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Precious Metals Seminar 19 October, 7:30pm
BullionStar is hosting a precious metals seminar 19 October 2016, 7:30 p.m. in our bullion centre at 45 New Bridge Road featuring BullionStar's CEO, Mr. Torgny Persson and BullionStar's Precious Metals Analyst, Mr. Ronan Manly.
The following topics will be covered:
- The Race for Gold: West vs East
- Bullion Banking 101
- The Gold Market - Where Transparency means Secrecy
All attendees receive a voucher for a Silver Maple FREE of charge!
It's that time of the year again! Around September each year, the staff at Bullionstar get really excited because it's the time of the year where the Perth Mint unveils its' lineup for the year ahead. Today, we will be focusing on the much loved Lunar Series. The 10th coin in the wildly popular Perth Mint Lunar Series – The Year of the Rooster - has been released by the Perth Mint and Bullionstar is delighted to offer these coins to our valued customers. The Chinese Zodiac series, or the Sheng Xiao, is a circle of 12 animals that links each year to a particular animal. Each animal is thought to possess different character traits that are shown in the individual born in that year. This is the second lunar series released by the Perth Mint and the series is minted from 2008 to 2019.
Characteristics of people who are born in the of the Rooster include hardworking, smart and compassionate. People born in 1921, 1933, 1945, 1957, 1969, 1981, 1993, 2005 and 2017 are considered to be born in the Year of the Rooster
First Look: Gold
From what we see from the design, the Lunar Rooster coins look great! The gold coins feature a Rooster Rooster standing on one feet in a field of bamboo and leaves, symbolizing strength and wisdom. Kudos to the Perth Mint for going with a classic interpretation of the animal. The designer portrayed the animal in its’ natural surroundings and did not overcomplicate things by coming up with futuristic interpretations like how some other mint would. By continuing with the classic design seen in the previous editions, the Lunar Rooster coins should perform well in terms of sales.
The one ounce denomination has a limited mintage of just 30,000 globally and is expected to sell out quickly like previous years. For the other denominations, the mintage is unlimited. That means that the Perth Mint will mint the coins for the entire of 2017 and will declare the final mintage at the end of the year. Mintages for fractionals are usually low. For example, the 2014 Year of the Horse ½ oz gold coin had a mintage of only 17,839.
First Look: Silver
The silver edition is equally stunning. There is a slight difference in design for the silver coins. The coin features a rooster, a hen, and three chicks standing amongst bamboo foliage and flowers, portraying a happy family, instead of one Rooster. It has been the decision of the Perth Mint to come up with different designs for their gold and silver editions and both editions look really impressive.
The one ounce denomination has a limited mintage of 300,000 that is guaranteed to sell out like previous years. For the other denominations, the mintage is unlimited. This means that the Perth Mint will mint the coins for the entire of 2016 and will declare the final mintage at the end of the year. Mintages for other denominations are usually low. For example, the 2014 Year of the Horse 2 oz silver coin had a mintage of only 112,801.
Our first shipment of lunar gold coins has arrived and the following denominations are stocked and ready for immediate delivery:
Collectors always lament that the prices for previous editions are always much higher after the year has passed. It is remarkable how the premiums of past editions are much higher and are resilient even during periods of lower spot prices. Hence, if you are looking to build up your set, don't wait! For the Perth Mint Lunar Series coins at least, waiting is not a good idea if you want to get the coins at a reasonable price.
We only have a limited quantity for each denomination so place your orders now before the coins are sold out!
BullionStar recently exhibited at the largest pro-liberty conference in the world, Freedomfest, that has taken place annually in Las Vegas since 2002.
I was honored to speak at the conference covering the following topics:
- Money & Gold Trends 2016
- Singapore - #1 for Asset/Wealth Protection
- BullionStar - Offshore Bullion Protection
Another speech that we have recently uploaded is my speech from a conference called Passport to Freedom held in Cancun, Mexico in 2015.
If you like the speeches, be sure to attend our Precious Metals Seminar, Wednesday 19 October 7:30 pm, where our worldwide renowned Precious Metals Analyst, Mr. Ronan Manly and I will speak.
Thanks for watching!
Albeit with a bit of delay, we have secured the rights to publish my speech from a conference called Passport to Freedom held in Cancun, Mexico in 2015.
I'm covering some evergreen topics though so it could still hopefully be interesting to watch.
Topics covered include:
- USD as Reserve Currency
- Chinese Gold Demand
- Western vs. Eastern Gold Mentality
- Singapore for International Diversification
- Singapore Gold Polices
Thanks for watching! Next week, we will be publishing my speech from FreedomFest in Las Vegas.
The Indian gold market is one of the world’s largest and most extensive gold markets, with an estimated 23,000 tonnes of private gold held within India’s borders. In India, gold is revered and held as a traditional form of savings and wealth preservation, particularly in the form of gold jewellery. With minimal gold mining production, Indian gold demand is predominantly met by gold imports, both official and unofficial (smuggling).
Click here to go to the infographic
Unlike China, where the Chinese government actively encourages its citizens to invest in physical gold, in India the government wages a constant War on Physical Gold. Despite this war, Indian citizens largely ignore their government and continue to purchase physical gold in large quantities.
This infographic guides you through the following characteristics of the Indian Gold Market:
- Gold held in India versus other major gold holding countries
- Gold Price Quotation standards in India
- Sources of Gold Imports into India, both fine gold and doré gold bar imports
- Gold Smuggling into India
- The Drivers of Indian Gold Demand
- Gold Trading Volumes on India’s commodity exchanges, the MCX and NCDEX
- The Indian Government’s constant War on Gold
Further information about the Indian Gold Market can also be found in BullionStar's Gold University gold market profiles.
In the second interview of the Bullionstar Perspectives Series we speak to Jayant Bhandari, an independent investment and geopolitical analyst and a sought-after institutional advisor in the natural resource sector. In this interview, Jayant shares his view on the gold disparity he sees in India.
Be sure to check back on the BullionStar Perspectives video series page for weekly interviews!
BullionStar is proud to launch the BullionStar Perspectives video series featuring some of the most insightful and renowned precious metals analysts and precious metals insiders in the world.
In the first interview of many to come, BullionStar's Precious Metals analyst, Mr. Ronan Manly, is interviewed on Central Bank Trends in 2016 and also answers questions about the London and Chinese gold markets.
Be sure to check back on the BullionStar Perspectives video series page for weekly interviews!
BullionStar is following up its infographic on the London Gold Market published recently with this new infographic on the US gold market. The infamous futures market COMEX is at the centre of the US gold market.
The COMEX Gold Futures Gold Market serves as price discovery market for global futures trading in gold. COMEX is extremely leveraged with paper gold though as only 1 in 2500 contracts goes to physical delivery.
The US gold market infographic guides you through topics such as:
- COMEX Trading Volumes
- Fractionally Reserved Futures Trading
- Cash-settlement of COMEX Gold Futures Contracts
- Eligible and Registered Gold on COMEX
- US Treasury Gold Reserves
- Location of US Treasury Gold Reserves
- Foreign Gold at the Federal Bank of New York
- US Gold Mining
To make the information about the world's Gold Market Places at the BullionStar Gold University more digestible, BullionStar will publish a series of infographics on the topic starting today with a London Gold Market infographic.
The London Gold Market serves as a price discovery market for the worldwide gold spot price and is home to the London Bullion Market Association (LBMA).
London is also a hub for gold storage with 6,500 tonnes of gold stored in gold vaults around London.
The London Gold Market infographic guides you through this secretive market with information about:
- Trading Volumes
- Fractionally Reserved Paper Gold Trading
- Price Discovery for the Gold Price
- Gold Vaults
- Secrecy in the London Gold Market
BullionStar's COO, Mr. Luke Chua, spoke on the Key to Understanding Gold and Silver Prices, at our 3rd Year Anniversary Party, on 16 September 2015.
For those who missed it, we have now uploaded the recording of the presentation for your viewing pleasure. Please click here or on the image below.
2. Market Sentiment
3. Reasons for Weakness
4. So What Now?
Please watch in HD.
Bullionstar was recently able to purchase an entire lot of Britannia and Sovereign Proof sets and are delighted to offer them to potential collectors who wish to start or add to their collections at reasonable premiums.
Britannia 4 coin Gold Proof Sets
The British Royal Mint has been producing these Proof sets since 1987. In 2013, the Royal Mint changed the number of coins in each set and the Proof Sets now contain 5 coins each. Each 4 coin set consists of the following : 1 oz , 1/2 oz , 1/4 oz and 1/10 oz. It features the Britannia, a symbol of Britain's strength and integrity, on the reverse. Her Majesty Queen Elizabeth II and the face value of 100 pounds is featured on the obverse. The purity of the coins before 2013 is 0.9167, with the rest being copper. The number of sets before 1990 was 10,000 but fell drastically after that, with the rarest year being 2013 where only 250 sets were produced.
We carry the following years for the Britannia Gold Proof sets : 1987, 1988, 1992
Sovereign Proof Sets
The sovereign is a coin that has a solid place in the history of Britain. In face, prior to 1932, the sovereign was a fully circulating coin within the gold standard currency system that was in place in Britain. The proof coin sets are produced in either 4 coin editions or 5 coin editions. The coins are of the following denomination : Half sovereign (half pound), Sovereign (pound), Two pounds (commonly known as the double sovereign) and five pounds. The quarter Sovereign was added to the set in 2009. All coins are proof finished in 0.9167 purity, with the rest being copper. The number of sets produced for each year are largely restricted to lower than 4000 sets and it went as low as 999 sets for some of the years.
We carry the following years for the Sovereign Proof sets : 1980, 1982, 1985, 1991, 1992, 1994, 1995, 1997, 1999, 2001, 2003.
Do not miss out on this opportunity to own one of these sets. For many of the years, we only have one set each.
BullionStar is pleased to announce that we will be open on Diwali day, Tuesday the 10th of November 2015, from 11am to 7pm!
Diwali is an ancient Hindu festival celebrated by hundreds of millions of Hindus all over the world. It is celebrated primarily to signify the victory of good over evil. On this day, Hindus dress up in their brand new attires, light up candles or lamps all over their homes, and offer prayers to Lakshmi - the Goddess of Wealth and Prosperity.
Buying and bringing home Gold and other precious metals such as Silver and Platinum for Diwali is thought of as welcoming the Goddess Lakshmi into our homes.
BullionStar is currently well stocked with Gold Coins such as the Canadian Gold Maple and Gold Bars such as the PAMP Gold Bar and various Silver and Platinum Coins and Bars. Our prices are amongst the most competitive in Singapore!
We welcome you to celebrate Diwali with BullionStar here at 45 New Bridge Road and we wish you a very happy Diwali!
After extreme demand the last couple of months, demand is back to more normal levels.
The price of gold has been going up lately as is normally the case when demand is low. Yes, you read it right. When demand for physical gold is low, the price goes up and vice versa.
I've identified two main reasons for this:
A) Refineries, mints, wholesalers and retailers are hedging their stock inventory on the paper markets (BullionStar is rather unique in not hedging and will never hedge). When the physical demand for gold increases, the correspondent hedging with short positions on the paper markets are also increasing. Remember that the OTC market in London and Comex in New York are the price proxies. When 1 ton of gold is bought physically by someone in Asia, there's a correspondent short position taken somewhere on these paper markets. The short position on the paper market affects the price, the physical purchase does not. Thus, the higher the physical demand, the lower the price.
B) When there's a substitution effect of paper investors (Westerners/weak holders/investors) selling paper gold affecting the price and value savers (Easterners/strong holders/savers) buying physical gold, the price decreases for the same reason as the paper offloading affects the price but the physical buying does not.
The 9th coin in the wildly popular Perth Mint Lunar Series – The Year of the Monkey - has been released by the Perth Mint and Bullionstar is delighted to offer these coins to our valued customers. The Chinese Zodiac series, or the Sheng Xiao, is a circle of 12 animals that links each year to a particular animal. Each animal is thought to possess different character traits that are shown in the individual born in that year.
Characteristics of people who are born in the of the Monkey include wittiness, intelligence, curiosity. People born in 1920, 1932, 1944, 1956, 1968, 1980, 1992, 2004 and 2016.
First Look: Gold
From what we see from the designs, the Lunar Monkey coins look great! The gold coins feature a Monkey perched on a branch of a peach tree. The peach symbolizes longevity and good health. Kudos to the Perth Mint for going with a classic interpretation of the animal. The designer portrayed the animal in its’ natural surroundings and did not overcomplicate things by coming up with futuristic interpretations.
The one ounce denomination has a limited mintage of just 30,000 globally and is expected to sell out quickly like previous years. For the other denominations, the mintage is unlimited. That means that the Perth Mint will mint the coins for the entire of 2016 and will declare the final mintage at the end of the year. Mintages for fractionals are usually low. For example, the 2014 Year of the Horse ½ oz gold coin had a mintage of only 17,839
First Look: Silver
The silver edition is equally stunning. There is a slight difference in design for the silver coins. The coin features two monkeys instead of one. An adult monkey and baby monkey is perched on a peach tree, with the baby monkey holding onto a peach.
The one ounce denomination has a limited mintage of 300,000 that is almost guaranteed to sell out like previous years. For the other denominations, the mintage is unlimited. This means that the Perth Mint will mint the coins for the entire of 2016 and will declare the final mintage at the end of the year. Mintages for other denominations are usually low. For example, the 2014 Year of the Horse 2 oz silver coin had a mintage of only 112,801.
Our first shipment of lunar gold coins has arrived and the following denominations are stocked and ready for immediate delivery:
We only have a limited quantity for each denomination so place your orders now before the coins are sold out!
Join us in celebrating BullionStar's 3rd Year Anniversary!
Click here to register!
7 pm - 9 pm, Wednesday 16 September, 2015
- Speech by Torgny Persson, CEO BullionStar:
Gold Trends & The New Gold Rush
- Speech by Luke Chua, COO BullionStar:
The Key to Understanding Gold & Silver Prices
- Q & A with Torgny and Luke
- Mingle with Torgny, Luke and other BullionStar staff members
- Prize presentation for Video Award Winners
BullionStar's bullion retail shop at 45 New Bridge Road
Enjoy light cocktails and canapés
Registration Fee: SGD 49
Please note that tickets are limited. First ordered, first served.
Please note that this is a standing event.
3 Year Anniversary Promotion:
American Silver Eagles (Various Years) for spot + USD 2.99 (~ SGD 4.19)!
Promotion only available for registered attendees at the 3 year anniversary. Price valid regardless of quantity bought (up to a maximum of 1,000 pieces per customer). No minimum or maximum quantity per order. Offer valid while stocks last.
Click here to register!
With all the goldbashing in the mainstream mass media, many would think that gold has under performed other assets this year.
Gold has however increased no less than 10.3 % the last month in SGD and is now up 4.3 % since the start of the year. The Singapore STI stock index is down 11.7 % since the beginning of the year.
With our chart engine, it's possible to compare different assets to each other. This chart displays Gold measured in the STI Singapore index.
Demand for gold as well as silver continues to be high with the effect that there's long delivery times from the mints and refineries for some products. We have however stocked up and are still able to offer most products.
Last month China announced the addition of 604 tonnes of gold to its official reserves following a six year hiatus on the updates of the official gold holdings.
A couple of days ago, China again updated its official gold holdings adding another 19 tonnes for the month of July, 2015 alone.
It thus seems that China will update the world monthly on its gold holdings from now on!
19 tonnes is a fair bit of gold for one month. That's an annualized rate of 228 tonnes if kept up which is much higher than the average yearly increase of about 100 tonnes for the last six years.
This reinforces China's positive view of physical gold and their commitment to step-by-step slowly diversify away from the US Dollar. This diversification is something they have to do slowly not to upset the market, cause shortages in gold and lose the value of all their US denominated assets.
A lot can be said about why physical Gold and Silver beats paper Gold and Silver.
We decided to shoot a video to express our views.
Here's one reason why it's better to get physical Silver as opposed to paper Silver.
Click here to watch!
If you like it, share it!
As Singapore celebrates 50 years of independence this weekend, I'd like to humbly thank Singapore and the Singaporeans for making Singapore into the premier jurisdiction in the world for buying and storing bullion.
There is no better country in the world for buying and storing precious metals!
Some of the highlights include:
- No taxes for bullion whatsoever.
- No reporting requirements to buy or store bullion.
- Extremely safe with a strong rule of law.
- Strong property ownership rights.
- A government that is pro-gold.
Lee Kuan Yew might have fighting back tears announcing the separation from Malaysia leading to the announcement of independence 9 August 1965 but the journey since has been a remarkable one.
No other country in the world has developed as explosively from a third world country into a diversified business hub with high living standards in the last half century.
BullionStar is a long term venture and I'm confident that we will develop together with Singapore in the next 50 years to become the leading precious metals center of the world.
One thing Singapore is lacking though is a high reproduction rate and therefore I like to wish my newlyborn son and third child, Max, an extra welcome to the world:-)
To all Singaporeans and friends of Singapore; cheers and
HAPPY SG 50!
Often, customers come into our shops and ask for the gold coin with the lowest premium. In this case, our answer is always the Royal Canadian Mint 1 oz Gold Maple Leaf. The Gold Maple Leaf offers not just the best value for money, but you also buy into a brand that is globally recognized for high manufacturing quality.
Why then, do we offer fractional coins in the form of fractional gold maples, kangaroos, pandas and lunar series and why do people purchase them even though the premiums are higher? Today’s editorial will discuss the different reasons people who buy gold buy fractionals.
Fractional coins offers the advantage of liquidity. Should one need a sum of money, one can sell a ¼ oz coin for example instead of selling an entire ounce. Now this is especially useful when the price where one bought the coin at is higher than current prices when you are deciding whether or not to sell.
Allow savers to start
Though fractionals have higher premiums they also cost lesser in absolute terms than their 1 oz counterparts. They allow people who do not have the discipline to save money in precious metals to put aside whatever small amounts they have into gold so that they can build up their stacks. It might seem like a 1/10 oz is nothing but over time, all these add up and one would be glad that they put aside the money!
