When paper gold price collapses - what happens to mining stocks?

[Filthy Keynes]

EDIT: No, I'm not drunk or on crack. Please consider what I am saying carefully. This is a serious question. There is NO KNOWN PRICE FOR GOLD AND SILVER.

I have NEVER heard anyone discuss this yet. (Not even FOFOA).

We all believe that the price of gold and silver will go to zero paper dollars. But what happens to paper gold mining stocks at that time?

Yes, the price of gold and silver will go to ZERO - because gold and silver ARE PAPER CONTRACTS ON THE COMEX AND LBMA.

The TRUE price of REAL GOLD AND SILVER is currently (according to APMEX) $66 per ounce of gold and $2.83 per ounce of silver (that is the PREMIUM value).

So... back to the point of this post: What happens to gold and silver mining stocks? Anyone have the foggiest idea?

PS: A Gold stock is you purchasing land with known gold/silver in it. Will this land even be mined, or will the USGS simply appraise the land and credit the stockholders when the government seizes it?

[Sparky]

This original post is so full of errors I don't know where to begin.

[Sparky]

...

We all believe that the price of gold and silver will go to zero paper dollars. But what happens to paper gold mining stocks at that time?

Yes, the price of gold and silver will go to ZERO - because gold and silver ARE PAPER CONTRACTS ON THE COMEX AND LBMA.


What?!? Are you talking about gold, or gold contracts? If gold contracts go to zero, that doesn't mean the price of gold goes to zero? What?!?



The TRUE price of REAL GOLD AND SILVER is currently (according to APMEX) $66 per ounce of gold and $2.83 per ounce of silver (that is the PREMIUM value).


What?!? Why does the premium represent the TRUE price? Are you hopped up on some kind of wonder drug?



So... back to the point of this post: What happens to gold and silver mining stocks? Anyone have the foggiest idea?

PS: A Gold stock is you purchasing land with known gold/silver in it. Will this land even be mined, or will the USGS simply appraise the land and credit the stockholders when the government seizes it?



That's not what a gold stock is at all. The various mining companies have all kinds of different arrangements in terms of land ownership. There are all kinds of deals that dictate what happens to the gold that they extract. Some only own the land and don't extract anything. For those that do, the mining costs per ounce vary hugely. There are many geopolitical considerations involved. There's a whole spectrum of hedging that goes on. The USGS has not influence on mining in other countries.

Are you wearing woman's clothes right now?

[Filthy Keynes]

No, I'm not drugging out. And no it is not full of errors.

Gold and Silver are NOT TRADED anywhere in the world. Only PAPER gold (ie, COMEX/LBMA CONTRACTS).

Gold and Silver have NO KNOWN VALUE. NONE. I am a programmer and I can express the price of gold and silver as "Null Pointer Exception".

We all know that $1,310 is THE PRICE OF PAPER CONTRACTS. But when the COMEX can no longer deliver, we will see a MASS EXODUS from those contracts (and from GLD/SLV) and the PAPER PRICE will go to ZERO because nobody will buy gold on the exchange, they will buy physical bullion ONLY.

Do you think that APMEX will sell an ounce of gold for $2, or $0.25? Not likely. They will sell gold for $0.00001 PLUS A PREMIUM OF $1,309.999999

Therefore the price of gold is the price of the PREMIUM.

No, I'm not drunk or on crack. It goes to show how little people understand the PRICE of gold.

Read: "The Shoeshine Boy"
http://fofoa.blogspot.com/2010/09/shoeshine-boy.html
http://1.bp.blogspot.com/_cvdgPlEKW9k/TJ1k2Kw5ipI/AAAAAAAABcc/n8pY_udAeQE/s1600/Freegold_future_chart.jpg

[Filthy Keynes]

THIS IS THE PRICE OF PAPER SILVER AND PAPER GOLD. But what is the price of REAL silver and REAL gold? Nobody knows (Hence my question about what is the price of gold/silver MINERS?.... I BOUGHT A MINER TODAY FOR $0.12 (TLG.V):
http://www.kitconet.com/images/live/ag0001wb.gif

http://www.kitconet.com/images/live/au0001wb.gif

[Filthy Keynes]

If gold contracts go to zero, that doesn't mean the price of gold goes to zero? What?!?



