Resistance

Watching the metals battle horizontal and MA resistance made me think of our theme song at the old "Watchtower" site. Clearly, it still applies today.

So, where are we on this fine Friday? Well, first of all, those we're some perfect and beautiful FUBMs yesterday. And don't let the silly name throw you. The FUBM is an extremely powerful and important chart formation. Why? It shows that, even though The Cartels would like to rig prices lower, they are unable to do so because of strong demand for both paper and physical at the discounted/rigged prices. We saw a bunch of FUBMs back in early 2011, when prices were preparing to stage their massive rallies. Here are just a few examples:

Do yesterday's FUBMs signal that a similar move is coming over the horizon? We'll see, I guess.

Another bit of circumstantial evidence of the impending rally comes from the sales of ASEs out of the U.S. Mint. The biggest January on record was January of 2011 with sales of 6.4MM ounces. Yesterday, as we crossed the 6MM mark on just the 17th of the month, The Mint suddenly "suspended sales" through at least the 28th. ( http://www.bloomberg.com/news/2013-01-18/u-s-mint-silver-coins-sell-out-with-fund-buying-at-5-year-high.html) This looks and smells pretty fishy to me. Are they trying to mask and conceal demand OR are they simply out of metal? Actually, who cares?? Either situation is extremely bullish for silver. Since silver has proven to be a rare "Giffen Good" where demand actually increases as price increases, this overwhelming investment demand is just another, very strong indicator of future price.

But if the U.S. mint is having so much trouble finding silver that they have to suspend sales, how on earth can the SLV find and secure 18.4MM ounces (572 metric tonnes) in just one day?? ( http://www.zerohedge.com/news/2013-01-17/slv-etf-adds-record-572-tons-silver-one-day-more-all-2012) Pretty amazing, huh? Let's see, you can only load and transfer about one tonne at a time, maybe two if your truck is big enough. But the logistical magicians in the Custodial Department of JPM are able to transfer 300 truckloads in a day. Wow! No wonder they make the big bucks!

Even more amazing is the fact that this (alleged) addition brings the new silver added to SLV up to 650 metric tonnes, year-to date. On 1/2/13, the total tonnes in trust were 10,085. As of last night, the number was 10,735. That's an increase of 6.44%.

More amazing still is the fact that these (alleged) additions have taken place while the GLD has seen a huge drawdown. On 1/2/13, the total gold held in the GLD was 1348.92 tonnes. As of last night, it was down to 1332.61. That's a drop of 16.31 tonnes or 1.21% in just the past two weeks. So, silver is magically appearing while gold is disappearing. Hmmmm. What do you make of that? The most obvious answer is that it's all just a big charade and scam, but, what do I know? Who am I to question something that seems so obvious? I'm sure that everything is completely on the up-and-up. That JPM is custodian for SLV and HSBC does the same for GLD only inspires confidence, right? Right???

Back to silver, a Turdite named "Ballyale" graciously shared with us an interesting, if anecdotal, tale last week regarding his interactions with Apple and their production delays in producing Imacs, etc. Ballyale speculated that these delays were due to the current scarcity of available silver (though it's clear that plenty is available for the SLV). The good guys over at SilverDoctors took the story and ran with it, today producing a post that neatly sums it all up. I encourage you to read this thoroughly. http://www.silverdoctors.com/is-ted-butlers-silver-panic-imminent-apple-contractor-claims-new-imac-production-delayed-over-silver-shortage/

And this is fun. Jeff Nielson at BullionBullsCanada has written another excellent and well thought-out piece on silver manipulation and he discusses it in the context of platinum which, as you know, we are currently watching very closely here at TFMR. (Retreating from its fourth attempt at $1700 as I type.) Please read this article and support Jeff's site. He's a good dude and he works very hard, trying to expose and publicize the manipulation. http://www.bullionbullscanada.com/intl-commentary/26043-platinum-market-illustrates-silver-manipulation

Then there's this. On Wednesday I received an email from a longtime Turdite. I found it so alarming that I immediately wrote him back to ask if I could share it with the entire community. Thankfully, he obliged. Presented below without comment. Please give your full consideration to this, too.