Variety for collectors
Collectors seek variety and fractionals are the perfect way to get variety! Instead of buying a 1 oz gold Maple Leaf, a collector can buy 4 x ¼ oz coins to give him 4 different coin designs! One can get a ¼ Gold Maple Leaf, ¼ Gold Kangaroo Nugget, ¼ Chinese Gold Panda and ¼ Lunar Gold Goat!
One can consider fractionals for the above reasons in the future when one is looking to buy gold!
Gold is an extraordinary metal. The metallic characteristics of gold is fantastic. It's dense, malleable, a great conductor and absolutely beautiful, thus the global choice for jewellery.
As a store of value, gold is superior not only to fiat but to any other asset known to man. Gold keeps its value over time. It's rare, has unique metal properties as mentioned above and is nobody's liability. Gold is the ultimate extinguisher of debt.
Why don't start educating your family and friends on the value of money today? Ask:
What do you get if you cut a 100 dollar bill into two pieces?
Do you get two 50 dollar bills?
No, you get two worthless pieces of paper and therefore your money is worthless!
Why is the troika so reluctant to allow a Greece default or debt structuring?
It's very simple. As long as there's no debt default or debt restructuring, meaning that no debt is written off, the institutions account for the value of the debt at full face value in their books.
€1 billion loaned out is an asset of €1 billion in the books as long as Greece isn't defaulting.
If Greece were to default, the institutions will have to write off debt and thus their capital will be eroded. They may even have to ask their member states to recapitalize them which certainly will not be an easy political proposition.
Further domestic taxation or national debt for redistribution to Greece or any other country will not make it easy for any European political bureaucrat to be re-elected. Getting re-elected is after all the most important thing for any politician. Therefore, there can be no write offs.
Posturing aside, the politicians will always go for inflation rather than deflation and debt default. Kick the can and let someone else deal with the perpetually monstrous effects down the road.
Keep the bookkeeping in order and pretend everything is fine. This is the essence of the fiat monetary system because money = credit = bookkeeping entries.
Shouldn't the Greek debt crises, if anything, make the price of gold go up?
Yes, it should.
Economics 101 would stipulate that increased demand for something pushes the price up.
Not so for gold though as the price has been declining despite the increased demand seen on the physical gold market in the last weeks.
The price of gold is set on the paper derivative market and not on the physical market.
The gold paper price is extremely disconnected from the physical market. There’s even, in my opinion, a correlation between the physical gold demand and the price decreases. I even believe there’s a causation with higher demand for physical gold driving the price of gold lower as there’s substitution from paper gold to physical gold with what ‘should be’ a zero net effect overall but in reality reduced demand for the paper gold (i.e. the demand for the price proxy) and equivalently higher demand for physical gold actually make the price of gold go down!
The ending result will be shortages unless the price discovery for gold is rejuvenated.
Don't despair. It's a window of opportunity.
In the longer run, gold will never be this undervalued again (at least for several centuries)
Whether the reset will happen in a few days, a few months or a few years, I don't know but it's rapidly coming closer.
The almighty Shanghai Stock Exchange Composite Index has been one of the best performing financial asset, hitting a 7 year peak in the middle of July and having risen by more than 150% in the past 12 months. Shocking then, when it starting plunging and plunging with 30% of it's market value lost in the following 3 weeks. The sell-off is incredible considering that 80% of the index consist of retail investors and not the traditional huge institutional investors. The high retail investor percentage in the index has been due to the availability of cheap credit made available and the availability of margin lending by brokers.
What happened after the plunge?
In the wake of the plunge, the Chinese government intervened and allowed almost half of the companies trading on the Shanghai Stock Exchange Composite Index to suspend trading of their shares to prevent a further loss in value. Investors who were leveraged to the tilt had to close their margin positions. Furthermore, those who paid in cash panicked and started to sell as well.
What did the government do?
Understandably, the Chinese government is alarmed at the rate at which the index fallen and have introduced several measures to try and turn the index around. Since the investors are mostly retail investors, there are fears of social unrest if the situation is not turned around quickly enough. The government is working to buy shares from small and medium sized companies, who are the most affected by the rout. They have also suspended any upcoming Initial Public Offerings (IPOs), as well as banned anyone who owns more than 5% of a company from selling any shares for the next 6 months.
What happens next?
The Shanghai Index seemed to have recovered in recent days, owing in part to the measures of the government and also partly due to the agreement of a bailout deal for Greece. However, much uncertainty remains in the year ahead with many investors fearing the slowdown of the World’s second largest economy, even if it did grow 7% for the past three quarters in recently released news.
In uncertain times like these, it makes sense for investors to hold their investments in something they can hold and only precious metals offers you an investment that has intrinsic value and can retain value. Even though the price of precious metals have been falling, the opposite is true for physical demand. Our retail outlet has been swamped with orders and we are trying to fulfill them as best as possible. Don't get caught holding paper Gold and Silver, where paper Gold and Silver market makers can get halted for trading much like half of the companies on the Shanghai Stock Exchange Composite Index.
Look for your precious metals product here.
Royal Canadian Mint is at the same time falling behind on delivery of the 2015 Canadian Silver Maple and may also sell out shortly.
BullionStar still has both coins in stock and are taking orders. The demand has however increased exponentially over the last week and we expect to sell out of Eagles and Maples shortly if the demand persists.
Silver spot falling
The price of silver fell sharply yesterday and is currently down 3.3 % year-to-date. Physical demand for silver on the retail level has increased significantly lately but as the spot price of silver is set on the paper markets, increased physical demand doesn't correspond to increased prices.
As people are selling paper silver and buying physical silver, the effect may actually be that the price goes down. Instead, we see increased premiums on physical silver.
When I started in the bullion business in 2008, the demand for silver coins were likewise sky high and even though the spot price of silver fell as low as USD 9, the price of a 1 oz Silver Eagle was about USD 17 on the wholesale market and even higher on the retail market.
The response we have been getting from our video competition has been overwhelmingly positive and we would like to express our heartfelt thanks and appreciation for every single person who went out of their way to put together a video entry. We are in awe and grateful for the relationships that we have formed through the course of business, where similar ideological beliefs are so commonly shared by our customers and friends.
Here is a video entry by one of our customers titled "The Banana Currency".
It touches on the heart strings.
I found this article about Texas building a state owned gold vault making the gold in it "non-confiscatable" very interesting.
To summarize, the US state of Texas signed a bill into law 12 June that will allow Texas to build a gold and silver bullion depository. Texas is furthermore planning to repatriate USD 1 billion worth of bullion from the Federal Reserve in New York upon completion of the depository.
It thus looks like the state government in Texas are losing faith in the ability of the Federal government and central bank to safekeep bullion.
The law specifically includes a provision stating that a purported confiscation, requisition, seizure or other attempt to control the ownership is void and of no force or effect!
It's perhaps not strange that Texas politicians are concerned about the financial health of the federal government. What is surprising though is the brazen way of posturing and displaying it with this law basically stating that they will not allow the federal government to confiscate their gold.
It the vault materializes, this is a major step by a western state government to legitimize the importance of holding fully allocated, segregated metal in one own's possession and may serve as a precedence for other states and to go the same way. This is of particular interest in a time when federal and supranational unions are trying to exert more power and can be viewed as a clear intent to resisting that trend.
A common question that our customers ask us is, “How do I keep my precious metals such that its’ condition will be immaculate forever?” The short answer is that for silver, it is not possible since silver tarnishing is a natural process, as discussed in another editorial by my colleague Gustav. However, there are ways in which we can delay the process for as long as possible so that your precious metals are still beautiful to look at.
1.Keeping your precious metals in a cool and dry place
For collectors who are beginning their collection, it would be good to invest in a good storage solution in order to protect the coins. One could consider large air-tite boxes or even camera cabinets that allows for the adjustment of humidity. Do take care to keep the boxes in a place where it would not be exposed to high temperatures or light. (Not only is this safe for your coins but you keep your precious metals away from prying eyes as well.) Silica gels can also be placed together with the coins to ensure a dry environment.
2.Case them in protective capsules
Bullionstar offers the Intercept Quadrum Coin capsules, an innovative product that promises to protect your coin for up to 15 years. The special foam developed interacts with the air and neutralizes any harmful chemicals that may cause the coins to tarnish. The following sizes are available : 20mm, 30mm, 33mm, 37mm, 38mm, 39mm, 41mm
3. Minimal exposure to air
Since tarnishing is caused due to the presence of sulphur in the air, it would be good to not expose the coins to the environment as much as possible. Keeping them in protective capsules still allows you to admire the coins but will help to delay the tarnishing process.
Did you know that there’s a vast reservoir of precious metals containing virtually tens of thousand of tones of gold and silver? Most of us have a fond relationship and probably some nice memories tied to this precious metal reservoir, as we’ve rested by its shores, bathing in the golden rays of the sun to later submerge our self in a cooling gold and silver bath.
For those of you that haven’t already guessed it, I’m referring to the ocean. The world’s oceans hold concentrations of approximately 10-30 parts per quadrillion of gold and 2-100 part per trillion of silver.
Approximations tells us that the amount of gold floating around in the deep blue is somewhere around 15,000 tones.
Easily recoverable? No. Although scammers tried to convince people already in the late 19th century that gold could be extracted from sea water in amounts that where profitable.
Prescott Ford Jernegan and his partner built an entire plant designed to extract gold from seawater in Connecticut in the late 19th century. Investors flocked as Jernegan and his partner made it look like the plant actually worked by adding gold themselves. All of a sudden, Jernegan and his partner disappeared and their disappearance had the mysterious effect of making their gold accumulation plant stop working.
As of yet, there seems to be few really profitable ways to produce gold and silver bullion other than mining. Gold scams still show up now and then, but as with most get-rich-quick schemes, they’re a fraud or a pyramid scheme designed to enrich the creators and defraud investors.
We often get questions on the authenticity of different products.
How can I know it's really gold?
How can I test?
Is there a certificate of authenticity included?
Let's address the last question first. Most bullion bars and bullion coins don't come with any certificate of authenticity. The refinery's stamp on the coin or bar is the refinery's guarantee of the authenticity.
It's after all much easier to fake a piece of paper certificate than it is to fake the metal. As a matter of fact, a metal can't be faked, it can only be imitated in regards to some characteristics but never all.
One of the most important characteristics for gold is its high density. The density for gold is 19.3 g/cm3 which is almost the highest density of all elements on earth. This means that if you use another metal, let's say e.g. copper which has a density of 8.96 g/cm3, to try to replicate the visuals of a gold bar, the bar will become much larger assuming the same weight.
The only metal close to gold in density is Tungsten. Tungsten has a density of 19.6 g/cm3. This means that a tungsten bar is very close in volume to a gold bar which is what you might have seen on Youtube.
Fortunately though, it's easy to differentiate Tungsten from Gold.
The speed of sound when traveling in gold is 3240 m/s whereas it's 5200 m/s for tungsten. The sound speed can easily be measured with an ultrasonic gauger.
When you buy metal from BullionStar, we guarantee the authenticity. We test our metals thoroughly and most all products sold by us come directly from the refinery/mint.
Who said silver had to be stacked in squares? Check out how one of our customers stacks her silver!
We love the video and thanks so much for the support!
Please feel free to continue to shoot and submit videos for our video competition to Win Big!
Record a video with bullion bought from BullionStar. We'll leave the plot, script and cinematography up to you. Perhaps you might want to shoot your bullion together with Singaporean landmarks or talk about how you stack up your bullion from BullionStar.
The length of your video must be between 15 seconds and 3 minutes. E-mail your video or a link to your video to email@example.com no later than 21 June to stand a chance to win the prizes listed below at our 3 year anniversary party in the beginning of July.
1st prize: 30 oz. worth of silver bars from Heraeus (Worth approximately SGD 765 at the time of this post)
2nd prize: 10 oz. silver bar from Heraeus (Worth approximately SGD 255 at the time of this post)
3rd prize: 5 oz. silver bar from Heraeus (Worth approximately SGD 130 at the time of this post)
Have fun shootin' and take your chance to win big!
The jury consists of the BullionStar staff members. BullionStar reserves the right to the usage of the videos sent in.
BullionStar reserves the right to issue more than three prizes in case there are more than three suitable videos or less than three prizes in case there are not enough suitable videos sent in. The jury's decision is final.
Let your creativity loose and shoot a video of your bullion bought from BullionStar to Win Big!
Record a video with bullion bought from BullionStar. We'll leave the plot, script and cinematography up to you. Perhaps you might want to shoot your bullion together with Singaporean landmarks or talk about how you stack up your bullion from BullionStar.
The length of your video must be between 15 seconds and 3 minutes. E-mail your video or a link to your video to firstname.lastname@example.org no later than 21 June to stand a chance to win the prizes listed below at our 3 year anniversary party in the beginning of July.
1st prize: 30 oz. worth of silver bars from Heraeus (Worth approximately SGD 765 at the time of this post)
2nd prize: 10 oz. silver bar from Heraeus (Worth approximately SGD 255 at the time of this post)
3rd prize: 5 oz. silver bar from Heraeus (Worth approximately SGD 130 at the time of this post)
Have fun shootin' and take your chance to win big!
The jury consists of the BullionStar staff members. BullionStar reserves the right to the usage of the videos sent in.
BullionStar reserves the right to issue more than three prizes in case there are more than three suitable videos or less than three prizes in case there are not enough suitable videos sent in. The jury's decision is final.
The editorial this week is going to delve into the world of graded coins and its’ many wonders. For the uninitiated, coin grading is the process of determining the grade of a coin based on its’ condition. Collectors use this grade as one of the factors in determining the value of a coin.
There are currently two major companies that are dealing with graded coins: Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC). These companies offer a whole spectrum of services from coin acceptance to grading to publishing estimated values of graded coins. The coins are graded out of 70, with 70 being a perfect grade where no flaws exist on the coin. A list of what the different grades mean can be found here.
The advantage of purchasing graded coins is of course, the potential that it will appreciate beyond what the content of the coin is worth. Take a look at this coin, which was sold for a really cool $7.85 million!
One disadvantage of purchasing graded coins could be the problem of degeneration of the coin with time. For example, there are certain Chinese Pandas that may develop “milkspots” over time. If a coin is graded MS70 initially develops “milkspots”, is it still worth its’ grade? Or will the next collector be purchasing the grade and not the coin?
For collectors looking to add graded coins into their collections, consider not just the grade of the coin, but also the mintage as well as significance of the coin.
Bullionstar carries a range of graded coins that you can purchase at reasonable premiums for the chance of potential appreciation. For gold, we have the 2015 MS70 Gold Buffalo. For silver, we have the 2015 MS69 American Silver Eagle and the 2015 MS69 Stock Horse. As for platinum, we have the 2014 MS69 American Platinum Eagle.
Many of our customers worry that if their silver bullion bars or coins should tarnish, it might be harder to resell them should one want to divest.
Lets take on the subject by first looking at what silver tarnish really is.
Silver is a metal that reacts with the hydrogen sulphide in the air and creates silver sulphide. This process creates a layer of brown or black tarnish on the surface of the silver. Tarnish doesn't damage the silver bullion product, nor does it lower its value. On the contrary, a few layers of tarnish actually helps to protect the silver from dents and scratches.
Again, silver bullion products, such as most of the bars and coins we sell, do not fall in value as they accumulate tarnish. Tarnish is a natural process and is actually a good indication that the silver is real. One can also fairly easily remove silver tarnish with a gentle electrolytic process involving regular baking soda, tap water and some aluminum tin foil.
The intrinsic metal value of bullion bars and coins changes nothing or little because of the outer characteristics. The value lies within the metal.
Even graded collector silver coins can and will attract tarnish during the years. This is nothing that should deter a seasoned collector from buying them. On the contrary, a slight tint on aged coins is considered normal and even desirable by most collectors.
For the bullion collectors that still want to keep tarnish at a minimum we have a couple of products in store. The new Quadrum Intercept capsules uses a decades old technology that keep metal machine parts in the airline industry free from rust and tarnish. The sponge used in the capsules creates a non-corrosive micro-climate that neutralizes harmful atmospheric gases and keeps tarnish at a minimum.
In a step to further increase customer transparency, BullionStar is starting to publish financial information such as sales revenue, number of orders, average order, medium order, website visits and other key data bi-annually in infographic style.
From the first such report, BullionStar Financials 2014 - Year in Review, you can find out that the sales revenue for 2014 was SGD 53 M with the average order being SGD 6,475.
BullionStar.com had more than 850,000 visits in 2014.
Get to know BullionStar!
Also make sure to check out and like our Facebook page where we currently are publishing a series of 20 daily tidbits about BullionStar.
Find out how the company was started, how we produced the vault replica door, how much the showcase display lids weigh and other unique inside information!
BullionStar is proud to launch the world's first physical 100 gram gold bar traded without any spread between the buy and sell price.
The gold bar is produced by the LBMA accredited Swiss refinery Argor-Heraeus on behalf of BullionStar.
At any given point in time, the buy and sell price for the gold bars are exactly the same based on a purchase of 10 or more bars. If you purchase less than 10 bars, there's a small spread of 0.6 % which is still a much lower than what is normal 100 gram bars.
The bars are very aesthetically pleasing with a design matching our belief that gold is money in the true sense. The reverse of the bar features the inscription "Money since 4000 B.C.".
The bars are on display in our showroom at 45 New Bridge Road. If you're in Singapore, please feel free to come by and take a look!
As we enter 2015 it is interesting to look back upon 2014 as a year when the price of gold showed substantial volatility. Measured in Singapore Dollars, the price had its peak of SGD $1751/oz in March and its low of about SGD$1475 in November. Gold closed the year at SGD$1568, just slightly higher than it opened in January, which was at SGD$1549. If a fiat currency is any measurement to go by, gold has, in terms of Singapore dollars, done its job in preserving value.
In terms of U.S. Dollars, which is the currency that gold is priced in on the spot market, gold lost around 1 percent due to the U.S. Dollars rally in the second half of 2014. This might not seem very existing, but in comparison to many other currencies, this is actually quite good.
In terms of loss of purchasing power, the Swedish krona was actually one of the worst performing currencies in 2014. Anyone who decided to convert their SEK to gold in the beginning of 2014 saw the price of their gold increase of about 19%.
