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Interview Koos Jansen By Lars Schall, November 2015

I was interviewed by Lars Schall on behalf of Matterhorn Asset Management, 4 November 2015. Please listen to the podcast below, or you can read the transcript provided with links for further reference. Wa talked about PBOC gold purchases, the London Bullion Market, The Shanghai Gold Exchange, the Silk Road Economic Project and much more!

China is playing the gold game very carefully

Lars:  My first question would be, during this year, the Chinese Central Bank announced its new gold position.  How much does China possess now and do you think those numbers are accurate?

KJ:  Well, they state they have about 1,700 tons right now.  I do not think those numbers are accurate.  I think the numbers they disclose now every month since June, they are increasing their reserves a little bit, just like Russia does, and I think this is a strategy maybe communicated between Russia and China even to slowly push for a new monetary system, international monetary system.  So, if they would’ve disclosed they have 3,000 tons or 4,000, whatever they have or see fit to disclose, they would really rock the boat in the international sphere.  So, they are very careful in playing this game and they also want to be included into the SDR to internationalize the Renminbi.  That is of great importance for them, so they are finding ways to internationalize and the Renminbi being included into the SDR is one of them, to be a reserve currency, and so they don’t want to make too many enemies.  So, they’re playing it really careful.  They stated in, I believe it was June or July, they increased official gold reserves by 600 tons from 1,054 to about 1,700 and they’re increasing reserves now by, you know, 15 tons a month more or less.  I think it’s a strategy to slowly push for a new international monetary system in which the Renminbi will have a much greater role.  So, I don’t believe the 1,700 number.  I think they have a little bit more, between 2,000 or 4,000 tons.  I did a study once about this but it’s kind of difficult because it’s really one of the best kept secrets on earth, but my study indicated that they do buy about 500 tons a year.  There was a small segment in the paper from Deutsche Bank that said the PBOC is buying 500 tons a year.  I stumbled upon a study from a guy from the China Gold Association who had written a report in 2011 and he advised the People’s Bank of China to increase its official gold reserves by 500 tons a year, so that would be about 3,500, 4,000 tons right now.  Of course, this gentleman from the China Gold Association is not a policymaker but I collected a lot of hints from various places that the People’s Bank of China is buying about 500 tons a year.  Now, we can’t prove it but it sure suggests they have more than 1,700 tons and then indirectly it suggests that the 1,700 tons they state they have is just strategy.

Lars:  Yeah, but the Chinese can buy gold covertly?  I mean, your company, for example, has done a study that a huge amount of gold went off the radar in London.  How can that be?

KJ:  Yes, that’s correct.  That started with an investigation from Ronan Manly from BullionStar and Nick Laird from Sharelynx, and Bron Sucheki and I also helped a little bit.  In the first instance, it was a study about the London bullion market and how much gold was left in London.  Now, they found that in 2011, there were 9,000 tons in London in the LBMA system, let’s say, within the London Ring way so that includes LBMA vaults, it includes the vault of the Bank of England, foreign central bank it’s called, and then in 2015, that number dropped from 9,000 to 6,250.  So, it means that 2,750 tons were removed or had left London since 2011.  Now, official foreign trade statistics indicate that the UK over this period only net exported about 1,000 tons, so that means that 1,750 tons is missing from London, let’s say.  So, that can be possible because what we see in international merchandise trade statistics, I should say that’s the official name for goods and services crossing the border, only non-monetary gold is disclosed.  So, what I do and a few colleagues of mine is we track all merchandise trade statistics from the UK, Switzerland, Hong Kong, all the gold trading hubs, also some mining nations such as Russia or nations in Africa.  But all of those numbers only include non-monetary gold because the rules are that non-monetary gold must be disclosed in these reports but monetary gold is exempt from being disclosed in foreign trade statistics.  So, in this way, for example, the People’s Bank of China can buy gold in London, non-monetary gold from whatever seller and they can monetize it in London and then covertly ship it home without it having to be declared at the customs department.  They can do this all around the world.  They can do it in Africa, they can do it in Switzerland, and they can do it in Hong Kong.  Just to illustrate, Hong Kong net imported 600 tons of gold in 2013.  That’s a lot of gold but I think it’s possible that the People’s Bank of China bought a part of that gold in Hong Kong once it was imported as non-monetary gold in Hong Kong.  Probably a part of it was monetized in Hong Kong and then shipped to the mainland for the official gold reserves of the People’s Bank of China.

Lars:  Yes, but when it comes to gold buying as a covert operation, so to say, does the PBOC buy gold directly or is this buying through proxies?

KJ:  I think they buy through proxies because what they buy is kind of a good kept secret, and they are very secretive about it.  So, to avoid any risk of leaking, I think they buy through proxies.  In any case, they buy through SAFE and maybe through CIC which are sovereign wealth funds, but even maybe through Chinese commercial banks, I don’t know, but I assume they buy through other proxies.

Lars:  And does this buying take place via the Shanghai Gold Exchange?

KJ:  No.  This is the whole thing.  This is what I like to talk about because a lot of analysts look at China and they count how much China is mining every year and they count how much non-monetary gold imports into China is every year.  China doesn’t disclose how much they import in non-monetary gold but from looking at other nations, for example, Hong Kong and Switzerland and the UK, we know how much they export to China so we can more or less figure out what they import.  But that is all non-monetary gold and all the non-monetary gold which is imported into China is required to be sold through the Shanghai Gold Exchange.  So, the question then is, does the People’s Bank of China buy gold through the Shanghai Gold Exchange.  Now, I don’t think they do.  There are a number of reasons.  One reason, for example, is that I think the People’s Bank of China likes to buy London Good Delivery Bars, which are 400 ounce or 12.5kg in the metric system, because the gold in those bars is cheaper.  If you buy a ton of gold in coins, it’s more expensive than in London Good Delivery Bars.  So, I think they buy London Good Delivery Bars but these bars are not being sold through the Shanghai Gold Exchange.  They can be sold but if I look at all the trade data from the Shanghai Gold Exchange, only I think, if I recall correctly, three tons have been sold in London Good Delivery Bars in 12.5kg bars through the Shanghai Gold Exchange in recent years.  So, that will mean that either the People’s Bank of China is not buying London Good Delivery Bars or they are not buying through the Shanghai Gold Exchange.  For example, all gold on the Shanghai Gold Exchange is denominated in Renminbi and I think the People’s Bank of China wants to diversify its foreign exchange reserves, which are predominantly in US dollars for gold.  So, they want to sell their US dollars and buy gold.  That is not done through the Shanghai Gold Exchange.  So, I made a whole list, I wrote an article about this once, about all the reasons why the People’s Bank of China may or may not buy gold through the Shanghai Gold Exchange and it’s kind of obvious they would not buy gold through the Shanghai Gold Exchange, also because it would be done in clear sight.  If they buy a few tons every week in the Shanghai Gold Exchange, everybody would see it, you know, and again, they would then buy all these 1kg bars.  So, I think given the fact they are so secretive about it and all the reasons I think they will never buy gold through the Shanghai Gold Exchange.  I do think they are able to intervene in the Chinese domestic gold market but as a main hypothesis, I’d say the People’s Bank of China would not buy gold through the Shanghai Gold Exchange and from there, I try to analyze.

