more redeeming. The last remaining peg to gold for the dollar was gone -- the dollar floated. That worked for a time, as the world reserve currency (as good as gold) and oil was king.

It could well be the real Bubble began in 1946 -- and it's been downhill ever since, given the adjusted value of the U.S. dollar from then until now.

To those who do not own TinFoil Hats, I point to a report released by the Nikkei of a plan hatched earlier in the year to prop up the U.S. dollar "but it was never implemented. Uh huh. So the recent dollar rally was just cuz the economic fundamentals had increased so much, eh?

Then one recalls the 1980 price of gold, c. $850 and the sudden decline -- to the point at near bottom, Gordon Brown sold off 2 billions ounces. Eh? Once hammered down, we'll keep it down?

Adam Smith saw 'the invisible hand of the market' but I see more than one invisible hand at work. Plunge Protection Team, anyone?

The Fed, ECB, BoE and BoJ all assisted in 'liquidity' of the credit system since August last year; brokered sales (Bear Stearns), bailouts of 'too big to fail', conservatorships, $70 billion to cover the possible derivatives crisis just last Sunday. No manipulation of the free market? Heh!

2008 Sep 15 11:09 PM

[nononameo:]

Well, they have the means, the motivation and the mechanism with which to manipulate the price.

If that weren't enough, we find them sitting with 20% of the open interest in the futures markets on the short side.

I guess some people just believe "the US Federal Reserve (a private corporation) would never do something like that". Those are the ones you can fool all the time.

2008 Sep 15 11:27 PM

[Tom deSabla:]

Also, has anyone seen James Turk's latest?

www.kitco.com/ind/Turk...

In it he has a link to the "working stock of the U.S. Mint" which is the stock they make their Gold Eagles from.

Curiously, the amount of that working stock has remained completely, absolutely UNCHANGED for 28 months in a row.

The number is exact - right down to the fraction of an ounce.

Somebody is lying to us here.

2008 Sep 15 11:36 PM

[greyprogress:]

Well... I think telling everyone to send a link to your article to everyone they know who invests in equities isn't the right political solution. Instead... I think South Africa should take the lead in a political movement that sees the entire African continent reverting to the gold standard... um dot dot dot and then... this will reverse colonialism, and... the USA will also become a third world country but this won't be a bad thing. More like... the Red Indians won in the end.

So... the best idea I can offer to readers of this article and its comments is: call me stupid. According to your way of thinking: I am.

People in Africa aren't as stupid or weak, or defenseless, or as ignorant AS YOU THINK.

Maybe we have just been patient. Has this thought ever occurred to you?

I guess not!

Just don't underestimate the Nigerians!

We in Africa do know how to use the Internet.

We just don't want you, in the West, to know... that we do.

2008 Sep 16 12:05 AM

[nononameo:]

They don't have any gold left. Anyone who thinks they do hasn't been following along. It's probably all sitting in the private vaults of the anonymous private shareholders of the private corporation called the Federal Reserve.

2008 Sep 16 12:06 AM

[bbzz24:]

Kim,
Have you heard that futures are traded on the margin and that there is somthing called credit crisis going on?
Those things severly limit the speculation opportunities and just like oil, speculation on the small commodities exchanges drives the spot price, it aint real supply and demand.

2008 Sep 16 01:27 AM

[fwiw:]

Keep up the good work Mr. Kim...

at best you may help expose the dirty stinky boyz pulling the strings.

at worst you wasted some time and we actually have free markets - hurray!

In the meantime I'm trading my paper for the shiny stuff, while it's still low hanging fruit. If you think the shortage is bad now, wait until tsrhtf.

2008 Sep 16 01:48 AM

[trader58:]

Kudos Novista you get it. So to all you gold bugs out there which I also claim to be,our long awaited explosion in the price of gold will be met with a FDR style take away of the public's gold. Do any of you really believe that the Presidents Working Group will be denied it's goal. You all have just seen the major manipulation of the gold prices. This was just their attempt to do it in a nice way, it only get's uglier from here.

2008 Sep 16 02:00 AM

[Bron Suchecki:]

Mr Kim,

"Look to the physical markets, not the paper markets, for the real price of gold and silver." - correct

"Who cares what the paper futures markets are stating as the spot price of silver" - incorrect. Futures markets only give you the future price for silver. If you want the spot price (is the price for immediate delivery) then you look to the spot over-the-counter market.

"... have to pay 60% more than this price when buying silver coins in the real world? The price is simply what I have to pay for the real physical silver, period." Incorrect. You have made the mistake of assuming that the price of coins relfects the price of physical silver. The price of silver coins only reflects the price of silver coins, not of "physical silver". "Physical silver", to me as someone who works in the precious metals industry, means 1000oz silver bars - the wholesale form silver trades in, in the over-the-counter spot market and futures market.

In you article you use the example of a bushel of corn selling in the futures market for $1.40 compared to a bushel of corn selling at a farm for $3.10. If you are to apply this analogy to silver, you should be comparing the price of the silver futures to its equivalent physical form in the spot market, which is a 1000oz silver bar. Comparing silver futures to the price of a 1oz silver coin is like comparing corn futures to the price of popcorn.

Popcorn is corn with additional costs added to it to get it from bulk wholesale form to the end consumer in a small retail form. Similar work is required to convert wholesale silver which the futures price is trading down into small retail sizes. They are not comparable.

What the high prices of coins represent is more production problems in dealing with the increased demand, not a shortage in the spot market for bulk physical silver. The law of supply and demand is operating in the coin market - limited supply, increased demand, price up.

The law of supply and demand is also operating in the spot market for silver - see this blog I wrote
goldchat.blogspot.com/... - wholesale forms of silver are available if you pay the spot price.

2008 Sep 16 02:26 AM

[J. S. Kim:]

Bron,

Sure of course I understand that you can buy silver and gold bars at spot prices. I only used the coin example to illustrate the discrepancies between the paper and physical markets. But yes buy gold/silver bars and coins, avoid the ETFs and paper representations of gold bars such as Perth mint certificates. Yes, I am 100% in agreement with you there.

JK

2008 Sep 16 02:57 AM

[relmor:]

If coin shops(the only local outlet to buy the product in question) refuse to sell at spot, or do not have stock(I live in a very large city, and silver was done here, period) and you see prices dropping and their is a reason, and its valid, then coin shops should have been desperate to sell to you at those prices, seeing larger losses possibly in the future. Now Kitco will pay you a huge premium over spot to BUY you coins, etc...
O, and its not 20 percent of the short side, 6 investment banks hold, oops I mean 5 investments banks(LOL) hehehehe now, 5, hold 80 PERCENT OF THE SHORT INTEREST IN GOLD. 20 percent? BLLLLAHAHHAHAHH
Your figures are WAY off. You people dont understand how manipulated it really is, this guy is just hitting the tip of the iceberg. But these points are nothing new, and gold people call it the 9 o clock plunge. Happens 90 percent of the time, New York NEVER RAISES GOLD. How is that mathematically possibly. Basically London and New York tell the world they are wrong 90 percent of the time about the price of gold. Wow, what a terrible track record the world has.
5 banks cannot be allowed to hold 80 percent of one side. Thats not only not fair, but illegal, and it happens every day. And it will continue to happen until the people of this country demand fair markets.
Stock market is a joke, and now they have made futures markets a joke. Holding physical gold and silver is the ONLY safe investment left.

2008 Sep 16 05:44 AM

[utfb:]

Are you saying B U Y? Those asian traders are really some pretty savy guys are you sure they had nothing to do with this. If only the Hunt brothers were here now they'd have been in on it.

2008 Sep 16 06:31 AM

[dlaw:]

I HEREBY RESCIND MY NEGATIVE CALL ON GOLD - for the moment.

When old folks are losing their retirement annuities, who knows what they'll do in the very short term.

In the short-intermediate term, gold is an amazing short sale.

When people don't have MONEY they last thing they are going to waste MONEY on is gold. Because gold is NOT money.

And our problem now...and OH BOY is it a big problem...is a lack of money. So after the panic buying by people who think that all banking is imaginary and all that nonsense, gold goes back not only to being a commodity, but a relatively useless commodity.

2008 Sep 16 08:21 AM

[dlaw:]

The Contest Is On: Gold or Fiat Money.

Reactionary Capitalism or Socialism.

Fiat Money will win, hands down.

2008 Sep 16 08:23 AM

[bsharvy:]

Iyamwutiam, did you actually read your own link? here is what it says:

"However, with a decrease of 19% on Q2’07 to 735.6 tonnes, the continued high and volatile price of gold dampened total demand in tonnage terms during the quarter, according to Gold Demand Trends, which was released on August 13 by the World Gold Council (WGC). This particularly impinged on jewellery demand, which fell 24% to 504 tonnes and was also affected by tightened consumer spending due to the global credit squeeze and growing inflationary pressures. Markets which saw the largest decline in jewellery demand were India, which fell 47% to 118 tonnes, and the US, which fell 30% to 33 tonnes."

2008 Sep 16 08:35 AM

[Bron Suchecki:]

Mr Kim,

My point is that using coin prices as an example to illustrate the discrepancies between the paper and physical markets exaggerates the discrepancy.

"avoid the ETFs and paper representations of gold bars such as Perth mint certificates". Both of these, as well as goldmoney.com and bullionvault.com, claim to have physical unsegregated bulk gold backing their "paper/electronic" client balances. Are you philosophically against such products or are you claiming they are inherently fraudulent?

I work at the Perth Mint and can assure you we have gold and silver. I am also very comfortable with goldmoney and bullionvault, considering the people operating those services. I don't have a problem if you are not comfortable with such services philosophically, but your use of "paper representations" in my reading strongly implies fraud (ie little or no physical metal backing the client balances).

2008 Sep 16 08:42 AM

[huangjin:]

I trust the underpants gnomes profit model more than I trust conpiracies of gold manipulation.

