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    The Screaming Fundamentals For Owning Gold

    We're at a moment of historic opportunity
    by Chris Martenson

    Tuesday, December 8, 2015, 4:53 PM

Every year or two we update this report, which lays out the investment thesis for gold. Here is this year’s version.

Silver is touched upon only as necessary; as a separate report of equal scope is required for that precious metal.

Gold is one of the few investments that every investor should have in their portfolio. We are now at the dangerous end-game period of a very bold but very reckless & disappointing experiment with the world’s fiat (unbacked) currencies. If this experiment fails — and we observe it’s in the process of failing — gold will provide one of the best forms of wealth insurance. But like all insurance products, it only works if you buy it before you need to rely on it.

Risky Markets

As the world’s central banks perform increasingly bizarre and desperate maneuvers to keep the financial system from falling apart, the most frequently asked question we receive is: What should I do?

Unfortunately, there’s no simple answer to that question. Even seasoned pros running gigantic funds are baffled by the unusual set of conditions created by 4 decades of excessive borrowing and 7 years of aggressive money printing by central banks.  We expect market conditions to be even more perilous in 2016 as they are here in December 2015. Worse, we fear a major market correction — if not a financial/banking accident of historic proportions — could easily happen in the not too distant future.

In short: this is a dangerous time for investors. At a time like this, we believe it’s prudent to focus more on protecting one’s wealth rather than gambling for capital gains.

The Opportunity In These Strange Times

In 2001, as we witnessed the painful end of the long stock bull market, like many of you I imagine, I began to grow quite concerned about my traditionally-managed stock and bond holdings. Other than a house with 27 years left on a 30-year mortgage, these paper assets represented 100% of my investing portfolio.

So I dug into the economic data to discover what the future likely held. What I found shocked me. The insights are all in the Crash Course, in both video and book form, so I won’t go into all of that data here. But one key takeaway for me was: the US and many other governments around the world are spending far more than they are taking in, and are supporting that gap by printing a whole lot of new money.

By 2002, I had investigated enough about our monetary, economic, and political systems that I came to the conclusion that holding gold and silver would be a very good idea for protecting the purchasing power of my financial wealth from all this money printing. So took an extreme step: I poured 50% of my liquid net worth into precious metals at that time, and sat back and waited.

Despite the ups and downs in the years that followed — years of ups until 2011, years of down since — that move has still turned out to be a very sound investment for me. And I forecast the best is yet to come for precious metals holders like me.

But part of my is depressed by that conviction. Why? Because the forces that are going to drive the price of gold (and silver) higher are the very same trends that are going to leave most people on the planet financially much worse off than they are now.

Here at PeakProsperity.com, we admit that we initially were utterly baffled that the vicious secular decline in the price of gold began at almost the exact same time that the US Federal Reserve announced the largest and most aggressive money printing operation in all of history – known as QE3 – which pumped over $1.7 trillion into the financial system between 2012-2014, throwing an astonishing $85 billion dollars of newly created ‘thin air’ money into the financial system every month!

Such an unprecedented and excessive act of monetary desperation should have sent gold’s price to the moon; but in fact, the opposite happened. Strange times.

As we’ll soon explain, even as the price of gold futures were being relentlessly driven down in the US paper markets, the purchase of physical gold by China exploded. It’s as if the West suddenly decided gold wasn’t worth owning. Strange times, indeed.

As we’ll now explain in detail, we are witness to an incredibly aberrant moment in financial history — one where the price of gold is extremely undervalued relative to its true value. And similarly, many paper assets are overvalued well-above their intrinsic worth. The dichotomy of this moment in time is likely not to be repeated in our lifetimes; and those who understand the fundamentals accurately have the opportunity to position themselves now to benefit greatly (or at least, to not be impoverished) as this extreme imbalance corrects, as it must.

Why Own Gold?

The reasons to hold gold (and silver) — I mean physical bullion here — are pretty straightforward. Let’s begin with the primary ones:

  1. To protect against monetary recklessness
  2. As insurance against the possibility of a major calamity in the banking/financial system
  3. For the embedded ‘option value’ that will pay out handsomely if gold is re-monetized

Reason No. 1: To Protect Against Monetary Recklessness

By ‘monetary recklessness,’ we mean the creation of more money out of thin air than the productive economy actually needs or can use. The central banks of the world have been doing this for decades, but it has kicked into high gear ever since the onset of the 2008 financial crisis.

In our system money is created out of thin air.  It is created when a bank lends you money for a mortgage and it is created when the Federal Reserve buys a trillion dollars’ worth of mortgages from the banks.  If you didn’t know that money was ‘loaned into existence’ then you should really watch (or read) those parts of the Crash Course that explain the significance of this process.

Since 1970 the US has been compounding its total credit market debts at the astounding rate of nearly 8% per annum which gives us a chart that swoops into the air, and which reveals an astonishing 39-fold expansion since 1970 to nearly $60 trillion dollars:

Why is this astonishing? Isn’t it true that our economy has expanded tremendously since 1970, as well? After all, if our economy has expanded by the same amount, then the advance is not astonishing at all.

But sadly, the economy, as measure by Gross Domestic Product, or GDP, has grown by less than half as much over the same time frame:

Where credit zoomed from $1.5 trillion to $59 trillion, GDP only advanced from $1.1 trillion to $18 trillion. In other words, debt has been growing far faster than real things that have real value. (And to make things worse, as we explain in Chapter 18 of the Crash Course, GDP numbers are artificially overstated. The debt figures, sadly, are not.)

The crazy part of this story is that the financial and monetary system are so addicted to exponential expansion that they literally threaten to collapse violently if that growth ceases or even slows.  Remember 2008 and 2009, back when the financial world seemed to be ending?  Well, collapse was a very real possibility and here’s what almost caused that:

Anything other than smooth, continuous, exponential growth at a pace faster than GDP seems to be a death knell for our current over-indebted system of finance.  If you are like us, you see the problem in that right away.

The short version is this: Nothing can grow exponentially forever. But our credit system not only wants to, but has to. Or else it will collapse.

This desperate drive for continuous compounding growth in money and credit is a principal piece of evidence that convinces us that hard assets — of which gold is perhaps the star representative for the average person — are an essential ingredient in a crash-proof portfolio.

Back to our main narrative: because all money is loaned into existence, the next thing we should be wondering is where’s all the money that was created when those loans were made?  We’d expect it to mirror credit creation in shape.

What we find, unsurprisingly, is another exponential chart. This time of the money supply (of zero maturity, or MZM in banker parlance):

Money is a claim on real things, which you buy with it. Money is no good all by itself; it’s useful because you can buy a car with it, or land, or groceries, or medical services.  Which is why we state that money is a claim on goods and services.

Debt, on the other hand, is a claim on future money. Your mortgage is your debt, and you satisfy that debt by paying out money, in the future.  That’s why we say that debt is a claim on future money.

By now you should be thinking about how important it is that money and debt grow at the same rate as goods and services. If they grow at a slower rate, then there won’t be enough money and credit to make purchases, and the economy would thus contract.

But it’s equally important that money and credit do not grow faster than goods and services. If they do, then there will be too much money chasing too few real things, which causes prices to rise. That’s inflation.

Here’s the punch-line: Since 1980, money and credit have been growing at more than twice the rate of real things. There’s far more money and debt in the economy than there is real “stuff” all that paper is laying claim to.  Worse, the system seems addicted to forever growing its debts faster than its income (or GDP) — a mathematical impossibility any 4th grader can point out.

This is a dangerously unstable system. And it’s going to either crumble slowly for a long time  — or violently explode at some point. This isn’t an opinion, it’s just math.

The Federal Reserve has created and nourished a monster. It simply does not know how to begin starving the beast without it turning on the hand that feeds it, and thus destroying huge swaths of so-called paper “wealth” along with the actual economy.

So the Fed and its central bank brethren just keep pumping more and more money into the syste, fueling ever-higher levels of debt while hoping for an outcome that is simply impossible.

Negative Real Interest Rates

Real interest rates are deeply negative (meaning that the rate of inflation is higher than Treasury bond yields). Even more startling, there are trillions of dollars worth of sovereign debt that has negative nominal yields.  This means that investors pay various governments to take their money from them for periods as long as seven years. For example, at the time of this writing in late 2015, $1,000 loaned to the German government for 5 years will pay back $980 at the end of those five years.  That’s insane. Or at least, a very new wrinkle that we have yet to determine how it will alter investor decisions and psychology.

Negative interest rates are a forced, manipulated outcome courtesy of central banks. Of course, the true rate of inflation is much higher than the officially-reported statistics by at least a full percent or possibly two; and so I consider real bond yields to be far more negative than is currently reported.

Historically, periods of negative real interest rates are nearly always associated with outsized returns for commodities, especially precious metals. If and when real interest rates turn positive, I will reconsider my holdings in gold and silver but not until then. That’s as close to an absolute requirement as I have in this business.  Recently commodities have been hard-hit, declining in price by large amounts. So negative interest rates are giving us different results this time than we’d expect…so far.

Dangerous Policies

Monetary policies across the developed world remain as accommodating as they’ve ever been. Even Greenspan’s 1% blow-out special in 2003 was not as steeply negative in real terms as what Bernanke engineered over his more recent tenure. Janet Yellen has extended those polices along with the help of foreign central banks into extreme, never-before-seen territory that now includes negative nominal interest rates!  As mentioned above, this means people are paying governments for the ‘privilege’ of lending those same governments their money.

