What Does An Ounce of Gold Cost?

This is a metals site, right?  Is this not a simple, basic question that one would ask when one first decides to investigate the purchase of an ounce of gold?  Of course.  But, think long and hard about this simple question, because it sets up the whole discussion:
 
What does an ounce of gold cost?
 
No, it is not a trick question.  The correct answer requires an understanding.  But, the smart ones say, sure, spot, futures, what is the premium, etc.  But, stop right there.  Let's talk about the real issues.
 
Before we get there to the answer, let’s look at some facts and connect a few dots.  Oh yeah, and let’s brag a little for getting the taper correct, too.
 
Mr. TF, as good a chartist as he is, is also a mighty fine prognosticator.  
 
TF called the BLT long ago (Bernanke Legacy Taper).  Of the pundits, TF was the first one ever, from what I recollect, to correctly make this call.  I recall agreeing with him, but I was not 100% committed at the time, as my analysis was more like guesswork.  I really did not understand why he was so damn sure of himself, and even more puzzling, how the hell could he have gotten it so damn correct?  No one else got it close.
 
So, let's look as some more.  Just a short time ago, TF expressed, eloquently, but firmly, and even posted an excellent guest post from an astute thinker which explained, convincingly, that there was and is NO CHANCE that QE ends, ever.  Stated succinctly, QE in the form of FRN creation to purchase US Treasury debt, cannot ever end.  Ever.
 
The reason for that is simple: interest payments paid to hold new debt must increase, to absorb the new borrowing, to reflect the risk and devaluation over time of the dilution of the FRN by the constant increase in their supply by the FED.  Simple, right?  We all agree on that concept, don't we?
 
So, as interest rates increase, the existing payment obligations on existing debt increase; the flow, as they say on ZH, will have to increase simply to be able to service the debt.  The interest payments are not at all about paying OFF the debt, or paying DOWN the debt.  No, not at all.
 
The interest payments are SOLELY about debt service; that is, keeping payments current so as not to default.  IF interest payments, and interest payments only are timely paid, then the market says: Go ahead USA, keep creating FRN's out of thin air, we know you will pay off eventually, but we need to NOT lose money so we need to be paid interest to make up for the loss of purchasing power from your central bank creating more and more FRN's from thin air. Keep the payments coming, and we will gladly let you borrow forever and ever.
 
Eventually, though, as more debt gets piled into the system, from continued creation of FRN’s by the FED to purchase US debt, the interest payments alone–no principal is being paid at all–will surpass the GDP of the USA.  Once that situation is reached, that payment obligation, that is, simple debt service of existing debt, in the form of interest only payments, will go parabolic eventually, the timing being defined mathematically depending upon the interest rate.  It is NOT IF, IT IS WHEN!
 
So, IF the FED stops QE of Treasury debt, that demand sopped up by the FED purchasing US Treasury debt will have to be made up somewhere else.  That fall off in demand will have to be made up somewhere, for sure, but there will not be an increase by others unless something changes.  Since there is no other good collateral that can be posted, or anything of a secured nature that can be liened, because the sovereign debt repayment pledge is about as good as it gets, short of the creditors occupying the debtors' land and physically taking the goods and services in repayment, the creditors can only accept the sovereign debtor's promise to pay backed by the taxpayers' efforts.  As Jim Willie says it, the USA debt is backed by the IRS payment stream.  
 
If interest rates do not increase, then no rational market participant will risk buying US Treasury debt which will in essence guarantee losses unless interest rates go up accordingly.  
 
Simple thought, really it is.  QE of US Treasury debt stops = interest rates increase on new debt = higher debt service payments.
 
The whole scheme collapses once interest rates result in payments exceeding current cash flow revenue.  So, either revenue increases, or interest rates must NEVER go up, or else the system collapses.  Guaranteed.
 
Everyone here has been warned, repeatedly, of this reality.
 
Now, the facts are coming in fast and furious. One need only look in a cursory manner to see signs everywhere.
 
Today, the readers here all saw with clarity the TF magic of his predicting what the FED would do.  Note well, that Pining equally called this outcome, he even had a pretty picture, too.  Heck, even a lowly humble attorney, like me, was able to make this easy prediction.  How did we know?
 
Remember, I said it was a near 100% certainty.  How could I know?
 
Easy.
 
I have been reading this blog since the inception.  I have read and read and read, and studied, and questioned everyone and everything.  I read everything that people post, I have no agenda, I censor no one, and I prefer to be challenged in my viewpoints, rather than have a monolithic echo chamber.  I am a critical thinker.
 
