Trace Mayer

Digital Entities in a Physical World

justsaying, you have a meticulous eye and would make a great legal secretary. Thank you for catching the minor typo which was probably residual dust from an earlier draft.

Did the ECB Save COMEX from Gold Default?

Very well written article with powerful analysis. These vampires operate in the shadows so sometimes circumstantial evidence is the only way to triangulate their position.

Short Squeeze in Silver - How to Profit

Thank goodness it is JP Morgan and not Morgan Stanley & Co. as JP Morgan is so much more trustworthy!

"For example, in June 2007 Morgan Stanley & Co. settled a class action lawsuit for $4.4 million where the complaint alleged ‘that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security.’ While the efficacy of the claim may still be at issue the Better Business Bureau-like complaint from unsatisfied customers who initiated litigation does not inspire confidence for those seeking to reduce risk."

seekingalpha.com/artic...

Gold is an extremely transparent asset, it is either in your hand or not, but as GATA proves the gold market is the world's most opaque.

On Mar 20 08:28 PM Jason Hamlin wrote:

> Mike L,
>
> Thanks for the link and I was wrong, they do publish a bar list via
> JPMorgan, for what its worth. That still does not guarantee that
> the metal itself is not leased out or otherwise encumbered.
> Correct?

Short Squeeze in Silver - How to Profit

"Gold and silver occasionally slip into backwardation, but rarely for this long."

Good article. This sentence seems to be a little inaccurate so here is an example of a correction: "Gold and silver [very rarely] slip into backwardation, but [never] for this long."

With such long consecutive silver backwardation it will be interesting to see how this issue is resolved. With nickel the LME punished the longs. The resolution will likely be with serious pain and may be inflicted on the long investors who settle for either futures like Gumpwine asks about or SLV.

With the counter-party risk escalating because of the instability of the owner is it any wonder SLV may be on the market for sale? Make no mistake; SLV is not silver and it is silver that individuals want in their possession and are willing to pay a significant premium for (backwardation).

While markets can usually stay irrational longer than investors can remain liquid the physical commodities are different. Those that own completely and possess physical silver can stay liquid longer than those who are required by contract to deliver. I wonder if Congress will pass a silver bailout?

Some Bank Behemoths Now Sub-Single Digit Midgets

Big K, of course AIG is and it goes very deep.

China's Latest Hunting Trip

paultaut, backwardation is not a theory but an objectively verifiable fact and my articles cite credible and verifiable sources to prove that fact. I did not make the assertions you claim. I did make some assertions in the various articles. I continue to stand by my assertions and do not 'ignore what they previously have pushed'. Here are the verifiable facts which you appear to misrepresent or ignore:

9 Dec 2008 - Discussed gold backwardation and made assertions that extended and prolonged backwardation may precipitate a currency crisis, that the FRN$ store of capital expense will increase and that gold's purchasing power would increase. At the time of the article gold was $771 and is currently $969. Purchasing power was discussed later in the 11 Feb 2009 article.

seekingalpha.com/artic...

4 Feb 2009 - Discussed silver backwardation and the declining gold/silver ratio. At the time of the article the ratio was 72.56 and is currently 68.86.

seekingalpha.com/artic...

11 Feb 2009 - Discussed the continued DOW decline. Made the assertion that gold's purchasing power would continue to increase and focused on the DOW/Gold, DOW/Silver and S&P 500/Gold, S&P 500/Silver ratios. Asserted that the DOW when priced in the metals would continue to get cheaper because of declining potential earnings in those metals. At the time of the article the DOW/Gold was 8.7 ounces and is currently 7.5 and was 7.2 yesterday (23 Feb 2009).

seekingalpha.com/artic...


On Feb 24 01:06 PM paultaut wrote:

> Two weeks ago both Trace and MyWealth were pushing a Theory called
> Backwardation.
>
> According to this theory, Gold would move up because Spot Gold was
> higher than Gold Futures. Gold went into contango and went up.<br/>
>
> Both Parties now ignore what they previously pushed. Mind you, this
> was just two weeks ago.
>
> What I would like to know is: "Is the Theory Dead or waiting to be
> reborn?"
>

Gearing Up for $1000 Gold

Mr. Faber, FYI, GLD is not necessarily gold so in your writings and disclosures it may be good to distinguish between GLD and physical gold.

seekingalpha.com/artic...
seekingalpha.com/artic...

