ECON GOLD

http://finance.yahoo.com/news/why-gold-crashing-134900481.html

NEW YORK (TheStreet) -- If you want to understand the recent fundamental and technical catalysts that have sent gold prices crashing you need to read my article entitled Gold Is Entering Its Liquidation Phase. However, if you want to understand the deeper underlying cause of this ongoing crash in gold prices, continue reading here.
The Framework
Economists that follow the so-called "Austrian School" of economics are fond of saying that the causes of a crash in asset prices are to be found not in the indicators that are coincident to the crash (as those are mere symptoms and not root causes).
The root cause of a crash in asset prices is actually to be found in the factors that led to the exorbitant rise in asset prices that preceded it.

And while many analysts of the Austrian persuasion may not necessarily feel all warm and fuzzy having their own well-worn analytical insight applied to the yellow metal they tend to be so fond of, it probably provides the best general conceptual framework for understanding what is happening right now in the gold market.


Also see: Gold in Historic Free Fall >>


The root cause of the current ongoing crash in gold prices is to be found in the factors that led to the exorbitant rise in gold prices that preceded the crash.

The Cause of the Parabolic Rise in Gold Prices

The explanation for why gold prices went parabolic between 2004 and 2011 can be spelled out in exactly three letters: E-T-F.

Roughly $150 billion flowed into the gold market via Gold ETFs such as SPDR Gold Shares , PowerShares DB Gold , ProShares Ultra Gold and Direxion Daily Gold Miners Bull 3X Shrs between 2004 and 2011.

This phenomenon of ETF purchases of physical gold has been the #1 key to the rise in the price of gold since 2004. Without the advent of ETFs -- a.k.a. "paper gold" -- the parabolic rise in the price of the yellow metal would never have occurred as it did.

The invention and development of gold ETFs provided an easy means for individual and institutional speculators to trade gold without having to deal with the messy process of buying, storing and insuring the stuff for themselves. Most people who bought ETFs couldn't care less about gold the metal. For them, gold was simply another paper trading vehicle or source of paper "diversification."

What gold wasn't to these buyers, by and large, was something that they were actually interested in for gold's intrinsic worth as a commodity. Gold was being bought by them for essentially the exact same reasons that people have been buying Bitcoin: Pure speculation about doomsday scenarios, combined with a greed-laced ambition to capitalize on such calamities.

Indeed, if people had bothered to look at gold's intrinsic worth as a commodity, they would have never bought it in the past few years.

How to Spot a Gold Bubble
Gold has been and still is in a bubble by any objective measure. How can we tell? For several hundred years, the price of gold in real (inflation-adjusted terms) has remained within a certain range of the real (inflation adjusted) prices of other assets, such as consumer prices, soft commodity prices, industrial metal commodity prices, real estate prices, stock prices and the prices of just about every other asset you can think of. In other words, gold prices completely detached from its real-world reference points and economic reality in the past several years.
The real (inflation-adjusted) price of gold relative to virtually all assets is at the extreme upper end of its historical range. Historically, when this has happened, a crash in the gold price has been just a matter of time.

Now is the time.

Paper Gold
Ironically, hard-core gold bugs have been conducting an intense and concerted propaganda campaign for the last year to try to convince investors to sell their "paper" gold holdings via ETFs and futures and to buy physical gold. The reasoning of this cabal of gold marketers is that if enough people demand delivery of physical gold, they can trigger a run on the physical gold markets as the various counterparties will have to buy gold on the spot market to fulfill the call for physical delivery.
This idea betrays a deep ignorance of how the gold market actually works. But I will not belabor the technical details here. The point I want to focus on is that hard-core gold bugs have completely misunderstood the role of "paper" gold. Far from being something they should have been attacking, they should have realized that paper gold was the number one cause of the gold bubble that developed over the past few years. Without paper gold, the yellow metal simply does not have sufficient appeal as a physical commodity.

Paper gold is the paper goose that has been laying the golden eggs!