Lars:  Okay, but where do the Chinese try to sell their dollars and get gold in return?

KJ:  Well, London is an example.  Most gold across the world is paid for in US dollars so they can buy it anywhere.  Also, Singapore, Hong Kong, Australia, maybe they have some deals with mining companies in Africa or Australia that they covertly ship some to China mainland but it’s not difficult of course to sell your dollars and buy gold in the international market.

Lars:  Yeah, and talking about gold mining projects, well the ‘One road, One belt’ project in Eurasia driven by the Chinese is connected already to gold.  Can you talk a little bit about how this is connected to gold?

KJ:  On the Eurasian continent, there are a lot of clubs cooperating at the moment and that is kind of interesting.  Maybe the biggest club is the ‘Silk Road Economic Project’ also called the ‘One Belt, One Road’ project initiated by the Chinese President – I believe it was in 2012 but in the last year, it gathered steam.  There are about 60 countries along this Silk Road and his intention is to have more cooperation on the political and economic fields now.  The Silk Road is a big project and there’s also a Silk Road fund but underneath this Silk Road project, we have the Asian Infrastructure Investment Bank which has 57 founding members among which a lot of western countries, a lot of European countries.  There is also the Eurasian Economic Union which consists of Russia, Belarus, and Kazakhstan.  That is not officially a part of the Silk Road project yet but these are clubs that are all gaining ground on the Eurasian continent.  You then have the Shanghai Cooperation Organisation and all these clubs are also starting to cooperate a little bit.  There’s also President Putin who said already that his Eurasian Economic Union will cooperate with the Silk Road Economic Project so that is one.  And now this year, the Chinese have disclosed that there also will be a Silk Road Gold Fund which is led by the SGE and is meant for more cooperation on the Eurasian continent obviously in mining exploration, gold trading, and things like that.  So, that is a really significant development and the SGE also said that it will facilitate gold buying for foreign central banks.  So, I can imagine countries like Kazakhstan, for example, buying gold through the Shanghai Gold Exchange, Shanghai International Gold Exchange, I should say, in the future.  So, this is the intention of the Silk Road Gold Fund.  We also saw some little signs of cooperation earlier this year.  Russia’s biggest mining company, Polyus Group, started a cooperation with China’s biggest mining company, China National Gold Group.  I just wrote an article about this, Polyus sells most of its gold so it outputs through VTB Bank which is a Russian bank and VTB Bank also became a member of the Shanghai Gold Exchange last week.  So, likely more gold from Polyus will be sold through VTB Bank on the Shanghai Gold Exchange.  The volume of the Shanghai International Gold Exchange is still very low and the Shanghai International Gold Exchange is really meant for the world to sell its gold in Renminbi to other countries.  The volume is very low at the moment so we can say it has failed up until now but who knows what the future will hold.

Lars:  Isn’t it interesting, you’ve mentioned the Shanghai Cooperation Organisation which was launched in the summer of 2001 that many of the members are buying gold actively, that many of the countries that are intended to be members of the SCO one day that they are also buying gold, for example, Turkey, and that many of those countries, they have the majority of all the gold that is in the ground, in the soil still to produce?

KJ:  Well, first I’d like to say that Turkey is not buying gold.  Turkey has a special system in which commercial banks offer Turkish citizens to deposit their gold.  The Indian system, which has been launched now is kind of based on the Turkish system.  So, in Turkey, people can go to a bank and they can deposit their gold and get an interest on their gold.  Of course, they risk losing their gold, but this gold is being collected by commercial banks can be used by commercial banks as reserve requirements at the central bank.  So, they use this gold from the citizens as a reserve requirement at the central bank.  The central bank counts this gold as their official gold reserves, so the Turkish Central Bank is not buying any gold.  They just double count the gold from the citizens.

Lars:  Thank you for underlining this.

KJ:  Yes, I should write a new article about this because I think the system is exactly the same now or being launched now in India.  The Indian Central Bank also has said that the Indian commercial banks can use the gold in deposit from the citizens as a reserve requirement.  So, I don’t know if they’re going to count that gold also as official gold reserves but it’s very worth watching.  So, the next question was about the Shanghai Cooperation Organisation, yeah.  Of course, those nations are buying gold and I see a lot of gold in the wider Silk Road region.  If we look at Asia and Europe, for example, a lot of countries in Asia are buying gold and then we have, for example, in India, the people are buying a lot of gold, about 900-1,000 tons a year.  In other Asian countries, the central banks are buying gold which is very significant because that is like, you know, we are diversifying away from the US dollar.  I don’t need to tell our listeners this; a lot of buying is happening on the Asian continent.  On the European continent, these central banks already have a lot of gold but what they’re doing is they’re repatriating their gold from the UK, from the Bank of England, and from the Federal Reserve Bank of New York in the US.  So, I think both continents, Europe and Asia are focused on gold and slowly moving away from the US dollar, albeit that the Europeans are not yet buying.  They’re repatriating because they have already significant amounts of gold.  The Asians are buying.

Lars:  Recently, Peter Mooslechner, an official of the Central Bank of Austria said that the Asians are more active in the gold market now and that they use their gold to influence the price or actually he said to intervene in the market.  Do you have something to say on those statements that he made?

KJ:  Yeah.  Well, actually I found his interview very interesting.  I don’t really know what he meant by intervening because he also said that, you know, we gold analysts immediately think about gold price manipulation.  I don’t know if all those countries he mentioned are manipulating gold price because he also mentioned the euro system and the ECB are intervening into the gold markets, just like the Asian countries.  I’m not sure what he meant by that.