Phase 1: Collect Underpants
Phase 2: ???
Phase 3: Profit

2008 Sep 16 09:32 AM

[Dan Walker:]

Typical BS commentary following an article describing the facts during a period of PPT manipulation. All a big smoke screen. Why the smoke screen? If you are going to seize Fannie and Freddie, you need to somehow defuse the gold market; particularly if you suspect Lehman and Merrill are soon to follow for the third act. Where does this argument will fall apart? It really doesn't but we will soon see gold falling as it is sold to raise cash to support trading in other markets (or redemptions) by the hedge funds, etc. The author is fundamentally correct (and the cheapest I bought any gold the months of July and August was $100 over spot) but we will probably take one more look down before it is over.

2008 Sep 16 09:36 AM

[Gary Noffke:]

Great article that was well researched. I have more than suspected manipulation of gold prices for the past few years. First I considered it to be speculation, but with the banks folding, gas going to $4.50, grains up, etc., it became apparent more was driving the market up and down than supply and demand. Rumors and short selling seem to be the culprit. I was trying to find hourly and daily volume charts for gold futures yesterday, but no luck. Find those and study them and you'll find this article more than credible. Buying futures without any intention of taking physical possession has turned Wall Street into a casino. Just find out who's buying and selling billions of dollars in commodities on a daily or weekly basis, jail them and put their funds in the US Treasury. Kim is right that this manipulation is going on and it's being done by the same individuals or groups over and over and over and over... Of course there's nothing wrong with it, it's just fraud.

2008 Sep 16 09:37 AM

[Rhett:]

Listen up, idiots. Kim is onto something. There is no economic reason for the recent rise in the dollar, nor for the plunge in the price of gold. Something is screwy and it's beginning to smell.

2008 Sep 16 09:40 AM

[Kelly Liebe...:]

How you position yourself through this crisis NOW will determine the quality of life you and your family will live for the next 5-10 years at the minimum.
Only you can decide whether you believe precious metals are a hedge against what looks to many as a major financial meltdown. My bet had been to protect myself against a major turn by cashing in my stocks, moving into shorts on the dow and buying metals on dips.
Absolutely, I bought a portion of my metals high...but I was hedged with my shorts on the dow and made out ok.
This crisis is a situation where you need to have insurance in place - in case. In the end your views on metals won't matter. The sentiments of foreign markets, and the average citizen across the world are going to be what determines their movement and if history repeats itself..it is time to take out some insurance.

2008 Sep 16 09:43 AM

[quicks:]

dlaw writes:
"The Contest Is On: Gold or Fiat Money. Reactionary Capitalism or Socialism. Fiat Money will win, hands down."

What blather!
Sure the choice by the powers that be, and also by the people, will be for the quick fix, and seeming solution of fiat money. In that sense, fiat money will WIN the in the game made by people.

BUT, there are certain rules in this "game", which man can not alter, and eventually will win out.

Thus the logical consequences of your win argument is actually against you, that is, fiat money leads to hard money in the long run through its ultimate demise.

REACTIONARY? Far from it. A system that empowers the little guy (if he only chooses to play), and which has the power to bind the big guys hands, thus increasing, not decreasing personal and societal liberties, is anything BUT reactionary.

It is liberating. If you do not believe that, then you must believe that our founders (Washington, Jefferson, Andrew Jackson a bit later) were reactionaries. Which of course they were not.
Hamilton though was, and that is why he was in FAVOR of central banking and fiat money.

And your socialism is the top-down kind, where the whole protects the big guy from the little guy, which is the opposite of what socialism PRETENDS to do.

So dlaw, you have it all backwards!

2008 Sep 16 09:47 AM

[musicrok:]

Mr. Kim is dead on and no doubt about it. He lays the whole thing out perfectly. Just look at the graphs on a daily basis from the London to New York markets regarding gold futures. The steep drops every day at the same time are not normal market behavior. This type of manipulation is disgusting! Our dollars should be backed by gold and silver as was written by our wise forefathers, who could see the disastrous effect of allowing the banks to control the money supply. Real gold and silver backing does not allow for this kind of manipulation and basic inflation of our currency. Who really suffers are the elderly and anyone on a fixed income which includes most people in America. It's time for people to wake up to the fact that they are being trashed and their freedoms taken away. Honest money equals freedom becuase honest money cannot be manipulated easily. The congress should do away with the Federal Reserve and we should go back to a gold standard. Who do you think got us into this mess of printing money out of thin air? Could it be people who want to manipulate the financial industry becuase of their greed and at everyone else's expense through inflation? It is bound to fail, as we are seeing on a daily basis with three major investment banks gone, and never once in history has the printing of money with no backing worked out positively. Increasing debt as a solution will never work. It's time to wake up. Simmy

2008 Sep 16 11:01 AM

[yipes:]

Excellent article and analysis. A compelling theory to a situation which is unknowable. NY selling and rest of world buying occured several years ago for a protracted period to the extent that it was a statistical impossibility. That all markets are controlled is truly a given. Welcome to the cartoon. Ultimately, value will out, and the fiat will return to its intrinsic value. Thank you Mr. Kim !

2008 Sep 16 11:15 AM

[marxbites:]

dlaw repeat after me:

Govt loves me and NEVER tells me lies. It cares ONLY about me and nothing for itself or it's longevity and powers.

The private shareholders of the Fed's stock are ALL altruists we should trust with such abandon that congress should NEVER put the Fed in a hotseat over it's policies. Stop demanding the accounting that never happens and let them print the dollar back to paper's intrinsic value; ZERO. All because they did it to the BofE means to be as sophisticated as the mother country we too should let the same scum run our money too? Now ALL countries EXCEPT the evildoers have CB's that work in concert with our own to inflate harmoniously!

dlaw - study some banking history at mises.org - you haven't a clue.

2008 Sep 16 12:22 PM

[marxbites:]

Quicks & Yipes I am in total agreement, you speak 100% truths.

dlaw got HIS degree at Sears I guess, or is a banker/shill.

2008 Sep 16 12:25 PM

[Freetruth:]

dlaw - "And for the people who talk about fractional-reserve banking, you're basically saying the same thing as people who didn't believe airplanes could really fly.

Just because you don't understand the math, doesn't mean it doesn't work."

If you don't believe in National Socialist Banking then you're denying scientific progress? Don't understand the math? What a typical pompous socialist comment. If you don't understand the theory then the math is irrelevant. All the accounting tricks in the world can't change the fact that fractional reserve banking is legalized fraud and thus "moral hazard" is inherent in the system. Manipulation of financial markets is the what they do and why they were created in the first place!

Artificial booms created by credit money expansion will lead to real crashes when the malinvestments are exposed: every time. The most intelligent math whiz central planners in the world can't get around the basic calculation problem and all of the idiot formulas in the world can't overcome it in the long run. This goes for central banking as well.

I must admit that the concept of a socialist entrepreneur is creative; a loony contradiction of terms, but creative. Socialists used the USSR, Poland, et al as empirical evidence of the viability of centrally planned (socialist) economies for years; sure they worked right up until they crashed and burned. Pointing out the viability of the Federal Reserve as evidence that central banking “can fly” will turn out the same way. Try reading some Austrian Economics and get back to me when you understand.

2008 Sep 16 01:01 PM

[nononameo:]

I hope everyone in this thread is familiar with this quote. This is an open acknowledgment that the central banks manage the price of gold. It one of their most effective policy tools since gold is seen worldwide as an indicator of inflationary expectations.

"Central banks stand ready to lease gold in increasing quantities should the price rise." Alan Greenspan On July 24, 1998, before the House Banking Committee

2008 Sep 16 01:01 PM

[davemcc3300:]

What happens if U.S. buys back foreign debts with gold from Fort Know?

2008 Sep 16 01:11 PM

[User 30121:]

Okay, I read ALL the posts! ChrisB, you started off the nightmare and dlaw and the rest of the nay-sayers, perpetuated it. You are all IDIOTS! And I do feel VERY sorry for you. Because if you are serious of what you speak, you will feel the PAIN very soon. The unfortunate part is that your loved ones, as Kelly Lieberman so aptly states, will also feel the pain. Wise up. The government, and other greedy elitist bastards are NOT concerned with you or your money, EXCEPT TO TAX YOU FROM IT AND TO MANIPULATE YOU FROM IT IN THE MARKETS! And I LOVE this country (USA), but we must think for ourselves!

2008 Sep 16 01:18 PM

[nononameo:]

I don't think there is any gold in Ft Knox. If there is, it has been leased or loaned. the net position of the US government/Federal Reserve is a short position. Not only do they not have any, they are liable for gold they don't own. See the quote from Greenspan above. Fiat money has no tangible asset backing whatsoever.

2008 Sep 16 01:20 PM

[Wolfgang Mu...:]

Gold and silver are money. Increases in gold and silver in nominal terms clearly highlight the debasement of fiat currencies, which has accelerated ever since the link to precious metals has been severed. With the credit crisis and government intervention in full swing, the debasement of the currency became a very significant issue. Therefore, the engineered decline in the value of gold and silver was an essential step to give the appearance of a "strengthening" dollar and to shore up confidence in financial assets. (Both objectives either have or are destined to fail.) Increases in net short gold and silver positions in the commitment of trader report during the period cited by the author provide a further indication of the extent of the intervention. (Ted Butler, who has analyzed the silver market extensively for the past 20 years and has recently started to comment on gold, has commented exhaustively on the COMEX net short positions.)

2008 Sep 16 01:20 PM

[nononameo:]

One insight I have is the following. By artificially depressing the price via the futures markets, they are causing a surge in physical demand. If we get to a situation where there are no quantities of physical metal to be found, I would expect that large buyers would resort to standing for delivery of the metal via a long futures position. So this is the real risk of their price manipulation scheme...you can only sell what you don't have until the guy on the other side of the trade wants the real thing.

