The secret knowledge and the secret gold market

11p ET Monday, May 10, 2010

Dear Friend of GATA and Gold:

We at GATA have sometimes called gold's enduring role in the international monetary system "the secret knowledge of the financial universe." This view is shared by the anonymous but most alert and well-informed blogger FOFOA -- for Friend of Friend of Another, a reference to the famous "Another" and "Friend of Another" postings at the old USAGold Forum of Centennial Precious Metals in Denver, many of which can be found here:

http://www.usagold.com/goldtrail/archives/another1.html

In his most recent essay, addressed last night to the European heads of state who were busily conjuring up a trillion of something or other to rescue themselves and their banks with, FOFOA remarked that the gold secret is known to only about a hundred people. This is not actually true, for the secret is known to hundreds and maybe thousands of the 6,000 people on the GATA Dispatch list and to thousands more on the membership list of GATA Chairman Bill Murphy's LeMetropoleCafe.com, as well as to many of the old readers of the USAGold Forum.

But FOFOA's remark was metaphorically true, even as he would bring still more people in on the secret, as GATA would.

That secret is that there are two gold markets -- a visible market to mislead other markets with, a largely paper market for which Kitco's Jon Nadler and CPM Group's Jeff Christian, among others, are the small publicity, and an invisible market, a market among the central banks, where gold is much different -- real -- and, because it is real, valued immensely more than it is in the visible and largely paper market.

FOFOA expects that governments will escape their impending bankruptcies by vastly revaluing their remaining gold reserves. He cites GATA and some of the things GATA has brought to your attention over the years, like the intriguing comments about gold made by former Federal Reserve Governor Lyle Gramley on Business News Network in Canada in December 2008:

http://www.gata.org/node/6989

FOFOA also quotes GATA favorites Eric Sprott and Jim Rickards. He plainly has been following GATA's work closely.

FOFOA's premise is similar to that of the British economist R. Peter W. Millar, founder of Valu-Trac Investment Research, whose May 2006 study, "The Relevance and Importance of Gold in the World Monetary System," predicted an upward revaluation of gold by between 700 and 2,000 percent to avert worldwide debt deflation:

http://www.gata.org/node/4843

When Millar wrote that study gold in the visible market was trading at about $650 per ounce. Millar thus envisioned the necessity of a gold price of between $4,550 and $13,000. FOFOA puts gold's secret market price at around $6,000 as of some years ago. On CNBC the other day, Rickards said he expected gold to reach $5,000 once the manipulation of the paper market was defeated. (See http://www.gata.org/node/8605.)

FOFOA observes:

"The effect of the contract gold market on the ordinary price of gold has been to keep it at manageable levels for 30 years now. But physical gold and contracts for gold are different things entirely. New contracts can be produced much faster than new physical gold can be mined. But when demand shifts from contracts to physical (which is happening), this puts great strain on the market that tries to price them as equals. And what must ultimately happen when this strain breaks the parity between physical gold and contract gold is that the membrane separating the Bank for International Settlements' physical gold price from the ordinary market will break.

"When this happens, all your debt problems will be reset to manageable and sustainable levels again. In fact, the entire monetary and financial order will be reset. This is going to happen. And the central bankers can make it happen whenever they want, when they finally feel the heat of the fire on their own butts."

Turning up the heat is GATA's work. FOFOA's commentary suggests that we're having some effect. If you're inclined to help with the heat, please consider contributing to GATA:

http://www.gata.org/node/16

Meanwhile, FOFOA's commentary is headlined "Open Letter to EMU Heads of State" and you can find it here:

http://fofoa.blogspot.com/2010/05/open-letter-to-emu-heads-of-state.html

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

To contribute to GATA, please visit:

http://www.gata.org/node/16