Lars:  Yes, but you know that I’ve asked him some specific questions.

KJ:  Yes, I know.

Lars:  It’s their policy not to provide answers to any questions that relate to their strategy with gold or other central banks strategy with gold.

KJ:  Yes, of course, if you ask a central banker about gold, he will never answer you.  I’ve found that all across the world which is a signal in itself we can think, but I didn’t really focus on the comments of Mooslechner on the intervening parts which he said.  I found more interesting what he said about repatriating gold and about Europe maybe even buying gold if the Chinese economy is going down.  The world is entering a recession again. I found that very interesting and also because at one point he said that European countries, more and more European countries are repatriating because of economic nationalism which is a contradiction to what he said a minute before and that was that the Austrian Central Bank was repatriating because of a concentration risk at the Bank of England.  So, clearly this contradiction indicates that he is not repatriating because of a concentration risk at the Bank of England but because of other reasons.  Now, also this year, the General Court of Auditors in Austria, they released a report in which they disclosed that the Austrian auditors were not allowed to audit their gold in England in the past years in between 2009 and 2013.  That is of course one of the real reasons why Austria is repatriating is because the gold is not safe at the Bank of England or, you know, for other countries like the Netherlands.  The gold is not safe in New York.  That’s why they are repatriating and so that was my takeaway from the interview with Mooslechner.

Lars:  Yes, and is it your perception related to the German case that the Bundesbank is following a policy of economic nationalism.  Don’t you think that it is very reluctant and that it does what it does only because there was public pressure?

KJ:  That’s a good question.  Of course, it also has to do with public pressure but I don’t think the Bundesbank is only repatriating because of public pressure.  I think they do it because of their own interests, bearing in mind, I believe it was in 2001, the Bundesbank repatriated about 1,000 tons from the Bank of England in secret.  Nobody knew about it so there was no public pressure at the time and they repatriated the gold even still from the Bank of England.  The same goes for the Netherlands.  They repatriated.  The Dutch Central Bank repatriated not really because of public pressure.  I mean, there was some, you know, I submitted a freedom of information act (FOIA) request once and there were some talks in politics.  Of course, that happened after the economic crisis, you know, chatter about gold was started but I don’t think it was public pressure in the Netherlands or in Germany that led them to repatriate the gold.  I think it’s their own interest.  The second question of course is, so why do they take so long and why don’t they repatriate all the gold.  Now, just like I said previously about Asia, I think they do this so slowly because it’s such a sensitive subject.  Maybe the gold indeed is not all there anymore so that’s why they have to do it very gently.  We can also imagine that if, for example, the Netherlands, Austria and Germany were to repatriate all their gold all at once then it would of course lead to instant shock in financial systems.  So, I think it’s on purpose that they do it slowly but it’s speculation.

Lars:  However, the Germans intend to leave roughly half of their gold position in New York and London, and they are saying, this is now the official position of the Bundesbank that they want to leave it there so they are able to react to a currency crisis if it appears or a curse.  Do you have to have the gold in London and in New York for such a purpose?

KJ:  I would say no.  I mean, if there would be a currency crisis, people would rush to gold and your gold would become more valuable and you would like to have it at home, not in England or New York.  Only if there was a crisis and you want to sell gold, you would like to have gold in London, but how I look at it, I think it’s better with economic turmoil up ahead to have your gold at home than in England.

Lars:  Yes, and the IMF says that gold, monetary gold, physical bullion gold is the only financial asset with no counterpart risk.

KJ:  Yes, with no counterparty risk.  This was stated in the balance payments manual number six.  Yeah, yeah.  I think those things are really significant and, you know.

Lars:  Yes, but in order to be such a financial asset, you really have it in your own possession, on your own soil, right?

KJ:  Right, right.  Oh, sorry, you were referring to the previous question. – You’re absolutely right.  If you talk about gold and gold is the only asset with no counterparty risk, you’d need it at home and of course it does have a counterparty risk if it’s in London or in New York.  It’s as simple as that.  Yeah, you’re right.

Lars:  Now, another question would be that China is a big producer of gold but the production doesn’t leave the country.  Where does it go to?

KJ:  I think to the private sector in China.  Before 2002 when the Shanghai Gold Exchange was launched, the People’s Bank of China had the monopoly in the Chinese domestic gold market.  So, all the domestic mining output was sold to the People’s Bank of China and then it was distributed to a few designated jewelry shops or to maybe the coffers of the PBOC.  So, before 2002, all the gold that was mined in China flowed through the People’s Bank of China but since the Shanghai Gold Exchange was launched in 2002, most of the gold, I would say 99% of the gold mined in China is being sold through the Shanghai Gold Exchange, and then what I just spoke about in one of my previous answers is that I think the private sector are the buyers on the Shanghai Gold Exchange in China.  So, it does not really go to the People’s Bank of China, maybe still a little bit is going to the People’s Bank of China because maybe they still have some covert mines operating in China but actually most of the conventional output is being sold through the Shanghai Gold Exchange.

Lars:  Koos, thank you very much for this interesting conversation.

KJ:  Okay, thank you very much, Lars.

Biggest Newspaper Netherlands Interviews Koos Jansen

From De Telegraaf, Thursday April 9, 2015.

By Theo Besteman:

China Conquers The World With Gold

After a serious knee surgery in 2013 sound engineer Jan Nieuwenhuijs began a blog about gold. Two years later, the 33-year old from Amsterdam is an international gold expert, his analyzes are praised by investors on Wall Street. “China takes over US dominance,” he concludes.

His blog about the gold market began as a hobby when he was homebound because of his knee injury. By his internet alias Koos Jansen he started researching the Chinese gold market. His unorthodox analyzes were quickly noticed. Especially when his discovery of the concealed but unprecedented gold buying program by China proved to be accurate.

What he showed was that estimates by the World Gold Council, the global trade association of jewelers and bullion dealers, reflected only half of China’s actual purchases. An authority fell. “Gold Guru” Willem Middelkoop said at the time to literally have fallen out of his chair when he found out – through Nieuwenhuijs his publications – how much gold China was buying.

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While Nieuwenhuijs is making coffee at his home in Amsterdam, computers screens are displaying rows of data and charts. The autodidact now works as an independent analyst for BullionStar in Singapore. Also investment banks on Wall Street and news agencies use his analyzes.

Why your fixation on gold purchases by China?

