An interesting few days lately. Some metals traders suffered great psychological pain and anguish, while physical gold advocates rejoiced at the gift of cheaper gold, still available in small quantities everywhere, to add to their holdings.

Those who rejoiced realize that this depiction below is no REAL representation of the true value of physical gold. As for the paper traders who were emotionally crushed by what their paper says they are worth, I have little empathy for them.

And unfortunately, we must say “physical” gold, because when pundits and traders and analysts use the term “gold” I’m really not sure which gold they mean, the real gold or the paper gold, or some percentage blend of the two between 199 to 1 and 50-50 perhaps ???

No, the current “price discovery mechanism” still appears to “function” in all it’s assinine glory, but this recent excercise in madness does drive home a point. How long before this convulsive, schizophrenic, counter-intuitive, manipulable, emotion-response driven price “discovery” method is abandoned? How long before the realization that this representation of price is seen by all as “completely false”?

I suggest that it will be close to the time that you look at your stack of 100 dollar bills and say, “this representation of value is completely false”. Perhaps we will have to experience the price inflation of a USDollar hyper-expansion, even before the pricing mechanism of paper gold collapses in its hyper-divergence from real asset value. But I do think one will follow the other in quite short order.

When the “price” of gold falls, PGAs do not need counseling from someone who’s “been there before”, they just go and buy more. Pretty simple. They understand that the yellow metal that you hold in your hand, which sounds a certain way when it clinks to the surface of a wooden table, does not fluctuate in value, hour by hour and day by day. Rather it increases in value, in an inverse relationship to the weakness of human nature.

As long as I see these weaknesses all around me, in the form of debt contagion and bailouts, misled revolutions, misrepresented wars, greed, graft and corruption, entitlement for votes, unbridled fascism, manipulation of all sorts, confidence swindles of every stripe, financial predation, outright theft and general madness in fiat currency printing to paper over it all … I am quite sure that the only thing my little pile of yellow metal is doing is growing ever more necessary, and ever more valuable, to the final settlement of the rapidly expiring dollar reserve system, and the corresponding once in a lifetime repricing of gold.

But there are a great number of people who DEPEND upon a source of income derived from this agreed upon game of chance, this paper pricing confidence game. And they live and die by it. They know it’s a Ponzi scheme. They know it is manipulated by the inventor of the game and the stronger hands in it. And yet they play the casino at its own game, against one another. What an honorable profession. As I said, I have little empathy for the pain of illusion within a confidence game.

They should be more focused on the peril of an economic Treaty of Versailles being levied upon the USDollar, for being so irresponsibly managed. Because the USDollar faction is alone now, and the real gold in quantity is almost in position.

When the USDollar fails, and US Debt holders demand payment in gold, and the BIS steps in to settle, will the gold be there, and at what price? Really that is all that matters now. What will your contribution to your country’s settlement be? Paper, or Gold? Will you be one of them, or one of those?

Well, today we find a very interesting article from an astute observer of the present day gold market. I highly recommend reading it, if for no other reason than to gain an appreciation of the convoluted nature of paper gold shell-gamery at its highest order. I do agree with at least 90% of what is said here, including a somewhat veiled understanding of the emergence of a free gold market of sorts:

Simply put, the gold market has become so removed from its physical roots that market participants now pretend that a “metal account” is the same as (physical) gold … New ways of using gold — such as a collateral backstop in the tri-party repo market –  could transform a ticking time bomb into a new gold standard. The gold time bomb takes the form of a possible panic out of paper gold into physical metal when counterparty risk reaches an extreme level whereas a new gold standard would complement modern financial markets by serving as the ultimate asset: gold with mobility and no counterparty risk.

Collateral backstop … complement … hmmmm … I am certainly “with” silverax there, but I think he has a bit too much faith in “business as usual” to get us there. I certainly see gold as a loss-of-confidence-in-paper-collateral backstop, although on a MUCH grander scale. After all, it was used as a collateral backstop for JP Morgan in the MFG debacle … by stealing it out of customer deposit accounts.

Then we have Harvey Organ:

Today bourses around the globe were in the red as many see the insolvency of the situation and not the lack of liquidity. The German Dax was down over 2% and the Dow fell by 140 points. Our bankers hit paper gold and paper silver down big time as they knew that they have no opposition in the paper field due to investors leaving the comex because of the MFGlobal scandal.

So there you have it. This and that. A brilliant forensic explanation of a liquidity solution which creates negative lease rates, and an ultimate understanding that liquidity is NOT the problem, but rather insolvency.