Conclusion
The current crash in gold is going to make very clear something that many of us have understood for a long time: The type of investors that buy gold ETFs have absolutely no interest in holding physical gold, and they never will.
In general, the hedge funds and individual investors that rushed into gold ETFs and drove the massive rise in gold prices were and are there for speculative gains.

They have no interest in the physical metal itself. As the gold price turns on them, they will treat gold like the plague dumping it as impulsively as they bought it.

In a word, my contention is that paper gold holders are "weak hands." We are about to test that hypothesis in a big way.

In my view, gold will go down to about $1,300 at least, or another 10% or so from current levels, before finding any solid support from "strong-handed" "non-paper" buyers. However, more downside for the yellow metal is entirely possible as a retracement of the movement driven by paper gold mania would imply gold prices well below $1,000.

Furthermore, it would take a decline to well below $1,000 per ounce before the gold price became aligned with its historical average relative to most other assets.

Assuming a decline in the gold price to only $1,300 per ounce, gold stocks probably have another 25% downside, at least, before this cyclical bear market in gold runs its course. For example, Market Vectors Gold Miners ETF can probably ultimately be bought for less than $25, whereas Market Vectors Junior Gold Miners ETF can probably be bought in the $11 range within the next three months.

The reason is that many gold miners simply can't justify their current lofty market capitalizations on the basis of projected earnings and cash flow, even with gold prices at $1,300.

And a few gold miners that have been caught wrong-footed in the midst of expensive capital expenditure projects will be shut out from capital markets and will face insolvency and/or the need to make highly dilutive secondary offerings.

The distress of just two or three companies in the sector will typically set off panic selling in the whole group, as the majority of gold stock investors have no idea whether the stocks they own could become the next distress situation.

I doubt the secular bull market in gold is actually over. But a cyclical bear market in gold is upon us now, and it will not have run its full course until it has inflicted maximum pain on the speculative holders of "paper gold," effectively running the weakest hands out of the market, properly setting the stage for a possible final leg in the secular bull market in gold.

END OF ARTICLE

As I've said before, "Markets are taken "DOWN" for an "ENTRY" point and taken "UP" for an "EXIT" point. The pro traders make money no matter WHAT the markets are doing. The difficulty lies in finding that point and not getting caught with your pants down, that is, to willing to change gears quickly. Don't pride yourself on being right. A small trader can't influence the markets, his best bet is to ride the flow and move in and out as the market dictates.
Again watch NUGT and gold prices.

http://www.kitco.com/charts/livegoldnewyork.html

http://finance.yahoo.com/echarts?s=...n;ohlcvalues=0;logscale=off;source=undefined;

One of the things wrong with this article ist that the rise in price was NOT parabolic but quite linear.
Secondly, he never gives it a thought that our gov might not want high gold prices for various reasons and therefore mingles
in the market through the ESF (Exchange Stabilization Fund). So one can probably say is was the ESF not an ETF that did it.

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

Say what?? bad link....

I'll give it a try....

WFK said:

One of the things wrong with this article ist that the rise in price was NOT parabolic but quite linear.
Secondly, he never gives it a thought that our gov might not want high gold prices for various reasons and therefore mingles
in the market through the ESF (Exchange Stabilization Fund). So one can probably say is was the ESF not an ETF that did it.

Click to expand...

Not parabolic? Au contraire:

http://goldratefortoday.org/images/goldchart.png?1552013

It was parabolic in the late '70's (and then went down fast) and it's been parabolic for the last many years (and it's on it's way down, too).

But fortunately, PM's only go up in price.

Thank you. Well, if not parabolic at least a bubble??

Once again there is a demonstrated example of the failure to understand the differentiation between paper gold and physical gold on the part of many in the financial world who see gold as only a commodity and not as real money. Physical gold is on fire if you can buy it at all. And all of the central banks are trying to acquire as much physical as they can. And since these central banks and big institutional banks are heavily short paper gold they are trying to drive down gold in the eyes of the individual public. That is working here in the west but not so much in the rest of the world and physical has a high premium as opposed to paper all over the world. There are people in Japan recently who have paid $500 over the spot price of gold to get physical. Gold doesn't change but paper fiat currency does. A $20 gold piece will purchase today what it did in 1920. What will your $20 federal reserve note purchase today as opposed to 1920? There is a historic economic crash in the wind and those who have eschewed physical gold/silver for paper are going to be in a lot of trouble. We have a 6000 year history of gold/silver being real and true money. That isn't going to change any time soon.