“This gold hunt shows that China has been preparing in the background to play a bigger role in the financial world. Our financial system is heading for major new shocks. China takes over US dominance.”

You previously worked nonstop on dozens of Dutch feature films such as New Kids Turbo. Quite a transition.

“I knew very little of the financial markets, but after the outbreak of the financial crisis I wondered why a good carpenter could suddenly be unemployed. This was due to the crash. Coincidentally, in 2010 I read “Overleef De Krediet Crisis” by Willem Middelkoop, I was immediately intrigued by the financial system. Because of the knee surgery I temporarily was not working. I searched obsessively for answers. That’s how I work, all-in, or you’ll learn nothing.”

An amateur blog about gold is something different than analyzes where investors can rely on.

“Absolutely. At first I used to give my friends reading tips – how the credit crisis was caused. I went from amazement to facts. While reading, I came to the core of our financial system, which is now dominated by the dollar, but ultimately gold – in the vaults of the central banks – serves as an anchor of the dollar and other major currencies like the euro and Chinese yuan.”

Isn’t gold hardly relevant in the current financial system, except as an investment?

“Oh it’s relevant, the base of each financial system remains confidence. Throughout history goldsmiths and banks could create a multiple of the gold in their vaults as paper and book money. But the people knew that there was always a partial backing held in reserve. The United States dollar was backed by gold until 1971. Money has been printed full speed since then. As the European Central Bank is now doing in the Eurozone. Through leverage massive debt structures are built that are not sustainable. For the moment, the Chinese support the United States dollar. But its leaders want absolutely no more dollars. They buy gold. On a massive scale. However, only half of Chinese gold demand turned out to be in the books.”

What does that say?

“The Chinese don’t want a big shock. They always think long term. Beijing knows for a long time that the United States with its huge debt can’t have the dollar to be the world reserve currency forever. The Chinese are preparing for a new monetary system in which their currency has a stronger voice or is dominant. The first step could come this fall. Who has the most gold, the base of the economy, sets the rules. The Chinese leaders literally say: ‘In the shortest possible time we need to accumulate the largest gold reserves in the world.’”

What distinguishes your approach from others?

“I’m going to the source and I do not listen to authorities. Central banks invariably deny anything – until they have enough gold in their vaults. I also get a lot of help from Chinese sources who I can trust. They send and translate many documents. And even then you need to do a lot of studying, patiently putting the pieces of the puzzle together, because the world of gold remains opaque. I only reveal small pieces of this market.”

The Dutch central bank (DNB) has recently repatriated 122.5 tonnes of gold from the United States. Some other countries are doing the same. What does this indicate?

“It shows a great distrust in the current international monetary system. Likely Belgium and Austria are also working on repatriating gold. It has become a pattern. These countries can no longer trust their gold is stored safely abroad. They fear that the Americans use the gold to guarantee their debt. Repatriating is done slowly because no one wants to cause an undesirable financial shock. But repatriating tonnes of gold bars is not simple, this takes a military operation. There is fear.”

Do you invest in gold?

“I own physical gold, and save it outside the banking system, but I don’t trade everyday. The gold market has provided me with a lot of insight in our financial world. I’ll probably continue this work until I’m dead.”

Jan Nieuwenhuijs

1981 Born

2002 Film and television science at the University of Amsterdam

2003 Sound mixer for movies, TV-series and commercials

2013 Blog ‘In Gold We Trust’

2014 Precious metals analyst at BullionStar.com, Singapore

Sprott Money Interview Ask The Expert: Koos Jansen

* Koos Jansen interview recorded April 16, 2014

Sprott Money News (SMN): Hi, welcome back to this week’s Ask the Expert. I’m Geoff Rutherford for Sprott Money News, and on the line with me today, we have Koos Jansen of In Gold We Trust. Koos is the founder and writer of In Gold We Trust. He launched his website in 2013, after discovering discrepancies in reporting between the amounts of physical gold being withdrawn from the Shanghai Gold Exchange. The website is now dedicated to Koos’ research, and his website is read and followed by many industry experts around the globe. Koos is also a consultant for GATA; and with that, I’d like to welcome Koos Jansen. Good day, Koos. How are you doing today?

Koos Jansen: I’m good. Thanks for asking me, Geoff.

SMN: Wonderful, wonderful. Koos, to let you know, we had a little bit of a talk before, but I didn’t mention this. You’re actually very highly regarded by our Chairman, Mr. Eric Sprott. He actually has recommended you to our listeners before, so I’m really, really happy to have you with us today.

Koos Jansen: Yeah, I heard that show in which he recommended me. I actually had a phone call with him a few weeks after that. He told me my site is in his bookmarks, and I was really chuffed.

SMN: Excellent, excellent. Wonderful, Koos. So, Koos, you started your blog, In Gold We Trust, back in 2013. Within such a short time, you’ve garnered the attention of investors and industry experts alike. Before we get started, can you let our listeners know your interest in gold, specifically the Chinese gold market, and how all of this came about?

Koos Jansen: It came about after Lehman fell. In that time, in 2008, I wasn’t aware of economics. I always had this passion for economics but I had another profession a couple of years ago so I wasn’t doing anything with it. But, after Lehman fell, I could really see, and the crash came a bit later in the Netherlands. In 2009, I could really see the depression and the recession going on here. People were losing their jobs, becoming depressed. And then, I started to pick up some books because I became interested in how is it a carpenter doing a great job suddenly don’t have any jobs anymore? Just basic questions popped to mind and so, I started reading and I started reading blogs. I think my advantage is that I didn’t study economics so I could develop my own ideas. I could pick up my own books, my own blogs, really develop my own thoughts, instead of a teacher telling me about Keynes and about the way it is. I developed my own thoughts and so, that’s how I became interested in gold and economics in 2009, 2010. This developed and developed, and I started writing Dutch articles for small blogs here; and then in 2013, I found out about the Shanghai Gold Exchange.

In the beginning of 2013, there was not, that I was aware of — there was nobody in the English-speaking world or in the West, writing about the Shanghai Gold Exchange. So, when I found out about the Shanghai Gold Exchange I thought, “Whoa, this is a story. This is something.” I was helped by a few Chinese people. I met one Chinese guy on Twitter and then I reached out to Chinese people on blogs. I got this knowledge base or source base from Chinese people in the mainland — goldbugs, investors, really smart people. And I started to dig and I found out about, not only the Shanghai Gold Exchange, how much gold is being withdrawn from the vaults, et cetera, but also about the structure of the Chinese gold markets.