I think ultimately the Chinese and the Russians and all the other countries who have recently been burned buying US paper will wise up and decide they want gold, not dollars. If they start selling dollars for gold (the real thing) lookout above.

2008 Sep 16 01:47 PM

[notsosmart:]

if it all collapses gold is useless.except for those(maybe martha stewart)who have the recipe for gold soup or gold pot pie.but & store dried food.my grandfather was in germany before ww2 during the high inflation era & he threw 50 lbs of gold into the main river so he would not be killed for it.this is just more bs for the gold folks to make money.

2008 Sep 16 01:57 PM

[nononameo:]

not true notsosmart.

Assuming that you have wealth to protect, gold is the oldest, most time tested portable method of wealth storage and protection for the simple reason that it has a lot of intrinsic value in a compact storage volume, and it does not degrade or have any special storage or cost of carry requirements.

In other words, assuming you are trying to protect 2 million dollars, how many pallets of baked beans do you think that equals?

People buying gold for wealth storage aren't assuming they need to eat it, they are protecting their wealth from confiscation due to inflation.

2008 Sep 16 02:08 PM

[notsosmart:]

show me situations where gold was more important than food & water.look at history.

2008 Sep 16 02:19 PM

[st8nme:]

Freetruth,

You took the words right out of my mouth regarding the fractional reserve/airplane comment. You just have to laugh at the vast ignorance of such a comment......until you realize people like him/her have had and currently have real power over the lives of real people. Then only the best of us can keep from weeping.

You can avoid reality but you can't avoid the consequences of avoiding reality.

2008 Sep 16 02:19 PM

[notsosmart:]

also the gov. can make gold illegal anytime.i think vietnam just did.if that happens lots of lawbreakers will be very nervous.it cant happen here you say?LOL.

2008 Sep 16 02:22 PM

[dlaw:]

If AIG fails and gold doesn't spike through well-above $800, the Hobbesian gold fantasy is finished.

Dead.

Your only hope will be if the third world adopts a gold standard - which they can't do at this gold price anyway.

Goldbugs are about to find out what money really is.

Fiat Money.

2008 Sep 16 02:43 PM

[Kelly Liebe...:]

Well now there you have it... the Fed finally admits it.. our economy is tanking. CNN 1:25 central time.

Everybody who reads these boards has had plenty of time to get prepared.. I feel sorry for the average person who has just had their life savings swindled...

If you haven't heard it yet, go buy what you can and store it for later.

The dominos are falling and the fallout will be huge. McCain can say Americans are resiliant, but I think he is talking about the Americans he knows... the ones that own multiple houses, like himself. Americans that are losing their homes are not going to make it and that will affect all of us.

Your decision. But don't say you haven't been warned.

2008 Sep 16 02:44 PM

[marxbites:]

notsosmart - how apropo!

BTW gang - that banker bastard FDR only stole perhaps 20% of the people's gold. 80% of were too smart to fall for the unconstitutional ruse of confiscating their gold.

I am only guessing some today will be less adamant but hopefully more will be more adamant to prevent their wealth's theft by our govt run by the criminals in the CFR/NWO/FedRes/Int'l Banking cabal.

Pick any administration since Ike and see how both the presidents and their cabinets are almost wholly comprised of CFR members. Even the staffs of the Warren & 9/11 Commission coverups were almost wholly CFR members.

The CFR, a banker propaganda machine, was created to prevent the repeat of another expose' the likes that patriot journalists burnt criminal banking puppet Wilson with, over the coming WW2 already long on their drawing boards.

John Maynard Keynes
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency - "By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some....The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose."

Thomas Jefferson
"If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered."

Alan Greenspan - “Gold and Economic Freedom” 1967
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

H.L. Mencken
The urge to save humanity is almost always only a false-face for the urge to rule it.

More than ANY OTHER group, it was BANKERS who agitated most for American entry into WW1 that Wilson was reelected to keep us out of.

The Fed and Inc Taxes were NOT coincidental but imperative to our entry for the bankers.

2008 Sep 16 03:15 PM

[Freetruth:]

Gold won't spike because of AIG or any other big financial company going down. That is deflationary and one of the causes for the price of gold going down recently while the dollar goes up. That is the supply of fiat money has been decreasing as bad loans are written off and new credit has been restricted. Its not the event, but the reaction to the event that is important to note. Gold will retain its value (but increase in dollar price) when the dollar tanks because of the reaction by the central bank is to create more credit/fiat money.

The Fed thus far has not been successful in re-inflating the collapsing bubbles, though not for lack of effort. I have faith that the Fed will eventually be successful in doing what it is they are trying to do (inflate the money supply with credit-money through bailouts). More bailouts are coming and not just financial firms, but auto makers, airlines, and other politically connected industrial companies. The lender of last resort is lending their little hearts out, so just give them time. Also I’d guess that another tax/energy/whatever “rebate” check will be sent out in the mail early next year, but this time much larger than the last. Helicopter Ben has only just begun to fight! It will take about 9 to 18 months before we see the fruits of his efforts and the genie of hyper-inflation will be hard to put back in the bottle.

Hobbes was a statist idiot. Try reading Rothbard and Mises for a better philosophy and more clear understanding of the Natural Order.

The economy won’t completely collapse, look at Zimbabwe, it keeps hanging on and our economy is much, much larger. The adjustment will be painful for many of course, especially those holding paper assets and lacking marketable skills. Food and water will not be a problem to get for those with real assets and/or marketable skills. Families, friends and neighbors will have a chance to again supplant the corporate-state institutions that are crumbling as we speak with local networks and age-old social institutions. This is a good thing and the start of a better free-market money system. Gold and silver has always emerged as the most popular commodity-money and will again. Then you will see what "real money" is.

2008 Sep 16 03:35 PM

[st8nme:]

"If AIG fails and gold doesn't spike through well-above $800, the Hobbesian gold fantasy is finished.

Dead.

Your only hope will be if the third world adopts a gold standard - which they can't do at this gold price anyway.

Goldbugs are about to find out what money really is.

Fiat Money."

Ahahahahahahahahahaaha... Holy cow! Do you even know who Hobbes was? You obviously do not know anything about his philosophy. While you are re-taking Phil. 101 you might also want to check out the OED's definition of "real".

I've taken a look at your website -- A little knowledge is a dangerous thing, indeed. Ahahahahahahahahaahaha... You should probably consider posting (PROMINENTLY) a "For Entertainment Purposes Only" message at the very top of the page.

Geesh......

2008 Sep 16 03:41 PM

[nononameo:]

I agree with what you are saying freetruth, but the thing you omitted is that in order for the FED to be in a position to reinflate, first they had to get rid of the baked in inflationary expectations, and they did that by collapsing commodities.

The FED has entered an era where brute force covert market management is required, at least at certain times.

If they had not taken these actions, they would not be in a position to reinflate, they would be hyperinflating...which I think is the ultimate outcome of all this fiat madness anyway.

2008 Sep 16 03:46 PM

[extinctionism:]

1) I don’t believe there is a conspiracy concerning gold and silver more than the usual short term speculative frenzies that are indeed a huge factor- traders do follow fashion.

2) This article does not take into account the difference between institutional and retail demand. Institutions were selling bullion in bulk and the futures were perfectly synchronized (actually, trading at a premium) to spot. Retailer buyers were buying up the small size coins (one ounce) causing a temporary backlog due to a sudden surge, hence the so-called discrepancy.

3) He minimizes the capital destruction in the financial markets as a reason for the rally in the US dollar and again minimizes the effect of the dollar on the POG.

4) He cites year over year demand in the retail space without any reference to the demand (or lack thereof) at the higher prices

5) He fails to note that the POG has plummeted very rapidly and that retail gold is not stockpiled in large quantities. All of a sudden, it’s a good deal and everybody wants to buy it at once. He would need to cite the typical available retail supply/demand on a month-to-month basis. Again, as I mentioned, he fails to take into account a sudden surge due to the affordability factor.

6) I waited for a long time for palladium coins from nwtmint back when there was not much volitility. The fact is, due to volatility in the spot and future markets, the capacity of the retail component to respond simultaneously is not possible nor has it ever been. These dealers operate on a very tight margin and don’t stock much as a result. Kind of like Dell.

7) Gold and silver were way above their monthly moving averages.

8) We are in a deflationary credit collapse, which is the opposite of hyperinflation. The hyperinflation already took place.

10) Commodities typically respond to recessions by going down.

11) Volatility is typical of the PM markets and is nothing unusual to be alarmed about.

12) Based on TA AND sentiment, gold can go to $650 ish and silver to $9 and change and we’ll see after that.

My complete guesses:
13) Gold equities could bottom here because they could respond favorably to the drop in the price of oil (along with general equities), which has been a real impediment to their production costs. These equities are ahead of the curve and may have already priced in a bounce off the $650 levels (if it actually does bounce there).

14) All bets are off for either direction should we get anymore big implosions on Wall Street like AIG tomorrow. Gold could go to $1000 or $400. $2,500 is not happening anytime in the foreseeable future.

Interesting, I was just reading about this topic this morning at a website I recommended to a friend yesterday...

Here’s “Mish” on conspiracy psychology…

globaleconomicanalysis...

2008 Sep 16 04:05 PM

[extinctionism:]

1) I don’t believe there is a conspiracy concerning gold and silver more than the usual short term speculative frenzies that are indeed a huge factor- traders do follow fashion.

2) This article does not take into account the difference between institutional and retail demand. Institutions were selling bullion in bulk and the futures were perfectly synchronized (actually, trading at a premium) to spot. Retailer buyers were buying up the small size coins (one ounce) causing a temporary backlog due to a sudden surge, hence the so-called discrepancy.

3) He minimizes the capital destruction in the financial markets as a reason for the rally in the US dollar and again minimizes the effect of the dollar on the POG.