Is the GLD ETF Really Worth Its Metal?

Consider_this, exactly. Given some of the unethical behavior of the players involved in the ETF which I discussed in the first article even more cause for prudence and caution may be required.

The due diligence does not matter until it is the only thing that matters.


On Feb 19 09:39 AM Consider_this wrote:

> In that spirit, I applaud the author for bringing up issues to be
> examined. With Wall street integrity the way it is, We need more
> inquisitive minds like these.

Railroads Are Getting Cheaper (vs. Gold and Silver, at Any Rate)

123, I simply disagree with you on this issue so long as we define the spot price as the price for immediate delivery of a commodity. The reason I disagree is because there can be and are multiple markets of varying sizes throughout the world. Markets include the 1/10th ounce coin sold by dealers and the 400oz LBMA bars. The settlement price in a transaction is the gold price. A market price is usually computed and accepted by current market participants based on an aggregation of settlement prices. Because there are so many settlements and because the standard deviation of those settlement prices is widening therefore macro 'gold prices', such as either COMEX or London Fix, are losing their correlation with micro settlement prices. But even the macro prices have variations; this is how markets function. Therefore, there is no single gold price and what functions as 'the gold price', COMEX or London Fix, etc., is really a fuzzy number. In other words, the spot is the spot but the spot changes in every transaction and there are numerous transactions at once.

I also disagree with the Efficient Market Hypothesis. Because of inefficiencies arbitrage is possible. Dealers like Apmex are profiting from these inefficiencies to fulfill market demand. The spreads can actually make it much more difficult on dealers to remain profitable though; if you know anything about the coin business. The commission, bid/ask spread and shipping are only additional 'spot costs' when viewed as getting the commodity immediately delivered. When the COMEX fails then 'the gold price' determinant will shift. I wonder where?


On Feb 15 10:20 PM 123 wrote:

> I disagree with one aspect of your comment (copied and pasted below).
> The spot is the spot, anywhere in the world, for anyone.

Major Investors Piling into Gold

Right John. I referenced Mr. Brochstein's article in an article on 3 Feb 2009. I also quoted Mr. Brochstein, which is rather funny if it were not so sad, where he had made an earlier comment on one of my articles, “Trace, sorry, but this makes absolutely no sense…”

Hopefully, Mr. Brochstein and others who are infected with the financial insanity virus will do some reading of quality articles. People who followed the free advice in my article(s) should be sitting pretty and I have received several comments from various readers to that effect. I suppose the contrast is good though. That is what As and Fs were for, right?

seekingalpha.com/artic...


On Feb 15 11:36 AM John Polomny wrote:

> Poor Alan wrote an article on folding on gold back on 8 Dec 08 here
> on Seeking Alpha. In the meantime the gold price has continued to
> advance. I am now adding Mr. Brochstein to my list of reverse barometers.
> When he turns bullish on gold then I will think of selling.
>
>
> On Feb 15 08:18 AM Alan Brochstein wrote:

Can We Go Back to the Old Wall Street?

Exactly. There are five easy steps to get everything back on track and setup the system so this mess will not happen again.

What we need is (1) a commodity currency as legal tender in harmony with Article 1 Section 8 Clause 5 and Article 1 Section 10 Clause 1 of the US Constitution. Then (2) outlaw fractional reserve banking and (3) repeal the Federal Reserve Act. All bankers who continue to practice fractional reserve banking should be (4) tried for fraud, embezzlement and theft under State criminal statutes and also be liable under tort for trespass to chattel or conversion. If that is not enough deterrence for their sociopathic behavior then (5) bringing back Section 19 of the 1792 Coinage Act will also be helpful as it provides the death penalty for the current actions some of the investment bankers have been engaged in.

Those few steps will stop this abominable privatizing of gains and socializing of losses that Wall Street has been engaged in and cause so much damage with because of the moral hazard.


On Feb 09 01:05 PM Dana H. wrote:

> We screwed up by creating the 4 F's: the Fed, Fannie, Freddie,
> and FDIC.

Railroads Are Getting Cheaper (vs. Gold and Silver, at Any Rate)

@123, I think the tulips is a perfectly legitimate example because they are a tangible asset. Under the Austrian school value is an individual decision based on human action and determined by personal utility preferences and with in aggregate the market determines price.