I am afraid it does go to zero. When you look at the price of gold you are looking at the COMEX/LBMA. And it WILL GO TO ZERO (or close enough). Gold and Silver are NOT TRADED ANYWHERE ON THE FACE OF THIS PLANET except the bullion dealers. The price of Gold is the PREMIUM you pay, not the dollar amount.

[Sparky]

You need to do a better job explaining the significance of your claim.

When the COMEX can no longer deliver as currently structured, they will change the rules and only require that they deliver 1/10 the contract in physical. Or 1/100. Or 1/1000. Whatever they need to do to perpetuate the game. The people running the game make the rules. The rest of us are along for the ride. Our physical gold only has a stable value because this game goes on every day. If the game crumbles, our physical gold might become either priceless or worthless.

As for you original post, some mining companies mine actual gold, and some mining companies own land that has actual gold in it. The paper representing equity in those companies will continue to have value commensurate with the physical gold that the control. The question is, what will paper default do to the price of physical gold? Most likely, this is a remote scenario compared to the impact that exorbitant future sales taxes and capital gains taxes will have on the real value of physical gold. That's what we should be more concerned about, because it is a much less speculative scenario.

[Filthy Keynes]

You need to do a better job explaining the significance of your claim.


Thanks. I appreciate your constructive criticism. How many times have you heard this question asked? Probably none, because nobody except me has asked this question, so I am a little bit "targeting" my question. I do appreciate your honest assessment of my initial question and I apologize if it was not clear.

[Sparky]

If gold contracts go to zero, that doesn't mean the price of gold goes to zero? What?!?



I am afraid it does go to zero. When you look at the price of gold you are looking at the COMEX/LBMA. And it WILL GO TO ZERO (or close enough). Gold and Silver are NOT TRADED ANYWHERE ON THE FACE OF THIS PLANET except the bullion dealers. The price of Gold is the PREMIUM you pay, not the dollar amount.




No, most of us GSUSers follow the spot price, which is not the futures contract price that is determined at COMEX. And the contract price is not the same as the London Fix price. To say the price will go to zero implies that physical gold will have no exchange value. If it comes to that, I will offer a can of food for every ounce of gold that anyone wants to dump on me, so that your gold will continue to have real value.

[Filthy Keynes]

If gold contracts go to zero, that doesn't mean the price of gold goes to zero? What?!?



I am afraid it does go to zero. When you look at the price of gold you are looking at the COMEX/LBMA. And it WILL GO TO ZERO (or close enough). Gold and Silver are NOT TRADED ANYWHERE ON THE FACE OF THIS PLANET except the bullion dealers. The price of Gold is the PREMIUM you pay, not the dollar amount.




No, most of us GSUSers follow the spot price, which is not the futures contract price that is determined at COMEX. And the contract price is not the same as the London Fix price. To say the price will go to zero implies that physical gold will have no exchange value. If it comes to that, I will offer a can of food for every ounce of gold that anyone wants to dump on me, so that your gold will continue to have real value.


How is the SPOT PRICE determined? FOFOA believes the price will plummet (the price of PAPER METAL).

[Sparky]

You need to do a better job explaining the significance of your claim.


Thanks. I appreciate your constructive criticism. How many times have you heard this question asked? Probably none, because nobody except me has asked this question, so I am a little bit "targeting" my question. I do appreciate your honest assessment of my initial question and I apologize if it was not clear.


You're welcome. I am always open to a thought exercise. But I will take you to task on making sure the exercise is rigid.

[Filthy Keynes]

You need to do a better job explaining the significance of your claim.


Thanks. I appreciate your constructive criticism. How many times have you heard this question asked? Probably none, because nobody except me has asked this question, so I am a little bit "targeting" my question. I do appreciate your honest assessment of my initial question and I apologize if it was not clear.


You're welcome. I am always open to a thought exercise. But I will take you to task on making sure the exercise is rigid.


NP! :)

PS (I'm about to go to bed, so I'll see ya tomorrow and hopefully the paper price KILLS THE COMEX). Look at that! 21.88!

