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Understanding…’Paper’ gold, ‘Digital’ gold, and ‘Physical’ gold !

April 22, 2013

The words we use to think with can become confusing. Confusion in terminology can then lead to deception in our decision-making (including our investments and broker transactions). Let’s start with some basic history. Where did the concept of ‘Paper’ Gold derive from? The origin of this term started back in 1970 with the invention of a term called the Special Drawing Right. Our International Monetary Fund (IMF) invented this term in 1970 and it was promoted as a type of Paper Gold for members of the IMF (a fictional gold but valid for accounting purposes). The short name for Paper Gold was the SDR (a unit for accounting purposes with no tangible existence within Space/Time). We could say that Paper Gold (the SDR) is a ‘name’ and a ‘number’ which we use as a unit of logic for accounting purposes. We could write down units of this concept in a ledger or book for record keeping.

Paper Gold (as originated by the IMF) is much like our Digital DOLLAR today (imaginary). It is a unit of CONSCIOUSNESS which we use for accounting purposes and which has no existence in Space/Time. We could call our accounting books a methodology of logic for keeping records (score). Mathematical numbers are a type of logic that we all understand. If I create a loan for you (say $10,000) and record the loan as an Asset of $10,000 (representing the auto which you plan to purchase and which I record as a deposit  on my bank books) this is accounting logic. If I then counter-balance this Asset by creating another accounting category called a Liability for $10,000 (this could represent my logic for the units that you withdraw from the account when you pay for your auto). Math and numbers create a type of logic that we both agree upon.

What we need to understand, however, is that ‘names’ and ‘numbers’ (like the SDR or Paper Gold) are merely units of our MIND or Consciousness (a form of logic). These units are IMAGINARY and they can not be ‘stored’ under our mattress (like a gold coin). Digital gold is similar to my investment in shares of an ETF like SLV or GLD. I purchase shares from my broker and these shares then appear within my computer account as ‘numbers’ that represent ‘dollars’ invested in the concept of SLV and GLD. In theory, I am supposed to think that there is actual PHYSICAL gold or silver set aside from this purchase transaction. I am led to believe that I actually OWN physical gold and/or silver. In reality, however, this could be a ‘mirage’ or a ‘phantom’ transaction. Let’s continue with more information!

The investment in SLV or GLD are shares which my broker creates when I click my Buy tab within my computer screen. Later these shares are supposed to be translated into real physical silver or gold within a warehouse (for storage). In other words, real physical silver or gold is supposed to be DELIVERED to a real warehouse (in the form of Ag or Au bars). But is this actually being done when I make my purchase from my broker? Probably not! The warehouse designated as the repository for my shares may never receive any actual physical silver or gold. So what did I accomplish with my purchase transaction when I clicked BUY? In reality, ‘phantom’ shares were created which represented NOTHING (but imaginary numbers in the computer screen). I was DECEIVED!

The huge drop in the ‘price’ of Gold and Silver on April 13 and 15 probably resulted from millions of ‘phantom’ shares which entered the market under the concept of ‘naked shorts’ and margin cancellations. There was no real physical gold that was delivered from a seller to a buyer during these huge selling transactions (only ‘phantom’ numbers and ‘phantom’ gold within the computer screen) which was being registered on the accounting books. The result of these types of transactions will ‘suppress’ the price of gold within the computer screen (instantaneously). Prices today are the result of high-speed computer transactions (many via algorithms) that create instantaneous results within all computer screens that are connected (now via the internet and fiber optic cables). Prices today are ‘computer screen’ numbers which result instantaneously (within the computer screen) at near the speed of light…after a transaction is complete.

So how should we think about today’s markets so that we are not deceived and confused. First of all we need to get our terminology changed to reflect reality as it is happening in real-time. In reality, there is NO PAPER MARKET today. Today our markets are computer driven and our prices are DIGITAL (not paper). Our computer screen reveals the results of prior computer transactions (all completed at near the speed of light). There is NO real delivery of any physical Gold or physical Silver during these speed of light transactions (its impossible to implement at these speeds). All buy/sell investments are now digital transactions (within the computer screen) that get recorded immediately as a SHORT/LONG transaction (the selling/buying of ‘phantom’ shares of gold and silver). Some days later there is supposed to be actual DELIVERY of the physical metal to a warehouse. This, however, does not always happen since transactions are changed prior to any delivery date. Speed of light transactions do not allow for any physical DELIVERY in real-time.

We live in a new world of MACHINE driven markets today. These markets are mostly speed of light markets which do not allow for normal (historical) transactions. When markets were driven by the Open Outcry System and real physical traders in the pits, then decision-making and results were different. Today, ‘prices’ are derived instantaneously via speed of light computers and via machine driven algorithms and HFT trading. To understand today’s markets and the prices which result, we need to THINK differently. Our terminology needs to CHANGE to reflect today’s computer technology and today’s internet society. We now live in a GLOBAL village of computers (all connected via speed of light fiber optic cables). Money has changed from PAPER and PRINTING to digits within the COMPUTER SCREEN.

My suggestion is that pundits who desire to educate the public and other investors should re-think all their language when they make their presentations. Get in touch with today’s computer language. Money is now DIGITS. Trading is now HFT and ALGORITHMS. Prices are now derived from COMPUTER transactions. Transactions are now being executed at near the SPEED of LIGHT. Money units are IMAGINARY and CREATED ‘out of nothing’! It’s a NEW WORLD of trading and a NEW language is needed. That is my missive for today! I am: Enjoy and stay alert!

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