The Gold Market De and Re Constructed – a radical forward look by Peter Trzaska

Peter Trzaska is a gold buyer, investor and silver dealer in UK. I found this article from him on The article is partly about he role of gold in global politics, something Trzaska clearly has a deep understanding of. Read what he says about Iran. The article is reproduced here with kind permission of John Morrison at Asymptotix, and the writer Peter Trzaska. (Hans Chr. Faerden, editor State of Globe)

The paper known as the US$, 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 (a means of exchange). It has no more substance than that, and the moment it has served that role to complete trade, it is gone. It contains no value in itself (no ‘intrinsic’ value); value continues to reside solely in the assets which are forced to use this unnecessary intermediary to complete trade; or indeed as Marx argued the labour hours exchanged for the paper intermediary.

Oil and Gold are priced in those same pieces of paper (e.g. US$), and for the past 40 years the world has been forced to buy this paper in order to purchase Oil and Gold. In 1973 in a masterstroke to some, a catastrophe to others Kissinger played what he called a ‘blinder’ and it was the world who was most severely blinded! When Kissinger received Saudi agreement to price Oil in US$ alone, he had in effect secured an Oil-backed paper/US$. In this way, the US paper/$ was awarded honorary value; fuelled upwards by petroleum; the alternate perspective is this became a dangerous slush fund. From such ignominious 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 it’s latest attempt to sustain it’s all-exclusive, ‘access all areas’ privilege to print frenziedly, in ever-more copious amounts, the US has excluded Iran from the gratuitously-produced US$ international monetary system. The USA would have us believe that this exclusion is a most grave chastisement, that the destructive impact seriously disadvantages Iran. Europe has lamely followed along trumpeting peace and non violence whilst Britain and the US send in the carrier group; this seriously disadvantages Iran; Oh really?

Just how much of a ‘punishment’ does this constitute? It might be better evaluated as a ‘gift’! Political theatre, political grand gestures is risky business. Powerful effects and consequences can follow. Many who understand only too well that the peak of the mountain of derivatives 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 indeed designed to] continue interminably. In opting for excluded-from-$-trade sanctions against Iran, the USA has elected to play the riskiest hand in a do-or-die effort to sustain the $’s status as global reserve currency. How so?

No longer will Iran and it’s very important, very large trading partners be forced to earn US$s in order to complete trades which do not require -and now can not take place in- needless 3rd party/ $paper payment methods. In one cut-off-YOUR-nose-and-smite-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 (and anything else, too) without the $ poking its nose into other people’s business in order to steal some of the value of the trade.

Watch now for far-reaching, world-changing repercussions and consequences. Hope and pray that Iran and her none-small-fish trading partners will allow the Golden trade opportunity the US 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 elec $ international monetary system?

India and China (and Russia, Venezuela[1] et al can, have and will now pay for Iran’s Oil with Gold, PHYSICAL Gold, in a direct barter trade. Comex and LBMA paper gold is $-denominated; Iran’s continuing trading partners, notably Russia couldn’t trade paper gold for Oil even if they wanted, and for sure, Iran would NOT want to! More specifically, hope and pray that as Iran and its trading partners discuss trade terms, Iran asks for no LESS than 1g (one gramme) PHYS Gold pb. (This would value PHYS Au at $3,100+ oz; it offers 31 barrels per oz Gold). Hope and pray hard!

For if Iran asks for 0.1g PHYS Au pb, (and thus values PHYS Au 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 blasted out of this paper-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.

«Boo, hiss, nonsense, counterintuitive, spurious argument» you cry. ‘Iran would never do that’, you say loudly: ‘why would Iran ask for 0.1g Gold pb, when the dollar market tells us Oil values Gold today at the equivalent of 2.0g pb? Only a fool would sell Oil at 5% of its full value! Iran would be shooting itself its own foot, but quite the opposite is the negotiating position in this high stake game – Iran will price their Oil to receive maximum quantity of Gold!

Despite your years of experience and knowledge of the intricate machinations of the financial system, you are about to learn some important lessons. Paper is not a reliable guide to TRUE value and worth; paper markets, free from normal supply characteristics and dynamics, do not serve a price-discovery function, they serve instead to mask true value; the paper wealth you believe you have accumulated may be worth no more than the sheet of paper it’s written on. Confident that the paper you hold reliably represents your wealth?[2]

Consider how you would react to information that Iran was asking for a paltry 0.1g PHYS Gold pb/ per 311 barrels per oz 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?  «Quick! Sell everything, beg-steal-borrow, lay my hands on every penny I can! Spend every penny on buying more Gold at the $ market price (say $1750)….ok, that’s 31.1g per oz; at 0.1g Gold pb…that’s 311 barrels of Oil for $1750….can’t be right, triple check calculation…it IS bloody right…I’m going to be a billionaire!!!…» Good luck! Your billionaire-dream will endure about as long as it takes a piece of A4 to burn[3]. (Ok, slight exaggeration, a bit longer than that…) But hold that excitement as you hurry off 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, fall faster, increasingly faster, fall flat on it’s backside. FALL?!

What happened? 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, there’s more. You are about to witness the reassignment of PHYSICAL Gold to a fully-priced TRUE value; a new equilibrium, a ‘new normal’!

