The paper/electronic USD, the world’s (shortly-to-be-displaced) reserve currency represents a transient, all-too-fleeting ‘thought of value’. It functions as the grease for trade; nothing more. It has no more substance than that, and the moment it has served its role to complete trade, it is gone. It contains no value in itself; value continues to reside solely in the assets which are forced to use this unnecessary intermediary to complete trade.
Oil and Gold are priced in those same electronic USD, and for the past 40 years the world has been forced to buy this paper/electronic currency in order to purchase Oil and Gold. Kissinger played a ‘blinder’ and it was the world who was most severely blinded! When Kissinger received Saudi agreement to price Oil in USD alone, he had in effect secured an Oil-backed paper/electronic USD. In this way, the USD was awarded honorary value. From such ignoble origins was born the steady creation of an ever-growing mountain of paper derivatives, paper masquerading as the real thing. Mountains have a peak, and the global financial world has for several years precariously balanced tip-toe on that lofty peak of paper debt. At such an unstable and giddy height, a fragile hold can all too easily slip. The USA may just have set that fall in motion.
In its latest attempt to sustain its exclusive privilege to print frenziedly, in ever more copious amounts, the USA has excluded Iran from the gratuitously-produced electronic USD international monetary system. The USA would have us believe that this exclusion is a most grave chastisement, that its destructive impact seriously disadvantages Iran. Oh really?
Just how much of a ‘punishment’ does this constitute? It might be better evaluated as a ‘gift’! Political theatre is risky business. Powerful effects and consequences can follow. Many who understand only too well that the mountain of derivatives very peak has been reached, ask daily how much longer we can delay the inevitable fall. Some say the fall has started, others claim that paper-derivatives-games can(by their very nature are designed to) continue interminably. In opting for excluded-from-USD-trade sanctions against Iran, the USA has elected to play the riskiest hand in a do-or-die effort to sustain the electronic USD’s status as global reserve currency. How so?
No longer will Iran and its very important, very large trading partners be forced to earn electronic USD in order to complete trades which do not require -and now can not take place in- needless 3rd party/electronic USD payment methods. In one cut-off-YOUR-nose-and-smitten-MY-face move the US has freed Iran and her trading partners. Freed them to conduct a pure, barter-type trade for Oil and Gold without the electronic USD poking its nose into others’ business in order to steal some of the value of the trade.
Far-reaching, world-changing repercussions and consequences will inevitably follow. Hope and pray that Iran and her none-small-fish trading partners will allow the Golden trade opportunity the USA has handed them to unfold at a pace that will benefit the world. For what practical consequences ensue from Iran being ‘sent outside’, banished from the electronic USD international monetary system?
India and China (and Russia, Venezuela, et al) can, have and will now pay for Iran’s Oil with Gold, PHYSICAL Gold, in a direct barter trade. Hope and pray that as Iran and its trading partners discuss trade terms, Iran asks for no LESS than 1gram Physical Gold per barrel. (Such a deal would value Physical Gold at $3,100 oz; it offers 31 barrels per oz Gold). Hope and pray hard!
For if Iran asks for 0.1gram Physical Gold per barrel (and thus values Physical Gold at $31,100; 311 barrels per oz Gold), the world is in for a mind-blowing, hair-scorching ride, as the deceit, counterfeit and fraud is violently shaken out of this electronic/paper-USD-monetary-system to be replaced with true valuations and asset-price integrity, as markets revalue worthless paper contracts to (almost) zero and real assets to their true worth.
Many will doubtless assert that this is a spurious argument, that it would be extraordinarily self-defeating for Iran to ask for 0.1gram Gold per barrel, when the market tells us Oil values Gold today at the equivalent of 2.0 grams per barrel! It would be the act of an incompetent fool to sell Oil at 5% of it’s full value; Iran would be shooting itself in the foot; Iran will price their Oil to receive the maximum quantity of Gold.
