What Does An Ounce of Gold Cost?

172
Thu, Jan 30, 2014 - 1:17am
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.

About the Author

  172 Comments

glimas
Jan 30, 2014 - 1:24am

furst?

OK back to reading

Jan 30, 2014 - 1:26am

Glimas in the House!

Check your inbox my friend.

boomer sooner
Jan 30, 2014 - 2:08am

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
Jan 30, 2014 - 2:26am

I've nothing to say

and I'm saying it well.

Fourth, or fifth. I could use a fifth.

AlienEyes
Jan 30, 2014 - 2:30am

5th

I'll take the fifth.

glimas
Jan 30, 2014 - 2:54am

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
Jan 30, 2014 - 3:15am

outstanding post

'argentum et aurum comparenda sunt'

ivars
Jan 30, 2014 - 3:39am

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
Jan 30, 2014 - 3:51am

Turkey contemplating move to

Turkey contemplating move to gold standard?

https://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
Jan 30, 2014 - 3:51am

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 ?

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