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 (must be, they’re most expensive) 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+ ozs of paper gold products sold for every 1 oz of PHYSICAL Gold that exists. (Can you say ‘ambiguously owned Gold’?) And, be in NO doubt, that Iran 0.1g Gold pb deal will NOT be settled in paper gold, it is NOT for ambiguously owned gold. It’s EXCLUSIVELY for the real, hold-in-your-hand Gold McCoy.

Go on, 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….Let me save you the wasted time and effort- go straight to the ‘small-print’. It’s there, be assured, it always is: that clause which allows settlement of yr paper claim not in PHYSICAL Gold but in cash…A heart-wrenching read, in that day, to be sure….  Ok, all is not lost, you can still make billions, only one thing to do… Sell your paper gold contract and use the funds to buy real PHYSICAL Gold. Pheww. Sorted!

Go and take a look at some Gold bullion sites. You can buy Gold bullion online, there are so many of those sites today. (You’d always skipped them before- what was the point of buying Gold coins and bars? Add the shipping costs; add 4-5% premiums on spot-price; add the risk of theft; thoroughly bad deal, you concluded, take your broker’s advice… stick with the ease, premium-free-cost and ‘safety’ of paper gold)…Go on, take a look, check out the online bullion prices..

What?! What happened? Look at the inventory!….it’s disappearing off the screen faster than you can say ‘only Mexican Gold pesos coins left’…Too late..they, too, have gone. Quick, click on your Ebay…No way!… page after page of ‘seller has ended auction’ notices…. Here and there a 1 oz Krugerrand being bid up before your disbelieving eyes..$25,000..$28,000…$31,000. You can’t afford that. Oh, you come across a 1/10 oz Eagle….$3,000…$3,150 ..sold at ‘buy now’ price of $3,300. What are you left with? No more billionaire dreams, now unable to get your hands on, let alone afford, even the tiniest amount of PHYSICAL Gold. At least, though, you can sell your paper gold for cash. So nothing really lost…

Go and take a look at the Comex Gold spot price. Sit down. Comex spot gold is trading at $325!…$260!….$220!…??!! How? Everyone has followed your 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. The price hurtles downwards at ever increasing speed as 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 buy PHYSICAL Gold. All that cash is heading towards the same door[4], 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 save 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…oops, $175, …..that price is heading one way. 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 smart move.

So 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 which will be sustained. ‘No way!’ you think, $31,100 oz Gold-price is unrealistic and unsustainable. Forgive me, if I accept Oil’s valuation of Gold. I’ll take the valuations which permit real Oil and real Gold to flow freely and continuously. If outside interests seek to intervene and knock the Gold price down, you will see Gold disappear into hiding. It would serve no-one’s interests to await Oil’s halted flow as it seeks a new payment method as solidly reliable as Gold.

Yes, 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 100ozs 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…well, once that toe trips we are going to be hurtling down that mountain at super-speed. Where are we going? Don’t be afraid. We have cause to be grateful, even optimistic. We’re heading back to the true solid base of the mountain where real things are bought and sold at their true value, un-laden 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, lying, robbing paper markets is the only path out of this dire situation. And, fear not, that self-destruction is on its way. To imbue an intrinsically worthless paper 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 busted system.

In the ultimate ironic twist (given the Kissinger/Saudi deal setting us on path to value paper far more highly than it merits) , history may well record that we can thank USA’s exclusion of Iran from $ monetary system as the great catalyst, precipitating factor. 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 it’s Oil at 0.1g pb? Who needs to launch earth-destroying attacks against other nations when one can price it’s 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 it’s certain, long-overdue demise.

«Impossible. Fanciful drivel. Mad author. Hidden Communist agenda. Conspiracy nutters, tin-foil hat brigade making it’s way into serious financial publications, outrageous» I get you. Truly, i do. Having one’s eyes opened to even just mere potential outcomes is often painful, deeply uncomfortable. Ignore the above, belittle the scenario I paint. It’s purely theoretical, isn’t it? Mere groundless conjecture. Soothe your anxieties with ‘safeguards exist to prevent this’ reassurances. Have you read or heard about the MF Global ‘situation’? Come on, grant me a more considered view of the case I lay out. Check out the 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.

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 Au….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 67%-ish of the total value of the ECB’s reserves…Reflect on all Gold-holding balance sheets… Venezuela yesterday repatriated final shipment of 160 Tonnes previously held abroad… 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 it’s Gold reserves…How much healthier suddenly are the ECB, and all those other Central Bank balance sheets with Gold revalued to it’s true worth by this simple, deeply generous, selfless offering of Oil at 0.1 g pb?…. Let the paper burn, let that paper burn from the Banks’ balance sheets, 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 it’s knees by so sweet an Oil-Gold deal….Would the USA be the only losers, as their paper $ free ride was ended…Of course not!…For the USA claims to hold within it’s 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 sit 8,100 Tonnes of the stuff (and according to Rickards[5], they look after another 6,000 Tonnes of other countries’ bullion)… Iran’s move, far from seeking to disadvantage the USA, would recognize that 8,100 Tonnes buys a great deal of 0.1g gold-priced Oil. The USA, it turns out you see, 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 all, burnt paper, revalued real assets, freed nations and people’s from future-generations of extreme debt slavery/repayment…. Uranium enrichment, nuclear warheads, my sweet Fanny Adams… Unless, of course……

Follow Peter Trzaska on twitter @Piotrusz7

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