Turd,
Thank you again for your dedicated service.  I'm a daily reader and a big fan.
I wanted to take a minute and share with you a very scary experience I had yesterday (Jan 15).  I keep a portion of my rock collection at JP Morgan Chase in safety deposit boxes.  This has been my bank since I moved to this town, I have had these boxes for nearly 10 years.  Several years ago I was given 2 of them for "free" as a thank you for the various accounts I had with this branch.  There seems to be quite a bit of turnover at the retail level and the branch manager that gave me these boxes left 2 years ago.  I have been to the bank many, many times since then and got to know the new people to a lesser degree than the previous manager.  I confirmed with the new manager that the same arrangement was in place, she agreed.
Yesterday I went to my JP Morgan Chase branch to make a deposit and touch my collection as I often do.  The teller looked puzzled and said "We've been looking for you!".  My address hasn't changed, my phone number hasn't changed and they volume of junk mail/account statements sent by them hasn't changed.  "We've been sending you letters for the last year about your boxes, they are going to be drilled on 1/31 with the contents sent to the State of *******.  Once they go to The State, it can take up to 2 years to get your property back after you pay the levies, fines and fees".  Needless to say, the blood ran out of my face.  The teller explained to me that my payments were past due for the boxes and it was their policy to drill the boxes and send the contents to The State after a year.  Needless to say, I stopped caring about the deposit and began moving the contents.  She assured me that she would wipe the issue clean and we'd be fine so I wouldn't have to move anything.  Yeah right, my pockets and quickly emptied briefcase nearly gave out as I left 20 minutes later.
How is it that I 5 pieces of mail from The Morgue each week but not these critical pieces?  How is it they'd just drill the lock and send the contents away (probably in the trunks of their cars to their homes) when my phone number and address is the same as it's been?  Why would they not just call me?  Maybe just debit my account which they do for the other boxes and nonsense?  I know most of these people by first name and they know me the same.  I often see these people at Starbucks and the grocery and we exchange handshakes and pleasantries.  Nice.
I thought that some of the collection in The Morgue wasn't a bad idea for diversification's sake and that they're probably the last to go as an organization so it was safer there.  Wrong!
Here is just another example of why not to trust banks and why not to let phyzz out of your control.
Keep doing what you're doing and we'll keep stacking and thanking you for your sound guidance daily.
"B"

Next, Jim Quinn has a great, new piece that you should be sure to read over the weekend: http://www.theburningplatform.com/?p=46625

And, finally, the charts. I'm delighted to report that both gold and silver look terrific on their respective dailies. Yesterday's failed raids only made them look better in that both metals were able to paint bullish, engulfing candles, too.

Today, both metals are dealing with horizontal AND moving average resistance (silver 50-day is $32.03 and gold is $1697) and this has momentarily stalled the advance. Additionally, we've got a 3-day weekend ahead here in the U.S. and that usually means that there are more sellers than buyers hanging around. That's OK. I'm confident that we'll put these levels behind us early next week and then we'll move on to The Big Test. This event, subsequently known as "TBT", will set the stage for the rest of the spring. IF the meals can pass this test...meaning IF the metals can break resistance and get above all of their respective moving averages...the stage will be set for a very strong rally. Could it be a repeat of 2011? Possibly. Many of the same conditions exist (ongoing QE, tight supply, strong demand, etc). All I know is that nothing happens until and unless the metals pass TBT. For now, sit tight and watch. Get ready for some fireworks and unnerving volatility. But, be optimistic for there is much to be excited about.

OK, that's all for now. Please be sure to check back later as I will be releasing a special and very important podcast dealing with the German Gold story. I'll also have some thoughts on this week's CoT, once it's released at 3:30 EST.

Have a great day and a relaxing weekend. Get ready for next week and the start of TBT.

TF

443 Comments

Rui's picture

@Indenture - Your chart would make Zimbabwe "balanced" as well

So before the Zimbabwe dollar debacle their central bank might have 2% (or whatever) of reserve in gold and 98% in Zimbabwe Dollar. After their crisis exploded, their gold ends up being 99.9.....9% of reserve while ZD 0.0...01% of reserve. According to your reasoning, Zimbabwe gold has "offset the perceived loss" from ZD crash so it's balanced.

The truth is when you use percentage the end sum is always 100% which is not equivalent to being balanced. Regardless what assets you put into the equation, the percentage of loss of one asset is always offset by the percentage gain of the other, which always makes it 100% at the end. That's accounting gimmicks rather than a scientific model.

ivars's picture

VERY important

Reposted with triangle:

Quote:

House Republicans Plan Three-Month Debt-Limit Increase

House Republicans revised their strategy for the coming months’ fiscal debate with Democrats, saying they’ll agree to a three-month debt-limit increase without demanding spending cuts as part of the deal.

Instead, Republicans will use the planned Jan. 23 House vote on a debt-ceiling increase to try to force Senate Democrats to adopt a budget to spell out their spending plan.

“We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government’s spending problem,” Speaker John Boehner of Ohio said in a statement yesterday at the end of House Republicans’ policy retreat at a resort near Williamsburg, Virginia.

The strategy represents an acknowledgment by Republican leaders that they need to reassess their goals following President Barack Obama’s re-election and an increased Democratic majority in the Senate.

The Treasury Department has said the U.S. will exceed its $16.4 trillion borrowing authority sometime from mid-February to early March. Congress faces two other fiscal deadlines in the next 90 days, and House Republicans plan to use those debates -- rather than the immediate one over the debt limit -- to push for federal spending cuts.

Financing for government agencies is scheduled to lapse March 27, and lawmakers must pass new spending or cause a government shutdown. Also in March, Congress will confront the $110 billion in automatic spending cuts, half from defense, that were postponed in the Jan. 1 tax deal.

This coincides with possible continuation of upward trend in PMs till March while delaying the resolution of correction triangle till June- July-August, as some here including me have been speculating all along  if for different reasons, but anyhow related to debt and fiscal future development issues. VERY significant change in short term fundamentals.