So if the recent route in gold is attributable to THIS, we should see a slow march back to $1600 before the end of the day Friday? Followed by a gradual 100 USD march back up to around $1700 by the end of January?

If it is THAT, we should see the spot price of gold reach below $1500/0z. today … and just keep falling … until the divergence between paper price and physical price (which silverax denies) literally halts trading, forcing the BIS to step in and arrange settlement. I may have a wishful thinking bias, we’ll see.

Really the only difference between the two views is the level of CONfidence in the present risk-based system to continue to perpetuate paper trading of gold, with the caveat of a collateral backstop. As to that level of confidence, as silverax himself admits:

On the other hand, if there is increasing use of gold as collateral in paper form (LBMA unallocated bullion accounts not 100% backed by physical gold) then the magnitude of any eventual panic out of paper and into physical would be that much greater.

It should come as no surprise as to where letthemfail stands on that very important IF. I look at the magnitiude in nominal terms of OTC reported derivatives, publicly available for all to see: 300 trillion USD among the top 5 US TBTF’s and growing. That alone represents more than 30 times the amount of all the ”ultimate asset with no counterparty risk” available on the planet, with which to clear debt … at prices relative to the last few decades.

Sure, there’s position and payment canceling in any derivative unwind, just like Lehman, but let’s not forget about Europe’s exposure, as well as the AIGs and Generali’s.

I believe the magnitude of gold collateral in paper form (derivatives) is already SO MASSIVE that it will unwind the derivative universe in a panic out of paper and into physical which will be SO GREAT, that holders of physical will be holding the ultimate get out of jail card for clearing debt. Repriced to clear debt for that very purpose. So I am in the THAT camp.

For us Bob Cratchits it’s a win-win either way. It’s the paper longs having their asses handed to them buying into JPM’s bullish call of $2500 at year end. But they’re just a bullion bank, how could they possibly have known ;0)

And after all, it’s only paper. My advice is to trade as much of it as you can, for as much gold as you can, as soon as you can.

58 central banks and their central reserve hub are.

As for paper … well … 1.75 quadrillion flies can’t be wrong.

In our Galaxy of “high finance” there are two very different worlds. They exist on the same physical plane, yet are as far apart as Mercury from Jupiter.

In the smaller, private world of top wealth holders, we have the global monetary policy makers — central bankers and the generational wealth dynasty’s that make up the board of directors of the collective world corporation. Having survived generations of change and destruction, they have little concern with accumulating wealth, rather they are focused on preserving it. With a nuclear armed Pakistan (for example) they are far more interested in preventing a conflict that could destroy their assets (up to and including their very lives) than with “today’s profits”.

In the much larger public world, shaped by the decisions of this smaller, private world, we have the wealth accumulators, struggling in vain to gain the status of wealth holder and preserver, within a world designed to prevent this from ever happening.

There are other planets in our financial galaxy, some simply concerned with the day to day activities of the “average person”, amidst the many shades of gray that determine our daily lives.

But what is striking is how different the public world of Wall Street and City of London day traders and paper chasers is from the private world of wealth holders and policy shapers. Never before has “new money” been so close to the illusion of reaching “old money status” yet seeing the world through such very different eyes.

The average person knows that his view of life is very different than that of a wealth giant. The average person looks at a Warren Buffet, and accepts that he will never come close to this status of being “almost there”. Yet he can scarcely imagine how very different being “almost there” is from “being there”.

And this illusion does not come about by circumstance alone (though not purely by design either). In our organic world, we shape and teach, and then the student goes off in a direction all it’s own. Ben Bernanke’s Princeton education must have been quite a Keynesian culture shock for his appointment to the Board of Directors of the BIS, a key role in that smaller, more private, very exclusive, stability-seeking world.

We are very fortunate, in this incredible information age, to have a handful of good people from that world providing a view of the financial galaxy from THEIR viewpoint to any person who cares to understand and accept it. And for those of us who choose to, our view of the financial galaxy changes so dramatically that it is difficult to continue thinking in terms of the public world we are meant to see. That world is so full of deception, it is ridulous to have faith in it, or to believe the views that its inhabitants self-promote.