But it is the highly aggressive and ‘alternative’ use of the Federal Reserve’s balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried. There seems to be no end to these ever-expanding programs, and they seem to have become a permanent feature of the economic and financial landscape. In Europe, the European Central Bank (ECB) is aggressively expanding its balance sheet. In Japan we have Prime Minister Abe’s ultra-aggressive policy of doubling the monetary base in just two years. Suffice it to say that such grand experiments have never been tried before, and anyone that has the vast bulk of their wealth tied up in financial assets is making an explicit bet that these experiments will go exactly as planned. Who in their right mind thinks it will?

Reason No 2: To Protect Against a Major Banking Failure

Reason #2, insurance against a major calamity in the banking system, is an important part of my rationale for holding gold.

And let me clear: I’m not referring to “paper” gold, which includes the various tradable vehicles (like the “GLD” ETF) that you can buy like stocks through your broker. I’m talking about physical gold and silver (coins, bars, etc). Its their unusual ability to sit outside of the banking/monetary system and act as monetary assets that appeals to me.

Literally everything else financial, including the paper US bills in our wallets and purses, is simultaneously somebody else’s liability. But gold and silver bullion are not. They are simply — boringly, perhaps — just assets. This is a highly desirable characteristic that is not easily replicated in today’s world of ‘money.’

Should the banking system suffer a systemic breakdown — to which I ascribe a reasonably high probability of greater than 1-in-3 over the next 5 years — I expect banks to close for some period of time. Whether it’s two weeks or six months is unimportant. No matter the length of time, I’d prefer to be holding gold than bank deposits if/when that happens.

What most people don’t know is that the banking crisis in Cyprus in 2013 ushered in an entirely new set of rules as well as a new financial term: the “bail-in.”   Where a bail-out uses taxpayer funds to re-capitalize a failed bank, a bail-in uses internal assets to accomplish that task.  Which ‘internal assets?’  Bank deposits, as in the accounts regular people like you hold at your bank. Even worse, the new rules adopted within the US specifically call for the derivative bets made between banks to have seniority over bank deposits when it comes to a bail-in restructuring event.  That means that the money you hold in your bank account will be used to pay off any and all reckless bets your bank may have made with another financial entity via derivative bets. And US banks hold a LOT of derivatives on their books right now.

During a banking holiday, your money will be frozen and left just sitting there, even as everything priced in money (especially imported items) rockets up in price. By the time your money is again available to you, you may find that a large portion of it has been looted by the effects of a collapsing currency. How do you avoid this? Easy: keep some ‘money’ out of the system to spend during an emergency. We advocate three months of living expenses in cold, hard cash; but you owe it to yourself to have at least a little gold and silver in your possession as well.

The test run for such a bank holiday recently played out in Cyprus where people woke up one day and discovered that their bank accounts were frozen. Those with large deposits had a very material percentage of those funds seized so that the bank’s more senior creditors, the bondholders, could avoid the losses they were due. Sound fair to you? Me neither.

Most people, at least those paying attention, learned two things from Cyprus:

  1. In a time of crisis, those in power will do whatever it takes to assure that the losses are spread across the population rather than be taken by the relatively few institutions and individuals responsible for those losses.
  2. If you make a deposit with a bank, you are actually an unsecured creditor of that institution. This means you are legally last in line for repayment should that institution fail.

Reason No. 3 – Gold May Be Re-monetized

The final reason for holding gold, because it may be remonetized, is actually a very big draw for me. While the probability of this coming to pass may be low, the rewards would be very high for those holding gold should it occur.

Here are some numbers: the total amount of ‘official gold’, that held by central banks around the world, is 31,320 tonnes, or 1.01 billion troy ounces. In 2013 the total amount of money stock in the world was roughly $55 trillion.

If the world wanted 100% gold backing of all existing money, then the implied price for an ounce of gold is ($55T/1.01BOz) = $54,455 per troy ounce.

Clearly that’s a silly number (or is it?). But even a 10% partial backing of money yields $5,400 per ounce. The point here is not to bandy about outlandish numbers, but merely to point out that unless a great deal of the world’s money stock is destroyed somehow, or a lot more official gold is bought from the market and placed into official hands, backing even a small fraction of the world’s money supply by gold will result in a far higher number than today’s ~$1,080/oz.

The Difference Between Silver & Gold

A quick word on silver: often people ask me if I hold “goldandsilver” as if it were one word. I do own both, but for almost entirely different reasons.

Gold, to me, is a monetary substance. It has money-like qualities and it has been used as money by diverse cultures throughout history. I expect that to continue.

There is a slight chance that gold will be re-monetized on the international stage due to a failure of the current all-fiat regime. If or when the fiat regime fails, there will have to be some form of replacement, and the only one that we know from the past that works for sure is a gold standard. Therefore, a renewed gold standard has the best chance of being the ‘new’ system selected during the next bout of difficulties.

So gold is money.

Silver is an industrial metal with a host of enviable and irreplaceable attributes. It is the most conductive element on the periodic table, and therefore it is widely used in the electronics industry. It is used to plate critical bearings in jet engines and as an antimicrobial additive to everything from wall paints to clothing fibers. In nearly all of these uses, plus a thousand others, it is used in vanishingly-small quantities that are hardly worth recovering at the end of the product life cycle — so they often aren’t.

Because of this dispersion effect, above-ground silver is actually quite a bit less abundant than you might suspect. When silver was used primarily for monetary and ornamentation purposes, the amount of above-ground, refined silver grew with every passing year. After industrial uses cropped up, that trend reversed. Today it’s calculated that roughly half of all the silver ever mined in human history has been irretrievably dispersed.

Because of this consumption dynamic, it’s entirely possible that over the next twenty years not one single net new ounce of above-ground silver will be added to inventories. In contrast, a few billion ounces of gold are forecast to be added.

I hold gold as a monetary metal. I own silver because of its residual monetary qualities, but more importantly because I believe it will continue to be in demand for industrial uses for a very long time, and it will become a scarce and rare item.

The Fed Indeed Cares About Gold

Gold, when unfettered, has a habit of sending signals that the Fed very much doesn’t like. Therefore the Fed is at the top of everyone’s suspect list when it comes to wondering who might be behind the suspicious gold slams seen almost daily in today’s markets. Whether the Fed does this directly is doubtful; but it has a lot of proxies out there in its cartel network who likely are doing its dirty work.

To reveal the extent to which gold sits front and center in the Fed’s mind, and how the Fed thinks of gold, here’s an excerpt from a 1993 FOMC meeting’s full transcript. Note that the full meeting notes from Fed meetings are only released many years after the fact, long after many or all of the voting members are no longer serving. (The most recent ones available are only from 2009.) Listen to what this FOMC voting member had to say about gold:

At the last meeting I was very concerned about what commodity prices were doing. And as you know, they got lucky again and told us that the rate of inflation was higher than we thought it was.

Now, I know there’s nothing to it but they did get lucky. I’ve had plenty of econometric studies tell me how lucky commodity prices can get. I told you at the time that the reason I had not been upset before the March FOMC meeting was that the price of gold was well behaved.

But I said that the price of gold was moving. The price of gold at that time had moved up from 328 to 344, and I don’t know what I was so excited about! I guess it was that I thought the price of gold was going on up. Now, if the price of gold goes up, long bond rates will not be involved.

People can talk about gold’s price being due to what the Chinese are buying; that’s the silliest nonsense that ever wasThe price of gold is largely determined by what people who do not have trust in fiat money system want to use for an escape out of any currency, and they want to gain security through owning gold.

A monetary policy step at this time is a win/win. I don’t know what is going to happen for sure. I hope Mike is correct that the rate of inflation will move back down to 2.6 percent for the remaining 8 months of this calendar year. If we make a move and Mike is correct, we could take credit for having accomplished this and the price of gold will soon be down to the 328 level and we can lower the fed funds rate at that point in time and declare victory.

(Source – Fed)

There it is, in black and white from an FOMC member’s own mouth spelling out the primary reason why I hold gold: I lack faith in our fiat money system. He nailed it.  Or rather, I have very great faith that the people managing the money system will print too much and ultimately destroy it. Same thing, said differently.

And of course the people at the Fed are acutely aware of gold’s role as a barometer of people’s faith in ‘fiat money.’ Of course they track it very carefully, discuss it, and worry about it when it is sending ‘the wrong signals.’ I would, too, if in their shoes.

The Federal Reserve Note (a.k.a. the US dollar) is literally nothing more than an idea. It has no intrinsic value. America’s money supply is just digital ones and zeros careening about the planet, accompanied by a much smaller amount of actual paper currency. The last thing an idea needs is to be exposed as fraudulent. Trust is everything for a currency — when that dies, the currency dies.

The other thing you can note from these FOMC minutes is that gold pops up 19 times in the conversation. The Fed members are actively and deliberately discussing its price, its role in setting interest rates, and the psychological impact of a rising or falling gold price.

Later in that same meeting Mr. Greenspan says:

My inclination for today–and I’m frankly most curious to get other people’s views–would be to go to a tilt toward tightness and to watch the psychology as best we can. By the latter I mean to watch what is happening to the bond market, the exchange markets, and the price of gold…

I have one other issue I’d like to throw on the table. I hesitate to do it, but let me tell you some of the issues that are involved here. If we are dealing with psychology, then the thermometers one uses to measure it have an effect. I was raising the question on the side with Governor Mullins of what would happen if the Treasury sold a little gold in this market.

