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Indian Central Bank Aims To Transfer Massive Physical Gold Into Banking System
Gold Silver Worlds | February 6, 2013
Western countries are still struggling to see the benefits of owning gold in physical form, at least on a large scale. If we want a taste of the coming gold mania in the West, we could look at the East, where people have been rushing into physical gold, especially in India and China. Ironically, just at the time when Indian rush for gold to protect themselves against the damaging effects of the (central) banking system, their very central bank tries to seduce the people to transfer their physical gold into the banks and slow the import of physical gold.
India has traditionally been the largest consumer and importer of gold. Some 20,000 tonnes of gold is held by households currently. To put that figure into perspective, the largest central bank reserve worldwide is held by the US and totals slightly more than 7,000 tonnes. Total above the ground gold existing on the world is some 165,000 tonnes.
The real objective of the Reserve Bank of India (RBI) is to profit from the gold rush in an attempt to decrease their current account deficits. Reuters reported today that the Reserve Bank of India (RBI) plans to:
* moderate the demand for gold imports
* introduce several gold-based investment products, in order to transfer household’s gold into the banking system
*implement measures to increase the monetisation of (the stock of) gold, mainly by setting up some sort of gold bank / institution.
RBI published a report on their website which presents in a detailed way the proposed measures from their internal working group. Several interesting charts show the magnitude of the gold market in India … and the potential profits for the central bank and banking system were they to implement their measures. Interestingly, the Indian gold imports as a ratio to their GDP stands at 3% approximately.
(Chart)
The report provides details about the limitations of gold imports, as summarized in the following quote:
Indians’ obsession for large investment in physical gold is the outcome of the convergence of numerous and divergent factors. The Working Group is conscious that some of the steps suggested by them may temporarily reduce the gold imports through organised channels, but, does not squarely address the root cause for excessive demand for gold imports. In this context, it is necessary to recognise that a necessary pre-condition for reducing the demand for the precious metal is to ensure benign inflationary environment along with achieving and maintaining macroeconomic stability. We need to recognise that gold trade had always flourished under conditions of economic and political instability worldwide for centuries. Keeping this global experience in mind, the Working Group firmly believes that providing real effective rate of return that matches the return on investment in physical gold to investors through alternative instruments holds the key to reducing the excessive clamor for gold.
The chart (also from the report) shows how gold has significantly outperformed other asset classes over the past four years in India.
Logically, as seen on the next chart, people hedge with gold against inflation. In years of inflation, gold imports have been rising in a consistent way. Is it any surprise that the RBI aims to implement their measures given their expectations of inflation as explicitly stated in the above quote?
Furthermore, the report mentions a need to monetize the gold stock for “productive purpose” (read: interest yielding).
There is also a critical need to increase monetisation of idle gold stocks in the economy for productive purposes. It needs to be recognised that the issue of ever rising demand for gold in India is indeed very complex. Gold has been playing a key role in the Indian economy, but many practices followed in the gold market are still primitive and unorganised. There is an essential need for transforming this critical segment into an organised sector in all respects through strengthening the related institutional infrastructure structure. After all, over a billion population of India spends almost Three Trillion Rupees a year on gold imports. Viewed from this sheer magnitude, creating an institution that may focus on organised gold related transactions with undivided attention assumes vital importance.
The report, however, does not provide any detail about the “need” for a restructuring in the gold market. The only real need is in the following chart.
Holding physical gold is a conscious choice to stay outside the banking system. The key question is if the Indian people will resist the seduction to mix up their gold with paper based investments. According to expert Philip Klapwijk, head of Thomson Reuters GFMS, the government attempts will result in an increased smuggling of gold, which would be much worse for their deficits!
http://goldsilverworlds.com/gold-silver-general/indian-central-bank-aims-to-transfer-massive-physical-gold-into-banking-system/
Gold vending machine in Boca Raton may be first of many
Feb. 6, 2013
By Emily Roach
Palm Beach Post Staff Writer
The gold vending machine is back at Town Center of Boca Raton.
Just outside of Burberry, Tory Burch, Stuart Weitzman and Banana Republic stores in the corridor next to the Brahman Motors Bentley display is a six-foot-tall golden box that dispenses 1 gram to 10 grams of gold.
Meris Kott, managing director of PMX Gold Bullion, said the machine was placed at the mall Jan. 4 and the company has a year lease. The company used a German machine about two years ago for a trial run at Town Center. This time PMX Gold Bullion Sales, based in Boca Raton and a subsidiary of publicly listed PMX Communities Inc. (OTC BB: PMXO, 7 cents), had its own machine designed.
Another machine will be placed in a Florida mall in the next few weeks, Kott said. Her goal is to have 10 to 12 machines placed in various malls by the end of March.
“It’s a souvenir, an investment or a gift,” she said.
Because of the working relationship developed with Town Center and its owner Simon Properties, Kott said she wants to expand the business in as many Simon malls as possible.
PMX Gold’s parent company, whose sole focus is gold sales and gold mining, had no sales last year and has been operating at a loss. But it reported in Securities and Exchange Commission documents that it sold $266,256 worth of gold during its trial run from mid-December 2010 until March 2011.
Sean Carroll, Town Center assistant director of marketing and business development, said the partnership has been positive. Both the initial machine, which had a four-month run, and the new machine have attracted shoppers.
“It’s a fabulous addition to the mall,” Carroll said.
The company has designed its own gold pieces that are “24 karat fine gold .9999 bullion bars and coins,” according to the company’s press material. They are made in the U.S., Kott said.
There are 2 gram palm bullion bars for $189, 1/10-oz. Cleopatra coins for $289 and 10 gram lion bullion bars for $799 and more, though prices can change if the price of gold goes up more than 10 percent. Gold sold for $1,677.70 per troy ounce on Wednesday.
Kott said the new machine only offers credit/debit card sales, because there were concerns about selling investment-grade gold from a vending machine for cash. The gold items are not valid as currency, since no gold item can be used as currency in the U.S. Kott said buying gold for gifts in common in other countries.
Founding CEO Michael Hiler resigned last spring due to personal reasons, according to SEC filings, and was replaced by CEO Lindsey Perry. Kott was brought onboard at the same time to get the machines launched, documents state, and shortly thereafter PMX signed an agreement with Sunshine Minting Inc. of Coeur d’ Alene, Idaho.
http://www.palmbeachpost.com/news/business/gold-vending-machine-in-boca-raton-may-be-first-of/nWHbY/
Jim Rogers Joins Bill Gross Warning on Treasuries
By Wes Goodman - Feb 7, 2013
Investor Jim Rogers joined Bill Gross, who runs the world’s biggest bond fund, in warning that a rout that sent Treasuries to their biggest loss last month in almost a year probably isn’t over.
The list of bond bears is growing after Goldman Sachs Group Inc. and Wells Capital Management Inc. also voiced concern. While unemployment rose in January, Labor Department revisions showed job gains at the end of last year were higher than previously reported, increasing speculation the Federal Reserve will curtail its debt purchases this year. The Standard & Poor’s 500 Index rallied this month to approach a record.
“Everybody wants to be in equities,” said Hans Goetti, Singapore-based chief investment officer for Asia at Finaport Investment Intelligence, which manages the equivalent of $1.54 billion. “People are moving out of Treasuries.”
U.S. debt has handed investors a 0.9 percent loss this year as of yesterday, according to Bank of America Merrill Lynch indexes. It fell 1 percent in January, the steepest monthly loss since March.
The benchmark 10-year yield rose one basis point, or 0.01 percentage point, to 1.98 percent at 8:10 a.m. in New York, according to Bloomberg Bond Trader prices. The yield dropped to a record 1.38 percent in July, raising concern bonds don’t offer enough value.
Ten-year rates will increase to 2.25 percent by year-end, according to a Bloomberg survey of financial companies. That means an investor who bought today would suffer a 0.5 percent loss, data compiled by Bloomberg show.
‘Short More’
“I’m short long-term government bonds,” betting the securities will fall, Rogers, the author of the book “Street Smarts,” said yesterday on Bloomberg Radio. “I plan to short more. That bull market, that’s a bubble.”
It isn’t the first time Rogers has predicted an end to the three-decade rally in U.S. government debt. In an interview with Bloomberg News on Oct. 28, 2009, he said Treasuries are the “next bubble in the making” when yields on the 10-year note were 3.42 percent.
U.S. inflation may pick up in 2014 to 2016, Pimco’s Gross said this month on Bloomberg Radio. Faster inflation “will create an upper drift in long-term yields,” he said.
Break-Even Rate
Rogers said he has been short bonds two or three times in the last few years. A short position is a bet an asset will decline. Gross reiterated his earlier warnings about costs in the economy.
The difference between yields on 10-year notes and similar- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, was 2.55 percent today. The figure compares to the average over the past decade of 2.19 percent and the current inflation rate of 1.7 percent.
The S&P 500 gained 6 percent this year. It is within 5 percent of its record high reached in October 2007.
Japanese sovereign bonds have returned 0.2 percent in 2013, the Bank of America data show. The two-year yield fell two basis points to 0.025 percent, the lowest for that maturity since September 2002.
“At best, bond yields will move sideways in the next several years but it would not be surprising if yields trend higher,” James W. Paulsen, chief investment strategist at Wells Capital in Minneapolis, wrote in a report yesterday. “While bonds have provided very competitive returns relative to the stock market since 1980, this era has probably ended.”
The Fed said Jan. 30 it is committed to buying about $85 billion of government and mortgage securities a month as long as the jobless rate stays above 6.5 percent and inflation is below 2.5 percent. Unemployment rose to 7.9 percent in January and consumer-price gains remain below the central bank’s target. The U.S. economy contracted 0.1 percent in the fourth quarter.
Labor Market
The Labor Department also revised its jobs figures for November and December higher. Revisions added 127,000 jobs to the tally in the last two months of 2012.
Fed Bank of Kansas City President Esther George voted against the central bank’s decision, saying it risks increasing inflation expectations. Minutes of the Fed’s Dec. 11-12 meeting showed members divided between a mid- or end-of-year finish to bond purchases.
Gary Cohn, president of Goldman Sachs Group Inc., said demand for debt may fade.
“Am I concerned that we could be in a bond bubble sometime in the future? Yes, I’m concerned,” he said this week in a Bloomberg Television interview in Hong Kong. “At some point, it’s not going to be the best market to be invested in.”
To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
http://www.bloomberg.com/news/2013-02-07/u-s-30-year-bond-losses-pass-5-as-fed-price-gauge-rises.html
Jim Rogers on Fed Easing? ‘This is going to end very very badly’
February 6, 2013 by Kurt Wallace
Standard Podcast
Jim Rogers of Rogers International Commodities Index (RICI) joins Open Currency Update with Kurt Wallace for Fed Easing? ‘This is going to end very very badly’. Jim discusses Germany’s repatriation of gold and the questionable response of and 8 year timeline by the United States to return the gold. He weighs in on Fed Easing and the effects on those who invested properly vs. those who benefit from printing money. He also give us a sneak preview of his new book Street Smarts: Adventures on the Road and in the Markets where he details his thought process on investing and what he learned from his successes and mistakes.
Jim Rogers, a native of Demopolis, Alabama, is an author, financial commentator and successful international investor. He has been frequently featured in Time, The Washington Post, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The Financial Times, and most publications dealing with the economy or finance.
http://www.opencurrency.com/jim-rogers-on-fed-easing-this-is-going-to-end-very-very-badly/
American Bases in Germany and the Gold Basis
BY ANTAL FEKETE
02/04/2013
Germany is neither independent nor sovereign, prevailing pretenses notwithstanding. It has American troops on her soil for reasons unexplained and unexplainable after all Soviet occupying troops were withdrawn almost 25 years ago. Equally significant is the fact that the lion’s share of the German gold reserve is in American custody. If the Bundesbank asked for the repatriation of a token part of that gold over a long period of time, we may take it for granted that it was done on American instructions.
But why would the Americans ask the Bundesbank to request the return of a part of German gold from the ‘safety’ of the basement of the Federal Reserve Bank of New York in lower Manhattan? Surely not because the vaults are bulging with American gold and they have to make room for more.
It’s all grand theater. There is a hidden agenda that has to be camouflaged. The best way of doing it is to put up a show. The public is fascinated by images of shuffling central bank gold.
One reason, perhaps the chief reason for this exercise is that the managers of the global fiat money system are preparing for the coming showdown, the final curtain on what some years ago I dubbed The Last Contango in Washington. In other words, policymakers are preparing for (or trying to fend off) permanent backwardation in the world’s gold futures markets that is threatening to rip apart the present shabby make-belief payments system of the world.
Contango is the normal condition of the gold futures markets when the spot price of gold is at a discount relative to the price of futures contracts. It demonstrates that plenty of gold is available to satisfy present demand. People are confident that promises to deliver gold will be honored. The condition opposite to contango is called backwardation that obtains when the futures price loses its premium relative to the spot price and goes to a discount. In the gold market this condition is highly anomalous because, on the face of it, it allows traders to earn risk free profits. They sell spot gold at a premium, and buy it back at a discount for future delivery. However, risk free profits are ephemeral since the very action of traders will instantaneously eliminate them. What this suggests is that permanent backwardation in gold could never happen by the very nature of the case.
Yet unknown to the general public a very great danger is looming, the like of which has not threatened the world since the collapse of the Western half of the Roman Empire more than fifteen hundred years ago. This danger, should it materialize, would mark the end of our civilization and the beginning of a new Dark Age. I am talking about a threat of the sudden and complete collapse of world trade. It would be heralded by permanent gold backwardation, something that allegedly could never happen. Hard on its heels would follow the collapse of the dollar payments system. Barter, of course, would take place between neighboring countries, but world trade as we know it would disappear altogether.
The metric whereby the turning of contango into backwardation can be measured is called the gold basis. It is the premium on the price of gold for future delivery as per the nearby contract relative to the spot price. Thus negative gold basis is tantamount to backwardation. We have scarcely a forty-year history for the gold basis to go by, because there was no organized futures trading for gold before America defaulted on her international gold obligations on August 15, 1971.
Futures trading started out with a robust gold basis. Contango was at its peak. The gold basis cannot be higher than the full carrying charge (also known as the opportunity cost of holding gold, the major component of which is interest). But soon enough the gold basis started eroding, and erosion has continued to this day. This was an ominous process that was ignored by all politicians, economists and financial journalists.
The vanishing of the gold basis is all the more curious since it has been taking place against the background of a steady advance in the gold price. Textbook economics teaches that an advance in price always and everywhere calls out new supplies. However, textbook economics is helpless when it comes to gold. For gold the exact opposite is true: an advance in price makes supply contract; and a very large advance may make supply disappear altogether. The reason for this paradox is that gold is a monetary metal. All the bad-mouthing of gold by economists in the pay of governments won’t change that fact. By now the decay has gone so far that the gold basis is practically zero, with occasional dips into negative territory.
Academia ostensibly avoids researching the gold basis, pretending that it has as much bearing on the world economy as the basis for frozen pork bellies. The public is kept in total ignorance. Yet you can ignore the gold basis only at your own peril. It is the only indicator available showing the progressive deterioration of the fiat money system. As is well known, there has never been a successful experiment with fiat currency in all history. Nor was it for lack of trying. Every such experiment was either abandoned as enlightened governments decided to return the currency to a metallic basis, or it ended in utter fiasco causing tremendous economic pain to people as the fiat currency was rapidly losing all its purchasing power.
The relentless contraction of the gold basis means that gold available for future delivery is fast disappearing. Gold is constantly moving into strong hands that hold on to it and will not relinquish it even in the face of steeply rising prices. Eventually the gold supply dries up and sporadic backwardation gives way to permanent backwardation. Gold mines refuse to take paper money for their product. If you want to have gold, you will have to have recourse to barter.
Permanent backwardation means that confidence in fiat paper currency and government promises to pay has evaporated. After all, considering their origin, irredeemable bank notes are nothing but dishonored promises to pay gold. Once confidence is shattered, all the king’s horses and all the king’s men cannot put Humpty Dumpty together again. Permanent backwardation is like a black hole. There is no way out of it. Not even a light ray can escape from its clutches. That’s how black holes earn their name. ‘Permanent backwardation’ is not as suggestive as the name ‘black hole’, but it can gobble up the world economy nevertheless.
The gold basis is akin to the efficiency of bribe money. At first the bribe is taken with no questions asked. But as it becomes a regular feature of gold trading, effectiveness is lost. In the end the bribe is refused when it is realized that the objective is to cheat the holder out of his possession of gold. A trading system built on bribe is a house of cards. It is dishonest. It depends on deception and false-carding.
This brings me back to the German gold reserve. As sporadic backwardation in gold becomes ever more frequent, the gentlemen in charge of running the world’s fiat money system get alarmed. The only way to pacify the market is to release more and more central bank gold. Physical gold. The beast must be fed. Paper gold will not do (although, of course, these gentlemen will keep trying to flood the market with it).
Releasing American gold to the futures market directly from the Fed is out of the question. It would confirm the suspicion, already rampant, that the dollar is a colossus of clay feet standing in knee-deep water. So let the client states of America do the releasing. The Germans have a reputation of favoring hard currency. They are reluctant to join the currencies’ ‘race to the bottom’. Germany is the natural choice to feed the gold futures markets in an effort to protect the dollar against the last assault that is shaping up.
For a long time America has been twisting the arm of other countries, including the U.K. and Switzerland, making them sell hundreds of tons of central bank gold, while America was not selling one ounce. “Do as I say, not as I do!” During all this time Germany was not selling either. The appearance was maintained that this decision was made in Germany. It wasn’t; rather, it has the mark “made in U.S.A.” German gold is the last defense of the dollar. By now practically all central banks ignore the siren song from America. From sellers they have become buyers of gold. According to the American master plan Germany is the last fort of the crumbling global fiat money system. Germany will not defect: that is the purpose of keeping American troops on German soil. Germany will dutifully do the job of feeding the futures market with gold in an effort to fend off permanent backwardation. The repatriation of a part of the German gold reserve is a trial balloon. If markets get scared and panic selling occurs before the Bundesbank starts selling, so much the better. But if false-carding fails and the world-wide march of gold into private hoards continues unabated, then let the Bundesbank, not the Fed, bleed gold. America’s gold must be spared at all hazards.
On such tricks and deception is the international monetary system grounded.
What, then, is the solution? How can sudden death in world trade be averted? Fortunately, there are still upright politicians around. Godfrey Bloom of the European Parliament, MP for Yorkshire and North Lincolnshire ridings in the U.K. suggests that Germany should repatriate ALL of its gold and reinstate a golden deutsche mark.
* * *
The underlying cause of the world financial crisis is runaway debt. Gold is the only ultimate extinguisher of debt. Since its expulsion from the international monetary system total debt in the world can only grow, never contract. To stop the cancerous growth of debt gold must be reinstated in its former position as the guardian of the quality of debt.
If, defying American wishes, Germany took the initiative in creating a gold mark and opening the German Mint to gold where all comers could convert their gold ingots into gold coin, the course of world history would be changed. It would be Germany’s finest hour. Civilization will have been saved and the onset of a new Dark Age averted. The gold mark could circulate side-by-side with the irredeemable euro and dollar. Let the people decide whether they want to get paid in crisis-prone fiat currencies or, perhaps, they prefer the time-honored stability of the gold coin. It is hardly in doubt what the choice of the people would be.
The German initiative will set off a chain reaction of similar virtuous acts by the major central banks of the world, in order to prevent the fatal depreciation of their currencies against the gold mark. The latter will be well on its way to become the most coveted currency in the world for international trade. The financial system will be saved from the ordeal of competitive currency devaluations and from the corrosive effect of ever-expanding government deficits. Governments will be forced to face reality and live responsibly within their means like everyone else. Farmers will no longer be paid for not farming, and able-bodied workers for not working. Youth unemployment, in particular, will be a thing of the past.
There is a precedent. In 1948 Germany defied the occupying force when it created the Deutsche Mark without bothering to ask for permission in Washington.
But is the gold standard not deflation-prone? In the 1930’s the international gold standard collapsed because of this very fact, did it not?
As the father of the Deutsche Mark, Wilhelm Röpke (1899-1966) said: it is not the gold standard that failed, but those in whose care it was entrusted.
Antal Fekete
Professor Emeritus at Memorial University of Newfoundland
aefekete @ hotmail.com
http://www.financialsense.com/contributors/antal-fekete/american-bases-germany-gold-basis
American Bases in Germany and the Gold Basis
BY ANTAL FEKETE
02/04/2013
Germany is neither independent nor sovereign, prevailing pretenses notwithstanding. It has American troops on her soil for reasons unexplained and unexplainable after all Soviet occupying troops were withdrawn almost 25 years ago. Equally significant is the fact that the lion’s share of the German gold reserve is in American custody. If the Bundesbank asked for the repatriation of a token part of that gold over a long period of time, we may take it for granted that it was done on American instructions.
But why would the Americans ask the Bundesbank to request the return of a part of German gold from the ‘safety’ of the basement of the Federal Reserve Bank of New York in lower Manhattan? Surely not because the vaults are bulging with American gold and they have to make room for more.
It’s all grand theater. There is a hidden agenda that has to be camouflaged. The best way of doing it is to put up a show. The public is fascinated by images of shuffling central bank gold.
One reason, perhaps the chief reason for this exercise is that the managers of the global fiat money system are preparing for the coming showdown, the final curtain on what some years ago I dubbed The Last Contango in Washington. In other words, policymakers are preparing for (or trying to fend off) permanent backwardation in the world’s gold futures markets that is threatening to rip apart the present shabby make-belief payments system of the world.
Contango is the normal condition of the gold futures markets when the spot price of gold is at a discount relative to the price of futures contracts. It demonstrates that plenty of gold is available to satisfy present demand. People are confident that promises to deliver gold will be honored. The condition opposite to contango is called backwardation that obtains when the futures price loses its premium relative to the spot price and goes to a discount. In the gold market this condition is highly anomalous because, on the face of it, it allows traders to earn risk free profits. They sell spot gold at a premium, and buy it back at a discount for future delivery. However, risk free profits are ephemeral since the very action of traders will instantaneously eliminate them. What this suggests is that permanent backwardation in gold could never happen by the very nature of the case.
Yet unknown to the general public a very great danger is looming, the like of which has not threatened the world since the collapse of the Western half of the Roman Empire more than fifteen hundred years ago. This danger, should it materialize, would mark the end of our civilization and the beginning of a new Dark Age. I am talking about a threat of the sudden and complete collapse of world trade. It would be heralded by permanent gold backwardation, something that allegedly could never happen. Hard on its heels would follow the collapse of the dollar payments system. Barter, of course, would take place between neighboring countries, but world trade as we know it would disappear altogether.
The metric whereby the turning of contango into backwardation can be measured is called the gold basis. It is the premium on the price of gold for future delivery as per the nearby contract relative to the spot price. Thus negative gold basis is tantamount to backwardation. We have scarcely a forty-year history for the gold basis to go by, because there was no organized futures trading for gold before America defaulted on her international gold obligations on August 15, 1971.
Futures trading started out with a robust gold basis. Contango was at its peak. The gold basis cannot be higher than the full carrying charge (also known as the opportunity cost of holding gold, the major component of which is interest). But soon enough the gold basis started eroding, and erosion has continued to this day. This was an ominous process that was ignored by all politicians, economists and financial journalists.
The vanishing of the gold basis is all the more curious since it has been taking place against the background of a steady advance in the gold price. Textbook economics teaches that an advance in price always and everywhere calls out new supplies. However, textbook economics is helpless when it comes to gold. For gold the exact opposite is true: an advance in price makes supply contract; and a very large advance may make supply disappear altogether. The reason for this paradox is that gold is a monetary metal. All the bad-mouthing of gold by economists in the pay of governments won’t change that fact. By now the decay has gone so far that the gold basis is practically zero, with occasional dips into negative territory.
Academia ostensibly avoids researching the gold basis, pretending that it has as much bearing on the world economy as the basis for frozen pork bellies. The public is kept in total ignorance. Yet you can ignore the gold basis only at your own peril. It is the only indicator available showing the progressive deterioration of the fiat money system. As is well known, there has never been a successful experiment with fiat currency in all history. Nor was it for lack of trying. Every such experiment was either abandoned as enlightened governments decided to return the currency to a metallic basis, or it ended in utter fiasco causing tremendous economic pain to people as the fiat currency was rapidly losing all its purchasing power.
The relentless contraction of the gold basis means that gold available for future delivery is fast disappearing. Gold is constantly moving into strong hands that hold on to it and will not relinquish it even in the face of steeply rising prices. Eventually the gold supply dries up and sporadic backwardation gives way to permanent backwardation. Gold mines refuse to take paper money for their product. If you want to have gold, you will have to have recourse to barter.
Permanent backwardation means that confidence in fiat paper currency and government promises to pay has evaporated. After all, considering their origin, irredeemable bank notes are nothing but dishonored promises to pay gold. Once confidence is shattered, all the king’s horses and all the king’s men cannot put Humpty Dumpty together again. Permanent backwardation is like a black hole. There is no way out of it. Not even a light ray can escape from its clutches. That’s how black holes earn their name. ‘Permanent backwardation’ is not as suggestive as the name ‘black hole’, but it can gobble up the world economy nevertheless.
The gold basis is akin to the efficiency of bribe money. At first the bribe is taken with no questions asked. But as it becomes a regular feature of gold trading, effectiveness is lost. In the end the bribe is refused when it is realized that the objective is to cheat the holder out of his possession of gold. A trading system built on bribe is a house of cards. It is dishonest. It depends on deception and false-carding.
This brings me back to the German gold reserve. As sporadic backwardation in gold becomes ever more frequent, the gentlemen in charge of running the world’s fiat money system get alarmed. The only way to pacify the market is to release more and more central bank gold. Physical gold. The beast must be fed. Paper gold will not do (although, of course, these gentlemen will keep trying to flood the market with it).
Releasing American gold to the futures market directly from the Fed is out of the question. It would confirm the suspicion, already rampant, that the dollar is a colossus of clay feet standing in knee-deep water. So let the client states of America do the releasing. The Germans have a reputation of favoring hard currency. They are reluctant to join the currencies’ ‘race to the bottom’. Germany is the natural choice to feed the gold futures markets in an effort to protect the dollar against the last assault that is shaping up.