[Sparky]

If gold contracts go to zero, that doesn't mean the price of gold goes to zero? What?!?



I am afraid it does go to zero. When you look at the price of gold you are looking at the COMEX/LBMA. And it WILL GO TO ZERO (or close enough). Gold and Silver are NOT TRADED ANYWHERE ON THE FACE OF THIS PLANET except the bullion dealers. The price of Gold is the PREMIUM you pay, not the dollar amount.




No, most of us GSUSers follow the spot price, which is not the futures contract price that is determined at COMEX. And the contract price is not the same as the London Fix price. To say the price will go to zero implies that physical gold will have no exchange value. If it comes to that, I will offer a can of food for every ounce of gold that anyone wants to dump on me, so that your gold will continue to have real value.


How is the SPOT PRICE determined? FOFOA believes the price will plummet (the price of PAPER METAL).


This is the best explanation of spot price and London Fix price I could find.

http://fintrend.com/ftf/Articles/Gold/Definition_of_Spot_Gold.asp

The spot price implies the contract is up and made available for delivery. So I guess this is your point, if a delivery demand is not able to be filled. But as I said, the solution is a mere rule change away. This is how they capped the silver price in 1980, when this exact situation arose. This is why the price won't go to zero.

[Mouse]

We have all seen the physical and futures markets diverge. Silver is 8 bucks but you need $3 premium to find anyone to sell it to you, if you are lucky. I think filthy is just taking this to its logiclal conclusion, when there is no more faith in paper gold, the spot price on paper contracts that cannot be delivered will be approximately zero. Therefore the premium is the price of gold.

I agree with the concept and think it's valid. What's the point, or what is the wisdom we should glean from this, other than to put a gun to the CEO of the miner stocks head when this happens?

I think you really point out a funny circus show in what WOULD happen to the miners when the paper gold is worthless?

I think the miners that have production that is not forward sold would have to provide some principle of valuation.

With this in mind, it concludes to me at least, that there would be physical trading, that there would be market makers in real, physical metal, and the price quotes would be maintained by people who have the gold to back their trading.

It would not be long until there was a market price for miners.

[FunnyMoney]

Mining stocks will go to the price that the govt decides to give you for them, because when the day arrives and the paper game is over, the govts will nationalize all mines, which is also about the same time they go to war.

Just as I pointed out in an OP in 2007...
http://gold-silver.us/forum/general-discussion/want-to-mine-gold-don't-even-think-about-it/

[Neuro]

I think it is very unlikely that the local warlord will honor the rights of the shareholders...

Btw I definitely think the question has validity, as Sparky says they can and will let the play go on for a bit longer, but a moment will arise when it is bleeding obvious that the emperor has no clothes, and the music stops... I don't know what that trigger will be, but probably nothing of any great significance... Maybe a little boy who asks his father the hedgefund manager in a meeting with other hedge fund managers... Where is the gold?

[Bullion_Bob]

I think the key word here is paper.

[chad]

when gold went to $800 in the 1980s and silver was at $50, most mining stocks were trading at 5 - 10x the percentage increase of the metals.

[Filthy Keynes]

when gold went to $800 in the 1980s and silver was at $50, most mining stocks were trading at 5 - 10x the percentage increase of the metals.


That is good to know. At least there is historic precedence here.

I'm also thinking about my goldmoney.com account. When there are no more fiat currencies... how will I get it? Am I going to go over there and lug home a couple of those 1000oz silver bars in my luggage?

[chad]

at this point, i treat anything digital or paper as not really existing. the only thing that exists is stuff in my closet.

[Sparky]

when gold went to $800 in the 1980s and silver was at $50, most mining stocks were trading at 5 - 10x the percentage increase of the metals.


That is good to know. At least there is historic precedence here.

I'm also thinking about my goldmoney.com account. When there are no more fiat currencies... how will I get it? Am I going to go over there and lug home a couple of those 1000oz silver bars in my luggage?


No. I've never understood these accounts. The whole point of owning physical is to have it in your possession. What motivates you to have such an account?

[Hatha Sunahara]

I asked myself this same question several years ago so I could make a good investment decision.