If this passes as they say, this triangle becomes a must to close before any further take on direction. Which in the meantime means lower highs and higher lows.

Opportunities for stacking- until June-July, then, if USG fiscal situation does not improve ( why should it-austerity?) or worsens (e.g. war) , PM shall start next leg up as USG debt will be guaranteed to increase with renewed vigor and clear future projections.

This resolution might coincide with a change of trend peak in bond prices to down, slowly starting to cause inflationary effects and slow interest rate increases leaving debt cancelation at one stage as the only tool to stop it.

opticsguy's picture

It's too late for Japan to start a currency war.

Ten years ago I worked with a dozen or so optics suppliers that actually had factories in Japan.  Many imported Peruvians to work in the factories.  Companies like Hoya made glass in Japan.

All but two of my favorite optics suppliers are gone now.  For the last two years the hangers-on had to no-bid projects to save face, but told me privately that due to the exchange rate they are losing money on every deal, so they pick the ones that lose them the least money, hoping things will turn around.  Hoya now make all but the most difficult glass types in China, and had to sell out to Canon to stay afloat.

One supplier of large projection lenses for cinema (huge zooms 18 inches long and 6-8" in diameter locked into a long-term deal priced in dollars at 127 yen/dollar.  Almost immediately the yen went to 90/$ and the digital cinema lens business became a money loser for these guys and anyone who wanted to compete.  Great for the Cinemarks of the world, but not for anyone else.  That deal finally ended and now these lenses cost twice as much.

You wouldn't believe what a deal the theatres got on glass like this:

A good chunk of Japan's industrial base (especially the small and medium sized businesses) is already gone, replaced by joint ventures or wholly-owned sweatshops in China.  80 yen/$ was a killer for everyone but Japans's retirees.

ballyale's picture

Thanks for the Afracan film Purple Haze.

Much appreciated.

ag1969's picture

Confessions of an economic hitman

Have a nice weekend everyone.  I am off for 36 hours of wedded bliss to celebrate my anniversary with Mrs. 1969.  Our first stop is a couple of coinshops we looked up in our destination city.  Yes, the Mrs. is a prepper and a stacker.  Lucky me!

TD's picture

Reality check

I have been contemplating the actions of the Democrats and Republicans here in the good old US of A with regard to the coming debt limit ceiling.

It appears the Republicans want to cut spending. And, it appears the Democrats want to raise taxes. No surprise there.  Historically these are attributes associated with each party... it's what they do. And, it's what the donkey and elephant supporters expect of them... it creates the illusion of responsibility.

Now if this country was simply living beyond it's means, both of these actions could be viewed as potentially wise moves. But the government has gone way, way beyond "partying too much"... it's broke, bankrupt, and helplessly insolvent. A family in the same position would be contemplating bankruptcy, if it hadn't already done so, by the time it came anywhere near this point... unless it had a credit card with a huge credit limit.

A wise, perhaps immoral, family would use this borrowing power to better position themselves for what is coming once this magic credit card is denied. Perhaps to stock up on food, clothing, a new car, some hard assets like precious metals, maybe take a vacation, rather than being foolish and just going on living as if this unsustainable lifestyle would always continue.

I would think that a wise, perhaps immoral, country would do the same... improve infrastructure, develop energy sources, stock pile food and oil, heck, even bring back NASA to it's glory days. Maybe even let up on it's citizen's... tax holidays, repeal of overbearing regulations, debt forgiveness. You know, to strive to be in the best position when the great reset comes.

I've got no delusions. Our leaders are not wise, but they certainly qualify as immoral. Their continued posturing of seeking tax increases and cuts in spending probably appeals to their political base and gives the impression that "they are working for the people", but all they are doing is taking more of our money, giving us less in return, prolonging the eventual collapse, and squandering a great potential to improve things before the hard times begin.

We are in this mess because the folks in Washington want to keep their jobs, it all comes down to lust and greed. And our leaders continue to take actions to keep their party going, and the fractured ship of America from sinking... until they can't... and she takes the big dive.

Put your life vest on... stack everything. And, buy a pitch fork.

TD

Bollocks's picture

@ag1969

Have a great weekend. Don't forget to drop by with the stack.
I'll keep an eye out for your car...

Groaner's picture

Premiums much higher on older Eagles?

Here is Provident's page. http://www.providentmetals.com/bullion/silver/us-slv/ase/brilliant-uncirculated-american-silver-eagles.html

Anyone explain why the premium is  $3-4.00 higher on the older silver eagles.  I mean silver is silver correct?

So my stack of 2006 eagles was a smart move?

Groaner's picture

What is that?

A 1932 Mossenberg?

Colonel Angus's picture

TD, now we have to think about...

...what a wise, hard-working person would do when the government is immoral and runs up the debt on the way to default. Of course we stack everything and buy the pitchfork. But maybe we should also ask, "Who is John Galt?" Others say we need to starve the beast. But I certainly don't approve of continuing to help the addict go a little longer on the junk because I am forced to contribute to the lunacy. I have young kids, so I can't just drop out...yet. But I've been thinking about it for some time now.