4) He cites year over year demand in the retail space without any reference to the demand (or lack thereof) at the higher prices

5) He fails to note that the POG has plummeted very rapidly and that retail gold is not stockpiled in large quantities. All of a sudden, it’s a good deal and everybody wants to buy it at once. He would need to cite the typical available retail supply/demand on a month-to-month basis. Again, as I mentioned, he fails to take into account a sudden surge due to the affordability factor.

6) I waited for a long time for palladium coins from nwtmint back when there was not much volitility. The fact is, due to volatility in the spot and future markets, the capacity of the retail component to respond simultaneously is not possible nor has it ever been. These dealers operate on a very tight margin and don’t stock much as a result. Kind of like Dell.

7) Gold and silver were way above their monthly moving averages.

8) We are in a deflationary credit collapse, which is the opposite of hyperinflation. The hyperinflation already took place.

10) Commodities typically respond to recessions by going down.

11) Volatility is typical of the PM markets and is nothing unusual to be alarmed about.

12) Based on TA AND sentiment, gold can go to $650 ish and silver to $9 and change and we’ll see after that.

My complete guesses:
13) Gold equities could bottom here because they could respond favorably to the drop in the price of oil (along with general equities), which has been a real impediment to their production costs. These equities are ahead of the curve and may have already priced in a bounce off the $650 levels (if it actually does bounce there).

14) All bets are off for either direction should we get anymore big implosions on Wall Street like AIG tomorrow. Gold could go to $1000 or $400. $2,500 is not happening anytime in the foreseeable future.

Interesting, I was just reading about this topic this morning at a website I recommended to a friend yesterday...

Here’s “Mish” on conspiracy psychology…

globaleconomicanalysis...

2008 Sep 16 04:05 PM

[marxbites:]

Freetruth,

I must tell you that mises.org has been THE veritable font of enlightenment for me. I knew the socialist Dems were evil and started our worst wars, but was long deluded by the Reps, who just as soon as they had the power they'd been denied for forty solid years, turned around and copied the very socialist dems they'd been criticizing for decades. Rothbard's "Wallstreet, Banks and American Foreign Policy" at mises.org or lewrockwell.com should be must reads for all HS and college students. BOTH parties are statist criminals. Ron Paul is the ONLY legislator with ANY integrity who actually upholds his oath defending our embattled and debilitated constitution.

And I can't tell you what an ecouragement it is to see all over the web people like you who are hep to Mises, Rothbard, Hoppe, and all the rest of the freedom loving gang, who daily are disseminating worldwide the superiority of the founder's freedom via ltd govt.

The anti-aggression axiom & 100% self ownership are the simple and self evident basis' of freedom.

And although I still love Reagan for his rhetoric, I now see he was only little more able to speak and do his mind than all the other CFR puppets before him and since. He did not fight the establishment he criticized when running for office - they were placed in his cabinet by the truckloads.

McBama is doing the very same thing. Holtz-Eakins is fresh from his stint at the CFR to handle McCain, and CFR Obama, w/all his CFR handlers, acts like HIS membership is so inconsequential he forgets any of the details of it. I know he's just a liar like they all are. Indeed it was Cheney's admission to his CFR audience that he'd kept his CFR directorship secret when in Congress, that pushed me back to mises for further study and final acceptance, and the realization that BOTH parties work for their banking masters and NOT we the people any longer.

When every multi-national head, every media head, every govt dept head, members of the SCOTUS & Congress, the academic heads, are ALL members of the CFR - which is NEVER mentioned on the lamestream's propaganda tube - then when will the people finally start smelling the limburger and be outraged at power's despicable and dangerous concentrations?

2008 Sep 16 04:13 PM

[carey_jim:]

I echo most economists when I say: Economics is simply the science of models of the very, very complicated human reality of distributing goods and services. It is not about an underlying, invisible reality in the same way that molecular biology is, for example.

Karl Marx POSTULATED that all value comes from labor. Most American disagree because Marx said it, not because they have thought about it and found it to be a bad economic model.

Marx also said that large corporations don't need their owners because large businesses operate very efficiently, like armies where executives correspond to officers and workers correspond to enlisted men. These people, he said, create all value and should get all the profit.

Joseph Schumpeter said that modern capitalist states are inexorably evolving (he wasn't happy about it) towards socialism because, agreeing with Marx, he thought very large corporations can make things more efficiently than small businesses, just as large, centralized armies can fight more efficiently than small, dispersed police forces and militias can.

But our American experience should teach us that both Marx and Schumpeter were wrong.

Instead of being encouraged to think about it, we've been taught that communism is a military danger and that communists might "take over" America.

But in reality, communism/socialism is just an economic model. And, as the last few months have shown, an economic model can be imposed by our own, "conservative" leaders.

We of all countries should know that free enterprise produces more wealth than monopoly capitalism and centralized government.

In fact, as the internet industry, the cell phone industry, the biotechnology industry, the computer industry and even the space program (yes) prove, small, group-driven, creative endeavors a;ways trump big business. They have propelled the United States to economic leadership in the world.

But it is a persistent myth in American that inventors and scientists are unpractical people in white coats who can discover life saving drugs, for example, but only monopoly pharmaceutical firms are capable of "bringing them to market."

The free market is dead only if we let it die.

You said ".... every economics textbook should now have to remove the Law of Supply and Demand from their pages because if free markets still exist, the recent behavior in gold and silver markets strongly obliterates it."

"Should" is a command word for a command economic model. It is just another cog in the socialist machine.

I'm not saying that socialism wont "work" in America but it will freeze us, as China froze a thousand years ago, into what we are now for a thousand years into the future, and the rest of the world will pass us by.

I think if a wealthy Englishman had given Karl Marx the money to move his family from London to New York (he wanted to move to the United States but couldn't afford passage for himself and his family,) he would have repudiated his doctrine.

But what do I know?

2008 Sep 16 04:56 PM

[xsuddensam:]

It's pretty obvious that there has been a concerted and desperate effort by the central banks to drive up the dollar and bring down the price of gold and silver.

I'm sure many have read James Conrad's articles on this subject. If you haven't, check them out:

seekingalpha.com/artic...

seekingalpha.com/artic...

2008 Sep 16 05:04 PM

[cz:]

'blatantly manipulation' in the markets...well, duh!!!

2008 Sep 16 05:08 PM

[Gold Barron:]

I have been wondering why gld and silver are dropping in price. It doesn't make any sense to me whatsoever. I have been trying to buy silver and gold coins but they are either selling for 50% minimum over spot price or not for sale at all. I cant buy from any of the internet dealers like Apmex or Bullion Direct. I got an email today from Apmex saying they wanted to buy gold and silver. Never in the past 4 years has that happened. They will buy your silver eagles for 11.50 but are not selling them. They do have some silver eagles with "light spots" they are selling for 44 dollars each. ??? Something strange is going on!

I am glad I bought those 4000 pre 65 quarters cause it would not surprise me if one day the dollar will not be accepted because it is worthless. Everybody always says that will never happen but it is looking more and more like a strong possibility.

The American people are so dumb that it is scary. It reminds me of that movie called "Idiocracy"

2008 Sep 16 05:20 PM

[Andrew Clif...:]

Gold as a commodity is moderately coupled with OIL. Oil has fallen 40% recently. Hence the gold price is weak. An important point about markets is being ignored in the article. Point-to-point transactions like jewellery and coin sales will always have price inefficiency compared to huge liquid spot and futures markets. So small physical sales will always price lag the futures. The world markets are too big for conspiracies to work.

2008 Sep 16 05:21 PM

[Freetruth:]

Marxbites,

You are one of the few who "get it". If I might suggest another good site it is at: strike-the-root.com

2008 Sep 16 05:32 PM

[extinctionism:]

The Free Market is a term that must be examined with caution. This was the mantra of Reagan and all those since. Has it produced a good result? Unequivocally no! Necessary government regulation was stripped in its name thus weakening the government and leaving it vulnerable to monopolistic corporate takeover. Since the Free Market mantra was first institutionalized through the Gingrich revolution there has been little efficiency gain from the "piratization" of formerly state operated ventures. Wild volatility is terrible for all business except the quick buck casino speculators. Why work when you can flick at your computer? The hallmark of the the last 4 decades of anti government Free Market hooliganism has been an economy entirely defined by M/A, expatriation of capital wealth and productive capacity and the total absence of fixed-capital investment in our own economy. The finely tuned synergistic relationship between government and private enterprise was decimated under its name, the results we see today: America stands at the precipice of a depression and the possible collapse of civilization itself.

The solution to bad government is good government, not no government.

Here's are a few examples of government spending and legislation that would create a return on investment. 1) End the war of terror and earn trust be being trustworthy, honest and peaceful 2) Redeploy the military from the 7000 military bases in 130 countries rebuilding our energy and transportation infrastructure (better than throwing down the toilet in banker bailouts to ponzi schemers) 3) Increase the short term capital gains tax and decrease the long term capital gains tax and give special tax incentives only to those who invest long term in our country. 4) Lock up the Mortgage Fraud criminals and make them an example never to be forgotten. Take our money back while we are at it even if we have to go to Switzerland to get it. 4) Outlaw all off balance sheet vehicles, all unregulated exchanges and painstakingly monitor every cent that crosses our borders.
5) End offshore tax havens.
6) make business know that if you incorporate in America, then manufacture in China and then try to sell back to America you get heavy penalties.
7) End social Security checks to the wealthy who don' t need it.

There is no way that Freedom or Free markets should be extended to mean the right to commit crime. Creative criminality in the digital age is a challenge that needs a challenger fit for the job.

Personally we can withdraw our money from the system and make sure it goes into investments we understand and that benefit our communities and the planet over the long term. Goodwill not Freewill.

2008 Sep 16 05:42 PM

[dlaw:]

I will have a post on my site later about the:

10 Reasons Gold Holdings Are Dead Money.

Look for it.

Meanwhile, we know that gold is a total panic-buy right now, given the gold price reaction to the AIG/Fed news.