I am sure that I have also sounded like a complete dufus, knowing nothing, but asking questions and trying to learn, and getting angry replies to my posts from people who would rather attack than help.  No matter, any of it.
 
Slowly, over time, the basic kernels of universal truth took hold, expanding, until at one point, it became clear what the western banking system was really about.  When was that magic moment?  I am not sure. But it happened here, on this blog, from all the great thinkers, teachers, and the patient types who put it all together, every day and night, for free, out of a spirit of sharing and helping.  I am truly grateful.
 
Now, it is time to pay attention again, in a most important way.
 
The FRN system is under severe pressure.  Signs are everywhere.  Western banking will radically change, forever, and those forces of change are acting on the system in a major way as I write this.
 
Capital controls (China, Russia, Argentina, et al.), forced purchase of USA FRN by the populace (announced by Obummer last night) bail-ins (Cyprus for sure, and other western sovereigns pending), currency devaluation (Venezuela, Argentina), US dollar hegemon collapse (look at all the trade agreements that allow for trade to be settled in currencies other than the US dollar), all of this, is happening in real time right now.  
 
Now, ask WHY such dramatic steps are being taken by the western banking system?  
 
Now, ask WHY the stories are coming fast and furious that gold is moving to the East, that demand for gold by the East is INSATIABLE, and then add to that the anecdotal stories by Andrew Maguire, Jim Willie, and others that gold is both moving East dramatically and per Willie, simply vanished from western control, forever, and what conclusions can be drawn?
 
None of this is mysterious to anyone that has been a regular reader here at tfmetalsreport for any length of time.
 
The FED HAD TO TAPER, a BLT if you will, because the only important thing going on now is MOPE.  Of course the FED cannot end QE for US Treasury purchases, but paying lip service as to MBS purchases is critical for the banksters to keep alive any semblance of confidence in western banking.  There is no longer any real housing market.  It is broken beyond repair.  There are pockets, but not any real market.  Finance is broken.  MBS is broken.  Freddy and Fanny are broken and broke.  Asset values are historically completely out of whack compared to median incomes.  Yet, home prices are high, and climbing.  Who is buying with all cash? Who is the landlord renting out millions of formerly owned homes?  What segment of society will step forward and buy homes like before?  Who is going to buy all of the boomer homes once they pass or downsize?
 
From what source will the formerly consumer driven economy find a new revenue stream?  If there is no consumer consumption, then what is going to expand the economy and help pay debt service on the massive interest payments?
 
Is the picture starting to become clear?
 
Now, knowing all of this, let’s go back to the question above:
 
What does an ounce of gold cost?
 
If you said anything relating the cost of one ounce of gold to a fiat currency, then there is simply more work to be done on your part, and you best get educated before this fiat scheme collapses.
 
The correct answer is, naturally: Priced in terms of fiat?  Who cares?  Just get more as soon and as fast as you can while these low prices in terms of fiat exist and the physical gold is available.
 
The same goes for silver, too.
 
Please prepare accordingly.
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174 Comments

glimas's picture

furst?

OK back to reading

California Lawyer's picture

Glimas in the House!

Check your inbox my friend.

boomer sooner's picture

Clunk on the noggin!  (I

Clunk on the noggin!  (I shoulda had a v8)

Thanks CL for putting stacking in perspective.

And the sheeple say -- Baaaa baaaa.

Only problem, hardly any phys in my local at the moment (25%+premium for what is available, very little at that, $5.50 over for Au eagles, $24 for maples).  Manager said hardly any walk in people selling, all buying.

Thurd!  Haha

Mudsharkbytes's picture

I've nothing to say

and I'm saying it well. 

Fourth, or fifth. I could use a fifth. 

AlienEyes's picture

5th

I'll take the fifth.

glimas's picture

taper

So the fed says taper another 10 B, prove it!  I say look at what they do not what they say.  Again MOPE, everything is managed/a lie/a cheat why would anyone believe a taper when you know they can't taper.  Everything of value has been manipulated, no more free markets.  You can't trust anything even the COT reports.  Hence, even those have a disclaimer.   Even if they taper they will find a way to inject MOAR into the system to keep it alive.  Cal lawyer is correct please prepare accordingly.  What is the true cost of shiny?   Only your blood, sweat and tears can you use to answer this question.  How much did you spill for each ounce..that is the true cost today only....not tomorrow.  For tomorrow can be very different from today.