For a long time America has been twisting the arm of other countries, including the U.K. and Switzerland, making them sell hundreds of tons of central bank gold, while America was not selling one ounce. “Do as I say, not as I do!” During all this time Germany was not selling either. The appearance was maintained that this decision was made in Germany. It wasn’t; rather, it has the mark “made in U.S.A.” German gold is the last defense of the dollar. By now practically all central banks ignore the siren song from America. From sellers they have become buyers of gold. According to the American master plan Germany is the last fort of the crumbling global fiat money system. Germany will not defect: that is the purpose of keeping American troops on German soil. Germany will dutifully do the job of feeding the futures market with gold in an effort to fend off permanent backwardation. The repatriation of a part of the German gold reserve is a trial balloon. If markets get scared and panic selling occurs before the Bundesbank starts selling, so much the better. But if false-carding fails and the world-wide march of gold into private hoards continues unabated, then let the Bundesbank, not the Fed, bleed gold. America’s gold must be spared at all hazards.
On such tricks and deception is the international monetary system grounded.
What, then, is the solution? How can sudden death in world trade be averted? Fortunately, there are still upright politicians around. Godfrey Bloom of the European Parliament, MP for Yorkshire and North Lincolnshire ridings in the U.K. suggests that Germany should repatriate ALL of its gold and reinstate a golden deutsche mark.
* * *
The underlying cause of the world financial crisis is runaway debt. Gold is the only ultimate extinguisher of debt. Since its expulsion from the international monetary system total debt in the world can only grow, never contract. To stop the cancerous growth of debt gold must be reinstated in its former position as the guardian of the quality of debt.
If, defying American wishes, Germany took the initiative in creating a gold mark and opening the German Mint to gold where all comers could convert their gold ingots into gold coin, the course of world history would be changed. It would be Germany’s finest hour. Civilization will have been saved and the onset of a new Dark Age averted. The gold mark could circulate side-by-side with the irredeemable euro and dollar. Let the people decide whether they want to get paid in crisis-prone fiat currencies or, perhaps, they prefer the time-honored stability of the gold coin. It is hardly in doubt what the choice of the people would be.
The German initiative will set off a chain reaction of similar virtuous acts by the major central banks of the world, in order to prevent the fatal depreciation of their currencies against the gold mark. The latter will be well on its way to become the most coveted currency in the world for international trade. The financial system will be saved from the ordeal of competitive currency devaluations and from the corrosive effect of ever-expanding government deficits. Governments will be forced to face reality and live responsibly within their means like everyone else. Farmers will no longer be paid for not farming, and able-bodied workers for not working. Youth unemployment, in particular, will be a thing of the past.
There is a precedent. In 1948 Germany defied the occupying force when it created the Deutsche Mark without bothering to ask for permission in Washington.
But is the gold standard not deflation-prone? In the 1930’s the international gold standard collapsed because of this very fact, did it not?
As the father of the Deutsche Mark, Wilhelm Röpke (1899-1966) said: it is not the gold standard that failed, but those in whose care it was entrusted.
Antal Fekete
Professor Emeritus at Memorial University of Newfoundland
aefekete @ hotmail.com
http://www.financialsense.com/contributors/antal-fekete/american-bases-germany-gold-basis
Chen Lin Places His Bets On Self-Financing Producers
Feb 4, 2013 5:01 PM
stocks: AXU, AUNFF.PK, BRD, EMXX, GSV, IEMMF.PK, ORVMF.PK, PTQMF.OB, PVG
Source: Brian Sylvester of The Gold Report (2/4/13)
http://www.theaureport.com/pub/na/14984
The tough financing markets of the past few years have taken their toll on many junior resource companies, as continuing needs for capital have led to dilution and lower stock prices. In this tricky environment, Chen Lin likes to place his bets on companies that can minimize dilution through internal cash flow that helps to finance expansion and exploration activities. In this interview with The Gold Report, Lin talks about how he has played the difficult market in 2012 and where he sees some of the best opportunities in 2013.
The Gold Report: We are already into February and the gold market doesn't seem to want to do what most people have been predicting. Why has it been acting so poorly over the past few months?
Chen Lin: That's a good question. Nothing goes up in a straight line and 2013 could be a difficult year for gold. Recently Goldman Sachs predicted that gold will peak this year and then go down to $1,200/ounce (oz) in a few years. That could shake a lot of weak hands, so I won't be surprised to see some selling this year, especially because gold's seasonal peak is around Chinese New Year at the beginning of February.
TGR: Are you expecting a little bounce off of the bottom that we've been seeing for the last few weeks?
CL: It's hard to say. Right now, money is going to risky assets, exactly opposite of 2008. Money is rushing into financials with banks showing record earnings. In the meantime, funds heavily invested in gold are not doing well. They could be facing redemptions, management changes and other issues. So 2013 could be difficult.
TGR: So what's your feeling about silver? Do you think it will perform better than gold?
CL: I'm quite bullish on silver. I think the industrial usage of silver could play a key role. About one month ago I told my subscribers to pay attention to miners with base or industrial metal products. Last week, Don Coxe, the highly respected analyst, advised to swap some gold equities to base metal equities. That actually confirmed my vision. I see metals with industrial applications, like silver, platinum and base metals, doing better than gold in 2013. Platinum has already started trading at a premium to gold after years at a discount, and I expect silver to do well also.
TGR: Is that because there's more optimism for industrial recovery worldwide and therefore better demand for most metals?
CL: Yes, but over the long run I still firmly believe that gold will do extremely well. Every central bank is trying to manipulate and weaken its currency and the situation is getting worse every day. The Japanese yen has weakened a lot and many other countries are already complaining about that. At the end of the day, gold is the only strong currency left. It may go through some weakness in the near term, but the long-term future of gold looks very bright to me.
TGR: Well, 2012 wasn't a great year for precious metals stocks in general. How did your portfolio do and what were your best performers?
CL: I would say I had a pretty good 2012. Ironically, my success was mainly because I was underweighting gold miners during most of 2012. My big winners were in energy and biotech stocks that I discussed in The Energy Report and The Life Sciences Report. My success in gold and silver mining was mostly from short-term trading, similar to 2011. My biggest winner was buying gold, silver and platinum miner call options a few weeks before the quantitative easing 3 (QE3) announcement and then selling on the announcement. I also had a big winner in platinum futures on the same day that the South African police started to shoot the miners, which was a turning point for platinum, and I was fortunate to catch the bottom and then ride the wave up.
TGR: Basically you had to play the short-term moves and make bets on certain events happening and then take your profits as soon as you could.
CL: It was a very tough year for the miners; you would lose a lot of money if you played buy and hold. You have to be prepared for the opportunity when events arise. I saw what happened in South Africa and reacted on the same day and I told my subscribers to do the same.
TGR: What have you been looking at recently that you're excited about and think has some good upside potential?
CL: One interesting company is Ivanplats Ltd. (IVP:TSX). It is looking at one of the most significant platinum discoveries in human history. The project is run by Robert Friedland and is basically a spinoff from the former Ivanhoe Mines Ltd. It has a new platinum group metals (PGM) discovery in South Africa, which according to Friedland is so large that it could wipe out the whole PGM mining industry in South Africa and take over the world. This deposit is only 20-30 meters (m) deep and has very rich nickel and copper byproducts that can produce platinum, palladium and gold at negative costs. A typical South African PGM mine has veins only about 1m thick, which are very deep and very hard to mine.
"I'm quite bullish on silver."
Ivanplats' discovery can potentially change the whole industry. The size of the deposit, according to Friedland's presentation, could be well over 100 million ounces (Moz). His plan is to announce the NI 43-101 resource on Feb. 5, and that's why I have been accumulating ahead of his announcement.
TGR: How did Ivanplats happen to discover this deposit that nobody else had found?
CL: Robert Friedland acquired the property and then he used his own money to explore it over the past 10 years. Ivanplats recently held its initial public offering. The Japanese invested $290 million (M) for 10% of the company before the discovery last year, so that values the deposit at $2.9 billion (B), way above the current market cap, which also makes it look very interesting ahead of the major announcement Feb. 5.
TGR: And where's Ivanplats selling now?
CL: It's selling at about $4.80/share, so the market cap is around $2.6B with a lot of cash from the IPO. I wouldn't be surprised that when Ivanplats' discovery is announced around the world, people will be really shocked at its size.
TGR: What else are you following now that looks interesting?
CL: Brigus Gold Corp. (BRD:NYSE.MKT; BRD:TSX) has been on my list for a long time. The company is projected to produce 90,000-100,000 oz (90-100 Koz) of gold this year at costs between $700-750/oz. In the past year Brigus suffered from a terrible hedge-below $1,000/oz-put on by the previous management. The new management bought out the hedge but had to sell a royalty to finance it, so that's still putting pressure on the company's balance sheet. Last year Brigus bought back some of the hedges and royalties. That should help the company going forward.
"I still firmly believe that gold will do extremely well."
Another company I have is Gold Standard Ventures Corp. (GSV:TSX.V; GDVXF:OTCQX), which is an exploration company. It runs the Railroad project in Nevada. It's run by a very experienced management team that made a good gold discovery in early 2012. The stock had a big run and then pulled back very hard, just like many other exploration stocks. Right now I'm waiting for a new round of results on its recent high-grade discovery.
TGR: When is that expected?
CL: Hopefully in the next few weeks.The stock is trading around $1.06/share.
TGR: So that's near the low end of the range for the year, like most of these stocks.
CL: Nearly every gold mining stock has traded down to near the low of the year, and even multiyear lows.
TGR: What other ones are you excited about?
CL: I've been a shareholder of OceanaGold Corp. (OGC:TSX; OGC:ASX) since early 2009 when it was $0.40-0.50/share. The company just started a new copper-gold project in the Philippines that should transform OceanaGold into a low-cost and high-margin gold producer. It recently closed a financing at $3.11/share and is still trading significantly below that price.
TGR: What's the potential for this new Philippines project and do you see Oceana being able to keep up its growth profile?
CL: It should produce gold at negative costs after copper byproduct. That project will transform it from a $1,000/oz producer to maybe a $300-400/oz producer and will be a major step for the company.
TGR: What is happening in Spain?
CL: I'm quite excited about Orvana Minerals Corp.'s (ORV:TSX) gold and copper-silver production in Spain and Bolivia. It should generate very significant cash flow this year and reduce its debt substantially. My estimate on the cash flow could be as high as $80-90M in 2013 alone, compared to its market cap of just over $100M. It's quite undervalued. The new management under CEO Bill Williams did an excellent job turning both mines around during the past 12 months. The stock hasn't been recognized by the market yet, but I believe it will be one day.
TGR: What's it selling for now?
CL: About $0.94/share. What's amazing is that most of the capital expenditures (capex) have been made, so Orvana just needs to continue to produce and generate cash flow, pay back its debt and it will be a very different company by the end of this year.
I'm looking for self-financing. A lot of companies I own are going to be able to self-finance going forward.
TGR: Speaking of self-financing, you own Alexco Resource Corp. (AXR:TSX; AXU:NYSE.MKT). What do you like about it?
CL: Alexco has a very strong balance sheet, no debt and a lot of cash. It's expanding production quite rapidly and its mill has been running much better over the past quarter. It's waiting for permits for two new mines. They should come in the first half of 2013 and it will be producing around 3 Moz silver/year. Alexco has found a lot more silver in the district, so there are more opportunities coming.
With no debt and a lot of cash on the balance sheet, Alexco is another nice example of self-funding.
TGR: You also follow Aurcana Corporation (AUN:TSX.V; AUNFF:OTCQX), which recently announced commercial production at the Shafter mine in Texas. Do you expect share price growth to continue as it expands production and exploration at La Negra?
CL: Aurcana is another turnaround story, with new management. Lenic Rodriguez was an investor in the company and when the company got into trouble, he rose to the occasion. He started putting in more money and running the company, and turned it around. I was quite impressed by what he's done. La Negra was a marginal mine that has now turned into a huge cash generator. The Shafter mine in Texas just started commercial production. We should see continuing improvements throughout 2013. It will have a lot of warrants exercised this year from prior financings, which could put some pressure on the stock, but by the end of the year, the company should have a relatively clean share structure and can move on to the next level.
TGR: What else looks interesting?
CL: Eurasian Minerals Inc. (EMX:TSX.V) is an exploration company that's basically a prospect-generator model. The company uses other parties' money to explore and then keeps the royalties. It has a series of royalties in Nevada that generate about $6M/year and carry most of the company's expenses. Eurasian is one of the very few exploration companies that is unlikely to need to raise money. In the meantime, it has many potential projects where majors spend money to explore-so the upside is quite significant.
"Gold is the only real currency left."
Another company I like is Pretium Resources Inc. (PVG:TSX; PVG:NYSE). The company has a very high-grade gold discovery in northern British Columbia. Its recent NI 43-101 report shows 8.5 Moz of Indicated and 2.9 Moz of Inferred resources. The average grade is about 17 grams per tonne. That's very high grade. Pretium plans to do a bulk sampling this year and release a feasibility study, so we should have some significant news. It owns the whole district, so the upside potential is very big.
TGR: How soon could it get into full production?
CL: After the feasibility it will need to get permits. I would say a couple of years.
TGR: What kind of capex does Pretium need for full production?
CL: Management is waiting for the feasibility study to have the answer, but the high-grade nature should make the capex relatively low.
TGR: And what is the stock at?
CL: About $11.50/share.
TGR: I know you've done some site visits with several of your companies. What have you seen on those visits?
CL: I just came back from a trip to Petaquilla Minerals Ltd. (PTQ:TSX; PTQMF:OTCBB; P7Z:FSE[color=red][/color]) in Panama with a very positive impression. The company is a low-cost gold producer planning to produce about 100 Koz annually at a cost of $500-600/oz. Its market cap is only $114M. Among all the gold producers, it's probably one of the most, if not the most, undervalued you can find.
TGR: Certainly with that kind of production. Is that going to increase over time?
CL: Petaquilla is planning to grow to 300-400 Koz organically in a few years. That's why I was so impressed. It just built a new leach pad and was placing ore on the pad when I was there. It has about 100 Koz gold in inventory. Most of that is in ore on the leach pad. Once the leach pad is operational, it should generate a very nice cash flow. In addition, Inmet Mining Corp. (IMN:TSX) has the $6B Cobre Panama project that First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) is bidding to buy. The tailings from Inmet's project are on Petaquilla's claims. Last year, Inmet tried unsuccessfully to bid for Petaquilla. I expect the two parties will sit down and negotiate a deal because Inmet needs a concession for more tailings and the deal could be very rewarding to Petaquilla shareholders.
TGR: What's the stock trading for now?
CL: Petaquilla is about $0.54-0.56/share, and it has, as I said, a $114M market cap. For this kind of producer, and one holding a very important claim next to a $6B project, that's very cheap. Also there's another claim Petaquilla holds for ore on the $6B Cobre concession that has more gold and silver than copper. At current copper and gold prices, the majority of the ore value is in copper. We checked with Inmet and it believes that no ore on the project right now belongs to Petaquilla because of the higher copper content. However, in 5 to 10 years, if gold rises sharply, as we believe, and copper stays the same, a significant part of the project would be transferred to Petaquilla automatically. Basically, Petaquilla holds a huge call option on the gold price and this is one of the largest copper-gold projects in the world.
Even without all the claims I just mentioned as a bonus, Petaquilla can be worth more than the current market cap just based on its low-cost gold production. Also, Petaquilla expects to close a $140M loan facility. That will be a major milestone for the company and allow it to get rid of the small hedge book so it can get a full margin of gold and silver production.
TGR: What's your general advice for investors looking to make some money in precious metals stocks this year?
CL: Gold and silver miners suffered major blows over the past two years, mostly due to mining and capex cost overruns. However, I'm seeing the pressure start to alleviate. Many managements learned their lesson and have started to be more cautious in their forward guidance. In 2013, gold miners could outperform gold. As I told my subscribers, I'm no longer underweighting gold miners. However, I'm still very cautious and plan to invest conservatively. I'm looking for the self-funding low-cost producer that can do well if we have any near-term weakness in gold. I also like companies with good base metals byproducts that can generate a lot of near-term cash flow. I'm very bullish on gold in the long run, but I want to invest in companies that can overcome any potential near-term weakness and then reward shareholders in the long run.
As my final thought, I see that every central banker is printing money like mad. Gold is the only real currency left. Every year I put aside some profit to invest in physical gold and silver as well as platinum and I will likely to do the same in 2013. If we have any weakness going into 2013, I believe it's a good buying opportunity.
TGR: I certainly appreciate the opportunity to talk with you again.
CL: Thank you.
Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors Inc. While a doctoral candidate in aeronautical engineering at Princeton, Chen found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis.
Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.
DISCLOSURE:
1) Zig Lambo of The Gold Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Gold Report: Brigus Gold Corp., Gold Standard Ventures Corp., Orvana Minerals Corp., Pretium Resources Inc. and Petaquilla Minerals Ltd. Streetwise Reports does not accept stock in exchange for services. Interviews are edited for clarity.
3) Chen Lin: I personally and/or my family own shares of the following companies mentioned in this interview: Ivanplats Ltd., Brigus Gold Corp., Gold Standard Ventures Corp., OceanaGold Corp., Orvana Minerals Corp., Alexco Resource Corp., Aurcana Corporation, Eurasian Minerals Inc., Pretium Resources Inc. and Petaquilla Minerals Ltd. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
Streetwise - The Gold Report is Copyright © 2013 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.
The Gold Report does not render general or specific investment advice and does not endorse or recommend the business, products, services or securities of any industry or company mentioned in this report.
http://seekingalpha.com/instablog/399928-the-gold-report/1518511-chen-lin-places-his-bets-on-self-financing-producers
Don’t Sell Your Gold and Silver Coins: Jim Rogers
By Bernice Napach | Daily Ticker – 22 hours ago
Feb.6, 2013
Gold and silver may be off their highs but that hasn’t hurt demand for gold and silver coins. Sales of silver eagle coins hit a new record last month and gold coin sales in January reached their highest level in almost 19 months.
"You can’t get [silver coins]. They sell out,” says legendary investor Jim Rogers. “Several mints have run out of coins…because everybody’s worried about the future of the world.”
Rogers, chairman of Rogers Holdings and author of the new book, "Street Smarts: Adventures on the Road and in the Markets," tells The Daily Ticker that he “wouldn’t rush in right now” to buy more coins, but he’s not selling them either.
Rogers says he’ll buy more gold only if prices fall further (gold is currently trading 12% below its record high of $1,900).
“Gold has been up 12 years in a row which is extremely unusual for anything," he notes.
Gold and silver, like most commodities, are priced in U.S. dollars. Rogers is not a fan of the greenback but is an owner because other currencies, such as the Japanese yen, are collapsing.
The yen has fallen to a 2-1/2 year low against the U.S. Dollar and has weakened against the euro as a result of the Bank of Japan's aggressive easy money policy.
When asked which currency holds the most promise now, Rogers says it might be the Russian ruble although “he’s stunned” to hear himself say that.
”Russia has massive problems…that’s why the ruble is so cheap," he notes. "There’s great change taking place in Russia and whenever you can find a cheap place with massive positive change taking place you should buy all you can.”
In the meantime, he advises investors not to sell their gold and silver coins. "There is no paper money in 2014 or 2015 that will be worth much of anything," he says.
More from The Daily Ticker:
Jim Rogers: 4200% Investing Returns Are Still Possible
Video link (5 min)
http://finance.yahoo.com/blogs/daily-ticker/don-t-sell-gold-silver-jim-rogers-152159976.html
Don’t Sell Your Gold and Silver Coins: Jim Rogers
By Bernice Napach | Daily Ticker – 22 hours ago
Feb.6, 2013
Gold and silver may be off their highs but that hasn’t hurt demand for gold and silver coins. Sales of silver eagle coins hit a new record last month and gold coin sales in January reached their highest level in almost 19 months.
"You can’t get [silver coins]. They sell out,” says legendary investor Jim Rogers. “Several mints have run out of coins…because everybody’s worried about the future of the world.”
Rogers, chairman of Rogers Holdings and author of the new book, "Street Smarts: Adventures on the Road and in the Markets," tells The Daily Ticker that he “wouldn’t rush in right now” to buy more coins, but he’s not selling them either.
Rogers says he’ll buy more gold only if prices fall further (gold is currently trading 12% below its record high of $1,900).
“Gold has been up 12 years in a row which is extremely unusual for anything," he notes.
Gold and silver, like most commodities, are priced in U.S. dollars. Rogers is not a fan of the greenback but is an owner because other currencies, such as the Japanese yen, are collapsing.
The yen has fallen to a 2-1/2 year low against the U.S. Dollar and has weakened against the euro as a result of the Bank of Japan's aggressive easy money policy.
When asked which currency holds the most promise now, Rogers says it might be the Russian ruble although “he’s stunned” to hear himself say that.
”Russia has massive problems…that’s why the ruble is so cheap," he notes. "There’s great change taking place in Russia and whenever you can find a cheap place with massive positive change taking place you should buy all you can.”
In the meantime, he advises investors not to sell their gold and silver coins. "There is no paper money in 2014 or 2015 that will be worth much of anything," he says.
More from The Daily Ticker:
Jim Rogers: 4200% Investing Returns Are Still Possible
Video link (5 min)
http://finance.yahoo.com/blogs/daily-ticker/don-t-sell-gold-silver-jim-rogers-152159976.html
Gold And Silver Stock Picks From Billionaire Precious Metals Guru Eric Sprott's Q4/2012 Filing
February 5, 2013
GuruFundPicks
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $848 million in equity assets per its most recent SEC 13-F filing for Q4/2012. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981.
The company is also a wholly-owned subsidiary of Sprott Inc. that is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. The fund is heavily concentrated in precious metals stocks, including gold, silver and platinum, that accounted for 74% of its investments in the latest December, 2012, quarter filing. Also, 58% of its holdings are in small-cap and micro-cap equities, 29% are in mid-caps, and the remaining 13% are in large-cap equities.
Cont...
http://seekingalpha.com/article/1157671-gold-and-silver-stock-picks-from-billionaire-precious-metals-guru-eric-sprott-s-q4-2012-filing
Gold And Silver Stock Picks From Billionaire Precious Metals Guru Eric Sprott's Q4/2012 Filing
February 5, 2013
GuruFundPicks
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $848 million in equity assets per its most recent SEC 13-F filing for Q4/2012. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981.
The company is also a wholly-owned subsidiary of Sprott Inc. that is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. The fund is heavily concentrated in precious metals stocks, including gold, silver and platinum, that accounted for 74% of its investments in the latest December, 2012, quarter filing. Also, 58% of its holdings are in small-cap and micro-cap equities, 29% are in mid-caps, and the remaining 13% are in large-cap equities.
Cont...
http://seekingalpha.com/article/1157671-gold-and-silver-stock-picks-from-billionaire-precious-metals-guru-eric-sprott-s-q4-2012-filing
Gold And Silver Stock Picks From Billionaire Precious Metals Guru Eric Sprott's Q4/2012 Filing
February 5, 2013
GuruFundPicks
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $848 million in equity assets per its most recent SEC 13-F filing for Q4/2012. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981.
The company is also a wholly-owned subsidiary of Sprott Inc. that is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. The fund is heavily concentrated in precious metals stocks, including gold, silver and platinum, that accounted for 74% of its investments in the latest December, 2012, quarter filing. Also, 58% of its holdings are in small-cap and micro-cap equities, 29% are in mid-caps, and the remaining 13% are in large-cap equities.
Sprott's top precious metals pick in Q4/2012 based on position size and change relative to the prior quarter is Primero Mining Corp. (PPP), a Canadian gold and silver mining company, with operations in Mexico. Vanguard opened a new 1.58 million share or $10.2 million position in the company, accounting for 1.65% of its portfolio. PPP has been one of the strongest performers lately in the precious metals space, up over 150% from the lows last summer, while the average gold stock as represented by the Market Vectors Gold Miners ETF $GDX) is down about 5%-10% during that same period.
PPP just announced its 2013 outlook late last month, with Q4/2012 production of 26,300 gold equivalent oz. coming in at the top end of its guidance, and cash costs of $365 per gold oz. v/s its earlier guidance of $384. Furthermore, the company lifted production guidance for 2013, now expected to be up to 17% higher compared to last year, compared to the 9% year-over-year increase in the last quarter. It also projected 200,000 gold equivalent oz. production in 2015, at 80% above the levels recorded in 2012. While PPP stock is up significantly, and is near its all-time highs, it trades at a respectable 12.4x trailing-twelve-month (TTM) earnings, a discount to the industry average of 13.4. Meanwhile, earnings growth has been strong, having doubled in 2012 v/s 2011, and can be expected to continue higher given the projected 80% increase in production in the next three years. We would be buyers on dips, especially if it nears the 200-day moving average near $5.
Besides PPP, Sprott also increased its position in Canadian gold and silver mining company Keegan Resources Inc. (KGN), engaged in exploration in the Republic of Ghana, adding 0.69 million shares to 3.01 million share prior quarter position.
Additional precious metals companies in which Sprott is bullish based on it holding a large position at the end of Q4/2012 included:
(Cont...)
http://seekingalpha.com/article/1157671-gold-and-silver-stock-picks-from-billionaire-precious-metals-guru-eric-sprott-s-q4-2012-filing
Gold And Silver Stock Picks From Billionaire Precious Metals Guru Eric Sprott's Q4/2012 Filing
February 5, 2013
GuruFundPicks
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Eric Sprott is well known in the investment community for his commitment to precious metals investing, and his track record of earning consistently high returns for his precious metals and natural resource-focused hedge funds. His Toronto-based hedge and mutual fund company, Sprott Asset Management LP, has over $10 billion in assets under management, including $848 million in equity assets per its most recent SEC 13-F filing for Q4/2012. The company was spun-off the asset management business of Sprott Securities, now called Cormark Securities Inc., which Mr. Sprott founded in 1981.
The company is also a wholly-owned subsidiary of Sprott Inc. that is a gold- and resource-focused fund manager that has been offering managed accounts since 1981, the Sprott family of mutual funds since 1997 and a family of long/short funds since 2000. The fund is heavily concentrated in precious metals stocks, including gold, silver and platinum, that accounted for 74% of its investments in the latest December, 2012, quarter filing. Also, 58% of its holdings are in small-cap and micro-cap equities, 29% are in mid-caps, and the remaining 13% are in large-cap equities.
Sprott's top precious metals pick in Q4/2012 based on position size and change relative to the prior quarter is Primero Mining Corp. (PPP), a Canadian gold and silver mining company, with operations in Mexico. Vanguard opened a new 1.58 million share or $10.2 million position in the company, accounting for 1.65% of its portfolio. PPP has been one of the strongest performers lately in the precious metals space, up over 150% from the lows last summer, while the average gold stock as represented by the Market Vectors Gold Miners ETF ($GDX) is down about 5%-10% during that same period.