That's strange, though, isn't it? Gold somehow goes down on the news that the GOVERNMENT is thinking about securing a private corporation.

Hmm.

Maybe government financing is not so bad. AIG sure seems to think so.

2008 Sep 16 06:22 PM

[Freetruth:]

The purpose of a monopoly on the use of force (a state) is to provide a means for the elite to control/exploit the masses. This inherently violent social institution is used by rulers to compel the ruled to do what they don't want to do and prohibit them from doing what they do want to do. Collectivist fantasies of good men taking control of this evil apparatus to use it for good purposes (i.e. good government) are naive at best. Rationalizing the doctrine of might makes right with good intentions corrupts even the purist of do-gooders. The manipulation by vested interests are too powerful to overcome even if they might throw you a bone once in while. Democracy provides the curtain to hide the men pulling the levers and just compounds the problems. Participating in the democratic process is what gives your rulers legitimacy: don't do it and enjoy life instead.

Don't worry as mitigating social institutions (including local government ala Jefferson) in America will long survive the imploding United States Imperial Federal Government and prosper after its demise ala the USSR (it will go bankrupt). The incredible mounting debt is crushing the USIFG and it can't be stopped at this point. Don't fight it, just get the hell out of the way and enjoy the spectacle of it all.

2008 Sep 16 06:25 PM

[DragonLogos:]

I was going to write a few interesting things, but having spent a long time reading through all the posts, I am tierd and will be off to bed. maybe tomorrow, too tierd to reason

Its plain as day that the markets have been played, and it would all come to a very sticky end if we our vision of reality was not balanced by our need for the eggs (ask Woody) - Its trade Jim, but not as we know it.... or maybe it is

and if that was not bad enough, look out, he is back

The case of the money madness, or there's no fuel like an old fuel

VIII .XXVIII

The copies of Gold and Silver which after theft were thrown in the Lake
At their discovery all is exhausted and dissipated by the debt
All Scripts and bonds are wiped out

Nostradamus

2008 Sep 16 06:55 PM

[DragonLogos:]

too tired to spell..... lol

ZzzzZZZzzzZZzzzzzzzz.....

2008 Sep 16 06:59 PM

[Stickboy:]

Hey Dlaw,

I'll buy you a bullhorn and a ticket to Zimbabwe if you promise to spend an hour standing on a street corner there yelling about how great fiat currencies are and how long they last. I get to pick the corner.

Can anyone name a fiat currency that lasted more than 50 years? With the dollar we're at 37 years and counting...

2008 Sep 16 07:23 PM

[The Shrike:]

Regardless of the arguments from both sides here, is it not a reality that gold is just an object no different to paper with ink on it? Nobody can surely expect the planet to revert back to trading in pieces of gold can they? I am not an economist and admit that I have only looked at a financial website because of what has happened in the last few days. Therefore I am willing to be taught and have read these posts with great interest, however, in the interests of all us punters out here who don't have gold reserves, and who rely on a bank to loan us money to buy a house or build a car or go on a holiday; we couldn't really care about the arguments about fractional reserve banking or manipulation of gold prices. The world must go on. I'd bet the % of people in the world who have gold reseves would be less than 2%. But these comments did get me to thinking. Regardless of all the bullshit(and it is) of 'financial markets, instruments etc', the world goes on as normal. Or it should. Peoples' basic everyday needs don't change. And the govts of all countries understand this, as do the wealthy elites who do have large deposits of gold and whatever else makes them obscenely rich. I guess I'm thinking the underlying system, where most of us work and spend to survive first and then spend for entertainment second, has to be maintained yeh? As much as I can see what people are saying about the fraudulent existence and activities of central banks etc., I believe the fiat money system must win out over gold, whether by market manipulation(the gentler way as someone mentioned earlier) or by something more brutal if needed. They have the power. Which is another level up again from money or wealth. The power is what must be maintained and the protection of the dollar system, for the masses, ensures this will happen. Me personally, a bum of virtually no wealth expects, even demands the price of gold be kept down to protect the present system. The alternative will be bad for all of us. Even for those who do have gold(hence my enjoyment of the post about someone's grandfather throwing gold into the river). The realities of the greater need for status quo should be guiding your decisions. That is probably why the Israeli treasury has been wisely buying up US dollars over the past 12-18 months when it seemed to be a bad investment. If the system is allowed to crash, I will assume we are heading towards a major war. In that case buy manganese. They use it to harden steel.

2008 Sep 16 07:58 PM

[shoppy:]

Lets see now,the housing bubble implodes. We discover that thousands of loans made to people who did not have two pennies to rub. These loans are sold to investors as triple AAA ratings. And no one in the government knew this practise was going on. No fraud or manipulation going on here either.

2008 Sep 16 08:16 PM

[William Dav...:]

Kim is right I watched the daily price movements on kitco.com and day after day the price rose in Asia then fell in New York. I wondered if the Fed was for some reason repeating the policy of the 1930's in some form of removing silver and gold from private hands, private holdings of silver were made illegal in US after 1929 crash. I think they did not some much sell down gold as create deliberate volatility that steadily unnerved the gold investors over time.

2008 Sep 16 08:29 PM

[Absolved:]

THE PSYCHOLOGY OF A CASHLESS SOCIETY:

I think the reason we have not seen more bank runs lies in a current phenomena which couldn't have existed during the Great Depression. Most people, myself included, don't typically carry cash like days past. Our society, for better or worse, has grown accustomed to direct deposit, automated bill payments, and direct access to our checking accounts through debit cards. As our banks reel in the storm of massive de-leveraging, I can't help but think that our apparent lack of concern for our cash is a direct result of our disconnection from even the paper cash. It seems to have lost even the fiat value represented by the paper, displaced largely by the electrons actually exchanged in the system each day. Just my two cents.

2008 Sep 16 09:29 PM

[User 263844:]

Debt is bad....eventually it shall catch up to U.S. Gold and silver are a haven.

2008 Sep 16 09:38 PM

[what the hell:]

wow you guys give way too much credit to the government.

2008 Sep 16 11:33 PM

[CanadianFriend:]

Funny you mention the close relationship between Gold / Oil / Dollar mister Cesato... Don't you guys have something that says "in G.O.D. we thrust" on your american fiat? My two cents...

On another theme I just checked today on this side of the border if I could buy some gold "Mapleleafs" 1 oz from our local Scotiabank in Canada and the prices where ranging from 803 USD to 836 USD. There was no shortage whatsoever and those were the prices including premium. The gold market price was at 780 USD so its not so bad of a premium. I will still wait to see the market direction even though we are suffering the market plunge on our side too.

2008 Sep 16 11:33 PM

[Mitch Chiger:]

Huh?

2008 Sep 16 11:54 PM

[Bron Suchecki:]

The Shrike - in response to your statement/question that gold is just the same as paper, have a read through the Monetary Economics 101 articles at www.goldisfreedom.com/

Professor Antal Fekete explains why gold is money and how a proper gold standard should operate.

2008 Sep 17 06:58 AM

[DizzySailor:]

Three years from now, you are standing on a corner trying to buy food for your family. I'm a farmer and I have a bushel of apples. You have $1000.00 in paper money and 1/50 oz Gold. I have the apples. What do I take for the apples?? Gold or paper? Neither, I keep the apples and you and your family starve. Get it??

2008 Sep 17 09:37 AM

[marxbites:]

The Shrike

Good on you for wanting more truth and insight!

Goto mises.org. They are the world's most trafficked website dealing with freedom from the non-agression axiom's viewpoint. IE 100% self ownership = freedom, anything less is slavery.

At mises pull down the "media" menu, once there search "gold". Most of these are mp3's you can listen to online, or like me, download for free to thumbdrives which I play in my vehicle or DVD player w/USB port.

Heck, here's the page - enjoy the enlightenment !

mises.org/media.aspx?a...

Subster - you are correct, same subterfuge to get the people to not even think about our money and just accept whatever the status quo is or the next banking boondoggles as we have today that probably less than 5-10% of the pop are even paying attention to or could even discuss.

The GOVERNMENT is the enemy of freedom, always was and always will be. The founders knew it but Govt has spent vast billions these past 100+ years to brainwash the people otherwise via media and academe THEY bought off starting w the General Education Board. Classical Academe was thus substituted w/all the freshly indoctrinated statists and socialists who went to Germany for their Phd's, the world's only place to get one ATT.

Not coincidentally bankers were always behind every move to empower govt more for their own control while disempowering the people financially and socially via the new "Sciences" of elites knowing best whats best for individuals, their own preferences be damned.

2008 Sep 17 11:01 AM

[Chris B:]

Inardozi,

Worst case scenarios for gold investors:

Gold falls by 90%, back to its 100 year average appreciation vs. the dollar curve of 2%. This recession turns out to be just that - just another recession, and the world economy fails to collapse as predicted. One's life savings are decimated, so one is forced to sell gold that one bought at the peak of speculative frenzy for pennies on the dollar to pay for healthcare or a meager retirement (In other words, exactly what happened to people who bought in the early 80's during the last alternative-media-insp... bubble / apocalyptic frenzy).

Worst case scenario for non-gold investors:

Another great depression occurs - stocks fall by 60-70%, real estate can't be sold, unemployment is high, and govt. policies are counterproductive. People cut their spending in half by cutting back on cars, fashion, cosmetics, jewelry, plasma TV's, cable and other forms of conspicuous consumption. Some people cut back even more by moving multiple families into those 5,000sf McMansions. 5 years later, the crisis ends, debt is mostly wiped out, and economic recovery begins.

2008 Sep 17 11:12 AM

[marxbites:]

Constitutional Ignorance Forfeits Our Rights
September 16, 2008 12:27 PM by Gary Galles | Other posts by Gary Galles | Comments (10)

September 17 is Constitution Day, marking the anniversary of its 1787 signing. Schools will teach about the Constitution, but not for the obvious reason. Their reason will be that it is now required of every educational institution receiving federal aid. However, they won't teach about the irony of that requirement, which came from the man described as the Senate's leading Constitutional scholar, yet clearly conflicts with the Constitution.