But as always when comparing long standing perdurable money such as gold, with interim fiat paper currencies such as USD, SGD or SEK, it is hard to really know whether one actually gained any real purchasing power or if it was just the paper currency that slowly but surely descended towards its true value - zero.
The issue is that fiat money does not constitute a stable and objective standard of value. In contrast, an ounce of gold will always be an ounce of gold, no matter what happens to any paper fiat currency.
Driven by investor demand around the globe, the sales of American Silver Eagles reached a new record on December 8 this year with 42.8 million coins sold, year-to-date. Last years record was at 42.6 million coins.
On Christmas Eve, the 24th of December, it was clear that total sales of Silver Eagles for 2014 had reached a whopping 44 million coins!
Falling prices hasn’t deterred investors from indulging in the white metal - a metal which is one of the most useful industrial metals in the world. Smart investors are instead accumulating physical silver with both hands while prices are low, and they are holding on to their silver stack with a firm grip.
It seems to be the monetary aspects, where silver is used as a store of value, that is luring true longterm savers into silver. Silver has namely been used as money thru out history, more than any other metal.
As we’ve briefly touched upon in a previous editorial, a new report estimate that investors may increase their net silver purchases to 1 billion ounces in the coming decade. The report says that investment demand remains the single most important driver of prices in the silver market, and retail demand in coins and bars might be one of the most important drivers of investment demand. The projected billion ounce demand is expected to unravel in the midst of a weakening global economy as investors are looking to preserve their capital.
Also, Thomson Reuters GFMS, the London-based analysts of global precious metals markets, expects to see a peak in global silver mine supply in the next 2 to 3 years. The fall of silver prices to 4-year lows and the negativity in the price of silver is leading to dwindling investment in future silver mining capacity, according to the report.
The above might spell long term loss for silver producers and for those who are investing in mining stocks, but for those cling to their physical silver coins and bars, this means re-valuation and increased purchasing power for every ounce of silver owned.
Yesterday, the Russian ruble suffered the steepest intraday fall in 16 years decimating as much as 19 percent of its value against the dollar. This was despite the largest interest rate hike since 1998 by the Russian central bank desperate to stem the run on the currency.
The hefty interest rate hike of 650 basis points failed to halt the ruble's slide, exposing how helpless central banks can be when market sentiments overwhelms and takes root. It also highlighted how fragile fiat currencies are and reminded all that their value hang on a thread called 'confidence'.
News of panicky Russians rushing to buy consumer products and durable goods before they become more expensive was surreal. The rejection of the currency due to the loss of confidence in its purchasing power mirrored the effects of a hyperinflation.
Many mistake hyperinflation to be high levels of inflation which is an expansion of the money supply. However, hyperinflation is a different animal altogether. It is the rejection of a currency due to a loss of confidence in its purchasing power.
The plummet of the ruble ironically sent the nominal price of gold in ruble to a 10-year high. If the currency axis of such a chart was unknown, one could not be faulted for thinking that gold prices have rallied. However, it underscored the fact that the rise in the nominal fiat currency denominated prices of precious metals only reveal the devaluation of fiat currencies.
The purchasing power of gold was not affected amidst this turmoil in the Russian currency. Rather, the purchasing power of all who saved in the ruble was decimated. For a country with one of the largest land mass and substantial natural resources, this current attack on the Russian currency only show that now is the time to hold wealth in hard assets with intrinsic value. Amongst the best hard assets today is gold and silver, money for mankind since 4,000 B.C.
Situations that formerly required a banking collapse, a natural disaster or even a world war to occur can today happen just because of a cable fire or a software update. The latter was exactly what happened about 2 years ago when the Royal Bank of Scotland upgraded one of their systems. The upgrade failed and the system initiated a cascading shutdown lasting several days, piling up over 100 million payment orders.
In total, 6.5 million customers were affected. 4,7 million of these were private individuals whom, because of this digital meltdown, could not full fill their payments.
This above incident occurred in spite of Royal Bank of Scotland’s massive investment of GBP 1,7 billion in IT-development, every year.
Complexity is what nourishes the fiat money central bank elite. The terminology that they use and the economic jargon that they engage in are meant to discourage ’regular people’ of thinking that they could ever understand the great mystery of economics. Only the ’elevated priests’ of the central banks can.
But the truth is that economics is not that hard to understand and this fact is starting to dawn on an increasing number of people. People are starting to grasp that the fiat money system is based on paper promises that in the long run can never be honoured and that the simple and logical alternative to that is physical gold and silver.
Yes, gold and silver are precious metals with a value that most people find intrinsically easy to grasp, especially when they get to look at the metals in person and feel their weight in their own hands, as you can in our physical shop at 45 New Bridge Road.
No wonder that the gatekeepers of the overly complex fiat money system are pointing fingers at gold, calling it a ’barbarous relic’ with no value. When the paper money system collapses it will probably be this ’barbarous relic’, in all its simplicity, that will recapitalize the system.
Amidst the recent dramatic fall and rise in gold prices, few took notice of the rise of U.S federal debt above the $18 trillion milestone. Even though the Federal Reserve is touting for higher interest rates come 2015, nothing is stopping the debt rocket from soaring even higher making the prospects of repayment in an environment of higher interest rates slimmer.
It is a fact that with the debt crossing $18 trillion, the nation's debt had increased an astounding 70% under the Obama administration. The debt was $10.62 trillion when President Obama took office in 2009. $1 trillion dollars is a huge amount but such exponential increase in debt over a short period of time makes a trillion seems small. Despite promises by the U.S government that the economy is recovering, the truth is that their efforts so far is pushing America deeper into debt.
While mainstream economists often analyse the price of gold based on known short term economic cycles, they usually ignore the exponentially rising debt and money supply which are long term events. The elephant in the room is ignored because none of them has a solution for it. However, this problem cannot be ignored. It will eventually lead to a major financial crisis in the near future, one that surpasses the 2008 financial crisis in scale.
This crisis will be a currency crisis because the lack of credit worthiness of the U.S government will have a knock-on effect on the acceptability in the current reserve currency of the world - the U.S dollar. As trust in paper currencies and assets continue to erode, there will be an increase in momentum in the flight to hard assets such as gold. It will be foolish then for anyone to trust another paper currency that does not derive its value from gold which has been money for thousands of years.
In 1999 the Swiss National Bank was backing its total reserves with 43% gold, In 2009 it was down to 18% and in 2014 it’s down to only about 7%. During the same period, many of the worlds most well known central banks have expanded their balance sheets in relation to their GDP in a massive way. The Swiss National Bank, SNB, is no exception as they have expanded their balance sheet to equal a staggering 90% of Swiss GDP.
Latest poll shows that only 38% say they will vote in favour of the referendum, down from 42% just a few weeks ago. The Swiss banker elit and SNB themselves are strong opponents to the initiative as it would limit their ability to exercise power by printing money at will. Should the initiative pass, SNB could still print money all day long if they so wish, only they’d have to use 20% of that money to buy gold.
Whatever happens on Sunday, the initiative has highlighted a lot of the problems that stems from over issuance of currency and debt world wide.
BullionStar’s own precious metals analyst, Koos Jansen, writes extensively about gold and the gold market and has recently been featured in several different German and Dutch mainstream TV outlets. Just the other day he was also interviewed by The Guardian on the issue of the Swiss gold referendum.
Bankers now seem to be on a quest to slander not only the referendum, but gold as an asset in and of itself. Citibank released an anti-gold report just two days ago that basically claims that gold has no value whatsoever and that it is in a “six thousand year-old bubble”. The report also goes on to slander Bitcoin saying that gold and bitcoins are just costly to produce and store.
The truth is, of course, that gold has been money for 6000 years and fiat paper money, with a 100% fail-rate, has an average life span of only 27 years. Todays monetary system, the US Dollar standard, is 43 years old and its collapse is long overdue.
Thomson Reuters GFMS, the London-based analysts of global precious metals markets, expects to see a peak in global silver mine supply in the next 2 to 3 years. This was their assessment in the GFMS 2014 Silver Market Interim Report which was released this month.
In the report, one of the reasons that the GFMS believes will result in peak silver mine supply was that "current price levels maintaining production but constraining investment in new capacity.” What this means is that the recent fall of silver prices to 4-year lows and the negativity in the price of silver is leading to dwindling investment in future silver mining capacity.
So while immediate silver production numbers may continue to increase in 2015 due to past investments in existing capacity, this constriction in near-term mining investment is likely to lead to shortages in the next 3 to 5 years as rising demand remains unabated.
Nowhere is more evident of rising demand than in India where silver imports reached an astounding 1,243 tonnes in October. Putting the continuing surge in physical silver demand in silver into perspective, it is hard to see how the price of silver can continue to languish at current levels with expected future supply reduced and the costs and risks of mining unchanged.
With the silver to gold ratio at 73:1, it is way above the GFMS-calculated 10-year average of 58.2. Silver continues to be substantially more undervalued than gold making it a great opportunity to load up on a tangible asset that has been money for thousands of years.
The Dutch central bank, De Nederlandsche Bank (DNB), has repatriated in utmost secret 122.5 tonnes of gold from the Federal Reserve Bank of New York (FRBNY) to its vaults in Amsterdam, The Netherlands, according to a press release from DNB published today (November 21).
DNB states it has changed allocation policy from 11 % in Amsterdam, 51 % at the FRBNY, 20 % in Canada and 18 % at the Bank Of England (BOE); to 31 % in Amsterdam, 31 % at the FRBNY, 20 % in Canada and 18 % at the BOE. According to the World Gold Council’s latest data DNB has 612.5 tonnes in official gold reserves.
A few weeks ago I heard a rumor that the Netherlands were repatriating some of their official gold reserves from the FRBNY. From one of my sources I even heard which security logistics company was shipping the metal, but I was kindly asked to not share this company’s name.
Last week I was approached by a financial journalist, Theo Besteman, from the biggest newspaper in The Netherlands, De Telegraaf. He asked me if I knew anything about the repatriation of Dutch gold from the FRBNY as he heard from several sources DNB was following the German central bank in repatriating gold (for the ones that are under the assumption Germany has ceased its repatriation program, please read this). I told him I heard some rumors about it and that the source was one of the big security logistics companies. He wanted to know which one, but I couldn’t tell him that.
Apparently the rumors were true and Besteman did a good job finding out what was happening. The front page of De Telegraaf today: Tonnes back from the US, Gold Shipped In Secret.More...
A new report suggests that investors are likely to increase their net silver purchases in the years ahead. All this according to a report recently released by the Silver Institute entitled “Silver Investment Demand”. The report suggests, among many other things, that investors may accumulate as much as one billion additional ounces of silver over the coming decade.
The report says that investment demand remains the single most important driver of prices in the silver market, and retail demand in coins and bars might be one of the most important drivers of investment demand. The projected billion ounce demand is expected to unravel in the midst of a weakening global economy as investors are looking to preserve their capital.
On page 38 the report outlines that retail investors, mainly purchasing coins and bars, are of a different breed than the more short term speculators that buys the paper silver price derivatives. According to the report, the dynamic disposition of the retail bullion investor base makes for solid demand, even during periods of falling prices.
Looking at the correlation between the price of silver and the demand for the most popular investment grade silver coins, such as the American Silver Eagle and the Canadian Silver Maple, one can see that demand increased in pace with the price of silver from 2005 up until around 2012. But in 2013 something interesting happened: In spite of falling prices, the demand for both of these 1 ounce silver coins kept on increasing. The smart bargain hunting bullion investors seized the opportunity and have been buying with both hands throughout 2013 and 2014!
The trend seems to continue unabated as the US Mint 2 weeks ago reported that they'd sold out of all Silver Eagle’s.
With a little more than a month to go of 2014, and with more than 40 million Silver Eagles already sold, it looks like the US Mint will have reasons to pop the champagne corks in order to celebrate yet another record year for their American Silver Eagle bullion coin.
Considering that the Canadian Silver Maple coin from the Royal Canadian Mint is likely to have taken a substantial market share from the US Mint during the year, this is quite a feat.
For a nation whose public debt is already 245 percent of GDP and debt payments are 43 percent of fiscal revenues, the unprecedented money creation experiments of the Bank of Japan (BOJ) in support of 'Abenomics' have failed to keep Japan from slipping into a triple dip recession in Q3. It was also the fourth recession for Japan since the 2008 financial crisis.
It was on the back of Japan's third recession since 2008 that Shinzo Abe successfully became the Prime Minister in December 2012. At that time, the yen was much stronger, trading at 78 to the dollar and the TOPIX stock index rather weak at about 743.
The freshly minted Prime Minister then introduced what is now known as 'Abenomics' within which was the plan to devalue the yen through money printing. The Japanese government believed that driving down the yen would jumpstart its export industry which will have a positive knock-on effect on the economy.
Fast forward two years and the yen has skydived to 116 to the dollar - a loss of nearly 50% of its value in late 2012. While the companies that export goods abroad cheered the improved demand and the stock market rallied in tandem, the purchasing power of savers was decimated. Their loss of purchasing power was also exacerbated by the increase of the sales tax of 8% earlier this year. In addition, while nominal wages had climbed 1 percent, real wages had declined 3 percent.
The money printing experiment of the Japanese government has failed to keep the economy from going into a recession again. Wealth can never be generated from money creation. Every person who had saved in the yen became victims of the devalued currency - their wealth now buy them lesser goods and services than 2 years ago.
Although the price of gold had declined in the last 2 years when priced in the dollar, it is amazing that the price of gold in the yen has risen to levels close to December 2012. So while gold has become cheaper for savers of the dollar, it is now just as expensive for savers of the yen. With global central banks taking turns to devalue fiat currencies, the loss of purchasing power is the stark reality for all who continue to save in them.
92.8 tonnes of gold were added to central banks' reserves between July to September 2014. 59% of net purchases between this period were attributed to Russia. According to International Monetary Fund data, Russia's 37.5-ton gold purchase in September was its largest increase in gold reserves since November 1998.
Russian gold reserves had also surpassed that of Switzerland and China this year. The nation now hold the world's fifth-biggest gold hoard at 1,149.8 tonnes. This figure is almost three times Russia's gold reserves back in 2005 and the highest ever recorded at least since 1993. In dollar terms, gold now makes up 10.6 percent of Russia's international reserves, up from 8.4 percent a year ago.
Russia's accelerating stockpile of the yellow metal was believed to be part of the nation's efforts to diversify away from currencies that it views to be under American influence. With the price of gold languishing at 4-year lows recently, the Russians have certainly picked a good time to increase their gold holdings!
With the fallout between Russia and the West, it was interesting to see Russia run to gold as its options to transact with foreign currencies narrow. It is without doubt that gold is and will always be the safest haven. Its value is unparalleled as gold has always been universally accepted throughout history. Gold fulfills the characteristics of money which makes it the best asset to accumulate right now as fiat currencies compete in a race to zero.
There is a long running debate whether or not the price of silver is being manipulated. Of course no one can say for sure what is actually the case, but there’s more and more evidence surfacing that points in the direction of manipulation.
For example the Swiss regulator FINMA recently stated that it found clear attempts to manipulate precious metals benchmarks during its investigation into precious metals and foreign exchange trading at UBS.
“The behavior patterns in precious metals were somewhat similar to the behavior patterns in foreign exchange,” FINMA director Mark Branson said in a conference call with journalists. According to a Reuters article, he said that as UBS has precious metals and foreign exchange desks under combined leadership, it was not surprising to find similar behavior. He also added: “But we have also seen a clear attempt to manipulate fixes in the precious metal markets.”
The Silver Institutes yearly report for 2013 showed a huge total demand increase with the largest increase being in retail demand for coins and bars. Supply couldn’t meet demand and a deficit of 103 million ounces of silver formed. This year we keep seeing record demand in the most popular silver bullion products such as the American Silver Eagle and the Canadian Silver Maple.
Despite all the above, prices have slumped to four year lows indicating that something within the price setting mechanism is corrupt. But as is always the case with manipulation, something will sooner or later have to give way and it seems like it will be the supply. According to a chart put together by Srsroccoreport.com, 7 out of 12 primary silver miners had an average estimated break even of US$18.50 during the third quarter. At a silver price of US$15.70, they are loosing US$2.80 for every ounce of silver they produce.
Of course this can’t go on for ever and the price will have to rise or we will have silver shortages - and these shortages will make the price rise. With all this being so, the current lows in the silver price constitutes a great opportunity to stack up on silver while supply is still here.
Gold prices fell to 4-year low prices at the end of October primarily due to 3 factors: the U.S Federal Reserve announcing an end to its quantitative easing (QE) program, the Fed's continual hint of the possibility of higher interest rates in 2015 and the strengthening of the U.S dollar due to the commencement of the Bank of Japan's largest ever QE program.
This has resulted in the sentiment on gold prices going from negative to extremely negative. Predictions of lower gold prices abound on the mainstream news. Such behaviour is normal regardless if it is a bear or bull market. The U.S stock market is currently hitting new records every week. There are more mainstream analysts predicting higher levels of Dow Jones and S&P Indices than those warning of over-bought levels. Gold is at over-sold levels but there are more expecting even lower prices. I believe such behaviour is due to a bias resulting from the immediate sentiment towards the asset.
If we put bias aside and examine the fundamentals, it does not make sense for gold prices to continue to fall. Let's look at the Fed's end-of-QE announcement. So the Fed has ended QE, but is this not the third round of QE? If the past two rounds of QE had worked, there would not be a need for QE3. Do we know for sure that QE3 had worked and there will not be a QE4? No. Yet the markets throng the dollar because the Fed ended its latest round of money printing which it should not have started at all.
Next, is the increase in interest rates in 2015 a done deal? No. It is still a possibility. Do we know how high the interest rates will be increased? No. Will the markets celebrate again over a 0.25 percent increase in rates? Possible. Will such a minor increase help the economy? No. Will such a minor increase increase borrowing costs? Yes. Is the U.S debt hitting $18 trillion soon? Yes.
Finally, with the Bank of Japan's largest ever QE, another fiat currency is being severely devalued on purpose. Will this once again set off a currency war with Japan's trading partners? Yes. Will Japan's trading partners conduct a tit-for-tat currency devaluation to defend their exports? Highly possible. Will fiat currencies continue to lose purchasing power? A firm yes.
