Divorce of Paper Gold and Physical Gold

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Lemonyellowschwin's picture
Lemonyellowschwin
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Divorce of Paper Gold and Physical Gold

All right people,

Anyone who is paying attention knows that there is a massive disconnect between what the price of physical gold/silver should be and what the paper market is telling us the price is.  There is an incredible demand for physical gold/silver at the moment and very little (virtually no) supply.  Yet, the paper price is screwing around in the $850/$12 range.  No one is coming out of the woodwork to sell physical at these prices.  If the paper market did not exist it is absolutely clear to me that the price would be much higher.

If supply and demand mean anything anymore, it seems to me that either (1) the paper price is going to have to come up substantially, or (2) two markets are going to have to develop -- one for paper, and another for physical.  (This may already be occurring, as the premiums on 1 oz. gold coins seem to be around 5% or more and for silver 1 oz. coins as high as 20% or more).

Does anyone care to opine on how this might play out?

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joe2baba
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silver

i just bought a bunch of common silver dollars yesterday at the local coin shop. he had a very good stock i paid $17 each that included my tariff to hank and the boys. he had american eagles for $20. i am not real sure if i should buy the eagles.

what do you think is it worth the extra 3 bucks?

one thing he said whch i found interesting is he said he gets them from a supplier. so he is buying them cheaper somewhere.

any ideas on that/

Lemonyellowschwin's picture
Lemonyellowschwin
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Silver Eagles for

Silver Eagles for $20?

That is about $7-8 over spot.

What does that tell you?

LazyBrowser's picture
LazyBrowser
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gold stocks

Buying gold as a hedge or an investment seems prudent to me except ....

How or where can you buy anything more than a piece of paper that is a claim on gold that may or may not be honored? I don't want to buy gold coins or jewelry because I don't want to pay for the subjective added on value of the artwork.  The paper certificate of gold ownership doesn't appear (to me) to be of anymore long term worth than the paper ferderal certificates. Until I can find reliable gold transactoins I will hold my breath with geenbacks.
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Bengt Englund
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Ooops... gold bullion shortage... in Sweden.

I never thought that I *EVER* would buy gold, but I did last week. (Strange feeling, by the way...)

Here in Sweden it's quite unusal to own gold, and there are only 2 large firms trading in the market... today almost all bullions are sold out.

And one thing is for sure... there is NO connection between theoretical paper-price and real physical price.

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switters
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I agree completely with the

I agree completely with the original poster - the only way to explain the recent drop in the price of gold is some kind of manipulation of the paper market.

Unless the laws of supply and demand aren't operative any longer in today's market, which seems less likely.  The only question is, when will the paper and physical market match up?

 

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davefairtex
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paper and physical markets

My guess is the physical and paper markets will sync up on the date of expiration of the front month futures contract.  At that point, those who are long can take delivery and get a big fat 62 pound bar of silver for each of their contracts.  That should be an interesting day, given how turbulent things have been recently.  That's October 29th.

I remember last month at expiration oil spiked to 120.  Perhaps - interesting, perhaps that's an example of manipulation.  Perhaps "someone" was short a truckload of oil, and left it to the last day to cover.  Will that same thing happen to silver and gold this month?

I too am seeing the same thing everyone else is in the physical market - silver and gold are mostly not available, and when they are, silver is selling for $5/oz over spot and gold eagles are selling for $80 over spot.

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vishuxpert
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Re: Divorce of Paper Gold and Physical Gold

This is quite good information for all traders.It is necessary to educate yourself about the factors that affect the price of gold,Study the markets and trading patterns for a while and practice by making mock trades.Thanks for the recommendation.

Johnny Oxygen's picture
Johnny Oxygen
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Re: Divorce of Paper Gold and Physical Gold

joe2baba wrote:

what do you think is it worth the extra 3 bucks?

LazyBrowser wrote:

I don't want to buy gold coins or jewelry because I don't want to pay for the subjective added on value of the artwork.

Don't be penny wise and pound foolish.

Buy physical gold and silver at any price! We are going to see a change in what is considered real wealth/money and it will not be any fiat currency. It will be gold and silver.