My better half this a.m. told me about a meeting she had yesterday with a small supplier to the co. she works for called xyz ( not gonna name it).  The owner of this small co. has his own private jet, hence he is very well off.  In the middle of the meeting out of the blue he states:  If this government keeps printing money out of thin air like they are...you all are going to have to pay for this massive printing of dollars as he pointed to each and everyone in the room.  My better half confirms and blurts out that he is correct and that each and everyone in the room is going to have to pay for this massive printing of dollars.  She looked around the room and everyone was like deer in headlights....nothing, nadda, no comments.  So I said to her, what does this tell you?  I replied, he is in the know and is powerless to stop what cometh, frustrated at the sheep for being blind and saying and doing nothing, enraged that the authorities do nothing.  All he has built, accumulated is about to be for naught and may very well disappear and become nothing.  So again I say prepare, then again it still may not save you.  My advice is don't waste a single day for tomorrow may not come for some/most of us at some point.  Don't waste a second, min. or hour for today you live in a fantasy world where Ben has granted you extra time to enjoy that which has been stolen only to be paid is spades at some pre conceived time which none of us can truly predict.  Stack?  I seem to remember a post from Cal lawyer on the periodic table of elements referring to Pb.  ?  Don't for get your basic's.  As for in the house, I'm usually in the house......I just like to lurk, its safer.

Pseudozero's picture

outstanding post

'argentum et aurum comparenda sunt'

ivars's picture

Very exciting next

Very exciting next week:

FED: Yellen takes over; Israels Fisher Vice chair?

USG: NFP for January on Feb 7th ( I think 6,2% due to on purpose meddling with unemployment benefits. They are still in Senate:)

USG/Congress: Debt ceiling Feb 7th ..no action prior to that as there can be no actions since situation is not under control see next point. USA debt actions are in panic mode. If there is no solution on gold front, debt can not be increased as things like MyRA takes time to implement. But gold can explode any moment if GLD dries out. It is the last reserve West is ready to dump to the East in the name of USD stability. If that is not enough, only money supply contraction/growth slowing can help. Both taper and debt decrease are on cards still BUT->

Sochi Olympics: Opening ceremony Feb 7th. If Turkey does not cave in prior to that, expect terror act. Either direct hit or warning hit. Every one in the world has been prepared for that so no surprise if it happens. Question is only who will get killed. Or which nations representatives and how it will be played out then. Saudis/Israel  are ready to act. Orders has been given. 

A lot will be gleaned from actions speeches prior to that. E.g Are there some more heads of state pulling out of  Olympic game opening ceremony, when ( early or last minute), who sits where in Stadium etc. 

ivars's picture

Turkey contemplating move to

Turkey contemplating move to gold standard?

http://www.hurriyetdailynews.com/turkish-pm-says-he-will-wait-to-see-rate-hikes-impact-before-stepping-in-.aspx?pageID=238&nID=61758&NewsCatID=344

Quote:
Repeating that he has always opposed raising interest rates, Erdoğan said his government would wait to see where the things are going before stepping in.

“We are obliged to preserve our good intentions if the return of interest rates brings a positive improvement in foreign exchange currencies or a rise in the Istanbul stock exchange. But we won’t be able to preserve our good intentions if the opposite happens,” he said.

When asked whether the government had any “plan B” regarding the issue, Erdoğan was coy. “Regarding plans such as B or C, we may have a study that we will announce within the upcoming weeks,” he said, without giving any further information about the scope and details of such plans.
Responding to a reporter’s question as to whether this would be in the form of an “economy package,” Erdoğan only said he wanted it to be “something out of the ordinary.” 

There are examples in the world, but it wouldn’t be right for us to announce these in this period, when the Central Bank had taken this step,” he stated.

Just a reminder from yesterday:

At present gold prices , total gold in Turkey (population and of course Erdogans party supporters as well) = 8000 tons= Turkey govt debt= basis for Lira= 300 billion USD. 

If even govt is able to mobilize 2000 tons which will give leverage 1:4 of gold:government debt it will be enough. When England went back on gold standard in 1821, its debt to gold backing ratio was 80:1 , so 4:1 should be enough even taking into account that Turkey is not Empire who has just won war. 

This is another war announcement to the USD since if Turkey , worlds 15th economy moves to gold backed currency all paper currencies will look very suspect. They have been already paying to Iran in gold for oil for last years. 