paper gold

Those who buy gold in the same way as most people buy stocks are ruining the market for those who buy it for an insurance.
Gold is something you buy, physically buy, and hold, sometimes passing it down from generation to generation.
It has been that way for thousands of years.
Short term money changers chasing a quick buck think in terms of months.
Solid generational families of means think in terms of centuries and lifetimes.
The gold grandpa has today gets passed down to his grandchildren who in turn pass it down to their grandchildren.

http://www.shadowstats.com/charts/monetary-base-money-supply

Note the shaded area in this chart... what kind of growth would that be?

TerryK said:

Those who buy gold in the same way as most people buy stocks are ruining the market for those who buy it for an insurance.
Gold is something you buy, physically buy, and hold, sometimes passing it down from generation to generation.
It has been that way for thousands of years.
Short term money changers chasing a quick buck think in terms of months.
Solid generational families of means think in terms of centuries and lifetimes.
The gold grandpa has today gets passed down to his grandchildren who in turn pass it down to their grandchildren.

Click to expand...

Exactly. It is like dealing with day traders on PMs.

The funny thing about the recent downtrend in gold price is that it has been accompanied by declining volumes of physical held by the ETFs. What seems to be happening is people are dumping the paper and buying the physical. If the trend doesn't reverse, there isn't much time before there are failures to deliver. Freegold theory (FOFOA) predicts a terminal decline in gold prices just before the paper market fails. Then gold should go stratospheric. That might be where we are right now. If a person hasn't bought physical gold by now, there may be no physical gold for sale at any reasonable price in the near future.

DHR43 said:

Not parabolic? Au contraire:

http://goldratefortoday.org/images/goldchart.png?1552013

It was parabolic in the late '70's (and then went down fast) and it's been parabolic for the last many years (and it's on it's way down, too).

But fortunately, PM's only go up in price.

Click to expand...

Gold has been steadily higher, year over year, for every single year of the last dozen.

Any that understand why, also know that those reasons have not now suddenly reversed.

Any wanting to bet against it also ending this year higher again, I'd like to hear where/how
they'll be putting their money where their mouth is in doing so. Anybody can call a market
up or down, I like to hear most from those with skin in the game.

BTW, most yahoos calling for PM's to crash have never extolled anyone to ever get any, not
once over these past dozen years where it has been the best performing asset class, beating
out everything. So, why would anybody think they are suddenly any smarter today to be telling
anybody, or having anybody listening, for what they think gold will do next?!?

Got God, Grub, Guns & Gold?
Panic Early, Beat the Rush!

- Shane

i stopped reading when he said gold prices were 'exorbitant'

as gold hasn't kept pace w/ inflation since 1913 the price is still understated and definitely hasn't seen 'exorbitant'

what we are seeing is a disconnect growing between paper prices and physical prices and the great oz trying to narrow the gap by dampening the demand for physical

don't see it happening

do see the gap between the rigged markets and physical causing more and more problems for the great oz though

The article helped me realize an obvious point, kind of a truism. The recent rise in the market value of gold is ... market related. ETFs are market based, not gold based, in that ETF gold values have little to do with the "intrinsic value" of gold. Two completely different animals. The ETF market cares nothing about gold as a SHTF medium of exchange; it's simply another commodity to be bought or sold, and that is what has mainly contributed to the rise in its monetary valuation. While the "intrinsic (physical) value" of gold remains, the market value of gold could (theoretically) plunge to zero, because at heart they are two different valuations. These valuations have enjoyed common ground till now, the result being the "intrinsic value" camp has benefited from the valuation assessed by the "just another commodity" (ETF) camp. The time could come when these different philosophies de-couple, sending gold plunging in market value (the "big money" sells off ETFs and starts chasing other things), but soaring in SHTF value. Only physical gold has SHTF value, but the current market system of gold valuation isn't based on physical gold, it's based on paper gold.