There’s an interesting question here because if the gold price broke in that context, the thermometer would not be just a measuring tool. It would basically affect the underlying psychology. Now, we don’t have the legal right to sell gold but I’m just frankly curious about what people’s views are on situations of this nature because something unusual is involved in policy here. We’re not just going through the standard policy where the money supply is expanding, the economy is expanding, and the Fed tightens. This is a wholly different thing.

The recap of all this is that the Fed watches the price of gold carefully, frets over whether the price of gold is ‘sending the right signals’ to market participants, and pays attention to gold’s impact on market psychology (with an eye to controlling it).

In short, the Fed keeps a close eye on the “golden thermometer”.

Back to the supply story for gold.  Not long after gold began its downward price movement in 2012, the GLD ETF trust began coughing up a lot of gold, eventually shedding more than 500 tonnes; a truly massive amount.


In my mind, the absolute slamming of gold in 2013 was done by a few select entities and represents one of the clearest cases of price manipulation on the recent record. While we can debate the reasons ‘why’ gold was manipulated lower or ‘who’ did it, to me, there’s no question about how it was done. Or that it was done.

Massive amounts of paper gold were dumped into a thin overnight market with the specific intent of driving down the price of gold.

It’s an open and shut case of price manipulation. Textbook perfect.

Even if these bear raids were performed by self-interested parties that made money while doing it, you can be sure the Fed was smiling thankfully in the background and that the SEC wasn’t going to spend one minute looking into whether any securities laws were broken (especially those related to price manipulation).

Gold’s falling “thermometer” was exactly what the central planners wanted the world to see.

Down And Out

The paper markets for gold are centered in the US, while the physical market for gold is centered in London (and increasingly Shanghai). It’s safe to say that the paper markets set the spot price, while the physical movement of gold originates in London.

What’s increasingly obvious is the growing disconnect between the paper and physical markets. This is exactly what we’d expect to see if the paper markets were pushing in one direction (down) while physical gold was heading in a different direction (out).

The tension between these ‘down and out’ movements is building and, according to a senior manager of one of the largest gold refineries in the world located in Switzerland, the current price of gold “has no correlation to the physical market.”

He notes a lot of on-going tightness in the physical market. Unsurprisingly, gold is moving from West to East with vaults in London supplying much of the physical metal that’s being refined into fresh kilo bars and sent off to China and India.

But given the astonishing amount of physical demand, why has the price of gold been heading steadily lower over the past several years?

The aforementioned Swiss refiner is equally perplexed:

If I am honest, the only thing I could share now with you would be that I’m perplexed about the discrepancy between the prices and the situation of the physical market. This is something I still do not understand and is a riddle for me every day. For all people who are interested in precious metals, the physical side of this business should be given more emphasis.

(Source – Transcript)

There’s no mystery as to demand going up in China and India as the price of gold has moved down. Interested buyers will buy more at a lower price.

But it’s a big mystery as to why Western “investors” seem more interested in selling gold than buying it right now.

Go East Young Man

The biggest untold story of the past few years has been the absolutely massive extent of the flow of gold heading from the West to the East.  Gold has been leaving London and Switzerland and heading to China and India.

Besides the first-hand experience of the Swiss refiner, there have been numerous stories in the main stream press also pointing to tightness in the London physical gold market as well as relentless demand from China and India being the driver of that condition:

Gold demand from China and India picks up

Sep 2, 2015

London’s gold market is showing tentative signs of increased demand for bullion from consumers in emerging markets, after the price of the precious metal fell to its lowest level in five years in July.

The cost of borrowing physical gold in London has risen sharply in recent weeks. That has been driven by dealers needing gold to deliver to refineries in Switzerland before it is melted down and sent to places such as India, according to market participants

“[The rise] does indicate there is physical tightness in the market for gold for immediate delivery,” said Jon Butler, analyst at Mitsubishi.

The move comes as Indian gold demand picked up in July, with shipments of gold from Switzerland to India more than trebling. Most of that gold is likely to originally come from London before it is melted down into kilobars by Swiss refineries, according to analysts.

In the first half of this year, total recorded exports of gold from the UK were 50 per cent higher than the first half of 2014, on a monthly average basis, according to Rhona O’Connell, head of metals for GFMS at Thomson Reuters. More than 90 per cent was headed for a combination of China, Hong Kong and Switzerland.

London remains the world’s biggest centre for trading and storing gold.



Shipments and exports are up very strongly and nearly all of that gold is headed to just two countries; China and India.

India Precious Metals Import Explosive – August Gold 126t, Silver 1,400t

Sept 10, 2015

In the month of August 2015, India imported 126 tonnes of gold and 1,400 tonnes of silver, according to data from Infodrive India. Gold import into India is rising after a steep fall due to government import restrictions implemented in 2013.

Year-to-date India has imported 654 tonnes of gold, which is 66 % up year on year. 6,782 tonnes in silver bars have crossed the Indian border so far this year, up 96 % y/y.

Gold import is set to reach an annualized 980 tonnes, which would be up 26 % relative to 2014 and would be the second highest figure on (my) record – my record goes back to 2008.

Silver import is on track to reach an annualized 10,172 tonnes, up 44 % y/y! This would be a staggering 37 % of world mining.


To summarize, the gold and silver imports into India have been absolutely on a tear lately as that country tends to buy more and more as the price drops lower and lower.

While the paper games setting the price of gold and silver in the West continue to support lower and lower prices, for whatever reasons, this only stimulates more demand from China and India.

Seen collectively, there’s what gold demand looks like for “Chindia.”


To make things even more interesting, the world’s central banks have been increasingly strong net buyers, not sellers, of gold for the past 5 years.

Central Banks

Another factor driving demand has been the reemergence of central banks as net acquirers of gold. This is actually a pretty big deal. Over the past few decades, central banks have been actively reducing their gold holdings, preferring paper assets over the ‘barbarous relic.’ Famously, Canada and Switzerland vastly reduced their official gold holdings during this period (to effectively zero in the case of Canada), a decision that many citizens of those countries have openly and actively questioned.

The UK-based World Gold Council is the primary firm that aggregates and reports on gold supply-and-demand statistics. Here’s their most recent data on official (i.e., central bank) gold holdings:


After more than a decade of selling gold to suppress the price, central banks turned into net acquirers right as gold began its plummet from its 2011 highs.  2015 looks to be an even stronger year for central bank purchases.

With China and India’s combined appetite for gold being higher than total world mining output, and central banks on a buying spree, it only stands to reason that somebody has to be parting with their physical gold — and those selling entities appear to be substantially located in the US and UK.

An interesting piece of detective work was done by Ronan Manly at Bullionstar.com where he noted that the LBMA reported pronounced drops in the amount of gold stored in London vaults, which includes both gold held at the Bank of England as well as non-official vaults within the LBMA system.

To summarize his report, here’s the amount of gold reportedly held in London:

  • April 2014 – 9,000 tonnes
  • Early 2015 – 7,500 tonnes
  • June 2015 – 6,250 tonnes

That means that 2,750 tonnes left London over the past 1+ year.

Does such a large number even make sense?

Well, sure, if we consider that just these four countries cumulatively imported (or increased reserves) by ~4,500 tonnes since the beginning of 2014.


Confirming this is this handy chart of UK gold flows as compared to Shanghai Gold Exchange (SGE) withdrawals:


Quite interestingly, the highest flows out of the UK were during the months of the gold price bloodbath in early 2013 (a coincidence?), but the flows had picked up in earnest in the months prior.  Without the ‘liberation’ of gold from GLD, it’s quite possible that physical shortages would have appeared much earlier.  Again, the price smash of gold seems to have been a stroke of good luck for the central planners in the West, both for the psychological impact but also for liberating so much physical gold from weak hands.

What we can also see is that, generally speaking, the UK has been steadily losing gold month in and month out for the past 2.5 years. Also interestingly, the gold that the UK does import has mainly come, of late, from the US and Canada.

The only question is: How much longer can this continue?

Ronan Manly took a stab at estimating how much of the remaining 6,250 tonnes of gold in the UK was available for export and the answer was ‘not very much.’  He estimated that, of the gold that did not belong to the BoE, that perhaps ~120 tonnes was not spoken for by various gold ETFs and other allocated accounts. To put that in context, 120 tonnes is a couple of weeks of demand at China’s Shanghai Exchange, or a month of Indian demand.

Warning Signs At The COMEX

While I used to be among the people that expected the eventual default on gold to happen in the COMEX warehouse, I no longer think that.  In fact, should things ever get to the point that COMEX cannot deliver on a physical contract, the rules will almost certainly be changed to force a cash settlement and that will be that.

When things get serious, they lie. Or change the rules. Or both.

However, the internet has been abuzz lately with some very interesting oddities coming out of the COMEX, notably a sharp decline in the amount of gold that is ‘registered’ to be delivered to settle a futures contract that has matured and declared for physical delivery.


When compared to the number of contracts outstanding, the ratio of open contracts to registered gold has never been higher.

This means that, if just 0.5% of the futures contracts stood for delivery, the COMEX warehouse would be wiped out of registered gold.

The reason this is not actually a big concern is that new gold can and would be moved out of the ‘eligible’ category and over to the registered category to satisfy whatever shortfall existed.