Are we seeing explosive demand in physical precious metals? Definitely. Are there shortages in physical bullion? Yes. So why is the price of gold still languishing at oversold levels? Regardless of what the answer to that is, the constantly devalued fiat currency that we hold is now buying us more ounces of gold. When we see such absurd deviation between fundamentals and sentiments, we can be sure of one thing - the accumulation phase for gold is here.
"Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it." This was the answer from Alan Greenspan, former Federal Reserve chairman, when he was asked if gold is currently a good investment when he spoke recently at the Council of Foreign Relations.
Greenspan's comments on gold no doubt stunned many in the investment community - chairmen of the most powerful central bank in the world were least expected to be pro-gold. They were usually of the Keynesian school of thought believing that the decisions of a few central bankers to intervene in markets would cure the ailments of the economy. After all, the previous Federal Reserve chairman, Ben Bernanke, relegated the reason why central banks hold gold to just a "tradition".
At the New Orleans Investment Conference held in October, Greenspan said that he expected the price of gold to be measurably higher in 5 years. When asked about the Fed's quantitative easing (QE) program, he said, "The Fed’s balance sheet is a pile of tinder, but it hasn’t been lit … inflation will eventually have to rise.”
For those who understands that gold is money, Greenspan's comments were not new. The price of gold will rise simply because fiat currencies will continue to lose value just as they have been losing value in the past decades due to over issuance. As fiat currencies lose value, an ounce of gold will require more units of the fiat currency to buy.
Finally, Greenspan admitted that "gold is a good place to put money these days given its value as a currency outside of the policies conducted by governments." With the price of gold at 4-year lows and sovereign debt at astronomical levels, the reasons to buy the yellow metal have never been more compelling. Its fundamentals have never been better.
The last two months of September and October has seen an unprecedented surge in the demand for silver. The US Mint, which produces the very popular American Silver Eagle 1 oz coin, has cranked out a little shy of 10 million Silver Eagle coins during the last 2 months - a huge increase in demand compared to the month of August in which only 2 million Silver Eagle coins were sold. With only seven days gone by in the month of October, the US Mint’s website states that it has already sold 1.2 million coins.
Total sales for the year stands at 39.3 million Silver Eagles. With almost 2 months to go, the US Mint has a good shot at beating lasts years record sales number of about 42.6 million Silver Eagles sold - If their production can keep up with demand, that is.
As late as Wednesday this week the US Mint sent out a statement to its primary dealers across the US saying that it has temporarily sold out of its Silver Eagle coins but that it will continue to produce 2014-dated coins until further notice.
The Royal Canadian mint, which produces the popular Silver Maple Leaf coin, has announced that it will not be taking any additional orders for 2014-dated Silver Maple coins.
The manipulated paper silver price is pushing down the price of real physical silver. The smart money knows this and is moving in to scoop up physical silver while it is still available at these absurdly low prices. However, if the price on the paper market continues to trend downwards while demand remains high, high premiums on silver will likely skyrocket to compensate for record demand in the midst of dwindling supplies. We might be nearing a situation similar to what happened during the financial crisis in 2008, when the price of paper silver collapsed down to USD $9, while American Silver Eagle coins in the U.S commanded a price of USD $17 or more.
None of this can last forever and when the manipulation ends silver will find its true market price at a much higher level than today.
Just when the U.S Federal Reserve had given notice that its third installment of the quantitative easing (QE) program had ended, the Bank of Japan shocked everyone by announcing the largest QE program ever attempted by a central bank.
At its height, the Fed's QE3 amount was around USD 1 trillion a year. Although the nominal amount of the announced Japanese QE amount seemed lower than the QE3 amount at USD 720 billion a year, this QE amount would be equivalent to USD 3 trillion a year if it was applied to a U.S scale GDP! Just as QE3 was larger than QE2 and was hailed as an historic experiment, the Japanese QE dwarfs QE3 in this context. Analysts also described the move as a 'laboratory experiment' by the central bank to jumpstart the Japanese economy.
Some analysts also pointed out that at this rate, the Japanese central bank will be buying all new bonds issued by the government. This allows the Japanese government to have the funds to spend all it wants without increasing the ratio of privately-held bonds to GDP. Just like the American QE, no one is asking where the money to buy the bonds will come from! (It will be created out of thin air of course.) No one is asking how will this impact the already massive debt of the country.
It is no doubt that QE programs only benefit the debtors as it makes their debt manageable. With the yen at 7-year lows, the biggest losers are those who save in the Japanese currency. With their purchasing power curbed by the introduction of the 8 percent sales tax in April, savers in the yen now see their purchasing power further decimated. This latest episode of currency war is another reminder that fiat currencies are doomed to lose purchasing power over time.
Gold prices finally joined silver prices in hitting 4-year lows last week when it hit as low as USD 1,161 an ounce. For those who understand the value of gold, it was Christmas came early - a bargain sale of the yellow metal that has been money for thousands of years. Hmm... a money sale. What a thought!
Weakness in gold prices in October was driven mostly by flawed sentiments that the U.S economy was recovering well and that the Federal Reserve's money printing program of quantitative easing (QE) was no longer needed. While it was true that QE3 ended, so was QE2 and QE1. All the QE programs ended and restarted several months later.
Therefore, it is without doubt to me that the QE program will resurface somewhere down the road again. The reason they will give to restart QE will likely be that the U.S central bank's inflation target is stubbornly not met and that they need QE to fight the danger of deflation.
The hammer that took gold prices below the December 2013 low of about USD 1,180 last week was the 'surprise' announcement that the Bank of Japan would increase their own QE program. Bank of Japan (BOJ) governor Haruhiko Kuroda said that the Japanese central bank would increase the monetary base by 80 trillion yen (US$723.4 billion) per year.
And what was the reason given for such a move? Kuroda said that it was now "a critical moment for Japan to emerge from deflation." No surprises there. Deflation was blamed and further devaluation of the yen was needed. Such a move certainly did not benefit holders of the yen as the dollar surged to a 6-year high of 110.68 yen. With the U.S, eurozone and Japan taking turns to devalue their currencies, it should be obvious to all that paper currencies are doomed to continue losing purchasing power in the years to come.
China is slowly but surely overtaking the US as the world’s economic superpower. The fact is that China overtook the US as the world’s largest economy already in the beginning of October according to the IMF. Their method of calculating adjusts for purchasing power parity with the simple logic that prices aren’t the same in each country. The IMF has simply adjusted GDP to take actual purchasing power into account.
As a superpower, you need to have financial muscle as well as access to, and control over, key resources. Except for money, oil is without a doubt the lifeblood of any modern economy and this will likely be the case for the foreseeable future.
To be able to show financial muscle in a superpower showdown China has been accumulating the ancient monetary resource of gold in a heavy way. Gold is the perfect debt free asset to hold in order to be able to offset the US treasury bonds of which China holds about US $1.3 trillion.
China’s official gold holdings are at slightly over 1000 metric tones but there are many indications that China has been buying in stealth and likely has 3000 tones or more in reserves. The correction in gold prices after the 2012 peak has spurred buying and both the Chinese government as well as the public are buying heavily. Retail demand was at almost 2200 metric tones during 2013 and, so far, more than 1500 metric tones during 2014.
The recent slump in oil prices has triggered China National United Oil Co. to start buying large quantities of the black gold. The unit of the countries biggest energy company recently bought several cargoes of Middle east crude oil through a Singaporean pricing platform. A total of 40 cargoes equal to 21 million barrels of oil was bought by the company known as Chinaoil.
The exact strategy of the Chinese energy companies are unknown but it might be a part of a broader Chinese government strategy to top up Chinas strategic oil reserves while prices are down.
According to Chinas largest oil refinery, China Petrochemical Corp, the country aims to build a strategic reserve that equates to 100 days of domestic consumption before the year 2020.
Gold is a good way to hedge increasing energy prices. The fact is that after the recent slump in gold prices, oil costs no more than it did back in the late 1950s. Back then, an ounce of gold would buy you around 12 barrels of oil. Today, more than 50 years later, an ounce of gold will still buy you about 12 barrels of oil.
This is what gold represents. A world wide accepted currency free from inflation. No wonder the Chinese government is buying hoards of it.
It is now easier for companies in Singapore to do business with their Chinese counterparts as China and Singapore agreed to launch direct trading between the currencies of both countries. The agreement will commence from October 28th and will see the Singapore dollar added to the China Foreign Exchange Trade System (CFETS) which already allows transactions between the yuan and 10 foreign currencies.
It was notable that the Channel News Asia reported that "previously, companies that wanted to convert a large amount of Sing dollars to renminbi (RMB) or vice versa had to do so via an intermediate currency such as the US dollar." In this report, the Singapore central bank also said in a news release that the direct trading agreement "will lower foreign exchange transaction costs and encourage greater use of the two currencies in cross-border trade and investments".
What was clear from the above was that there is less incentive to use the U.S dollar now even though it still holds the mantle of the world reserve currency. Although the main reason cited was that of reducing the cost of doing business, the fact is that it is more worrying and troublesome to use the U.S dollar now. Worrying because of the money printing activities of the U.S Federal Reserve and the enormous debt that the nation has accumulated. Troublesome to use because using the U.S dollar can allow the American government to strong-arm companies into complying with their cross-border regulations.
The reality is that the U.S dollar is being bypassed. This phenomenon has been growing for several years now as China inks more and more direct currency trading agreements with other countries. The use of the renminbi in international trade and finance will only continue to rise as the world realises that the reminbi has better fundamentals than the U.S dollar - it is issued by a creditor nation that has also accumulated record amounts of gold year after year.
In less than 6 weeks on November 30th, Swiss citizens will vote on a federal referendum that will force its central bank, the Swiss National Bank (SNB), to hold more gold in its reserves. This referendum was the result of the "Save Our Swiss Gold" campaign which achieved the required 100,000 supporting signatures that opened the way for a request of a partial revision of the Federal Constitution.
If Swiss citizens vote in favour of the campaign, it will require the SNB to hold the nation's gold in Switzerland and prevents the central bank from selling the nation's gold reserves. The SNB will also be required to hold 20% of its assets in gold. This would mean that the SNB could be forced to buy an estimated $60 billion of gold at current spot prices. That would translate to about 1,650 tonnes of gold added to current reserves.
In a recent first opinion poll by 20 Minuten, Switzerland’s biggest daily newspaper, 45% of the 13,000 respondents said that they would vote in favour of the SNB to increase and hold on to the country's gold reserves. Another 16% indicated that it was a 'probable yes' albeit not a firm 'yes'. Although it is way too early to declare victory for the "yes" side, the results of this first poll is heartening to see a majority who see the importance for the nation to hold sufficient physical gold.
Should the "yes" side win the in the outcome of the referendum, the Swiss government would have to write the proposal into law. The SNB would have up to five years to increase its gold holdings to 20% of its assets. Analysts believe that this would have a significant positive impact on the price of gold. It could also re-introduce widespread discussions of a gold standard since the Swiss franc would be backed by gold more than any existing fiat currency.
Although silver is one of the most useful metals known to man, being used in everything from solar panels to superconductors, the price is down significantly since its 2011 highs. However, the fundamentals for the metal have never been better and the prospects for a significant revaluation is almost a given.
During last year we saw a world wide physical silver demand increase of 13%. Much of this increase was driven by a 76% increase in retail investment demand in bars and coins. Also, jewelry and silverware fabrication had a significant recovery
In the Silver Institutes yearly report for 2013 we can see that there was a deficit which was the largest since 2008. Total demand was 1,081.1 million ounces while supply stood at only 978,1 million ounces leaving the world with a supply deficit of 103.3 million ounces.
Demand for two of the most popular silver investment coins in the world, the American Silver Eagle and the Canadian Silver Maple, broke all records. During 2013 the US Mint sold more than 42.5 million ounces of Silver Eagles while the Royal Canadian Mint sold 28,2 million ounces of silver Maples.
The sale of Silver Eagles during 2014 has picked up steam significantly. This years October month has shown the strongest sales numbers of any October month, ever. And there’s 8 days to go. Total sale of Silver Eagles so far this year stands at 36 million ounces. With more than 2 months to go, it looks like the US Mint has a good chance to outperform the sales numbers of 2014.
In the light of all this it should be obvious that silver is extremely undervalued and, according to many, manipulated thru the over issuance of paper claims on physical silver bullion. Of course, price manipulation can not go on forever. If it does we will sooner of later have serious silver shortages. The major silver miners are also suffering from low prices while battling increasing energy prices and falling ore yields. First Majestic just reported that they will suspend sales of 35% of their production due to low prices.
All in all this paints a bright picture for anyone smart enough to scoop up silver while the bargain prices last and while supply is still here.
Australia's Perth Mint reported that the mint's gold sales in September climbed an incredible 89 percent. It was the highest since October 2013 amidst a backdrop of declining gold prices. Sales of gold coins and minted bars rose to 68,781 ounces, almost doubling the 36,369 ounces sold in August, according to data released by the mint.
It was a similar story across the Pacific as the U.S Mint reported the highest gold coins sales so far in 2014. A total of 58,000 ounces of the American Eagle gold coins were sold - more than double the sales in August.
At BullionStar, we are also seeing delays in the delivery of bullion from different refineries and mints. For example, the Royal Canadian Mint is experiencing such high demand that orders for their highly popular silver maple coins now take up to one month to deliver. Even the mint's 100oz silver bars were not spared from delivery delays.
The above is proof that gold and silver shortages are appearing even though the mints are running at full capacity. It points to smart money around the world buying into physical gold and silver at a time when prices have substantially corrected downwards since their highs in 2011. It is a testament of the adage that we buy an asset when its price is down.
The high demand that we see now shows that many informed investors are calling the central banks' bluff that depressed economies in the U.S, Europe and Japan can be solved by the excessive printing of money and the artificially suppressing interest rates. The fall in gold and silver prices are godsend to them. It is Christmas came early - a sale at bargain prices.
We are reportedly seeing a deflationary pressure around the world as consumer prices are falling and commodity prices like oil and copper are down significantly.
So where is all the inflation that is supposedly on the horizon? Well, the multi trillion dollar stimulus programs that centralbanks like the Federal Reserve has been running the last years seemed to have mostly fueled asset prices like stocks and properties.
Looking at the development in major stock indexes during the last 35 years it is clear that Nixon's closing of the gold window ushered in an era of abundant credit. The monetary spigots has essentially been wide open during the last 15 years. Instead of cleaning up after the wild dot-com party of the late 90s and early 2000s, Alan Greenspan, cheered by future Fed chairman Ben Bernanke (at the time member of the Fed’s board of Governors), lowered the interest rates and let the credit fuelled party continue until we all know what happened in 2008.
The exponential rise in the value of the stock market from the mid 90s up until the new millennium has been followed by bubbles forming and popping, one larger than the other. Looking at indexes like the S&P 500, Dow Jones Industrial Average, NASDAQ and the German DAX, it seems clearer and clearer what is about to happen. We are in a stock market bubble that is likely worse than the one of 2007. Only question is: When will it pop?
All of the aforementioned major stock indexes are down somewhere around 3% during the last 5 days and 6-7% during the last 30 days of trading. Europe’s growth engine Germany is also in trouble and its growth prospects has been lowered significantly by the country’s leading economical institute. Germanys major stock index, the DAX, has lost almost 4% during the last days of trading and no less than 11% in 30 days.
At the same time gold has been on an upward trajectory increasing almost 3% during the last 10 days.
Two experts warned as early as 27th of august, in a CNBC interview, that the coming correction could total 60%. One of the experts, David Tice of Tice Capital, recommends one of the oldest ways of protecting your wealth - physical gold! He says that gold at current prices represent an unprecedented opportunity and he is extremely confident that prices will sooner or later reach 3000 USD/troy ounce.
With the markets once again believing that the Federal Reserve will raise interest rates in 2015, it may be good to review the Fed's track record with their meddling of the interest rate lever in the economy. It is this habit of the central banks to intervene in the economy via the setting of interest rates that has caused exuberant booms and spectacular busts over the years.
The dot-com bubble of 2000 burst when the Federal Reserve increased interest rates six times between 1999 and early 2000. This increased the cost of borrowing for many dot-coms that had burnt through their capital as they did not have viable revenue-generating plans. Bankruptcy was inevitable and the stock market skydived as investors became sellers.
With an economy in deflation and the stock market in full-blown collapse, the Federal Reserve began slashing interest rates in January 2001. Even when the Fed cut interest rates from over 6% in 2001 to under 2% in 2002, the stock market kept falling as the emotion of fear had gripped investors. The NASDAQ fell from 5,000 in 2000 to 800 in 2002.
It was a matter of time before the investors realise that sub-two percent interest rate between 2003 and 2004 were the lowest in decades. With the cost of borrowing so low, it fueled the beginnings of another bubble - the sub-prime mortgage bubble. Financial institutions over-extended themselves by offering loans to investors and borrowers considered sub-prime as the craze of buying property swept across the nation.
Realising that another bubble was blown, the Fed gradually raised interest rates from 1 percent to 5 percent between 2004 and 2006. With the cost of borrowing up again, those who had over-extended themselves once again faced debts that they could not pay. The same story of bankruptcy and liquidation as with the dot-com bubble ensued. The Fed responded with billions-dollar bailouts and interest rates were cut to zero to fight the deflation.
Six years on, the stock markets have reached record highs and the Fed is now considering rate hikes. How do you think this round of rate hikes will play out?
A recent trip to the Myanmese city of Yangon saw me visiting the much revered Shwedagon Pagoda. Believed to be 2,600 years old, this pagoda has a 99 meter tall golden stupa that could be seen across the city. The golden surface of the stupa is real gold. The local guides estimate that an astounding 9 to 60 tons of gold cover the stupa.
The crown of the stupa is adorned with more gold jewellery, diamonds and rubies. At the very top of the crown rests a 76 carat diamond. Yes, all these precious metals and stones just hang at the top of the pagoda!
After visiting Yangon, I headed northward to the Shan state to witness the Phaung Daw Oo pagoda festival. In this annual 18-day pagoda festival, four Buddha images leave the Phaung Daw Oo pagoda and is transported on barges to villages around the scenic Inle Lake for devotees to pay their respect.