Bollocks's picture

No idea Groaner

...ask ag1969. surprise

UK Silverstackers's picture

Azerbaijan takes Gold delivery....

More departed London...

"Initially London-based warehousing units of JP Morgan were selected for storage, but now all the gold will be gradually transferred to storage in Azerbaijan"

http://abc.az/eng/news/main/70838.html

Indenture's picture

Bugzy: "One day Germany will

Bugzy: "One day Germany will not want toilet paper for its superb cars. There will be a two tier world. Then it will happily link with the strong." The Euro is directly exchangeable for gold right now so the Euro is not toilet paper.
http://www.jsmineset.com/wp-content/uploads/2012/12/clip_image001_thumb19.jpg
Your statement, "one day" means that Germany is fine with the agreement now so what will change in the future to make Germany want to leave the currency system. It appears you think the Euro will be devalued to toilet paper. What other currency are you valuing the Euro against?  What other currency is 'not' going to depreciate against the Euro?

philipat: I don't even know what a Euro Shill would be doing, but, when I look for reasons that silver is going to out shine gold the Euro is definitely not one of those reasons. I am sorry but the Euro is not like any other currency. Every other currency in the world is directly tied to a single nation. The Euro is not.  You ay the Euro is a fiat currency backed by nothing. I'm sorry but you are incorrect. The Euro is backed by paper (debt) like other currencies, but, the Euro is also backed by gold and the currency is directly exchangeable from member banks. This is one of the main reasons I study the Euro and I agree that the holder of hard assets is protected from the depreciation of currencies, but I also believe the world needs currencies so there is something different about the Euro.

Rui: Zimbabwe was a single nation with it's own printing press with a single man pulling the handle. The Euro is a conglomerate of nations with no single country in control more than the other. We can all say that politicians are ruthless and will do what they have to but the Euro has too many men from too many different regions with too many convicting views all trying to do things that not allowed so as much as the politicians moan the Euro is just a currency. I'm sorry Rui but there is nothing comparable between the Zimbabwe Dollar and the Euro. Now your comment about balance between paper and physical and it always adding to 100% is correct. Couple that with the 2% mandate and we have a currency that appreciates at a relatively constant rate and it is always backed, but even better Rui is the trend from the chart above as to what backs the Euro unlike any other currency.

Most of us that have reached the point where we understand the dynamics of silver and most likely there iare one or two reasons that weighs more heavily on why we chose our metals. The industrial demand and worldwide quantity remaining of silver peaked my attention and I was a huge silverbug. It is obvious I have changed but there is still something nagging at me. The Euro is not like any other currency and it is backed by gold, not silver. So when posters describe the Euro as something it is not I speak up. My questions about silver are easy. Most here talk about a combination of a currency collapse, a manipulation collapse, or a supply collapse and the spike in silver as a result. I do not believe a currency collapse will help silver so I am currently working on thoughts of manipulation and supply.

Larry's picture

@Groaner: silver shortage?

"Anyone explain why the premium is  $3-4.00 higher on the older silver eagles.  I mean silver is silver correct?"

No answer, but several more questions:

Could it be that 2006 ASE's have more silver than 2013's? Has anyone tested this year's shiny new ASE? Does the Treasury have the authority to determine the purity, quantity and weight of gold and silver coinage? Could a silver shortage cause modern governments to cut corners, mix in other metals and resort to other "clipping" methods in order to fool the public as they have done throughout the history of governments, banks and money changers?

Our "civilized Democratic system" with built-in fail safes and watchdog agencies would never allow that, right? 

Urban Roman's picture

It is one of these, probably:

A  Chevrolet_Advance_Design truck. [wikipedia]

Chevy Truck

Response to: What is that?

Puck T. Smith's picture

@Larry: "Could it be that

@Larry: "Could it be that 2006 ASE's have more silver than 2013's? Has anyone tested this year's shiny new ASE?"

While I wouldn't put it past them, I think at the present time it may have to do with their semi-numismatic nature of ASEs.  I don't know it for a fact, but I think they made fewer ASEs in prior years so the older coins a more rare.  Other's might know better, but I suspect that is the reason for higher prices on the older ASEs.

Turd Ferguson's picture

Good answer, Puck

MODERATOR

I think that's right.

Thanks again for all you add to the site.

TD's picture

The beast

Colonel Angus,

For sure the beast is starving, and intimidating. And there is wisdom in keeping our distance.

Back in my younger days I did some "homesteading" in the mountains of Tennessee. I paid $9,000 cash for 15 acres of land. I cleared part of it and put in a garden with the aid of a neighbor's team of horses while living in a makeshift tent. I built a small house out of salvaged materials that I garnered from several old buildings. I used a stream for my refrigerator and cooked over an open fire. I didn't own a clock, nor a calendar... I always knew when it was Saturday because the neighbors would drop by with beer in hand.

I kept it up for three years, life was simple, physically demanding. and wonderful.

Then children happened... and we moved back into the real world. We carried with us many of the lessons we learned, we home-birthed and homeschooled our kids, I earn my living by building homes using salvaged materials, and we've got a few garden boxes set up that give us fresh greens all winter long. I look back on those days with fondness, but when it comes to raising children we are blessed with the society we have.