The funny thing is that I was using a lot of translation software to read the Chinese media because the Chinese, what they write in English is just what they want us to believe, but if you read everything in Chinese, it’s a completely different story. I read it through the translation software but if I think it’s something interesting, I let my friends in China translate it for me so I have proper evidence, because the software isn’t accurate.

Sprott Money Koos Jansen

SMN: Great. It’s interesting, it is. So, essentially, what you’re saying is that you kind of got the inside scoop from people within the country. That being said, I mean, when you look at it from that perspective, you release information that’s not readily available to the rest of the Western media and the audiences. Your figures differ by wide margins compared to what is often recorded officially. So, where do you get your data and how reliable do you believe it is?

Koos Jansen: I get it from Chinese media. For instance, the Shanghai Gold Exchange has two websites. It has an English website and it has a Chinese website. My data is predominantly from the Chinese website because all the interesting data about the withdrawals from the vaults, for instance, is only published on the Chinese website. On the English website, you get some volume trades; you get deliveries, which is something else. I would like to make the emphasis on this; deliveries is something else as withdrawals from the Shanghai Gold Exchange. So, I get my information from Chinese websites, Chinese website from the Shanghai Gold Exchange, also, Chinese media; and a lot of all these, which I just talked about, all these Chinese people who are helping me in the mainland, are sending me reports.

For instance, you can go to the Shanghai Gold Exchange website, the English one, and you can see a few reports, the China Gold Market Report 2011, 2010. But, there are a lot more reports that are not online anymore but I’m in possession of these reports because they are being sent to me. Some of them are in Chinese, so it’s really hard to read them. So, that’s where I get all my data from, and it’s kind of tough to put all things together, but I did, and I came up with my own analysis and nobody is able to debunk my analysis, I think. I really asked people on Twitter and other professionals, “Please debunk my analysis or try to say something which proves me wrong,” but it’s an all-in analysis and I think it’s strong.

SMN: So, Koos, why do you think there’s such a discrepancy between what we actually see in the West as far as gold demand is concerned as compared to what’s actually happening in China?

Koos Jansen: I think, the main reason is that China is really secretive about their gold accumulation. You know they have a lot of dollars in foreign exchange reserves. This is a real problem because they know the US made a mess of their budget and everybody wants to get rid of their dollars. They have far too much dollars in foreign exchange reserves so they want to convert these dollars into gold, not only the government, but they also want to stimulate their people to accumulate a lot of gold. But, they don’t want to affect the market too much so they want to do this secretly. A few obvious clues for this are, they don’t report on official imports, the numbers. We only know the official numbers from Hong Kong export to the mainland. They also don’t — they’re really silent on updating their official gold reserves at the People’s Bank of China.

All in all, they want us to believe their gold amount isn’t that much, the China gold, and it’s obvious. According to my analysis before 2007 or 2008, they were quite honest about gold amounts; and after 2008, they started lying a little bit about certain numbers to hide the demand. The China Gold Association, their official numbers are more or less the same as the World Gold Council, which if we talk about 2013, Chinese gold demand, they claim, is 1100 tons, more or less. That’s what they want us to believe.

SMN: So, Koos, all these reports showing that Chinese gold demand is declining, are we saying that the numbers are inaccurate, are the numbers skewed? What’s your take on that?

Koos Jansen: In 2013, the Chinese gold demand was huge; and also, in the beginning of 2014, it was huge. So like I just said, the World Gold Council said it was 1100 tons, the demand in 2013. I say, it was at least 2200 tons, excluding People’s Bank of China’s demands. The demand is dropping at the moment. In the last six weeks, from looking at the withdrawals from the Shanghai Gold Exchange, which is my primary benchmark for Chinese demands, I can see it dropping right now, which isn’t so significant because they had an immense, really extreme start at the beginning of 2014. And from those extreme levels, it’s going to just high levels. Like in the beginning of 2014, weekly withdrawals from the Shanghai Gold Exchange vaults, which is Chinese demand, was sometimes 60 or 70 tons, which transcends global mining production. And now, it’s 30, 40. Last report came out, it was 25, I believe, so it came from very strong to less strong.

SMN: Right, right. So you’ve mentioned, actually, before, on your blog, that China may be releasing its updated holdings, either this year or the next. Once they do, Koos, do you believe it will have an impact on the gold price globally?

Koos Jansen: Yeah, I think I do. Because if the world’s second largest economy, which is China, releases, and I think everybody knows or at least I assume, when they come out, it will be something around 4000 or 5000 tons. And this is because me, and a lot of other analysts, look at the gold-to-GDP ratio; we don’t look at foreign exchange ratios but at gold-to-GDP ratios. Having said that, they’ll probably come out when they have enough. According to this gold-to-GDP ratio, they need to be on par with the United States, so they need to have 4500 tons in official reserves.

When they have it they will announce it. I’m not saying, like Jim Rickards said, they will come out every six years. I just think that when they have 4500 tons, they will announce it. It will have a major impact on the price of gold, I think, because if the second largest economy in the world is saying, “We attach a lot of value to gold reserves and we’re going to continue accumulating and this is going to be the cornerstone of our capitalism.” Of course, it’s going to have a big impact on the price of gold and on the global monetary system.

SMN: Thank you, Koos. So, China is pushing its people to buy and invest in gold. What benefit does this have for the Chinese government?

Koos Jansen: It’s to strengthen the Chinese economy, as a whole. The reasons for the citizens to buy gold are the same as for the People’s Bank of China to buy gold. It’s to protect your reserves from internal and external shocks and inflation, and it’s the cornerstone of capitalism. And, you see the Chinese government not only stimulating its people to buy gold but also, discouraging them from buying stocks and real estate. Ironically, the Chinese government is aware of the sensitivity of owning reserves that can be controlled by government, so they know this and by this, they are promoting their people to invest in gold in a big way. If you look at the Chinese media, they’re running ads on state television; they’re showing items in just normal news broadcasting shows, they’re showing items about gold vaults, and every Chinese citizen is aware of gold and of the importance of gold, I should say.