These images are wooden sculptures of Buddha. However, their wooden forms are no longer recognisable after years of devotees applying gold leaves on them. All details of the wooden sculptures are gone - each has become a solid mass of gold.
The value of gold esteemed by the Myanmese as well as other cultures around the world is undeniable. Despite fiat currencies being in existence for hundreds of years, they were not selected to adorn religious structures and symbols. It is gold, universally prized for its scarcity and beauty, that has always been deemed fit to be lavished on things considered divine.
Two weeks ago we touched upon the highly current subject of India's unquenchable thirst for gold and the Indian governments attempts to curb the influx of the yellow metal. Market demand will no doubt be high during the Hindu Dussehra festival and the upcoming wedding season. Smugglers stand ready to cater for this demand which would otherwise have outstripped supply due to the tariffs and import restrictions put in place by the Indian government.
While smugglers seem to be using both the air and land route to smuggle the precious metal across the border, the latter alternative seem to have gained popularity amongst the contrabanders.
It has also proven to be the case that the ancient system for informal transfer of money known by many has “hawalla” has played an intricate part in gold smuggling in India. The system was described by Business Today India as early as last fall as the “lifeline for gold smuggling into India”. In Dubai as well as many other places, the hawala brokers has diversified their operations into facilitating smuggling of the yellow metal into India. The demand for the almighty U.S dollar is namely high amongst the gold smugglers and the recent hike in premiums for dollar transactions in the hawala transfer system is seen as a sign that smuggling is on the rise.
Rising inflows of gold into India thru smuggling is probably to be expected around the Hindu light festival known as Diwali. This is also when the Indian wedding season occurs and gold adorning brides will command tones of gold being consumed, something that both gold smugglers and hawala brokers stand ready to cater for.
Once heralded as a financial wizard in Washington, former Federal Reserve Chairman Alan Greenspan was blamed for contributing to the cause of the 2008 financial crisis. He had ushered low interest rates in the early 2000s and was adamant that financial firms could regulate themselves. Although the sub-prime mortgage bubble popped on his successor's watch, Greenspan was blamed for fueling excessive lending by the banks to sub-prime borrowers with his low interest rate policy.
The embattled former central banker is now singing the praises of gold in his recent essay on gold reserves in the Foreign Policy journal. In the essay, he wrote, "gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or direct claims to gold are offered in payment of an obligation; it was the only form of payment, for example, that exporters to Germany would accept as World War II was drawing to a close. Today, the acceptance of fiat money -- currency not backed by an asset of intrinsic value -- rests on the credit guarantee of sovereign nations endowed with effective taxing power, a guarantee that in crisis conditions has not always matched the universal acceptability of gold."
In one paragraph, Greenspan had summarised the virtues of gold versus fiat currencies. These are also the reasons why central banks continue to hold gold - there is no counter-party risks to gold and gold is unmatched in terms of universal acceptability. This makes gold safe and liquid.
So when is the best time to hold gold? If the acceptance of fiat money rests on the credit guarantee of sovereign nations, then the best time to hold gold is when there is a high chance that nations can no longer guarantee the purchasing power of their currencies. This is exactly what is happening in the world today! All the major economies from the U.S, euro zone and Japan are mired in record levels of debt that their only way out is to print money if they do not choose the way of a default. Now is the time to hold gold, not paper.
Today’s banking and financial system is by many hailed as highly modern, efficient and supreme to any other in history. Large funds can be transferred from one country to another, often within a few days. But the fact is that there are older, ancient systems, that has been used to transfer funds from one person to another for over a thousand years. Theses systems offer transfers that are more or less instant and that can be executed thru nothing more than a phone call, a text message or a simple email. The system is popularly know as “Hawala” and has been around since at least 700 AD, when it was first mentioned in writings.
The hawala system is an informal and heavily culturally ingrained phenomenon, mostly found in cultures in Northern Africa, India and the Middle East. Funds are often transferred thru phone, or perhaps email, from one hawala broker to the next. Both brokers are simply keeping a running tally of all transactions, allowing them to keep track of what one broker owes the other, only to settle or “clear” these debts at a later date.
The system is built on honour, trust and not seldom long running family traditions, sometimes dating hundreds of years back. This gives the system the unique feature that no promissory notes need to change hands since it is based on the honour system.
Since the system is very tied to certain cultures in certain parts of the world it is quite difficult, if not impossible, for a westerner to access and use the system. To bad perhaps, since the hawala system does in many cases offer faster service and lower prices than what the modern westernized banking system does.
It would seem that modern is not always equal to supreme. This holds true in our fiat banking system not only when it comes to efficiency, but also when it comes to the properties of the money circulating within it. Todays fiat money, that are issued thru government central banks, as well as commercial banks when they issue loans, does not fulfill all the properties of money. History shows that all fiat money gradually lose their value until they are more or less worthless. Compare this to gold and silver that has been used as money for thousands of years.
Todays fiat financial system will not reign supreme forever and when it falls gold and silver will likely be revalued at a much higher price.
I can hardly remember the last time I had paid for something using the Singapore 1 cent coin. Released as part of the second series Singapore currency in 1987, the 1 cent coin was made from copper-plated zinc. According to the Monetary Authority of Singapore (MAS), the central bank has stopped the issue of the 1 cent coin since April 2002. These coins once returned by the public were no longer reissued into circulation. It looks like any remaining 1 cent coins one may have will become a rarer sight over time.
The next smallest denomination coin, the 5 cent coin, seems to be heading to the same fate as the 1 cent coin. A Channel News Asia article in August 2014 reported that some retailers are refusing to accept the 5 cent coin from customers. The reason for their refusal was simple - the value of the coin was too small to be worthwhile for the retailer to count payment in these coins during peak hours or to incur bank charges when depositing these coins.
When the coin was introduced in 1987, the purchasing power of each unit of the Singapore currency was higher then. Prices of goods in the seventies or eighties were much lower than today. The higher purchasing power also cascaded to the 1 cent coin which made it relevant to be circulated in the populace. However, the Singapore currency (like all fiat currencies) gradually lost purchasing power as its supply of money was inflated over time. The coin with smallest face value naturally became the first to become irrelevant.
This trend is not unique to the Singapore currency. Countries such as Canada, Australia, Denmark and India have also stopped the production of their lowest denomination coins. The same phenomenon was also seen in paper banknotes. In Indonesia where nominal amounts in the millions are transacted daily, the Rupiah 1000 note is now hardly seen and used. Many expect the note to be phased out soon.
The gradual irrelevance of the lowest denomination currencies is a natural outcome when the purchasing power of currencies are eroded over time. The main reason for such a trend is the expansion of a currency's money supply. When the supply of currency increases faster than the production of goods and services, more units of the currency will be required to buy the same unit of a good. Each currency unit loses purchasing power until their value becomes so miniscule that their eventual fate is to be phased out.
The expectation of the markets that the U.S Federal Reserve will raise its Fed funds rate in 2015 is certainly running high. With inflationary policies expected in Europe, rising interest rate expectations and the flow of money from the Euro is causing the the U.S dollar to surge in recent weeks.
This led U.S central bank officials to come forth to temper expectations that the economy is not ready for higher rates of interest. Their guide as to when it is best to raise rates seems to be the inflation rate in the coming months. “Right now with inflation running below 2 percent, we really need the economy to run a little hot for at least some period of time to actually push inflation back up to our objective,” William Dudley the head of the New York Fed cautioned last week.
With the Fed's Quantitative Easing (QE) program look set to end in October and the official inflation rate (which excludes cost of fuel and food) still below 2%, it is hard to see how the Fed will find reasons to raise interest rates. However, the possibility of gradual rate increases cannot be discounted since the current rates are already at zero. Moreover, the real rates are negative if adjusted for inflation.
The question is how much of an increase would be effected over what timeframe? Given that U.S interest rate averaged 6% from 1971 to 2014, an annual quarter percentage increase could be touted as an increase but it would not make much of a difference. We would still be in the era of artificially suppressed low interest rates.
On the other hand if interest rates rise substantially, it would be akin to the Federal Reserve slamming the brakes on the economy. With government, corporate and individual debt levels at record highs, it is hard to see how higher borrowing costs would not tip the economy back into recession. The spectre of Keynesian deflation scenarios will rear its ugly head and it will most likely be met with more QE. It is certainly easy to talk up higher interest rates when the ballooning debt is excluded from the picture.
It’s soon time for the Hindu festive season known by the name of Dussehra or Vijayadashami during which the Indian gold market usually sees a significant surge in demand for gold. Smugglers seem to have been working hard to cater for this demand, smuggling around 50 tonnes of gold into the country during the past 10 days.
According to market sources, unscrupulous jewelers in Mumbai has laid their hands on somewhere around 30% of the smuggled gold while the rest has been distributed to other parts of India.
Smuggling via different air routes, bringing gold from places like Singapore and Thailand, has previously been the most popular way of bringing gold into the country. But after a few spectacular cases, like the one where Calcutta airport customs found 24 kilos of gold on an airplane toilette, or when doctors in Delhi retrieved 12 one ounce gold bars from a mans stomach, the Indian airport customs are keeping their eyes wide open for smugglers trying to import the yellow metal unlawfully. Thanks to the airports tightened security, smuggling via the air route has been restricted and the Mumbai airport customs seized no less than 529 kilos of gold between April and August this year.
But it’s a tad bit more tricky for Indian customs to control the land route, which is why much of the gold smuggling has been shifted from air to road. The route is said to go via Nepal, Bhutan, Bangladesh and Pakistan. Many experts believe that the coming month will see a huge demand from both the Dussehra festive season and the wedding season which begins in the later half of October, something that will increase smuggling via the land route even more.
Many are those within the industry who would like to see both the import duties and the 80:20 scheme lifted. The 80:20 scheme, which came into place in July 2013, means that importers have to export 20% of the gold that is imported into the country.
These schemes were put in place by India's central bank in an effort to narrow India's growing account deficit and protect the rupee. But the Indian people’s thirst for gold, and the smugglers wish to quench their thirst, seem to have been more then what the Indian government had ever expected.
Channel News Asia carried an article last week titled, "Yuan clearing on the rise". In this article, it was reported that "the Chinese yuan (RMB) is increasingly used in international trade and Singapore is the second-largest international offshore centre for yuan trading and investments." The Singapore branch of the Industrial and Commercial Bank of China (ICBC Singapore) reported that it cleared 21 trillion yuan worth of trade and financial transactions in the first 8 months of 2014 alone.
A quick search on the Internet with the keyword 'yuan clearing' also yielded a slew of articles reporting on the onset of yuan clearing activities around the world - all happening in this month, September 2014. On 15 September, it was reported that Paris is now an offshore renminbi (RMB) center after the People's Bank of China (PBOC) signed an MOU with the French central bank which authorised the Bank of China (BOC) as a clearing bank for RMB business in the French capital.
On 16 September, a similar MOU was signed between the PBOC and Luxembourg's central bank which saw the ICBC branch in Luxembourg appointed as the clearing bank for RMB business for the European country. Paris and Luxembourg now join London and Frankfurt as European RMB clearing centers. London and Frankfurt had seen payments in yuan more than doubled in the year through July after yuan clearing activities commenced.
At the recently Singapore-held RMB Internationalisation Summit, Singapore's central banker Mr Liong Sing Chiong said that the creation of offshore reminbi centers in Europe "will take the entire RMB internationalisation exercise to a different phase". He believed that this development sends a strong signal to companies to assess how they can tap into the Chinese currency for their investment needs.
China's ambitions for the renminbi on the global stage was summed up by the conference's keynote speaker, Mr Ma Jun who is the People's Bank of China's Chief Economist. He said that in the long term "RMB internationalisation implies a more diversified global reserve currency system".
Silver prices closed at four-year lows last Friday as a mix of expectations of higher interest rates and exuberance in the stock markets saw investors flocking into assets deemed to benefit from the Federal Reserve's tightening of monetary policy. The white metal closed under USD 18 - a level last seen in August 2010.
So what has changed in the debt-laden economy of the issuer of the world reserve currency? Nothing. The U.S debt clock continues to tick higher every second, ballooning the conservative estimate of $17 trillion debt that the U.S is still on the hook for. With unfunded liabilities included, the U.S is still in debt to the tune of more than $70 trillion - a number close to the total global GDP.
Despite the unchanged fundamentals, demand for the U.S dollar surged pushing the dollar index to a 14-month high. This is the same currency which had its money supply inflated by about 7 percent since January 2014. It is now shy of hitting $4 trillion. Despite slowing the pace of its Quantitative Easing program, the Federal Reserve has over-extended itself as it is now having a leverage ratio of 78:1. So while on the surface the U.S dollar is gaining strength, the disastrous prospects for the dollar remains unchanged.
Precious metals like silver continue to be traded lower based on expectations of the moves of the central bank in the near future. The aberration that a vastly inflated dollar can now buy more ounces of silver continues to occur. Sentiments on precious metals are also very negative and some measure of fear is also seeping into the psyche of precious metals stackers. In such an environment, it is no doubt to be that silver is now at bargain levels.
Sometimes when we look back at long term charts of gold and silver prices, we wished that we had bought bullion at the lows of charts. An example was the low in prices in October 2008 during the onset of the financial crisis. However, we forget that negative sentiment and fear were prevalent then. Those who bought at that time overcame the fear and kept their eyes on the fundamentals. Those who waited witnessed higher prices that climbed out of a bottom that is still far below the prices today.
15th of September marked the 6th anniversary of the collapse of investment bank Lehman Brothers. It was a day that shook Wall Street to its core and sent shock waves throughout the rest of the financial world. The credit markets froze and debt-laden companies dependent on credit to refinance their crushing debt suddenly faced the prospect of shutdown.
It was certainly a dark day that plunged developed economies like that of the United States and the euro zone into a recession that is on-going till today. It was a day that ought to have conveyed the lesson that years of gorging on debt and over-leverage would lead to a day of reckoning someday.
So has the financial world learnt its lesson six years on?
Apparently not as the following statistics will show.
At the height of the 2008 crisis, the U.S Federal Reserve rode to the rescue of the banks and financial institutions that were failing. At that time, the Federal Reserve had $924 billion in assets and only $40 billion of equity. Six years after the crisis, the Federal Reserve has a whopping $4.4 trillion on its balance sheet with only $56 billion of equity. This represents a leverage ratio of 78:1. At the time when Lehman Brothers collapsed, the investment bank was leveraged 21:1. Clearly, the rescuer is now facing a high risk of insolvency.
At the time of the crisis, the U.S money supply stood at about $800 billion. Today it has more than quadrupled to $4 trillion.The U.S debt-to-GDP ratio has also risen from 64.8% in 2008 to 101.5% today. The combined debt owed by the U.S as a nation rose $6 trillion from the 'conservative' estimate of $53 trillion in 2008 to over $59 trillion today. The U.S debt ceiling continues to be raised. The 2008 labor force participation rate was 66% compared with the current rate of 62.8% - the lowest since 1978.
The slew of negative data will continue to surface if one takes the time to compare the situation six years ago and today. It is unmistakable that the debt of the issuer of the world reserve currency continues to climb exponentially. Four rounds of QE have injected the global economy with waves of cheap money that encourages further debt accumulation. Six years after the collapse of Lehman Brothers, the situation has clearly not improved but has worsened.
The Shanghai Gold Exchange (SGE) will launch its international board for gold trading in the city's free-trade zone (FTZ) on 29 September 2014. When trading begins on this date, investors will be able to trade 11 bullion contracts on the SGE - 8 existing contracts and 3 new contracts.
The new physical bullion spot contracts will allow investors registered with the FTZ to take delivery of gold weighing 100 grams, 1 kilogram and 12.5 kilograms to and from vaults in the FTZ. This latest move aims to attract foreign investors with hedging needs such as LBMA-accredited banks, big refineries and other companies in the gold industry.
The launch of the yuan-denominated board carries at least 2 major objectives - to allow China to have a greater influence on the pricing of gold and boost the use of the yuan in global trade. “The free-trade-zone gold trading will boost use of the yuan currency..., and help pave the way for the yuan to be a global currency,” said Xu Luode, the chairman of the SGE.
China's ambition is undoubtedly to develop Shanghai into the world's biggest physical gold market. This is unsurprising since China overtook India last year to become the largest producer and consumer of the yellow metal. Gaining pricing power of gold in the East is a logical step since Asia accounted for 63 percent of gold consumption in the form of jewellery, coins and bars.
The Chinese bourse will also introduce contracts for other precious metals such as silver and platinum in the near future. For a country that is accumulating records amount of physical gold, China is taking major steps to muscle its way into the the pricing of gold which has so far been determined by western exchanges in London and New York. It is also elevating the status of the yuan as a potential reserve currency by making it a currency that is more liquid and convertible in international trade.
The big news last week besides the dismal U.S jobs report was the European Central Bank (ECB) announcing further interest rates cuts and introducing stimulus to combat low inflation in the eurozone. The ECB's assessment of the economy was that inflation continued to be stubbornly stuck at 0.3 percent annually, far short of the central bank's 2 percent target inflation. There was also no growth amongst the 18-member eurozone countries in the second quarter.
The central bank's solution was to inject more credit into the economy with the hope of spurring economic activity through lending. The main lending rate was lowered by 0.10 percentage point to 0.05% while the rate for deposits went deeper into negative territory reaching -0.2 percent. It is definitely a terrible time for European savers - now they pay even more to save money with a bank.
A Wall Street Journal article had this to say about the result of the already low interest rates, "Low interest rates have reduced the rates bank depositors earn on savings, but on the other hand have helped fuel a housing boom in parts of Germany. " Artificial low interest rates will cause booms in the economy that will eventually lead to spectacular busts.
Interest rates are the rental cost of money. With negative interest rates, the rent of money is lower than the rate of inflation. This means that the cost of a loan falls over time as the interest rate does not compensate for the loss in value of the currency. It can be seen as the borrower being paid to borrow. Negative interest rates sends the signal into the market to borrow as much as possible.