PPP just announced its 2013 outlook late last month, with Q4/2012 production of 26,300 gold equivalent oz. coming in at the top end of its guidance, and cash costs of $365 per gold oz. v/s its earlier guidance of $384. Furthermore, the company lifted production guidance for 2013, now expected to be up to 17% higher compared to last year, compared to the 9% year-over-year increase in the last quarter. It also projected 200,000 gold equivalent oz. production in 2015, at 80% above the levels recorded in 2012. While PPP stock is up significantly, and is near its all-time highs, it trades at a respectable 12.4x trailing-twelve-month (TTM) earnings, a discount to the industry average of 13.4. Meanwhile, earnings growth has been strong, having doubled in 2012 v/s 2011, and can be expected to continue higher given the projected 80% increase in production in the next three years. We would be buyers on dips, especially if it nears the 200-day moving average near $5.
Besides PPP, Sprott also increased its position in Canadian gold and silver mining company Keegan Resources Inc. (KGN), engaged in exploration in the Republic of Ghana, adding 0.69 million shares to 3.01 million share prior quarter position.
Additional precious metals companies in which Sprott is bullish based on it holding a large position at the end of Q4/2012 included:
First Majestic Silver (AG), a Canadian company engaged in the mining and acquisition of silver properties in Mexico, in which Sprott cut 0.12 million shares from its 4.90 million share prior quarter position.
Fortuna Silver Mines (FSM), a Canadian company engaged in the mining and processing of gold and silver in Peru and Mexico, in which Sprott cut 0.15 million shares from its 8.88 million share prior quarter position.
Silver Wheaton Corp. (SLW), a Canadian buyer of purchase agreements for silver and gold from mining companies operating in Mexico, Sweden and Peru, in which Sprott cut 3,033 shares from its 0.78 million share prior quarter position.
Pretium Resources Inc. (PVG), a Canadian company engaged in the exploration and development of gold and silver properties in British Columbia, in which Sprott added 0.14 million shares to its 1.58 million share prior quarter position.
High conviction bearish moves by Sprott in Q4/2012 in the precious metals group included:
MAG Silver Corp. (MVG), a Canadian company engaged in the acquisition, exploration and development of silver properties in Mexico, in which Sprott sold completely out of its 2.71 million share prior quarter position.
Coeur d'Alene Mines Corp. (CDE), that is engaged in the exploration and development of silver and gold mines in the U.S., Mexico, South America, and Australia, in which Sprott cut 0.50 million shares from it 1.68 million share prior quarter position.
Allied Nevada Gold Corp. (ANV), that is engaged in the exploration, acquisition, development and operation of gold properties in NV, in which Sprott cut 0.42 million shares from its 0.95 million share prior quarter position.
Eldorado Gold Corp. (EGO), that is a Canadian company acquiring, exploring and producing gold and mineral properties in Turkey, China, Brazil and Greece, in which Sprott cut 0.45 million shares from its 0.81 million share prior quarter position.
Barrick Gold Corporation (ABX), a Canadian company engaged in production of gold and copper in Peru, Canada, U.S., Australia, Chile, and five other countries, in which Sprott cut 0.09 million shares from its 0.16 million share prior quarter position.
For full coverage of Sprott's 13-F filing for 4Q/12, and the latest updated 13-F and 13D/G filings of 245 leading Wall St. funds, you may do so for free by registering as a guest on our website, and for those already registered, you can access the full summary here.
(click to enlarge)
Table: Eric Sprott's Precious Metals Picks in Q4/2012
Credit: Fundamental data in this article and company descriptions are based on SEC filings, Zacks Investment Research, Yahoo, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our 'opinions' and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.
Additional disclosure: The article has been written by the Hedge and Mutual Fund Analyst at GuruFundPicks.com. GuruFundPicks.com is not receiving compensation for it (other than from Seeking Alpha). GuruFundPicks.com has no business relationship with any company whose stock is mentioned in this article.
http://seekingalpha.com/article/1157671-gold-and-silver-stock-picks-from-billionaire-precious-metals-guru-eric-sprott-s-q4-2012-filing
Fake American Eagle silver coins surface
By Paul Gilkes Coin World Staff | 02-04-13
Article first published in February-2013, U.S. Collectibles section of Coin World
Counterfeit 2011 American Eagle silver bullion coins have been appearing in the market in Canada. The fake coins bear no silver. Arrows on this fake example point out major diagnostic points, explained in the article and on later images.
A counterfeit 2011 American Eagle silver bullion coin recently passed as genuine at a coin shop in Toronto contains no silver, but does contain a trace amount of gold in its composition.
Andrew Greenham from Forest City Coins in London, Ontario, Canada, obtained the counterfeit from a second Toronto dealer who had acquired 10 examples from yet a third, unidentified, Toronto dealer, who was duped into purchasing the pieces from an unidentified seller, as genuine silver Eagles.
It is unknown how many counterfeit 2011 silver American Eagles were passed as genuine and whether fake silver American Eagles bearing other dates are also in the marketplace.
U.S. Mint spokesman Michael White said Jan. 26 that Mint officials were unaware of the counterfeits. White said he forwarded to the U.S. Secret Service information provided by Coin World about the counterfeits. The Secret Service confirmed being contacted by the Mint.
On Jan. 26, Greenham posted on the Numismatic Guaranty Corp. Collectors Society online forum (boards.collectors-society.com) images and some details about the counterfeit. He posted the information he had obtained in order to educate others about the existence of the counterfeits in the marketplace.
Greenham subsequently had the counterfeit subjected to spectrographic analysis Jan. 29 and provided Coin World with a copy of the results.
According to the University of Chicago website at UChicago.edu, spectrographic analysis is a noninvasive process where chemical elements are determined by measuring the wavelengths or spectral line intensity of a sample of matter. “Spectroscopes break down the light emitted or absorbed by chemical elements into specific lines of color,” according to the website.
“Every chemical element has a ‘fingerprint’ of its own that can be used to identify it.”
While the composition of a genuine American Eagle silver bullion coin is supposed to be .999 fine silver, the spectrographic analysis of Greenham’s counterfeit 2011 piece discovered a homogenous composition of the following:
??50.4753 percent nickel
??39.3614 percent copper
??10.1163 percent zinc
??0.0271 percent gold
Greenham said officials at the unidentified facility where the spectrographic analysis was conducted suggest that “the gold is probably an anomaly, as it wouldn’t make sense to put any of that in there.”
Collector comments
Comments posted by collectors and dealers on the NGC Collectors Society message board after Greenham posted his images of the counterfeit suggest the fake could fool the unsuspecting unless a detailed examination were made. Other collectors suggested the designs were crude, showing Liberty as having a Hobbit face, mannish, almost resembling Bilbo Baggins, the main character in the novel and movie The Hobbit.
One St. Louis dealer indicated on the message board that his firm has seen similar counterfeits.
“We’ve gotten nailed by similar fakes,” the dealer posted. “The sellers will often take a roll of genuine coins and swap out a few in the middle. Thus, cursory inspection, or even quickly rifling through the ‘roll’ fails to reveal the fakes. We keep some fakes on-hand for employees to look at and learn what to watch out for.”
Said another: “Goofy obverse. They could easily be slipped into solid date rolls without many noticing. Not many people weigh each Eagle when they purchase, [especially] if you are buying more than 10. They could pass. That’s the scary part. Lots of newbies buy Eagles for some reason or another. I could easily see people buying these, [because] they are good enough to be a threat.”
General differences
Among the general differences, the weight of the counterfeit is 32.608 grams compared with the statutory weight of 31.101 grams for a genuine American Eagle silver bullion coin. The fake is thicker than the genuine coin, by as much as 20 to 25 percent, but the diameter of the fake is slightly smaller than the standard 40.6 millimeters.
The die orientation of obverse to reverse on the counterfeit is medal turn, not coin turn. For a U.S. coin, when its obverse is right side up, turning the coin on its vertical axis will reveal an upside-down view of the reverse.
In medal turn, which is what appears on the fake silver American Eagle, the obverse and reverse both face right side up at the same time.
Some differences noted on the obverse of the counterfeit, compared against the genuine coin’s obverse, are these:
??Liberty’s jawline on the counterfeit American Eagle silver bullion coin is more masculine, almost appearing bearded.
??On the counterfeit American Eagle, the lettering is thinner and not as defined as on a genuine example.
??The date digits are larger on the fake American Eagle and spaced farther apart.
??The length of the first ray to the left of the sun is shorter on the fake silver American Eagle coin.
??The top of the L in LIBERTY on the fake extends farther left of the third ray.
??The E in LIBERTY on the counterfeit version is almost completely exposed, while on a genuine American Eagle silver bullion coin the bottom bar of the E is almost completely covered.
When comparing the reverse of the counterfeit 2011 American Eagle silver bullion coin to a genuine example, note among the differences:
??The lettering is thinner on the counterfeit; the tail of the U in UNITED is also longer. The tail was added to the genuine American Eagle design in 2008.
??The stars above the eagle’s head are slighter smaller and not as sharp in detail on the fake as on the genuine American Eagle silver bullion coin.
??The eagle’s beak on the fake American Eagle is larger than on the genuine coin, almost parrotlike in shape.
??The feathers on the eagle’s head and neck on the counterfeit coin are not clearly defined as they can be found on the genuine silver American Eagle.
Why a silver bullion coin?
Why would anyone want to counterfeit an American Eagle silver bullion coin?
“Money,” Greenham said. “There are fake $2 coins here in Canada. Why bother faking a $2 coin? Because it’s profitable.”
Greenham says he doesn’t see enough American Eagle silver bullion coins in his coin transactions to have all of the fine details memorized.
“Perhaps that’s why they showed up in Canada, as we’re all used to our Maple [Leaf], much more so than the American Eagle,” Greenham said in his posting at the NGC website.
“They [the counterfeits] were originally presented for sale to a Canadian dealer. I was told they were in capsules and then in 12 or 20 pocket pages. If the dealer was pretty busy or distracted in some way, he may not think about inspecting them closely. As I said, if the first sale was successful, the seller would then bring out some tubes.
“For me, whatever I’m buying, I’m paying attention. I [believe] I would have stopped and compared with another Eagle, because of the strangeness of the look. But when you’re busy and need to get to the next guy, ...” Greenham said.
http://www.coinworld.com/articles/viewarticle/fake-american-eagle-silver-coins-surface
Exclusive: Foreigners' accounts in U.S. banks eyed in tax crackdown
By Patrick Temple-West
WASHINGTON | Mon Feb 4, 2013 6:59pm EST
(Reuters) - The Obama administration may soon ask Congress for the power to require more disclosure by U.S. banks of information about foreign clients' accounts to those clients' home governments, as part of a crackdown on tax evasion, sources said on Monday.
In a move facing resistance from some in the U.S. banking industry, two tax industry sources said the administration was considering asking Congress in an upcoming White House budget proposal for the authority to require more disclosure from U.S. banks.
The information-sharing effort stems from a fight by the Treasury Department against offshore tax evasion under the Foreign Account Tax Compliance Act, or FATCA, adopted in 2010 and set to begin taking effect at the end of 2013.
At the heart of FATCA is a law requiring more disclosure by non-U.S. banks of information about Americans' accounts to the Internal Revenue Service, with the goal of exposing Americans' efforts to dodge U.S. taxes through secret offshore accounts.
As Treasury has implemented FATCA, some countries - possibly including France, Germany and China - were said to be driving a hard bargain. They have been saying that if their banks have to tell the IRS about Americans' secret accounts, then U.S. banks should have to reciprocate by disclosing more information about the U.S. accounts of French, German and Chinese nationals.
"The United States is committed to a policy of transparency and equivalence, where appropriate, in furtherance of international cooperation to combat offshore tax evasion," said a Treasury spokesman, declining to comment more specifically.
The president's next budget plan is expected within weeks.
PUSHBACK ON FATCA
FATCA requires non-U.S. banks, investment funds and other financial institutions to tell the IRS about accounts held by Americans with more than $50,000. Foreign firms that ignore the law could be frozen out of U.S. financial markets.
When FATCA was first approved, many foreign banks complained that they could not comply without violating their home countries' financial privacy laws. So Treasury started negotiating bilateral FATCA agreements with foreign governments so they could be go-betweens for their banks and the IRS.
Only four bilateral pacts are fully completed, with the United Kingdom, Denmark, Ireland and Mexico. U.S. Treasury officials are still negotiating with more than 50 other countries.
Deals are pending with major trading partners such as France, Germany, Italy, Japan, Switzerland, Canada and the Netherlands.
China has been publicly dismissive of FATCA, but it is talking with U.S. officials behind the scenes, sources said.
"The People's Republic of China may be particularly interested in a reciprocal exchange of FATCA information," said Karl Egbert, a lawyer with law firm Dechert LLP in Hong Kong.
France and Germany "have been asking for something more like full reciprocity," said Jonathan Jackel, a lawyer with the law firm of Burt Staples & Maner LLP in Washington, D.C.
The United States already shares some taxpayer information with foreign countries with which it has a tax treaty or a formal information-sharing agreement.
MORE INFORMATION SHARING
The Treasury Department has acknowledged that more information sharing would be appropriate. The completed FATCA pacts include commitments "to pursue equivalent levels of reciprocal automatic exchange in the future," according to an October 2012 letter from Treasury Assistant Secretary for Tax Policy Mark Mazur to members of Congress.
The IRS this year started disclosing to some foreign governments information about bank interest payments earned by their citizens with U.S. bank accounts. This has raised privacy concerns, particularly for Mexican nationals.
"We are concerned with Latin American countries like Mexico," said Fran Mordi, senior tax counsel at the American Bankers Association. "In the past, U.S. banks didn't report interest payments to non-resident aliens ... IRS is now saying you have to report that."
The Texas Bankers Association is considering a lawsuit against the government to stop accountholder information sharing with Mexico, said Eric Sandberg, the group's president.
Treasury officials have said Mexico's tax-collecting agency was carefully vetted and that officials checked with other U.S. agencies that share sensitive information with Mexico before agreeing to provide the tax information.
"The United States should be moving toward full reciprocity," said Georgetown Law School Professor Itai Grinberg, a former Treasury official, adding it would be "deeply hypocritical" of the United States to ask for U.S. taxpayer information "without offering some kind of reciprocity."
(Reporting by Patrick Temple-West; editing by Kevin Drawbaugh, G Crosse)
http://www.reuters.com/article/2013/02/04/us-usa-tax-fatca-idUSBRE91312W20130204
How to Monitor the Gold and Silver Premium Between Shanghai and London
Feb.3, 2013
He who searches, will find what he's searching for (or something like that).
In a previous post here, I noticed that the silver prices between Shanghai and London were decoupling, with premiums as high as 10%. I didn't know where to find this Shanghai Exchange silver price.
But today I think I found the site that gives these gold and silver prices (for free).
You can find it on Bloomberg:
www.bloomberg.com/quote/SHGFAUTD:IND
www.bloomberg.com/quote/SHGFAGTD:IND
And when Bloomberg restricts access to their site, you can find it here: www.sge.sh/publish/sgeen/sge_price/sge_price_daily/9550.htm
Gold for example: On February 1 the Shanghai gold price was: 334.63 RMB/g. Which is 39339 Euro/Kg at 8.506 EUR/CNY. The London price of gold on 1 February 2013 was 39297 Euro/Kg. So the premium was 0.1% (which is normal because there shouldn't be a premium).
Silver for example: On 21 December 2012 the Shanghai silver price was: 6.277 RMB/g. Which is 760.8 Euro/Kg at 8.25 EUR/CNY. The London price of silver on 21 December 2012 was $29.89/ounce or 22.61 euro/ounce at 1.322 EUR/USD. That's 726.9 Euro/Kg or indeed a 5% premium as was reported by Andrew Maguire.
This also means that I'm going to monitor the Shanghai Silver and Gold premiums to London market with this data on a daily basis!
Geplaatst door Albert Sung op 11:36
http://katchum.blogspot.com/2013/02/how-to-monitor-gold-and-silver-premium.html
Kyle Bass Tells 'Nominal' Stock Market Cheerleaders: Remember Zimbabwe
by Tyler Durden on 02/01/2013
Amid the euphoria of today's crossing of the Dow's Maginot Line at 14,000, Kyle Bass provided a few minutes of sanity this morning in an interview with CNBC's Gary Kaminsky. Bass starts by reflecting on the ongoing (and escalating) money-printing (or balance sheet expansion as we noted here) as the driver of stock movements currently and would not be surprised to see them move higher still (given the ongoing printing expected). However, he caveats that nominally bullish statement with a critical point, "Zimbabwe's stock market was the best performer this decade - but your entire portfolio now buys you 3 eggs" as purchasing power is crushed. Investors, he says, are "too focused on nominal prices" as the rate of growth of the monetary base is destroying true wealth. Bass is convinced that cost-push inflation is coming (as the velocity of money will move once psychology shifts) and investors must not take their eye off the insidious nature of underlying inflation - no matter what we are told by the government (as they will always lie when its critical). Own 'productive assets', finance them at low fixed rates (thank you Ben), and finally, on HLF, don't bet against Dan Loeb.
Videolink (6 min)
http://www.zerohedge.com/news/2013-02-01/kyle-bass-tells-nominal-stock-market-cheerleaders-remember-zimbabwe
What’s behind moving Swiss Bank clients from unallocated to ‘allocated’ gold accounts?
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch - GoldForecaster.com
Friday, 1 February 2013 Source: GoldSeek.com
Swiss banks UBS and Credit Suisse have moved to offer ‘allocated’ gold and silver accounts to their clients, including high net worth individuals, hedge funds, other banks and institutions. The move allows these entities to take direct ownership of their bullion in ‘allocated’ accounts. In addition, their storage fees have been raised by 20%.
The reason being is that the banks say that they are making the move to reduce exposure and risks on balance sheets and in an effort to be more transparent. Is there more to this than meets the eye? We believe there is, much more, and it is a warning for us!
First let’s look at what the actions mean.
‘Unallocated’ Gold
The London Bullion Market Association defines an “Unallocated account as an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding gold.”
The story of Germany’s gold being repatriated to Germany highlighted that Germany’s gold is ‘unallocated’ in foreign central banks. Most gold owners hold their gold in storage systems where it is ‘unallocated’. The downside is that the owner of ‘unallocated’ gold is an unsecured creditor of the storage company. So if you hold your gold at a bank in this way and it goes bust, then you will have to wait and hope you get at least some of your money back.
‘Allocated Gold’
An ‘allocated’ gold account is where a customer has his gold physically segregated and is given a detailed list of the weights and assays of his gold. The gold is held in the customer’s name and owned by him still. In this case, his gold cannot be taken by the Custodian or bank’s creditors should the bank go bust. The gold would in that case be moved on the instructions of the beneficial owner.
Please note, though, that the clients of UBS and Credit Suisse have been ‘offered’ allocated accounts, they had not requested them. ‘Allocated’ accounts are more costly so it is no surprise that the costs of storing customer’s gold has risen 20%.
As we said, there is far more behind this story than is apparent at first.
History of UBS and Credit Suisse in the U.S.
Let’s look at the recent history of UBS and Credit Suisse in the U.S. Add to this other Swiss banks under investigation for assisting U.S. citizens evade taxes, an investigation that is ongoing and costing Swiss banks (in the U.S. – not in Switzerland) huge fines to keep banking there.
Switzerland has laws which protect banking secrecy. If a Swiss banker discloses client information outside the bank, then he is liable for imprisonment. Switzerland, after all, has a history of over 300 years of protecting the assets of foreigners during World Wars and from outside governmental pressures.
Even in the recent UBS scandal, where it was accused by the U.S. I.R.S. of harboring U.S. tax evaders, these bankers of UBS in the States face imprisonment inside the U.S. if they did not disclose the names of account holders and faced imprisonment in Switzerland if they did disclose names.
After lengthy negotiations that included the Swiss Government, it was decided to disclose the names of 4,050 names out of 45,000 U.S. client so UBS. It appears that the Swiss government acceded to the principal that a tax evader was a criminal and so his information could be handed to the U.S. authorities, but the Swiss government refused to allow the disclosure of all 45,000 names, which is what the I.R.S. wanted. So the Swiss kept their integrity, the I.R.S. got (only) 4,050 tax evaders and Swiss bankers did not go to prison, but UBS got a massive fine, which they had to pay to continue banking in the U.S.
During that entire time and through until now, Swiss banks have been loathe to take on U.S. clients and have been nervous about continuing to keep the ones they already have. It becomes clear that the current story of offering ‘allocated’ accounts fits neatly into this story. Many Swiss banks simply dropped U.S. customers and refused new ones, erroneously believing that it would get rid of the problem.
Threat of FATCA
What is particularly terrifying to Swiss bankers is the new tax system being formulated called FATCA (Foreign Account Tax Compliance Act) which came into effect in 2010, but will only be fully in effect in 2014 with IRS agreement. In this system there are features that will affect financial institutions worldwide. Here are some of the reasons why Swiss banks are changing their handling of clients:
· FATCA will impose all sorts of reporting requirements on U.S. taxpayers with foreign financial accounts. This is in ADDITION to form TDF 90-22.1, which is due to the Treasury Department each year by June 30th, and IRS form 1040 schedule B. Transparency will become the order of the day.
· The law requires ALL financial institutions across the world to share personal customer information with the U.S. authorities. Undoubtedly, all allies of the U.S. such as Canada as well as the rest of the developed world will cooperate with them quicker than others. Under certain conditions this could be extended to include gold and other precious metals, easily.
· FATCA has failed to define the terms, “foreign financial institution” and “foreign financial account“. These are defined generally just as a “financial security” is a transferable ownership right over an asset. Likewise a “financial institution” deals in and handles “financial securities”. Foreign nations have their own definitions of “foreign financial institutions” and ‘foreign financial account’s. No doubt these definitions will be accepted by the U.S. authorities.
· The law was passed in 2010 (final implementation 2014) when it became the responsibility of the IRS to interpret Congress’s intent in implementing FATCA. We expect a release of their interpretation of FATCA any time now.
Swiss Banking Reactions
Swiss banks are opting for the pain-free option of having their clients own their gold in their own name in ‘allocated’ accounts. This allows them to duck the issue of disclosure to the authorities and passes it to the clients themselves. It also allows Swiss Banks to step out of the way should the U.S. authorities want to reach out and take that gold! And we feel that this is a real reason behind their move.
While gold dealers are not regulated and not treated as financial institutions, the concept of transparency will apply to them under certain circumstances –this could have huge ramifications in the future for their clients.
At the moment, there is no requirement for reporting gold holdings or other precious metal holdings offshore, but if the IRS does not extend such reporting to precious metal owners, then it’s a small step for them to do so and at their discretion.
What Future Events are the Swiss Banks Pre-empting?
If banks are doing this now, why? What monetary situation do they see? Do they expect the U.S. authorities to reach out for their citizen’s gold outside of the U.S.? The pains they have suffered at the hands of the I.R.S. so far have forced them to look ahead and ensure they stay on the right side of these people.
So let’s look around at what they are seeing:
· Germany has decided to bring half its gold home to be available for use in future crises, which they seem to expect. Which other central banks will follow?
· Emerging nation’s central banks are continuously buying gold now, likely for the same reasons.
· There is a massive change due in the global reserve currency scene when the Yuan arrives as a global reserve currency, no matter how careful China is. Uncertainty and instability will be present as power moves east to the detriment of the developed world, it’s unavoidable.
· Gold is moving to a pivotal position in the global monetary system (see the World Gold Council’s OMFIF report released two weeks ago – www.gold.org).
· The future holds a scene of tremendous uncertainty in the international currency scene and one where gold is going to have to play a significant and possibly central role!
You can be sure that the Swiss banks foresee a coming situation that will keep them out of the crosshairs of the U.S. monetary authorities. It’s on the direct owners of that gold that the crosshairs of the authorities will settle.
Not Enough Gold out There!
And the fact of the matter is that the gold market doesn’t have enough gold at these prices. With newly mined gold supply at around 2,800 tonnes and ‘recycled gold over the last four years at around 1,700 tonnes and usually re-bought by the sellers at lower prices, the open market would be too small to supply the central banks and the commercial banks –who would want them in their coffers as a counter to the currencies they hold in their reserves— even if prices were pushed much higher.
Additionally, gold producing countries would probably take the local production directly into their reserves just as China is believed to be doing now, which would severely lower the newly-mined gold availability.
Higher prices and the resultant gold selling may yield a greater supply, but prices would have to be significantly higher. And then the scramble between central banks for that extra gold would destabilise and disrupt the gold market. That’s just what the banking system would not want to see. Nor do buyers of gold. They would act in a manner that would leave gold markets stable. There is only one way that that could be the case.
The only way for central banks to get a sizeable quantity of gold would be to take it off their citizens, through confiscation, nation by nation:
· There the gold could be taken and paid for at current market prices.
· The largest sources of local gold would be Custodians, gold dealers, and the large holders of gold.
· But governments would have to issue a blanket confiscation Order covering all gold owners. In the last ‘Confiscation Order’ in the U.S. in 1933, citizens were allowed to retain 5 ounces of gold each. The Order was rescinded in 1974.
This is not only our opinion it seems. The highly respected Casey Research and renowned Marc Faber sense the dangers coming in the gold market. Marc Faber has warned of confiscation and Casey Research advised holding gold outside the U.S.
Gold Dealers in the Same Place as Swiss Bank and Allocated Accounts
The key point to understand in the moves of the Swiss banks is that they are pushing clients to hold their gold directly in their name. This is what happens when you live in the U.S. and hold your gold overseas. You may think that holding gold outside the U.S. in your own name will protect you from the rapacious arm of your government, but it will not!
A repeated fact of history is that governments do not venture into a foreign Jurisdiction to impose their laws. They attack those they feel they should within their own Jurisdictions.
UBS and other Swiss banks were attacked inside the U.S. Remember, under FATCA and FBAT your personal information is fully available to your authorities including foreign holdings. It is a small step to extend that to precious metal holdings!
The authorities will also require gold dealers as well as all financial institutions to disclose client holdings too. Under FATCA this is likely to be extended to gold dealers overseas particularly those in Britain (and the Channel Islands) and in Canada. This will even include Swiss institutions doing business in those countries.
Then it is simply a matter of forcing you to either transfer your gold to them or under threat of penalty forcing you to repatriate your gold!
The gold will flow home. Swiss banks will be in the clear and your friendly neighborhood gold dealer will have to exit the business.
But your national banking system will look healthier with the gold countering the falling value of currencies.
Protect against the confiscation of your gold by contacting us through www.GoldForecaster.com or admin@Stockbridgemgmt.com for more information.
Way out of the Trap
There is a way out of the closing net being prepared (if Swiss bank actions are anything to go buy) but this article is not the place to give you all the details (and the author does have an interest in the system, which he himself designed) but it was designed with FATCA FBAT and the Confiscation of gold in mind.
The system is designed to let you continue to own the gold you now own (sell it when you want) not have it confiscated and to not disobey the confiscation order at home, so as to not be liable for the penalties that will surely be threatened! Please send your enquiries to admin@stockbrigemgmt.com.