SMN: Right. So, looking at that, I mean, again, over the last month, months, for that matter, with another program we have called Weekly Wrap-Up, we talk to different industry experts, usually Eric Sprott and likewise, Rick Rule; but one of the discussions that we’ve had with Eric, consistently, is the idea of gold manipulation. Manipulation by Western central banks in the gold price has been widespread. We know this because we’ve seen lawsuits, there’s been a number of articles about it, I mean, it’s there. So, that being said, do you believe that China has a role in this manipulation?

Koos Jansen: Yeah, I do think so, yeah. What I think is that the gold price at this moment is being manipulated in the Western markets but in conjunction between, let’s say, the West and the East or the United States and China. The United States and China are sort of in a marriage. It’s becoming a bad marriage but they can’t really live without each other at the moment. Maybe, they want a divorce in the future, but those things take time, certainly, when it comes to economics. A couple of years ago, the marriage was — China exports a lot of goods towards the United States; dollars were being sent back and China bought U.S. treasuries with those dollars. Now, the situation is that, since the crisis, the U.S. made a mess of their budget and they need to devalue their dollars and China has all these dollars in foreign exchange reserves. And, if the dollar will be devalued, China will see its reserves evaporate.

But, China holds a lot of cards in its hands and it has some power over the US. Effectively, it can control the value of the US dollar. So, these people probably talk on the phone about gold every day and I think, the agreement is — what happened in 2013, in April, is that in Western gold markets, the price of gold was forced down and this allowed China to accumulate gold, which has obviously happened. I can not only show it by the SGE numbers but also, I analyzed all the customs data from the UK, Switzerland, Hong Kong, and so forth. You see all this gold from the West, mainly from the UK, going from the UK through Switzerland. It’s being refined in Switzerland into 1 Kg .9999 bars — from Switzerland to Hong Kong and from Hong Kong to Shanghai.

At the moment, you see not only the power moving from West to East, you see not only the dollar crumbling, but you can really see the physical gold is moving towards the East. I think, it’s a cooperation between the West and the East to manipulate the price of gold at this moment and I think, it will be in the interest of both. If China has accumulated enough gold, it’s in the interest of both to let the price of gold to slowly rise.

SMN: Now Koos, tying in one of your recent articles, you mentioned that China will be implementing a deposit insurance system in the event that financial markets default. Now, given the West’s current status with gold, how do you see the Western markets responding to this said market default?

Koos Jansen: Well, I think in the West, we chose, or we — because I live in the West, we chose for the bail-in option after Cyprus. That was the first bail-in event; and after that, a lot of Western governments made these bail-in laws strangely because when this happened, I read it as a sort of a hint for the Western people to also buy gold. Seek safety, get your money or think about your financial health, take responsibility, buy some gold.

But, of course, they can’t say this out loud on television; but I read it as “Be prepared because bail-ins are coming.” Now funnily enough, Western people have such confidence in fiat money, they don’t buy gold, or not in the amounts the Chinese people do. But, this is how the West is doing it, through bail-in option; and now, it seems the Chinese governments, with their new deposit insurance system, has taken it another way. And probably, we’ll be seeing some defaults in China. We saw corporate bonds failure a couple of months ago or weeks ago, and I’ve heard, I don’t know if it’s true, but if the new deposit insurance system is implemented in China, they will let banks fail, simply put. Just to warn the people or just to let the people know, “Take responsibility for your own financial health and buy gold.”

SMN: There you go. Oddly enough, my next question to you was, what would you recommend as the best course of action against experiencing major financial losses? But, essentially, that’s what you’re saying, is to buy gold.

Koos Jansen: Yeah, buy gold. I have most faith in gold not only because all central banks in the world hold gold, and the Chinese government. If you look at the Chinese gold market, and China’s really going to be leading in this because it will be, I think, in a couple of years or in 10 or 20 years, it will be more powerful than the US. So, the Chinese are leading in this. They chose gold as the cornerstone of their capitalism, like all the laws in China for accumulating gold. No, I should say, “Definitely.” All the laws they have for the Shanghai Gold Exchange and all imported gold must be sold through the Shanghai Gold Exchange, and all mined gold must be sold through the Shanghai Gold Exchange. This whole structure of the Chinese gold market tells me they have chosen gold, obviously, because they also have gold as official reserves at the People’s Bank of China, not silver. They chose gold as a part of their future monetary system. That’s why, I’m more of a gold bug than a silver bug; but, needless to say, if gold goes up, silver will follow. But I would say, protect yourself and buy some gold.

SMN: Excellent. Now, Koos, I know you said before that you’re not a forecaster, so I can fully appreciate that. But looking from a bird’s eye view to the future, anyways, you’ve written that China’s gold demand for 2014 has been huge but has recently slowed down, although it still remains very robust. What do you see China’s gold demand being for the remainder of 2014? How do you think a slowing Chinese economy and their shadow banking will impact the gold demand?

Koos Jansen: I don’t think a slowing economy necessarily means less demand for gold. Like I just said, if a bank fails, demand for gold rises. I don’t think, in 2014, demand will be as high as in 2013 because it was a really special year. And, looking at the numbers now, I don’t see these peaks that happened in 2013 happening in 2014. So, it will be less than in 2013. In 2013, it was 2200 tons. I think, it will be about 1800 tons non-government demand for physical gold in China.

SMN: Okay. Thank you for the forecast. Well, Koos, I’d really like to thank you for joining us today. We really appreciate your thoughts and your insights, and hopefully, we can do this again in the future.

Koos Jansen: Yeah, I hope so.

SMN: Wonderful. So, Koos, thank you again for joining us. To our listeners, be sure to check out Koos’ blog, In Gold We Trust; and likewise, visit sprottmoney.com as well, for any other information. For Sprott Money News, I’m Geoff Rutherford. Thank you for listening to this week’s Ask The Expert. Have a great day.

In Gold We Trust

Interview Jim Rickards On The Death Of Money

I had the privilege to meet with Jim Rickards, while he was in The Netherlands for one day, to do an interview about his new book “The Death Of Money“. Accompanied by friend (and author of the book the The Big Reset) Willem Middelkoop we met at the hotel were Jim was staying and for one and a half hours we fired questions at him. Below you can read the highlights of the conversation.

March 12, 2014

Koos Jansen: Do you think there will be a collapse in the worldwide monetary system, including chaos, social unrest and bank failures because all policy makers will do too little too late?

