Paul Brodsky and Lee Quaintance: A reply to the NYTimes' patronizing of gold

Section:

February 3, 2012

Floyd Norris
News Department
The New York Times
620 Eighth Ave.
New York, N.Y. 10018

Dear Mr. Norris:

It so happens that our friend, Thane Rosenbaum, interviewed former Treasury Secretary Larry Summers last night at the 92nd Street Y in New York. When asked about a gold standard, Summers recoiled and shrieked, "A gold standard is the creationism of economics!"

The crowd got a big chuckle out of that. So you seem to be in popular company with your February 3 piece, "In a Focus on Gold, History Repeats Itself":

http://www.nytimes.com/2012/02/03/business/in-rise-of-gold-bugs-history-....

But please consider the following:

The stock of money does not need to be managed higher by policy makers to accommodate a growing economy, as Keynesian and monetarist economists argue and as you seem to agree. Were the money stock (global money stock, not just U.S. dollars) to grow at 1.5 percent per year (the annual growth rate of the gold stock), all that would mean is that the price level of all aggregate global goods and services could rise only 1.5 percent per year (more or less). Of course, price levels within the bucket containing all-things-not-money would still shift based on preference. The point is that economies could and would grow as much as they should, not as much as they were willing to leverage themselves.

... Dispatch continues below ...



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Prophecy Coal (TSX: PCY) Wins Positive Feasibility Study
for the 600-MW Chandgana Power Plant in Mongolia

Company Press Release
January 17, 2012

VANCOUVER, British Columbia, Canada -- Prophecy Coal Corp. (TSX: PCY, OTCQX: PRPCF, Frankfurt: 1P2) has received a positive feasibility study for the company's 600-megawatt Chandgana Mine-Mouth Power Project in central Mongolia. The report was independently prepared by Ralf Thomsen, project manager at Steag, a German firm specializing in the planning, financing, construction, and operation of highly efficient thermal power plants for fossil fuels.

The study covers technical specifications, deployment, and financial analysis of a 4x150-mw thermal power plant to be built adjacent to Prophecy's Chandgana Tal coal deposit, which contains 140 million tonnes of measured coal. Last year the power plant received a construction license and the coal deposit received a mining license. Engineering, procurement, and construction management selection and project financing discussion have begun and are expected to be concluded this year.

Construction is planned to start in April 2013, with the first 150-mw unit being commissioned in October 2015 and subsequent units to start in April 2016, October 2016, and April 2017. With proper maintenance the project will have 30 years of commercial operation.

For the complete statement from the company, including maps and charts, please visit:

http://www.prophecycoal.com/news_2011_jan17_prophecy_receives_power_plan...



All things equal, the price of gold in paper currency terms rises with paper money growth and falls with unreserved credit growth. Its "exchange rate" to U.S. dollars is simply a function of its relative scarcity, like any other currency exchange rate. It's not as complicated or as emotional as you and most economists suggest.

All the unreserved credit in the world today ("unreserved" because there is not nearly enough base money with which to repay it, by a factor of about seven times for U.S. bank assets alone), suggests strongly that global central banks will have to manufacture more of their currencies. Thus the strong bid for gold today.

In fact, some would argue that the current price of gold in U.S. dollar terms is way too low in the current environment given the enormous leverage already in the system and the amount of money that has to be manufactured in the future to de-lever the system. Based on this metric we believe that gold is undervalued by as much as five times at present, even without any further Fed printing. It might also interest you to know that, using this metric, gold in 1980 became extremely overvalued and so it should have fallen, and obviously it did.

Sadly for your readers you did not consider relative value vis-a-vis gold's proper benchmark -- the gap between unreserved credit and base money.

So there are some secular reasons to like gold at current prices and even to believe that a disciplined monetary system would benefit the majority of economic actors. If the fervency of gold bugs annoys you so much, why not just suggest to your fellow world improvers that they abolish capital gains taxes on physical bullion and let us crazy gold bugs save in a currency we think will maintain its purchasing power better? We will go away quietly and let you and Mr. Summers amass debt-based "savings."

Maybe a little balance is in order?

Kind regards,

Paul Brodsky and Lee Quaintance
QB Asset Management Co. LLC
535 Fifth Ave.
New York, N.Y. 10017

http://qbamco.com
pbrodsky@qbamco.com

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Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf