GoldSeek reports about a new stage in gold's evolution.
(emphasis mine) [my comment]
A new stage in gold' s evolution?
Two professors at Prince Sultan University in Riyadh, Saudi Arabia, H. Assenov and K. Petrov, have published a paper with the title: A New Stage in Gold' s Return to Money (see References below.) In this paper they put forward the hypothesis that the market monetizes the one ounce standard gold coins regardless of shape and country of origin, as long as they have the right weight and fineness, as witnessed by the uniform price at which they are traded. They say that this is a new phenomenon that first appeared in December, 2008, the same time when gold backwardation first appeared as a threat to close down Comex warehouses. It means a great leap in the marketability of these coins due to perfect fungibility. Now a much larger pool of coins backing the trade is available. Both buyers and sellers dismiss the coins' idiosyncracies that would be of interest to numismatists and collectors. The authors suggest that this is a proof that gold' s remonetization is in progress. Gold is not yet money, but it has cleared one of the most serious hurdles towards becoming money. The market for the standard gold one-ounce coin, 999 fine, is no longer fragmented.
The authors make no reference to the fact that the Royal Canadian Mint is de facto open to gold as shown by the activities of a private Canadian firm. This fact, in my opinion, plays a large part in the phenomenon the authors describe: the uniform valuation of all standard gold coins. However, it is significant that they noted the simultaneous appearance of backwardation in the December gold future contract at the Comex. They also quote Carl Menger' s theory on the origin of money, that is, the rise of indirect exchange. Both the ugliest and the most beautiful gold coins are traded in indirect exchange strictly by the quantity and quality of metal content, completely disregarding the outward appearance of the coin. Whether the coin features the effigy of a bearded man or a kangaroo is of no consequence. The authors conclude their paper as follows:
Under the current financial order we use paper tickets with the picture of a bearded man that are currently printed in the trillions by another bearded man. Those tickets have had no backing for many decades, so there has been no restraint in their printing. Up until recently there has been a modicum of self-restraint in the printing process. However, since the Summer of 2008 all restraint has been thrown out of the window by the bearded man, a.k.a. Bailout Ben, who has indulged Congress and the Bankers in an historic multi-trillion dollar printfest. In response, common-sense people have rushed into gold as a store of value. Now that the value of gold is driven entirely by its purity and quantity, it is only a matter of time before gold is used again as a medium of exchange. Gold coins are no longer a numismatic delight, nor do they appear to be a Barbarian Relic. Gold is becoming money once again. Dollar holders beware!
Sprott Money Ltd.
I tease my readers' curiosity no longer. I disclose that the Canadian firm that has harnessed the Royal Canadian Mint to change the course of history is Sprott Money Ltd., established in 2007. The inspiration came from its founder, Mr. Eric Sprott himself. I salute him here as a man of great insight and courage. He firmly believes that gold should again be the international currency, by the choice of the people. He believes that the U. S. economy is in a state of total systemic failure [agreed]. He says that we are in a depression today. He points out that the average bank is leveraged 25 or 30:1. He does not beat around the bush: he says that in a true mark-to-market, probably no bank would have any tangible capital left. He does not think that any economy that is paper-based can be insulated against the contagion of debasement that is the hallmark of the U.S. dollar. [not only the dollar, hyperinflation in the yuan will weaken all currencies too.]
In a recent interview (see References below) Sprott stated that during the past three years his organization has converted a lot of gold bars to gold coins at the Royal Canadian Mint, and then he went on:
We have lots of inventory; we are not seeing any signs that we are going to eat through our inventory of coins. But I always do worry that I' ve got to be able to buy the 400-ounce bars back, too. So we' ll see. If it happens that I can' t buy the bars back, I don' t think I' ll be selling the coins. [in other words, when sellers of 400-ounce bars disappear, the sellers of gold bullion disappear too.]
I have included this quotation for its value as it so closely relates to the problem of backwardation in gold. When Sprott cannot buy any more 400-ounce bars, that' s it: the curtain has fallen on the Last Contango in Washington. Backwardation is here to stay. And you will know it immediately because Sprott Money Ltd. will simultaneously withdraw its offer to sell Canadian Maple Leaf coins to retail customers. Not for sale at any price quoted in dollars, whether Zimbabwean or U.S.
We need lots of imitators for Sprott and lots of imitators for the Royal Canadian Mint, if we want to shorten the painful death-watch of this reactionary episode in the history of money, the experiment with the paper dollar backed, as it is, by the greatest collection of weapons of mass destruction: debt and thermonuclear warheads — if not much else.
My reaction: The two central points to take away from this article are:
1) The market for the standard gold one-ounce coin is no longer fragmented. Both the ugliest and the most beautiful gold coins are traded in indirect exchange strictly by the quantity and quality of metal content, completely disregarding the outward appearance of the coin.
2) Now that the value of gold is driven entirely by its purity and quantity, it is only a matter of time before gold is used again as a medium of exchange.
At some point this year, there will a panic which will shut down the gold market. Large purchases by wealthy investors shifting their wealth into gold will cause the quantity of 400-ounce bars to disappear, which will in turn cause sellers of gold coins to cease sales. Gold will not be available for sale at any price quoted in dollars. When this happen, the dollar will enter a freefall, losing all value.
It is very important to recognize here that such currency collapses are permanent events. That is to say the value lost to hyperinflation will never return, no matter how long investors wait. So when you see gold prices hit $1000, $2000, or $5000, realize that this isn't a bubble in gold, but a dollar collapse.