For those interested, here’s a quick primer on the distinction between ‘eligible’ and ‘registered’:

Eligible Silver

To be eligible for storage in a CME-authorized depository, silver must be 99.9 percent pure. For the standard 5,000-ounce futures contract, the silver must be cast into bars weighing 1,000 troy ounces, give or take 6 percent. Each silver bar must be marked with its weight, purity, a serial number and the brand of the refiner. Only brands officially listed by the CME can be eligible for storage. Should a refiner deliver silver that is below standard, the metal is rejected or sold, and the refiner risks losing its authorization to warehouse silver for Comex futures.

Registered Silver

Eligible silver stored at a CME-authorized depository is not available for sale unless it is registered. An owner can register eligible silver deposits by having the depository issue a warrant that certifies the details of ownership. Silver warrants were once printed on paper, but were converted to electronic form in 2011. Not all eligible silver is registered for sale, but all registered silver must first be eligible. Silver owners frequently extend or withdraw registration depending on whether or not they wish to sell their holdings at current prices.


The real question is whether there’s enough total gold at the COMEX to cover any physical buying demand that might arise and the answer, for now, is ‘yes’:

The reason I don’t worry about (or hope for) a COMEX default is that it’s not really a place where players show up to get physical gold (or silver). It’s merely a depository that provides the necessary optics for paper speculators to place bets against each other.

Yes, it’s the place that ends up setting the price of gold and silver for the world, but the number of shenanigans that can be pulled to manipulate prices higher or lower are numerous and routinely used.

When I Would Worry About (or Hope For) A Default

My view is that the first stage of a sharp rebound in the price of gold will begin with increasing tightness and eventually shortages in the London bullion market.

Needing to secure more gold, on a reasonable time frame, refiners would then turn to the COMEX market, but with the intention of taking delivery. If/when that happens it won’t take long for COMEX to be stripped clean of both categories of gold.

There’s ~220 tonnes of gold in COMEX and, again, that’s just a month or two of current demand (that is in excess of total world mining output).

As soon as it’s recognized that COMEX is being drawn upon to satisfy Eastern demand, the price fireworks will start.  Or the rules will be changed.  But I’m betting on price being the chosen mechanism to align supply and demand.

The summary of the fundamental analysis of gold demand is

  • there is a huge and pronounced flow of gold from the West to the East
  • there is rising demand from all quarters except for the ‘hot money’ GLD investment vehicle (which I have never been a fan of)
  • all of this demand has handily outstripped mine supply which means that someone’s vaults are being emptied (the West’s) as someone else’s are rapidly filling (the East’s)

Now about that supply…

Gold Supply

Not surprisingly, the high prices for gold and silver in 2010 and 2011 stimulated a lot of exploration and new mine production. Conversely, the bear market from 2012 though 2015 has done the opposite.

However, the odd part of the story for those with a pure economic view is that, with more than a decade of steadily rising prices, there has been relatively little incremental new mine production. But for those of us with an understanding of resource depletion, it’s not surprising at all.

In 2011, the analytical firm Standard Chartered calculated a subdued 3.6% rate of gold production growth over the next five years based on lowered ore grades and very high cash operating costs:

Most market commentary on gold centers on the direction of US dollar movements or inflation/deflation issues – we go beyond this to examine future mine supply, which we regard as an equally important driver. In our study of 375 global gold mines and projects, we note that after 10 years of a bull market, the gold mining industry has done little to bring on new supply. Our base-case scenario puts gold production growth at only 3.6% CAGR over the next five years.

(Source – Standard Chartered)

Since then, the trends for lower ore grade and higher costs have only gotten worse. But the huge drop in the price of gold in 2011 and 2012 was the final nail in the coffin and resulted in the slashing of CAPEX investment by gold mining companies.

Of course, none of this is actually surprising to anyone who understands where we are in the depletion cycle, but it’s probably quite a shock to many an economist. The quoted report goes on to calculate that existing projects just coming on-line need an average gold price of $1,400 to justify the capital costs, while green field, or brand-new, projects require a gold price of $2,000 an ounce.

This enormous increase in required gold prices to justify the investment is precisely the same dynamic that we are seeing with every other depleting resource: energy costs run smack-dab into declining ore yields to produce an exponential increase in operating costs. And it’s not as simple as the fuel that goes into the Caterpillar D-9s; it’s the embodied energy in the steel and all the other energy-intensive mining components all along the entire supply chain.

Just as is the case with oil shales that always seem to need an oil price $10 higher than the current price to break even, the law of receding horizons (where rising input costs constantly place a resource just out of economic reach) will prevent many an interesting, but dilute, gold ore body from being developed. Given declining net energy, that’s that same as “forever” as far as I’m concerned.

Just like any resource, before you can produce it you have to find it. Therefore the relationship between gold discoveries and future output is a simple one; the more you have discovered in the past, the more you can expect to produce in the future, all things being equal.

This next chart should tell you everything you need to know about where we are in the depletion cycle for gold, as even with the steadily rising prices between 1999 and 2011 (going from $300 an ounce to $1,900), gold discoveries plummeted in 1999 and remained on the floor thereafter:


Here we see that the 1990’s decade saw quite a number of large discoveries that are currently still in production but which were not matched in later years. Since it takes roughly ten years to bring a mine into full production following discovery, it’s fair to say that we are currently enjoying production from the discoveries of the 1990’s. Future gold production will largely be shaped by the discoveries made since then.

In other words: Expect less gold production in the future.

Meanwhile, there will be more money, more credit, and more people (especially in the East) competing for that diminished supply of gold going forward.

Let’s take another angle on gold supply, one which circles back and supports the above chart showing fewer and smaller discoveries in recent years.

The United States Geological Survey, or USGS, keeps a mountain of data on literally every important mined substance. I think it’s staffed by credible people, doing good work, and I’ve yet to detect overt political influence in their reported statistics.

At any rate, the latest assessment on gold reveals that their best guess for world supply is that something on the order of 52,000 tonnes of reserves are left. Which means that, at the 2012 mining rate of 2,700 tonnes, there are 19 years of reserves left:


This doesn’t mean that in 19 years there will be no more new gold to be had, as reserves are always a function of price; but it gives us a sense of what’s out there right now at current prices.

As much as I like the folks at the USGS, I will point out one glaring discrepancy in their data as a means of exposing why I think these reserves, like those for many other critical things like oil, are probably overstated.  And that story begins with South Africa.

There you’ll note that, at 6,000 tonnes, South Africa has the second largest stated country reserves. However, according to official South African data, they claim to have an astonishing 36,000 tonnes of reserves.  Which is right?

Neither as it turns out.

First, the true story of South African gold production is completely obvious from the production data. It’s a story of being well and truly past the peak of production:


And not just a little bit past peak, but 44 years past; down a bit more than 80% from the peak in 1970. The above chart is simply not even slightly in alignment with the claims of the South African government to have 36,000 tonnes of reserves. But pity the poor South African government, which knows that gold exports represent fully one third of all their exports. Of course they will want to loudly proclaim massive reserves that will support many future years of robust exports.

Instead, the South African production data can be modeled by the same methods as any other depleting resource and one such analysis has been done and arrived at the conclusion that there are around 2,900 tonnes left to be mined in South Africa.


The analysis is quite sound; and the authors went on to point out that the social, economic, energy, and environmental costs of extracting those last 2,900 tonnes are quite probably higher than the current market value of those same tonnes. If they are extracted, South Africa will be net poorer for those efforts. This is the same losing proposition as if it took more than one barrel of oil to get a barrel of oil out of the ground — the activity is a loss and should not be undertaken.

For lots of political and economic reasons, however, gold mining will continue in South Africa. But, realistically… someone in government there should be thinking this through quite carefully.

The larger story wrapped into the South African example is this: Perhaps there are 19 years of global gold reserves left (at current rates of production), but I doubt it.

Instead, the story of future gold production will be one of declining production at ever higher extraction costs — exacerbated by the 80,000,000 new people who swell the planet’s population every twelve months, the hundreds of millions of people in the East who enter the ranks of the middle class annually, and the trillions of new monetary claims that are forced into the system each year.

And this brings me to my final point of the public part of this report.


If we cast our minds forward ten years and think about a world with oil costing 2x to maybe 4x more than today, we have to ask ourselves some important questions:

  • How many of our currently-operating gold and silver mines, or the base metal mines from which gold and silver are by-products, will still be in operation then?
  • How many will simply shut down because their energy and associated costs will have exceeded their marginal economic benefits?

After just 100 years of modern, machine-powered mining, all of the great ore bodies are gone, most of the good ones are already in operation, and only the poorest ones are left to be exploited in the future.

By the time you are reading stories like this next one, you should be thinking, man, we’re pretty far along in the story of depletion, aren’t we?

South African Miners Dig Deeper to Extend Gold Veins’ Life Spans

Feb, 2011

JOHANNESBURG—With few new gold strikes around the world that can be turned into profitable mines, South Africa’s gold miners are planning to dig deeper than ever before to get access to rich veins.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., has a picture in his office of himself at one of the deepest points in Africa, roughly 4,000 meters, or 13,200 feet, down in the company’s Mponeng mine south of Johannesburg. Mr. Cutifani sees no reason why Mponeng, already the deepest mining complex in the world, shouldn’t in time operate an additional 3,000-plus feet deeper. Deep mining isn’t easy, nor pleasant. The deeper a mine goes, the more at risk it is from underground earthquakes, rock bursts, gas discharges and flooding. And for workers, conditions themselves get progressively more uncomfortable from heat and cramped spaces.

