Koos Jansen
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Koos Jansen
Posted on 17 Feb 2015 by

Willem Middelkoop: A New Gold Standard In The Making

Written by Willem Middelkoop

“Putin is the biggest gold bug”, was the title of a recent Bloomberg op-ed by Leonid Bershidsky the founding editor of Vedomosti, Russia’s top business daily. He explains why the Russian central bank has accumulated almost 100 tons of gold in the last four months of 2014. It is an acceleration of the gold buying program which started in 2007, a year before the Lehman collapse.

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Besides accumulating gold the Russians have been quite active sellers of US Treasuries. Between November 2013 and December 2014 they have sold around $30 billion of US government bonds while they grew their gold reserves from $43 to over $50 billion in a clear effort to de-Americanize the Russian economy. Just like the Chinese they as well signed bilateral currency-swap-deals in a move away from the dollar.

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The Russian activities can be seen as part of an all-out financial war between Russia and the West as best described by Putin’s economic advisor Sergei Glazyev in a recent interview:

I believe that in a situation of growing military and political confrontation the gold price will move up again. And let’s not forget that America’s refusal to honour their debt will undermine trust in the dollar not just in this country but also in others. It will be a step towards the end of the American financial empire. It will give us a chance to be among the first to suggest a new configuration for the world financial system, in which the role of national currencies will be significantly higher.

The Chinese, who have shown all kind of financial and economic support for Russia in recent months, have been on a gold buying spree as well. In the last ten years Chinese buyers have accumulated over 10,000 tonnes of gold.

Total Estimated Chinese Gold Reserves 1995 - 2014

While Western banks are trying to scare customers away from buying gold, the Chinese have opened up over 100.000 retail outlets to promote gold and silver among the public. In my book I quote from an article by Sun Zhaoxue, the former president of both the China National Gold Corporation (CNG) and China Gold Association (CGA), first published by gold analyst Koos Jansen:

Individual investment demand is an important component of China’s gold reserve system; we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security. Because gold possesses stable intrinsic value, it is both the cornerstone of countries’ currency and credit as well as a global strategic reserve. Without exception, world economic powers established and implement gold strategies at the national level.

Mr Sun outlines why substantial national gold reserves are so important for countries like China:

In the global financial crisis, countries in the world political and economic game, we once again clearly see that gold reserves have an important function for financial stability and are an ‘anchor’ for national economic security. Increasing gold reserves should become a central pillar in our country’s development strategy. International experience shows that a country requires 10% of foreign reserves in gold to ensure financial stability while achieving high economic growth concurrently. At the moment, the US, France, Italy and other countries’ gold accounts for 70%
 of forex reserves. After the international financial crisis erupted, (our) gold reserves were increased to 1054 tons
 but gold reserves account for less than 1.6% of financial reserves – a wide gap compared to developed countries.

According to him, the Chinese government is intent on accumulating additional high quality (gold) assets:

The state will need to elevate gold to an equal strategic resource as oil and energy, from the whole industry chain to develop industry planning and resource strategies… increasing proven reserves, merger and acquisitions, base construction and opening up offshore gold resources to accelerate increase of national gold reserves. Concurrently, actively implement a globalization strategy that will exploit overseas resources and increase channels to grow China’s gold reserves. We should achieve the highest gold reserves in the shortest time.

According to Bloomberg the Chinese have stopped buying US Treasuries as well. Instead the Chinese have signed contracts worth $100’s of billions with Russia; this is a strong diplomatic sign of support for Russia. The two countries even signed a contract for a $240 billion investment for a 7000 km high-speed link between Beijing and Moscow.

These developments illustrate a growing divide between the financial interest between East and West. Now sovereign bond and deposit yields at or below zero we have reached the financial endgame, as the Saxo bank and Deutsche Bank have been writing recently. The IMF has published a report in which the economists Rogoff and Reinhart point to the need for debt restructurings in advanced economies. Debt restructurings and finding a new world reserve currency are the main aspects of a coming Monetary Reset.

Recently we have seen some more confirmation major countries are preparing for a new phase of the international monetary system. During two conferences in China last year, a coming financial reset has been discussed. At the 2014 edition of the Chinese International Finance Forum (IFF) “[..] a new global financial order has been discussed with China.” According to the former ECB President Jean-Claude Trichet. Chinese media reported the three days the forum (including U.N., World Bank, IMF participations) discussed “the new framework for the global financial and economic system”.