In 2004, Senator Robert Byrd (D.-W.Va.) inserted the requirement into a pork-filled spending bill that was blatantly inconsistent with Americans' general welfare, which is the Constitution's rationale. It also clearly overstepped the 10th Amendment's restriction of the federal government to only its enumerated powers.

His "solution" aside, however, Senator Byrd is correct about our insufficient Constitutional knowledge. In one National Constitution Center poll, while two-thirds of adults said detailed knowledge of it was "absolutely essential," only one in six claimed such knowledge.

Unfortunately, Americans know too little about our Constitution to maintain the freedoms it was designed to protect. Instead, our ignorance leads us to sacrifice rights out of undue deference to majority rule.

America's Constitution is a far cry from establishing majority rule. Our founders did believe in voting to select who should be entrusted with the power of government, but the more important question they asked was what powers will "We, the people" delegate to the federal government to exercise on our behalf? That is why so much of the Constitution, particularly the Bill of Rights, is devoted to what the government is not allowed to do, regardless of majority sentiment. As Jefferson said, our founders fought not for democracy, but for government "tied down from mischief by the chains of the Constitution."

The Constitution contains multiple non-majority rules to protect Americans against federal abuses, such as presidential veto power and the supermajorities required to change the Constitution. Its defense is the rationale for the Supreme Court's power to strike down unconstitutional laws, regardless of how many congressional votes they received. That reflected our founders' antipathy toward pure majority rule.

James Madison said "democracies…have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths." Thomas Jefferson warned that "[an] elective despotism was not the government we fought for," and that "The majority, oppressing an individual, is guilty of a crime, abuses its strength, and by acting on the law of the strongest, breaks up the foundations of society." Alexander Hamilton asserted that "Real liberty is not found in the extremes of democracy."

However, many today feel that our founders' opposition to unlimited democracy can be squared with political determination of everything by saying, "also protecting the rights of the minority." But our lack of Constitutional knowledge means that believing in protecting the rights of minorities does not actually protect them when they are outvoted.

Since Americans don't clearly understand their Constitutional rights against government abuse, the habit of deference to political majorities results in those rights being steamrollered whenever more than 50% vote to do so. Examples are plentiful because, despite the Constitution's imposition of strictly limited, enumerated federal powers, there is no area it does not now reach, if not dominate. And with our protections eroding, majority voting controls more and more of what our founders thought they had put off limits to political determination.

Americans' inattention to the highest law of the land puts our essential rights and liberties at risk,

as we can't effectively defend what we only vaguely know.

Unless we begin taking them as seriously as our founders and vigorously defend the Constitutional safeguards that maintain them, our system of self-government will continue eroding. But when we don't even recognize the irony of a federal mandate to promote understanding the Constitution, when that mandate is inconsistent with the Constitution, we are far from that point.

2008 Sep 17 11:16 AM

[jse17:]

Nice work Mr. Kim and remember that paid shills infect all boards presenting negative perspectives especially before an election!

BTW, does anyone know the date of the last audit of US Gold Reserves!!!! Astoningishly, it appears to have been decades in the past!

2008 Sep 17 11:35 AM

[scullypal:]

What prudent person pays 30% commission on anything? You got two 5's for a 20? There's no conspiracy - only stupidity

2008 Sep 17 12:14 PM

[RDunn:]

You are so going to be proven clueless - despite your articles' learned demeanor. Market forces (supply and demand) are always at work (just people making decisions and acting on them with the knowledge they have at hand.)

Money manipulation under Keynesian and Monetarist policy have distorted the price structure of most goods and services so badly that it is hard to make a "rational decision" and plan for expected long term outcomes.

When people get beyond the central bank propaganda spewed forth on the networks and their lapdog analysts, the demand for gold and silver will be reflected in their prices - expressed in their worthless fiat
paper equivalents.

I think it will be a surprisingly, historically high.
Buy it while you can.

2008 Sep 17 12:27 PM

[quicks:]

marxbites writes:

"And although I still love Reagan for his rhetoric, I now see he was only little more able to speak and do his mind than all the other CFR puppets before him and since. He did not fight the establishment he criticized when running for office - they were placed in his cabinet by the truckloads."

It is interesting to note that Reagan, as Ron Paul only recently pointed out, was in favor of a return to the gold standard.

Once in office we did not hear that from the White House any more.
WHAT changed?
Reagan did have a rather encompassing reform agenda, part of which was sound money, and perhaps even an emasculation of the FED.
Some of his reforms (what we now call supply side, cutting, etc), where implemented, but the money/FED thing was never takled.

As to the FED, Paul Volcker saved it, by restoring its "credibility" with his high interest policy (which BTW is non-repeatable today). One could even argue that his real motive was NOT to save the dollar or the US Economy, but only to save the FED itself.

The simple answer to the WHAT changed question is:
Reagan the man himself.
He was almost killed in March, and people who knew him well, all said that he was a changed man after that, and never the same again.

So perhaps there was more to it than a crazy, Jodi Foster obsessed, loner.
Whatever the case, Reagan abandoned many of his earlier positions (which would have been good for the country, bud bad for the puppetmasters) after the assassination attempt.

Anyone insterested in speculation on this, just google John Hinckley, and look at the Hinkley-Bush familiy ties, and the prospective meeting between Scott Hinkley and Neil Bush the night of the shooting, to see that there could be much more there than we know.
.

2008 Sep 17 12:42 PM

[st8nme:]

Ahahahaahahaha. More keen insight from Dlaw. Happen to look at gold futures today?

No matter though, freetruth (and the Austrian Schoolers) is right. Gold priced in dollars will go down in a deflationary environment.

Can't wait for your article -- Laughter really is the best medicine.

2008 Sep 17 12:47 PM

[William Dav...:]

Do you think anyone at the Fed reads this site, Gold is up 7% in a day. After agreeing with Kim yesterday that it always goes down in New York it shoot up from just before 9am this morning, just to prove me wrong :)

Well I am not complaining.

2008 Sep 17 01:37 PM

[Freetruth:]

check this one out: www.strike-the-root.co...

2008 Sep 17 01:42 PM

[marxbites:]

Wow Quicks!

I vaguely remember reading that long ago before I went back to mises and stayed there - still not convinced BOTH parties were run by the same evil cabal like I know for sure now in my heart of hearts and 100's of hours at mises.

It wouldn't even be a stretch of the imagination vis all the other assassinations and how not one that I can see was really a "lone nut".

Hell, the American history of conspiracies is actually rather pale compared to the greater quantity of evils perpetrated throughout history.

Conspiracy pooh-poohers never studied ANY history or read any Shakespeare, or Cicero. Indeed most of them just do it for lack of the knowledge to even debate, or to marginalize.

Dupe me voted for that criminal idiot W twice. BOTH parties are bought whores for the bankers to puppeteer for us.

Just like Punch & Judy. Thats our evening news people. Thank goodness for the net and guard it's remaining freedom jealously!

Without it I'd still be the clueless duped bioch of this criminal Govt. Like a fiat loving dlaw so to speak.

2008 Sep 17 01:49 PM

[dlaw:]

HAHAHAHAHAHA!!!

Oh, this is beautiful!

GOLD MADNESS IS UPON US!!!!

BUY! Buy! Buy, you survivalist loons!

Dollar Index flat-to-up.

Hmm, how do you explain that?

2008 Sep 17 01:57 PM

[dlaw:]

I'll have it on my site.

2008 Sep 17 01:58 PM

[Praedor Atr...:]

<i>Fiat money has no tangible asset backing whatsoever.</i>

Now c'mon. Paper itself has intrinsic value. Otherwise, it would be free - yet I have to pay for printer paper, copy paper, etc. Thus, fiat money can only go down so far...to the intrinsic value of the paper, ink, and other goo-gaws included in modern paper bills.

2008 Sep 17 02:02 PM

[marxbites:]

Yes and just like 20's Germans did, you may eventually find it's best use as fuel for the stove to keep from freezing.

Tell me someone - why is it that every fiat currency in history eneded badly and no one sees it?

100 years of concerted propaganda by the bankers and the realms of govt, media and academe they bought to control.

The state's "free" education is the least free of all - dlaw is their epitome of their handiwork. Then again so was I not so long ago when I incorrectly believed the Dems were more socialist.

Goto mises.org and strike the root to get your minds right people. The founders would be horrified and ashamed at just how we the people let ourselves be taken down govts rosy path by the wealth and greed behind the scenes.

A MUST READ essay, and I repeat myself, is Rothbard's

"Wall Street, Banks and American Foreign Policy" at lewrockewell.com or mises.org

www.lewrockwell.com/ro...

mises.org/resources/12...

2008 Sep 17 02:36 PM

[st8nme:]

"Tell me someone - why is it that every fiat currency in history ended badly and no one sees it?"

Easy.

All those poor saps who went before us and were destroyed by their blind faith in fiat money (every single time without exception) just didn't understand the math.

2008 Sep 17 03:56 PM

[st8nme:]

Please note: Everyone who buys gold is a "survivalist loon" (except for governments, of course, who are all knowing). Everyone who trusts the money the government is nice enough to print for them is a sound, well adjusted, fully integrated, intelligent human being. Got people? Good. Now get back to work.

2008 Sep 17 04:07 PM

[marxbites:]

And THAT is the key.

The people actually believe govt is just and necessary when there's never been a time that govts weren't just the ruses of breadcrumbs and circuses for the few to rob the many. We have in spades the elite rule Hamilton always wanted that central banks a la the BoE are central to.

Our founders KNEW THIS well. Elites have retaught the masses otherwise on the masses' dime.

McBama is calling good lil troopers like dlaw to service, Iraq too.