It is bloody serious and has to be considered as such, even if its only a way to gain more bargaining chips. 

Mantis's picture

This thought just occurred to

This thought just occurred to me. The aim of the mope is to keep people thinking that all is well. There was a crisis but the recovery is going to plan thanks to the actions of the central banks. Outcome of all the MOPE is that people remain blissfully asleep as the wealth and power of the west drains away.

But why keep everyone asleep? Would it not be better in the long run to admit what is happening and inform the people, to break the news more gently so people can prepare. Keeping people asleep is dangerous isn't it?

As in china where people are being encouraged to buy gold, why not here too? It is obvious protection. In the cold light of day when people wake up to find the harsh reality that their paper is worthless, I think there will be rage. Is a raging population the desired outcome? Why desire an angry population? Might world wars be better fought with angry populace?

Or perhaps they just keep people asleep because they think they can fix it again before the population wake up, and keep the fiat paper scam going another 100 years ?

atarangi's picture

Ivars

Don't get to excited. Things have a way of turning out not so exciting. But I do admire your enthusiasm.

ivars's picture

@atarangi

Quote:
Don't get to excited. Things have a way of turning out not so exciting.

I know so I do not act so fast as I create ideas. However, sometimes things happen in very exciting manner. And now is such time that action happens. 

E.g. 9/11 came out of nowhere but most likely it was predictable and if we look at net results from it, banker dominance via USG and USD continued for another 7 years unabated and then another 5,5  years  till today. Now is another critical point so it is quite possible to see exciting activities. And in this time, critical points just squeeze together. 

Take a look at MyRA. That is - for the USA- epochal event similar to Roosevelt pension system activities. No mean deal. Fights about debt ceiling resemble pre 2000 when the collapse of bankers power was coming close..but it did not happen- though a lot of exciting events happened between 1995 and 2001 9/11. Government shutdowns, Monica Lewinski, Asian crisis, Russian default, Repeal of Glass-Steagall, Internet bubble and its collapse  etc.  Probably You could name more, I have not been studying that sequence of events so closely. 

flyinkel's picture

4 oz

Wonderful article "From The Intelligencia....." Thanks!

Close to 700 million Chinese will travel over Chinese New Year National Holiday (also celebrated in Singapore) Jan 31/Feb01 as the Year of The Horse is ushered in.

If you wanted to try to tamp down metals, this would be the time do it.  Don't know if it will happen, but if it does, perhaps it's best not to look the gift horse in the mouth; just get the gift.  Happy hunting.  Be well. 

Edit:  Cal Lawyer, great thoughts, thanks for the article.  An ounce of gold is worth what one is willing to pay for it, or sell it at.  It's  that simple.  Worth is in the eye of the beholder.

nixy's picture

What does an ounce of gold

What does an ounce of gold cost?

Found this rather succinct statement on ZH. It was read over 23000 times with no negative comments.

"I will forecast that the price of Gold, as reported, will realize its true value of ZERO in the near future. That is because what is priced is not Gold but CONTRACTS to buy Physical Gold".

...he then went on to say....

"And when DEMAND for those contracts diminish, as COMEX, JPM, and the GLD ETF inventories are totally depleted, as the Gold is not available for Delivery, then the contracts will become WORTHLESS. The contract's value becomes ZERO. 

at that time there will be an unprecedented DEMAND for the Physical Metal and just who knows what Prices for Physical Gold will be commanded.

The fraud will be EXPOSED and there will be little to nothing that your weak Government Officials can do in order to stop it.

That is the reason the report is important.

If you do not hold it then you do not own it."

http://www.zerohedge.com/news/2014-01-28/jpm-sees-28-withdrawal-gold-vault-one-day-another-10-tons-depart

Gold Dog's picture

Are we nearing the end of,

the suppression scheme? It occurs to me that even though, through his good offices, Turd and others have been reporting about the burn down of various gold inventories, be it in GLD or the Crimex we may not have been fully aware of the consequences.

Have we been unappreciative of the significance of these inventory depletions because we can pick up the phone and grab a couple of hundred ounces any time we want to....even if it's at $30 over spot?

What happens when the cupboard is empty? That's when the average Joe wakes up and Ivars gets his excitement!

I am going to increase my allocation as a percentage of my assets starting today. (I hope you will be open today Doc!)

Time to short some more MAR NatGas and Light Crude.

Your friend,

Rehab Dog

Gold Dog's picture

P.S.