Damn those in power for screwing it up so badly.

I placed an order yesterday for some of those silver bullets from Northwest Mint. I've always heard that silver bullets were a great defense against vampires... maybe they work against overbearing bankrupt governments?

TD

opticsguy's picture

older silver

The wholesaler I work with says that a lot of people like to own every year of ASE's, or like to give out ASE's as gifts with years that match graduations and birth years, etc.  So there is a collectable premium on older coins.   I don't think it's the silver content.

I personally like to have a few tubes of every year.

Keg's picture

I guess Armstrong and Te'o are more important

While the news was obsessed with Lance Armstrong, king of the cheaters and Manti Te'o, romancer of imaginary lovers, the GAO released Financial Audit: U.S. Government’s Fiscal Years 2012 and 2011 Consolidated Financial Statements on Thursday.  It was not reported anywhere except a mention by O'Reilly.  Guess it was not important.

A paragraph from the report (emphasis mine):

Increased attention to risks that could affect the federal government’s financial condition is made more important because of the nation’s longer-term fiscal challenges. The comprehensive long-term fiscal projections presented in the unaudited Required Supplementary Information section of the 2012 Financial Report of the United States Government (2012 Financial Report) show that—absent policy changes—the federal government continues to face an unsustainable fiscal path. The oldest members of the baby-boom generation are already eligible for Social Security retirement benefits and for Medicare benefits. Under these projections, spending for the major health and retirement programs will increase in coming decades as more members of the baby-boom generation become eligible for benefits and the health care cost for each enrollee increases. Over the long term, the structural imbalance between spending and revenue will lead to continued growth of debt held by the public as a share of GDP; this means the current structure of the federal budget is unsustainable.

Full report: http://www.gao.gov/assets/660/651357.pdf

¤'s picture

premiums / silver content

I think they're higher just because they're older and possibly harder to come by and more desirable or collectable to some.

An ounce is an ounce is an ounce....we hope. If  the Treasury has scammed and distorted the silver content and played words games  like JY896 has been  pointing out (yes) then we're kind of screwed and the situation is far worse, pathetic or criminal then we can imagine.

I'll try not to go the gloomy/pessimistic route on that one.

My question of the day to all or anyone who is inclined to research this a bit is when did Congress and the Treasury allow the constitutional requirement for a dollar to constitute a certain amount of silver and then not adhere to it any longer?

Was there a constitutional amendment or Presidential EO or did they just decide to arbitrarily veer away from it? I feel like I should know this off the top of my head but I don't.

I think if the public wanted to start a general public  awareness program they could just ask this simple question repeatedly and why it is so and why they're not adhering to the constitutional requirement that defines money in terms of a measured weight of silver by law and why constitutional law isn't being followed? We know the reasons...power, influence, corruption by bankers/pols etc. over time.

My question is when was the date or time period where they ignored or did away with that dollar as defined by silver content criteria? I'm pretty sure I'll be looking this up shortly myself at this point.

achmachat's picture

changing Silver Eagles?

if anybody is interested, I can take an older Silver Eagle and a 2012 Silver Eagle (don't have access to 2013 Silver Eagles, sorry) to the lab next week and do a spectrographic analysis of both.

I won't be able to tell if one is purer than the other, but I will be able to tell if the composition of the blanks they used has changed between the old one and the 2012 ASE.

¤'s picture

Ok...that didn't take long

Here's the entire article to mull over. It's quite interesting from what I just scanned quickly. I'm pretty sure it will sicken most of you.

This seems loaded with potential discussable talking points. Upon a quick read through it appears (no surprise here) that the Federal Reserve superceded all constitutional definitions of money back then when they went the Monopoly money route. 

Has it ever occurred to anyone that the Monopoly guy was supposed to represent JP Morgan or the proto-typical banker? (Bah!...enough of him)

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The History of American Money

During the Revolutionary War, two things almost led to the defeat of the struggle for American independence. One was the inadequate system of constitutional government, and the other was unsound money.

Congress issued about $240 million in “Continentals”–referring to money of the Continental Congress. It was understood that the money would be redeemed in gold or silver by the states after the war.

The states thought this was a great way to manufacture money so they issued vast quantities of their own paper currency.

The British saw what was happening, so they printed up bales of counterfeit “Continentals” and used them to buy supplies from Americans.

Probably no aspect of the American economy has strayed further from the Constitution than the monetary system.

–W. Cleon Skousen, The Making of America, p. 419

Before long, confidence in the Continentals had sunk so low that by 1780 they were not even worth one cent. No further paper money was issued by the United States for over eighty years.

The American market had already accepted the Spanish dollar as its basic unit of value. It was minted in Mexico and called a “piece of eight,” or a peso. The words Spanish peso are said to have been abbreviated into an S and a P with one written over the other. This was further abbreviated to a “$” sign.

The word dollar originally came from a Bohemian word thal, meaning “valley.” A silver coin was minted in a certain Bohemian valley and became known as a “thaler,” which was transliterated into English as a “dollar.”