Jim Rickards: My new book, The Death Of Money, is about the demise of the dollar. A world wide monetary collapse and the collapse of the dollar are the same thing. The dollar is the keystone of the system today, if the world loses confidence in the dollar the whole system collapses. Could there be disruptions, social unrest and other problems before the monetary system collapses? I think we’re seeing them already, in the Ukraine, in the Crimea and the Chinese navy sending vessels to these islands they are in disputes with near Japan. US monetary policy was also a contributing factor to protests in the Arab Spring’s early stages. We’re seeing signs happening already and that will continue.

I do expect that policy makers will continue to pursue the wrong policies, they won’t make the structural adjustments that are needed; unemployment remains high, growth remains weak and deflation continues to have us in its grip. These are all things that will lead to social instability, income and wealth inequality and we could see a lot of stresses before the collapse of the monetary system.

Central banks and governments have made it clear that the big banks can’t fail. That’s what they stated, all these too big to fail banks will not be allowed to fail. Now what are the consequences once they’ve said that? It invites reckless, parasitic and exploitative behaviour on behalf of the bankers. This allows them to grow too large which destabilizes the system. I don’t think we’ll see big bank failures along the way, but big banks will fail as part of the collapse. It’s the policy of too big to fail that leads to the dysfunction of the system that will lead to the collapse.

Jim Rickards Koos Jansen

Koos Jansen: Will the coming collapse of the monetary system be more severe than any prior one?

Jim Rickards: The point I’m making in the book is that the international monetary system has collapsed three times in the last one hundred year. In 1914, 1939 and 1971.  So it does happen, it’s not that unusual. When it happens it not the end of the world. What it means is that the major trading powers, the financial powers, come together and reset the system. There is actually a name for this, it’s “the rules of the game”. That’s not a phrase I made up, it goes back one hundred years. So the major powers will rewrite the rules of the game, but here’s the problem. The last crisis we had the Fed reliquify the world. There were tens of trillions of dollars in swap lines with the ECB, they guaranteed all the bank deposits in the US and they guaranteed all the money market funds in the US. It did prevent things from getting worse, but the problem is the Fed raised their own balance from $800 billion to $4 trillion after the liquidity crisis. We had a liquidity crisis in late 2008, but we haven’t had one in the last five years. So now what happens if we have a liquidity crisis tomorrow? They’ve got no more dry powder; they can’t go to $12 trillion.

The next crisis will be bigger than the last one, and it will be bigger than the Fed because they already trashed their own balance sheet. Then the only balance sheet left is the IMF’s.

Koos Jansen: Do you consider it a possibility the SDR will be the new world reserve currency backed by gold, like mentioned in Willem’s book The Big Reset? And following up on that, could it be all national currencies will be floating around such an SDR?

Jim Rickards: Yes, there is a probability the SDR will be the new global reserve currency. Gold and oil would be then be priced in SDR’s. It will be used for some of the balance of payments between countries, the creation of reserves and probably the financial accounts of the world’s largest corporations. So Siemens, General Electric and IBM will produce their financial statements in SDR’s, because they’re global corporations.

Koos Jansen: But will this SDR be backed by gold at a fixed parity?

Jim Rickards: It might be, this is where it gets interesting. That is not what our global leaders want. What they want is a paper SDR to replace the paper dollar. The question is, will people go along with that? Our global leaders may have to go back to gold not because they want to but because they need to restore confidence. It can go either way. The SDR project that will replace the dollar is already in the works. If the elites get enough time, they need about ten years, they will roll out a paper SDR. If the collapse comes sooner than that they’ll have to gold, or, if they insist on a paper SDR, they’ll have to go with martial law and neo-fascism.

Koos Jansen: Are you familiar with concept of freegold?

Jim Rickards: I’ve heard of it, I’m not really an expert on it.

Koos Jansen: Do you believe in Austrian economics?

Jim Rickards: My view is that Austrian economics has a lot to offer, but it is not a complete explanation of dynamics in capital markets. I consider myself a complexity theorist and I am one of those applying complexity theory to capital markets. Complexity theory is only about 55 years old as a science, but it is highly complementary to Austrian theory because it agrees with Hayek that the economic system has far too many autonomous agents of highly diverse views ever to be efficiently planned. If von Mises had been born 40 years later, he would have warmly embraced complexity theory.

Koos Jansen: If you were the president of the world, what would you implement as the most stable monetary system.

Jim Rickards: I favour what I call the King dollar. I’m a bit of an old school American. I don’t necessarily want the gold standard, and I don’t want the SDR’s, I want the dollar as the dominant currency in the world. I think America has the potential for a force for good in the world and therefore the American dollar as a global monetary standard to me would be a good thing. The problem is, the US government doesn’t agree. They don’t want a strong dollar, they want a weak dollar.

Willem Middelkoop: Is that the reason you began writing books? because you’re fed up with how the dollar is managed.

Jim Rickards: Absolutely.

Koos Jansen: Isn’t it always unsustainable if a national currency is used as the world reserve currency?

Jim Rickards: That doesn’t have to be, it can be. This is Triffin’s dilemma. What Triffin said in the sixties was that if one country issues the global reserve currency they need to run a persistent current account deficit because that’s the only way for the rest of the world to get enough money to finance world trade. But if you run deficits long enough you go broke. Now after 50 years the US is going broke.

There is another solution, which is real growth without money printing. What’s wrong with price stability, real price stability, why do we have to have inflation? Let people earn their dollars, or let the US maintain the value of it’s dollar with education, innovation, growth, productivity, good public policy, low taxes and a good business climate. These are the ways you drive growth, not by money printing. The answer is real growth.

Death of money, Jim Rickards, Koos Jansen, Willem Middelkoop

Koos Jansen: If the world starts to lose confidence in the dollar, will Yellen be forced to raise interest rates like Volcker did in the early eighties?

Jim Rickards: The problem is how do you raise interest rates when 50 million Americans are on food stamps, 26 million Americans unemployed or underemployed, 11 million Americans have disability, with all due respect to people with genuine disability, a lot of the disability is abused. My point being, given an extremely weak economy, given deflationary trends, given high unemployment and declining labour force participation how on earth do you raise interest rates? However, the market will raise interest rates in a way the Fed won’t be able to control. That’s when you may see… who knows? Debt restructuring of the treasury market…

Koos Jansen: More QE?

Jim Rickards: More QE and the Fed may use more financial repression. Why haven’t interest rates gone up already? Because of financial repression.

If there is a loss of confidence and the market wants to push rates higher, the Fed will respond by trying to suppress rates by printing money, which will lead to more loss in confidence. This will show up the foreign exchange market, it will show up in the price of gold and it will show up in some interest rates.