We know of no other system that offers you protections against confiscations and we are certain that confiscation has now moved from possible to probable.
Protect against the confiscation of your gold by contacting us through www.GoldForecaster.com or admin@Stockbridgemgmt.com for more information.
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· Way out of the Trap
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What’s behind moving Swiss Bank clients from unallocated to ‘allocated’ gold accounts?
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch - GoldForecaster.com
Friday, 1 February 2013 Source: GoldSeek.com
Swiss banks UBS and Credit Suisse have moved to offer ‘allocated’ gold and silver accounts to their clients, including high net worth individuals, hedge funds, other banks and institutions. The move allows these entities to take direct ownership of their bullion in ‘allocated’ accounts. In addition, their storage fees have been raised by 20%.
The reason being is that the banks say that they are making the move to reduce exposure and risks on balance sheets and in an effort to be more transparent. Is there more to this than meets the eye? We believe there is, much more, and it is a warning for us!
First let’s look at what the actions mean.
‘Unallocated’ Gold
The London Bullion Market Association defines an “Unallocated account as an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding gold.”
The story of Germany’s gold being repatriated to Germany highlighted that Germany’s gold is ‘unallocated’ in foreign central banks. Most gold owners hold their gold in storage systems where it is ‘unallocated’. The downside is that the owner of ‘unallocated’ gold is an unsecured creditor of the storage company. So if you hold your gold at a bank in this way and it goes bust, then you will have to wait and hope you get at least some of your money back.
‘Allocated Gold’
An ‘allocated’ gold account is where a customer has his gold physically segregated and is given a detailed list of the weights and assays of his gold. The gold is held in the customer’s name and owned by him still. In this case, his gold cannot be taken by the Custodian or bank’s creditors should the bank go bust. The gold would in that case be moved on the instructions of the beneficial owner.
Please note, though, that the clients of UBS and Credit Suisse have been ‘offered’ allocated accounts, they had not requested them. ‘Allocated’ accounts are more costly so it is no surprise that the costs of storing customer’s gold has risen 20%.
As we said, there is far more behind this story than is apparent at first.
History of UBS and Credit Suisse in the U.S.
Let’s look at the recent history of UBS and Credit Suisse in the U.S. Add to this other Swiss banks under investigation for assisting U.S. citizens evade taxes, an investigation that is ongoing and costing Swiss banks (in the U.S. – not in Switzerland) huge fines to keep banking there.
Switzerland has laws which protect banking secrecy. If a Swiss banker discloses client information outside the bank, then he is liable for imprisonment. Switzerland, after all, has a history of over 300 years of protecting the assets of foreigners during World Wars and from outside governmental pressures.
Even in the recent UBS scandal, where it was accused by the U.S. I.R.S. of harboring U.S. tax evaders, these bankers of UBS in the States face imprisonment inside the U.S. if they did not disclose the names of account holders and faced imprisonment in Switzerland if they did disclose names.
After lengthy negotiations that included the Swiss Government, it was decided to disclose the names of 4,050 names out of 45,000 U.S. client so UBS. It appears that the Swiss government acceded to the principal that a tax evader was a criminal and so his information could be handed to the U.S. authorities, but the Swiss government refused to allow the disclosure of all 45,000 names, which is what the I.R.S. wanted. So the Swiss kept their integrity, the I.R.S. got (only) 4,050 tax evaders and Swiss bankers did not go to prison, but UBS got a massive fine, which they had to pay to continue banking in the U.S.
During that entire time and through until now, Swiss banks have been loathe to take on U.S. clients and have been nervous about continuing to keep the ones they already have. It becomes clear that the current story of offering ‘allocated’ accounts fits neatly into this story. Many Swiss banks simply dropped U.S. customers and refused new ones, erroneously believing that it would get rid of the problem.
Threat of FATCA
What is particularly terrifying to Swiss bankers is the new tax system being formulated called FATCA (Foreign Account Tax Compliance Act) which came into effect in 2010, but will only be fully in effect in 2014 with IRS agreement. In this system there are features that will affect financial institutions worldwide. Here are some of the reasons why Swiss banks are changing their handling of clients:
· FATCA will impose all sorts of reporting requirements on U.S. taxpayers with foreign financial accounts. This is in ADDITION to form TDF 90-22.1, which is due to the Treasury Department each year by June 30th, and IRS form 1040 schedule B. Transparency will become the order of the day.
· The law requires ALL financial institutions across the world to share personal customer information with the U.S. authorities. Undoubtedly, all allies of the U.S. such as Canada as well as the rest of the developed world will cooperate with them quicker than others. Under certain conditions this could be extended to include gold and other precious metals, easily.
· FATCA has failed to define the terms, “foreign financial institution” and “foreign financial account“. These are defined generally just as a “financial security” is a transferable ownership right over an asset. Likewise a “financial institution” deals in and handles “financial securities”. Foreign nations have their own definitions of “foreign financial institutions” and ‘foreign financial account’s. No doubt these definitions will be accepted by the U.S. authorities.
· The law was passed in 2010 (final implementation 2014) when it became the responsibility of the IRS to interpret Congress’s intent in implementing FATCA. We expect a release of their interpretation of FATCA any time now.
Swiss Banking Reactions
Swiss banks are opting for the pain-free option of having their clients own their gold in their own name in ‘allocated’ accounts. This allows them to duck the issue of disclosure to the authorities and passes it to the clients themselves. It also allows Swiss Banks to step out of the way should the U.S. authorities want to reach out and take that gold! And we feel that this is a real reason behind their move.
While gold dealers are not regulated and not treated as financial institutions, the concept of transparency will apply to them under certain circumstances –this could have huge ramifications in the future for their clients.
At the moment, there is no requirement for reporting gold holdings or other precious metal holdings offshore, but if the IRS does not extend such reporting to precious metal owners, then it’s a small step for them to do so and at their discretion.
What Future Events are the Swiss Banks Pre-empting?
If banks are doing this now, why? What monetary situation do they see? Do they expect the U.S. authorities to reach out for their citizen’s gold outside of the U.S.? The pains they have suffered at the hands of the I.R.S. so far have forced them to look ahead and ensure they stay on the right side of these people.
So let’s look around at what they are seeing:
· Germany has decided to bring half its gold home to be available for use in future crises, which they seem to expect. Which other central banks will follow?
· Emerging nation’s central banks are continuously buying gold now, likely for the same reasons.
· There is a massive change due in the global reserve currency scene when the Yuan arrives as a global reserve currency, no matter how careful China is. Uncertainty and instability will be present as power moves east to the detriment of the developed world, it’s unavoidable.
· Gold is moving to a pivotal position in the global monetary system (see the World Gold Council’s OMFIF report released two weeks ago – www.gold.org).
· The future holds a scene of tremendous uncertainty in the international currency scene and one where gold is going to have to play a significant and possibly central role!
You can be sure that the Swiss banks foresee a coming situation that will keep them out of the crosshairs of the U.S. monetary authorities. It’s on the direct owners of that gold that the crosshairs of the authorities will settle.
Not Enough Gold out There!
And the fact of the matter is that the gold market doesn’t have enough gold at these prices. With newly mined gold supply at around 2,800 tonnes and ‘recycled gold over the last four years at around 1,700 tonnes and usually re-bought by the sellers at lower prices, the open market would be too small to supply the central banks and the commercial banks –who would want them in their coffers as a counter to the currencies they hold in their reserves— even if prices were pushed much higher.
Additionally, gold producing countries would probably take the local production directly into their reserves just as China is believed to be doing now, which would severely lower the newly-mined gold availability.
Higher prices and the resultant gold selling may yield a greater supply, but prices would have to be significantly higher. And then the scramble between central banks for that extra gold would destabilise and disrupt the gold market. That’s just what the banking system would not want to see. Nor do buyers of gold. They would act in a manner that would leave gold markets stable. There is only one way that that could be the case.
The only way for central banks to get a sizeable quantity of gold would be to take it off their citizens, through confiscation, nation by nation:
· There the gold could be taken and paid for at current market prices.
· The largest sources of local gold would be Custodians, gold dealers, and the large holders of gold.
· But governments would have to issue a blanket confiscation Order covering all gold owners. In the last ‘Confiscation Order’ in the U.S. in 1933, citizens were allowed to retain 5 ounces of gold each. The Order was rescinded in 1974.
This is not only our opinion it seems. The highly respected Casey Research and renowned Marc Faber sense the dangers coming in the gold market. Marc Faber has warned of confiscation and Casey Research advised holding gold outside the U.S.
Gold Dealers in the Same Place as Swiss Bank and Allocated Accounts
The key point to understand in the moves of the Swiss banks is that they are pushing clients to hold their gold directly in their name. This is what happens when you live in the U.S. and hold your gold overseas. You may think that holding gold outside the U.S. in your own name will protect you from the rapacious arm of your government, but it will not!
A repeated fact of history is that governments do not venture into a foreign Jurisdiction to impose their laws. They attack those they feel they should within their own Jurisdictions.
UBS and other Swiss banks were attacked inside the U.S. Remember, under FATCA and FBAT your personal information is fully available to your authorities including foreign holdings. It is a small step to extend that to precious metal holdings!
The authorities will also require gold dealers as well as all financial institutions to disclose client holdings too. Under FATCA this is likely to be extended to gold dealers overseas particularly those in Britain (and the Channel Islands) and in Canada. This will even include Swiss institutions doing business in those countries.
Then it is simply a matter of forcing you to either transfer your gold to them or under threat of penalty forcing you to repatriate your gold!
The gold will flow home. Swiss banks will be in the clear and your friendly neighborhood gold dealer will have to exit the business.
But your national banking system will look healthier with the gold countering the falling value of currencies.
Protect against the confiscation of your gold by contacting us through www.GoldForecaster.com or admin@Stockbridgemgmt.com for more information.
Way out of the Trap
There is a way out of the closing net being prepared (if Swiss bank actions are anything to go buy) but this article is not the place to give you all the details (and the author does have an interest in the system, which he himself designed) but it was designed with FATCA FBAT and the Confiscation of gold in mind.
The system is designed to let you continue to own the gold you now own (sell it when you want) not have it confiscated and to not disobey the confiscation order at home, so as to not be liable for the penalties that will surely be threatened! Please send your enquiries to admin@stockbrigemgmt.com.
We know of no other system that offers you protections against confiscations and we are certain that confiscation has now moved from possible to probable.
Protect against the confiscation of your gold by contacting us through www.GoldForecaster.com or admin@Stockbridgemgmt.com for more information.
Get the rest of the article:
· Way out of the Trap
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Syria Threatens "Surprise" Response To Israel Air Raid; Iran And Russia Pile In
Tyler Durden on 01/31/2013 14:20 -0500
In the aftermath of yesterday's surprising attack by Israel on Syrian soil, an act which any prior justification notwithstanding is a clear act of war sovereign aggression, it was only a matter of time before Syria responded, at least diplomatically at first. And as we also noted yesterday that "Iran has previously warned that any attack on Syria is the same as an attack on Iran" it was safe to assume that Iran would have a thing or two to say in response as well. Earlier today they did just that, with Syria warning that a "surprise" response to the Israel attack is forthcoming, while the "Iranian deputy foreign minister Hossein Amir Abdullahian said the attack "demonstrates the shared goals of terrorists and the Zionist regime... It is necessary for the sides which take tough stances on Syria to now take serious steps and decisive stances against this aggression by Tel Aviv and uphold criteria for security in the region." Finally yesterday we wondered "how Russia and/or China which have made clear that Syria is a strategic geopolitical center for both in the past will react", and today we know: "Russia, which has blocked Western efforts to put pressure on Syria at the United Nations, said that any Israeli air strike would amount to unacceptable military interference." So far nothing from China, which has in the past let Russia be its proxy on Syrian matters.
And while the rhetoric has soared on all sides, it remains to be seen if Syria will indeed challenge Israel or if it will retain its bluster, an act which will simply invite Bibi to launch ever more offensive sorties until one day something finally does snap.
From Reuters:
Syria protested to the United Nations on Thursday over an Israeli air strike on its territory and warned of a possible "surprise" response.
The foreign ministry summoned the head of the U.N. force in the Israeli-occupied Golan Heights to deliver the protest a day after Israel hit what Syria said was a military research centre and diplomats said was a weapons convoy heading for Lebanon.
"Syria holds Israel and those who protect it in the Security Council fully responsible for the results of this aggression and affirms its right to defend itself, its land and sovereignty," Syrian television quoted it as saying.
The ministry said it considered Wednesday's Israeli attack to be a violation of a 1974 military disengagement agreement which followed their last major war, and demanded the U.N. Security Council condemn it unequivocally.
U.N. Secretary-General Ban Ki-moon expressed "grave concern". "The Secretary-General calls on all concerned to prevent tensions or their escalation," his office said, adding that international law and sovereignty should be respected.
Russia, which has previously made it very clear it will not tolerate US intervention in what it considers it own backyard, was quick at passing judgment:
"If this information is confirmed, we are dealing with unprovoked attacks on targets on the territory of a sovereign country, which blatantly violates the U.N. Charter and is unacceptable, no matter the motives," Russia's foreign ministry said.
Finally, Iran:
An aide to Supreme Leader Ayatollah Ali Khamenei said on Saturday Iran would consider any attack on Syria as an attack on itself.
Yet the local Syrians, like most, are very skeptical this war of words will escalate into anything more:
In battle-torn Damascus, residents doubted Syria would fight back. One mother of five said she had heard retaliation would come later. "They always say that. They'll retaliate, but later, not now. Always later," she said, and laughed.
"The last thing we need now is Israeli fighter jets to add to our daily routine. As if we don't have enough noise and firing keeping us awake at night."
Then again, provoking a Syrian retaliation has been the plan all along. Which is why moments ago, just to keep Plan B afloat, Reuters blasted that:
WHITE HOUSE SAYS IRAN'S INSTALLATION OF ADVANCED URANIUM ENRICHMENT CENTRIFUGES WOULD BE PROVOCATIVE STEP IN VIOLATION OF U.N. RESOLUTIONS
Cue more photoshopped pictures of WMDs
http://www.zerohedge.com/news/2013-01-31/syria-threatens-surprise-response-israel-air-raid-iran-and-russia-pile
Countdown to the Collapse
Jan.31, 2013
John Butler
On multiple fronts there appears to have been a resumption of hostilities in the global currency wars. A subtle indication of this is the recently released report, Gold, the Renminbi and the Multi-Currency Reserve System, which I believe is highly significant for two reasons: First, it demonstrates that major global actors are now keenly aware and frightened of the possibility of a major breakdown in international monetary relations. Second, it suggests that these same actors are trying to contain the growing demand for gold as an alternative reserve asset and pre-empt an uncontrolled gold remonetization. These efforts will fail. A collapse of the current, unstable global monetary equilibrium is inevitable. Recent events indicate that the countdown has begun.
Breaking the Cease-Fire
Curiously, in the second half of 2011 and through most of 2012, notwithstanding the escalating euro-crisis, US ratings downgrade, Japan's protracted nuclear disaster and sharply divergent global growth rates, there was surprisingly little volatility in foreign exchange markets. EUR/USD traded mostly in the historically narrow range of 1.40-1.25. USD/JPY was in a range of from 76-82. The Chinese renminbi held between 6.4 and 6.2. GBP/USD moved within 1.54-162. The Swiss franc was also steady at around 1.20 versus the euro, although this was the result of an explicit Swiss policy of capping the franc at that level.
In retrospect, it appears that this period was characterised by a general 'cease-fire' in the global currency wars ignited by the global financial crisis of 2008.[1] Rather than attempt directly to devalue currencies to stimulate exports at trading partners' expense, the focus during this period was primarily on measures to support domestic demand.
There has now been a resumption of hostilities. The first shots were fired by the Japanese, where national elections were held in December. The victorious LDP party campaigned on a platform that, if elected, they would increase the powers of the Ministry of Finance to force the Bank of Japan into more aggressive monetary easing. The LDP also has voiced support for either a higher BoJ inflation target or a nominal GDP growth target.
Combined with poor economic data, this had a dramatic impact on the yen, which has subsequently declined by about 10% versus the dollar and 15% versus the euro. This is the weakest the yen has been in broad, trade-weighted terms since 2011.
Now it is understandable that Japan should desire a weaker yen. Japan is no longer running a trade surplus, in part because it is importing a record amount of energy following the decision to scale back the production of nuclear energy. Moreover, demographics are such that the proportion of retired Japanese is growing rapidly. As Japan's ageing population draws down its savings to fund retirement, this implies that Japan will be saving less and consuming more relative to the rest of the world.
But while Japan has an interest in a weaker yen, many other countries have an interest in weaker currencies too. Much of Asia has been following a classic, mercantilist growth model ever since the Asian credit/currency crises of 1997-98, seeking to export more than they import. They are still inclined to follow this model, as it has succeeded in the past.
Of course it is impossible for all countries to be net exporters. The US is by far the world's biggest importer. But given structural economic problems and associated high unemployment, US policymakers also have reasons to desire a weaker currency to stimulate exports and jobs. Much the same is true of the UK, arguably the leading candidate for the next big devaluation. Then there is the euro-area, which is suffering under a huge debt burden and desires to stimulate exports abroad to offset 'austerity' at home.
The BRICs (Brazil, Russia, India, China, South Africa) and other developing economies are well aware of mature economies' problems and do not want to be the ones that pay for what they perceive, quite justifiably, as economic hypocrisy. Just who has been living beyond their means? Who has been borrowing and consuming, rather than saving?
It does, of course, take two to tango. The BRICs have been financing mature economies' largesse—including financial bailouts—with their surpluses. But as the BRICs have stated on multiple occasions, they would far prefer for the developed economies to take their necessary economic medicine at the local, structural, supply-side level rather than to try and pass the pain of adjustment off on them.
A recent sign of such concern includes some rather provocative statements by Russian central banker Alexyi Ulyukayev. Russia is currently the Chair of the G-20 countries who seek to cooperate on global economic matters. Back in 2009 the G-20 agreed not to engage in competitive currency devaluations. Well they're not exactly cooperating at present according to Mr. Ulyukayev, who has specifically accused Japan of breaking the cease-fire: "Japan is weakening the yen and other countries may follow," he said recently. South Korea, one of Japan's closest competitors in several major industries, has warned of possible retaliation for the weaker yen and both South Korea's and Taiwan's currencies weakened sharply this week. Even Norway, with a healthy economy at present, has recently indicated that it is concerned by the strength of the krone.[2]
The sad fact of the matter is, currency wars (ie competitive devaluations) are 'zero-sum' at best. At worst, they severely distort global price signals, thereby misallocating resources, and eventually morph into trade wars, in which economic protectionism destroys the international division of labor and capital, making economic regression all but certain. The 1920s/1930s are a classic case in point but there were similar such episodes in the 18th-19th centuries, the era of mercantilist economic policy debunked by, among others, Adam Smith and David Ricardo. (While the classicists were right about mercantilism, it should be noted that classical economic theory is deeply flawed in key respects.)
Given the destructive power of currency and trade wars, it should come as no surprise that policymakers in the developed economies are increasingly desperate to find a way to de-escalate and contain the conflict. But is this possible?
Is the OMFIF Report an Olive Branch to the BRICS?
Perhaps the best indication of growing policymaker desperation is a recent report prepared by the Official Monetary and Financial Institutions Forum (OMFIF), on behalf of the World Gold Council. In the report, the OMFIF argues that the international monetary system is approaching a transformation from a mostly 'unipolar' system centered around the dollar, to a 'multipolar' one of multiple reserve currencies, including the Chinese renminbi, which at present comprises only a tiny fraction of global FX reserves.
Most important, the report recognizes that monetary regime change is fraught with uncertainty. History is clear on this point. Also clear is that, historically, periods of global monetary uncertainty have been associated with central bank (and private) accumulation of gold reserves and, by association, a rising price of gold.
According to the OMFIF, this is the explanation for why central banks are accumulating gold today. It boils down to increasing uncertainty or, if you prefer, decreasing trust between countries, a natural consequence of the currency wars. OMFIF assumes that, in the coming years, uncertainty and associated gold accumulation will continue to increase, placing further upward pressure on the gold price.
It is difficult to argue with any of that. Indeed, in my book, The Golden Revolution (available here), I illustrate how the 2008 global financial crisis critically destabilized the international monetary system. In particular, the dollar is losing its dominant reserve currency status, yet there is no other existing fiat currency that can replace it. The euro has issues, the yen has issues and the renminbi has issues, although it is the 'rising star' in this group.
The OMFIF report then makes a recommendation that the best way to reduce the unavoidable monetary uncertainty ahead is to acknowledge that there should be a more formal role for gold to play in the international monetary order, in particular, that it should be included in the Special Drawing Rights (SDR) basket as calculated by the International Monetary Fund (IMF). The SDR is a global reference point for currency valuation and IMF member countries' capital shares are denominated in SDRs.
This is a formalization of what was first proposed by World Bank president Robert Zoellick back in 2010. In a Financial Times article that I believe will be noted by monetary historians in future, he wrote that gold was already being treated as an "alternative monetary asset," and that the international monetary system "should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."[3]
The OMFIF report also suggests expanding the SDR basket to include all the 'r' currencies, not only the renminbi but also the Indian rupee, the Russian rouble, the Brazilian real and the South African rand. This would be a formal recognision of the rising economic power of all the BRICs, not just China, and pave the way for their currencies' use as reserves.
A Bureaucratic Pipe-Dream
Bureaucrats are naturally drawn to bureaucratic 'solutions' to problems. But cooperative solutions become unworkable when cooperation breaks down, as is increasingly the case in global monetary relations. In this context, the OMFIF report, while it sounds nice on paper, is a futile attempt to hold an unstable equilibrium together. The fact is the BRICs no longer trust the mature economies in monetary affairs.[4] Lacking such trust, the only viable way forward is to 'de-nationalize' money for international trade, thereby disarming those who would opportunistically engage in currency wars.
Gold is the only such non-national money, a currency that cannot be printed or otherwise manipulated by one country at the expense of another. Its supply is strictly limited by that which can be got out of the ground at economic cost within a given period of time. Thus gold stands in sharp contrast to all unbacked fiat currencies, the weapons of the currency wars. The OMFIF report dances around this fundamental difference between the two but ultimately stumbles. Yes, the OMFIF report recognises that:
The previously dominant western economies have attempted to dismantle the yellow metal's monetary role, and – for a variety of reasons – this has comprehensively failed. Gold thus stands ready to fill the vacuum created by the evident failings of the dollar and the euro, and the not-yet requited ambitions of the renminbi.
But notwithstanding the recognized failings of fiat currencies and persistence of gold, the report then moves on to recommend that gold and the major fiat currencies be treated as equals in the future monetary order, specifically, by:
…extending the SDR to include the R-currencies – the renminbi, rupee, real, rand and rouble – with the addition of gold. This would be a form of indexation to add to the SDR's attractiveness. Gold would not need to be paid out, but its dollar or renminbi or rouble equivalent would be if the SDR had a gold content. By moving counter-cyclically to the dollar, gold could improve the stabilising properties of the SDR. Particularly if the threats to the dollar and the euro worsen, a large SDR issue improved by some gold content and the R-currencies may be urgently required. (Emphasis added.)[5]
From 'dance' to 'stumble' may be the wrong metaphor here, unless the stumble is meant to serve as a distraction for some slight-of-hand on the stage. Did you catch the subtle trick of logic in the above?
Allow me to explain. The "failings of the dollar and the euro" vis-à-vis gold are indeed "evident": This is why central banks everywhere are in a scramble to acquire more gold and, in some cases (eg Germany, Venezuela, Turkey) to strengthen their custody of it through repatriation and changes in regulations. The dollar and the euro are no longer trusted as stores of value, at least not to anywhere near the degree that they were in years past.
But if your agenda is to try and contain the scramble for gold and prevent it from further displacing fiat currencies in reserves, how convenient if you implemented an international monetary system that would limit, through official, global arrangements, the degree to which gold could compete as an international money while still allowing for whatever amount of fiat inflation policymakers believe is required to devalue their excessive debts.
If gold "need not be paid out" then, as the price of gold rises, you just print more paper currencies as required to make up the difference! In other words, gold would be unable to serve as a brake on a general global monetary inflation. And "if the threats to the dollar and the euro indeed worsen", then yes, just print more of those SDRs—a basket of dollars, euros, renminbi, etc—and who cares if the price of gold rises in tandem? You're still inflating!
In context of the changed global economic landscape, the OMFIF report thus reads as a desperate attempt to sue for a compromise peace in the currency wars, to find a basis for agreement between the US, euro-area, Japan, and China and the other BRICs, to inflate in coordinated fashion thorugh SDR issuance, while at the same time keeping the golden genie in the bottle where, according to central-planning inflationists, it belongs.
Of course, just because an olive branch is extended does not mean it will be accepted. Is it really in China's or the BRICs' interest to participate in such an arrangement? Does China really want the 'failing' dollar and euro to keep depreciating? Or might China want to get paid for its exports in hard currency for a change?
Again, it all comes down to trust. Currency basket arrangements such as the euro or, as the OMFIF proposes, a global SDR with a token role for gold, only hold together as long as all the major players perceive that they serve their interest. The moment a player perceives otherwise, the system, lacking sound money foundations, falls apart. If the OMFIF report is indicative of the next step in the evolution of the global monetary system, then the past and current failures of the dollar and euro are destined to become the future failures of the SDR.
China must know this. I suspect the other BRICs do too. And numerous small countries, hardly irrelevant in the matter, are watching intently to see where this goes, while accumulating gold in the meantime, unsure of the outcome.
Why a Return to Gold Is the Inevitable Result of the Currency Wars
If the developments discussed above seem unprecedented, think again. We have been here before, namely, in the mid- to late 1960s, when the US and other Bretton Woods participating countries were struggling to maintain the gold price at $35/oz. There was lots of monetary inflation in the US and elsewhere by the mid-1960s and it was assumed by many that this would lead to price inflation in time.
European central banks, most of whom had accumulated substantial dollar reserves, were beginning to swap these for gold. Private investors sought to protect themselves with gold purchases. By 1967, while the official price for gold remained $35/oz, there was steady upward pressure on the market price in London. 'Two-tier' markets create arbitrage opportunities and, as more speculators got in on the game, the upward pressure on the gold price intensified.
In 1967, France, already having indicated from early 1965 that it was dissatisfied with the dollar-centric Bretton Woods system, abruptly withdrew from the pool. While this was a clear message to all that the official $35/oz gold price was unsustainable, encouraging yet more speculation, at the same time it meant that the remaining London gold pool participants had to cover for France's significant absence by making even more gold available to the growing number of buyers.
