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

bullion only
Jan 30, 2014 - 1:28pm

What is an ounce of silver worth?

What is an ounce of silver worth?

I post this because it is easier to understand than gold.

Is an ounce of silver is worth $20?

What can I buy for $20 bill?

Burger, fries and a coke?

Movie with popcorn only?

Almost any item in Walmart?

So much useless plastic junk or a lousy meal.

And how much effort did it take to print a $20 bill?

None. No sweat or labour. A key stroke.

And when I think about the labour that goes into mining an ounce of silver I think what a bargain.

Trade my $20 dollar bill for a burger or a movie or for an ounce of shinny metal.

So what is an ounce worth?

RT

SilverRunNW
Jan 30, 2014 - 1:32pm

Can myRA Really Work?

Can the contributions to myRA offset the QE purchases of Federal Treasuries that are slowly being tapered? I think it's way too optimistic.

Using the civilian labor force numbers from https://www.bls.gov/news.release/empsit.nr0.htm and published median income, it will take a very high myRa program participation to fully offset all the US Treasuries that the Federal Reserve Bank is currently tapering.

Stock_Canines
Jan 30, 2014 - 1:40pm

Price is going lower and the hint was here yesterday

Yesterday was the first time in a while that optimism returned to this forum regarding future metal prices. Someone posted that 1320 was around the corner and then Turd chimed in that it was likely to open fast as in before Valentines Day. That was the hint, the sign, that metal prices were about to be taken to the woodshed. Not to mention the powers that be had to convince the Feb holders not to stand for delivery. It's interesting, isn't it. All the chants that ending QE could never happen, and QE to infinity, and collapsing stock and bond markets under a tapering paradigm all seem to be unfounded. QE has been reduced by 23.5 percent, and everything is proceeding along nicely including a continued downtrend in gold and silver.

John Galt
Jan 30, 2014 - 1:47pm

@57Goldtop

I am equally disgusted with the new pension plan being rammed through in Ontario.

The only comrades to benefit from it will be those in the public sector, because the extra cash will go completely to fill the gaping hole in public sector pensions, especially for the massive contingent of unionized government employees. Every cent of extra private sector contributions going in to that pig for the next 20 years will go straight to the public sector. The tax paying chumps won't see a dime. Of course, that's a fact that the politicians don't wish to advertise.

Still to come: federal pension reform to suck more taxes into that bankrupt system too.

And let's not forget that those on welfare are also entitled to pension cheques of their own, when they retire from early retirement.

https://www.thesudburystar.com/2012/05/02/why-do-welfare-recipients-have...

Mantis
Jan 30, 2014 - 1:52pm

you can keep your gold and silver

i have an ounce of unobtanium floating around my desk

bullion onlyStock_Canines
Jan 30, 2014 - 1:53pm

What are you talking about? Price going lower?

What are you talking about? Price going lower?

You are either uninformed of purposely negative.

Taper 10 billion and gold goes from $1170 to $1270.

Taper another 10 billion like yesterday and we will go to $1370.

Continue til tapering is over and you have $850 rise in gold from $1150 which puts us at about 2k.

So just relax and enjoy the tapering.

RT

Stock_Caninesbullion only
Jan 30, 2014 - 2:03pm

Bullion only - I disagree

Gold is going to retest lows. Hopefully it holds there and if not, look out below. Silver is heading to something with a 17 handle. This will happen in the month of February.

ancientmoneyStock_Canines
Jan 30, 2014 - 2:17pm

@Stock_Canines re: disagree . . .

"Gold is going to retest lows. Hopefully it holds there and if not, look out below. Silver is heading to something with a 17 handle. This will happen in the month of February."

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I agree with you.

We are getting very close to a global reset. Christine Lagarde at IMF said in about two weeks they have a big announcement. Supposed to be about a new forecast for higher global growth.

We know that can't happen if it is because they will crank up the production of more debt-fiat.

So, will they start letting the cat out of the bag? A new financial system this way comes? I think so.