Tangible assets, like gold, silver or tulips, are subject only to exchange-rate risk whereas fiat currency illusions or money substitutes are subject to both counter-party and exchange-rate risk.

Therefore, in essence and hopefully without being too circular, when performing the pricing mechanism it can be stated that the intrinsic value of 1oz of gold is 1oz of gold or 1 tulip is 1 tulip. Exchange-rate risk is then present when 1 tulip costs 1oz of gold versus .5 oz gold. Bubbles do develop and currently I think fiat currency illusions, with US Treasuries, are the biggest bubble of all. Gold will get expensive one of these days.

These questions get at the point I think you are attempting to make: Do I think it merely possible that our fiat dollar illusion will someday collapse? If yes, then I should own gold as the safest and most liquid asset; as cash. How much? As much as I can comfortably rationalize, perhaps using some sort of calculation of the gravity of the harm -- i.e., financial wipeout -- discounted by my sense of the probability of its occurrence. Do I think it inevitable that our fiat dollar will suffer the fate of all paper currencies throughout history? If yes, then it is one’s dollar exposure, not gold “investment,” that must rationalized.

But to reiterate my statement at the beginning of the post “The primary purpose of these posts is to educate on monetary science and basic economic law and not to provide valuation opinions”. In other words, I have no idea whether one derives the utility and value from owning gold to rationalize to themselves the price. Whether one should buy gold is a *completely separate issue* from whether one should use gold to perform mental calculations of value. The use of gold as a mental calculation of value allows one to determine whether gold is expensive or cheap.



On Feb 04 10:13 AM 123 wrote:

> To Trace:
>
> I've been thinking about this and would appreciate your opinion:
>
>
> How does one know what the intrinsic value of an ounce (or whatever
> mass) of gold is? Isn't gold just as prone to a bubble as any other
> asset?
>
> For example, say gold goes to $2,000 an ounce. How does one know
> whether that is the proper price for the metal, or whether it is
> the result of lots of money pushing up the price? If asset inflation
> that pushes prices past reality (i.e. real estate, stocks), why can't
> this happen to gold or metals as well?
>
> I mean, two hundred years ago, or whatever, tulips were considered
> a good store of value for a short period of time. That's an extreme
> example, but still.
>
>
>

Railroads Are Getting Cheaper (vs. Gold and Silver, at Any Rate)

@GeminiAtlas, no, one thousand ounces of silver is the correct forecast. Given the degree of amplified misallocation of capital due to the Federal Reserve I would not be surprised if it were less than five hundred ounces.

For comparison and based on the Case-Shiller the price of homes in silver:
1915 – appx 9,000 ounces
1922 – appx 4,000 ounces
1933 – appx 22,000 ounces
1935 - appx 8,000 ounces
1971 – appx 15,000 ounces
1980 – appx 800 ounces
2002 – appx 38,000 ounces

Please note these are approximations as I do not have the spreadsheet handy so please mind the immaterial differences as I think it gets the point across for a comment. Perhaps I should write an article with the appropriate research on this topic?



On Feb 04 09:15 AM GeminiAtlas wrote:

> If I did my math right, you say to buy real estate when it is worth
> $12,000 (~at current silver price). Did I miss a zero somewhere,
> or is it at 10,000oz. silver? Or is it in value/area? If it is
> 1000oz per house, that is a ridiculously cheap house, or silver is
> ridiculously undervalued.

Railroads Are Getting Cheaper (vs. Gold and Silver, at Any Rate)

Yes, that is a correction for the typo. Hope the typo did not confuse unnecessarily. Thanks makou.


On Feb 03 11:01 PM makou wrote:

> The statement earlier above "For comparison purposes on 8 Dec 2008
> gold closed at $767.25 and is trading around $900 on 2 Feb 2008"
> I believe the author wants to say
> 2 Feb 2009 instead of 2 Feb 2008.

Gold ETF Reaches New Inventory High

Too bad there is no guarantee that the gold held by the ETFs is actual gold or that there is even any in inventory. Of course, it does not matter until it is the only thing that matters.



Seems a lot of Merrill Lynch's customers are getting skittish about the ETFs.