This unsustainable arrangement lasted less than a year, with the pool collapsing entirely in 1968. The situation was now critical as the monetary system was without solid foundation. The upward pressure on the price of gold intensified yet again. The Federal Reserve was now frightened that a run on the dollar was imminent, with the pound sterling already under renewed attack. At one Fed meeting that year it was claimed that, "the international financial system was moving toward a crisis more dangerous than any since 1931."[6]
By 1971 the day of reckoning had arrived. The US had continued to sell gold into the market to suppress the price and to convert foreign reserves on demand into gold since 1968 but when even the UK was asking for a substantial portion of its gold back in summer 1971, it was clear that this effort was futile. Either the US would run out of gold or it would allow the gold price to rise and the dollar to 'float', that is, to devalue substantially.
President Nixon opted for the latter course, as he announced to the world on 15 August that year. The dollar was devalued and gold convertibility suspended indefinitely as a 'temporary' measure. But why did the world continue to use dollars as reserves when these were unbacked by gold? Because the US was still by far the largest economy in the world, the biggest importer and exporter. And while US finances were deteriorating at the time, they were in far, far better shape than they are today, with trade and budget deficits tiny as a percentage of GDP. Today, the picture is the complete opposite. US finances are in a far worse state than those of the BRICs.
The US and the other developed economies are thus no longer in a position to dictate terms in international monetary matters. The BRICs have made the point clear. They are going to begin to demand hard currency in exchange for their exports. A plan to this effect could be announced as early as their annual spring summit, held this year in Durban, South Africa, on March 26-27.
Keep Calm, Buy Gold, Get Out of Bonds
If the recommendation to accumulate gold in advance of its remonetization for use as an international money seems obvious, perhaps less obvious is to reduce holdings of bonds. Why should a remonetisation of gold lead to higher bond yields/falling bond prices? After all, the economic dislocations associated with international monetary regime change could well tip the world into yet another recession as the associated economic rebalancing takes place.
While we have come to associate rising yields with economic recoveries and falling yields with recessions, in fact, on a sound money foundation this relationship does not hold. Back when the world was on the gold standard, for example, yields sometimes rose in recessions and declined in recoveries. This is because the central bank was unable to manipulate the bond market with monetary policy.
Take the euro-area today as a contemporary case in point. As Greece, Portugal and Spain have tipped into deep recessions, their bond yields have risen as they lack national central banks which can buy their bonds with printed money. And investors have a choice whether to hold these bonds, or to hold the bonds of sounder euro-area governments, such as Germany, hence the wide spreads that investors demand in compensation.
A return to gold-backed international money will have much the same effect but at the global level. US Treasuries and other bonds will need to compete more directly with gold itself as a store of value or as official reserves. Interest rates will therefore need to rise to compensate investors for the very real possibility that the supply of bonds will just keep on growing to finance endless government deficits while the supply of gold remains essentially fixed.
Now I am under no illusions here. If the US, euro-area, UK and Japan face sharply higher borrowing costs in future, they are going to have debt crises similar to those faced by Greece, Portugal and Spain today. Indeed, with no one willing or able to bail them out, the associated crises may be more severe. The US and other indebted countries may resort to capital controls and even to selective default on their debt, such as that held by foreigners abroad.
If so, this will be another major escalation in the currency wars, one that will begin to resemble the 1920s and 1930s in its intensity. Those were sad decades, to be sure, in which much of the global middle class saw its savings wiped out at least once and, in some cases, twice. They didn't care whether this occurred via inflation/devaluation or via deflation/default. Investors today shouldn't care either. They should accumulate gold and certain other real assets in limited supply. These are the ultimate insurance policy against inflation, deflation, devaluation, currency and trade wars, financial crises, monetary collapse … you name it. The time to do so is running out.
Resources
[1] In the Amphora Report I have long followed the 'currency wars'. My first take on the subject, BEGUN, THE CURRENCY WARS HAVE, dates from September 2010. The link is here.
[2] These various statements were reported in this Bloomberg News article that can be found here.
[3] Robert Zoellick, "The G20 Must Look Beyond Bretton Woods II," Financial Times, 7 November 2010.
[4] Please see THE BUCK STOPS HERE: A BRIC WALL, Amphora Report vol. 3 (April 2012). The link is here.
[5] GOLD, THE RENMINBI AND THE MULTI-CURRENCY RESERVE SYSTEM, OMFIF, January 2013, p. 4.The link is here.
[6] Amateur historians take note: Federal Reserve Open Market (FOMC) minutes may be tedious for the most part but occasionally there are real gems to unearth, as is the case here. However, the transcripts are only released with a five-year lag. It will be interesting to see what was discussed—and not redacted—from transcripts from 2008 and 2009, when the Fed was involved in bailing out the bulk of the US financial system.
http://www.silverbearcafe.com/private/01.13/countdown.html
Countdown to the Collapse
Jan.31, 2013
John Butler
On multiple fronts there appears to have been a resumption of hostilities in the global currency wars. A subtle indication of this is the recently released report, Gold, the Renminbi and the Multi-Currency Reserve System, which I believe is highly significant for two reasons: First, it demonstrates that major global actors are now keenly aware and frightened of the possibility of a major breakdown in international monetary relations. Second, it suggests that these same actors are trying to contain the growing demand for gold as an alternative reserve asset and pre-empt an uncontrolled gold remonetization. These efforts will fail. A collapse of the current, unstable global monetary equilibrium is inevitable. Recent events indicate that the countdown has begun.
Breaking the Cease-Fire
Curiously, in the second half of 2011 and through most of 2012, notwithstanding the escalating euro-crisis, US ratings downgrade, Japan's protracted nuclear disaster and sharply divergent global growth rates, there was surprisingly little volatility in foreign exchange markets. EUR/USD traded mostly in the historically narrow range of 1.40-1.25. USD/JPY was in a range of from 76-82. The Chinese renminbi held between 6.4 and 6.2. GBP/USD moved within 1.54-162. The Swiss franc was also steady at around 1.20 versus the euro, although this was the result of an explicit Swiss policy of capping the franc at that level.
In retrospect, it appears that this period was characterised by a general 'cease-fire' in the global currency wars ignited by the global financial crisis of 2008.[1] Rather than attempt directly to devalue currencies to stimulate exports at trading partners' expense, the focus during this period was primarily on measures to support domestic demand.
There has now been a resumption of hostilities. The first shots were fired by the Japanese, where national elections were held in December. The victorious LDP party campaigned on a platform that, if elected, they would increase the powers of the Ministry of Finance to force the Bank of Japan into more aggressive monetary easing. The LDP also has voiced support for either a higher BoJ inflation target or a nominal GDP growth target.
Combined with poor economic data, this had a dramatic impact on the yen, which has subsequently declined by about 10% versus the dollar and 15% versus the euro. This is the weakest the yen has been in broad, trade-weighted terms since 2011.
Now it is understandable that Japan should desire a weaker yen. Japan is no longer running a trade surplus, in part because it is importing a record amount of energy following the decision to scale back the production of nuclear energy. Moreover, demographics are such that the proportion of retired Japanese is growing rapidly. As Japan's ageing population draws down its savings to fund retirement, this implies that Japan will be saving less and consuming more relative to the rest of the world.
But while Japan has an interest in a weaker yen, many other countries have an interest in weaker currencies too. Much of Asia has been following a classic, mercantilist growth model ever since the Asian credit/currency crises of 1997-98, seeking to export more than they import. They are still inclined to follow this model, as it has succeeded in the past.
Of course it is impossible for all countries to be net exporters. The US is by far the world's biggest importer. But given structural economic problems and associated high unemployment, US policymakers also have reasons to desire a weaker currency to stimulate exports and jobs. Much the same is true of the UK, arguably the leading candidate for the next big devaluation. Then there is the euro-area, which is suffering under a huge debt burden and desires to stimulate exports abroad to offset 'austerity' at home.
The BRICs (Brazil, Russia, India, China, South Africa) and other developing economies are well aware of mature economies' problems and do not want to be the ones that pay for what they perceive, quite justifiably, as economic hypocrisy. Just who has been living beyond their means? Who has been borrowing and consuming, rather than saving?
It does, of course, take two to tango. The BRICs have been financing mature economies' largesse—including financial bailouts—with their surpluses. But as the BRICs have stated on multiple occasions, they would far prefer for the developed economies to take their necessary economic medicine at the local, structural, supply-side level rather than to try and pass the pain of adjustment off on them.
A recent sign of such concern includes some rather provocative statements by Russian central banker Alexyi Ulyukayev. Russia is currently the Chair of the G-20 countries who seek to cooperate on global economic matters. Back in 2009 the G-20 agreed not to engage in competitive currency devaluations. Well they're not exactly cooperating at present according to Mr. Ulyukayev, who has specifically accused Japan of breaking the cease-fire: "Japan is weakening the yen and other countries may follow," he said recently. South Korea, one of Japan's closest competitors in several major industries, has warned of possible retaliation for the weaker yen and both South Korea's and Taiwan's currencies weakened sharply this week. Even Norway, with a healthy economy at present, has recently indicated that it is concerned by the strength of the krone.[2]
The sad fact of the matter is, currency wars (ie competitive devaluations) are 'zero-sum' at best. At worst, they severely distort global price signals, thereby misallocating resources, and eventually morph into trade wars, in which economic protectionism destroys the international division of labor and capital, making economic regression all but certain. The 1920s/1930s are a classic case in point but there were similar such episodes in the 18th-19th centuries, the era of mercantilist economic policy debunked by, among others, Adam Smith and David Ricardo. (While the classicists were right about mercantilism, it should be noted that classical economic theory is deeply flawed in key respects.)
Given the destructive power of currency and trade wars, it should come as no surprise that policymakers in the developed economies are increasingly desperate to find a way to de-escalate and contain the conflict. But is this possible?
Is the OMFIF Report an Olive Branch to the BRICS?
Perhaps the best indication of growing policymaker desperation is a recent report prepared by the Official Monetary and Financial Institutions Forum (OMFIF), on behalf of the World Gold Council. In the report, the OMFIF argues that the international monetary system is approaching a transformation from a mostly 'unipolar' system centered around the dollar, to a 'multipolar' one of multiple reserve currencies, including the Chinese renminbi, which at present comprises only a tiny fraction of global FX reserves.
Most important, the report recognizes that monetary regime change is fraught with uncertainty. History is clear on this point. Also clear is that, historically, periods of global monetary uncertainty have been associated with central bank (and private) accumulation of gold reserves and, by association, a rising price of gold.
According to the OMFIF, this is the explanation for why central banks are accumulating gold today. It boils down to increasing uncertainty or, if you prefer, decreasing trust between countries, a natural consequence of the currency wars. OMFIF assumes that, in the coming years, uncertainty and associated gold accumulation will continue to increase, placing further upward pressure on the gold price.
It is difficult to argue with any of that. Indeed, in my book, The Golden Revolution (available here), I illustrate how the 2008 global financial crisis critically destabilized the international monetary system. In particular, the dollar is losing its dominant reserve currency status, yet there is no other existing fiat currency that can replace it. The euro has issues, the yen has issues and the renminbi has issues, although it is the 'rising star' in this group.
The OMFIF report then makes a recommendation that the best way to reduce the unavoidable monetary uncertainty ahead is to acknowledge that there should be a more formal role for gold to play in the international monetary order, in particular, that it should be included in the Special Drawing Rights (SDR) basket as calculated by the International Monetary Fund (IMF). The SDR is a global reference point for currency valuation and IMF member countries' capital shares are denominated in SDRs.
This is a formalization of what was first proposed by World Bank president Robert Zoellick back in 2010. In a Financial Times article that I believe will be noted by monetary historians in future, he wrote that gold was already being treated as an "alternative monetary asset," and that the international monetary system "should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values."[3]
The OMFIF report also suggests expanding the SDR basket to include all the 'r' currencies, not only the renminbi but also the Indian rupee, the Russian rouble, the Brazilian real and the South African rand. This would be a formal recognision of the rising economic power of all the BRICs, not just China, and pave the way for their currencies' use as reserves.
A Bureaucratic Pipe-Dream
Bureaucrats are naturally drawn to bureaucratic 'solutions' to problems. But cooperative solutions become unworkable when cooperation breaks down, as is increasingly the case in global monetary relations. In this context, the OMFIF report, while it sounds nice on paper, is a futile attempt to hold an unstable equilibrium together. The fact is the BRICs no longer trust the mature economies in monetary affairs.[4] Lacking such trust, the only viable way forward is to 'de-nationalize' money for international trade, thereby disarming those who would opportunistically engage in currency wars.
Gold is the only such non-national money, a currency that cannot be printed or otherwise manipulated by one country at the expense of another. Its supply is strictly limited by that which can be got out of the ground at economic cost within a given period of time. Thus gold stands in sharp contrast to all unbacked fiat currencies, the weapons of the currency wars. The OMFIF report dances around this fundamental difference between the two but ultimately stumbles. Yes, the OMFIF report recognises that:
The previously dominant western economies have attempted to dismantle the yellow metal's monetary role, and – for a variety of reasons – this has comprehensively failed. Gold thus stands ready to fill the vacuum created by the evident failings of the dollar and the euro, and the not-yet requited ambitions of the renminbi.
But notwithstanding the recognized failings of fiat currencies and persistence of gold, the report then moves on to recommend that gold and the major fiat currencies be treated as equals in the future monetary order, specifically, by:
…extending the SDR to include the R-currencies – the renminbi, rupee, real, rand and rouble – with the addition of gold. This would be a form of indexation to add to the SDR's attractiveness. Gold would not need to be paid out, but its dollar or renminbi or rouble equivalent would be if the SDR had a gold content. By moving counter-cyclically to the dollar, gold could improve the stabilising properties of the SDR. Particularly if the threats to the dollar and the euro worsen, a large SDR issue improved by some gold content and the R-currencies may be urgently required. (Emphasis added.)[5]
From 'dance' to 'stumble' may be the wrong metaphor here, unless the stumble is meant to serve as a distraction for some slight-of-hand on the stage. Did you catch the subtle trick of logic in the above?
Allow me to explain. The "failings of the dollar and the euro" vis-à-vis gold are indeed "evident": This is why central banks everywhere are in a scramble to acquire more gold and, in some cases (eg Germany, Venezuela, Turkey) to strengthen their custody of it through repatriation and changes in regulations. The dollar and the euro are no longer trusted as stores of value, at least not to anywhere near the degree that they were in years past.
But if your agenda is to try and contain the scramble for gold and prevent it from further displacing fiat currencies in reserves, how convenient if you implemented an international monetary system that would limit, through official, global arrangements, the degree to which gold could compete as an international money while still allowing for whatever amount of fiat inflation policymakers believe is required to devalue their excessive debts.
If gold "need not be paid out" then, as the price of gold rises, you just print more paper currencies as required to make up the difference! In other words, gold would be unable to serve as a brake on a general global monetary inflation. And "if the threats to the dollar and the euro indeed worsen", then yes, just print more of those SDRs—a basket of dollars, euros, renminbi, etc—and who cares if the price of gold rises in tandem? You're still inflating!
In context of the changed global economic landscape, the OMFIF report thus reads as a desperate attempt to sue for a compromise peace in the currency wars, to find a basis for agreement between the US, euro-area, Japan, and China and the other BRICs, to inflate in coordinated fashion thorugh SDR issuance, while at the same time keeping the golden genie in the bottle where, according to central-planning inflationists, it belongs.
Of course, just because an olive branch is extended does not mean it will be accepted. Is it really in China's or the BRICs' interest to participate in such an arrangement? Does China really want the 'failing' dollar and euro to keep depreciating? Or might China want to get paid for its exports in hard currency for a change?
Again, it all comes down to trust. Currency basket arrangements such as the euro or, as the OMFIF proposes, a global SDR with a token role for gold, only hold together as long as all the major players perceive that they serve their interest. The moment a player perceives otherwise, the system, lacking sound money foundations, falls apart. If the OMFIF report is indicative of the next step in the evolution of the global monetary system, then the past and current failures of the dollar and euro are destined to become the future failures of the SDR.
China must know this. I suspect the other BRICs do too. And numerous small countries, hardly irrelevant in the matter, are watching intently to see where this goes, while accumulating gold in the meantime, unsure of the outcome.
Why a Return to Gold Is the Inevitable Result of the Currency Wars
If the developments discussed above seem unprecedented, think again. We have been here before, namely, in the mid- to late 1960s, when the US and other Bretton Woods participating countries were struggling to maintain the gold price at $35/oz. There was lots of monetary inflation in the US and elsewhere by the mid-1960s and it was assumed by many that this would lead to price inflation in time.
European central banks, most of whom had accumulated substantial dollar reserves, were beginning to swap these for gold. Private investors sought to protect themselves with gold purchases. By 1967, while the official price for gold remained $35/oz, there was steady upward pressure on the market price in London. 'Two-tier' markets create arbitrage opportunities and, as more speculators got in on the game, the upward pressure on the gold price intensified.
In 1967, France, already having indicated from early 1965 that it was dissatisfied with the dollar-centric Bretton Woods system, abruptly withdrew from the pool. While this was a clear message to all that the official $35/oz gold price was unsustainable, encouraging yet more speculation, at the same time it meant that the remaining London gold pool participants had to cover for France's significant absence by making even more gold available to the growing number of buyers.
This unsustainable arrangement lasted less than a year, with the pool collapsing entirely in 1968. The situation was now critical as the monetary system was without solid foundation. The upward pressure on the price of gold intensified yet again. The Federal Reserve was now frightened that a run on the dollar was imminent, with the pound sterling already under renewed attack. At one Fed meeting that year it was claimed that, "the international financial system was moving toward a crisis more dangerous than any since 1931."[6]
By 1971 the day of reckoning had arrived. The US had continued to sell gold into the market to suppress the price and to convert foreign reserves on demand into gold since 1968 but when even the UK was asking for a substantial portion of its gold back in summer 1971, it was clear that this effort was futile. Either the US would run out of gold or it would allow the gold price to rise and the dollar to 'float', that is, to devalue substantially.
President Nixon opted for the latter course, as he announced to the world on 15 August that year. The dollar was devalued and gold convertibility suspended indefinitely as a 'temporary' measure. But why did the world continue to use dollars as reserves when these were unbacked by gold? Because the US was still by far the largest economy in the world, the biggest importer and exporter. And while US finances were deteriorating at the time, they were in far, far better shape than they are today, with trade and budget deficits tiny as a percentage of GDP. Today, the picture is the complete opposite. US finances are in a far worse state than those of the BRICs.
The US and the other developed economies are thus no longer in a position to dictate terms in international monetary matters. The BRICs have made the point clear. They are going to begin to demand hard currency in exchange for their exports. A plan to this effect could be announced as early as their annual spring summit, held this year in Durban, South Africa, on March 26-27.
Keep Calm, Buy Gold, Get Out of Bonds
If the recommendation to accumulate gold in advance of its remonetization for use as an international money seems obvious, perhaps less obvious is to reduce holdings of bonds. Why should a remonetisation of gold lead to higher bond yields/falling bond prices? After all, the economic dislocations associated with international monetary regime change could well tip the world into yet another recession as the associated economic rebalancing takes place.
While we have come to associate rising yields with economic recoveries and falling yields with recessions, in fact, on a sound money foundation this relationship does not hold. Back when the world was on the gold standard, for example, yields sometimes rose in recessions and declined in recoveries. This is because the central bank was unable to manipulate the bond market with monetary policy.
Take the euro-area today as a contemporary case in point. As Greece, Portugal and Spain have tipped into deep recessions, their bond yields have risen as they lack national central banks which can buy their bonds with printed money. And investors have a choice whether to hold these bonds, or to hold the bonds of sounder euro-area governments, such as Germany, hence the wide spreads that investors demand in compensation.
A return to gold-backed international money will have much the same effect but at the global level. US Treasuries and other bonds will need to compete more directly with gold itself as a store of value or as official reserves. Interest rates will therefore need to rise to compensate investors for the very real possibility that the supply of bonds will just keep on growing to finance endless government deficits while the supply of gold remains essentially fixed.
Now I am under no illusions here. If the US, euro-area, UK and Japan face sharply higher borrowing costs in future, they are going to have debt crises similar to those faced by Greece, Portugal and Spain today. Indeed, with no one willing or able to bail them out, the associated crises may be more severe. The US and other indebted countries may resort to capital controls and even to selective default on their debt, such as that held by foreigners abroad.
If so, this will be another major escalation in the currency wars, one that will begin to resemble the 1920s and 1930s in its intensity. Those were sad decades, to be sure, in which much of the global middle class saw its savings wiped out at least once and, in some cases, twice. They didn't care whether this occurred via inflation/devaluation or via deflation/default. Investors today shouldn't care either. They should accumulate gold and certain other real assets in limited supply. These are the ultimate insurance policy against inflation, deflation, devaluation, currency and trade wars, financial crises, monetary collapse … you name it. The time to do so is running out.
Resources
[1] In the Amphora Report I have long followed the 'currency wars'. My first take on the subject, BEGUN, THE CURRENCY WARS HAVE, dates from September 2010. The link is here.
[2] These various statements were reported in this Bloomberg News article that can be found here.
[3] Robert Zoellick, "The G20 Must Look Beyond Bretton Woods II," Financial Times, 7 November 2010.
[4] Please see THE BUCK STOPS HERE: A BRIC WALL, Amphora Report vol. 3 (April 2012). The link is here.
[5] GOLD, THE RENMINBI AND THE MULTI-CURRENCY RESERVE SYSTEM, OMFIF, January 2013, p. 4.The link is here.
[6] Amateur historians take note: Federal Reserve Open Market (FOMC) minutes may be tedious for the most part but occasionally there are real gems to unearth, as is the case here. However, the transcripts are only released with a five-year lag. It will be interesting to see what was discussed—and not redacted—from transcripts from 2008 and 2009, when the Fed was involved in bailing out the bulk of the US financial system.
http://www.silverbearcafe.com/private/01.13/countdown.html
Swiss Banks Offer Allocated Accounts As Move To Allocated Internationally
30 January 2013
Swiss banks, UBS and Credit Suisse, have moved to offer allocated gold and silver accounts to their clients – including high net worth, hedge funds, other banks and institutions.
The move allows these entities to take direct ownership of their bullion in allocated accounts.
According to the Financial Times, the banks say that they are making the move in order to reduce exposure and risks on balance sheets and in an effort to be more transparent.
“Under more common "unallocated" gold accounts, depositors' bullion appears on the banks' balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under pressure from regulators to reduce capital-intensive activities ahead of the introduction of new Basel III global banking rules.”
It is more likely that the banks made the move to allocated storage due to an increased preference from their investors who are weary of continuing systemic risk.
We have spoken and written about this trend for some time.
In recent months there has been a definite change by our clients and by bullion owners internationally from owning gold and silver in unallocated accounts, to owning bullion coins and bars in allocated and segregated accounts.
Investors who were unwilling before to pay annual storage fees on allocated accounts are now willing to pay the extra cost. This is due to increased awareness and concern about systemic risk and a preference for owning gold directly and eliminating counter party risk.
Indeeed, we and other bullion dealers who offer allocated storage outside the banking and financial system have seen flows out of bullion banks unallocated gold account offerings and into allocated accounts such as with Perth Mint and Via Mat.
Smart money internationally is moving towards allocated storage and away from more risky unallocated storage and this trend is set to continue.
With unallocated storage one is an unsecured creditor of the provider or bank whereas with allocated storage the client directly owns the gold and the gold cannot become encumbered.
Allocated and segregated storage costs more money as more space is required in vaults and there is a higher insurance cost. Banks have realised that there is a preference to own allocated gold and are moving to offer that. They may also be able to make a small margin on the annual storage fee, in and above, the cost of storage to them.
The move by the Swiss banks is a reactive one in order to prevent the loss of clients who are concerned about systemic risk and want to own bullion in the safest way possible.
http://news.goldseek.com/GoldSeek/1359550800.php
Swiss Banks Offer Allocated Accounts As Move To Allocated Internationally
30 January 2013
Swiss banks, UBS and Credit Suisse, have moved to offer allocated gold and silver accounts to their clients – including high net worth, hedge funds, other banks and institutions.
The move allows these entities to take direct ownership of their bullion in allocated accounts.
According to the Financial Times, the banks say that they are making the move in order to reduce exposure and risks on balance sheets and in an effort to be more transparent.
“Under more common "unallocated" gold accounts, depositors' bullion appears on the banks' balance sheets, forcing them to increase their capital reserves. Like their global peers, UBS and Credit Suisse are under pressure from regulators to reduce capital-intensive activities ahead of the introduction of new Basel III global banking rules.”
It is more likely that the banks made the move to allocated storage due to an increased preference from their investors who are weary of continuing systemic risk.
We have spoken and written about this trend for some time.
In recent months there has been a definite change by our clients and by bullion owners internationally from owning gold and silver in unallocated accounts, to owning bullion coins and bars in allocated and segregated accounts.
Investors who were unwilling before to pay annual storage fees on allocated accounts are now willing to pay the extra cost. This is due to increased awareness and concern about systemic risk and a preference for owning gold directly and eliminating counter party risk.
Indeeed, we and other bullion dealers who offer allocated storage outside the banking and financial system have seen flows out of bullion banks unallocated gold account offerings and into allocated accounts such as with Perth Mint and Via Mat.
Smart money internationally is moving towards allocated storage and away from more risky unallocated storage and this trend is set to continue.
With unallocated storage one is an unsecured creditor of the provider or bank whereas with allocated storage the client directly owns the gold and the gold cannot become encumbered.
Allocated and segregated storage costs more money as more space is required in vaults and there is a higher insurance cost. Banks have realised that there is a preference to own allocated gold and are moving to offer that. They may also be able to make a small margin on the annual storage fee, in and above, the cost of storage to them.
The move by the Swiss banks is a reactive one in order to prevent the loss of clients who are concerned about systemic risk and want to own bullion in the safest way possible.
http://news.goldseek.com/GoldSeek/1359550800.php
GATA favorites to speak at SilverSeek's online conference Thursday
Chris Powell | January 30, 2013 - 8:28am
Dear Friend of GATA and Gold (and Silver):
GoldSeek's companion Internet site, SilverSeek, will hold its 4th Virtual Silver Investment Conference online Thursday from 9:30 a.m. to 4:30 p.m. Eastern time featuring four GATA favorites: our consultant, GoldMoney founder James Turk; Sprott Asset Management CEO Eric Sprott; Silver-Investor.com's David Morgan; and GoldSeek and SilverSeek proprietor Peter Spina. Attendance is free for those who register in advance. The conference's Internet site is here:
https://seek.6connex.com/portal/goldsilver/login/?langR=en_US&mcc=goldse...