Crash's picture
Crash
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Re: Divorce of Paper Gold and Physical Gold
Johnny Oxygen wrote:

 

We are going to see a change in what is considered real wealth/money and it will not be any fiat currency. It will be gold and silver.

I just don't get it. Maybe someone here can help me out. I don't percieve any value or wealth in gold or silver. There seems to be a bit of a gold rush on. I bet people who have a lot of gold see a some value in that. The value of a fiat currency comes because it is the law. The value of any other currency arises out of a consensus that the currency has value. So there seems to be a certain subset of society who deem gold and silver have value. This seems to me to mainly exist because other people are telling them that it does - or will - hold value.

Now, you can't eat gold, you can't drink gold. you can'theat or protect your house with gold (and if there are people who think its valuable - owning it could be a liability). So  if I have a heap of spuds and you try offer me gold, I'll be like: "what are you doing? do you not have seeds to swap? or water purifaction tablets, or cans of beans or medicine or ANYTHING USEFUL?". What am I gonna do with gold except try to offload it on the next gullible bugger with a sack of spuds.

If you wanna talk about new currencies, lets talk about NEW currencies which are better than gold and silver, more user friendly, more equitable, fairer, more secure, unlikely to get robbed, more flexible and don't take up a lot of space. The world economy was not better under a gold/silver backing, it was just less bad. So new local and regional exchange mechanisms like LETS, community/mutual credit systems, contain the seed of community empowerment, democratisation, protection from wider economic shocks. Gold is a less good exchange mechanism because it can be hoarded, some will always have more than others. Remember, this mess BEGAN with money lenders lending out gold, then bits of paper representing gold... you see where that is going. We need something new, and gold isn't it. 

Please comment if you think you can persuade me of the 'value' of gold or silver stocks. I really am open to suggestion, but just don't see it right now.

thanks

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Re: Divorce of Paper Gold and Physical Gold
Crash wrote:
Johnny Oxygen wrote:

 

We are going to see a change in what is considered real wealth/money and it will not be any fiat currency. It will be gold and silver.

 

Now, you can't eat gold, you can't drink gold. you can'theat or protect your house with gold (and if there are people who think its valuable - owning it could be a liability). So  if I have a heap of spuds and you try offer me gold, I'll be like: "what are you doing? do you not have seeds to swap? or water purifaction tablets, or cans of beans or medicine or ANYTHING USEFUL?". What am I gonna do with gold except try to offload it on the next gullible bugger with a sack of spuds.

 

thanks

 

Interesting that when people make the comment that "you can't eat gold" they never seem to relate that you also can't paper currency.

Now, as far as value: Every fiat currency has always returned to it's intrinsic value, zero. For 5 thousand years gold has never been worth zero. It is true that gold will change in value relative to fiat but it has always retained some purchasing power.

This is not to say that one should not have adequate supplies of grub and guns but gold (and silver) make a useful addendum to emergency supplies.

Eventually, FRN's will only be useful to wipe your ARSE.

Just my humble opinion.

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Re: Divorce of Paper Gold and Physical Gold

Crash,

I wouldn't even try to persuade anyone that gold or silver stocks/ETFs are worthwhile.  But as far as physical gold and silver, I do expect that will have value to a lot of people, largely because it has historically been valued by many peoples (though not all) around the world.  Does it make any sense that gold and silver are valued over many other tangible goods?  Not really.  Are there potentially better means of exchange?  Sure.  But the fact is that we have a historical legacy of valuing gold and silver as wealth or a means of exchange, and whenever a fiat paper currency has major troubles precious metals are looked to as a time-tested viable alternate form of currency.  Even in the past several decades since coming off the gold standard completely and most central banks talking down precious metals as 'archaic', most people STILL in the back of their minds associate a special value with gold and silver.  I don't hold gold and silver because I personally hold any special value for them, but rather because I can be assured that most other people do and aren't likely to change that mindset anytime soon (barring any exceptionally cataclysmic series of events)

I had a girlfriend who loved getting flowers, though I don't especially value them.  IMO they're not that practical a gift and they don't last very long.  But I would still get her flowers because I knew that SHE valued them, which was more important than my opinion.  I think I said this in another thread, but regarding the perceived value of gold/silver it doesn't matter whether or not  people are being irrational as to the value they place on it, as long as you can bet they will be consistently irrational Wink

- Nickbert

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Johnny Oxygen
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Re: Divorce of Paper Gold and Physical Gold

Crash

I think you are missing a critical point.