Preparations for a monetary reset were also confirmed by Zhou Ming, General Manager of the Precious Metals Department at ICBC during the LBMA Forum in Singapore;

With the status of the US dollar as the international reserve currency being shaky, a new global currency setup is being conceived.

In 2012 the former Bank of England Governor Mervyn King already predicted advanced economies would probably not be able to get out of the current crisis without large debt restructurings and a recapitalization of the financial system (banks):

I am not sure that advanced economies in general will find it easy to get out of their current predicament without creditors acknowledging further likely losses, a significant writing down of asset values and recapitalization of their financial systems…. Only then will it be possible to return to a more normal provision of the vital banking services so crucial to an economic recovery.

Yes even Alan Greenspan acknowledged that, ‘It is mathematically impossible to cover future government promises’. The US unfunded liabilities (pension and health costs) are as high as $128 trillion.

Japan is the best and most worrying example of the sheer magnitude of public debt, which will reach 250% of GDP in 2015. At the end of 2014 the architect of Japan’s radical economic policies, often describe as ‘Abenomics’ Koichi Hamada called the aggressive moves by the Japanese central bank a Ponzi-scheme:

In a Ponzi game you exhaust the lenders eventually, and of course Japanese taxpayers may revolt. But otherwise there are always new taxpayers, so this is a feasible Ponzi game, though I’m not saying it’s good.

One more insider who is very vocal about the need for a monetary reset and who’s views we shouldn’t ignore, is the legendary hedge fund manager George Soros:

The system we now have has broken down, only we haven’t quite recognized it. So you need to create a new one and now is the time to do it… You need a new world order where China has to be part of the process of creating it. They have to buy in [which they are doing by buying gold] … And I think this would be a more stable one where you would have coordinated policies. I think the makings of it are already there because the G20 effectively is moving in that direction… So there is a general lack of confidence in currencies and a move away from currencies into real assets…. Especially in the area of commodities.

Gold Repatriations

The gold repatriation by several European countries is another sign we are reaching an end of a monetary calm period of over 40 years. The Europeans follow in the footsteps of other countries to repatriate their physical gold holdings from the US. According to a former Director of the United States Mint:

More countries are repatriating their gold. For them, an audit is not enough. They would like their gold back. Azerbaijan, Ecuador, Iran, Libya, Mexico, Romania and Venezuela is a short list of countries that have requests into their custodians to transfer some or all their gold back to their countries.

We can only conclude gold is making a remarkable comeback into our financial system and even that a new gold standard is being born without any formal decision. At least that’s how Ambrose Evans- Pritchard, an influential international business editor of The Telegraph, described the on-going efforts by countries to lay their hands on as much physical gold as possible:

The world is moving step by step towards a de facto Gold Standard, without any meetings of G20 leaders to announce the idea or bless the project… Neither the euro nor the dollar can inspire full confidence, although for different reasons. EMU is a dysfunctional construct, covering two incompatible economies, prone to lurching from crisis to crisis, without a unified treasury to back it up. The dollar stands on a pyramid of debt. We all know that this debt will be inflated away over time – for better or worse. The only real disagreement is over the speed… The central bank (gold) buyers are of course the rising powers of Asia and the commodity bloc, now holders of two thirds of the world’s $11 trillion foreign reserves, and all its incremental reserves. It is no secret that China is buying the dips, seeking to raise the gold share of its reserves well above 2%. Russia has openly targeted a 10% share. Variants of this are occurring from the Pacific region to the Gulf and Latin America. And now the Bundesbank has chosen to pull part of its gold from New York and Paris. Personally, I doubt that Bundesbank had any secret agenda, or knows something hidden from the rest of us. It responded massive popular pressure and prodding from lawmakers in the Bundestag to bring home Germany’s gold. Yet that is not the story. The fact that this popular pressure exists – and is well organised – reflects a breakdown in trust between the major democracies and economic powers. It is a new political fact in the global system.

These latest development can have big repercussions in the future, just like the repatriation of gold in the 1960s lead to the implosion of the London gold Pool in 1968 and the rise of the gold price from $35 in 1969 to over $800 in 1980.

These indications about the coming changes for our monetary system don’t mean we have to expect a monetary reset earlier than previously expected. The planned changes will take time to discuss and to prepare. But we will experience them in the next decade for sure. They could be introduced as one worldwide monetary reset or in a series of smaller steps.

Willem Middelkoop is founder of the Commodity Discovery Fund and author of The Big Reset

Koos Jansen
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  • DameEdnasPossum

    In gold we trust.