I had just converted a 401K savings plan into a traditional IRA. It was entirely cash. I wanted to invest in precious metals, but found that holding physical gold in an IRA involved putting too much trust in a 'fiduciary' who holds the gold for me. So, I had a choice of what to invest in that was limited to either Precious Metal ETFs, like GLD, or SLV, or to buy PM Mining stocks. Initially, before having done any research, I arbitrarily put half of it into mining stocks, and the other half into precious metal ETFs.

I did some research, and within a month, sold the PM ETFs, and moved the money into the mining stocks. During that month, I developed an attitude about paper investments. The reason I wanted to buy gold was because it has no counterparty risk. If you own a gold coin, you are not the beneficiary of any promise by someone else to deliver anything. If you own a share in a gold ETF, you own a derivative, that would at best be redeemed in fiat money. Effectively you own nothing but promises and paper that they are written on. I knew that when TSHTF, none of those promises would be worth the paper they were printed on. So, to be ultimately smart, I should have withdrawn the money from the IRA, paid my taxes, and bought physical gold. But I have a stronger dislike of paying taxes--particularly on money that I saved from exchanging the value of my labor. So, the best alternative at the time was to buy PM Mining stocks--because they are a claim on physical assets--even if they are only a paper promise that I own a share of those assets. These stocks have not done as well as the actual metal, but they are not too far behind.

You pose an interesting question about what will happen to these mining stocks when the gold and silver ETFs implode. You assume that the gold price will drop to zero. I assume that perhaps at worst, the price of PAPER gold will drop to zero. When the people who own paper gold see their investment become worthless (I am so glad I will not be in this group), I expect to see a decoupling of the gold price from paper gold. Because these investments will be gone from the market, I see fewer places for the remaining investment dollars that are rapidly declining in value because of government mismanagement and general financial system corruption. Two of those remaining places will be in physical precious metals, and in the stock of mining companies that extract them from the earth. I expect both to explode in price as the dollar crawls down in the USDX. The price rise will not be because of an increase in the intrinsic value of the metals, but to reflect the declining value of all fiat currencies, which are swirling in the toilet as we speak.

Physical gold, and mining stock values will not go to zero. Paper gold will go to zero, and it will decouple, as will all derivatives from the real economy. Derivatives of all kinds, to me, represent the voices that schizophrenics hear in their heads. They are delusions. They stretch our expectations into areas that can only be described as 'wonderland', where the mad hatter and the queen of hearts live.

If you own any such derivatives, I hope you manage to sell them before they express their true value.

Yes, I understand that what I believe can also be a delusion. The only thing that isn't a delusion is the metal in front of you on the table. If you have that, you can rest easy. You may get some balance, if not enlightenment on issues like this if you read Jim Sinclair's commentary at http://jsmineset.com/

Hatha

[Filthy Keynes]

What motivates you to have such an account?


I first learned about goldmoney.com from Peter Schiff's book. I don't think it's a bad idea to have some metal stored in other countries. The vast bulk of my metal is not at goldmoney.com though. Perhaps the will come up with "digital gold" where you have a swipe-card and can purchase items digitally and it electronically subtracts gold grams from your account...

[Filthy Keynes]

Thanks Hatha Sunahara!

I agree with you.

[Sparky]

This is what I was getting at, Hatha. There's no reason for the physical metal price, or the mining companies who own the land and/or extract it, to go to zero.

However, I get a little uneasy when we talk about gold's "intrinsic" value. In some sense, it has very little intrinsic value. It has some special physical properties, but the above ground supply overwhelms the real-world demand for those properties. So when you say the only thing that isn't a delusion is metal, I disagree. I would put metals lower on the intrinsic value list our so-called "preps" of food, water, tools, land, seeds, fuel, etc.

[Hatha Sunahara]

Gold has an intrinsic value in two respects. It is an excellent medium of exchange, and it is an outstanding storehouse of value. Because people believe this, it is so. Despite the fact that people use fiat paper money to perform these functions, everyone knows deep inside that paper is not as good as gold, and it never will be. Gold's real function is to be money, but since the bankers have denied it that status, it has become a commodity that is waiting to once again become money. Waiting until perhaps people hunt down the bankers and string them up for 'grand theft, money'.