In the 1700s, the Spanish came out with a silver coin of almost exactly the same size and weight as a thaler. It represented eight Spanish gold “reals” and was therefore called a “piece of eight.” In the marketplace merchants referred to this as the “Spanish dollar.” However, to make change, they would cut a dollar into eight pieces or “bits.” These began to be called two bits for a quarter, four bits for fifty cents, and six bits for seventy-five cents.

In 1785, two years before the Constitution was written, the Congress accepted the Spanish dollar as the official unit of value for the United States and determined that all foreign coin would be evaluated in terms of the Spanish dollar.

In 1786, the year before the Constitution was adopted, the Board of Treasury fixed the silver weight of the adopted dollar at 375 and 64/100s grains of fine silver. The value of gold coins or any other coins was to be calculated in terms of the silver dollar of this weight and fineness.

It will be noted that three things had been established before the Constitution was adopted:

  1. That the official money of the United States would be precious metals–silver and gold.
  2. That the basic unit of value would be called a “dollar” and consist of 375 and 64/100s grains of fine silver.
  3. All other coins, both foreign and domestic, would be evaluated in terms of this official silver dollar.

All of this was already part of the law of the land when the Constitution was adopted. Therefore, the Founders wrote the following provisions in the Constitution concerning money based on the above statutes which had previously been adopted as the official monetary system.

They wrote:

  1. Congress shall have the power “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” (Article I, section 8, clause 5.)
  2. Congress shall have the power to punish the counterfeiting of money. (Article I, section 8, clause 6.)
  3. No tax on imported persons (bonded servants) shall exceed ten dollars. Note the reference to “dollars” in this provision.(Article I, section 9, clause 1.)
  4. No state shall coin money, emit bills of credit, or make anything but gold and silver tender in payment of debts. (Article 1, section 10, clause 1.)
  5. In civil cases for more than twenty dollars, the right of trial by jury shall be preserved. (Seventh Amendment.)

In 1792, the Coinage Act was passed. It invoked the death penalty for anyone debasing the money. It provided for a United States mint where silver dollars were coined along with gold coins beginning in 1794. Altogether nearly 900,000,000 silver dollars were coined from that time until 1935 when the treasury stopped minting them.

  1. Silver dollars contained 46 grains of standard silver similar to the Spanish dollar, which had now been determined to be 371.25 grains of fine silver.
  2. Half dollars, quarters, and dimes and “half dimes” contained a proportionate amount of silver.
  3. Pennies and half pennies were made of copper.
  4. Gold eagles were worth ten silver dollars, with a ratio between gold and silver fixed by statute. The fixing of this ratio by statute turned out to be a mistake. Each metal should have been allowed to follow its independent market value.
  5. Half eagles (worth $5) and quarter eagles (worth $2.50) were also minted.
  6. Free minting privileges were granted to all citizens. They could take either gold or silver to the mint and have it minted into coins. This practice lasted until 1873.

The ratio between gold and silver which was fixed by statute at 15 to 1 was soon out of phase in favor of gold. As a result, much of the American gold stocks began to be purchased by Europe.

In 1834, the ratio was changed to 16 to 1which favored silver, and from then until the Civil War the nation was, for all practical purposes, on a gold standard. Europe began buying silver, with the gold it had previously accumulated. This soon brought gold stocks back to the United States.

Paper Currency

We have already noted that there are two kinds of paper currency which are not “money” but circulate as such: the first is debt money, which can be redeemed in silver and gold on demand, and the other is fiat (paper) money, which is designated as legal tender but cannot be redeemed for anything.

As indicated earlier, the original draft of the Constitution authorized Congress to “emit bills of credit.” This had reference to debt money or currency which would be redeemed with gold or silver. After an extensive discussion the Founders decided they couldn’t risk it. There would be no United States debt currency or bills of credit. As for fiat money, this was so abhorrent to the Founders they didn’t even discuss it.

As mentioned earlier, the Founders knew that people do not like to conduct business–except for minor transactions–with precious metal. Metal money is too heavy, too bulky, and in substantial amounts is dangerous to transport. It is much more convenient and safe to use paper currency. The Founders realized this, but expected the banks to issue notes (redeemable in gold or silver) which would fill this need.

Over the objections of Jefferson and Madison, Alexander Hamilton persuaded Congress to approve a United States Bank for a period of twenty years. This was actually a private bank, but it functioned as a depository for the United States and collected taxes. It also issued redeemable bank notes which circulated as currency. Other private banks did the same. By 1798, Alexander Hamilton decided that this procedure was a mistake. He felt that if currency or bank notes were to be issued and circulated as “money,” it should have been done by Congress.

Unfortunately, no steps were taken to remedy this problem, so by the time of the Civil War there were thousands of banks issuing thousands of different kinds of bank notes. Furthermore, many banks were issuing far more notes than they had reserves. There was also a tremendous amount of counterfeiting. Before long the whole system began to falter.

When the Civil War required vast new expenditures, the banks wanted extremely high rates of interest on any loans to the Union (15 to 36 percent), and so Congress felt compelled to issue fiat money. These “greenbacks” could not be redeemed in gold or silver and were limited somewhat in the things for which they could be spent. Their value soon dropped to around 35 cents.

