Why gold prices are falling

Long version:

There’s somewhere around 200x more “paper gold” in circulation than there is actual metal in the vaults supposedly backing it up. This is politely called “rehypotecation“, and less politely it’s called “fraud”. Basically, they are selling the same gold bar 200 times and counting on the fact that almost nobody demands physical delivery. Now, the BIS apparently demands that the holders of gold as a tier 1 security under Basel III demonstrate that they actually hold physical gold in the quantities they are reporting on paper, and the deadline for that appears to be 28.6.2021. This means that some of the major players, who previously used to defraud people massively by playing with paper, are in a situation where the music will stop playing, in a game of musical chairs, so they are now dumping all that paper gold (read: fraudulent garbage that is about to be exposed) in order not to get caught, and since the market treats those forgeries as if they are physical metal, the price of both is connected, so selling off immense amounts of paper lowers the price of both. At the same time, the demand for physical metal is enormous and everything that appears on the market is immediately lapped up. When the paper positions unwind, and all the thieves manage to cover their naked butts, the price of gold, now fully physical, will likely explode to cover the same volume of money that was previously the valuation of all the “paper gold” forgeries in circulation, basically expanding to 200x or so compared to where it is today, because the “paper gold” was artificially introduced to satiate demand without allowing the price of metal to rise accordingly.

Short versions: hold and buy now while it’s cheap, and if it drops more, buy more. Think of it as Bitcoin at $300, a few years ago.

On central planning

(from the forum)

I want to add a comment, on the topic of free market vs. central planning.

America will criticise China’s “communist central planning” as if it were a universally bad thing, but having in mind what they recently had in Texas, where they had a free market approach to generating electricity which resulted in:

  • major power losses
  • infrastructure breakdown due to lack of cold weather proofing of the equipment
  • people being charged extreme amounts per kWh because much less electricity was produced and so the “free market” raised the price of the now scarce resource.

Also, we had a similar example in Zagreb, where the communist urbanistic planning ended with national independence, and after that the “free market” determined what will be built, and the result is an urbanistic disaster. Lots of new buildings were made, in areas with poor infrastructure, and then this developed multiple chokepoints – sewage system overloads, road capacity overloads, telecom infrastructure overload, and everything looks more like a concrete favela, than the “elite urban villas” that were advertised for inflated prices. Basically, free market created a clusterfuck.

There are places where you want a free market, but then again, there are places where you want the state to handle things. For instance, producing essential medications should absolutely be state-controlled, because free market will not create cures for diseases, because that’s not profitable. It will create addictive “treatments” that will force you to keep buying medications. This is why I have zero confidence in Western medicine – it’s been creating “treatments” instead of cures as a matter of principle for the last who knows how many decades, to the point where it’s so much a matter of strategy now, they don’t even know how to think in other terms.

Also, the military industry. The Russian way of designing weapons is absolutely superior to the American one, because the state dictates everything and controls the main parts of the process, which is inventing the new technologies and manufacturing, and the design bureaus basically offer competing designs and can’t dictate the prices. As a result, Russia can produce better weapons for a fraction of the cost, because the state dictates the terms and the goals, which are to produce the best weapons for the least amount of money, unlike America, where the huge corporations dictate the price, and the state is reduced to defining the desired performance and inspecting quality, and the goal of the entire process is for the companies to milk the state for as much money as possible while still delivering the minimum design spec. Also, the American military tech is intentionally designed to have enormous cost of maintenance, because that’s how the corporations keep milking the state, while the Russian tech is designed to be robust and cheap to maintain, because the government designs it that way, because it knows it’s going to have to pay for it in the long run.