The ECB will also inject credit into the economy as it buys asset-backed securities (ABS) from the banks. Examples of ABS include mortgage loans, car loans and corporate credit. If market participants are encouraged to borrow as much as possible, the possibility of sub-prime loans will inevitably appear down the road. Such toxic assets will accumulate on the ECB's balance sheet making it difficult for the central bank to unwind if the economy continue to stagnate.
The ECB's latest stimulus measures continue to affirm the fact that central banks of indebted economies have only one act in their playbook - inject more credit into an already debt-laden environment. In their view, their biased 2% inflation target is never achieved which gives them the leeway to continue to blow the credit bubble.
The U.S Labor Department released a significantly weaker than expected August payrolls report last Friday. A total of 142,000 jobs were created by employers in August - the lowest number of jobs created in a month in 2014. It fell far short of the 225,000 jobs economists expected to be created following a monthly job growth average of 215,000 in the first seven months of the year.
While the official unemployment rate fell from 6.2% in July to 6.1%, the labor force participation rate fell from 62.9% to 62.8% - the lowest since 1978. The number of people not in the labor force also hit a new record of 92,269,000.
When one digs deeper into the August jobs report, more disturbing information surfaces. Of the 142,000 jobs created, slightly under half of these jobs are low-paying jobs in sectors such as leisure, hospitality, education and temp-help. This is consistent with a Wall Street Journal article that revealed that one in three U.S work is a freelancer. In other words, 53 million Americans (or 34% of the workforce) are part-time workers.
The August jobs report gets worse as it also showed that zero manufacturing jobs were added. It is no wonder why the U.S economy is printing perpetual current account deficit month after month. The best-paying jobs, finance and information, only added 4,000 jobs between them.
It is clear that after all the Federal Reserve's policy of monetary stimulus and artificial low interest rates since 2008, the man on the street has not seen any improvement in his quality of life. Instead, the labor force participation rate has deteriorated to levels last seen 36 years ago! Many Americans have either given up looking for work or are only able to find temp jobs. Clearly, the unemployment rate is falling for the wrong reasons.
Investopedia defines 'austerity' as "a state of reduced spending and increased frugality in the financial sector. Austerity measures generally refer to the measures taken by governments to reduce expenditures in an attempt to shrink their growing budget deficits."
The most notable example of austerity measures is that of the PIIGS nations (Portugal, Ireland, Italy, Greece, Spain) in the on-going eurozone crisis since 2009. A myriad of reasons such as mismanagement of finances, over-spending by the government and over-leverage of the country's financial institutions had caused the borrowing costs of these nations to rise. Unable to borrow from the capital markets, some of these countries had resorted to raising taxes and slashing expenditures to service their debts.
Their debt proved unmanageable and the PIIGS nations had to seek help from the European Central Bank (ECB). Billion-dollar bailouts soon followed to keep these heavily indebted nations above water. Being in a monetary union meant that the citizens in the wealthier European nations would be footing the lion's share of the bailout bill.
So what was the result after more than 5 years of bailout money thrown at the PIIGS nations? Did the many rounds of austerity measures reduce the debt levels of the PIIGS nations? The answer is a resounding: No. The debt-to-GDP ratios of all PIIGS nations have marched on higher since 2009. Portugal's debt-to-GDP ratio was 71.7% in 2009. Today it is 129%. Ireland's ratio was 44.5% in 2009. Today it is 123.7%. Italy's ratio was 106.1% five years ago. Today it is 132.6%. Greece's 2009 ratio was 112.9%. Today it is a whopping 175.1%. Finally, Spain's ratio was 40.2% in 2009 but today it is 93.9%.
After all the financial wizardry of the best minds in the ECB and EU, the debtors are even more indebted today. Five years of extending trillion-dollar credit to the debtors have not caused the eurozone to exit the crisis. The biggest bubble yet to pop today is this credit crisis in which the purchasing power of currencies are destroyed through excessive issuance. It is therefore hard to understand how one would not choose to store wealth in assets with intrinsic value such as gold and silver today over inflated currencies.
Last week, the American stock market index Standard & Poor's 500 (S&P) rose to an all-time record high when it finished above the 2,000 mark. This record level was heralded by Wall Street analysts as a 'big barrier' that gave Wall Street a 'psychological lift'. The euphoria was evident as many expected stocks to 'continue to grind higher' as they interpreted the cause of the rise to be due to 'expectations that times are good and are going to get better'.
But what about the rising levels of debt?
When mainstream media reports about economic recovery in the U.S, there is usually no mention of the elephant in the room - the rising debt. This topic is silent simply because none of the policy makers have a solution for it. Earlier this month, we got an update that in the five and a half years that Barack Obama was president, the U.S government debt has increased by more than $7 trillion. This is more debt than was accumulated in the 227 years of the U.S existence from 1776 through 2003. This is a fact.
The stock markets are rising only for one reason - the abundance of cheap money made available by the Federal Reserve's quantitative easing (QE) programs which had suppressed interest rates at historic lows. This causes a disincentive to save and pushes investors into riskier but higher yielding stocks. Traders have also borrowed aggressively on margin to finance stock purchases. Corporations have also taken advantage of the situation by borrowing to refinance debt and buyback stock.
Unfortunately, most of the gains from the rise of the stock markets since 2009 have not benefited main street as real unemployment remains stubbornly high. It is the 1% (and certain policy makers) who have reaped the largest gains. It remains to be seen if the Federal Reserve will completely wind down the QE program and allow higher interest rates. If it does, we may begin to hear the hissing from this equity bubble.
The cost of borrowing on the markets for European governments fell to a record low as investors bet that the European Central Bank (ECB) will inject stimulus into the economy by buying up masses of bonds. The yields for European government bonds fell to record lows as the price paid on the markets for these bonds surged.
Even bond yields for the infamous PIIGS nations have also fallen substantially. The yield for the 10-year Irish government bonds fell to barely 1.8 percent which was way lower than the 5 percent being paid under the country's bailout from its banking crisis since 2008. Spanish 10-year government bonds fell to an euro-era low of 2.37 percent while Portuguese bond yields fell to near-decade low of 3.22 percent.
This substantial fall in bond yields makes the borrowing costs of these countries lower. Many of these PIIGS nations are still mired in the on-going eurozone crisis which has dragged on since 2009. Many of the banks in these countries are still under-capitalised and facing debt problems. Portugal's largest listed lender, Banco Espirito Santo SA, collapsed this month and a €4.4 billion bailout was required from the Portugal central bank.
The world's oldest surviving bank, Monte dei Paschi di Siena, which was bailout by the Italian state last year reported a bigger than expected second quarter loss this month. It was the bank's ninth consecutive quarterly loss. After trillions of bailout money, nothing much has changed as debt levels continue to rise with no solution in sight to address it.
With the fundamental problems of debt not resolved, investors have make it more tempting for these countries to borrow credit on the market - credit that they probably cannot pay back even with the current levels of interest rates. This is creating false signals in the market as the risks of the borrowers are not correctly priced into the bond yields. It is outrageous that the the investors' willingness to lend is now dependent on their belief that the ECB will be at the other end to buy these bonds from the market and not on the creditworthiness of the borrowers.
While watching the third episode of the latest season of the fantasy drama Game of Thrones, the conversation between a king and his advisor caught my attention. The king, Stannis Baratheon, had suffered a major defeat in a sea battle in his bid to become the king of the realm of Westeros and was trying to gather unto himself more men to launch another war.
His advisor, Davos Seaworth, had floated the idea to hire mercenaries to join the ranks of the king's army. His efforts to convince Stannis to accept his proposal was met with this statement from the king, "We don't have any gold." Davos was stunned and was speechless for a moment. All he could reply was, "Not yet." It was interesting that not having gold could frustrate the leaders of the kingdom and deter them from going to war.
It showed that soldiers had to be paid in honest money before they would put their lives on the line in a war. The blacksmiths and armorers had to be paid in gold to supply weapons and armors. Food had to be purchased with money to feed the army. Before a war could be waged, the various suppliers had to be properly paid first.
The king's reply was rather refreshing since there seems to be little lack of dollars in today's world. Fiat money can always be created out of thin air to fund initiatives of governments... including wars. Without the restraints of gold, countries could always fund their their ballooning defense budgets. The annual defense budget of the U.S is a staggering $600 billion.
With seemingly no lack in fiat money, commodities such as oil could be purchased to allow warships to sail around the world and 'meddle' in the conflicts in other countries. More soldiers could be recruited and paid with fiat money to risk their lives in conflicts of dubious purposes. With the money issue out of the way, it becomes much easier to go to war.
When gold was money, governments had to think twice before going to war. They had to choose with greater care to which area to channel their funds - in the domestic economy to improve the lives of citizens or to meddle in affairs of other countries. Even if participation in a war was necessary, at least the soldiers who risk their lives were compensated with honest money that holds its purchasing power.
The World Gold Council's latest Gold Demand Trends report for Q2 2014 showed that central banks continue to be net buyers of gold. Central banks net purchases totaled 117.8 tons making it the 14th consecutive quarter of net buying. Half-yearly demand from central banks was an average of 236 tons since 2011.
It came at no surprise that emerging market central banks like that of Russian, Kazakhstan and Tajikistan were the biggest purchasers last quarter given the current conflict between Ukraine and Russia. The prospect of war and unrest may devalue a country's currency but gold never loses its shine in such times. This is why gold has always been viewed as a safe haven asset.
As the U.S and Europe levy sanctions on Russia, the Russian central bank is trimming its dollar and euro denominated foreign reserves in exchange for gold. The first half of 2014 has seen Russia reducing its foreign reserves by 2.5 percent, replacing U.S Treasury bonds with gold. It is a good move given that the U.S and Europe are making it a disincentive for Russia to use their currencies with the sanctions.
Gold is money and does not bear the flag of any nation. It is full payment unlike currencies which are created out of debt and are dependent on the issuing government to honour them. Russia's major trading partners like China and India have no qualms accepting gold as payment in trade. By exchanging U.S debt with gold, Russia is increasingly protecting itself from the inherent risks already present in currencies issued by nations currently mired in debt crisis.
This episode is proof of the liquidity of gold. Even when the sanctions of the issuer of the world reserve currency closes doors for Russia, having gold ensures that other doors remain open for the sanctioned nation. The acceptability of gold internationally is undeniable. It is an irony that the sanctions actually improve Russia's financial status by forcing them to sell debt instruments in exchange for real money.
Last Friday was the 43rd anniversary of the U.S closing the gold window, an event now known as the Nixon Shock. On August 15 1971, U.S President Richard Nixon went on television and announced the 'temporary' suspension of the convertibility of the dollar into gold. This meant that foreign governments holding dollars could no longer exchange dollars for gold.
The Nixon Shock was essentially the U.S declaring international bankruptcy by telling the world that they do not have enough gold to back the amount of dollars issued. Foreign trading partners who had sold the U.S physical goods that were manufactured using their time and productivity found themselves holding paper that could not be redeemed for the real money - gold.
Prior to the Nixon Shock, the world was sold the belief that the dollar was as good as gold since it had a link to gold. Foreigners accepted payment in the dollar only because they had confidence that the U.S government would honour its word that the currency could be exchanged for gold. This confidence was betrayed by the government's spendthrift ways which saw them racking up debt as they printed dollars to fund the Vietnam War and the domestic Great Society programs.
Without the restraint that gold brings, the U.S has slipped into perpetual current account deficit since 1971. This means that the U.S enjoys imported goods by paying for them in U.S dollars. While paying foreigner trading partners with dollars, the U.S is also addicted to debasing the dollar. The money supply of the U.S currency has reached a jaw-dropping USD 4 trillion today. The current free-floating currency regime is really a bad deal for all countries exporting real goods to the U.S because the dollars accepted from trade are losing value over time.
The U.S dollar continues to be the world reserve currency... for now. This status does not last forever as history has shown. The Chinese tael, the Greek drachma, the Roman denari, the Dutch guilder and the pound sterling - currencies that were once reserve currencies but now no longer. Fiat currencies have a 100% failure record in history. The only form of money worth saving in has always been gold and silver.
Today we use a monetary system know as the U.S Dollar Standard. The U.S dollar is the world reserve currency and its issuers enjoy the exorbitant privilege of paying just about everything in their own currency. In the international markets, commodities such as oil are transacted mainly in the dollar. It is certain that central bank will have the dollar as a major component in their foreign reserves.
However, what exactly is a 'dollar'? How is it defined?
Thomas Jefferson said in 1784: "If we determine that a dollar shall be our unit, we must then say with precision what a dollar is." In 1972, the dollar was defined as 3714/16 grains of silver. And so it was that from 1792 until August 15 1971, the dollar was always defined as a precise weight of either silver or gold.
The dollar was defined in silver or gold because both metals had always been money for centuries. They were money not because any entity decreed that they were money. They were money because they fulfilled the characteristics of money and were selected by people to be used as an efficient way to trade. Gold and silver held their value very well which gave people the confidence to save in them when they defer consumption to the future.
However, with the U.S dollar no longer having any links to gold since 1971, the dollar can no longer be defined. Some might say, "The dollar is the U.S dollar note that we keep in our wallets." That is incorrect as the U.S dollar note is actually a Federal Reserve Note denominated in dollars. It is like a bank note that promises payment in a certain amount of dollars. Once again, we are no closer to defining what a 'dollar' really is.
Without an anchor to gold, the Federal Reserve Note has been grossly over-issued. The result is price inflation in goods and services around us as other countries debase their currencies to maintain a competitive exchange rate. All measures of debt be it government or corporate debt are at astronomical levels making repayment remotely possible only by rolling the debt and keepting interest rates low.
Wealth cannot be stored in something that cannot have its value defined. It is a fact that the U.S dollar and all other currencies that derive their value from it are losing purchasing power. This is why there is little incentive to keep savings in banks today. Remember that gold and silver have always been money for centuries and they are still money today. They represent the best way to store wealth at a time of currency crisis and economic stagnation.
Hong Kong's central bank was reported to have bought more than USD 9.5 billion since July 1 to prevent the Hong Kong dollar (HKD) from rallying. This demand for the HKD was believed to be from an influx of Russian cash determined to get away from the U.S dollar.
It came as no surprise given the U.S and EU trade sanctions leveled on Russia since March 2014. The Western sanctions aim to prevent Russian companies from accessing U.S and European debt markets. Given that the U.S dollar is the world reserve currency dominating international trade, these sanctions will have a major impact on Russian companies in the areas of revenue and borrowing costs.
This will no doubt cause many countries to rethink their reliance on the U.S dollar for international trade since it gives the U.S substantial influence over their economies.
The past few months have also shown another example of the 'baggage' that comes with the use of the U.S dollar. In June, French bank BNP Paribas SA was slapped with a record USD 9 billion fine because of its transactions with countries not approved by the U.S. Desperate not to escalate further sanctions that may exclude the bank from the U.S dollar clearing market, the bank promptly paid the fine. It led to the bank posting a net quarterly loss of EUR 4.3 billion for the first time since 2008.
The influence the U.S wields with the use of its dollar is increasingly becoming a baggage to other countries. If the use of dollar comes with the prospect of penalties for non-U.S approved activities, then countries will look for alternative currencies to trade in. A rising alternative is the Chinese Renminbi with which China has established currency swaps with numerous trading partners including Russia. This has undoubtedly undermined the dominance of the dollar.
The dollar's share of global reserves has declined to under 61% from more than 72% in 2001. De-dollarisation is a trend that will only accelerate every time the U.S flexes its muscles across borders with actions other countries deem as an infringement of their sovereignty.
In my last editorial, we looked at one instance of gold price suppression that occured in the 1860s. The U.S Secretary of the Treasury Salmon Chase initiated a campaign to suppress the price of gold in his attempts to defend the value of the United States Notes (a.k.a greenbacks). As we saw, the need to intervene in the price of gold began with the government going into debt and had issued greenbacks to pay their creditors.
In this editorial, we will look at another instance of gold price suppression. This instance occurred in the 1960s with the formation of the London Gold Pool which saw the pooling of gold reserves by eight central banks. The aim was to defend the fixed gold price of USD 35 per troy ounce.
This was essential since the monetary system at that time, the Bretton Woods System, saw world currencies having fixed exchange rates to the U.S dollar which was in turn convertible into gold. Through the London Gold Pool, the eight central banks could prevent the USD 35/oz gold price from rising by selling gold on world markets. Unfortunately, this was successful only as long as global inflation fears receded.
By the late 1960s, the world began to be aware of massive dollar inflation due to U.S government's Great Society programs and the Americans' involvement in the Vietnam War. This caused the U.S trade deficit to widen and it sent more dollars overseas to fund the country's consumption.
Foreigners holding dollars began to realise the possibility that the U.S may not have sufficient gold to back the wildly issued currency. This uncertainty and Britain's devaluation of the pond sterling in November 1967 ignited a run into gold. The next four months saw the central banks selling tons of gold into the market to suppress the gold price. Finally, in March 1968 the London Gold Pool collapsed as the central banks threw in the towel and gave up suppressing the market's wishes.
In this instance of gold price suppression, the root cause was once again governments going into debt. The central banks' defense of the USD 35/oz gold price was essentially to defend the value of the dollar. It was an attempt to convince the rest of the world that the U.S dollar was sound even though it was massively inflated. Observe the similarities with what we are experiencing in the global economy today.
Whenever alternative news websites mention the topic of gold price suppression, it is inevitable that many find it hard to believe or relegate such discussions to that of conspiracy theories. We wonder if there is a super secret and shadowy entity that is manipulating the price of gold.
Fortunately, we do not have to delve into such contentious speculation since history itself had provided us with one instance where persons in authority acted intentionally to suppress the price of gold. This instance of gold price suppression arose following the American Civil War. As with other wars, federal expenditures had skyrocketed to fund the war. It increased from $66 million in 1861 to $1.30 billion four years later.
United States Notes (a.k.a "greenbacks), the precursor of the U.S dollar, were made legal tender by the U.S government and $150 million of new notes were printed to pay for war deficits. Although the government resolved that this issue of greenback would be the first and last emergency issue, they succumbed to more money printing since it was the easy way to deal with growing deficits. By 1864, greenback outstanding had reached $415.1 million.
This over-issuance of paper money drove its value down as people clamoured for the true store of value - gold. The U.S Secretary of the Treasury Salmon Chase then attempted to defend the value of the greenbacks by initiating a determined campaign to suppress the price of gold against the greenbacks.