Gold and silver have historically been 'real' wealth. Fiat currency is the phony wealth.

The value of a fiat currency comes because it is the law. The value of any other currency arises out of a consensus that the currency has value. So there seems to be a certain subset of society who deem gold and silver have value. This seems to me to mainly exist because other people are telling them that it does - or will - hold value.

Think about what you are saying here. YOU are being told that fiat currency has value. "...because it is law" It is also lawful to debase fiat currency by printing away its value. Fiat was initial sold to people has having value because it was backed by silver or gold. The narrative you have been taught to believe is actually backwards. Read one of your FRN notes "This note is legal tender for all debts, public and private." Or backed by "The full faith and credit of the U.S. government". It didn't use to say that. Before 1964 it was backed by silver and before 1933 it was backed by gold. Meaning it was a 'demand note'. On demand you could cash the FRN in for real gold or silver. Now why was that important? Because fiat currency has a very long history of becoming worthless.

Here is a list of nine failed fiat currencies that happened just in the 20th century

http://www.mint.com/blog/finance-core/hyperinflation-the-story-of-9-failed-currencies/

If you really want to educate yourself on the true story of gold and silver vs fiat I strongly suggest watching The Money Masters

http://www.silverbearcafe.com/private/moneymastersvid.html

Set's picture
Set
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Re: Divorce of Paper Gold and Physical Gold
Crash wrote:
Johnny Oxygen wrote:

 

We are going to see a change in what is considered real wealth/money and it will not be any fiat currency. It will be gold and silver.

I just don't get it. Maybe someone here can help me out. I don't percieve any value or wealth in gold or silver. There seems to be a bit of a gold rush on. I bet people who have a lot of gold see a some value in that. The value of a fiat currency comes because it is the law. The value of any other currency arises out of a consensus that the currency has value. So there seems to be a certain subset of society who deem gold and silver have value. This seems to me to mainly exist because other people are telling them that it does - or will - hold value.

Now, you can't eat gold, you can't drink gold. you can'theat or protect your house with gold (and if there are people who think its valuable - owning it could be a liability). So  if I have a heap of spuds and you try offer me gold, I'll be like: "what are you doing? do you not have seeds to swap? or water purifaction tablets, or cans of beans or medicine or ANYTHING USEFUL?". What am I gonna do with gold except try to offload it on the next gullible bugger with a sack of spuds.

If you wanna talk about new currencies, lets talk about NEW currencies which are better than gold and silver, more user friendly, more equitable, fairer, more secure, unlikely to get robbed, more flexible and don't take up a lot of space. The world economy was not better under a gold/silver backing, it was just less bad. So new local and regional exchange mechanisms like LETS, community/mutual credit systems, contain the seed of community empowerment, democratisation, protection from wider economic shocks. Gold is a less good exchange mechanism because it can be hoarded, some will always have more than others. Remember, this mess BEGAN with money lenders lending out gold, then bits of paper representing gold... you see where that is going. We need something new, and gold isn't it. 

Please comment if you think you can persuade me of the 'value' of gold or silver stocks. I really am open to suggestion, but just don't see it right now.

thanks

“An unjust law is no law at all.” 

St. Augustine of Hippo

Used in a movie I liked titled, “The Great Debaters.”

If power corrupts and absolute power corrupts absolutely, then the more powerful a country is, the more corrupt it is.  This appears to be true when one looks at the different countries of the world and observes the varying degrees of corruption.  All governments are corrupt and no one trusts another.  That is why a tangible commodity that is rare, difficult to obtain, a store of value, and easily divisible into units of equal accounts is the ultimate backing for any currency. 