South Africa is at the forefront of deep mining. Agnico-Eagle Mines Ltd.’s LaRonde mine in northwestern Quebec, one of the deepest mines outside South Africa, operates at about 7,260 feet below the surface. Before closing in 2002, Homestake Gold Mine in South Dakota was considered the deepest mine in the Western Hemisphere at about 8,045 feet.


The above article is just a different version of the story that led to the Deepwater Horizon incident. Greater risks and engineering challenges are being met by hardworking people going to ever greater lengths to overcome the lack of high quality reserves to go after.

By the time efforts this exceptional are being expended to scrape a little deeper, after ever smaller and more dilute deposits, it tells the alert observer everything they need to know about where we are in the depletion cycle, which is, we are closer to the end than the beginning.  Perhaps there are a few decades left, but we’re not far off from the day where it will take far more energy to get new metals out of the ground compared to scavenging those already above ground in refined form.

At that point we won’t be getting any more of them out of the ground, and we’ll have to figure out how to divvy up the ones we have on the surface. This is such a new concept for humanity — the idea of actual physical limits — that only very few have incorporated this thinking into their actions.  Most still trade and invest as is the future will always be larger and more plentiful, but the data no longer supports that view.

We are at a point in history where we can easily look forward and make the case for declining per-capita production of numerous important elements just on the basis of constantly falling ore grades. Gold and silver fit into that category rather handily. Depletion of reserves is a very real dynamic. It is not one that future generations will have to worry about; it is one with which people alive today will have to come to terms.

Protecting Your Wealth With Gold

For all the reasons above, it’s only prudent to consider gold an essential element of a sound investment portfolio.

In Part 2: Using Gold to Protect Yourself In Advance of the Greatest Wealth Transfer of Our Lifetime we detail out the specifics of how much of your net worth to consider investing in gold, in what forms to hold it, which price targets are gold and silver most likely to reach, and which eventual indicators to look for that will signal that it’s time to sell out of your precious metal investments.

The battle to keep gold’s price in check is truly one for the ages. Not because gold deserves such treatment, but because the alternative is for the world’s central planners to admit that they’ve poorly managed an ill-designed monetary system of their own creation.

Make sure you’re taking steps today to ensure that the purchasing power of your wealth is protected, if not enhanced, when the trends identified above arrive in full force.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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  • Tue, Dec 08, 2015 - 8:22pm



    Status: Bronze Member

    Joined: Apr 30 2010

    Posts: 395

    Good summary. I read last

    Good summary. I read last week that China had discovered 2000 tons more gold reserves-- 2 km under the ocean...

    Also, regarding how / if the gold markets will default when physical runs out, I doubt TPTB will let it get that far. I'm sure they'll start a big war before then to deflect blame. The financial system will crash and be reset along with the gold price. But ultimately they will not be able to hide the fact that the west's gold is gone. Or maybe they'll find a way to convince the masses that Russian spies stole the gold during the war when it hapens... Never underestimate the stupidity of the stories they tell and the public's gullibility. 

    It may be that all the recent ramping up of false flag terror attacks is the beginning of this. 

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  • Tue, Dec 08, 2015 - 8:31pm



    Status: Bronze Member

    Joined: Oct 31 2008

    Posts: 90

    Comex eligible gold

    Does anyone know the reason for the huge increase in Comex gold held in eligible form, but not registered? It's gone from just above zero in 2000, to over 200 tonnes. Does the GLD ETF hold some of its gold in this form?

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  • Tue, Dec 08, 2015 - 8:57pm



    Status: Bronze Member

    Joined: Feb 06 2013

    Posts: 614

    Not completely related, but I

    Not completely related, but I wanted to share a last "clarion" call I shared on my Facebook profile in another attempt to shake my friends and family out of their torpor. I anticipate the usual parade of ignorant Krugman-worshiping friends and "You're just a pessimist" family posts. 
    Anyways, my post also included a BBC article on the collapse of iron ore and oil commodity prices, sourced here.
    Here's my post:
    Commodities "crash" in price because factories cut production and therefore require fewer raw materials. Factories cut production because they anticipate, or are experiencing, a drop in demand for their products. This has been reflected in multiple economic indicators (things that indicate the relative health of an economy) across various industries and economies - such as, most importantly, China - and all of the indicators have been pointing to a global economy heading into steep recession.
    Add to that just today's headlines: Morgan Stanley cutting 1200 jobs, Anglo-American (a very large mining company) cutting 85,000 jobs, manufacturing activity slowing in China, Europe, and the United States, new small business startups slowing even faster than small business deaths for six years in a row, and you get a picture of an economy that is shaky at the very least, if not in serious trouble. Black Friday and cyber-Monday sales across the globe were anemic; a sign that consumers are also cutting back some. Global transport business is slowing dramatically, because demand for shipping is in decline. Oil is hitting new lows on global oversupply, which could also be called under-demand, since prices only drop like a stone when both factors exist in a marketplace simultaneously. Something wicked this way comes, and it isn't a 2016 of global prosperity rainbows or economic unicorns.
    Combine this with the fact that the debt of most developed nations has doubled or tripled since the Great Recession officially ended (China quintupled, if I recall correctly), and you have a situation where the global economy is slowing down at precisely a moment in history when governments and large corporations are hugely over-leveraged and awash in debt...debt which must be serviced and maintained, and eventually paid off. So the ability of governments to buttress any increased demand for social services that always come hand-in-hand with a recession is severely limited by the fact that most governments are already way too far in debt to begin with. Krugman and other economic PhD nobel winners aside, printing money won't do anything but create more debt and more social inequality, as well as further destabilize currencies and encourage risky or illogical economic behavior from major investment corporations.
    Yet we are being told, for the most part, that liftoff is "just around the corner" and that the U.S. economy is "heating up." This rah-rah nonsense will even be used as justification for the Federal Reserve to raise interest rates by a mere 0.25% (something that used to happen without most economists even taking notice), which will be sort of like turning a sailboat head-on into a windstorm.
    So I'm officially calling "shenanigans" on this supposed economic recovery."
    Why do I bother trying to make them aware again?!?

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  • Tue, Dec 08, 2015 - 9:22pm



    Status: Bronze Member

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    Central Banks as Net Buyers

    Hi Chris,

    Can you clarify this chart and say which major central banks are and are not included in the data?

    I'm curious what this chart would be like separating western central banks from eastern central banks.

    - Aaron

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  • Tue, Dec 08, 2015 - 9:47pm


    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814


    Just for fun I asked my bank manager what would her attitude be if I placed a large deposit on real estate and borrowed a small percentage to top up. 

    She was that bored she could hardly keep her eyes open. However, I couldn't shut her up once she began sprouting the joys of a 95% loan on a white picket fence in suburbia. She told me that I could use my equity in the house to leverage up even more.

    My point is that the Central Banks may have succeeded in convincing the public that Debt Is money. And if that is true, what of gold?  Is it not a historical relic? 

    And so I dither. But not for long. The risk of leaving my money in the banks grows every day. 

    Here is my model. Debt is used to enslave the kids. (Student loans. They are born into schuld, guilt). The Central Banks hope to convince them of this "debt is money" meme, in order to strengthen their chains. 

    BUT the Limits to Growth curves kick in and the illusion pops.  The kids are sent to war to distract them from questioning their Reality.  However they are taking Ayahuasca and waking up. They may be younger than us, but they are not thicker than us.

    And so they flip The Man the bird and find something else to use as money. Will they choose gold in an age of automation?  Will we be able to manufacture gold as Mitsubishi Is doing by transmutation?  In their case calcium is used as a feed-stock.

    There are just too many imponderables. Nothing is certain,  but that is the nature of our Quantum Reality. It is all about probabilities. 

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  • Tue, Dec 08, 2015 - 10:01pm

    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814


    In my model the Central Bankers are whipping the gold off the table so that Muggins can't use it for money. They are doing whatever it takes to convince us that Debt is money.

    Debt is money of cause.  It is the money of slaves. 

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  • Tue, Dec 08, 2015 - 10:17pm

    Mark Cochrane

    Status: Platinum Member

    Joined: May 24 2011

    Posts: 874

    No one wants to sell


    At a guess, those curves look to be showing that when the prices started diving, less and less people/entities wanted to put their gold up for potential sale. The question is at what price will all of that supposedly eligible gold come back onto the market. The difference now screams of gold being way underpriced in my humble opinion.



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  • Tue, Dec 08, 2015 - 10:28pm



    Status: Platinum Member

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    I wonder what suprises TPTB may have planned for us

    I know it's entirely possible TPTB that are running this circus really are that foolish to run the whole system into the ground with no idea what to do then.  History repeatedly teaches that apparently highly intelligent "leaders" have frequently run their institutions and countries into the ground while others screamed warnings about applying the brakes or changing course.  So this could all just blow up some day.

    OTOH, I wonder if the TPTB have any surprises planned for us right before the system collapses or right after.  Of course, they'll blame someone else.  Of course, they'll lie.  But what else might they do?

    1. So I wonder how many of the titans of banking and finance have large personal gold/silver stashes and remote retreats to ride out the disaster they're steering us into.  Wouldn't it be interesting to know how much gold The Bernank and Mr. Yellen have?   Wouldn't it be interesting to find out that Jamie Dimon has aircraft standing by 24/7 to whisk him to his secret doomstead in Wyoming or New Zealand?