In 1863, a stamp tax on gold sales was levied. When this measure did not stop the devaluation of the greenbacks, Chase sold a massive amount of $11 million in gold in an attempt to drive down the gold premium on greenbacks. When this measure failed, Chase intervened in foreign exchange market in London in order influence the U.S export demand for gold in England. This too resulted in failure.
Finally by 1864, Chase prohibited all futures contracts in gold as well as all sales of gold by a broker outside of his office. This severe measure only created chaos as it disrupted an otherwise organised market. Businessmen were adamant for the repeal of Chase's policies and it eventually led to his ouster from office.
We can see that the need to suppress the price of gold began when the U.S government went into debt. Their need to ensure that paper money could be used to pay their debts required the value of the greenback to be defended. When people chose gold instead of paper money, the price of gold became the target for manipulation. It is easy to notice the similarities today where the U.S government is again in debt and has furiously issued U.S dollars to fund its deficits.
Debt - a four-letter word that many dictionaries define as 'something that is owed' or 'an obligation to pay'. It is well understood by individuals that if they continuously spend more than their income, their debt if unpaid will eventually lead to their bankruptcy.
Unfortunately, in the current economic environment where central banks are constantly spewing out cheap money, the consequences of ballooning debt is ignored as companies and countries become addicted to borrow more than they can pay back. Today, debt plagues every economic crisis that is erupting around the world.
The most recent data from the Bank of Italy revealed that Italy owes at least USD 100 billion to private suppliers. Prime Minister Matteo Renzi had promised in March 2014 to pay all arrears owed to private companies by July. The target payment date is now pushed to the end of this year.
In South America, 13 years after what was the biggest sovereign default ever by Argentina, the country is close to repeating history again. Argentina has one of the lowest foreign currency reserves in the region - USD 29.7 billion. The reserves are insufficient pay holders of Argentina's previously defaulted bonds who have taken the country to court, demanding payment for the full value of the bonds.
In Asia, Japan's national debt hit a record high this year when it reached ¥1.02 quadrillion. Gross government borrowings was estimated by the finance ministry to be equivalent to 24 years of tax receipts.
China's total bank debt was reported to have skyrocketed from USD 14 trillion in 2008 to USD 25 trillion this year. Chinese companies had borrowed heavily to build buildings that are unoccupied and infrastructure that supported insufficient economic activity.
The obvious trend today is that debt levels around the world are increasing rapidly. When the mainstream media reports about economic recovery, there is often no mention of how the mountains of debt will be dealt with. The truth is that there is no recovery for companies and countries chained to high levels of debt unless the debt they owe is defaulted upon or magically written off.
Following my last editorial on the gold industry discovering fewer gold deposits and facing longer production times, 2013 data from the top 5 gold miners show that their collective yields have declined a further 5%. Those familiar with the gold mining industry will have no problems identifying the top 5 gold miners - Barrick, Newmont, AngloGold, GoldFields and GoldCorp.
The average yield from these 5 gold miners had declined from 1.26 grams per ton in 2012 to 1.20 grams per ton in 2013. If we look at the data all the way back from 2005, the decline is even more acute. In 2005, the average yield was 1.68 grams per ton. In a mere span of 8 years, the miners' yields had fallen 29%.
It was also noteworthy that 464 million tons of ore was processed in 2005 to produced 25.2 million ounces of gold while 592 million tons of ore was processed in 2013 to produce 22.9 million ounces of gold. So while the miners processed 27.5% more ore today than in 2005, their efforts had yielded 2.6 million ounces less gold.
This damning data shows that it is not only more difficult to find new gold deposits today, it takes longer to bring a mine to production and the yields of new mines are steadily falling. The miners are also reporting higher amounts of waste rock to be removed in the mining process. The more waste rock the miners remove, the greater the need to consume energy. With oil prices stubbornly above USD 100 a barrel, the floor on the costs of mining gold looks to be firm.
At a personal level, it is amazing that a ton (or 1000 kg) of ore yielded only 1.20 grams of gold. Imagine the amount of effort, manpower and resources consumed to extract that little amount of gold. It is for this reason that gold has always been cherished as an asset of value in mankind's history. Its scarcity also makes it an ideal choice to be used as money. Gold cannot be printed to overdrive by the will of man unlike fiat currencies. Store your wealth with confidence in precious metals - not inflated paper money.
SNL Metals & Mining, a leading mining statistical data provider, released its latest report titled Strategies for Gold Reserves Replacement which showed that the gold industry has seen a drastic fall in new gold deposit discoveries and is experiencing increasingly slower production.
Data from this report showed that gold discoveries have not been keeping pace with production. Over the past 24 years, mining companies discovered 1.66 billion ounces of gold in 217 major gold discoveries. However, the industry had produced 1.86 billion ounces of gold over the same period. Major discoveries, defined as deposits with a minimum of 2 million ounces of contained gold, have been on a down trend since the 1990s.
This decline is seen when comparing the discovery of 1.1 billion ounces in 124 deposits in the 1990s to the 605 million ounces discovered in 93 deposits since 2000. It was estimated that the gold discoveries since 1999 will only replace 50% of the gold produced during the same period.
The time to develop a deposit from discovery to production is also 'increasing significantly'. Between 1985 and 1995, it took an average of 8 years for 27 new mines to bring a deposit from discovery to production. Between 1996 and 2006, the time from discovery to production rose to 11 years for 57 new mines and to 18 years between for 111 new mines between 2006 and 2013.
It did not help that the gold mining industry has always faced political, economic and environmental challenges at mining locations. With gold discoveries dwindling, such challenges will only further exacerbate the delay of gold production. It is likely that the future supply of gold will be even more constricted.
The report is a good reminder that gold cannot be created as quickly as fiat currencies. It takes decades of productive work to put gold bullion in the hands of investors. Take a little more time to appreciate all the hard work the next time you hold your bullion in your hands.
Monday 14 July 2014 marks a big day in the history of BullionStar!
We are moving to our new combined one-stop bullion shop, showroom and vault.
Our new address is:
BullionStar Pte Ltd
45 New Bridge Road
New opening hours:
Monday-Thursday: 11 am to 8 pm
Friday: 11 am to 5 pm
Saturday: 10 am to 2 pm
Closed on Sundays and Public Holidays
With the move, the old office at Marina Bay Financial Center is closed for business.
Walk ins are welcome as the shop is storefront.
Appointments are no longer necessary to view, buy, sell or physically withdraw your bullion.
Thank you for your continued support and see you in the new shop!
Local newspaper, Today, carried an article last Thursday that was to me a most damning summary of the global economy. The article was titled, "ECB says measures will push inflation up, but money-printing still possible." It does not get any clearer than this - central banks around the world are pulling out all the stops to stoke inflation and are more than ready to fire up the printing presses to achieve it.
Somehow, they believe that there is low inflation in the economy. The man on the street sees a different picture altogether. He sees rising prices in food, energy and services. His wages are not rising in tandem with the rising prices and what he saves in the bank earns a paltry rate of interest. In short, his purchasing power is being eroded.
In the Today article, it was also mentioned that the European Central Bank (ECB) is attempting to stoke inflation to reach their target of 2%. If one had followed inflation news around the world, one would realise that this 2% inflation target is also the target of central banks in the U.S, the UK and Japan. The central bankers of the major global economies seem to have agreed on this - it is a good thing for the purchasing power of currencies to fall by 2% every year. This is certainly bad news for all who store their wealth in currencies... and we have not examined the possibility that the real rate of inflation is much higher than 2%!
The article also mentioned that we are witnessing certain 'records' today. The ECB had cut interest rates to 'record lows' and deposit rates have been pushed to negative territory 'for the first time'. It is important to realise that both these measures are inflationary. Both record low interest rates and negative deposit rates are meant to spur bank lending and encourage borrowing. They are meant to release a flood of cheap money into the economy. Borrowers of this cheap money will then compete for more goods and services, pushing up the prices of assets and goods.
Finally, the words 'money printing still possible' in the article's title was truly blatant. Money printing dilutes the purchasing power of each unit of the currency. Those who are first in line to receive freshly printed money benefits the most. They receive a boost in their purchasing power since that money has yet to be spent into the economy to cause prices to rise. Those who benefit the least are the majority who have to wait a month to receive their salary.
The future planned by the central banks is certainly inflationary. Saving in currencies is a losing preposition. Save instead in a hard asset like gold which has been money for thousands of years.
France's leading bank, BNP Paribas, was fined a record $8.9 billion by U.S authorities for helping blacklisted clients to avoid U.S sanctions. The bank was alleged to have helped clients in sanctioned countries such as Sudan, Cuba and Iran process billions of dollar-denominated transactions since 2002. It was noteworthy that these transactions were not illegal under French or European law.
In addition to the record fine, the U.S authorities have slapped the bank with a yearlong ban on handling certain dollar transactions which could hurt its lucrative business lines such as oil and gas transactions. It is truly amazing what powerful influence the world reserve currency status of the U.S dollar is giving the U.S government to impose U.S laws across borders.
This incident with BNP Paribas is already souring bilateral ties between the U.S and the French. It has also sent shockwaves across Europe where other European banks now fear they may be next in the crosshairs of U.S authorities. The governor of the French National Bank Christian Noyer has indicated on Bloomberg that "increased legal risks from the application of U.S. rules to all dollar transactions around the world will encourage a diversification from the dollar".
The overreach of U.S authorities is also "a sign that Europe must wean itself off the dollar." It will prompt the Europeans to find more efficient ways to trade legally with other countries without the fear of being threatened by the U.S. The logical step would be to sidestep the use of the dollar and elevate the Euro in international trade. This will no doubt be welcomed by economic giants like China and Russia who are already bypassing the dollar with their direct currency trade agreements with many trading partners.
Reserve currency status does not last forever. Many reserve currencies of the past have come and gone. The U.S dollar's days of enjoying this exorbitant privilege are numbered. The U.S is deep in debt and has over-printed its currency. It pays trading partners for real goods with dollars conjured out of thin air. By overreaching across borders with its laws, the U.S is only making it a greater disincentive to trade with its currency and accelerating the dollar's demise.
Having left June we can look back upon a strong month for both gold and silver. In USD terms the price of gold rose almost 83 dollars, opening the month at $1244.5 and closing the month at $1327.4. An increase percentage wise of 6.66 percent. Owners of silver faired even better in terms of fiat appreciation, raking in a 12% price increase during June.
Whether it is time to celebrate or not depends on how you choose to view your precious metal holdings. If you buy gold and silver because you believe that the fiat denominated price of any of the two metals will go up, then the price action in June gives you every reason to celebrate. There are however quite a few investors that view gold and silver in a different way. They buy their gold and silver as a form of long term store of value or as an insurance against financial instability and fiat currency depreciation. If you belong to this group that means you’re insurance premium just got higher and most rational consumers prefer a low insurance premium to a high one.
Well despite the latest price action gold is still on a massive sale compared to its September 2011 peak where it touched 1900 USD. Silver is even cheaper having fallen from 48 USD in April 2011 all the way down to 21 USD. The best thing with all of this is that none of the fundamentals have changed. Every reason to buy gold and silver that existed in 2011 still exists today. In fact they are stronger than ever with higher debt world wide levels than ever before paired with incessant fiat money printing by most central banks
Whatever the price in terms of dollars, euros or yen, an ounce of gold will always be an ounce of gold and as such it is the best insurance against the fragility of the fiat monetary system.
Swiss-based Metalor Technologies officially opened its Singapore gold refining plant last week. The company, which specialises in metallurgy and management of precious metals, announced that the implementation of full refining capacity at the plant is now complete.
Located in the Jurong Industrial area in the west of Singapore, the 2,600 square meters plant will be able to refine 2 tonnes of 999.9 kilo bars per week or more than 100 tonnes annually. It offers a full range of services from evaluation of scrap to bullion production.
Metalor Singapore is also an IRAS-approved refiner recognised as a producer of Investment Precious Metals (IPM). It is also in the process of being accredited by the London Bullion Market Association (LBMA). Silver refining at the Singapore plant is expected to commence by the end of the year.
This is certainly a major milestone in Singapore's efforts to solidify its position as a precious metals hub. It marked the first time that gold has been refined in Singapore since 1998. It is certainly a testament of the rising gold demand in Asia - a region that has the two biggest consumers of gold: China and India.
At a time where paper assets are over-leveraged and debt levels continue to rise, precious metals demand is expected to increase as more people realise the need to diversify their wealth into hard assets. What better asset to acquire than precious metals what were used as money for thousands of years?
It was announced last week at the locally held London Bullion Market Association (LBMA) forum that the Singapore Exchange will introduce a wholesale kilobar gold contract from as early as September 2014. The introduction of the contract for 25kg of 99.99 per cent purity gold underscores Singapore's ambition to become a major player in physical bullion trading at a time when global gold demand moves to the east.
It was also reported that Asia's strong demand for gold was the key driver for the introduction of this contract. According to the World Gold Council, Asia accounted for 63 percent of total consumption of gold jewellery, bars and coins last year. It is this trend of gold moving from the West to the East that many analysts believe that Asia should have greater influence in the price discovery of physical gold.
“This is a timely development given the increased requirements for reference prices to be transparent,” Trade and Industry Minister Lim Hng Kiang said in a speech at the LBMA forum. Echoing Mr Lim's statement, SGX President Muthukrishnan Ramaswami said that this latest development "will enable the trading and clearing of the Singapore kilobar gold contract and establish a fully transparent price discovery mechanism for gold in this region". This may signal the beginning of the end of the gold pricing dominance in western exchanges lacking physical gold.
This move by the Singapore government continue to attest to gold's rising prominence in Asia. Singapore had exempted investment grade precious metals from the Goods and Services Tax (GST) in October 2012. This had attracted bullion vaults to be set up in the country. Swiss refiner, Metalor, has also opened its gold refinery in Singapore.
The rising demand for gold only points to the desire of more people wanting to hold their wealth in a hard asset that has good liquidity. It is part of the growing rediscovery that gold is money and it should be in every wealth portfolio.
Germany has a very large gold reserve indeed. At almost 3400 metric tones it is the second largest reserve in the world. But the bulk of Germany’s gold is held abroad in countries like France, Great Britain and the U.S. Germany is a country where hyperinflation is in living memory, and where precious metal saving is commonplace.
Out of this environment, a movement has sprung that wants to repatriate Germanys gold reserve for it to be held at the German central bank, The Bundesbank. The campaign is called ”Repatriate Our Gold” and it was initiated by a man called Peter Boehringer. Thanks in part to this campaign, the German Bundesbank decided to initiate a repatriation with the aim of bringing home as much as 50% of the gold reserve by the end of this decade. The decision was announced in early January 2013 and the repatriation schedule can be viewed on this link.
But the Germans have had a hard time keeping their schedule, especially with the New York Federal Reserve. The initial intention of bringing home 84 tones from the New York vault before the end of 2013 failed and only 5 tones were shipped. The Germans have also been denied a proper audit of their gold and have only been allowed to see a small amount of bullion in an antechamber to the vault at the New York Fed.
On Tuesday the 25th of June Bloomberg published a news story alleging that Germany has now decided to suspend its gold repatriation, saying that the they now believe their gold is safe in American hands. But Peter Boehringer, one of the initiators to the repatriation campaign dismisses the article as a 'non-news' article that, with its incorrect headline, strange interviewees, and 'old news', tries to mislead its readers.
Boehringer, who is quoted in the article, says that some quotes are taken out of context, such as the one where he says: "Right now, our campaign is on hold”. In his comments to the article Boehringer stresses that this statement in no way implies that he and the other campaigners are satisfied. He also says that even if repatriation from NY Fed is far too slow, the plan to repatriate 300 tons of gold from the NY Fed to the German Bundesbank before the end of December 2020 remains intact.
Bloomberg's claim that Germany would have completely stopped the repatriation from the vaults of the New York Fed thus appears to be false.
How would you feel if you heard that your bank is considering to impose a fee whenever depositors withdraw cash amounts greater than $5,000? What if the reason the bank gave for imposing the fee was to prevent a disorderly bank-run? Wouldn't such a piece of news spook you to think that this is the precursor to a bank failure? Wouldn't you want to withdraw some amount of cash before such a fee became a reality?
Well, it was reported last week that the U.S Federal Reserve was considering to impose exit fees if retail investors of bond funds liquidate their positions. What was the reason they gave for imposing exit fees? They believe that such a move would avert a run on the bond market should rising interest rates make bond investors head to the door at the same time.
First of all, shouldn't it be taboo to even put forth a scenario of possible run on the $10 trillion mutual bond market? At a time when counterparty risks from paper financial products have never been higher, a run on any market or bank is highly possible. The Fed's deliberate mention of the possibility of a run on the bond market shows their desire spread the fear of such a scenario to the investment community. If exit fees were ever imposed, it would be a further disincentive for investors to continue to park money in the bond market.
The message in bond investors is clear: Pull out your money before we put gates on the exit.
It is likely that the Fed intends to talk investors to pull money out of the bond market and channel it into the market that the Fed wants - stock funds. As the Fed is steadily exiting from its QE program, they need a new source of funds to prop up the equities markets. Should investors not be moved by the threat of exit fees, it is possible that we will see un-tapering of QE ahead which will be inflationary.
The Fed's consideration of exit fees is also a testament of how free markets have been constricted by central planning. Control of how resources in the financial markets are allocated now requires the use of a dangerous hint of a run on a market to herd participants to another. There has never been a more pressing need to hold one's wealth in a hard asset without counterparty risks like precious metals.
Never before has the American government, its businesses and people been in greater debt than now. According to the latest economic data from the St. Louis Federal Reserve, total U.S debt at the end of the first quarter of 2014 hit a new record high of $59.4 trillion dollars.
This total credit market debt takes into account government borrowings, corporate debt, consumer debt and other private debt such as student loan debt. It does not include unfunded liabilities such as the government's borrowings from the Social Security trust funds, liabilities from entitlement programs or shortfalls in state/municipal pensions. Even without including the liabilities, America is up to their eyeballs in debt.