I know I usually sound like a free market fundamentalist, but that’s usually because I’m arguing with positions that don’t understand the principles and advantages of the free market, which are very real, but the free market is not something that will produce an optimal result. It’s like biological evolution – it can produce many things, but it’s limited to iterating within the constraints of natural selection. It will not produce anything near what an intelligent consciousness can produce, in terms of technology. For instance, biology can’t use nuclear energy for power, enter orbit, or make a rotating joint necessary for making motors, wheels or propellers. If free market is a good approximation of biological evolution, strategic central planning is human consciousness applied to a problem, and it’s capable of both fucking up immensely because it doesn’t have the punishing feedback of free market economy, and also of anticipating and solving problems far ahead into the future, which the free market can’t do. For instance, from the position of free market it’s profitable to keep people hooked on some drug and leech them for money. That’s why dealing drugs is such a profitable business model. It’s only because of the state’s central planning that it is decided that it is a very bad thing for the population to be hooked on drugs, and the laws are introduced to prohibit the practice, regardless of the short-term profitability. An example of what happens when entire countries are hooked on drugs is the opium crisis of China and the problem Russia traditionally has with alcohol. But of course, from the free market perspective, selling drugs is profitable as fuck.

And let’s not kid ourselves – the Western market is also controlled and regulated. It’s profitable to just dump toxic waste somewhere, so there’s a law against that, that performs the function of central control and planning. It’s profitable to deceive people and steal their money, so there are laws that punish such behaviour, because someone decided it’s better for the society as a whole. It’s profitable to create a monopoly or a cartel and exploit everybody, so there are laws that punish that, because this isn’t beneficial for the society as a whole. So it’s just a matter of degree and method, not of principle.

Financial events

You must be wondering about the fact that the price of gold is falling and the American stock market is behaving strangely. Apparently, bitcoin and stock market are in a boom, and the metals are “worthless”, contrary to my predictions.

To that, all I’m going to say is that we have descended below the event horizon of the collapse of the world’s financial system. At this point and until the end, we are in the domain of chaos, panic, greed, ignorance and madness. Buy precious metals if you can. Earn as much money as you can while it’s still possible. Buy essential things. Avoid buying non-essential things. Avoid whatever the masses are doing. We are in the domain of evil and madness, enveloped by the fogs of war. Trust only in the plans that you made before, and don’t change course now, as Von Clausewitz would advise.

Free market and value

I’ve been thinking more about the weird aspects of the free market economy and the concept of valuation in general.

There are two basic ideas about value; first is that everything has some sort of “intrinsic value” and the point of free market is to discover it. The second idea is that there is no intrinsic value, that things are dynamically valued according to utility and scarcity and the market value is the only value there is.

I had a problem with this, you see. The concept that there is no objective value is contrary to my belief system, where certain things are valuable as such, not just because someone put a market price on them. I’m not talking about gold or bitcoin, I’m talking about more fundamental principles, such as virtue or spirituality. Some things can be infinitely valuable even if there isn’t a market value. So, basically, I am opposed to the free market fundamentalist idea that there is no value outside the market. However, I don’t think there is an inherent value to anything material, outside human needs, utility, desire and fear, which create a balance of desirability and scarcity, eventually resulting in market valuation. For instance, water and air are extremely desirable, but if they are not scarce, their market valuation is low. However, if they for some reason become scarce, their market valuation could climb to extremes. Also, some things can be extremely rare, but if they have no utility and nobody needs them for anything, their market valuation can be extremely low, so scarcity is no guarantee of value either. An example are exotic elements found in piles of radioactive waste – all quite rare, but nobody so far found any use for them, and as a rule you have to pay people to take them, not the other way around.

And then it dawned to me: market doesn’t discover the value of things. It reveals a quantified representation of human needs, desires, greed and fear. Market is a mirror in which humanity sees itself through value it puts on things. If probabilistic statistics quantifies human ignorance, marketplace quantifies human values: shelter, food, energy, hygiene and cosmetics, greed, status symbols, sex, guilt, fear. Basically, if Ponzi schemes are popular, what does that reveal? It reveals that people are greedy and stupid, not that the schemes themselves are actually useful, valuable or scarce. They stop being popular only when enough people lose enough money that it becomes common knowledge that they are the opposite of useful.

This is also my answer to the question of inherently worthless assets that trade on the market for often insane amounts of money – why are they popular, why are they valuable, and what does it mean. It’s not the worthless asset that is made valuable, it’s the human greed and madness that became revealed and quantified. You can actually convert greed, madness, stupidity and sin into money, and it’s not only easy, it’s the foundation of the most profitable business models; for instance cosmetics and luxury items are ways of monetizing human vanity.