    2.  Of course, TPTB will (or will attempt to) change the rules of money when the current system crashes.  If they have such a plan its primary feature absolutely will be that it will maintain their power and positions of privilege.  Replacing the dollar with SDRs sounds like it might appeal to them (replace a nation's fiat currency with a world fiat currency which They also control - new boss, same as the old boss).

    3.  But then I try to imagine some truly left field possibilities.  Maybe London and The Fed will announce they've sent China and India gold bars that are filled with tungsten meaning the West has more than anyone thinks and Chindia has less.  Or maybe a breathless President will announce that NASA has secretly corralled an asteroid and will have it in Earth orbit by 2020 where it can be mined for the massive amounts of gold, platinum, and rare earth metals it has been proven to have lying on its surface.  This will be the new backing for the dollar.  You get the idea.

    Who knows?  In the meantime, we are hurtling toward that Wiley Coyote moment when he realizes his miscalculation and gravity takes over.  I'm voting for the eventual victory of gravity over human foolishness with my gold and silver stacks.  Throughout history, shorting human arrogance and stupidity has always been a good strategy.  And I can be patient.

    "Welcome to the Hunger Games. And may the odds be ever in your favor."

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  • Tue, Dec 08, 2015 - 10:46pm



    Status: Silver Member

    Joined: Sep 22 2010

    Posts: 615

    Why do I bother . . .

    trying to make them aware again?, ask Snydeman.

    Yes, I also wonder a lot about this.

    If they rent, they don't need home insurance

    If they do not have a car, they don't need auto insurance

    If they have little wealth or income, they do not need nor can buy much of "wealth" insurance (gold/silver)

    If they do not have a job, haven't retirement savings  (50% plus of population?), nor health insurance, nor pensions, what can they do??


    But your family/friends, like some of mine, do have some/many of these things, and yet will only say:

    "What can I do about it?  It's beyond me and my means."  "I do not have land to grow food, I cannot afford fine art purchases (Rickards), etc."  "I do not even have THREE months cash to hide under my mattress!"

    "Looks like I'm F-----D!"

    AND, I do not know what to say!!!  Maybe try joining a commune, who accept kids too.

    Feeling VERY sad,  Ken

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  • Tue, Dec 08, 2015 - 11:26pm



    Status: Platinum Member

    Joined: Oct 01 2008

    Posts: 1441


    Chris, thanks for this exhaustive analysis of economic forces and how gold plays into them.

    One area has been a mystery to me for a while:

    [quote]But it is the highly aggressive and ‘alternative’ use of the Federal Reserve's balance sheet to prop up insolvent banks and to sop up extra Treasury debt that really has me worried.[/quote]

    Could you explain how that works?  What difference does it make how big the Fed's balance sheet is? It's currently around $4.5T, but I don't know what that means in practical terms.  Am I misunderstanding that the assets on deposit are gov't bonds?  Or, are they bank assets?  If it all goes bust, who does it affect? 



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  • Tue, Dec 08, 2015 - 11:30pm


    Arthur Robey

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    And then there is fake gold.

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  • Wed, Dec 09, 2015 - 12:10am



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    Great Report Chris

    There is a lot here....I sat down this evening and read over the entire report.  Perhaps the biggest take away for me is the idea that gold and silver are cheap now.  Based on the data in the Crash Course and simple history, they really shouldn't be.  It is this illusion of paper wealth most of us have been raised with that prevents the mind from seriously considering the value of real money.

    Gold and Silver are cheap now, but how quickly will that change?    The report is appropriately extensive, but I just want to put in a plug for other real wealth, too.  Workable land.  I wish I had some gold, and I buy silver when I can, but I can not tell you the fun I am having converting our 3.5 acres into a productive homestead like property.   I can't work at it every night, but boy, I try.  Main focus has been getting the land prepared for the future orchard.  Knees and shoulders usually hurt after long sessions in the woods. But it is worth it.  So valuable.

    But yah, wish I had some gold.  



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  • Wed, Dec 09, 2015 - 12:37am

    Luke Moffat

    Luke Moffat

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    Joined: Jan 25 2014

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    Non magnetic + acid test as well (assay). My guess is that precious metal verification will become a trade in itself, should it go that way. Get yourself clued in for the possibilities, perhaps...

    Also keep receipts from purchases - almost like paper currency backed up by precious metals, hmm I'm getting all nostalgic 🙂

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  • Wed, Dec 09, 2015 - 12:50am



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    Desperate measures


    (I posted this on part 2 but the main discussion is here on part 1.)
    Sorry to strike a sour note. Investing in PMs is all very well, but where does one store them? The citizens of Greece are now being commanded on pain of criminal prosecution to open up their bank safe deposit boxes and clean out from under their mattresses. You Americans are well aware of FDR's gold confiscation in 1933 and 1934, again on pain of criminal prosecution.
    I foresee a time when the owners of PMs in much of the glorious West will be ordered to hand them over to desperate governments. Purchase histories and banking records and other audit trails will be studied and followed in order to reveal PM holdings and get them into government vaults.
    Already the holding of PMs is being linked to the all-purpose frightener, terrorism. An oblivious public will go along with whatever the government tells it is happening, until the penny drops and it's too late.
    And don't overlook a desperate government of imposing punitive taxes (110% anybody?) on the proceeds of PM sales done on an open market.
    One foresees a huge black market in PMs. A bit like Prohibition in the US maybe.
    Sorry to be so glum, but desperate times call for desperate measures, and our governments will do whatever TPTB tell them to do.

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  • Wed, Dec 09, 2015 - 1:26am


    Status: Gold Member

    Joined: Jun 25 2014

    Posts: 881

    No, fake gold and silver seem cheap right now.

    Quite simply, unless you have a use for gold, you aren't going to have a way of getting gold and being sure it is what it is claimed to be.

    Vaulted gold?  It never really existed.
    Audited vaults?  Government attack (E-gold), confiscation.
    Physical gold?  See the Perth fake gold below.
    Gold futures?  The market is flooded with futures, which far exceed supply.
    Gold bonds?  Subject to bank seizure (G7 new rules)
    Suppose you buy physical gold, and then test it yourself?  Then nobody ELSE can be sure that it's real.

    That's the problem with PMs.  You can't be sure that you're genuine, unless you have a genuine need for it -- and if you do, you'll show up the fake stuff in product failures.  Try to make Kodak Gold film with tungsten, and it isn't likely to work out too well.

    But that's the problem with all the other investments out there, too.  Whatever you invest in, the system is set up to steal your investment.  And even if you invest in labor -- as I have been doing -- the government attacks to "force payment" for multiple thousands of dollars at a time.




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  • Wed, Dec 09, 2015 - 5:15am


    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814


    I'm not buying gold because it is pretty.  

    I'm hoping to make a buck.  But to do that I will need to get two events more or less perfect.  When to buy and when to sell. (Swap it for land). Do I have enough confidence to pull it off?  No.

    But what are the alternatives to my pathetic efforts?  I'm on record saying that there are always other alternatives. 

    Best not to try and pick the top or the bottom of the bubble.  Leave some for other guy.

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  • Wed, Dec 09, 2015 - 10:29am


    Arthur Robey

    Status: Platinum Member

    Joined: Feb 03 2010

    Posts: 1814


    If the claims to wealth prove to be worthless in a deflationary event then this debt money goes to money heaven. In other words "real paper" currency becomes scarce for a short time until "they" start up printing presses. 

    Of cause they could inject base money into private accounts to get the velocity  of money up again. So I think that the FED won't  be totally powerless. The "short time" above will be milli seconds in an emergency. 

    But why didn't they use that option back in '08? I believe that the powers that be preferred to have debt as a goad to motivate everyone. QE and it's  variants are why  you walk down an Avenue of skyscrapers yet not have enough for a cardboard box to sleep in. 

    But what happens when human labour is just not important enough to goad?  My son's electric car is good enough, therefore batteries will be good enough for robots. We may be released from our shackles to attend to our veggie garden and our chooks and allowed to go ferral so long as we don't make a nuisance of ourselves. 

    So what has this got to do with Gold?  I wonder if I will have enough to make a golden torque so that everyone will know how important I am?

    BTW Asteroid mining has been given the legal go ahead. Don't get excited.  It's got nothing to do with you. 

    this HTML class. Value is http://m.phys.org/ne

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  • Wed, Dec 09, 2015 - 11:23am



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    how much is left?

    It might be an interesting exercise to try and get a sense of just how much gold is left in the various places.

    According to demonocracy:

    • 84.2k tons in jewelry
    • 31k tons in private investment
    • 29k tons Central Banks & Government
    • 22.3k tons "Other Use"/Industry

    Annual production: 2.5k tons

    So let's say (as a wild-assed guess) there is an annual deficit of 1k tons flowing east.  Would we ever "run out" or would a rising price be enough to convince people to turn in their (84k tons of) jewelry in exchange for cash?  "Scrap" gold supply is mostly just people cashing in their jewelry.

    It might also be interesting to figure out how much gold is sitting around accessible within a day or so.

    Presumably, this would include COMEX, GLD, PHYS, OUNZ, the LBMA, Perth Mint...anything else?



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  • Wed, Dec 09, 2015 - 12:08pm



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    Rob Kirby on gold

    From USAWatchdog.com, "Blow Off Event Will Change Financial Universe Forever-Rob Kirby", at http://usawatchdog.com/blow-off-event-will-change-financial-universe-forever-rob-kirby/

    Kirby is also an expert on gold and helps attain gold for his ultra-wealthy clients by the ton. Kirby says, “They can’t get enough of precious metals. They scour the earth looking for large amounts of metal. . . . People that I work with represent money so large that they know they’re going to end up in the very end game, that they are going to end up with a whole lot of dollars that are going to be worth nothing. They accept that, but in the meantime, they are going to convert as many of those dollars as they can into things that are tangible and are going to maintain value once the world gets it and realizes the U.S. dollar is tapioca and is worth nothing.”