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
http://www.silverseek.com/commentary/gata-favorites-speak-silverseeks-online-conference-thursday-9211
The Case of Shaking Gold Out of The Physical Market—To Fill Germany’s Repatriation Order
January 28, 2013 | By Tekoa Da Silva |
Technical gold trader Gary Savage commented over the weekend on the strange timing of events and price action in the gold market, specifically the incredibly bullish announcements of QE4 & German gold repatriation, contrasted against repeated overnight collapses in the price of gold.
Says Gary:
“I have to say I have pondered over the bizarre action in gold ever since QE4 for weeks now. I don’t buy most of the usual explanations and I’m going to go over why…
Right after QE3 Germany starts making noise about repatriating their gold, which then intensifies after the confirmation that Operation Twist will be converted to QE4.
Germany’s gold has been sitting in the United States for 50 years. Now all of a sudden they don’t trust us with their gold anymore? Let’s face it, if they did they wouldn’t be asking for it back. I have to say I think it’s too much of a coincidence that gold begins acting strangely right after QE4, and not long after that Germany intensifies their efforts to repatriate their gold. I have to think that the two are somehow connected.
One logical explanation is that the US doesn’t have some portion of Germany’s gold readily available. If that’s the case, and it’s a large enough shortage that it can’t be readily purchased on the open market, then one way to shake that kind of supply lose would be to to create an artificial selling panic.
What better way to do that than to drive the price of gold down right at the time the fundamentals shift into high gear? Lots of traders and investors would be caught on the wrong side of an artificial move. Stops would be triggered, and an artificial selling climax created, generating a large supply of physical at low cost. Personally, I think this is the most likely explanation for the unusual behavior of the gold market since December 12.
Since Germany was already making noise about repatriating its gold after QE3 began, I’m sure the Fed knew this was going to escalate the minute QE4 was confirmed. If the Fed knew that QE4 was going to intensify a gold supply problem then I think they were probably ready with a strategy the minute QE4 was announced. Which it certainly looks like was the case as gold reversed that very afternoon, which in itself isn’t entirely unusual as the stock market reversed also.
The overnight crash that drove gold back below $1700 that night however was not in my opinion a natural market move. A couple of days later gold was driven down to and then below the 200 day moving average. Again in my opinion this was not natural market behavior as liquidity had already begun to flow into stocks and most other assets.
This very much looks like a war being fought at the 200 day moving average between one side trying to artificially depress the price of gold (possibly in an attempt to create a selling panic to alleviate a supply shortage) and real demand being generated by QE3 and QE4.”
To learn more about Gary Savage and his regular market commentary, visit SmartMoneyTracker.com.
http://bullmarketthinking.com/the-case-of-gold-being-shaken-out-of-the-physical-market-to-fill-germanys-repatriation-order/
Peter Schiff on Politics, Precious Metals and President Obama's Second Term
Jan.27, 2013
Peter Schiff
The Daily Bell is pleased to present this exclusive interview with Peter Schiff.
With Anthony Wile
Introduction: Peter Schiff is CEO of Euro Pacific Capital, Inc. and Euro Pacific Precious Metals, LLC. He is an internationally recognized economist specializing in the foreign equity, currency and gold markets. Mr. Schiff frequently delivers lectures at major economic and investment conferences, and is quoted often in the print media, including the Wall Street Journal, New York Times, L.A. Times, Barron's, BusinessWeek, Time and Fortune. His broadcast credits include regular guest appearances on CNBC, FOX Business, CNN, MSNBC and Fox News Channel, as well as hosting a daily radio show, The Peter Schiff Show. Mr. Schiff is also the author of several bestselling books, including: Crash Proof 2.0: How to Profit from the Economic Collapse and the illustrated parable, How an Economy Grows and Why It Crashes. His latest bestseller, The Real Crash: America's Coming Bankruptcy - How to Save Yourself and Your Country, was released in May 2012.
Daily Bell: Peter, thanks for sitting down again with us again. Please introduce yourself and your firm for those who don't know you.
Peter Schiff: My name is Peter Schiff. I have several companies; the largest one is Euro Pacific Capital and also in the US I have Euro Pacific Precious Metals.
Daily Bell: Talk about your father, who is now in jail as a tax protestor. How is he doing?
Peter Schiff: He's hanging in there. He's 84. He turns 85 next month. I think he's a political prisoner. He's in jail not because he really violated the law but because he represented a threat to the government's illegal collection of income taxes. So I think it's very unfortunate that my father is in jail and I think it says a lot about the character of our country when we can have a political prisoner.
Daily Bell: You ran for office, but it didn't work out. Are you finished with politics? What do you think of the political system?
Peter Schiff: I ran for office once. I was in the primary for the US Senate. I ran in a pretty blue state, Connecticut, so even if I had won the primary it would have been a difficult challenge to win the general election. The person who beat me, Linda McMahon, lost. In fact, she lost twice. She spent about $100 million and still couldn't win the election.
I have no idea whether or not I'll try it again and whether or not I'll try it again in Connecticut or maybe I'll try from another state. I certainly might move out of Connecticut. They're raising taxes here in Connecticut so one day I might live in a more tax-friendly state. And also, those states might tend to have a greater chance of electing somebody like me. But you never know; you never say never. I have no immediate plans to run for anything.
Daily Bell: Bring us up to date about Euro Pacific Capital Inc. [a broker/dealer based in Westport, Connecticut] and its ongoing success.
Peter Schiff: Euro Pacific Capital is a brokerage firm. We work with mainly American investors and help them diversify globally, invest in foreign stocks and bonds. We also work with US opportunities as well. But I think the biggest threat that most Americans face is a collapse in the value of the dollar and so I think to mitigate the loss of purchasing power that will result from that you really need to look abroad and concentrate in countries that have currencies that will hold more of their value, where the governments are not pursuing policies that are as destructive as the ones that we're pursuing here. I think universally, though, politicians in all countries are doing foolish things. We don't have a monopoly on stupidity here in America but we've certainly raised it to a higher level than most countries. So I think Americans have to protect themselves. We also deal with commodities and precious metals, things of that nature.
Daily Bell: Tell us about The Peter Schiff Show.
Peter Schiff: It's a radio show that I do, on the Internet at schiffradio.com. It's also syndicated nationally. We're on maybe 50 or 60 stations right now, mostly smaller markets but we're starting to get some traction at getting some bigger markets to carry the show. Hopefully, we'll have more and more stations picking it up as the year progresses.
I'm hoping to make a much bigger impact. Right now it's pretty much preaching to the choir. I think the people who listen to the show are primarily people who follow me anyway and who appreciate listening to me everyday to get my take on what's going on but I'm hoping to broaden my reach. That's the whole purpose for the show, to try to get this message to a wider audience. And as more stations pick up the show, hopefully we'll be able to accomplish that.
We do it live from 10:00 a.m. to noon Eastern Time, Monday through Friday. Of course, you don't have to listen live. It's great if you do because you can call in but you can also listen to the show later. We repeat it; there's a loop that continuously runs each day so if you don't listen live you can certainly listen to the rebroadcast.
Daily Bell: Are you still bearish on the dollar and bullish on investment in tangible assets?
Peter Schiff: Oh, very much so. Everything that's happening just makes me even more confident that my bearish forecast is correct. For example, the House just voted to suspend the debt ceiling, which makes it easier for the government to create dollars, and the more dollars they print, the less they're going to be worth. And I think now that we have cleared the way for much bigger deficits in the future. We're going to have a lot more money printing when the Fed monetizes them. And so the dollar's days are numbered. How many days are in that number? That I don't know but I do know that you want to prepare for its demise and that's what I'm helping people do.
Euro Pacific Precious Metals, one resource to help you prepare, is featured in the Daily Bell Special Report, To Survive the Coming Financial Hurricane, Physical Holdings of Gold and Silver Are a Must. This Solution Provider Can Help You Now – Without Leverage or High Pressure Tactics.
Daily Bell: Tells us about Euro Pacific Precious Metals.
Peter Schiff: That's my precious metals company. I sell individual investors gold and silver for physical delivery. We sell bullion bars and coins. We don't sell numismatics. I think a lot of Americans have been fooled by some of my competitors into buying rare coins rather than just gold and silver. Most people who want to buy gold and silver are looking for an inflation hedge and they call up a gold firm looking to buy Maple Leafs or things like that but they end up being sold a rare coin, a collectible coin, on the guise that it would be a better investment.
But it's not a better investment. It's just a much bigger commission for the broker who sells it. The markups are horrific. In many cases they exceed 50 percent – 60, 70 percent markups are commonplace, meaning that if you want to buy $6,000 worth of gold you've got to send a check for $10,000 and $4,000 of it is commission. And what has to happen is the price of gold has to really double before you can even sell your coins and get your original investment back.
So we don't do that at my firm and that's the reason I set it up. Too many people were being conned by salesmen into buying these overpriced collectibles and being talked out of legitimate gold investment. We only sell legitimate investments. The markups are very small; they average maybe about 2% above our cost and so you don't need a doubling in the price of gold to break even. You just need a small movement in the price of gold. And, of course, I'm expecting a much larger movement in the price of gold, which is the reason I have and keep owning it in the first place.
In fact, I've got a special report people might want to download. I put it up for free on the Internet. Just go to goldscams.com and in my special report that you can download I go over all the scams, the popular cons that are being used by a lot of the gold companies to fleece their clients out of their money. So if you read that you'll know what to be on the lookout for.
Daily Bell: Are physical metals a good buy? Which is better right now, gold or silver?
Peter Schiff: I think they're both good. I think you're seeing pullbacks already in both. I think if I'm correct on what I think is going to happen the price of silver, percentage-wise, will probably go up more than the price of gold. But recognize that if I'm wrong then silver prices will probably go down more than gold prices. So you get more risk upside in silver but you probably also have more downside. That's generally the way it works in the investment world; the more gain if you're right; the more you can lose if you're wrong.
I think Americans should have both. I think it makes sense for people to have both gold and silver as an alternative to dollars or other fiat currencies. The dollar isn't the only flawed fiat currency. I think we just have a larger flaw than most. But I think everybody needs to be worried, no matter where they live. Central banks everywhere are printing too much money. Interest rates are too low everywhere. There's too much inflation and people need to protect themselves. Gold and silver represent an excellent way to do that.
Daily Bell: Is silver money or just gold, historically speaking?
Peter Schiff: Well, both. In the United States the Founding Fathers put us on a bimetallic standard. If you look at the Constitution, both gold and silver were established as money in the United States and gold and silver circulated as money in this country for most of its history. We went off the gold standard in 1971 and we basically took silver out of our coins in 1964, 1965. So we pretty much followed the Constitution for most of our history but we abandoned it, of course, eventually, and that's the reason for our downfall. We are no longer operating under the rules that our Founding Fathers set up. We became a wealthy nation, the wealthiest nation in the history of the world, because the Constitution limited the size of government, and we had sound money.
Well, we destroyed the Constitution. Now we have fiat money, we have a massive government that gets bigger and bigger and bigger, we have the exact opposite type of nation that the Founding Fathers created for us and now we're having the opposite result. We're now broke. We're now the world's biggest debtor nation, we're hemorrhaging red ink, our standard of living is falling and it's about to collapse.
Daily Bell: Does one need to be careful when buying gold and silver generally?
Peter Schiff: Yes. First of all, you want to make sure that you're actually getting gold and silver. You don't want to have something else. So you want to deal with a reputable dealer and you want to buy products that you can trust from a dealer that you can trust like Euro Pacific Precious Metals. If you buy a recognizable coin or bar from a reliable mint or issuer then you can be confident that you own real gold and silver and not just some other kind of base metal that's just coated with the gold or silver.
But you want to not buy numismatics unless you want to collect coins. You can be a coin collector just like you can be a stamp collector or a baseball card collector, any kind of memorabilia. People collect art. But it's different than being an investor in gold and silver because a rare coin is valuable because of its rarity, not because it's made of gold or silver. People want it because it's rare. Just like if you want to invest in paper you don't buy a rare baseball card because it's made of paper. The paper has got nothing to do with the value of the card. You can buy a rare gold coin and you can pay $20,000 for it, $50,000, even though it might only have $1,500 worth of gold. The gold is immaterial to the value of the coin. Just like a char is made out of wood but it doesn't mean you're investing in wood and lumber when you buy a chair. You're buying a chair. So if you want to be a coin collector that's one thing but it's difficult to make money and the spreads are very wide. The difference that you pay between the bid and the ask.
But I think if we have a real collapse in the US economy with lots of inflation I would expect rare coins to lose value relatively. People who own coin collections might have to sell their coins because they lost money someplace else. And so I think if you really feel that there's going to be a lot of inflation and a weak economy you don't want to start a coin collection; you want to own just gold and silver. So you want to buy coins that are made of gold and silver where the price you pay closely approximates the value of the gold and silver in the coin.
If you buy a one ounce gold coin and gold's $1600 an ounce, if you're paying $1640, $1650 you're getting your money's worth. If you pay $5,000, $10,000 to get a one ounce gold coin the price that you're paying has very little to do with the value of the gold that's in the coin. But the reason the gold and silver dealers try to talk people out of buying a bullion coin as opposed to a rare coin is the markups in the bullion coins are 1%, 2%, 3% tops whereas their markup is 50%, 60%, 70%, 100% when they sell you the so-called rare coins.
And I even say "so-called rare" because most of the coins that are being marketed as rare aren't rare at all. They're actually quite common and in reality they have very little numismatic value. They're just marking these things up so enormously. So even if you want to buy legitimate rare coins, the last place you want to buy them is from a lot of these firms that are advertising on TV because even what they're selling isn't rare at all. And if you are a collector the last thing you would want to buy is a circulated French rooster or a British sovereign. Those are no more rare than junk silver coins – quarters and dimes – that you can buy for pretty much their melt value.
So you want to realize that the salesman has a big interest in switching you over into one of these coins and they try to tell you that, "Well, the reason to buy it is because if the government ever confiscates gold or silver they're not going to confiscate these coins," and I just think that's a bunch of BS. I don't know if the government is ever going to confiscate gold and silver but if they do they're going to confiscate everything, including those coins.
Peter reviews key developments in the gold and silver markets in his monthly newsletter. Click here for a free subscription to "Peter Schiff's Gold Letter."
Daily Bell: What about commemoratives?
Peter Schiff: This is also kind of like a scam because these commemoratives aren't rare at all. The mint issues them like hotcakes. What makes something rare is its scarcity. If you buy a coin that was minted 100 years ago and it wasn't minted as a collectible, it was minted as an actual coin but a few people maybe set them aside and never used them so now maybe there's five or ten of them left in the world, then those are legitimately rare and some collector will pay a lot of money to possess something that hardly anybody else has. But all these proof sets that are being made today will never be rare and so they don't really have any value other than to somebody who doesn't know any better and buys them.
But the thing is, if you buy a freshly minted coin it's in proof condition even if it's not a proof set. There's really no difference between a brand new, just minted coin and one that's in a little plastic box that says "proof set." It's the same thing yet you pay a huge markup for it when you buy it but if you try to sell it you're not going to get any more money than any other silver coin. So you don't want to buy anything that's marketed as being a proof, a collectible. All you're going to do is overpay for it and make somebody's day – the salesman, the firm that he works for, they're going to make a bunch of money at your expense.
You want to buy as much gold and silver as you can for the money. You want to pay the lowest premium you can over the melt value of the coin and that's what we do at Euro Pacific. We always make sure that we're selling bullion bars and coins that enable people to maximize the amount of money going into metal and minimize the amount of money going into my pocket when it comes to a sales commission.
Daily Bell: Is it time to buy precious metals stocks? Will it ever be?
Peter Schiff: I've been saying it for a long time. I've been buying gold and silver stocks for about 12 years for myself and there have been rallies, there have been pullbacks. Recently we've had a pretty substantial pullback from the highs. I think there's lots of opportunity in the mining stocks, particularly if I'm correct on what I think is going to happen to the price of gold and silver.
One of the interesting things about the move that we've had so far, even though gold has gone from $300 an ounce to $1600 and silver's gone from $4 an ounce to $30. You would think that these gold and silver companies are just minting money right now and they're making a fortune but they're not because the cost of mining has also gone up by roughly the same percentage. It's no more profitable to mine gold at $1600 an ounce than it was to mine it at $400 because of the cost. What's ironic about it is that inflation is driving up the cost of mining but because the governments have convinced most investors that there is no inflation, they don't see a reason to buy gold as a hedge. And so gold companies are kind of a victim of inflation as opposed to benefitting from it, which is what you would believe.
But I think ultimately they will. I think ultimately you're going to see gold and silver prices just skyrocketing much higher than the cost of mining and that's when these companies are going to be able to really start making money. So you would want to buy them before that happens and I think there are some great deals right now in the mining sector. If people are interested in knowing which stocks are my favorites they should contact Euro Pacific Capital, talk to the brokers, find out if these types of investments are suitable and then have a discussion about which of the gold and silver stocks I would recommend that people buy.
Daily Bell: Do you believe in a gold standard? How about a market-based gold and silver standard? Isn't that a historically prevalent standard?
Peter Schiff: I believe what the Founding Fathers believed. My views are aligned with George Washington and Thomas Jefferson and Benjamin Franklin and John Adams. The Americans who founded this country founded it on a gold standard. They believed in real money, that the free market should determine the price of money and the quantity of money, not the government. Money is too important to be turned over to government. And whenever government has the power to do something they will abuse that power and that's what they've done. Ever since they usurped the power to create money out of thin air they've debased the dollar dramatically. Ever since we created the Federal Reserve 100 years ago the dollar's lost 98% of its purchasing power and now the country is on the verge of complete collapse.
The government, with fiat money, has turned us from the world's wealthiest creditor nation to the world's biggest debtor. We have a trade deficit with every country we trade with. We have an enormous national debt that we can never pay back. The only reason we can even pay the interest on the debt is because the Fed has got interest rates at zero. That's the highest rate we can afford. But the minute interest rates go up the party's over.
And this is the consequence of allowing government to usurp all these powers that were denied to it by the Constitution but they found a way around those safeguards and one way around it was the monetary system that unfortunately now exists in our country, where we just have fiat money, we have paper that has no intrinsic value, that is just created at will by the Federal Reserve, used to monetize government debt and the country's suffering because we didn't heed the good advice and the laws that were created by our founders.
Daily Bell: What do you think of President Obama's reelection?
Peter Schiff: I think it's a shame but sometimes you elect the government you deserve. To say that we deserve Obama is quite a statement because it's pretty bad to say that we deserve this. But we voted for him and we're going to have four more years of growth in government, four more years of decline in our living standards, four more years of taxes and inflation and regulation and stagnation and unemployment. President Obama constantly talks about how unlucky he was that he inherited such a bad economy from his predecessor. Well, his successor is going to inherit an even worse economy than the one that he did. I think the economy is going to be in much worse shape in 2016 when Obama finishes his second term than it was in '09 when Bush finished his second term.
Daily Bell: Will Obama be able to turn the economy around in his second term?
Peter Schiff: No. The second term is going to be when it hits the fan. That's when the chickens are going to come home to roost. People think that now that the economy is going, this is where we're going to have the Obama legacy. He has an opportunity to really form his legacy and he doesn't have to worry about fixing the economy anymore because he already fixed it.
He didn't fix it; he just broke it beyond repair. We just don't realize how broken it is because we're drunk on a bunch of new, cheap money and more stimulus, the exact same monetary and fiscal policy that created the housing bubble and created the financial crisis of 2008. So we've numbed us to the greater pain but the novacaine is going to wear off in the Obama second term and we're going to find ourselves in worse shape than we were in the depths of the financial crisis because we didn't solve any of our problems. We made them bigger. Most people just don't know that yet. It's the same people that didn't realize that we had a housing bubble, that didn't see the financial crisis until they could see it in a rear view mirror. Those are the same people who think that the worst is behind us.
I think we're in the eye of the hurricane and I think that once we get out of the eye and we get to the other side we're going to realize that we were in the weak side of the hurricane before. We're about to get into the much stronger side because I think the next downturn is going to be the more severe.
Daily Bell: Are elections rigged these days? Are votes trustworthy?
Peter Schiff: They're rigged in the sense that you can't outvote the mob at this point. The government has created so many people who depend on government, who are voting for theft, who vote for somebody who promises to steal from somebody else and distribute the loot to their supporters. That's the problem. This is the fatal flaw in democracy. That's why the Founding Fathers, when they wrote the Constitution had the foresight to create a republic, not a democracy. The Founding Fathers called democracy mobocracy. They thought it was tyranny of the majority, which they feared as much as tyranny from a king. And so they built in all these safeguards to protect us from what they regarded as the evils of democracy but over time, those barriers have been removed and now we're suffering exactly the way the Founding Fathers warned.
So yeah, I don't think the elections are rigged in that the votes are fraudulent; they're rigged in that you don't really have a choice. You can vote for the Republican or the Democrat, the lesser of the two evils. As far as I'm concerned it's kind of both the same party, the Republicrats or the Demopublicans. They all believe in big government; it's just that the Democrats want big government to be slightly bigger than the Republicans. But they all want to keep growing government, they all believe in this fiat monetary system, they're all Keynesians and so you don't really have a legitimate choice and even if you do your vote's going to be canceled out by somebody who wants something from government.
When you have all these people who aren't even paying income taxes voting to raise taxes on the few who are still paying, the society unravels. You've got people riding in the wagon and you've got people pulling it. And as you get more people in the wagon the wagon moves slower because you don't have enough people pulling it. And now you try to whip the people who are pulling it even harder by raising their taxes and now you incentivize them to jump in the wagon, too. And you reward the people who are riding in the wagon with more government subsidies and you punish the people who are pulling the wagon with taxes and pretty soon the wagon can't move at all because everybody's trying to ride in it. That's about where we are so voting is almost a waste at this point. We need real change and it doesn't seem like we are going to get it at the ballot box.
Daily Bell: Can anything help the US economy at this point?
Peter Schiff: Yeah. Sure, there are a lot of things could help the US economy but unfortunately, they're not going to happen. What we need is less government. We need big cuts in government spending. We're getting opposite. We need to repeal lots of government rules and regulations; instead, we're getting more of them. We need higher interest rates; instead, we continue at zero percent. The Fed needs to contract its balance sheet; instead, it keeps expanding it. We're doing everything backwards from what we need to do and so instead of repairing the damage that's been done to the economy, we damage it even further.
We're digging this deep hole even deeper and eventually we're going to suffer. Right now we're kind of delaying the pain because we're papering it over with debt and so we can continue to live beyond our means but at some point we're going to run out of credit, we're not going to be able to borrow to consume anymore, the world won't finance this profligacy and then just like you see in Greece, the whole thing is going to implode.
Unlike the 2008 financial crisis, this time it's going to be a crisis for the government. It's going to be government bonds that are collapsing. It's going to be the dollar that's going to be collapsing, which means there's no bailouts for anyone.
Daily Bell: Is the US turning into an authoritarian state?
Peter Schiff: Yeah, certainly. I think that we're losing our freedoms, our individual liberty. It's being replaced by this collectivist mentality, that it's not about the individual; it's about the State. And if you listen to President Obama's inaugural that's pretty much what he said. It's not about individual liberty, about the value of the individual, but about society, about the State, about the collective. That is not the ideology that built this country. That's the kind of ideology that built the Soviet Union or communist China or Cuba or any place they tried this nonsense.
We tried socialism in America initially. When the Pilgrims first landed in America they tried socialism and it didn't work. They almost starved to death. It wasn't until it was every man for himself, it wasn't until it was about the individual that anybody actually farmed and that the Pilgrims didn't die out. When they tried to do it all collectively and pool their resources, nobody worked, nobody farmed and they all almost starved.
Daily Bell: You're very critical of the Fed. Is it improving?
Peter Schiff: Is the Fed improving? No. They're getting worse. I've been joking about that everybody has been preoccupied with Lance Armstrong and the fact that he cheated because he doped. He used artificial stimulus to win the Tour de France. Well, that's exactly what we're doing on a national level. Ben Bernanke is doping the economy just like Lance Armstrong.
So we've got a Lance Armstrong economy. Instead of condemning him we might as well memorialize him. Maybe we should build a big statue to him in Washington, DC or maybe put pictures of Lance Armstrong on our money. That would be a little bit more honest because all we're doing is juicing the economy with cheap stimulus but when it wears off we're going to collapse. We're going to have a fall from grace just like Lance Armstrong.
Daily Bell: Will there be hyperinflation?
Peter Schiff: I hope not. I don't think we'll have Zimbabwe-style hyperinflation because I think cooler heads will prevail before it gets that bad. Maybe before it gets that bad we'll discover the error of our ways and take the very painful steps necessary to prevent hyperinflation. But it's still certainly a scenario that is not impossible or even improbable. If we continue to do what we're doing it's inevitable. The question is will we continue on this path or will we reluctantly ultimately change directions. But I know that the longer we wait to do that, the more painful it's going to be and maybe the less likely it will be.
Daily Bell: We tend to figure that there has been some deflation around the world as the bubble has collapsed but will there still be real – further – deflation as a certain group continually argues? We have a hard time with that idea because so much money has been printed.
Peter Schiff: We're gong to see deflation in the sense that prices, including asset prices and consumer good prices, will come down when measured in gold. If you look at deflation as falling prices, you will see falling prices if you're pricing things in gold. But the problem is, most of the people who are calling for deflation think that you're going to have deflation in terms of dollars, that the dollar is going to become more valuable.
That's not going to happen. The dollar intrinsically has no value at all but the government can create its dollars at will. They were talking about minting trillion dollar coins a few weeks ago. That shows you how easily the government can create money out of nothing. They can make trillion dollar bills. They're making them in Zimbabwe. So I think that if you think that you're going to see a collapse in prices in dollars you're wrong because even though the price of things might come down, I think the value of the dollar will come down even more. So from that perspective you're going to see inflation and potentially hyperinflation.
But in terms of real money you could see deflation, which is one of the reasons I'm saying people should buy gold because if you own gold then your cost of living is going to come down because for you, prices are going to get cheaper. But if you're putting your faith in dollar bills, your cost of living is going to skyrocket because the Fed will always try to fight the markets because of deflationary forces. And these are healthy, corrective forces. It's the market trying to re-price assets to where they should be. The government tries to artificially prop things up with cheap money and the market is fighting against that. But the government has a weapon that can overcome the market, and that's the printing press, and so as long as you're dealing in a fiat world, the rules of the game are different.
People who like to talk about deflation and they look at prior periods of deflation, they're looking at countries that were operating under a gold standard. We're not operating under a gold standard. We have no standard. And if you look at countries that have taken on tremendous debts in a fiat world, in a fiat system, it's never been deflation in terms of that currency; it's always been massive inflation or hyperinflation. It's only deflation if you measure prices against the currency that didn't collapse or against something like gold.