It is better to take comfort in the return of ”old world order” to once again undo the confusion of the deceptive public world, which the vast majority of wealth accumulators attempt to understand … but cannot. The not so public actions of central banks today betray the plan, and the BIS will be the final arbiter of it:

Just like a fiat currency, modern gold currency is only credible until prices start rising against it. It will start out with a settling of contracts with only a percentage of physical and the rest in cash. Then, in the same way as prices rise against a currency during an inflation, physical gold prices begin to rise against paper gold. Slowly but surely, less and less gold is supplied against contracts until we end up with total cash settlement. All along, the physical “free gold” market trades at a higher and higher currency price. This, my friends is what dollar hyper – inflation may look like in our modern paper gold markets. The selling of paper gold “into the dirt” even as all prices run away. It may last for an hour, a week, six months or several years, but it will unfold this way. As long as investors believe in paper gold, their wealth will be slowly absorbed by physical gold buyers until trading breaks down. Eventually we have the super failure that locks up the entire paper gold arena and ends it for good as everyone’s holdings are marked to the real market.

This prediction of MF Global was written 12 years ago, for all to consider. It will start out with a settling of contracts with only a percentage of physical and the rest in cash. This will be the outcome for MF Global customers. They will receive 70% of their metal, and when the rule of dust settles, pretending as rule of law, they will get their remaining 30% “awarded” in distressed cash.

Why lament the bankruptcy filing of MF Global as a securities firm, vs. a commodity firm, when in fact paper gold traders are indeed trading a derivative, backed by only a fraction of the “commodity” as represented. True, Corzine’s TITANIC may have held only 400 securities accounts to the tens of thousands of “commodity” accounts on its books, but what is a commodity trade today? It is a synthetic leveraged paper trade, for paper price movement chasers, scrambling to accumulate an illusion of wealth, through small paper-profit gains.

And this, my friends, is the point that the larger world all miss, as they fumble about within the MATRIX.

Spoon boy: Do not try and bend the spoon. That’s impossible. Instead… only try to realize the truth.
Neo: What truth?
Spoon boy: There is no spoon.
Neo: There is no spoon?
Spoon boy: Then you’ll see, that it is not the spoon that bends, it is only yourself.

There ARE no commodity brokerage firms. There IS no physical gold in your possession. MF Global / Lind-Waldock do in fact deal in paper gold-backed securities, not commodities. That is the truth that most fail to see.

Today I bend myself.

Having said it in many prior posts, I say again my friends, the paper’s going down. But that does not mean the anti-paper is going up. It means the paper is being separated from the anti-paper, and IN THIS PROCESS the iron-willed among us will make great gains.

There are many “technical” explanations of the gold price movement which do not take into consideration the vast impact of paper gold leverage on physical price PERCEPTION.

Yes, there are many technical positions today, but the one that will prove true was written 12 years ago:

Once the dollar begins it’s decline through price inflation, it’s use as a reserve and more importantly it’s use to establish a gold market will end. This will cause an unexpected delayed positive impact on gold values as gold’s paper marketplace goes through tremendous convulsions. We may see dollar price inflation in all things, yet gold values fall as contracts fail from constricted supply.

Most paper gold traders today, don’t understand how a real dollar price inflation shrinks physical gold trade, no matter how high or low the price goes. Further, they continue to use the various dollar gold derivatives even as their paper supply mushrooms. A PROCESS THAT FORCES THE CONTRACT GOLD PRICE DOWN. Yet, all the while they are proclaiming that they are “in the gold market” and bemoaning how the manipulation of the metal is giving them losses.

Prior to dollar price inflation effects, the impact of official policy can only manipulate paper contract prices. Just because traders are willing to sell physical gold for a paper settled contract price doesn’t mean that’s the real gold value in the world today. More to the point, this is simply a temporary condition that could exhaust itself before price inflation, once physical delivered against paper prices dries up. THEREBY FORCING CONTRACT PRICES INTO DISCOUNT AND DESTRUCTION.  – FOA

I think this viewpoint foretells basically what I’ve been attempting to explain ever since the paper gold “price perception” started doing this:

 … and causing all sorts of bemoaning how the manipulation of the metal is giving them losses.

There will be no end to the paper losses just as there will be no end to the demonetized reserve asset gains. Hold steady, but not too fast, as even the Bob Cratchits of the world could wait for a paper price so low that NO physical can be bought for it. But our salvation is our poverty. There will always be a few coins eager to sell into the paper market’s destruction.

The big moves in physical are already done.

Catch the crumbs as they fall.

In my July 29th post, GOLD NEVER DEFAULTS, I made a startling claim that:

Whatever the Republicrats want, they can give themselves. It won’t matter. They can give themselves a 4 TRILLION DOLLAR DEBT INCREASE AND WE WILL BREACH THAT NEW “LIMIT” BEFORE NOVEMBER, 2012.

And today we learn that the US will be within 100 billion of the current nominal debt limit on December 30, 2011. Therefore, the headline today is: Treasury To Raise Debt Limit By Another $1.2 Trillion On December 30

And this is only the public view, for all to see. I ask you now, is that claim as startling today as it was only 5 months ago?