    • http://churchofsmoke.org/ Jose

      Sure, but you cannot buy gasoline with it. Digital currency will takes its place. If you’re going to collect gold, get something with numismatic value so it will always be worth something to a collector.

      • DameEdnasPossum

        Rubbish. Nothing will take the place of gold as money for human beings.

        I suggest you dispense your unsolicited advice to someone who cares for your opinion as I do not.

        • http://churchofsmoke.org/ Jose

          Rubbish. Fusion to create energy is already turning nickel into copper. It’s just a matter of time before it’s possible to make gold. It’s easier to buy gasoline with a marijuana joint than it is is gold or silver.

          • Slvrizgold

            Really Jose? If alchemy ever made it possible to “create gold” I bet my left nut that it would cost millions just to create a few ounces. Its a pie in the sky UNFEASIBLE FANTASY. Like mining asteroids or mining seawater for gold. Good try. Next. Lol

          • http://churchofsmoke.org/ Jose

            Technology is doubling every three years. Unless we go into your Mad Max scenario, a break through in alchemy is very real.

          • DameEdnasPossum

            You’re the only one here who has mentioned Mad Max. Go and take another hit from your bong, Hallucinating Jose.

          • http://churchofsmoke.org/ Jose

            For the ignorant possum, technology strikes again:

            hiosulphate has long been seen as a potential alternative to cyanide
            for liberating gold from ores, but it has proved difficult to master —
            until now. Thanks to the new process, which incorporates patented
            technology we’ve developed with Barrick, the company will be able to
            process and profit from 4 million tonnes of stockpiled ore that was
            uneconomic to process by traditional methods. …

            … For the remainder of the report:

          • http://churchofsmoke.org/ Jose

            http://csironewsblog.com/2015/06/16/eureka-a-solid-gold-solution-to-make-archimedes-proud/

            he said the new process will contribute an average of 350 to 450
            thousand extra ounces of gold each year to the operation, allowing the
            large plant to keep operating.

  • therooster57

    The USA elite must be smiling modestly. They know that in the monetary sense, currency’s movement is what gives currency true economic value. There may be a little too much media emphasis on who has what gold and how much they have. At the end of the day, as long as bullion is transactionally measured in USD’s the FED has the turnstiles and baked that into the cake back in 1944. The real-time marriage of the real-time (floating) measure and the weight looks like it’s showing a great deal of promise ……debt free.

    You cannot pour new wine into old wineskins.

  • Mahound

    That’s it for the US fiat currency and the Federal Reserve racketeering business. Guess one can’t go one printing money/debt forever can one?

    • http://churchofsmoke.org/ Jose

      Why not? As long as all the nations do it and there is a mechanism to claw it back, rampant money printing can go on for decades. Every seven years or so the debt will double. It can easily see it go past $200 trillion which gives us several decades to kick the can down the road.

      Eventually automation will do all the necessary work and there won’t be a need for a job.

  • CSArichardo

    The west (read the USA) is making gold the equivalent of being a Russian, Chinese or Arab. That means evil. If you hold gold you will be considered evil. So how is that going to play out for those who invest in gold in the USA ?!

    • http://churchofsmoke.org/ Jose

      Gold will be a novelty that will never go to zero. Nobody wants to go back to carrying coins around and no one is going to trust gold certificates. Digital currency is the future.

      • David Horace

        Yep, digital numbers on a screen are way more secure than paper. Why waste all that paper and ink? LOL.

        • http://churchofsmoke.org/ Jose

          It’s a lot easier to hop on an airplane and go to a different country with a bunch of numbers than it is with a bag of gold and silver.

          • Aeffesstoo

            …but you can’t eat digital numbers on a screen

          • http://churchofsmoke.org/ Jose

            Can’t eat gold either. The best advice is to diversify.

    • Silverado

      As long as the US Mint , a branch of the US Govt, is making and selling gold and silver eagles by the millions I’d say I’ll take my chances on buying & possessing the metal they seem so eager to sell. Better to have it and not need it than to need it and not have it. Because when it gets right down to it everyone, even the govt knows that real wealth can’t be printed or folded and is measured with a
      scale and comes in grams, ounces and kilos. Not govt approved and specially
      inked paper or worse yet, virtual digits credited to one’s account, based on
      debt, fraud, lies and illegal and Unconstitutional banking schemes perpetuated
      by those higher ups both in govt and finance that should (and do) know
      better.

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