Finally, in 1878, Congress promised to redeem the greenbacks in gold. This changed the greenbacks from cheap fiat money to debt money, redeemable at face value. At first there was a run on gold as people traded in their greenbacks, but when they found they really could get the gold, then people didn’t want it. They returned the gold to the bank and took back paper money instead. This left the United States on the gold standard until 1933.

Meanwhile, Congress phased out the bank notes issued by state banks by putting a tax on them, thereby discouraging their use. In 1863-64, Congress passed a series of national bank acts which set up a system of privately owned banks chartered by the federal government. These national banks issued notes backed by the U.S. government bonds, and these national bank notes became the country’s chief currency. When the greenbacks received gold backing in 1878, they also moved up to a par value with the national bank notes.

In 1913 the Federal Reserve replaced the national bank system, and Federal Reserve notes were issued with a promise to redeem them in gold on demand.

Then, in the year 1933, the United States abandoned the gold standard. These were the circumstances:

  1. On April 5, 1933, one month after his inauguration, President Franklin D. Roosevelt declared a national emergency and ordered all gold coins, gold bullion, and gold certificates to be turned in to the Federal Reserve banks by May 1. This order applied only to those residing in the United States. It did not apply to foreigners living abroad. Within the United States, only those who had special gold collections or needed the gold for industrial or professional use were allowed to retain quantities of the yellow metal.
  2. As gold coins, gold bullion, or gold certificates were turned in, the American people received Federal Reserve notes redeemable in silver.
  3. On May 22, 1933, Congress enacted a law (48 Stat. 31) declaring all coin and currencies then in circulation to be legal tender, dollar for dollar, as if they were gold. It also empowered the President to reduce the gold content of the dollar up to 50 percent.
  4. On June 5, 1933, Congress enacted a joint resolution (48 Stat. 112) that all gold clauses in contracts were outlawed and no one could legally demand gold in payment for any obligation due him.

On January 30, 1934, the Gold Reserve Act was passed, giving the Federal Reserve title to all the gold which had been collected. This act also changed the price of gold from $20.67 per ounce to $35 per ounce, which meant that all of the silver certificates the people had recently received for their gold now lost 40 percent of their value.

The next day the President proclaimed (48 Stat. 1730) that the dollar was to be fixed at 15 and 5/21 grains of standard gold and was to be maintained at this level “in perpetuity.” This is still the definition of the “dollar” in the United States code. Russia and the central banks of Europe began buying up gold in huge quantities. Thus there came into being a dual monetary system: a gold standard for foreigners and Federal Reserve notes (redeemable in silver) for Americans.

From 1914 to 1973, American currency went through the following erosion:

  1. From 1914 to 1933, every Federal Reserve note was redeemable in gold and silver.
  2. Between 1933 and 1963, all Federal Reserve notes promised to pay (or be redeemed) in “lawful money,” which meant silver. Then the wording on the Federal Reserve notes began to be changed to somewhat obscure language, which should have given Americans a warning that the government was planning something.
  3. In 1965 President Lyndon Johnson authorized the treasury to begin issuing debased “sandwich” dimes and quarters with little or no intrinsic value, and the quantity of silver in fifty-cent pieces was reduced to 40 percent.
  4. On June 24, 1968, President Johnson issued a proclamation that henceforth Federal Reserve silver certificates were merely fiat legal tender and could not be redeemed in silver.
  5. On December 31, 1970, President Richard Nixon authorized the treasury to issue debased “sandwich” dollars and half dollars.
  6. By August 1971, many of the European countries had collected so many billions in Eurodollars (foreign aid, money spent by the U.S. military abroad, etc.) that European banks had begun to get nervous about redeeming their money in gold. A threatened run on the U.S. Treasury resulted in the American gold window being slammed shut. This resulted in collapse of the dollar on the world market. Since then it has fluctuated on the world market like any other commodity, since it is no longer redeemable in precious metal and therefore has no intrinsic value.
  7. In 1973, the U.S. dollar was officially devalued, changing the price of gold from $35 per ounce to $42.23 per ounce.
  8. On March 16, 1973, Congress set the American dollar completely afloat with nothing to back it up but the declaration of the government that it was “legal tender,” or fiat currency.
  9. The world market immediately reflected serious erosion in the value of the American dollar. To buy an ounce of the gold it took not $42.23 but $100, then $200. After that, it moved higher and higher until it required $800 to buy an ounce of gold. Gradually some confidence was restored in the dollar as the symbol of the American economy, and so it settled back down to a plateau of approximately $300 plus.

Today, the American economy operates under a monetary system which is completely outside the Constitution. Its fiat money is continually manipulated both in value and quantity. This has had a devastating impact on its purchasing power, which is now down to about 8 percent of its 1933 value. It has eroded the value of savings, insurance policies, retirement funds, and the fixed incomes of the elderly.

http://www.cmi-gold-silver.com/history-american-money/

Hrunner's picture

1st Post from Haiti?

Greetings from Haiti!