A lifetime’s experience and knowledge of the intricate machinations of the financial system provides no immunity from important lessons that have yet to be learned empirically. The past forty years have not prepared us for the simple but inescapable truths that must and will emerge. For there can be no doubt that the following lessons are about to be most forcefully delivered: i)paper is not a reliable guide to TRUE value and worth; ii) paper markets, free from normal supply characteristics and dynamics, do not serve a price-discovery function, they serve instead to mask true value; iii)the paper wealth you believe you have accumulated may be worth no more than the sheet of paper it’s written on.
How confident currently are you that the paper you hold reliably represents your wealth? Consider how you would react to information that Iran was asking for a paltry 0.1gram Physical Gold per barrel/ 311 barrels per ounce Gold? Is there one among you who would not rub their hands in greedy glee at the untold riches to be made in this glorious arbitrage opportunity? How many of you would sell everything, beg-steal-borrow, to lay your hands on every penny you can in order to purchase as much Gold as possible at the electronic USD market spot-price (currently circa $1750)? Who among us would not be hastily making the following calculation: 31.1grams per oz; 0.1gram Gold pb =311 barrels of Oil for $1,750. And who would not conclude that s/he was set to make countless millions on the back of this startling arbitrage opportunity?
Good luck! Your billionaire-dream will endure only a little longer than it takes a piece of paper to burn. Hurry off excitedly to check Gold’s spot price, as you pray that you’re ahead of the pack in identifying this arbitrage opportunity of a lifetime, as you pray that Gold’s price hasn’t risen too far yet, hasn’t eaten too far into the billions that await you. Then watch in stupefied amazement as you see before your eyes the spot price of Gold fall flat on it’s backside. FALL?!
What happened? Has there ever been a more counter-intuitive movement in the Gold price? You don’t know it yet, but you just witnessed the Physical Gold bank run. And you just witnessed the uncovering of the ‘value’ of Comex and LBMA and ETF paper gold. But stay with me as we pursue this process to it’s inescapable denouement. You are about to witness the reassignment of Physical Gold to its fully-priced TRUE value.
What is the explanation for Gold’s price fall, when news of its ability to purchase such large amounts of Oil imply that its price should be heading in only one direction -UP- and at speed?
You were not alone in spotting this glorious arbitrage opportunity. Many saw it. Many, just like you, had safe-haven positioned a very small portion of their investments in paper gold. (A few mavericks had, contrary to the best/most expensive financial advice available, even boldly invested more than the no-more than-10% recommended by the greatest financial advisors). Now these investors intend, just like you, to take delivery of their Gold and buy 311 barrels of Oil per oz. Fantastic!…Except for one small detail.
Paper gold contracts are counterfeit/illusory/pretend Gold, they are derivatives of Gold, they are most assuredly not (and 99% never will be) Physical Gold! The source of your paper gold investment, whether you own LBMA paper, ETF paper, Comex paper, Bullion Bank paper is immaterial. There are 100+ ounces of paper gold products sold for every 1 ounce of Physical Gold that exists. (Can you say ‘ambiguously owned Gold’?) And, be in NO doubt, that Iran 0.1gram Gold per barrel of Oil deal will NOT be settled in paper gold, it is NOT for ambiguously owned gold. It is EXCLUSIVELY for the real, hold-in-your-hand Gold McCoy.
Go ahead and try to redeem your paper gold for Physical Gold! Waste time -if you want- reading the deceptive prospectus, the salesmen brochures, guaranteeing your right to physical redemption. Save yourself too much wasted time and effort- go straight to the ‘small-print’. It’s there, be assured, it always is: that clause which allows settlement of your paper claim, NOT in Physical Gold, but in cash. A heart-wrenching read, in that day, to be sure.
It may be that through the haze of your disappointment, you are able to spot what you perceive to be the solution, for you can, of course, still sell your paper gold contract and use the funds to buy real Physical Gold. A huge sigh of relief.