“Money should possess three characteristics. The first is that it should be a store of value. Historically, gold and silver filled this role perfectly because they were rare, took a lot of human energy to mine, and did not corrode or rust. By contrast, the US dollar pretty much constantly loses value over time – a feature which punishes savers and enforces the need to speculate and/or invest. A second feature is that money needs to be accepted as a medium of exchange, meaning that it is widely accepted within a population as an intermediary within and across all economic transactions. And the third feature is that money needs to be a unit of account, meaning that the money must be divisible and each unit must be equivalent.”

“Crash Course” Chapter Six

Most of the people at this site understand this and with a little luck, the majority of the world will understand this core concept behind a sound monetary system.  When this happens, look for gold and/or silver to be the first commodities to be considered as this currency backing.

Jim Sinclair’s web site, “MineSet” is a good source for information on gold.

What "NEW" currency would be better than one backed by gold in your opinion?

Crash's picture
Crash
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Re: Divorce of Paper Gold and Physical Gold

Thanks guys for your responses, Especially Johnny for posting The Money Masters, It had already been recommended me this week and I have finally watched it all. It has given me a greater understanding of the issues involved and has also made me see why silver coins may come in handy if you live in the USA.

The movie re-affirmed, however, that currency backed by gold or silver is no good thing. Its true that it is concievable to have a gold-backed system which is better than todays, but there will always be inequities involved. Someone will always have more gold than me. At the moment its the IMF.

Set asked:

Set wrote:

What "NEW" currency would be better than one backed by gold in your opinion?

For a fuller description of currencies both new and old which are/were not backed by gold, visit: http://www.reinventingmoney.com

It is possible to have a truely abundant and wholly democratic currency which is created on demand and which protects againt inflation by having each unit created directly tied to an exactly similar amount of goods and services. This is what the website mission is:

The mission of this site is to demystify money by presenting the best leading-edge ideas on monetary and non-monetary exchange. It is a resource devoted to the advancement of economic democracy, self-determination, and global harmony.

This site shows how to go about creating a local currency which will protect your community from wider external monetary shocks. It teaches how to get of the debt-money train before it crashes. These kinds of measures are coopertaive, participatory, democratic and in my opinion, fantastic ways to go abuot preparing to protect ourselves, families, communities and economies.

cheers,

Crash

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Re: Divorce of Paper Gold and Physical Gold

Hey Crash.

I agree with the Money Master point of view about gold and silver. But what they don't say is that any 'new' currency will eventually be manipulated (given enough time) especially if it is something that isn't rare or that can be manufactured.

The natural state of precious metals being hard to find and hard to mine makes manipulation of these physical metal very difficult. So for the time being I believe they are the best bet.

As far as someone always having more gold than you, yes that is true but remember you don't have to own the most gold to profit from its value. The manipulation of gold doesn't really come from manipulating 'physical' gold it comes from increases in paper gold. This is a good article to read that will help you better understand it.

James Turk: A short history of the gold cartel

http://www.gata.org/node/7402

Crash's picture
Crash
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Re: Divorce of Paper Gold and Physical Gold
Johnny Oxygen wrote:

I agree with the Money Master point of view about gold and silver. But what they don't say is that any 'new' currency will eventually be manipulated (given enough time) especially if it is something that isn't rare or that can be manufactured.

The natural state of precious metals being hard to find and hard to mine makes manipulation of these physical metal very difficult. So for the time being I believe they are the best bet.

As far as someone always having more gold than you, yes that is true but remember you don't have to own the most gold to profit from its value. The manipulation of gold doesn't really come from manipulating 'physical' gold it comes from increases in paper gold. This is a good article to read that will help you better understand it.

James Turk: A short history of the gold cartel

http://www.gata.org/node/7402

Thanks Johnny,

Nothing I read (and I just read the Turk article, thanks) is convincing me of Gold's worth as a good currency base. The history of gold is fraught with corruption and it still is today. Indeed, you don't have to have the most gold, but you have to have some. I just don't think in the new era which is coming upon us that we need more divisory means of exchange. It really is possible to create equitable means of exchange which are fair, democratic and strong. They can't be manipulated as I think you sugest of the Money Masters idea. There are better ideas contained in the writing of people like Thomas H. Greco, Jr. and E.C Reigel.