A lot of this will happen really quickly, it wouldn’t play out in one day, but we will see gold making moves of a hundred dollars in one day. People will say it’s a bubble, of course it’s not a bubble it’s a sign of panic. Then we’ll see gold moving five hundred dollars a day.

What I look at is the price of gold; to me gold is a constant. The price of gold is just the inverse of the value of the dollar. If gold goes up, what is actually happing is that the dollar goes down. When you see the price of gold jumping up what that tells you is that the dollar is collapsing. Even if the Fed is repressing interest rates, gold will tell you when the dollar is done.

Willem Middelkoop: That’s why the price of gold has to be controlled.

Jim Rickards: Yes, but a couple of thing on that. The Fed right now wants the price of gold to be higher. The Fed’s problem today is not inflation it’s deflation. The Fed wants controlled inflation and they can’t get it. So how do you get inflation? You have to change expectations. So allowing the price of gold to go up helps to increase inflationary expectations. It can’t go too far too fast, it can’t do what we just described. But the Fed wouldn’t mind if the price of gold would go to $1400, $1500, $1600 dollars because that would get people into an inflationary mindset; trying to get them spending more dollars, borrowing more etc. That’s what the Fed wants. Where the Fed is wrong is to think that they can just dial it up or down. They did do that in 2011 when gold went to $1900, the Fed was very fearful gold would go to $2000, a big psychological threshold, so they had to push it down. Right now I don’t think the Fed is doing anything to hold price of gold down, China might be.

Koos Jansen: Was it China behind the drop in the price of gold In April 2013, or was it maybe a collaboration between the US and China? A scenario could have been: China would support the dollar and in return could buy physical gold at extremely low prices.

Jim Rickards: Look, I’ll tell you what I know and what I don’t know.

When you’re a detective and you have a dead body and are looking for the killer, you’re looking for a motive. So who benefitted from the drop in the price of gold? China – they’re the most likely party. I know for a fact that SAFE, which is a Sovereign Wealth Fund that manages the foreign exchanges reserves of the People’s Bank Of China, bought 600 tons of physical gold through June and July 2013. I know this from the Perth Mint and Chinese dealers. At this moment the gold is on the balance sheet of SAFE but this can be flipped to the PBOC’s sheet like it happened in 2009.     

Whether the Chinese caused the drop price I can’t be sure, though I suspect it, but I know for sure they took advantage of it.

China right now has an interest in keeping the price low because they want to buy more. But at some point, if there will be inflation in the US, they want the price to go higher because that’s their hedge. That’s the reason they’re buying gold. All this talk about China backing the renminbi with gold is nonsense.

China has got $4 trillion dollars in reserves, their preference is a stable dollar. If the US devalues the dollar by 10 %, that’s a wealth transfer of $400 billion from China to the US. China’s hedge is gold, if the dollar would go down gold goes up.

Koos Jansen: China knows the US will need to devalue the dollar?

Jim Rickards: Correct.

Koos Jansen: Does SAFE buy it’s gold through the Shanghai Gold Exchange?

Jim Rickards: They have various ways.

Koos Jansen: How will the power be distributed in Asia after the monetary reset?

Jim Rickards: It will be based on gold.

A lot of analysts look at gold as a percentage of foreign exchange reserves, I think that’s meaningless. In the US gold represents 70 % of reserves, but the US can print dollars and they don’t need euros or Swiss francs. A better way of thinking about it is the amount of gold relative to the size of an economy in terms of GDP. Russia is on par with the US. China needs to have at least 4500 tons to get on par with the US.

In Chapter 6 of my book I write about the Shanghai Cooperation Organization, it’s not a treaty but a mutual cooperation organization between primarily Asian and central Asian powers. This is the primary forum for Russia and China to cooperate and stand up against the US. Eventually there will be two empires in Asia. Russia will have an empire comprised of Russia, eastern Europe and central Asia. China will have an empire comprised of the mainland, its immediate periphery and east Asia.

Koos Jansen: All the physical gold that’s exported to China is in 1 Kg 9999 bars. Gulf nations are remelting their 400 ounce London Good Delivery bars into 1 Kg 9999 bars through Switzerland. What’s your take on that?

Jim Rickards: In my view the 1 Kg 9999 bars will be the new Good Delivery standard. We’ll look back in a couple of years and wonder why we ever messed around in 400 ounce bars. The history of 400 ounce bars is interesting. They were intentionally made very large so people couldn’t have them – they were for central banks only or very wealthy individuals. In 1910 people used gold coins to pay for goods and services, then little by little central banks wanted to get rid of the gold coins, they wanted people to use paper certificates, which gave central banks more flexibility.

Koos Jansen: Will the Bundesbank get its gold back from the US?

Jim Rickards:  What a lot of people don’t understand is that the Bundesbank doesn’t want it’s gold back. The reason the Germans want to have it in New York is because they want to able to engage in price suppression. New York and London are markets for leasing, Frankfurt isn’t. For every ton of gold you remove from New York, there is 10 tons of paper gold that needs to be unwound. That’s why they’re taking eight years and that’s why they’re doing it in tranches.

There’s not such a leasing market in China either. Central banks are able to suppress the price of gold through the leasing market in New York. For example SAFE, a subsidiary of the PBOC, could call JP Morgan in New York and ask to actively lease their gold, which is partially stored in New York, and JP Morgan would do it.

Koos Jansen: Is the NSA Involved in financial warfare?

Jim Rickards: No, not to my knowledge. 

Willem Middelkoop: I know wealthy Americans taking measures like getting a second passport and moving their money offshore. Do you see this happening in your surroundings?

Jim Rickards: Yes, I see it all the time. There are billionaires who build vaults in their own houses because they don’t trust Brinks.

Willem Middelkoop: What does that tell you?

Jim Rickards: It tells me that they see what I see, in some ways, but their not willing to talk about it. They’re ready for the collapse but want to milk the system in the meantime.

Willem Middelkoop: Which part of all your activities do you like most?

Jim Rickards: Writing. That’s why I’ve done two books, and now I will start a new book project sooner than later. It will hopefully be a four book series. I have some sketches.

Koos Jansen: We’ll be looking forward to reading more of your books. For now, thank you very much for your time Jim.

Death of Money - Dust Jacket_150x150_p1

In Gold We Trust