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  • Wed, Dec 09, 2015 - 1:33pm


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    Mike Maloney's thoughts on this are:


    1. Gold was not confiscated - it was nationalised i.e. you were paid for it. (Hopefully in a future nationalisation you would be paid the market price, rather than the 'official price' of gold)
    2. Only a small percentage of the privately-held gold was turned in. (As you alluded to, electronic traceability would make it easier for gold to be tracked down now, unless you are buying with cash.)
    3. Gold jewellery has never been nationalised, so this is an option. (However, there is a considerable premium over the spot price of gold.)

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  • Wed, Dec 09, 2015 - 4:00pm


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    gold jewelry


    If you want cheap gold jewelry (which is to say, only a small fraction above the melt value) go to asia.  Last time I bought some, the gold content was about $600 and the premium for making the jewelry was about $18.  When you turn it in for cash, you get pretty close to melt value - I think you might lose a couple of dollars.

    Seriously.  Gold jewelry in asia.  Premium for jewelry there is LESS than on a gold eagle.

    Of course...it is really, really important to buy from a reputable shop.

    It is relatively common for people in asia to swap their gold chains for cash when they need money.  Any shop that hosed its customers in that area wouldn't be around long.

    Interestingly enough, that same sort of deal is available in Chinatown in the US, but the markup is a bit steeper.  I bought a gold chain in San Francisco chinatown (cash, as I recall) for about $50 over melt.   Know the price of gold per gram that day so you look like you know what you're doing - purity assessment is important too.  Again, reputable shop is critical.

    You could always think about going into the gold jewelry retailing business.  That requires having an inventory prior to actually selling anything.  Presumably you could store most of the inventory for your prospective business in a safe deposit box.  Nothing to do with avoiding confiscation, of course.

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  • Wed, Dec 09, 2015 - 4:14pm


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    Gold Jewellery

    Hi Dave,

    thanks for that info - really useful. Do you know anything about the jewellery premiums in Dubai? I'll be flying through there in February and I know they've got a substantial gold market. I'm flying onward to Thailand, so perhaps I can get something there too.

    The fact that Asians swap their gold chains for cash shows how much gold is viewed as money in Asia - certainly not the case here in Europe.

    Also really interested in your retailing suggestion. I'm in a business in which retailing jewellery is a possibility, so I'll look into it. Thanks again.



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  • Wed, Dec 09, 2015 - 5:36pm


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    Gold isn't money per se in Asia, but its most definitely a wearable store of value.  I get the sense they treat it like a bank account.

    If you compare Dubai with Thailand - I'd pick Thailand.  I'd guess spreads are cheaper in Thailand - bars (92.5% purity) are 100 baht per .48 oz.  Jewelry spread is larger.  Bars are really only useful within Thailand.

    Go to Chinatown in Bangkok.  You can't swing a dead cat without hitting a gold shop.  You probably want one with more customers rather than less.  Hua Seng Heng is one possibility, I've heard good things.

    There might be tax issues if you want to bring a big bunch of gold jewelry through customs.  There would be in the US.  You would know better than me.  I suppose you could always look like Mr. T.  "It's just fashion for me to wear 30 chains..."

    [EDIT] It occurs to me that in Dubai they might have better prices on .999 1 oz bars that might be better accepted back in Europe.  Thailand has its own funky bars that are the same purity as the jewelry that (as I said) are only useful in country.

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  • Thu, Dec 10, 2015 - 12:57am

    pat the rat

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    The velocity of money may be dead,because of terminate hold.Debit card money transfer from my account to the store;no money changes hands , no velocity.

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  • Thu, Dec 10, 2015 - 5:16am


    Arthur Robey

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    Sweat of the sun, tears of the moon.

    So I went to the vendor and we got chatting.  He does the lecture circuit discussing  gold and silver.

    The tears of the moon has got more upward pressure on it than the sweat of the sun. 

    We agreed that air has to be let out of the Australian  Real Estate bubble slowly. Further, we agreed that there will be many who will be found to be swimming naked as the liquid goes away. Expect forced sales of Australian  Real estate. Expect silver to hit $300 from a base of $20. A 15 fold increase. If the market is allowed to express it's exuberance. I anticipate an unfortunate  overshoot.

    We found that the 1 kilo bars were sold out. This cannot be interpreted as a shortage of Silver but we can definitely  say that Perth Mint cannot cast silver fast enough for the demand. 

    On reflection I should have got more. But I want that piece of land too. 

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  • Fri, Dec 11, 2015 - 12:35am

    Mark Zielinski

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    GDP data looks incorrect

    I think if you go to the FRED site and check the US GDP data, you'll find that GDP has only increased a little over 7 times since 1952, not 17 times since 1970. This makes your case for the growth of debt versus GDP far more compelling than currently shown early in this excellent post, that is, the growth of debt since 1952 is 149-fold versus the 7-fold growth of GDP.

    I'll be happy to send you the chart comparing the two series if you tell me to what email address you would like it sent. And the FRED data if you want that as well.

    Thank you.




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  • Fri, Dec 11, 2015 - 3:44am


    Arthur Robey

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    Good first post Thundering Heard

    And interesting blog. 

    You are saying that things look even clearer if the debt/GDP ratio is taken from 1952 rather than 1972.

    Let me compose my best counter argument.


    I'll base my argument on the idea that there is a plan.

    The FED could sweep all the gold off the table and produce many tungsten bars to discredit gold. Money may become an ancient relic.  The new world order could distribute to each his need, bypassing the need for cash or computer digits other than for record keeping.

    Population control could be effected by many devices. (Endocrine disruption  and race specific phages )

    Judging by the ennui  that Cold Fusion has generated it is conceivable  that TPTB have something much better in the wings. (Energy underpins everything, but it has negative consequences so it must be paraded for our  inspection when we are far fewer and less unruly.)

    How's that? Did I persuade you? 

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  • Fri, Dec 11, 2015 - 12:45pm

    Chris Martenson

    Chris Martenson

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    REal vs. nominal

    [quote=Thundering Heard]

    I think if you go to the FRED site and check the US GDP data, you'll find that GDP has only increased a little over 7 times since 1952, not 17 times since 1970. This makes your case for the growth of debt versus GDP far more compelling than currently shown early in this excellent post, that is, the growth of debt since 1952 is 149-fold versus the 7-fold growth of GDP.

    I'll be happy to send you the chart comparing the two series if you tell me to what email address you would like it sent. And the FRED data if you want that as well.

    Thank you.



    Thank you for keeping a close eye on the data - data is the foundation of our work here.

    What I did was compare apples to apples.  Because the debt figures are all quoted in nominal dollars (that is, they are not adjusted for inflation) I thought the best equivalent comparison would be nominal GDP (also not adjusted into 'current dollars' or 'constant dollars').

    That way, we're not comparing an adjusted data series to an unadjusted series.  At FRED, any time you select "GDP" you are almost always selecting real GDP, which is an adjusted series.

    If I've used the wrong data series, or you've got a better set of examples to use, I'm all ears.  


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  • Fri, Dec 11, 2015 - 3:33pm

    Mark Zielinski

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    Monetary plane versus physical plane

    Thank you, Chris, very good point. Debt is, after all, "adjusted for inflation," otherwise why would inflation be so beloved by debtors?! smiley 

    Maybe I'll have to think of a better data series to dramatize the exponential growth of the monetary plane versus the linear growth, or lack of it, in the physical plane, e.g, digging holes, building houses, serving dinner at restaurants, etc. If you can think of a better one, then I'm all ears.  I guess it would have something to do with all of the items people think of as monetary wealth. Adjusted for inflation, of course. I will work on that.

    Thanks again.

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  • Fri, Dec 11, 2015 - 4:59pm



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    Return on investment

    I certainly do not wish to be dismissive of this thread, as these discussions on PM's do make me pause and consider how best to protect wealth. I tend to share Arthur R.'s perspective that productive assets appear to sustain value in "real" terms as opposed to  a "nominal" classification. I can't help but ponder the fact that it is generally agreed upon that pre-industrial agriculture returned anywhere between 5 and 50 calories of food energy for a calorie invested (human and/or animal assisted). Current estimates signal a ROI of 75 to 100 non-human calories invested for each calorie produced. That does not include the by product costs of disposal or of environment costs , commonly referred to as externalities. A simple equation for me.

    Perhaps an investigation into land investment strategies might be a follow up editorial for you, Chris. Given that the world population is approaching 90% urban, the rest of us "schmucks" living out here in the wide open spaces (2-4%) would appreciate your read on the numbers. My bias is that gold is a hedge and land is an investment. Iron, right now, is a bit more precious to me than gold that is beyond my grasp. Given the activities of the Chinese and Saudi investors in acquiring agricultural based assets, in addition to gold; what can they tell us that we don't already know?

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  • Fri, Dec 11, 2015 - 5:02pm

    Mark Zielinski

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    State of the plans

    Thank you, Arthur.