The more “normal” assets are very easy to evaluate in this manner – for instance, the fact that you buy food gives you the obvious answer that you need to eat in order to survive. The fact that you buy fuel for your car says you need mobility in order to function. However, luxury clothes, watches and cosmetics, they are more difficult, because their function is to create an outward appearance of yourself, and the underlying motive can be dignity, vanity, or in fact anything. It can be samyama on some aspect of God, or it can be deception, of both self and others. In any case, it’s a wonderful opportunity for introspection.

Thoughts on value

I watched a video today where some average young people were shown watches of various brands, and they tried to guess the price. More often than not, they would be wrong by several orders of magnitude – for instance, estimating a Paul Newman Daytona as something in a $800 magnitude, while the actual price is $250000.

That made me think: are they ignorant, or are we often duped into believing that paying extreme amounts is reasonable, for things that aren’t worth that much money in any reasonable frame of reference? I used to live in a world where mechanical watches were the norm, and it used to be that a watch would justify its higher price by accuracy, durability and actual features, and “brand” was just something that would make you recognise things that were well made. Today, the concept of “brand” is detached from every possible objective criterion of quality, and a brand like Seiko or Citizen can produce a watch that is objectively better by every single metric, compared to top tier luxury watch brands, and yet they are perceived as “mass market junk” that cannot possibly command the price of the “quality” brands. The madness goes so far that actual metrics, such as accuracy, are seen as irrelevant, or even as a property of low-tier watches. I’m not necessarily even talking about quartz watches – for instance, ETA coaxial movement designed for the Omega brand, with a silicon hairspring and non-magnetic properties, is technically speaking the best mechanical watch movement ever made, and yet this somehow doesn’t have anything to do with the price of the watch. Omega Aqua Terra coaxial is seen as a mid-range watch, while some Rolex or Patek that is an order of magnitude less accurate, and also infinitely less resistant to magnetic fields, can command ten times greater price, or more. This is obviously beyond all reason, so why would anyone be surprised that normal people, who didn’t memorise the expensive brands so that they could tell what should be expensive, can’t tell based on the actual features of a watch? If the actual reality is that a technically superior watch can be a thousand times less expensive than a limited-series “haute horlogerie” brand watch, then you can’t really come up with a reasonable estimate of the price based on the inspection of the features of the actual device, which is another way of saying that the price is based on bullshit.

This made me think further, and I remembered a similar video where someone was asking people on the street how much do they think a gold coin was worth, and I think most of them would rather take a $5 candy bar than a $500 coin, or something like that. It makes you wonder how well we would fare if we had to trade gold and silver for goods and services in some post-apocaliptic scenario. If I showed a Krugerrand to random people, how many would understand that this thing costs $1900? After all, it’s just a coin, and coins are perceived as something of low value today. As for gold, most people never saw gold in person, except in insignificant amounts used in jewelery. Any estimate of value would probably be wildly off.

I can’t really blame them – I was shocked to learn how much an ounce of Rhodium was. I know that it’s a Platinum-group metal, and I expected the price of Rhodium to be comparable to that of Platinum, but it is not. It was – up until 2020, when the price went off exponentially for some reason I won’t even pretend to understand because it’s probably something to do with some industry or another, and it’s now in the order of magnitude of 20000 USD/oz, which is about ten times more than gold, and 16 times more than Platinum.

One conclusion is that our intuitive sense of intrinsic value can be wildly off. Supply and demand as a measure of value can produce very weird valuations where, at least temporarily, complete garbage can appear to be precious, and otherwise precious things can be valued as garbage. More often than not, market valuations are a measure of human greed and fear, rather than intrinsic value. Also, people tend to value things that other people value; when they see that something is commonly perceived as precious, they will usually adjust their sense of value to match. That’s not the case just with watches or precious metals; it extends everywhere.

In any case, it’s a very interesting line of thought.