I think I may have lied when I said I don't trade any more. I should have said I don't trade in size any more.

PPS- Turd is a witch----I am Turd!

ivars's picture

Gold DogI think we are

Gold Dog

I think we are nowhere near the suppression scheme end. Only now more forcible tools are needed. GLD bleeding may actually stop at this level for quite a time.

There are ways to ratchet up global uncertainty which will cause money to move towards UST meaning USD even without MyRA ( but that will help as well later- USA was very clever not to engage in pension welfare before the need to capture more citizens money and more citizens is truly there. Imagine that immigration law is changed so that 12 million get citizenship but with condition they HAVE to save in MyRA immediately mandatory as Obama and Congress will not want the new citizens to suffer from stock market speculator games:) ).

And of course stock market will be crashed as that is what everyone follows, signaling terrific volatility while bonds will stay relatively stable. People will flock to bonds, no FED needed. Only uncertainty, both in stocks but also geopolitical. That helps USG paper a lot. 

USD will not be given up neither tomorrow nor in next 6-10 years. It might get gold backing in between if needed and possible via gold acquisitions /confiscation from USA UK Swiss held foreign gold. But I can not see how it can in near future be allowed to move over 1500 USD( meaning 6-10 years) +-15%. If it could, no one would have bothered to deliver physical to the East to keep prices down. 

GOLDDOC's picture

What is the price of a fiat dollar in gold?

It seems in the not to distant future that all fiat currencies will be priced in the weight of gold. It is stable, tradable, a unit of account, a great saving vehicle  and can not be created out of thin air.

Mads Trauson's picture

Japan tells us the future is not as you describe it.

Japan has had a 20 year history of stop/go on QE.Its debt as a percentage of GDP is miles higher than the US.Its financial system is clearly out of control ...and yet bond yields have gone down when Japanese QE is on and when it is off.DESPITE MONEY PRINTING.

OK Japanese financial institutions and individuals have sucked up much of the supply (adverts in the back of taxis advocating Japanese government bonds/pop groups advocating bonds-WTF).The US is someway off that.Fed stops buying,foreigners stop buying but US financial institutions and individuals are "encouraged" to act patriotically.

Problem is postponed 10/15 years.

Yen is a strong  currency as well.

silver66's picture

Pseudozero

Of course silver and gold must be bought!!

But then again we all know that on this site wink

Silver66

Clubfoolish's picture

The slam just now

and this slam is because...???

infometron's picture

Waterfall in progress

Au @ $1245 Ag @ $19.14 and dropping fast

Peoples Front of Judea's picture

Look out below

if you listen carefully you can here  the rumbling stampede of people in China and India

heading too their  local LCS

abguy4's picture

@ clubfool

IF I had to guess, I'd say Jamie D. just got up and was still pissed over that 23 billion fine, and laying there in his pajamas, he called the Head of the JPM PM trading desk, and told'em they have two days to make back that 23B or heads will roll.

Just guessing...............................................

Mantis's picture

Bitcoins

I saw a link recently but can't find it to share, someone had an idea that bitcoins hitting $3,000 will be a tipping point for end of precious metals suppression. .

Bitcoins are are sound money!

Is this the right room for an argument ?

devil

flyinkel's picture

Lookie here

Presents for all my friends.wink

andejoe1...the doors are locked at their LCS right now as everyone is lighting fireworks, and sparklers, and enjoying parades with great lights and dragons, tonight (having their reunion dinners) and tomorrow night (the actual celebration). 

ag1969's picture

I've said it before...

...and I will say it again, when you consider all of the stuff that has happened around you since 2008, and I am not talking about conspiracies, I am asking you to just look at what has actually happened, it is a miracle of God that it is still possible to trade over supplied, fake, fiat, worthless, FRN ponzi coupons for real physical money,  proven throughout the ages to be the harbor in the storm.

If you don't think now is not the time, or you are waiting for another dollar to be shaved off the lows, imagine how you will feel when you can't buy it with FRN's, no matter how many you have.

For me, this has always been about one thing, and one thing only:

Real Money or fake money, what's in your wallet?

ag1969's picture

Sorry about the double post

Edit 2:  If you have watched this video, doesn't it make you so proud of our Congress?  Here is a United States Representative, who, when asked about the crimes he has been alleged to have committed, he threatens to break the reporter in two like a boy, whatever the eff that means.  Cuddly bunch we have up there on the hill.

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