ETF's can also shrink when big players sell out by taking delivery of the physical metal,
which while looking gold negative, would be just the opposite, as it's truly bullish news
anytime paper players, especially big ones, go all in buying & taking home the physical.

- Shane

It's very bullish. The lower gold goes, the better.

Gold prices have been dropping on falling inventory. According to normal laws of economics, that should be impossible. Indians report receiving only 10% delivery of their recent purchases. Indians, Arabs, and Chinese are buying on every dip. So, there is very high demand and yet falling prices. In a few weeks the physical might be all gone.

What is happening is the larger paper market (because it loans out its physical on a fractional reserve basis) is being challenged by the high demand for physical. As people sell their paper gold, physical prices are driven down. The East and the Western big boys seem to smell the end game and they are picking up physical gold at a reduced price. The physical is disappearing. Pretty soon somebody is going to come running out of an ETF warehouse yelling "There ain't no gold in there!" Then all hell will break loose as people question paper everything. The rule is going to be: if you don't hold it you don't own it.

Here's the Comex inventory at the end of April. I cannot find a more up to date chart. The plummeting inventory tells the tale:

http://dzswc0o8s13dx.cloudfront.net/goldcore_bloomberg_chart5_26-04-13.png

FWIW, the freegold folks and Jim Sinclair believe the equilibrium price after the paper markets fail is somewhere around $55,000 per ounce. This is the price the central banks need to balance their sovereign debt.

Kitco is very skewed to the downside of gold.I wouldn't trust their opinion writers or should I say makers.

So what is the author of this going to say when the stock market crashes?

As far as gold, having it down to where it was two years ago is not a problem to the majority of us, because we bought years ago when it was less than half the price it is today. Those coming in late paid the penalty of ignoring the gold people when we encouraged others to buy. Some of us cringed to see them buy high.

Frankly this article stinks of Jon Nadler

The sole reason for the ETF market in my opinion is the manipulation of Gold prices to the favor of the big investment houses, they've done a good job. Let see what else have they f'd up ..... anybody care to count the ways

If/when "paper gold" goes away a lot of investors in gold will be leaving the market. That means that demand for gold will dramatically fall. It is not a sure thing that gold will go up or down. We've never had a situation quite like this before with the ETFs have quite this much effect on physical gold.

Remember the #1 rule of investment ... never invest more than you can afford to lose. While unlikely that the value of physical gold will go to $0, the possibility that it will equate with that because it becomes unuseable/untradeable does exist due to government controls, taxation, and even relatively extreme potential of some form of confiscation. So even if you hold physical gold, in a black swan event that may not gain you anything at all until well into the long term.

Kathy in FL said:

If/when "paper gold" goes away a lot of investors in gold will be leaving the market. That means that demand for gold will dramatically fall.

Click to expand...

No, the demand for paper gold will dramatically fall. The demand for physical gold will at that point go into the ballistic phase. The way your thinking is what the Fed and Global banks were thinking. They thought that if they would exercise their naked shorts that the price would fall so fast it would cause people to bail on gold. And it worked....paper gold that is. They misplayed their hand and there was a huge global demand for physical that they didn't count on. I hope they keep pulling this crap and drive the paper down even more. Real soon now the defaults are going to be obvious that they don't have the physical to cover and the panic that will result will be epic.

Hfcomms said:

No, the demand for paper gold will dramatically fall. The demand for physical gold will at that point go into the ballistic phase. The way your thinking is what the Fed and Global banks were thinking. They thought that if they would exercise their naked shorts that the price would fall so fast it would cause people to bail on gold. And it worked....paper gold that is. They misplayed their hand and there was a huge global demand for physical that they didn't count on. I hope they keep pulling this crap and drive the paper down even more. Real soon now the defaults are going to be obvious that they don't have the physical to cover and the panic that will result will be epic.

Click to expand...