2008 Sep 17 05:37 PM

[quicks:]

To dlaw and others who believe in the notion of fiat "money" , look at the famous situation quoted above by marxbites of German housewives burning billion-mark bills for their intrinsic value as heating supplies.

And, take it back closer to home by about two generations:

What destroyed the value of most dollars of the Confederate States of America?
Was it that their currency lost its value because their issuing government was defeated (thus no more full faith and credit"), or because the intrinsic worth of all that "money" was that of paper?

If you believe the former, then you are a fiat money guy, and you can have all the CSA notes you want.
As for me, I believe in the latter, and as a hard money person, I would love to have more of those nifty PM CSA coins!

Want another example? You fiat guys can have all the 1933-1945 Reichsbank Notes you want, for my part, please give me those nice 1, 2, and 5 Reichsmark coins (and I don't want them for the swastika either, which seems to be the big ticket on ebay).

Just so you get the point, as it seems too hard to convey, neither of those currencies went down the drain because they were inflated away (would have in the long run of course), and yet after the collapse some had value some didn't.

2008 Sep 17 06:01 PM

[marxbites:]

The South primarily lost from inflating their buying power away 2-3x the North's inflation rate.

AIG had bids - they opted for govt. What this Govt just did is about as unAmerican as it gets.

We the people are in for a very rude awakening once power's greed crashes the system and the people revolt, those fema camps will be put to their intended use. I wouldn't doubt all we say here enables those most percieved as threats to the state to be 1st in line for extended vacations. Never doubt our govt is capable of such, it has been done before.

2008 Sep 17 06:29 PM

[hANOVER fIST:]

Remember the M3 aggregate? This was the published estimate of the entire money supply within our economy, up until a short while ago.

Can you guess as to any reason that this figure would be hidden from the American public?

2008 Sep 17 07:10 PM

[Kelly Liebe...:]

Just wondering what everyone is thinking now, after AIG???? Market falling, 14 million avg volume on GLD going to 60 million? Might want to rethink your investment strategy...
Keep a watch on Washington Mutual tomorrow.... They are next in line to fail and the dominos keep falling....

2008 Sep 17 08:55 PM

[Danny Boy:]

Too many tinfoil freaks here. Ah, well, only to be expected. Anyway, fiat money is backed by the assets of American taxpayers, which is something far more valuable than gold.

Second, a gold standard may work ONLY if it were global. Otherwise, a significant rise in gold prices relative to fiat currencies (of the sort that we've experienced over the last few years) will destroy the economies of the countries on a gold standard. Remember what strong dollar did to the US economy in '84. And that was far milder than the recent rise in gold prices.

A global gold standard of the sort we had before ww1, the problem is, is great for global trade, but not so good for managing regional recessions. A country without fiat money and thus no ability to conduct local fiscal policy will suffer through far more severe recessions than would've been the case otherwise.

Which means the governments will start cheating on their gold standard at the first sign of trouble. France devalued the franc several times in the 60's, despite being ostensibly on the gold standard. Imperial Rome destroyed the denarium by reducing its silver content to a fraction of what it was in republican times.

And there you have it. There can be no such thing as a gold standard and there have never in history been a reasonably reliable gold standard, because governments CHEAT and have cheated since the invention of coinage. The best we can expect if the government gets rid of the Fed and pegs the dollar to gold is at the most a decade of kept promises. The very first recession will lead to a devaluation..

2008 Sep 17 09:42 PM

[J. S. Kim:]

By the way, and this is not a plug at all for my services but just an observation, I told my subscribers just a few weeks ago that I was convinced that gold and silver markets had been manipulated (nothing new here given my article above). Again this is very different than a conspiracy. When the Working Group on Financial Markets had intervened numerous times in the U.S. stock markets to prop it up over the past six months, this is free market intervention, not a conspiracy. People that don't believe in manipulation, even when provided with overwhelming supportive circumstantial evidence, tend to try to discredit talk of manipulation by automatically yelling "conspiracy!" rather than just criticizing the logical arguments we present.

In any event, I said to my subscribers, if I am right about this manipulation, we will know because we will see some explosive days to the upside during the rebound, days where gold explodes by $100 an ounce higher in a single day. Well within the past 24 hours, gold has risen more than $97.50 an ounce (including action in Asia this morning). While of course this is not proof I am right about the manipulation schemes, I base my short-term and long-term predictions based upon common sense and logic from things I uncover that are not reported in the mainstream media. The price of gold and silver set in the paper futures market that were so OUT OF SYNC with not only behavior in the physical market but also the fundamentals of the gold and silver market is what led me to state in my above article "make NO mistake that we have just experienced a steep correction and not an end to the gold and silver bull".

Now today, I see the same analysts that said there is still integrity in our gold and silver futures markets, that no manipulation exists, and that stated as recently as just a few weeks ago that gold was going to head to $560 to $600 very shortly are now incredulously stating that gold's meteoric one day rise yesterday was long overdue. What happened to the proclamations of $560 gold and get out from the gold and silver markets while you can?

If you really want to compare those of us that point out such anomalies with those that ridicule the anomalies I've pointed out, you will find for the most part that those of us that find such anomalies have always remained firm in our opinion that the gold and silver bull were not dead, while those that ridicule these anomalies flip flop their views on gold and silver given the slightest change in trend. From being familiar with the views of those analysts, I can almost guarantee you that even though they just stated that gold was headed to $600 or $560 a mere few weeks ago, that most will now not only jump back on the bandwagon but fabricate claims that they previously called for a large leap higher in gold and silver prices.

As professionals, we should always have such discussions regarding the material I presented above in a respectful and courteous manner. There is never any need for those with a brain to resort to insults as a matter of reply. However, my warning here, is not to listen to those analysts that claimed this was a "natural" correction in a bull run and that gold was primed to sink to the $560 to $600 range because they were numerous. The majority of these same analysts are now reversing their positions overnight based one ONE DAY of positive gold and silver activity and now claiming that gold is a "safe haven" when four days ago they were claiming that gold was a barbarous relic and a terrible investments. Such explosive movements such as yesterdays one day leap in gold and silver prices in the futures market is impossible to understand if you don't understand the manipulation game and continue to downplay the significance of manipulation in the futures markets. It is very easy to understand, and even predictable (as I predicted single day $100 an ounce movements higher which people thought was crazy at the time) when one understands the manipulation game.

Going heavy into physical gold and silver will still serve an investor extremely well. Good investing.

J.S.

2008 Sep 17 09:59 PM

[marxbites:]

Oh Danny Boy......tsk tsk.

The idea is that govt has nothing to do with it.

Without the interest to a special few from debt fiat, Jackson paid off the debt and restored the constitutional money.

That ignorance of the founders knowledge of the Kings BoE and it's problems can be so blatantly displayed is hilarious.

Danny, praytell what may the Maestro ever mean here please?

Alan Greenspan - “Gold and Economic Freedom” 1967
"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense – perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. . . . This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

2008 Sep 17 11:22 PM

[Elliot/ EazyE:]

This is an absolutely illuminating and timely article. Mr. Kim has genuinely debunked numerous myths that surround the opaque aura of Wall Street and the veil that that covers the eyes of most investors.
Mr. Kim I believe you should also pry into the recent 2 year run-up in agricultural commodity futures prices and one year historical increase in cured oil futures. Especially, when Wall Street analysts continually speak of the increased demand for the aforementioned products as solely the result of economies booming in China, India, Brazil, & Russia.

As of the July 14th high ($147+) in crude oil, the front month contract (Oct.) now trades at roughly ($97). Hmm a 34% decrease in price in only 3 months. From what the experts say, a 20% decline in prices for a particular market is indicative of a bear market. This must be the fastest transition from bull to bear in futures market history. Ok, maybe BRIC production and domestic growth had the most rapid transition in history. WHAT!! Not to mention the year over year charts of soybeans, soy meal, wheat, and corn futures charts, my goodness. It really wouldn't be a huge deal if these markets were not leveraged. SO you're telling me that you control 5,000 bushels of beans in 1 contract and each 1cent move = $50 with a max .50 move per trading session (.50 = $2500). www.usafutures.com/com.... That's odd I know I', not the only one who has seen soybeans move .35 ($1,750) or more on the electronic ticker (bloomberg, cnbc, etc.). Look at any soybeans chart from 2000 to 2006 any you notice no significant change in price per bushel (roughly $5 per bushel). However, from 06 to the peak this year of $16+ per bushel represents 166% growth. Did BRIC all of a sudden get a fancy for soybean. The same situations occurred in wheat and corn. The charts don't lie. and the charts aren't lying during the liquidation period of these contracts, which were probably continually rolled over month to month w/o delivery to produce these prices.

Isn't it a coincidence that a mass explosion of hedge funds came on the scene during this entire ordeal. The rich have found ways to legalize monopolies in wealth control for centuries. The methods are just becoming more sophisticated. "The rich don't work for money", sound familiar..... Robert Kiyosaki.

Thanks, Mr. Kim

2008 Sep 18 12:31 AM

[BxCapricorn:]

I think the laws of supply and demand just found each other today....

www.bloomberg.com/apps...

It was probably a very touching scene to see these two reunite....

2008 Sep 18 04:13 AM

[buyitcheap:]

Fine by me I'll take the futures contract at 770 and then I'll take delivery - wait until a few thousand of those contracts ACTUALLY DEMAND delivery on those futures. Then the price will correct upward and hard.

2008 Sep 18 07:44 AM

[gatersaw:]

What happened the last time the Middle East converted its dollars to gold? Go back on a gold chart and look for a landslide selloff that has no bearing on supply and demand.
There are bigger fish than India and Dubai. Wake up.

2008 Sep 18 04:55 PM

[quicks:]

And don't you just love the argument of people like danny boy:

"A global gold standard of the sort we had before ww1, the problem is, is great for global trade, but not so good for managing regional recessions. A country without fiat money and thus no ability to conduct local fiscal policy will suffer through far more severe recessions than would've been the case otherwise."