OOC (out of country) for over a week on a medical mission, but have been able to catch up with Turdville just now.
Some brief comments:

German gold- My gut feel is I do not buy the party line of "well, the German gold was in NY during the Cold War and it was just time to bring it home, e.g. due to political pressure"  The Cold War was officially over in 1989, and really many years before then.  So 25 years later, all of a sudden it is "safe" to bring gold back to Germany? I do believe the "Green Lantern" thesis.  What I think happened behind the scenes was a vigorous argument between the Bundesbank and the Fed, and the compromise was to bring some home, slowly.  Versus what the BBank wanted which was all, now.

Haiti, with the Dominican Republic formerly known as Hispanola, it is the poorest country in the Western Hemisphere.
The Spanish mined Haiti for gold using the native Amerindians as slave labor.  As the Taino Indian population declined, the Spanish imported African slaves to continue the work. The western part of Hispanola became settled by French pirates, and the island was eventually split into 1/3 French and 2/3 Spanish by the Treaty of Ryswick in 1697.  Haiti was then called Saint-Domingue.

Former slaves fought the French in the 1790's, and were led by Toussaint Louverture, a former slave to achieve an independent Haiti in 1794. In 1802, Napoleon sent Leclerc to recapture Haiti.  50,000 dead troops and a year later, the French left Haiti.  Louverture had been captured by the French in a false 'parley' and died in a French prison (ever wonder why the Germans don't trust the French with their gold?).  Jean-Jacques Dessalines, a commander under Louverture, continued the fight until the last of the 7,000 French troops left the island.  The defeat in Haiti led to Napoleon giving up the idea of a North American empire and the led to the Louisiana Purchase in 1803, where the U.S. bought 828,000 square miles of land for $11 million ($0.03 per acre) using $3 million of gold as a down payment.

Gold, silver and copper have just recently become of interest in Haiti, and the SOMINE Project is leading the development.

"A flurry of exploratory drilling in the past year has found precious metals worth potentially $20 billion deep below the tropical ridges in the country's northeastern mountains. Now, a mining company is drilling around the clock to determine how to get

those metals out." "Haiti's geological vulnerability is also its promise. Massive tectonic plates squeeze the island with horrifying consequences, but deep cracks between them form convenient veins for gold, silver and copper pushed up from the hot innards of the planet.  Prospectors from California to Chile know earthquake faults often have, quite literally, a golden lining."

http://www.msnbc.msn.com/id/47398045/ns/world_news-

americas/t/gold-haiti-eyes-potential-billion-bonanza/

The island of Tortuga, a pirate enclave of 17th century, is part of Haiti, off the northern coast.

(Jack Sparrow: "You know, for having such a bleak outlook on pirates   you are well on your way to becoming one: sprung a man from jail, commandeered a ship of the fleet, sailed with a buccaneer crew out  of Tortuga, and youre completely obsessed with

treasure.")

These people have been beaten down by remote and recent horrible governments, a major earthquake in 2010, and a low resource island.  The poverty is really hard to appreciate without being here.
Half of the government's $1 billion annual budget comes from foreign aid.
The occasional police presence includes men with bullet-proof vests and rifles or shotguns (they don't bother with handguns).

Every American, including "poor" Americans should spend a week in Haiti.  It will reset your definition of poor.

And yet, there is a wonderful spirit, even a happiness here.  They know they are poor, but have a proud spirit.  The spirit faithfulness and thankfulness to Christ is more alive in Haiti than in many if not most parts of the U.S. and the West in general.  Church starts at 6-7am on Sunday and goes for 2.5 hours.

The take-home for me is that people can and will endure very tough situations, and the human spirit of independence and self-determination is universal and thriving, even under the worst of prospects.

Larry's picture

Puck & DPH

Puck, I expect you are correct and DPH concurs in terms of older coin availability. My questions were admittedly rhetorical (or just way early?), but I've never gotten in trouble asking questions about things that seem obvious to all and known for certain by others. Could be the tin foil is getting a bit tight this morning after reading some history of coinage, government intervention and manipulation. Lol. Still, to borrow (and mangle) an old truism:

One can never go broke overestimating the ineptitude and deceit of governments.

¤'s picture

Vintage Dino...

...and gold related.

Here's a re-run from the SpeakEasy TV last night for anyone who loves Dino and Tina Louise.

The count has stolen enough gold to cause a financial crisis in the world markets so I.C.E. sends in ace spy Matt Helm-(Dean Martin) to stop him. As Matt works alone, the British send in Freya to aid Matt, but it seems that Freya causes more problems than she solves.

wreck1.jpg

silver66's picture

More money history--DPH

¤'s picture

silver66

Thanks for that and....Go Leafs!

Glad hockey is back or what?  Me to.

Sabres guy here (almost as bad as being a Bills sufferer). This year will be different crying

¤'s picture

I've Seen All Good People - Your Move - Yes

Keeping it positive on a Saturday morning...

Orange's picture

Fractional Silver

Good article, explained simply.

http://www.silverseek.com/commentary/buying-silver-kyle-bass-makes-case-hedge-funds-8981

This will reinforce any nervous stacker.

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