Your next step, of course, is the online Gold bullion sites. No matter that until this moment you have resolutely ignored the ubiquitous adverts, and condemned buyers of investment Gold coins and bars as needlessly paying well over the odds. Your broker had sensibly, you concluded, pointed out the additional costs and risks inherent in Gold bullion investment. Owning paper gold contracts, you agreed, was such a God’s-send, providing ease, safety from theft, and free of those Bullion dealers’ minimum 4-5% premiums. But this glorious opportunity requires that you put aside your prejudices and take a look at the price of a 1 ounce Gold Eagle even with that annoying 5% premium added.
What?! What happened? The inventory is disappearing off your computer screen faster than you can say ‘only Mexican Gold pesos coins left’. Too late. Every Gold bullion website you look at, you find the same story. Ebay, too, is filled with page after page of ‘seller has ended auction’ notices. And in the event you happen upon a 1 oz Krugerrand still up for sale, do not forget to breathe as you watch it being bid up before your disbelieving eyes: $28,000..$29,500..$31,000.. Given your firmly engrained understanding of the world and how it has always operated, would you feel able to shell out $31,000 on a 1 ounce Gold coin, even if you could afford to do so? Don’t linger in contemplation too long, for there are many who will have understood the full implications and will happily part with $31,000 (and more) for each and every ounce of Gold available.
What will you be left with? Your billionaire dreams mere ashes, now unable to get your hands on, let alone afford, even the tiniest amount of Physical Gold. You might console yourself with the thought that you can sell your paper gold contract for cash, so at least you haven’t lost anything.
Sit down. Comex spot gold is trading at $325!..$290!..$250!. How can that be? Everyone has followed your every reaction, except they’ve moved faster. You have to be quick when paper burns. Everyone has, just like you, seen the need to sell their paper gold in a mad rush to buy Physical Gold. The Comex paper gold spot price collapses under the weight of selling and the price hurtles downwards at ever increasing speed. Brutal truths are forced into the light, as the paper gold market gives up the facade that it is any more than 1% physically backed. There are no Comex, LBMA, ETF paper gold buyers.
Meanwhile, in perfect tandem, the cash settling these paper gold market claims has had the very same goal as you had. All that cash is heading in one place, with one goal, to buy and UNAMBIGUOUSLY own Physical Gold.
The reasons to own Physical Gold did not just go up in smoke with the paper gold price. On the contrary. So now what is left for you? Let me spare you the self-deluding hope of a revival in the Comex spot-price and the salvaging of some more of the cash you had invested in those paper gold contracts. Take my advice, don’t delay, sell now at $220, for that price is heading to zero. Forever.
Rub your eyes. Check outside that the sky is still there. Funny how at such times we grab for something physical and tangible to hold and reassure. It’s a lesson we will kick ourselves for failing to have learnt sooner.
So, to recap, where have we come? Where are we now? The paper gold market is dead. Forever. Physical Gold is re-valued to it’s true worth, to the price which will enable it to flow and trade, to a price indeed which will be sustained. Forgive me for stretching your incredulity to such untested parameters. I am fully aware that few, if any, of you who have been kind enough to thus far indulge my colourful scenario will be prepared to accept that a $31,100+ oz Gold-price is sustainable?
However, in that day to come, you may! In the final analysis, we will be left with no choice but to accept Oil’s valuation of Gold, and the valuations which permit real Oil and real Gold to flow freely, continuously. It would serve no-one’s interests if attempts to engineer a lower Gold-price sent Gold into hiding. It would serve no-one’s interests to await Oil’s halted flow as it sought a new payment method as solidly reliable as Gold.
And so, at last, we have arrived at our destination: a place where paper is recognized for what it truly is, possessing no intrinsic value, representing instead an unrealistic promise that it will honour a commitment to provide, some time in the future, the real thing. Tell me, though, when we reach such paper saturation that 100 ounces of Gold are promised for future delivery, all on the back of a single ounce of Physical Gold, is it not abundantly clear that it is an empty and fraudulent promise/commitment?! The whole paper derivatives market has stood for a long time with its toe perched on the peak of a mountain of worthless paper claims, and once that toe trips we are going to be hurtling down that mountain at super-speed.