I would srtongly reccommend reading New Money for Healthy Communities, a free ebook available here: http://www.reinventingmoney.com/library.html second link down. There is also much other reading contained within. I am not trying to convince anyone to give up their gold, I am merely suggesting the benefit to be gained from planning new forms of currency now which will protect all members of your community better.


Set's picture
Set
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Re: Divorce of Paper Gold and Physical Gold

 

Crash wrote:

Nothing I read (and I just read the Turk article, thanks) is convincing me of Gold's worth as a good currency base. The history of gold is fraught with corruption and it still is today. Indeed, you don't have to have the most gold, but you have to have some. I just don't think in the new era which is coming upon us that we need more divisory means of exchange. It really is possible to create equitable means of exchange which are fair, democratic and strong. They can't be manipulated as I think you sugest of the Money Masters idea. There are better ideas contained in the writing of people like Thomas H. Greco, Jr. and E.C Reigel.

Hi Crash,  I’ve just begun exploring the site you 

recommended and I’m already putting the book titled, “The End of Money and the Future of Civilization” on my list of books to read.  I read the reviews on Amazon and it looks like it would be thought provoking and lead to a stronger understanding of an honest and sound monetary system. 

 

I copied the following from one of the articles on the site you recommended:

 

 “In any case, using a silver or gold unit of account does not mean that payment must be made in silver or gold or that paper notes and ledger credits should be redeemable for silver or gold. Rather, if a dollar is defined as so much silver and I owe you 100 dollars, that does not necessarily mean that you can demand payment in silver. It just means that I owe you 100 dollars WORTH (of something), and that worth is determined by the current value of silver relative to all other goods and services. We need not revert to commodity money as a means of payment in order to have an honest money system. Credit money can be perfectly sound if properly issued on the basis of an adequate value foundation, like goods in the shops or on their way to market. But since credit money is an i.o.u., the market must be free to refuse it or discount it. Only the issuer should be compelled to accept his own currency at face value (par) because that is his promise, and his alone.” 

By Thomas H. Greco Jr.

It appears that the author endorses a commodity backed monetary system that would include gold and silver as the primary commodities so I’m confused by your position with regards to gold.  I’ve just scratched the surface of this site and I’ll need to study more to understand all of the implications of his form of “credit money,” but it all looks very interesting. 

Crash's picture
Crash
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Posts: 171
Re: Divorce of Paper Gold and Physical Gold
Set wrote:

 

Hi Crash,  I’ve just begun exploring the site you 

recommended

Hi Set, Thanks for taking the time to do that. Commodity-based currencies, including ones which use gold or silver as a backing or as a value-measure do indeed arise within the site and writing there, there are other ideas also which arise which don't rely on gold and sliver. It is good to open up the debate.

It is my view that a currency backed by the productivity of each communty-member would be the fairest and most secure way of backing the currency with something tangible and useful. A currency issued on demand by each community-member when they enact a transaction would mean that there is always an exactly sufficient quantity of money in the system, never too much, never too little. This does away with the need for an issuing authority to decide how much money to print or recall and thus does away with monetary-related inflation/deflation. Choosing to alue that currency in gold or silver is fine, there wouldn't even need to be any gold or silver anywhere near the community using it, we just need a commonly agreed value for the currency, Ie 1 credit is worth X. X being a gram of gold, a kilo of coal, 1 kalorie, 1 Wat of energy, a half-dozen eggs, 1 hours labour, doesn't really matter, as long as everyone agrees. It is the nature of the money system which is important, how democratic it is, who gets to issue money etc which is really important.

I agree with you that we need an honest and sound money system, my point is that gold and silver backing does not MAKE a system honest and sound, there are other factors which are more important in the design than what we back the currency with, or what we use as a measure, these are important considerations, but seniorage, ownership and the power to issue are more important.

Thanks for engaging, I have started a thread called the definitive community/complementary, alternative currency thread where there is more links and info in th General Discussions forum, http://www.peakprosperity.com/forum/definitive-commnity-complementary-an...

 

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