If paper gold goes away a lot of simple investors will simply abandon "gold" because they don't really get the difference. I didn't say all desire for gold will fall. The other part however is that without the ability to make profit on the paper gold a lot of the new investors will not have the funds to try and purchase physical gold. It will seesaw for a bit in price but the higher per oz gold goes then fewer and fewer investors will be able to play. Which is one scenario by which the big players will ultimately control PMs ... they'll price everyone out of the market. Then the theory is that they create the necessity for a "new currency" and exchange their physical gold for the new currency at a high rate of exchange increasing their holdings over the lower income earners even more dramatically.

Hfcomms said:

No, the demand for paper gold will dramatically fall. The demand for physical gold will at that point go into the ballistic phase. The way your thinking is what the Fed and Global banks were thinking. They thought that if they would exercise their naked shorts that the price would fall so fast it would cause people to bail on gold. And it worked....paper gold that is. They misplayed their hand and there was a huge global demand for physical that they didn't count on. I hope they keep pulling this crap and drive the paper down even more. Real soon now the defaults are going to be obvious that they don't have the physical to cover and the panic that will result will be epic.

Click to expand...

Thank you



A few conflicting things here. The author of this article talks about gold as a commodity that's fiat money talk. Is that the reason why central banks have been buying Gold because it's a commodity?

The demand for physical gold has stayed high, we are seeing a disconnect, two parallel systems in place fiat gold & real gold.

I really don't give crap about the fiat gold people, their interest is entirely profit making sitting in front of a computer, they trade electrons, about as ethereal as you can get.

Double_A said:

Thank you



A few conflicting things here. The author of this article talks about gold as a commodity that's fiat money talk. Is that the reason why central banks have been buying Gold because it's a commodity?

The demand for physical gold has stayed high, we are seeing a disconnect, two parallel systems in place fiat gold & real gold.

I really don't give crap about the fiat gold people, their interest is entirely profit making sitting in front of a computer, they trade electrons, about as ethereal as you can get.

Click to expand...

While that is true, the problem is that the fiat gold people ARE affecting the entire system and WILL affect the price of physical gold. You can see the downward pressure now. How long that effect will remain isn't exactly predictable right now. I see a lot of assumptions but then again there has been a lot of incorrect prognostication on the price of gold over the last couple of years. It was supposed to be well over 5K along time ago and we never even got close to that. When you have such invasive market manipulation as we are seeing what would normally be the most logical outcome may not be what actually happens so placing your bet is truly gambling.

I believe there is a place for gold in everyone's portfolio of assets. However I believe it to be as a place holder for carrying and transferring wealth over a longer time frame than what many current investors seem to be proposing to use it for.

It was supposed to be well over 5K along time ago and we never even got close to that.

Click to expand...

Isn't that based on a paper gold valuation? I hear two different things from a lot of gold bugs. On the one hand they say gold isn't an investment, it's an insurance policy. On the other hand they fret over the current market value of gold. But the current "value" of gold is based largely on the ETF/paper value, which obscures the actual physical value. Right now, most coin and pawn shops pay the going paper value. It's only when the two valuations decouple (probably meaning when the ETF market crashes) that we'll know how much physical gold is really "worth."

kathy you are thinking of gold as a commodity in your analysis and are ignoring its true monetary value

because it is both a commodity and money it operates differently

those who have traded it as a commodity may dump and run when the disconnect between paper and physical prices can't hide the manipulation anymore

but the holders of physical are using the gold as a vehicle for exchange that has universal acceptance and their behavior will be nothing like the commodity traders

in short i think you are painting w/ too big a brush

People who want gold, physical metal in their hands as a long term hedge to pass wealth on to future family etc.

Many of them have been unable to buy gold at 1,500 to 2,000 per oz. With the fall of paper prices they are waiting to buy as soon as gold becomes affordable to them.

The demand for physical gold is larger than anyone can imagine, dampened among those who cannot afford it due to available fiat FRN's.

So as prices for "paper pretend gold" falls and people see gold spot at some low number those seeking physical gold try to buy it.

Try to buy gold anywhere near spot and take physical delivery. Not happening.

As for value of gold let me try this story and see if it makes it make sense:

IN 1873 you could take the amount of gold in a "$20 gold piece" and buy the best hand gun Colt made.