All the above ground physical gold known, priced in today’s dollar terms, could be “bought” (in theory) for a mere 7 to 10 trillion US Dollars. This is not nearly enough to cover the U.S. trade deficit. It’s hardly enough to cover bullion bank JP Morgan’s FX derivative position.

In a world where derivatives have been quoted to represent between 600 trillion and 1.75 QUADRILLION dollars, how can all the world’s gold ever mined since the dawn of civilization not satisfy even one one-hundredth of derivative claims in the global debt system?

Ahhh, but we have derivative gold to take up some slack, eh?

At least, for now …

Yes, people have pointed to the reckless abandon of the Savior State, debt-as-wealth, system for many years, claiming that this debt crisis or that debt crisis will cause its hyperinflationary unraveling. They look at the global debt crisis unfolding today and wonder how the system managed to last this long. They understand that each new band aid is another bucket of fuel for the coming fiat inferno–the time when holders of derivative claims will be paid in derivatives.

In all actuality, that day has already come, since payment in dollars is in fact payment in a derivative of its former incarnation. People don’t think in these terms yet, but the TIME is fast approaching when the dollar will be seen by ALL as just another derivative of real wealth.

Until that day comes, the promise of continuing easy money prosperity, through debt expansion, will continue to hold more value than present “real things”.

Yet, there is one thing more valuable than all the physical resources (real things) in all the world. TIME. We cannot control or manipulate it. It both dominates the human experience, and extinguishes it.

How much more time can paper buy, and at what cost?

There’s never been a better time to relish the freedoms so dearly fought for. Never a better time to experience the spirit of giving, of goodness, of peace and charity and good will towards all.

Merry Christmas!

I am still finding it very difficult to understand how almost 69 tonnes of gold are standing these past 2 months and no gold enters the dealer to settle. It is totally beyond comprehension. It is not enough to say that all the data is fake. That just does not happen. There must be some semblance of reality with the numbers. I believe that the number of gold oz. standing is real. They just have not figured out a way as to how they will settle these claims with paper gold.  – Harvey Organ

The divergence between physical and paper gold price is widening.

I am always happy to front run the REAL international headline news, as I have been doing for weeks now. Everything predicted, everything forecast, all coming into view.

Hundreds of COMEX clients waited in line for delivery of gold, and had their wallets stolen by JPMorgan. Their Gold & Silver set for delivery found its way into JPMorgan accounts at the COMEX. On its face, evidence mounts that JPMorgan simply converted 614 thousand ounces of MF Global client metal into JPM licensed vaults. Do not expect prosecution over the crime, for MF Global, for JPMorgan, or for the accomplices in London, not even Jon Corzine. The Fascist Business Model in the Untied States does not permit prosecution. The bigger the crime, the more likely the perpetrator is in control of government high offices, the financial ministry, the printing press, or the regulators.

You will simply NEVER see, or hear such things through the publicly available mainstream media. But the Jim Willie article referenced in Harvey Organ’s website has astoundingly confirmed every single “eccentricity” that letthemfail could ever be criticized for, and then some.

The gold cartel has benefited significantly from the fresh Libyan gold supply (144 metric tons) and Greek gold supply (111 metric tons), not to mention the ample Dollar Swap Facility. It is the bankers New Gold. In a fresh sign of bankster desperation, the lease rates for gold have been pushed down to net negative levels. The fresh supply from the two broken nations has greatly aided the COMEX, providing new cannon fodder. Perhaps more wars to liberate the oppressed can be conjured up, to release more tyrant wealth. It is not a coincidence that negative gold lease rates came when Libyan gold was made available (heisted) and when Italian sovereign bonds went into critical DEFCON mode. The gold supply helped to aid the lack of bond demand.

I cannot tell you how rewarding it is to finally hear someone who knows the truth actually speak it, despite the real danger it could present to them, if that knowledge spread far and wide, as the predictions of Another, FOA and FOFOA play out in spectacular technicolor for all to see.

Mark Cutifani is CEO of AngloGold Ashanti, a $16 billion mining firm. He said, “Major buyers are finding it is hard to get physical gold. People are coming directly to us, people who want tonnes of physical gold, people with serious financial muscle, because they are finding it is very difficult to secure the volume of gold they want. That is something we have noticed over the last 18 months, and it has been increasing in the last six months. People are finding its hard to get physical gold.”

The days of honest money and honest banking are right around the corner. Prosperity lies not much further out. Happy Birthday to the creature of Jekyll Island. The DIVERGENCE is our gift to you.