I am convinced that we need have no fear as to where we are going, that we have cause to be grateful, even optimistic, for this fall is wholly necessary. We’re heading back to the true solid base of the mountain where real things are bought and sold at their true value, unburdened from the weight of being wrapped in countless paper claims. The derivatives pass-the-parcel game is playing out, and once all that paper is torn away, there sits the real thing.
Destruction of the fraudulent, destructive, robbing paper markets is the only path out of this dire situation. That destruction is inescapable and on its way. To imbue an intrinsically worthless paper/electronic trading unit with the backing of true wealth, Oil, is too great a responsibility for human nature. There was only ever going to be one outcome. A thoroughly broken system.
In the ultimate ironic twist -given the Kissinger/Saudi deal setting us on the path to value paper far more highly than it merits- history may well record that we can thank the USA’s exclusion of Iran from the electronic USD monetary system as the great catalyst. How else, indeed, could this paper game at the core of our current broken financial and monetary system ever come to its long-awaited and inevitable collapse? For the can-kicking to end requires that those made powerful by illegitimate, unearned, paper wealth discover that such illegitimacy can end in the blink of an eye.
What nation needs uranium-enriched nuclear warheads when it possesses Gold, Oil, and friends in sufficient quantity to be able to price its Oil at 0.1gram Gold per barrel? Who needs to launch earth-destroying attacks against other nations when one can price its Oil in a small quantity of Gold and, in a flash, bring the current financial fraud (and those who derive their power from such) to its certain, long-overdue demise.
It would be too easy to object to the scenario I paint, to condemn it as fanciful and meaningless conjecture. It would likewise be too easy to soothe any anxieties that may have been elicited with self-deluding reassurances that safeguards exist to prevent this ever happening in reality. Have you read or heard about the MF Global outrage? If not, then you must! And, please, check out the paper gold brochures, the small-print, the conditions of redemption. If not for me, then for you.
Remember, time does, indeed, prove all things. Sometimes, that proof comes sooner than we ever thought possible- before we’ve had a chance to act, before we can outrun the herd.
PS. Reflect a little more on some of the other consequences which would follow this re-pricing of Gold to the shock value of 311 barrels per oz Gold. Reflect a little on Central Bank balance sheets: the ECB in particular has recognized the value of Gold as a means of defending currency, and Gold currently composes some 60% of the total value of the ECB’s reserves. Reflect on all Gold-holding Central Banks and their balance sheets.
Only days ago, Venezuela repatriated the final shipment of 160 tonnes previously held abroad and the world’s Central Banks have been buying and accumulating Gold at unprecedented levels. Russia, India, China, Iran, Korea, Vietnam, even Greece adds monthly to its Gold reserves. Interesting! No-one says too much about it; these increases are announced without fanfare. Almost as if no-one wants to disturb the public paper gold price.
But consider this: how much healthier suddenly are the ECB, and all those other Central Bank balance sheets with Gold revalued to its true worth by this simple, deeply generous, selfless offering of Oil at 0.1 gram Gold per barrel? Let all paper burn, for the revaluation of Gold can off-set the evaporation of worthless paper from Central Bank balance sheets.
Can it really be that simple? Can this credit/debt paper fraud, deceit, misery-making horror be brought to its knees by so sweet an Oil-Gold deal? Would the USA be the only losers, as their electronic USD free- ride was ended? Of course not! For the USA claims to hold within its Fort Knox and FRBNY vaults by far the largest amount of Gold bullion in the world, far outstripping anyone else’s. There, deep in those vaults, we are assured, sit more than 8,100 tonnes of the stuff. Iran’s move, far from seeking to disadvantage the USA, would necessarily recognize that 8,100+ tonnes buys a great deal of 0.1g gold-priced Oil.
It turns out you see, that the USA would be the greatest beneficiary of this Oil and Gold revaluation/re-pricing. There is NO loser in this scenario. Gold has made winners of us each and everyone. It has burnt paper, revalued real assets, crushed debt, freed nations and peoples from future-generations of extreme debt slavery/repayment. Unless, of course……