Maybe this would be correct IF fiscal AND MONETARY policy did not HAPPEN to cause just that same recession that you say they they should help alleviate.

If you misdiagnose the problem, of course you will provide the wrong cure, thus making the paitient even sicker, and at some point terminal.

2008 Sep 18 06:16 PM

[Chris B:]

Was gold "real money" that protected wealth in 1981, the most recent time we had a PM bubble? Nobody thought $200 was possible back then, but all things return to their historical means, even metal prices.

The aforementioned currency busts were easy to see in advance for those who have the education. Similarly, this ongoing PM bubble is not unprecedented. Any deviation from gold's 100-year historical return of 2% is grounds for suspicion. Same thing with real estate - a 100-year history of 2-3% appreciation goes to 5-10% annually and all the momentum investors claim it can go on forever. Momentum investments claiming that these "hard assets" will continue to appreciate 5-20% per year will end in tears.

Sorry if that ruffles anyone's emotional attachment to their collector coins or is taken as an insult by those who consider themselves investment geniuses because they held or bought gold 2 years ago. Don't be too blinded by "alternative" or apocalyptic economic theories to question whether you bought at the top of a cyclical market.

Remember, the value of anything is the value that humans assign to it. That goes for PM's, "fiat" currencies, commodities, or productive assets such as companies. Those values can whipsaw around in the short term, but look at the long term trends and stay diversified.

These boards remind me of the ones that existed about tech stocks in 2000: A bunch of emotional ranting, name calling, and anecdotes about why dot com stocks would recover the next year and how the world was a different place now.

2008 Sep 19 10:15 AM

[J. S. Kim:]

Chris B,

I have to respectfully say that you have 100% missed the point of my article. Those of us, including me, that bought gold coins 2 or more years ago, are still sitting on 37% to 90% gains on all of our coins when the spot prices established in the futures markets tells us that we should only have 8% to 12% gains on these coins. We are not upset at all and in fact are ecstatic that our gold investments from years ago have held their value so well (this is based on calls to gold dealers and asking their buyback prices for the coins i own). I'm sure that any gold coin owner on this site that bought gold coins (not bullion, but rare coins) 2 or more years ago will confirm this statement. This is an indisputable fact Chris B. No emotional attachments to an investment that we believe is sacred - just a cold hard fact.

This discussion should remind you nothing about tech stocks that were selling at impossible P/E valuations because they were $130 a share while the underlying company had zero profits. You are comparing apples to oranges in trying to compare hard tangible assets such as gold that has also been viewed as a form of money throughout history with paper tech stocks for companies that never declared a single penny of earnings. Hope that clarifies the point I made in my article for you.

2008 Sep 19 11:49 AM

[J. S. Kim:]

Oh btw, just to clarify my comments above, that was for the coin prices last week, not this week as obviously gold prices are considerably higher now. - J.S.

2008 Sep 19 12:00 PM

[quicks:]

Chris B., you write:

"Was gold "real money" that protected wealth in 1981, the most recent time we had a PM bubble? Nobody thought $200 was possible back then,..."

And WHY did that happen, do you know the cause of that change in Gold downwards?

It obviously had to do with a man named Paul Volcker, who (most say) saved the dollar with his interest rate policy and drastic hike, others say he mainly meant to save the Fed.

Whatever the ulterior motive of Paul Volcker,
HIS ACTIONS ON INTERESTS ARE NON-REPEATABLE.

Do you actually believe that Mr Bail-out Bernanke has the guts to hike rates to >15%?
Do you actually believe Mr. Bali-Out Paulson would allow him to do so? (Don't even say that Paulson has no authority to affect Fed Policy. The Fed did not have legal authority to bali out AIG (non-bank institution), nor did Paulson have the legal authority to nationalize Fannie or Freddie).
AND, do you actually believe that the US economy could survive mortgage rates of 21%?

Volcker's CHEMO-THERAPY was able to cure the patient (really just a 25 year remission),
BUT Bernanke's CHEMO, if attempted, would kill the patient, because the patient's general state of health is way too weak.

Your insistence of valuing real-money in terms of an illegitimate surrogate shows your lack of understanding of the actual issue involved.
Real money, in a system that does not subvert it, DOES NOT produce any "investment" gains at all, and that is not its function.
BTW, think about what your "long-term average 2%" means, when that just about happens to be the very-long term average growth of the gold-supply!

2008 Sep 19 09:07 PM

[quicks:]

I forgot to add:

At 15% coupon, our national debt cost us $1,500 billion, which is HALF the current federal budget.
Granted not all of that would mature immediately, but just the short term borrowing needed rollover would kill the federal government.

2008 Sep 19 09:10 PM

[J. S. Kim:]

Quicks,

Just as you have stated, I have told my clients when they ask me if the dollar is really doomed that one way the Feds could potentially save it would be to raise the Fed Funds rate to 12% or higher like the Paul Volcker/Jimmy Carter days. However, where I respectively differ somewhat from you is in the possibility that they actually do this.

I actually think that extremely high interest rates is a possibility. Since the Feds have never taken into consideration the welfare of Americans, including mine and yours, I think that they would consider raising interest rates strongly, but just how high is the question. Paulson will be gone as he has already stated that he is fleeing this sinking ship and won't stay on board after the elections.

How can banks continue to earn negative rates of return on mortgages and other loans at these current interest rates? With a 30-year mortgage at 5.78% (or is it 5.87%) and inflation at 10%-13% in the U.S., a bank is currently losing 4% to 7% on all mortgage interest payments as the interest rate does not even match current inflation rates.

With all this massive intervention taking place now, if the Feds really were concerned with the welfare of Americans, they could have taken 1/100 of the intervention measures that they are taking now starting 15-20 years ago and prevented this entire mess today. It truly would have been that easy. But if they were responsible for the past 20 years, the richest 0.1% in this world would not have built the enormous amounts of wealth that they just did over the past 2 decades.

But if that doesn't happen Quicks, and you are right, then all the arguments about deflation and inflation punching each other into a draw and resulting in stagflation should now be over given the latest bailout decisions. The gov't and the PPT declared inflation the winner last week and the true rates of inflation are going to get downright nasty next year (actually they should get downright nasty whether or not the gov't raises interest rates significantly because at this point, it seems impossible that the Feds could ever raise interest rates high enough to combat inflation).

Here's an experiment you can do just so you'll know the official rates of inflation the gov't will report next year will be 100% bogus.

Take an inventory this week of all your costs. What you spend on fuel, what you spend on food (prices and sizes, because food companies have become clever and instead of jacking up prices, they have shrunk packages and are charging you the same price for less), clothes you may buy this week, office supplies, tuition for your children business hotel stays, whatever. Then six to nine months from now, take out that list, buy the same stuff, and come back here and let me know what the price of those same items are. I'd be shocked if that list hasn't gone up by at least another 15%-20% in total price just 6-9 months out from today.

2008 Sep 20 04:54 AM

[J. S. Kim:]

Hello iyamwutiam,

Regarding your comment above about European central banks, in particular, of Spain selling off gold. I've been aware for a long time now that the economy of Spain is in serious trouble. In fact, I shorted the Spain ETF (EWP) over this past year and this turned out very well for me. In any event, Spain has been suffering for a while now from an imploding housing market and soaring inflation. I think that their Central Bank sold gold a while back not to flood the market with supply but because gold was one of the few things left that they possessed that had any value. Thus, I believe their selling was an act of desperation on behalf of their government to raise some immediate cash to address the problems that were facing their country. The actions of the U.S. government this past week (and the subsequent announcements to come this Monday) near guarantee massive amounts of massive future inflation. So buy physical gold and physical silver. It will serve you well.

In response to Wefwef, why would I be mad that the gold coins I bought a couple of years ago have appreciated now in the range of 45% to 100% (with the bump up in gold prices over the past couple of days)? If you read the article carefully, you will discover that the prices I quoted of gold coins when the spot price of gold had been driven down to $750 were the BUY BACK prices that dealers were quoting to me were I to sell my coins that I purchased two years ago back to them. I did not sell these coins and am still holding on, probably at least for a couple more years if not longer. Please re-read that portion of my article and you will discover that I did not fall victim to coin dealers as you claimed. Somehow you seem to be confusing the meaning of "buy" and "sell".

2008 Sep 20 09:33 PM

[Extreme Pow...:]

Great article... Gold anyone?

2008 Sep 22 12:46 AM

[Graintradr:]

Anyone that makes a statement with the words "commodity" and "bubble" in the same sentence, clearly has no idea how commodity markets work. In free markets, a "bubble" in commodities is an impossibility. If that is the new term for a reverse in prices, then I suggest continuing to watch CNBC for commodity news. They use buzz words like "bubble" and "bottom" almost as often as "stay tuned."

Good article. Having a clear understanding of what is happening in the physical market is critical before making any kind of intelligent decision in these markets. Just wish the Biff's in Washington weren't directing traffic. It feels unconstitutional. The gross negligence to the dollar over the past decades makes me feel ill. Try adjusting Ag prices for inflation and we would be looking at $100 at the grocery store for a bag of Doritos and Wheat Thins. I don't think $30 or $40 dollars a bushel for soybeans is that far away.

Dollars Anyone?? lol

2008 Sep 23 03:27 PM

[SebastianGE:]

Just to point out, TODAY, 3/10/2009, that Mr. Kim has been right on the spot with his analysis.

The good thing about following someone´s articles is that time prooves them right or wrong, and Mr. Kim has got a lot of "well done`s".

Congratulations and thank you for your advice, Mr. Kim.

Mar 10 09:24 AM

[Sunilsahal:]

Everyone is saying we should go to the western markets to scoop up I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.
Nexpider

Jul 31 02:38 AM

[Sunilsahal:]

Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.
Nexpider

Jul 31 02:40 AM