Today, you can still take the amount of gold in a $20 gold piece of the 1873 era and buy the best handgun colt makes.

Now if you convert to the current paper money you get a lot more pieces of paper today than you did in 1873 but for what physical item folks are willing to trade for the equivalent amount of physical gold it has pretty much stayed steady.

The reason people get more frn's for their gold today is called inflation. (Inflation is an increase in the amount of paper fiat currency in circulation without a concomitant increase in the amount of wealth backing that paper.)

To illustrate

Imagine a pound ingot of gold, cut into ten 1/10 oz pieces.

Place that in a vault and issue ten "certificates" saying that they can be redeemed for 1/10 oz of gold at the vault, so people start trading certificates because it is easier to transport than the actual gold.

So there are ten certificates floating around out there being traded, and if you look in the vault you see ten 1/10 oz pieces of gold, all is good.

Now suppose the fellow who owns the vault notices that people seldom come into the vault and turn their piece of paper into physical gold. So he prints up ten more certificates, but has no additional gold in his vault. He loans out or spends these extra certificates, charging interest and / or obtaining goods for his extra non backed certificates.

As long as folk don't catch on to what he is up to things go smoothly, but as people figure out that there are now 20 certificates floating around out there and still only ten 1/10 pieces of gold in the vault they realize that if they are not among the first ten to attempt to redeem their certificate the vault cannot cover the certificate by handing them physical gold.

Now further the fellow who owns the vault is buddies with the fellow who scribbles on paper and calls his opinions laws and has fellows with guns who will kill or cage you if you don't do what he says. He gets this fellow to scribble that he can't be dragged out into the street and hung from a lamp post for doing wrong.

So folk who want to make sure that they can get their 1/10 oz of gold either run to the vault and try to get it out, or if they can't cause the other fellow scribbled on paper that the fellow with the vault doesn't have to hand out the gold then they figure that with 20 certificates out there that each can only be worth 1/20'th of the real pound of gold.

So they start charging 2 certificates instead of 1 certificate for something that they would also trade for 1/10 oz of gold.

Now obviously there is a lot more obfuscation and lying and lots larger numbers and such, but the bottom line is that the paper has been inflated and people want more of it in hopes that they can convert it into the actual amount of gold that they value their goods and services at.

People are not all stupid, but the evil ones have done a great job at hiding their crimes. It is all coming to a boil, and the fiddler is about due to get paid.

There will be winners and loosers, and good and evil folk will be hurt, and it will all come crashing down and then all bets are off.

Rucus Sunday said:

Isn't that based on a paper gold valuation? I hear two different things from a lot of gold bugs. On the one hand they say gold isn't an investment, it's an insurance policy. On the other hand they fret over the current market value of gold. But the current "value" of gold is based largely on the ETF/paper value, which obscures the actual physical value. Right now, most coin and pawn shops pay the going paper value. It's only when the two valuations decouple (probably meaning when the ETF market crashes) that we'll know how much physical gold is really "worth."

Click to expand...

I don't even pretend to be an expert at investing or anything approaching it. All I do know is that I've always managed to make money at it. Not that there hasn't been some short term losses on investments but big picture wise I haven't done badly at all. Most of our actual investing dollars are in income-producing real estate where we've consistently made a 100% return on cash investment within 3 to7 years on each property ... we've been in business 17 years now so the properties we acquired in the beginning are now basically cash cows. Cost of doing business has skyrocketed during that time so even cash cows are not what they used to be.

However we've kept our portfolio as diversified as possible and have roughly 10% in physical PMs. I had another 5% in paper but got rid of that several months back. I didn't catch the top of the market but I'm not suffering deflationary issues now either. Same with the physical PMs because we purchased before the big rise we are not suffering from the corrections occurring but we missed the opportunity to make big bucks by selling when it was at the high.

We are very conservative as far as investing goes. So for me I take the long view of what PMs are supposed to be in the portfolio. Short term there is a lot of garbage that will effect the PM markets, not the least of which is manipulation. To us PMs are place holders that carry wealth over to our descendants or they are bankable assets that can be sold in an extreme emergency with the understanding that there could be a significant loss on investment. But we keep the percentage of PMs in our portfolio fairly low in comparison to "gold bugs" because we have decided what we can afford to lose and keep it like that.