Of course, gold and silver must be smashed down hard before this is evident, and all available physical hoovered up by the "right" people.

The paper markets are being trashed as we speak--COMEX and GLD stocks are vanishing--what they say they still have in inventory may not be phyzz, but a legal representation thereof.

Of course, this takedown will cause smart people to buy as much phyzz as possible as price goes down--so, they can't allow much time for this to happen. So, I do think JC Collins is onto something, and Lagarde/IMF announcement will herald what comes next. Turkey's big guy said the same--alluded to an announcement in two weeks, and it seemed to be about gold.

ancientmoney
Jan 30, 2014 - 2:25pm

Here is a snippet from that

Here is a snippet from that article (that Hammer posted, link: https://www.silverbearcafe.com/private/01.14/hinting.html ) that I think its pretty important:

"Christine Lagarde, Managing Director of The International Monetary Fund, speaking from Nairobi today, said that they will be revising upward their forecast on global growth. This new forecast will be made public in 3 weeks. She stated that it was premature to say anything more.

It was only this past October that the I.M.F. issued their last global growth forecast and it was downward for 2014. So what has changed in the last 3 months for the I.M.F. to revise the forecast upward?

If the plan is less leverage, how can we expect growth when the system of money creation is a debt based system? We can micro analyse endless charts and money velocity forever. The fact is our money creation method is debt based and debt is increasing at alarming rates. So what gives?

A global currency revaluation is one of the main components of an overall macro economic reset. The consensus is that the world’s currencies will become partially asset backed and will be revalued to reflect each countries capacity to produce and bring those assets to market. In essence, it will be a bastardized version of fiat currencies and commodity currencies. It will be a Frankenstein monstrosity which will lumber around the country side dreaming of becoming real money, like gold or silver. And like the sad and ill-fated beast, it will eventually die the tortured death of things that wanted to be but never could.

That death will most likely occur 10 to 15 years after the currency revaluation, so we need not worry too much about it right now.

A currency revaluation will also mean a downward revalue of the U.S. dollar, which has been the world’s primary reserve currency since 1944. This will leave a geo-political and military hole in the world. In fact, we are already seeing this vacuum being filled in by Russia, China, and the rest of the emerging economies. Remember how suddenly the U.S. backed down on their Syria threats, and started making peace with Iran shortly after. And there are rumors of secret negotiations with Cuba, Hezbollah, and even North Korea.

This rumored reset would have to be one of the most complicated and intricate systems ever attempted. In fact, if one knows where to look, you can see this new system being created just underneath the surface of the old. And like new flesh crawling upwards to cover the bones of the old, the economic reset will happen. The monster will be given a new body and new life, if only temporarily.

Perhaps the I.M.F. just gave us a hint of what is too come. Commodities may be a great place to transfer some wealth. Especially into the very affordable Silver. " - JC

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The article was written last week, so watch to Lagarde (IMF) to announce something in about two more weeks.

Assuming this reset is soon to be announced, or at least hinted at, this current takedown will likely take paper gold and silver down as low as possible, so that when the COMEX PM trading is halted, the shorts will not be so badly wounded.

This reset will likely cause the physical gold and silver (paper PMs as we have known them will not exist to see this) to rise to 2 or 3 or maybe 5 times current valuations, at least short-term.

I expect as that system, too, dies as JC indicates, that gold will get upwards of the $55,000/ounce level that is actually needed to counterbalance the debt in the world. But he thinks that will take 10-15 years to manifest.

It seems to tie in with the shenanigans, and the fact that if there is to be a new gold-backed system, by definition, paper PMs can't co-exist.

Stock_Canines
Jan 30, 2014 - 2:28pm

I also wonder

If JPM was amassing gold positions as a means to accumulate fire power so as to deter or reverse any upside momentum in gold price. I am sure this has been discussed here numerous times - I have not been around much these days - but it would seem logical that JPM getting way long gold may not be such a great deal.

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