Daily Bell: Is it right that one man like Ben Bernanke should have the power to okay the printing of tens of trillions of dollars in a short period of time? How is it possible that people accept he and other central bankers have such great power?
Peter Schiff: No. It's not right that one man should have that authority, nor would it be right for a group of men to have that authority. I don't think any one man or any group of men is smart enough to know how much money should be there or what the price of money should be, no more than somebody can guess what the price of bread should be, or the price of oil should be. Prices should be determined by the marketplace. And I think money, interest rates are the price of money, the price of credit, is the most important price there. Money is one-half of every transaction. I think prices for money need to be set by the market.
Whenever the government does it they're going to do it wrong and they're going to create problems, either shortages or surpluses. Just look at America. Nobody is saving and everybody is borrowing because money is priced wrong. It's too easy to take on debt. It's too cheap to borrow, so we have too much of it. There's not enough reward for savings so Americans aren't saving because rates are too low. So rates need to rise so that we have more savings and less borrowing but the Fed won't let it happen. So we have all these problems and eventually, as I said, it's going to end in disaster because of this price-fixing.
If you believe in the free market then believe in it. But you can't believe in the free market and then think the government should control the price of money.
Daily Bell: Should the US get rid of the Fed? How would it be possible?
Peter Schiff: Getting rid of it would be problematic because if we just got rid of it we wouldn't get rid of their bad policy. I think Congress would just take over where the Fed left off and then some, and it might even be worse. At least with the Fed we have the pretense of an independent central bank. If we got rid of the central bank we would get rid of the pretense and we would just have this straight monetization and we'd have the government in control of the printing presses without any kind of buffer – even though the Fed, for all practical purposes acts like an arm of the government and it doesn't really act like the independent central bank that it was designed to be.
What I advocate is limiting the Fed's power, not turning the power over to Congress but limiting the power the Fed has so it can't do as much damage – making it smaller, taking away its powers, kind of restoring to the Fed its original mission, which it has strayed from so dramatically. And I think if we diminish the Fed's power enough then maybe we can eventually abolish it without worrying about Congress taking up those powers directly but right now it would be pretty dangerous to get rid of the Fed, knowing what's likely to replace it. We wouldn't want to turn all that power over to Congress or the president.
Daily Bell: You received criticism due to the performance of some of your client's accounts in 2008, as well as controversies over the predictions themselves. How has your performance been of late?
Peter Schiff: Obviously, you're always going to have critics. Whenever you put yourself out there people are going to want to criticize you, they're going to want to take you down a peg. Sure, in 2008 we owned a lot of foreign stocks that went down and we owned foreign currencies that went down. The dollar went up in 2008 so pretty much everything we owned, including physical gold, went down in 2008. So if you were going to try to evaluate my performance and just use 2008 well then, yeah – if you were following my advice in 2008 you lost money in 2008.
But I think that's an unfair benchmark. What if you followed my advice in 2007 and 2006 and 2005 and 2009 and 2010? You can always focus in on one short time horizon and say, "Well, gee, if you listened to him only during this period of time you lost money." I never claimed to be perfect. I never claimed that if you listen to me you'll make money every day, every week, every second, although I think if you evaluate what I've been telling people to do over the long term then over the long-term perspective I think my advice has been very good. The dollar has weakened. In fact, the dollar surrendered all of its gains that it made in 2008, 2009 and 2010. Whatever gold lost in 2008 it more than made up in the following years. And, of course, I didn't start recommending gold in 2008; I was recommending it ten years earlier, whether it was under $300 an ounce. So even if it fell from $1,000 to $700 in 2008 to say, "Well, gee, we followed Peter Schiff's advice and bought gold at a thousand and it went to $700," I didn't tell people to start buying it at $1,000; I've been telling people to buy it since it was under $300. And if it didn't matter if it went down to $700; then it went up to $1900 so even if you bought it at $1,000 and rode it down to $700 you're still ahead.
And, of course, they didn't want to give me credit for shorting subprime mortgages. They didn't point out, "How much money did people make who took my advice and shorted subprime mortgages in 2007?" They cleaned up. They didn't point out Peter Schiff's clients who were short subprime or who shorted any other of the financials that we were telling people to short. So again, if they're looking at the long clients – the majority of our clients were long – but if they're looking at it just in 2008, they're not looking at it in its proper context.
And, of course, what makes it more difficult is that security regulations don't allow me to basically point to the accounts that did really well. If I've got 15,000, 20,000 clients, certainly after a year like 2008, depending on when somebody started you're going to find some clients that were unhappy back then. Every broker had unhappy clients in 2008. You probably can't find any whose clients are happy because everything went down. No matter what you bought, if you bought anything it went down. So it's easy to find some people who can criticize the performance but I can't go ahead and point to the accounts that went up because that's a violation of security law.
So I thought it was very unfair. I think some people tried to make a name for themselves by criticizing me. They tried to orchestrate marketing campaigns for their own firms based on saying, "Hey, you shouldn't invest with Peter. You should invest with me." I think they were very unfair and unethical attacks. Everybody who attacked me back then refuses to come back and say, "You know what? We misjudged him. We were premature." Even the Wall Street Journal did an article about how much my clients lost in 2008 but they refuse to do an article about how much they made in 2009 or 2010 or 2011 or how much they made in 2003 or '04 or '05. The only article that the Wall Street Journal ever wrote about me was about my performance in 2008.
All they want to do is discredit me because I'm one of the only people who was publicly predicting the financial crisis of 2008. Instead of saying, "Hey, what did this guy know that everybody else missed?" they just want to discredit me so people don't listen because I'm identifying a bigger problem now that nobody wants to acknowledge. I'm saying that the worst isn't over yet, that we have a worse crisis coming, and the main establishment doesn't want people listening to me. And they know that if they legitimize me by giving me credit for my prior predictions then some people might listen. So they want to try to create this false picture that I didn't really get it right and if I got anything right it was because I was a stopped clock, I was the blind squirrel that stumbled on an acorn. They don't want to acknowledge the accuracy of my forecasting and why I knew what I did so they try to use this supposed bad performance in 2008 to somehow discredit me. Meanwhile, all those people that they want us to listen to also had lousy performance in 2008. The difference is, they didn't see the financial crisis coming and I did. And I might have been short subprime and they had no clue, and we were long gold or we were long commodities or we were short the dollar for ten years, not just for one.
I think that my overall track record in investments is good but I think my track record for forecasting economic events long term is better. I think I understand what's going on and if people go back and read the things that I've been writing for the past ten years, look at the interviews that I've given, the more you learn about me the more you'll appreciate the accuracy of what I'm saying. And it's not because I'm so smart. I acknowledge that I'm not any smarter than all the people that are getting it wrong; I just think I have a better understanding of economics. Not that it's a complex subject; it's because it's a simple subject. But so many other people have just been brainwashed. They drank all this government Kool-Aid and they believe what they were told by some professor at some university who also was clueless. I didn't swallow any of that nonsense. I think my head is on straight and so I think I'm in a position where I can see something that's obvious where other people are blind to it.
Daily Bell: Is gold going to US $5,000? Why isn't it moving faster? Are powerful interests selling it short and otherwise manipulating the market for precious metals?
Peter Schiff: I don't know whether or not the metals market is manipulated. Some say it is; some say it isn't. Clearly, if it is being manipulated it's not working. The prices have gone up dramatically so if people were trying to prevent the prices from rising it's failed. Maybe the manipulation has somehow slowed the assent but even if that's the case I still think that the assent is going to continue. A lot of people are worried about or point to the fact that gold hasn't rallied more in the last year. I don't know why. Markets don't always move exactly the way you think they're going to move. They're going to move in steps and I think we've consolidated a big increase.
I think there are a lot of people that don't understand. I think the short run assets get mispriced because the majority of people who are buying and selling and who are investing other people's money I think get it wrong. So I think people don't understand the real predicament the US economy is in. They don't understand how much value the dollar's going to lose. The people who are not buying gold right now are the same people who were buying houses at the top of the real estate bubble or buying mortgages, the same people who were buying dotcom stocks in 1999. Dotcoms were mispriced, houses were mispriced, gold was being mispriced because you have the same problems in the market but buyers and sellers are not getting it right.
But eventually, long term, the price is right. The fundamentals will win out and I am expecting a major, major rally in the price of gold and silver that will surprise a lot of people, including the gold and silver bulls.
Daily Bell: You've raised your profile tremendously by using the Internet to spread your views. Is the Internet generally an important force in spreading the word about free-market thinking? Is it still a positive choice for change and freedom?
Peter Schiff: I think so because you bypass the gatekeepers. Without the Internet, the only information you can get out there is what will be published in a newspaper or if you get an interview on ABC or CBS or CNN. So if they don't want to advance your agenda, if they actually want to stifle it, then it's difficult to get the word out. You can always write a book but then people have to know that the book is there, they have to buy it or check it out in the library.
But with the Internet you can bypass all those gatekeepers. I can bring information directly to the public and, more importantly, it's easy for the public to discover that the information is out there because they can search it on the Internet. It's not a function of me having to put an ad in front of their face that they're going to see. If they're looking for this material, they're going to find it at their fingertips. All they have to do is search for it. So it's a lot easier for people to discover voices like mine and, therefore, it's a lot easier for me to get my message out there because the audience is there.
Then, if I help convince people of something or help educate people and they believe in something it makes it easier for them to pass this information on to other people because they have the vehicle, the Internet, to transmit this information either directly or to encourage other people to read my stuff or listen to my radio show or watch my video blogs. So it's easier to get this information out there than it was in the past when you didn't have this Internet and the social media forums to disseminate the information.
Daily Bell: Would you like to recommend any books and articles that are especially valuable?
Peter Schiff: My books, my articles – I write all the time. You can read my stuff on Europac.net, watch my video blogs at my YouTube channel, SchiffReport, listen to my daily radio show and you'll get a lot of information. I bring on a lot of good guests that you might not hear if you just listen to more mainstream talk shows. Of course, people can get a free subscription to the newsletter I put out monthly, Peter Schiff's Gold Letter.
Daily Bell: What's your latest book? Are you working on a new one?
Peter Schiff: No new books right now. My latest book is The Real Crash: America's Coming Bankruptcy – How to Save Yourself and Your Country. That just came out earlier in 2012 so that's the latest one. Before that, I came out with a revised edition of Crashproof, Crashproof 2.0. You can even buy that one in paperback. And I have a great little cartoon book I wrote called How an Economy Grows and Why it Crashes. It's an illustrated fable but it really teaches you a lot about economics and it's quite humorous so if you haven't picked that one up, that's a really good one, especially if you have children. Children in fifth, sixth, seventh grade can really learn a lot about economics by reading that book.
Daily Bell: Where do we go from here?
Peter Schiff: I think we're going to have a crisis. I think it's going to be a real collapse and that's going to be the catalyst, potentially, for constructive change. But until there's a crisis it's going to be more of the same until more of the same precipitates the crisis.
I think in the meantime we prepare personally, we get our investments in order, we make sure we have our money invested properly so it's not a financial crisis for us, it's just an economic crisis for the country – not that I want to belittle that but I think it's important that you not go down with the ship financially, that you put yourself in a position to be able to help other people by being in a lifeboat. And then once it hits the fan and we have the crisis, hopefully we'll be able to make a loud enough and strong enough argument so that we finally do the right thing, that the crisis is a catalyst for productive change – where we re-embrace our roots, where we go back to the ideas of the Founders, where we re-embrace the Constitution and free-market capitalism and sound money and limited government. We do all that and then the collapse can be a force for good.
On the other hand, if we completely abandon those ideas and embrace big government, if we blame everything on freedom and capitalism and we see a solution in even more government, then I think we've really consigned America to generations of poverty and oppression and at that point probably the only thing that we could do would be leave, to get out of the country while it's still legal. I hope it doesn't get that bad but we've got to be prepared to win this ideological battle because I think the future of the country will hang in the balance.
Daily Bell: Thank you for your time once more.
http://www.thedailybell.com/28624/Anthony-Wile-Peter-Schiff-on-Politics-Precious-Metals-and-President-Obamas-Second-Term
Exclusive: Bank probes find manipulation in Singapore's offshore FX market -
1/27/2013
By Rachel Armstrong
Reuters
SINGAPORE (Reuters) - Internal reviews by banks in Singapore have found evidence that traders colluded to manipulate rates in the offshore foreign exchange market, according to a source with knowledge of the inquiries.
The discovery widens a global lending rate scandal into new markets, as fallout from the Libor case puts banks under added scrutiny and spurs both regulators and institutions to reconsider how certain key interest and currency rates are set.
The probes found evidence showing that traders from several banks communicated with each other over electronic messaging about what rates they were going to submit for the local banking association's fixings for non-deliverable foreign exchange forwards (NDFs), aiming to benefit their trading books.
"Traders were talking to traders, saying: 'I need you to help me today, I need to fix low,'" said the bank source, who asked not to be identified due to the confidential nature of the reviews.
NDFs are derivatives that let companies and investors hedge or speculate on emerging market currencies when exchange controls make it difficult for foreigners to participate directly in the spot market.
The contracts are settled in dollars, so there is no exchange of the underlying currency, but they can affect spot exchange rates.
The Monetary Authority of Singapore ordered banks that help set local interbank lending rates and NDF rates to review the fixing process last year as U.S. and British regulators cracked down on manipulation of the London interbank offered rate (Libor), a benchmark used to set interest rates for around $600 trillion worth of securities.
The investigations into Libor led to fines of $1.5 billion for UBS AG (UBSN.VX) and $451 million for Barclays Plc (BARC.L) for rate rigging. Regulatory probes stemming from the Libor cases in the United States and Britain have also revealed evidence of attempted manipulation of benchmark interbank lending rates in Tokyo, Hong Kong and Australia.
Banking watchdogs in Britain and elsewhere in Europe have begun trying to reform the way Libor and other interbank rates are set, to try to ensure the numbers can't be manipulated.
The Singapore bank probes show that the focus is now turning to other benchmarks, amid concern that they too were manipulated.
The biggest banks in the Asian NDF markets include UBS, JPMorgan Chase & Co (JPM), DBS Group Holdings Ltd (D05.SI) and HSBC Holdings Plc (HSBA.L).
The source did not make specific comments about possible wrongdoing by individual banks or traders and Reuters has no independent evidence of such wrongdoing.
UBS, JPMorgan, DBS and HSBC declined to comment. Reuters also contacted the other 14 banks involved in setting NDF rates. Twelve said they had no comment while two did not respond to repeated telephone and e-mail requests for comment.
DISCIPLINARY ACTION
Under the NDF rate-setting process, organized by the Association of Banks in Singapore (ABS), banks submit their reading of the spot price for the Indonesian rupiah, Malaysian ringgit and Vietnamese dong every working day at 11:00 a.m. (10 p.m. ET).
A settlement rate for NDF contracts due to expire is then calculated by taking the average of the submissions, excluding the highest and lowest quarters of contributions from the banks.
While the exclusion of the rates at the top and the bottom of the range is meant to ensure that one bank cannot try to improperly skew the rate, the concern is that collusion by traders at multiple banks could influence the result.
There are 18 banks on the panel for the rupiah, 15 for the ringgit and 12 for the dong.
The Monetary Authority of Singapore told banks in the city state last July to review the way they set interbank lending rates, in the wake of the Libor scandal.
As bank officials pored over documents and communications, they came across evidence that raised alarm bells over activities in the NDF markets as well, spurring an extension of the reviews to those markets in September, the source said.
In Singapore, benchmark rates for both interbank lending and certain NDFs are set by panels of banks organized by the ABS. Thomson Reuters, parent company of Reuters News, calculates and distributes the spot reference rates for the rupiah, ringgit and dong NDF markets on behalf of the ABS, as well as other interbank lending and currency rates. "Thomson Reuters supports any measures that create more robust benchmarks for the market and we fully cooperate with regulators, authorities and benchmark sponsors' investigations as required," a Thomson Reuters spokeswoman said.
In December, the Monetary Authority of Singapore issued a statement setting out the banks' obligations under the reviews, although it has not made clear whether it would take action of its own based on the results.
"The banks have to immediately report any irregularities they uncover to MAS, and have to take appropriate disciplinary action against staff involved in such irregularities," the statement said.
"The reviews are ongoing, and it is premature to speculate on the outcome of these reviews at this stage."
The central bank provided no further comment when asked by Reuters about the probes' findings.
The source said most banks had submitted their reviews to the authorities at the end of last year but did not say what disciplinary actions if any were planned for banks or traders who tried to manipulate rates.
The MAS said last year that it was working with the ABS to review the way NDF rates and the city state's benchmark lending rates are set. The association declined to comment for this story.
Banks dealing in over-the-counter products in Singapore such as NDFs follow a code-of-conduct set by the Singapore Foreign Exchange Market Committee, known as The Blue Book.
That includes a requirement that: "dealers and brokers shall not engage in manipulative or deceptive conduct or any form of conduct which would give other users of the market a false or misleading impression as to prevailing market conditions."
MARKET THINS OUT
Trading volumes in the NDF markets are much smaller than for derivatives linked to Libor, although they are hefty enough to effect spot rates for the underlying emerging market currencies.
For the Indonesian rupiah, the biggest market fixed in Singapore, daily turnover is estimated between $700 million and $1.3 billion, according to an HSBC report. Since NDFs are traded over the counter, there is no fixed data on volumes.
Traders say even a small movement in an NDF fixing could have a big impact on a bank's trading book if it had a large number of contracts expiring.
Many of the traders involved were junior and did not appear to think they were doing anything wrong, said the source.
The NDF market in Singapore developed after the Asian financial crisis, when capital fled the region causing several area currencies including the rupiah to slump in value. NDFs gave banks a way around controls that governments subsequently imposed on their currencies to curb those capital flows.
Of the 40 to 50 NDF traders based in Singapore, roughly half had either been put on leave, including those suspended while their activities in the market were under investigation, or left their jobs during the Singapore probes, the source said. It was not clear how many may have been or will be reinstated after the probes' completion.
"A lot of banks are stuck, traders are suspended or have left, so the market is seeing around half its usual volume," the source said.
Flows in Indonesian rupiah and Malaysian ringgit NDFs have been thin since the last quarter of 2012 according to Thomson Reuters IFR Markets, although volumes in ringgit NDFs picked up at the start of this year.
The action by U.S. authorities last month against UBS for its part in the Libor scandal included a criminal charge against the Swiss bank's Japanese subsidiary for yen Libor manipulation.
The charge sheet by the Commodities Futures Trading Commission against the bank also revealed other markets in Asia where problems emerged.
"Through its internal investigation, UBS identified evidence of similar misconduct involving submissions for at least the Hong Kong Interbank Offered Rate ("HIBOR"), the Singapore Interbank Offered Rate ("SIBOR"), the Singapore Swap Offer Rate ("SOR") and the Australian Bank Bill Swap Rate ("BBSW")," a footnote in the charge sheet read.
The Hong Kong Monetary Authority said in December that it was looking into the findings on Hibor.
The Australian Securities and Investments Commission declined to comment on the BBSW.
(Reporting by Rachel Armstrong; Editing by Michael Flaherty and Edmund Klamann)
http://finance.yahoo.com/news/exclusive-bank-probes-manipulation-singapores-210604253.html
6 Micro Caps To Add To Your Portfolio For 2013
December 27, 2012
Jett Dueitt
Micro Caps are often the epitome of boom or bust scenarios. I think it's important to have some speculation in any portfolio but often times people stay away from Micro's as they are usually in the development stage. It's a dangerous game, most of the time, because the outcome is binary: win big or lose big. There is seldom middle ground, so one must choose carefully which stocks they wade into.
With the new year upon us, it's time to reposition the portfolio and look ahead into 2013 and early 2014. My personal strategy is to allocate 5-10% of the total portfolio to micro cap speculation stocks. I've chosen six for this year (no particular order):
...
3. Uranium Energy Corp (UEC)
Market Cap: $216m
Catalyst: Recovery in Uranium Prices
UEC is a small cap, debt-free, unleveraged American uranium producer. Despite many doubts over the future of nuclear energy, I am in the camp that countries are not just going to do away with the source of energy. The future of the space is in turmoil after the Japanese disaster, but like anything else, things just take time to come back to equilibrium. I believe in the stability of long-term nuclear energy. UEC may not be an overnight success, but long-term, the fundamentals are in tact. The company is growing production, and operates in the safe confines of the U.S.A.
(Cont...)
http://seekingalpha.com/article/1083611-6-micro-caps-to-add-to-your-portfolio-for-2013
Stansberry's Badiali: $100+/Pound Uranium Needed To Satisfy Stealth Demand
January 25, 2013
What's the easiest way to track the ups and downs of energy markets? Watch what governments are doing rather than what they are saying, says S&A Resource Report Editor Matt Badiali. He has been watching behind-the-scenes nuclear energy importing in Germany and Japan, and has concluded that the uranium market has hit bottom and is coming back up. What companies could benefit from these gyrations? He has an answer to that one in this Energy Report interview, plus some words of wisdom on U.S. oil and gas bottlenecks.
The Energy Report: In a recent piece for the S&A Resource Report titled, "Government Lies and an Emerging Resource Opportunity", you said that statements by German and Japanese officials that they plan to be nuclear free in the next two decades were a cover-up for what they're really doing, which is importing nuclear power from other countries and secretly developing uranium supplies in former Soviet countries. How long can they hide these energy sources?
Matt Badiali: It's not a case of hiding them. In both cases, the governments are playing politics. In Germany, the government was reacting to negative press and in Japan, which had just experienced a serious natural disaster. The Japanese government told people for decades that nothing of that sort could ever happen, that the nuclear reactors were completely impervious to natural disasters. That put them in a position where if they tried to make any improvements, they would lose face. They backed themselves into a corner and the only solution seemed to be to turn off the reactors. But the reality is that Japan needs nuclear energy. Without it, liquefied natural gas [LNG] imports have soared and the country doesn't have the infrastructure to move it around. The result was a horrendous summer of spiking electricity prices and rolling brownouts; it was bad news.
Germany used the Fukushima disaster and the negative sentiment that followed to push through a carbon-free agenda. What is really ironic is that Germany is not in a place that gets earthquakes or tsunamis. It is not at any risk for that. It also isn't a place where solar power works really well. Turning off the nuclear plants leaves the country without adequate energy generation infrastructure, so they increased imports of electricity from France. However, over 75% of France's electricity is generated by nuclear power plants. So really all they did was outsource their nuclear reactors. At the same time, they brought on an enormous amount of coal power, which is the single-worst contributor of carbon dioxide. It was politics at its finest.
TER: Is the German press not reporting on this? Are people not wondering where their energy is coming from?
MB: I don't read the German press, but what I do see is that the Germans are paying an enormous surcharge for a modest amount of carbon-free electricity. I don't know why there has not been a massive backlash in Germany. If I lived there, I would be furious about the costs. In France, it costs about €0.14 per kilowatt hour [KWh] of electricity. In Italy, it costs about €0.20/KWh. In Germany, it costs €0.25/KWh. That's an 85% increase in the cost of electricity. It's really amazing, and I haven't seen any pushback.
TER: Is the public as accepting of the higher prices and rolling brownouts in Japan?
MB: In Japan, we've seen a massive pushback. Shutting down nuclear reactors imposed an almost $56 billion [$56B] loss to the four major Japanese electric companies. That is not economically sustainable. You can't bankrupt your power companies. On the supply side, think about Tokyo: It is an electric-centric life. Rolling brownouts and soaring power prices had an enormous impact on individuals. They reacted by electing a pro-nuclear government.
Even before that, the state-owned Japan Oil, Gas and Metals National Corp. [JOGMEC] was spending a significant amount of money exploring for uranium deposits in Uzbekistan. The government was saying one thing and doing another.
TER: After Shinzo Abe was elected prime minister at the end of December, the price of uranium bumped up. Was that just a coincidence? Is that a sustainable increase or just a temporary headline reaction?
MB: That was absolutely a market response to the idea that Japan is not shutting down nuclear reactors. It is also a reflection of the supply reality. Prices in the $40 per pound [$40/lb] range are significantly below production costs That led to many big projects being shut down, delay of BHP Billiton Ltd.'s (BHP) Olympic Dam [Australia] project and AREVA's (ARVCF.PK) Trekkopje [Namibia] and Imouraren [Niger] projects, to name a few. A total of 65 million pounds [65 Mlb] has come off of the market or will be delayed because the companies can't justify the cost at these prices.
TER: How much of an impact could a loss of 65 Mlb in planned supply make on the price? Will we see $130/lb again?
MB: It's not just supply loss in reaction to a real or perceived decrease in demand in Germany and Japan. We also have increasing demand from Russia, which has 33 operating reactors and 10 more under construction. Globally, another 65 reactors are under construction and 167 are in planning. Unfortunately, companies can't just jump back in and turn on these new supplies of uranium.
The Olympic Dam expansion will take 3-5 years once the budget is approved. However, this is an 11-year, $20-33B project that requires some confidence that the price of uranium will be enough to pay for the investment. There is a lot of wiggle room for price increases. In the big picture for nuclear reactors, the price of fuel is a very small part of the operating cost. You can double the price of uranium with very little impact on a nuclear power plant's bottom line.
TER: If uranium is ~$42/lb today, do you think it could be $84/lb in 2013?
MB: I have looked at the numbers for all the big public miners, and the average cost to run the businesses is about $106/lb. So at $40/lb, they are losing about $66 on every pound they sell. You can't make that up without the price going up. So, yes, I think we are going to see the price come up. I absolutely think that we've seen the bottom. I think $80/lb is not unreasonable, and $100+/lb is more likely.
TER: How much would the price have to go up in order to turn on some of those projects that have been put on hold, like Olympic Dam?
MB: I think it's going to be more about sustainable prices. When you are spending billions of dollars, you really need to be making a good profit to pay those loans back. We have to see the prices go up and stay up, and then three to five years later we could see production increase.
TER: If the supply and demand equation you're outlining here comes about, what companies are poised to profit from that?
MB: We have actually already seen some. In my December 4 newsletter, I recommended Cameco Corp. (CCJ), Denison Mines Corp. (DNN) and Uranium One Inc. (SXRZF.PK). Recently, Uranium One's partner, the Russian state-owned nuclear power company, Rosatom Nuclear Energy State Corp. [ROSATOM], which owns 51% of Uranium One through a holding company called ARMZ, decided to take the whole thing off the board. That put investors up 46% in five weeks.
TER: Do you think there will be more M&A?
MB: I do, because the companies see that we are coming off the bottom and in order to buy low, now is the time to do the acquisition.
TER: Who, in your view, are the likely acquirers and acquirees in 2013?
MB: I think Cameco will likely go shopping. Some of the Chinese companies have been aggressive over the last couple of years. I wouldn't be surprised to see them get involved in this, too. And Russia is clearly acquiring new assets and moving into new areas.