We know a lot of investors ... some don't know the difference between paper gold and physical but most do. That said, if paper gold becomes unavailable for whatever reason they'll be priced out of that market. Loss of such a large population of investors whether through price outs or ignorance will have a downward pressure on the market. If/when the price shoots up - more than likely through further manipulation - it will only be a game played by high rollers and deep pockets. Normal investors are going to be risk-averse to that type of market pricing. From there several of us have talked about how the deep pockets will then put the fix in to convert to a new currency at a higher rate of return and then put the fix in for price controls on PMs.

Adino said:

kathy you are thinking of gold as a commodity in your analysis and are ignoring its true monetary value

because it is both a commodity and money it operates differently

those who have traded it as a commodity may dump and run when the disconnect between paper and physical prices can't hide the manipulation anymore

but the holders of physical are using the gold as a vehicle for exchange that has universal acceptance and their behavior will be nothing like the commodity traders

in short i think you are painting w/ too big a brush

Click to expand...

Monetary is whatever the market says it is. It is also susceptible to manipulation the same as commodity. Gold and silver as is will never be the currency people think for two reasons:

First, historically coinage has only ever rarely been pure silver or gold. Traditionally, all the way back to pre-Roman coinage, alloys were used. They may have had a gold or silver wash but by and large the heart of the coin if not the whole coin was an alloy with the face value of whatever ruling party said it was.

Secondly, gold and silver are too small in useable quantity for the current world population. Only a significant population reduction ... well in excess of 50% ... will shrink the population to where PM-backed currency is feasible otherwise you wind up with a very lopsided world economy and now that "economy is global" it will never go back to the way things used to be. You'd have to return to true colonialism for it to work.

Say the second option does occur - not beyond the realm of possibility though a low probability, high risk scenario - then what you will deal with is a significant world wide collapse that will take a decade or two if not longer to iron out. At that point you are back to saying that PMs are place holders to carry wealth over to the next generation ... assuming that your descendants survive the depopulating event.

http://www.reuters.com/article/2013...RM20130516?feedType=RSS&feedName=domesticNews

Gold shipment valued at $625,000 goes missing at Miami airport



MIAMI | Thu May 16, 2013 12:03pm EDT

(Reuters) - A shipment of gold with a declared value of $625,000 has gone missing in a suspected heist at Miami International Airport, authorities said on Thursday.

A theft incident report from the Miami-Dade Police Department said the gold, packed in a box, arrived at Miami International early Tuesday morning on an American Airlines flight from Guayaquil, Ecuador.

Miami International serves as a major trans-shipment point for large quantities of gold produced in South America and exported primarily to Switzerland for refining.

The plane's cargo was unloaded but the box containing the gold disappeared after apparently being loaded onto a motorized luggage cart or tug, the report said.

The cart was found in front of a gate of the same terminal were the flight from Ecuador was unloaded, about an hour after workers emptied the cargo hold, but without the box containing the gold.

The police incident report did not say who owned the gold or what its final destination was and an American Airlines security official at the airport declined to comment on the case, saying only that it was being investigated by the FBI.

"The FBI is aware of the situation," FBI spokesman Michael Leverock told Reuters in an email.

Miami has seen the trans-shipment of gold rise sharply in recent years as investors have turned to gold and its price has risen. Gold is Miami's No. 1 import valued at almost $8 billion last year, mostly from Mexico and Colombia, and almost all destined for Switzerland, according to World City, a Miami-based publication that tracks trade data.

(Reporting by Tom Brown; Editing by David Adams and Marguerita Choy)

So how do you know when you have a FRN Bubble? Tomorrow the government runs out of money unless congress ups the National debt currently 16.9 Trillion. What will be the new number? Any guesses. That and where is all the physical gold? These and other questions make you go Hmmm. Forgot about the Scottsdale Bank going under. Not exactly a poor neighborhood. Just throwing out some thoughts since I am not a financial genius but I am a gold clinker.