    I agree with you that there is such a plan, but I think the would-be controllers are losing control. The whole system looks to me like the Tacoma Narrows bridge and its collapse-wobble has begun. This is detectable not just in human-built systems--where an honest expert in almost any field can go on at length about how things are broken and corrupted in his or her field--but in natural systems as well where we see increasing earth changes, weather wildness, the accelerating decline of Earth's magnetic field, etc. It seems to me that lots of cycles of widely varying durations are coming to a close and no controller strategies will be able to withstand their effect.

    Of course, the good news about the ends of cycles is that new cycles inevitably emerge, which is where we all step in, through admittedly very hard work and all the creativity we can muster, and create a far better world going forward as the unsustainable control systems crumble away. So there's that plan as well.

    Thanks again.


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  • Sat, Dec 12, 2015 - 11:49pm



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    Thought experiment for you

    Thought experiment for you Chris. The US government comes to you and says, "OK, you got it right, our fiat currency is a shambles, the economy is crashing, we need to monetise gold and you are in charge".

    Please describe how you go about this.

    In enough detail for the rest of us to understand its effect on our lives, including those of us who are not Americans, the people of Oceania, of India, of China, Africa and Russia, the ME and South America.

    No big hurry, by Christmas would be good, in case I need to add an ounce or so under the tree.

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  • Sun, Dec 13, 2015 - 3:50pm



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    Aloha! Mahalo Chris ... There is one chart that should be added to the discussion because the past is worth considering when trying to determine future paths to recovery. Recovery ... meaning economic, political and moral. Everyone agrees it is too easy to create debt, but debt was around during the gold standard and even in the days of Rome so debt is part of the human condition. Problem is the "quality" of debt. Imagine if we spent the current debt on infrastructure instead of war and corruption. That mistake is catching up to us.

    The one huge mistake we can glean from the past history of the US is the "central bank". Prior to having a central bank there were no income taxes per say and not much in government debt compared to the past 100 years of the Central Bank Era. God knows the "quality" of our money prior to central banking was more resilient. Why can I say that? Well, there is no denying the business cycle and all other cycles despite what modern politicians and bankers tell you. The following chart illustrates the recovery periods of past "busts". Note the period in the red box whereby no central banks existed here in the USA. What it shows is the gold standard era with minimal or no central bank influence. Now look ... every market in the US and the world awaits what Janet Yellen will say. It seems nobody has a right to exist without a central bank and onerous government lauding over our daily life.

    The above chart is from Stanford Economics professor John Taylor, the inventor of the Taylor Rule. The year 2009 shows a recovery that was 59 months. It was deemed ended by George Bush and Obama, by government decree. Many including Prof Taylor say that the 2009 recovery is still ongoing. 

    Note the average recovery time in months from current busts is double plus the recovery time of the lesser central bank era of our fore fathers who built this Nation's wealth base. I contend that the central banks are highly political and influenced heavily by politics despite their mantra of being detached from politics. Mainly because ... who gave them life in the first place? Under what guarantees did the Congress of 1913 agree to the big bank dominated US Fed? They will deny it, but the US Fed got the guarantee that the Congress will always make US taxpayers liable for all debts of government and bankers. Is it a coincidence that Congress ratified Income Tax in 1913 the same year the US Fed started. Certainly we saw that unofficial guarantee in action right before our very eyes in 2008. Politics has ruined modern money and ruined the world economies only with the assistance of central banking. In a recent poll nearly 50% of millennials said the American Dream is over. Destruction of the US middle class ... check!!!

    Yes, certainly the "greater fools" have prevailed ...

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  • Sun, Dec 13, 2015 - 5:32pm

    Jim H

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    Excellent post Kaimu

    Here's another (long term) view of what our central bank has wrought;

    chart of the day, consumer price index, 1800-2009

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  • Sun, Dec 13, 2015 - 11:08pm



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    I disagree with you Mr. Martenson

     The  "FEDS" not going to let people own Gold !  They are going to do what F D R did during the last great depression .  They will OUTLAW its ownership and using it for purchases or for paying debts !  Along with a Decree that everyone who has any gold coins or bullion in their possession will be ordered to turn it in or face a long time in jail.  And when its turned in , you will not get its face value more than likely you will get less than half of what its worth if that !   And don't even think of keeping it in a safety deposit box at your bank , F D R had those all opened buy federal agents and all gold was confiscated , so will the "FEDS" this time around.  So the moral of that story is Safe deposit boxes are not safe !! Want to bury it in the back yard ?  well the "FEDS"  have metal detectors too, so good luck trying to hide it. Off shore bank ?  Maybe , if that foreign government doesn't do the same thing.  Any way you want to slice this we are going to loose a lot of money with out much hope of getting it back. Good Luck everyone,  we are going to need it and very soon.

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  • Mon, Dec 14, 2015 - 2:23am



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    vanishing comment

    What happened to my comment, it just vanished????

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  • Mon, Dec 14, 2015 - 2:52am

    pat the rat

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    With a little luck it will be like when booze  was made a no no,and the the powers that be will loose. And  may  lady luck smile on you.

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  • Mon, Dec 14, 2015 - 11:06am



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    COMEX gold claims

    Why have COMEX gold claims skyrocketed? What would make this happen? It did not do that when gold was rocketing up in the 2000s.

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  • Tue, Dec 15, 2015 - 12:36am



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    China Wants Yuan-Denominated Gold on the Shanghai Gold Exchange

    Someone in ZH's comment section had a link to this 12/11/15 article, which I thought was of potential interest.  http://finance.yahoo.com/news/china-wants-yuan-denominated-gold-202617926.html

    Yuan-fixed gold

    China is the top producer and the top buyer of gold. China is working to enhance its position in the gold markets by getting a yuan-denominated gold benchmark to be traded on the Shanghai Gold Exchange (or SGE). SGE would act as the central counterparty where the banks could settle their trades. This may eventually give more liberty to China as gold can be directly converted to the Chinese currency, which could pose a threat to London and New York gold markets.

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  • Tue, Dec 15, 2015 - 9:34am



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    they will target 401k, not gold


     The  "FEDS" not going to let people own Gold !  They are going to do what F D R did during the last great depression .  They will OUTLAW its ownership and using it for purchases or for paying debts !  Along with a Decree that everyone who has any gold coins or bullion in their possession will be ordered to turn it in or face a long time in jail.  And when its turned in , you will not get its face value more than likely you will get less than half of what its worth if that !   And don't even think of keeping it in a safety deposit box at your bank , F D R had those all opened buy federal agents and all gold was confiscated , so will the "FEDS" this time around.  So the moral of that story is Safe deposit boxes are not safe !! Want to bury it in the back yard ?  well the "FEDS"  have metal detectors too, so good luck trying to hide it. Off shore bank ?  Maybe , if that foreign government doesn't do the same thing.  Any way you want to slice this we are going to loose a lot of money with out much hope of getting it back. Good Luck everyone,  we are going to need it and very soon.


    i believe you're mistaken about that.

    in 1933 the feds needed the gold in order to expand the money supply, since gold backed the money system. today, it does not. and very few americans hold any gold, it's really not worth their while to go searching for it. it's like trying to mine gold when the ore grade is 0.1g/ton, sure you can get a little gold but it's too small a result for too much effort.

    what they will target, however, is pensions and 401k accounts, there are enormous sums of wealth tied up there. obama has already set up the "myRA" system. during the next substantial market crash people will see the value of their 401k holdings plummet, the politicians will pretend to play the part of heroes (we've got to do something about this! there oughtta be a law!), and force retirement accounts to be held in long-term government treasuries (guaranteed safe!). what they won't tell you is that while your treasuries are generating returns of 3%, inflation will be running at 10%+, effectively eroding the purchasing power of your life savings by 7% every year, which is a wealth transfer to the government.

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  • Thu, Apr 13, 2017 - 1:41am


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    pensions & 401k: its where the money is

    I agree with reflector.  They'll go to where the money is.  Right now, thats $25 trillion in total retirement assets.  This is what Poland did just recently; they snatched all the retirement cash, and swapped it out for promises to pay you later once you actually retire.
    Here's a graph that shows total "retirement assets" in the US vs the total value of all the gold in the entire world @ 1290/ounce.  Say the US owns 25% of that.  Even with gold at $5000/oz, that is still dramatically less than the total retirement assets.  And the nice thing about all those assets are, they're entirely digital.  Swiping them is really, really easy.  There is no need to break down any doors.
    I suspect this is how they'll fix the "pension crisis."  No more pension - you get "Social Security Plus."
    Source: https://www.ici.org/research/stats/retirement/ret_16_q4

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  • Thu, Apr 13, 2017 - 5:51am

    Adam Taggart

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    CB's Already Hold A Lot Of Gold

    davefairtex wrote:

     Even with gold at $5000/oz, that is still dramatically less than the total retirement assets.  

    And don't forget a sizable chunk of that gold is already in the vaults of the world's central banks and the IMF.
    Just one more reason for them to come after the much larger retirement pile of money first. 

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  • Fri, Apr 14, 2017 - 10:07am


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    Poland pension grab

    I'm in Europe and hadn't heard about the polish pension grab. It would seem very likely that this could be a blueprint for other governments in the next financial crisis. 
    Why hasn't there been uproar in Poland about this? Why isn't this getting more media attention?
    The tax savings available in pension schemes seem fantastic, but how safe are the funds going to be? I'm in Ireland, which is still highly indebted, so I'm wary of putting money in a pension. The government introduced a 'pension levy' here in 2011 during the last crisis,  where they took 0.75% of the total pension assets per annum. It has since been abolished, but the precedent has been set.

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