One promising exploration project that could get taken over is Uranium Energy Corp. (UEC) in Texas, Amir Adnani's company. It is an in situ leach mining company that is just starting production in the Texas uranium belt right now. The company injects water that is enriched with oxygen into a uranium-heavy sand body. As the water moves through this sand body, it dissolves the uranium. The liquid is pumped out on the other side of the sand body and the uranium is extracted. The company has been successful doing that, and the low-impact method could be attractive to an acquirer.
(Cont...)
http://seekingalpha.com/article/1134601-stansberry-s-badiali-100-pound-uranium-needed-to-satisfy-stealth-demand?source=email_portfolio&ifp=0
SilverSeek.com 2013 Virtual Silver Investment Conference: THURSDAY - JANUARY 31
Friday, January 18th
SilverSeek.com’s 2013 Virtual Silver Investment Conference, an online, one-day event showcasing silver industry experts and top tier silver companies will begin at 9:30am Eastern on THURSDAY, January 31st.
Thursday 9:30am – 4:30pm EST • January 31
9:30am David Morgan
10:00am SilverCrest Mines
10:30am James Turk
11:00am Fortuna Silver Mines
11:30am Julian Phillips
12:00pm Endeavour Silver
12:30pm First Majestic Silver
1:00pm: Keynote: Eric Sprott
1:30pm Bear Creek Mining
2:00pm Steve St. Angelo
2:30pm SantaCruz Silver
3:00pm Peter Spina
All times listed are: Eastern Time Zone
Get updated on the latest silver market news and connect with expert opinions on silver. Visit and interact with top performing publicly traded silver production and exploration companies at their virtual booths in a rich virtual environment, from the comfort of your home or office.
Attendance to this online conference is FREE via online registration -- registration is now open!
2013 presentations from silver industry experts will include: Eric Sprott, David Morgan, James Turk, Julian Phillips, Peter Spina and Steve St. Angelo.
Interact live with silver companies and view presentations in the auditorium from company representitives and executives:
Bear Creek Mining (TSX-V: BCM), First Majestic Silver (TSX: AG | NYSE: AG | FRA: FMV), Fortuna Silver Mines (TSX: FVI| NYSE: FSM), Endeavor Silver (TSX: EDR, NYSE: EXK), Sprott Money, SantaCruz Silver (TSX-V: SCZ | FSE: 1SZ), SilverCrest Mines (TSX-V: SVL | OTCQX: STVZF) and SilverSeek.com.
- CLICK HERE TO REGISTER -
http://www.silverseek.com/article/silverseekcom-2013-virtual-silver-investment-conference-thursday-january-31-8936
SilverSeek.com 2013 Virtual Silver Investment Conference: THURSDAY - JANUARY 31
Friday, January 18th
SilverSeek.com’s 2013 Virtual Silver Investment Conference, an online, one-day event showcasing silver industry experts and top tier silver companies will begin at 9:30am Eastern on THURSDAY, January 31st.
Thursday 9:30am – 4:30pm EST • January 31
9:30am David Morgan
10:00am SilverCrest Mines
10:30am James Turk
11:00am Fortuna Silver Mines
11:30am Julian Phillips
12:00pm Endeavour Silver
12:30pm First Majestic Silver
1:00pm: Keynote: Eric Sprott
1:30pm Bear Creek Mining
2:00pm Steve St. Angelo
2:30pm SantaCruz Silver
3:00pm Peter Spina
All times listed are: Eastern Time Zone
Get updated on the latest silver market news and connect with expert opinions on silver. Visit and interact with top performing publicly traded silver production and exploration companies at their virtual booths in a rich virtual environment, from the comfort of your home or office.
Attendance to this online conference is FREE via online registration -- registration is now open!
2013 presentations from silver industry experts will include: Eric Sprott, David Morgan, James Turk, Julian Phillips, Peter Spina and Steve St. Angelo.
Interact live with silver companies and view presentations in the auditorium from company representitives and executives:
Bear Creek Mining (TSX-V: BCM), First Majestic Silver (TSX: AG | NYSE: AG | FRA: FMV), Fortuna Silver Mines (TSX: FVI| NYSE: FSM), Endeavor Silver (TSX: EDR, NYSE: EXK), Sprott Money, SantaCruz Silver (TSX-V: SCZ | FSE: 1SZ), SilverCrest Mines (TSX-V: SVL | OTCQX: STVZF) and SilverSeek.com.
- CLICK HERE TO REGISTER -
http://www.silverseek.com/article/silverseekcom-2013-virtual-silver-investment-conference-thursday-january-31-8936
Gold initiative prepares the SNB headache
24th January 2013 09:18; act: 25/01/2013 12:33
by Lukas Hässig - home to Switzerland must get their gold from abroad? The SVP initiative calling for the missing, only 10,000 signatures. The SNB could get into trouble.
The final sprint started. "Already in March 2013 is the deadline for the submission of Gold initiative," the St. Gallen SVP National and co-founder writes Lukas Reimann in his newsletter. Although it was with some 90,000 signatures on its way. "But to crack the necessary 100'000er brand, now the use of all is needed."
Where are the 1,040 tonnes of gold the Swiss National Bank? The question is now being seriously discussed with us. The response of the SNB remains nebulous. Most of it is here, but some lie abroad, said the central bank. "We do not want to be precise," says SNB spokeswoman Silvia Oppliger. "Maybe we will express more precisely, should the gold initiative come about."
German gold repatriation provides in USA for red heads
The German Bundesbank initially thought, they do not need to accept the emotional topic in more detail. But so are a growing number of applied citizens and politicians were not satisfied. They put the central bank so long under pressure until it gave way recently. Now bring the Germans back 674 tonnes of gold from the U.S. and from France to England. This corresponds to a value of 27 billion euros currently.
The large gold repatriation of our northern neighbors provides worldwide headlines. «Germany Moving Its Gold Back Home To Satisfy The Paranoid", headlines the U.S. Internet newspaper Huffington Post; pure populism to appease a population that is seeing ghosts. In Germany, had previously taken hold doubt the actual existence of the gold that is stored in the gold vaults of the Americans. The bars may indeed be covered with a thin layer of gold and otherwise consist of inexpensive iron was feared.
SNB would have to buy up to 100 billion gold
Interestingly, Switzerland has been a long time before the Germans and taken without public vertebral the topic. Circles from the People's Party launched 16 months ago, the gold initiative. Because the project in parliament remained chance would just started as the last remaining means an initiative, the initiators said then. By referendum, they want to force the SNB to store all the gold in Switzerland and sell no single ton more. In addition to the SNB within 5 years after voting to increase their gold holdings massively so that it accounts for a fifth of the minimum in the whole balance.
At current prices, the rest would go into the money. Currently, the share of gold in all the assets of the National Bank is only at 10 percent. If the SNB reduced its balance sheet is not strong, then it remains a possible adoption of the initiative no other choice than double its gold reserves to 2000 tonnes.
A ton of gold currently costs about $ 55 million. Now can be expected: 2000 tons came to 110 billion dollars, equivalent to about 100 billion francs. By comparison, the SNB now has a capital of 62 billion francs. This does not include higher gold prices that could arise due to the demand of the SNB.
Headache at the guardian of the currency
Where did all that money to come for gold purchases is not clear. It would be nice to reduce the mountain of about 170 billion euros in order to buy gold bars. Only it would take for the many Euros first buyer, and the single currency would yet remain so stable that billion-sales of the SNB would not immediately strengthen the franc against the euro again. This consideration alone makes it clear that the gold initiative although many Swiss arrives, but whose implementation the responsible persons would cause big headaches
http://www.20min.ch/finance/news/story/Gold-Initiative-bereitet-der-SNB-Kopfzerbrechen-12181140
Forget Germany, Check Out Turkey's Central-Bank Gold
By: Adrian Ash, BullionVault
Wednesday, 23 January 2013
Source: GoldSeek.com
Now here's a central bank really putting gold to good use...
AMID the brouhaha over Germany's gold reserves at the Bundesbank, there's another central bank using gold actively to bolster its currency and financial stability.
The strategy looks the same – sitting on big stockpiles of the stuff. But the aim differs, because gold is much closer to the everyday financial system. The tactics differ too. Because the central bank hasn't bought and paid for this gold. Private citizens have.
"Gold-based deposit accounts [in Turkey] surged 15% this year through the end of July," explained BusinessWeek back in October, "three times the increase in standard savings accounts."
"Although much criticised for its use of 'unconventional measures'," the Financial Times added in December, "few would argue that the decision last year by Turkey's central bank to allow the country’s banks to buy gold was anything less than a roaring success."
Buying gold isn't quite right. Starting in October 2011, the central bank began allowing commercial banks to hold a portion of their "required reserves" – needed to reassure depositors and other creditors they had plenty of money to hand – in physical gold bullion. Starting at 10%, that proportion was then raised to 30%.
Private citizens were similarly encouraged to hold their gold on deposit with their banks. That gold was thus transferred to the central bank's balancesheet. Et voila! Privately-owned gold now backed the nation's finances. A smart idea, which has coincided with Turkey's currency rising, interest rates falling, huge current-account shrinking, and government bonds regaining "investment grade" status.
Publicly targeting some of Turkey's estimated 2,200 tonnes of "under-the-pillow" gold, currently worth some $119 billion, the CBRT's governor Erdem Basci has meantime been awarded The Banker magazine's prestigious "Central Banker of the Year 2012" award. But with everything going so swimmingly, might Turkey risk over-heating?
Well, the CBRT this week cut its key interest rates – and raised the amount of gold which commercial banks choosing to use bullion as required reserves must hold with it. That fine-tuning is a bid to a) deter foreign investors from buying Lira and so pushing it Lira too high, too fast, and b) prevent those inflows boosting the pace of domestic credit growth by giving the banks too much money to play with.
See, with Turkey's mess of the early 2000s now fading from memory (it knocked 6 zeroes off the Lira in 2005), the currency recently neared 12-month highs against both the US Dollar and the Euro. "Amid accelerating capital inflows" from foreign investors, said the central bank in Tuesday's policy statement, "recent credit growth has been faster than envisaged.
"In order to contain the risks on financial stability, the proper policy would be to keep interest rates at low levels while continuing...to implement a measured tightening [of credit] through reserve requirements."
Reporting from Istanbul, Reuters notes that the CBRT raised its "reserve option coefficients" for Gold Bullion and non-Lira currencies. In other words, it forced commercial lenders who choose to hold a proportion of their cash reserves in gold or foreign exchange to deposit more with the central bank.
"The measures will transfer as much as $2.9 billion in foreign exchange and gold from lenders to the central bank's reserves," says Bloomberg, "as well as withdrawing 300 million Liras from local-currency markets."
Analysts at Goldman Sachs had forecast this move last week, noting after comments from Turkish central bank governor Basci – and also noting last month's rise of 2% in the Lira's exchange rate to the Dollar – that CBRT "has shifted focus towards the financial stability risks posed by accelerating capital inflows."
Using interest rates and other tools, it would "lean against these inflows and their subsequent FX appreciation pressures," said Goldman's analysts. The CBTR this week cut its annualized rate for overnight loans to 8.75%. That compares with the 12% charged 12 months ago, when inflation ran to double-digits and the Lira was still struggling to find its floor, says the Wall Street Journal's Emerging Europe blog.
Can you imagine such a policy, let alone such a turnaround. Of course, not all of Turkey's gold policy can be fully guessed by analysts outside, and there are still plenty of risks to Turkey's growth and stability too. Not least its current account deficit...perhaps the 7th worst in 2012 at $59 billion (IMF forecast).
Still, that was down from second place – behind the ever-winning United States of course – in 2011. That spot is now taken by the dear old United Kingdom, a nation which all-too famously sold half its national gold reserves at multi-decade lows between 1999 and 2002. A decade later our deficit with the rest of the world yawned above $80 billion last year.
The UK could of course play a similar gambit to Turkey. Indeed, Bullion Vault set forth just such a modest proposal to Parliament early last year.
"Make private gold deposited at the Bank of England free of capital gains tax. This would dramatically increase the financial firepower of the bank at a time when our commercial banks need support, as might our currency very soon."
Some hope! And in the absence of a central bank, or government, willing or able to tackle stability on your behalf, UK savers might want to note that gold did for Turkish households back when the Lira collapsed – time and again – on the currency market.
Adrian Ash
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich on just 0.5% dealing fees.
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
-- Posted Wednesday, 23 January 2013 | Digg This Article | Source: GoldSeek.com
http://news.goldseek.com/BullionVault/1358972507.php
Forget Germany, Check Out Turkey's Central-Bank Gold
By: Adrian Ash, BullionVault
Wednesday, 23 January 2013
Source: GoldSeek.com
Now here's a central bank really putting gold to good use...
AMID the brouhaha over Germany's gold reserves at the Bundesbank, there's another central bank using gold actively to bolster its currency and financial stability.
The strategy looks the same – sitting on big stockpiles of the stuff. But the aim differs, because gold is much closer to the everyday financial system. The tactics differ too. Because the central bank hasn't bought and paid for this gold. Private citizens have.
"Gold-based deposit accounts [in Turkey] surged 15% this year through the end of July," explained BusinessWeek back in October, "three times the increase in standard savings accounts."
"Although much criticised for its use of 'unconventional measures'," the Financial Times added in December, "few would argue that the decision last year by Turkey's central bank to allow the country’s banks to buy gold was anything less than a roaring success."
Buying gold isn't quite right. Starting in October 2011, the central bank began allowing commercial banks to hold a portion of their "required reserves" – needed to reassure depositors and other creditors they had plenty of money to hand – in physical gold bullion. Starting at 10%, that proportion was then raised to 30%.
Private citizens were similarly encouraged to hold their gold on deposit with their banks. That gold was thus transferred to the central bank's balancesheet. Et voila! Privately-owned gold now backed the nation's finances. A smart idea, which has coincided with Turkey's currency rising, interest rates falling, huge current-account shrinking, and government bonds regaining "investment grade" status.
Publicly targeting some of Turkey's estimated 2,200 tonnes of "under-the-pillow" gold, currently worth some $119 billion, the CBRT's governor Erdem Basci has meantime been awarded The Banker magazine's prestigious "Central Banker of the Year 2012" award. But with everything going so swimmingly, might Turkey risk over-heating?
Well, the CBRT this week cut its key interest rates – and raised the amount of gold which commercial banks choosing to use bullion as required reserves must hold with it. That fine-tuning is a bid to a) deter foreign investors from buying Lira and so pushing it Lira too high, too fast, and b) prevent those inflows boosting the pace of domestic credit growth by giving the banks too much money to play with.
See, with Turkey's mess of the early 2000s now fading from memory (it knocked 6 zeroes off the Lira in 2005), the currency recently neared 12-month highs against both the US Dollar and the Euro. "Amid accelerating capital inflows" from foreign investors, said the central bank in Tuesday's policy statement, "recent credit growth has been faster than envisaged.
"In order to contain the risks on financial stability, the proper policy would be to keep interest rates at low levels while continuing...to implement a measured tightening [of credit] through reserve requirements."
Reporting from Istanbul, Reuters notes that the CBRT raised its "reserve option coefficients" for Gold Bullion and non-Lira currencies. In other words, it forced commercial lenders who choose to hold a proportion of their cash reserves in gold or foreign exchange to deposit more with the central bank.
"The measures will transfer as much as $2.9 billion in foreign exchange and gold from lenders to the central bank's reserves," says Bloomberg, "as well as withdrawing 300 million Liras from local-currency markets."
Analysts at Goldman Sachs had forecast this move last week, noting after comments from Turkish central bank governor Basci – and also noting last month's rise of 2% in the Lira's exchange rate to the Dollar – that CBRT "has shifted focus towards the financial stability risks posed by accelerating capital inflows."
Using interest rates and other tools, it would "lean against these inflows and their subsequent FX appreciation pressures," said Goldman's analysts. The CBTR this week cut its annualized rate for overnight loans to 8.75%. That compares with the 12% charged 12 months ago, when inflation ran to double-digits and the Lira was still struggling to find its floor, says the Wall Street Journal's Emerging Europe blog.
Can you imagine such a policy, let alone such a turnaround. Of course, not all of Turkey's gold policy can be fully guessed by analysts outside, and there are still plenty of risks to Turkey's growth and stability too. Not least its current account deficit...perhaps the 7th worst in 2012 at $59 billion (IMF forecast).
Still, that was down from second place – behind the ever-winning United States of course – in 2011. That spot is now taken by the dear old United Kingdom, a nation which all-too famously sold half its national gold reserves at multi-decade lows between 1999 and 2002. A decade later our deficit with the rest of the world yawned above $80 billion last year.
The UK could of course play a similar gambit to Turkey. Indeed, Bullion Vault set forth just such a modest proposal to Parliament early last year.
"Make private gold deposited at the Bank of England free of capital gains tax. This would dramatically increase the financial firepower of the bank at a time when our commercial banks need support, as might our currency very soon."
Some hope! And in the absence of a central bank, or government, willing or able to tackle stability on your behalf, UK savers might want to note that gold did for Turkish households back when the Lira collapsed – time and again – on the currency market.
Adrian Ash
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver vaulted in Zurich on just 0.5% dealing fees.
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
-- Posted Wednesday, 23 January 2013 | Digg This Article | Source: GoldSeek.com
http://news.goldseek.com/BullionVault/1358972507.php
ECB's Weidmann: pressure on central banks risks FX competition
Jan.21, 2013
Jan 21 (Reuters) - Loading central banks with more tasks and pressing them to pursue more aggressive monetary policies could risk a round of competitive devaluations, European Central Bank policymaker Jens Weidmann said on Monday, citing pressure on the Bank of Japan.
Weidmann is the latest in a string of policymakers worldwide to warn of the threat of a "currency war" as central banks pump out cash to support their economies, reducing their value in the process.
He said the pressure that Japan's new government has put on the BOJ to deliver bolder monetary easing endangered the central bank's independence, as did the actions of Hungary's government.
"Already alarming violations can be observed, for example in Hungary or Japan, where the new government is interfering massively in the business of the central bank with pressure for a more aggressive monetary policy and threatening an end to central bank autonomy."
"A consequence, whether intentional or unintentional, could moreover be an increased politicisation of exchange rates," the Bundesbank chief, who also sits on the ECB's Governing Council, said in a speech at a Deutsche Boerse New Year's event.
"So far the international currency system has come through the crisis without a devaluation competition, and I hope very much that remains the case," Weidmann added in a section of his speech entitled "independence of central banks in danger".
Last Wednesday, Russian central banker Alexei Ulyukayev said Japan is acting to weaken its currency and there is a danger that others will follow suit and foster a round of destabilising devaluations.
Russia holds the G20 presidency this year, a forum at which currencies and their relative values is likely to surface.
INDEPENDENCE THREAT
Plans for the ECB to begin supervising banks were consistent with a trend outside the euro zone for central banks to be given more tasks that lie beyond their core mandate, Weidmann said.
"But the overburdening of central banks with tasks and expectations is definitely not the right way to overcome the crisis in a sustainable way," he added. "Central banks protect their independence best by interpreting their task narrowly."
"The key to handling the crisis does not lie with the central banks."
Weidmann's comments echo remarks by James Bullard, a senior Federal Reserve official, who said earlier this month the world's top central banks had sacrificed some of their independence to contain the financial crisis, describing the ECB's bond programme as a "fiscalisation" of monetary policy.
Weidmann struck a bleak note on the prospects of both the euro zone and the United States overcoming their debt problems, saying there was no quick, simple way to fix them.
"The adjustment process to bring state finances and economic structures back into order is not a matter of months or a few years," he said.
But he was more upbeat on the economic prospects for the German economy, saying that although it would probably be "powerless" in the first quarter it should pick up noticeably later in 2013.
"The German economy remains in good shape," Weidmann added.
He also appeared to warm to an idea put forward by an EU advisory group last October for a legal separation of banks' commercial and investment banking operations in an attempt to shield taxpayers from having to fund further bailouts and to protect savers from any more banking collapses.
"The creation of legally, organisationally and commercially self-contained trading units can help to protect deposit banks without sacrificing the advantages of Germany's universal banks," Weidmann said, in comments that marked a shift from the Bundesbank's earlier position that did not give much credit to the proposal.
http://www.reuters.com/article/2013/01/21/ecb-weidmann-currency-idUSL6N0AQCMF20130121
Central Banks Repatriate Gold: How Will This Affect Investors?
By Bernice Napach | Daily Ticker – Tue, Jan 22, 2013 12:00 PM EST
Gold is rebounding. News that the Bank of Japan set a 2% inflation target and is buying 13 trillion yen worth of assets ($146 billion) rallied gold prices Tuesday, to near a one-month high of $1,697.80 set last week.
That’s not surprising since gold, more than any other commodity, rises and falls along with changing government policies globally.
Germany made even bigger splash than Japan in the gold market recently with its surprise announcement last week that the Bundesbank would begin repatriating gold reserves held overseas. The central bank said it wanted to keep more than 50% of its gold reserves at home, up from slightly less than one-third currently. With that in mind, the Bundesbank will move all its gold reserves now held in Paris back to Germany, and reduce its reserves held in New York City.
“Germany is saying that gold is money,” says Jim Rickards, author of Currency Wars: The Making of the Next Global Crisis. Otherwise, says Rickards, they would just leave the gold where it currently is stored.
And Germany isn’t alone. There’s talk that the Netherlands and Azerbaijan will also repatriate gold reserves.
China, the second largest global economy but the sixth largest holder of gold, according to the World Gold Council, is increasing its gold reserves, Rickards tells The Daily Ticker.
“If the Chinese repeat their pattern I expect late this year or early 2014 the Chinese will announce, ‘We’ve got 3,000 tons or maybe 4,000 tons.’ That will be a shock because suddenly the world will wake up and say why is China buying all this gold?" says Rickards.
He says the the reason is obvious: “Gold is the real base money.”
Rickards is bullish on gold short term and says gold prices will rise the most in currencies that are weakening the most.
“In dollar terms gold hasn’t gone up that much lately but in yen terms—with the devaluation of the yen, gold is partly a function of the currency wars,” he says.
(video link: 4 min)
http://finance.yahoo.com/blogs/daily-ticker/central-banks-repatriate-gold-affect-investors-170006263.html
Silver Bars Being Secured By HSBC – Buy $876 Million Worth From Poland
23 January 2013
GoldCore
HSBC has quietly moved into acquiring large amounts of silver bullion.
The bank has secured another deal to buy silver bars from KGHM which brings their total purchases of silver from KGHM alone in the last 12 months to $876 million or PLN 3.65 billion.
KGHM is one of the largest producers of silver in the world and is the second-largest producer of refined silver in the world.
They produce silver bars registered under the brand KGHM HG that are attested to by “Good Delivery” certificates issued by the London Bullion Market Association and the Dubai Multi Commodities Centre.
Listed metals producer KGHM signed an estimated PLN 1.67 billion deal on 2013 sales of silver to HSBC, KGHM said in a market filing yesterday.
The deal puts the total value of deals between KGHM and HSBC in the last 12 months to PLN 3.65 billion or $876 million, the filing read.
The Management Board of KGHM announced that on 21 January 2013 a contract was entered into between KGHM and HSBC Bank USA N.A., London Branch for silver sales in 2013.
The estimated value of the contract is PLN 1,672,260,469.66. As a result of entering into this contract, the total estimated value of contracts entered into between KGHM and HSBC Bank USA N.A., London Branch over the last 12 months exceeded 10% of the equity of the Company and amounts to PLN 3,654,120,061.59.
The highest-value contract signed during this period is the above-mentioned contract. The criteria used for describing the contract as significant is that the total estimated value of the contracts exceeds 10% of the equity of KGHM.
KGHM is one of the largest companies in Poland and one of the largest mining & metallurgy companies in the world.
The main customers of Polish silver in recent years have been the United Kingdom, Germany and Belgium. HSBC appears to be one of their main customers now.
Respected and erudite, James Steel, the chief commodity analyst at HSBC Securities (USA) Inc. continues to be bullish on silver and recently said how “silver tends to track gold, except it over performs in a bull market” and how he was “moderately bullish on silver” in 2013.
HSBC did not comment on the deal and it only came to light as KGHM is a listed company and had to report the deal which was then picked up in Polish media.
The massive deal could simply be HSBC securing supply for the NYSE listed ETFS Physical Silver as they are the custodian.
Or it could be that senior people in HSBC are concerned about securing supply as they expect robust investment demand to continue and possibly increase resulting in higher prices.
http://www.goldcore.com/goldcore_blog/silver-bars-being-secured-hsbc-%E2%80%93-buy-876-million-worth-poland
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Additional Information
Repatriation Avalanche Gaining Momentum: Azerbaijan to Withdraw All Gold From JP Morgan Vaults
January 21, 2013
By The Doc
(special thanks to basserdan)
The State Oil Fund of Azerbaijan has withdrawn the first ton of its physical gold from JP Morgan vaults, and placed it in their own Central Bank vaults in Baku. The Fund has announced it will withdraw all of its physical gold assets from JP Morgan warehouses in London.
The game of musical chairs known as bullion banking allocated (rehypothecated) gold storage appears to be rapidly coming to an end.
As abc.az reports, the first ton of physical gold has already been transferred out of JP Morgan vaults via Brinks:
Baku, Fineko/abc.az. The State Oil Fund of Azerbaijan (SOFAZ) has placed today the first ton of physical gold in the safety vaults of the Central Bank in Baku, purchased at the London Stock Exchange of Precious Metals (LBMA) within the SOFAZ investment policy.
According to the Fund, today British company Brink’s Global Services delivered from London to Baku and placed 1 ton (32,150 ounces) of gold owned by SOFAZ in the CBA vaults.
The Oil Fund has been acquiring physical gold since February 2012 in batches of 10,000 ounces a week. By early 2013 SOFAZ brought its gold assets up to 14,934 kg (480,146 ounces).
Initially London-based warehousing units of JP Morgan were selected for storage, but now all the gold will be gradually transferred to storage in Azerbaijan. Prior to the completion of construction of a new residence of SOFAZ this gold will be stored in the CBA vaults, and then will be transferred to the Fund’s own store in its residence at Heydar Aliyev Avenue in Baku.
SOFAZ investment policy allows it to keep in gold up to 5% of assets. http://tinyurl.com/anxvekh
The size of the gold withdrawal from the cartel bullion banking system is not the important thing in Azerbaijan’s announcement- rather the increasing liklihood that our bankster friends will soon be facing repatriation requests from every last rehypothecated gold bar owner.
Got PHYZZ??
http://www.silverdoctors.com/repatriation-avalanche-gaining-momentum-azerbaijan-to-withdraw-all-gold-from-jp-morgan-vaults/