Gold is what you'll use in heaven. Fiat paper money's proper place is in hell with the bankers who want everyone to use it.


Hatha

[Sparky]

I dunno. It's an excellent medium of exchange that is not used as a medium of exchange. And it's an outstanding store of value that lost 75% of its purchasing power from 1980-2000. Just because we say these things does not make them so. It's value is not intrinsic; it varies with the faith we put in it for value. As fiat comes under more scrutiny, more and more people will put their faith in gold, and its purchasing power will continue to increase dramatically. When the cycle is done, it will begin to lose buying power for another generation.

Fiat is actually a better medium of exchange because of its flexibility. And people believe this is so, which is why anyone will provide goods and services in exchange for it, without question. However, those in charge are failing at regulating its supply, and this problem will only get worse. So, yes, gold will once again have its day in the sun. Then the cycle will begin again.

[Gknowmx]

Yes a key feature of 'flexibility' includes the flexibility to counterfiet, or maybe counterfiat?

[Filthy Keynes]

The Chinese have HELL BANK NOTES. I was in China once and saw them. (does that say five hundred millon?!). At least the Chinese BURN theirs. :)

http://travelerfolio.com/tf2/photos//2009/08/hell-bank-note-hungry-ghost-money.jpg

Also, Christianity has adopted this same thing (how come we aren't tithing in gold and silver Biblical money?). Does anyone drop silver coins into the offering plate? If not, maybe this Sunday is a good time to try it.

http://thebsreport.files.wordpress.com/2009/08/offering-plate.jpg


Here is another HELL BANK NOTE from Zimbabwe:
http://farm4.static.flickr.com/3149/2511754714_f2bc7ce009.jpg

[Horn]

What motivates you to have such an account?

I first learned about goldmoney.com from Peter Schiff's book. I don't think it's a bad idea to have some metal stored in other countries.



I'm practicing this currently, it could be they claim it a terror instrument, or tax the bejesus out of any transaction at any moment.

Other countries pass laws that take years before they're dried in concrete, even longer until enforced. Here it is overnight sweeping & so often under the radar.

[Neuro]

when gold went to $800 in the 1980s and silver was at $50, most mining stocks were trading at 5 - 10x the percentage increase of the metals.


That is good to know. At least there is historic precedence here.

I'm also thinking about my goldmoney.com account. When there are no more fiat currencies... how will I get it? Am I going to go over there and lug home a couple of those 1000oz silver bars in my luggage?

Yes bring a gun to remind them whp you are!

[FunnyMoney]

Gold has an intrinsic value in two respects. It is an excellent medium of exchange, and it is an outstanding storehouse of value. Because people believe this, it is so. ...


Gold is what you'll use in heaven. Fiat paper money's proper place is in hell with the bankers who want everyone to use it.


Hatha


I agree completely. Fiat money always requires some kind of trust in your fellow man, somebody will always try to corrupt things with fiat. It is an illusion and since it doesn't even feel like money the way silver and gold do it confuses many people on some basic level (paper feels the same but it's the numbers on it which change its value). This confusion makes people want to spend it and not save it and this confusion seems to intimidate many people and prevent them from looking deeper into the ways it is manipulated and how usury has been futher corrupted in tandem with it.

Gold and silver, once you hold them and learn about their history both in the ancient cultures of the west but also the east, it makes sense in terms of honesty and money. Of course there is culling but that concept is easily understood and with all things about it like it increases in value by either more weight or more purity, this helps people to understand it and want to save it and not simply just want to get rid of it (spend it fast) like they do with fiat, especially when inflation goes out of control.

Many keep pointing out the 2 things like Hatha did: store of value and excellent medium of exchange qualitites (easily recognized, hard to fake, limited supply, and so on...). But you should also add the jewelry aspect, especially the fact that some cultures make a lot to do out of its beauty and from what I've seen all women really enjoy wearing it and it's a fantastic gift for them. And it's no fad as they have treated it this way for thousands of years. This fact is actually a lot more significant than many might think at first glance.