The exponential increase in debt as seen in the Fed's total credit market debt chart only shows that America's debt situation is spiraling out of control. Even the relatively minor sector for U.S student loans is now having a startling $1.11 trillion in outstanding debt. About $121 billion of these loans are in 90-plus days delinquent or in default. This has an eerie similarity to how the default of sub-prime borrowers on their mortgage loans almost collapsed the U.S financial system in 2008.
It is no wonder that the Obama administration has increased the bailout of the student loan sector under the guise of 'student debt forgiveness'. As with all other bailouts so far, no one is asking who is ultimately footing the bill. If the government is doing the bailout, then it is most likely that the taxpayer is paying for it.
America's debt situation is just a facet of the world's debt problem at the moment where the solution to every debt problem is the issuance of more debt. We are living in the biggest credit bubble in history where easy money encourages all sectors within an economy to borrow excessively. So when will the bubble burst? While no one can predict that with precision, we can be sure that if debt continues to be pumped to astronomical levels, there will be a collapse awaiting in the future.
In such an unsound debt environment, it is no wonder that more people are buying physical precious metals. Buying gold and silver represents full payment. When you buy precious metals, your wealth exits the debt-laden paper markets and you hold the full value of your wealth without counter-party risks.
Bank for International Settlements (BIS) reported in early May that the derivatives market now encompasses a value in the vicinity of 710 trillion U.S. dollars. To get a handle on this almost incomprehensible figure it is recommended to view this video were Chris Martenson embarks on explaining how much a trillion U.S. dollars really are. As a comparison, it can be mentioned that the entire U.S. GDP is around 17 trillion dollars.
So, what is a derivative then? A derivative is a contract between two parties whose value is derived from changes in the value of the underlying asset. The assets can be bonds, stocks, commodities, currencies, or basically anything you can think of. Most derivatives are traded "over the counter" and details about pricing, risk assessment, collateral, are not publicly available.
Many economists now agree that the derivatives market was one of the things that contributed to severe systemic instability, thus helping to trigger the financial crisis in the autumn of 2008. The derivatives market has grown 20% since 2007, meaning that the problems that existed in 2007, and triggered the crisis in 2008, has hardly disappeared.
Derivatives are very complicated forms of financial instruments, making it quite difficult, even for those in the know, to truly comprehend and asses the risks that the various forms of derivatives are exposed to. The more complex a system becomes, the more sensitive it will be for external disturbances.
What will pop the derivatives bubble? Could it be the housing bubble, bond bubble, or the credit bubble that implodes the derivatives market and sucks what's left of the real economy into a black hole? The truth is that all of these bubbles are nurtured inside another super bubble that is just waiting to pop, namely the fiat money bubble. Our paper-based monetary system - without any anchor to reality - has helped to create all the other bubbles.
Precious metals like gold and silver are the antithesis of derivatives and paper promises. These metals have been around since the creation of the universe and they are easy to understand and asses. They are also one of the few ways to protect oneself from the coming negative effects of today's bubble economy.
The average price of gold in the 1960s was about USD 36.90 and the average price of oil then was about USD 2.91 per barrel. Today, the price of gold is about USD 1270 per troy ounce and the price of oil is about USD 105 per barrel.
Based on the 1960s average prices, 1 ounce of gold bought 12 full barrels of oil. 54 years later today, 1 ounce of gold still buys 12 full barrels of oil. It is amazing after decades of upheaval in the nominal price of gold and oil that the purchasing power of gold remains the same. It is also notable that the purchasing power of gold remains the same even when the paper denominated price of gold has been in bear market since 2013.
Let's compare this to the purchasing power of the current world reserve currency - the U.S dollar. In the 1960s, you would only need slightly less than USD 3 to buy a barrel of oil. Today, you need more than 100 units of the same currency to buy the same barrel of oil! There is no doubt that the purchasing power of the U.S dollar has shrunk over time. This is pretty much the same story for all paper currencies today - they continue to be devalued over time. The nominal prices of commodities like oil when priced in these paper currencies only go up over the years.
The main reason why paper currencies are constantly losing purchasing power is over-issuance by governments and central banks. When more units of the paper currency are created out of thin air, the supply of currency increases and they compete for the relatively unchanged pool of goods and services. It is no wonder that prices of goods and services rise over time!
The increase in the supply of currencies is known as inflation. The rise in the prices of goods and services over time is the effect of inflation. It is no wonder that gold is often described as 'a hedge against inflation'. The destruction of the purchasing power of paper currencies is often masked by the highly inflated prices of goods and services. Do not be fooled by paper denominated prices, paper currencies continue to lose value. Save in physical gold and silver today!
Bloomberg News had an interesting article published last week with a headline titled "Fed Prepares to Maintain Record Balance Sheet for Years". It was one of those articles published by mainstream media news that screams the obvious fact that the immediate road ahead for the global economy is inflationary and wading into uncharted risks.
First of all, the Federal Reserve's balance sheet is at a record high of $4.3 trillion dollars. This is certainly an enormous number. It is 25 percent of the United States' gross national product (GDP). It is twice the government expenditures of all 50 American states. It is equal to a wealth of 56 Bill Gates.
The ridiculous size of the central bank's balance sheet is a clear sign of trouble. The Fed is not a productive entity that produces a good. With equity of only $55 billion, the U.S central bank is clearly over-leveraged. It is difficult to see how it can be the lender of last resort when the next crisis hits.
In the Bloomberg article, the Fed is prepared to maintain this record balance sheet for years to come. This statement alone signals an inflationary future. If the Fed does not plan to reduce its balance sheet by selling bonds, all the US dollars that were pumped into the economy through several rounds of QE will not be drained. In reality, it is more likely that the central bank's balance sheet will continue to rise.
It is interesting that the Fed has no intention of reducing its balance sheet and at the same time raise interest rates. Based on the Fed's bond-buying in the past few years, their intention seems contradictory. Afterall, they accumulated the record balance sheet because they had been adamant in suppressing interest rates and they achieved that through a bond-for-dollar exchange. Unless they have new accounting tricks, it is hard to see how they will not continue to suppress interest rates.
A ballooning balance sheet is now a common phenomenon. The Bank of Japan is also struggling with this issue. The Japanese central bank has a balance sheet 52% of the country's GDP. It is obvious that the road ahead is inflationary as central banks continue down the dangerous path of money printing. Diversfy your wealth into physical precious metals before it is whittled away by inflation.
It is not uncommon to be told that the stock market always performs well in the long run. In the short run, you may from time to time see a downward correction. But in the long run, owning stocks is always a profitable investment.
The aforementioned statement is wrong for more than one reason. First and foremost the statement does not take in to account any appreciation stemming from monetary inflation, which can cause asset price inflation in equities such as stocks. The Consumer Price Index (CPI) is a very narrow way of measuring inflation, does not take asset price inflation into account, and is just one of many symptoms of true monetary inflation.
True inflation is, and will always be, the increase in the supply of money. Whenever new money is flooded into circulation, the money will start chasing goods, services and assets in the economy. These goods and services could be every day items, such as food or gas. But it could also be assets like stocks, bonds or real estate.
Secondly it is not true that the stock market has always been appreciating in the long run. Looking at the period from 1929 to the early 1980s in inflation adjusted real terms, one can see that the stock market didn’t go up very much at all for nearly 50 years. It is worthy to note that these 50-years constituted one the most spectacular periods of economic growth the world has ever seen.
The rigor of the Bretton Woods gold standard helped to limit the money printing and credit creation, thus keeping credit fueled asset bubbles at a minimum.
Today, bankers and politician are clamoring on to the delusion that the stock market will always increase in value over the long haul, thereby feeling safe in their assumption that our savings and pensions will be safe. The real truth is that most of our retirement savings are being inflated away and all that will be left are debts that can never be paid of.
In 1929 the stock market crashed over 50% and didn’t recover for decades. How massive will the next stock market crash be? Will it be 50%, 70% or 90%?
When the over leveraged asset markets starts to collapse the smart money will have already moved in to debt free and value preserving assets such as real estate, oil, forestry, and of course, gold and silver.
The European Central Bank's recent announcement of implementing negative interest rates was meant to be inflationary. It was meant to release more euros into the eurozone. The central bankers had wanted this wave of currency to exact downward pressure on the euro to devalue it.
In today's warped economics playbook, devaluing a currency is one way to protect the export economy of that country. The belief is that a weaker currency makes the country's exports cheaper to foreign importers and thus encourage them to import more. This would in turn contribute to GDP growth in the exporting country.
This plan sounds great until one realises that other countries might be thinking the same way as well. Barely a week since the ECB's announcement, Bloomberg carried an article yesterday titled, "Draghi Confined by China $4 Trillion Reserves". In this article, central banks' role in devaluing currencies cannot be any more clearer - "The People’s Bank of China buys dollars to help stop the yuan strengthening."
Analysts now believe that the Chinese central bank could be buying euros to depress the yuan. This would cause the euro to rise and the yuan to fall - the opposite effect of what the ECB wants. This is also what China has been doing with the U.S dollar for years and the American central banks replied with Quantitative Easing to depress the dollar.
This tit-for-tat devaluation is a fact of our global economy today. The net effect is often little changes in exchange rates but more liquidity pumped into the economy. Cheap credit seaps into the economy and results in asset bubbles when people borrow money cheaply to consume or invest. It expands the supply of money and results in higher costs in goods and services. Unfortunately, the salaries of most workers do not rise in tandem. Their purchasing power is swiftly eroded.
Currencies are in a race to zero and they are dragging the purchasing power of all who save in currencies down with it. Save in physical gold and silver today. It's time to redeem the currency for money.
First reported in last Friday's editorial, the European Central Bank (ECB) introduced negative interest rates last Thursday. This historic move is the first by a major central bank. The purpose for such a move was meant to stoke inflation in the eurozone.
By making it a further disincentive for banks to park reserves with the central bank, the ECB hopes that such a move would prod banks to increase lending money into the economy. If they do not, the banks would lose money over time given the negative interest rates. It is like paying for money to be stored at the central bank. Given the billions of dollars that are kept with the central bank, the newly introduced -0.1% interest rate is a big deal.
By taking the uncharted step of negative interest rates, the ECB looks adamant to stoke inflation by pushing more euros into circulation. An article by Forbes had this to say: "It (ECB) actually wants prices to relentlessly rise, for salaries to relentlessly lose purchasing power, and for savings to relentlessly erode. With fiat money, prices rise. This is especially hurtful to people who are struggling to afford food and shelter. Pushing up the cost of living does no good to anyone, but harms the poor most of all. Only a central banker could truly love inflation."
If banks do make more loans in their efforts to avoid losses on their reserves, we will see more euros competing for goods and services. The housing market is likely to be inflated again since cheap credit is made available for speculating in an already overvalued sector. Household debt is likely to rise since consumers will be encouraged to borrow. It looked to be that the eurozone is heading down the same path that led to the financial crisis of 2008 in the United States.
While central banks can play with their short term interest rates levers, the truth is that they cannot control the consequences - how the unleashed torrent of liquidity ends up in the economy. It is like releasing water from a dam but not able to control into which crevices the water eventually flows into. With more euros chasing for the relatively same pool of goods and services, price inflation and lower purchasing power is in the stark future for Europeans. The rest of the world will also experience price inflation if global central banks print more currencies to defend the rise of their own currencies.
Yesterday the European Central Bank fired some of their heaviest monetary stimulus artillery in a bid to create inflation and counter the eurozone’s weak growth. The ammunition consisted of negative interest rates for overnight bank reserves and lowering of their main interest rate.
The ECB cut the deposit facility rate for banks from 0% to minus 0.10%, which means that the banks will now have to pay to deposit their money at the ECB overnight.
The idea behind this quite extreme measure is that if banks aren’t well rewarded for parking their money at the ECB, they will lend it out to households and businesses. But critics point out that households in many eurozone countries are already heavily indebted, and that the last thing they need is more easy credit, i.e. more debt. Other critics also claim that the reason banks are not lending out money (extending credit) to firms in the eurozone is the lack of good prospects and businesses with credible business plans to lend to.
The ECB’s long running ”long-term refinancing operation programs” (LTRO), a process in which the ECB provides financing to eurozone banks, will also be extended.
Draghi made the statement that they think that the package is ”significant” but that they are in no way finished.
Kit Juckes who is a macro strategist at Societe Generale said to CNBC that the announcements made by Draghi would ”boost markets across the board”.
He further stated in a research note: "The gist is that he is doing everything short of full QE (quantitative easing) to support the economy, and that will be reflected in stronger asset prices generally,"
Do we really need more inflated asset prices and more debt? Sure, the economy might rebound short term but in the longer run the ever increasing debt burden will just push the eurozone further into the void.
The carrot of QE is dangling in front of the ECBs nose and when the monetary ammunition of zero and negative interest rates is used up, they ECB will probably bite the QE carrot.
As U.S stock markets are seeing new record highs, downward pressure continue to be exerted on the prices of precious metals. Exuberance is the emotion in equities while negativity and fear is felt in gold and silver prices. It is a rollercoaster ride for those who buy physical precious metals for speculation but godsend for those accumulating gold and silver as hard money.
For those who see precious metals as money, there is no better time to practise the mantra - 'buy when there is blood in the streets'. At a time when we see words like 'unprecedented', 'unlimited' and 'open-ended' used to describe all major central banks' money printing programs, it is a curious thing to have fiat currencies buy more ounces of gold and silver with the current down-leg in prices. In other words, the precious metals sale is here again if you missed it back in June and December 2013.
It is a great time to buy also because nothing much have changed in the global economy. The U.S monetary base chart continues to be broken. The degree of increase of the monetary base since the crisis 0f 2008 is an obvious red flag that something is terribly amiss in fiat currencies.
Global debt continues to increase to alarming levels with governments becoming the largest debt issuers. Borrowing is now the order of the day. When individuals with poor credit records try to borrow, they are usually rejected by lenders or are slapped with high interest rates to mitigate the risks to lenders. When bankrupt countries borrow, investors continue to lend to them at low interest rates. No one is asking where these countries are finding the money to pay investors when the loan matures.
Interest rates which used to be a mechanism meant to price the risk of borrowers continue to be artificially suppressed today. Benchmark U.S interest rates are now backed against a wall at a historically low zero to 0.25%. The low rates punishes savers and pushes more people to take higher risks to earn paltry yields on their money. It encourages borrowing to speculate in asset classes such as property. No one is asking what happens when (not if) interest rates rise.
The reasons to buy physical precious metals to preserve wealth remain unchanged even with the current down-leg in prices since fiat currencies continue to be inflated and debt levels continue to increase. If anything, the falling prices just mean that precious metals are once again on sale!
The latest news in the precious metals market that everyone is focusing on is that the fiat denominated precious metals prices got smashed lower last week. This is certainly fantastic news for buyers of physical gold and silver. The negativity is a good indicator to accumulate.
This fall in the prices of precious metals was really an aberration at this point in time. Data continue to pour in to show that demand for physical precious metals is exploding. Bloomberg recently released figures that showed that China and India are consuming gold at a rate faster than the world is able to produce the yellow metal.
Bloomberg calculates that China is consuming gold at a rate of 5.15 million ounces per month. India, even with import restictions, is consuming gold at a rate of 2.85 million ounces per month. These figures are only based on gold imports through Hong Kong and China's own production. With China's gold imports from its overseas mines and other sources excluded, these figures are likely to be on the low side of China's real gold appetite.
Even with these gold consumption numbers, Bloomberg sees a deficit of 0.56 million ounces a month given that it puts global gold production at 7.44 million ounces a month. Based on official numbers alone, China and India are consuming more gold than it is produced globally! There is no better testament of the current demand for physical gold.
The current price levels of precious metals are simply not reflective of the real demand. Moreover, oil prices continues to be above USD 100. Energy generated by oil is an essential criteria to mine precious metals from the earth. With costs of mining not falling and demand going up, the falling price of gold and silver is truly an aberration.
The fall in prices last week is due to paper trading of precious metals selling down. The fact that 27 May, the day prices started falling, coincides with the gold/silver options expiry day only shows that the price is not correctly reflecting the good fundamentals for buying precious metals now.
These are interesting times indeed for anyone investing in gold and silver or for anyone just following the happenings on the international gold market. We are seeing a steady stream of gold flowing from west to east, with gold being sent from London to Switzerland, remelted in to new bars, and sent on to Hong Kong and/or Shanghai for further delivery in to the market.
Buyers in a country like China consists of both private individuals and the government. The numbers from 2013 differ deepening on which source you choose to look at. Official sources, such as the World Gold Council, says that wholesale consumer demand for gold stood at slightly less than 1100 metric tones for 2013 in total.
The governments last official statement was that the Peoples Bank of China held 1,054 metric tones. This statement dates back to 2009, and has since not been updated. But many sources tell a story of stealth accumulation or ”under the radar gold”, flowing in to the vaults of the Chinese central bank, the PBOC. The numbers are believed to have at least the doubled, some say tripled, since 2009.
The wholesale number of 1,066 metric tones for 2013, presented by the World Gold Council, is disputed by some claiming that the source of the true number can be found by looking at the amount of gold delivered out of the SGE, Shanghai Gold Exchange. If so, then wholesale demand was at 2181 metric tones in 2013. A record amount.
Earlier this week it was made official that the SGE has been given permission by the PBOC to create a new ”international board” consisting of foreign banks such as HSBC, ANZ, Standard Bank, Standard Chartered Bank and the Bank of Nova Scotia, all of whom has been invited to participate.
The plan is to create an international gold trading platform were physical gold is held in a new 1000 ton vault within the Shanghai Free Trade Zone. Physical gold backing up trades executed on spot price contracts can be held, settled and taken delivery upon using these vaults. The Shanghai Free Trade Zone allows goods to be stored, produced, modified, and re-exported without customs authorities intervening. Only when the goods are moved to consumers within the country in which the zone is located do they become subject to the prevailing customs duties.
Since the contracts traded on this platform will be denominated in renminbi, and not dollars, this could be a big blow against the prevailing U.S. dollar hegemony. It is yet another proof that China in particular and Asia at large, will soon assume the role of financial super power once worn by the west.
Storing your precious metals in a safe and gold friendly Asian jurisdictions such as Singapore will be the way to protect your precious metals investments in the years to come.
Data from the Bank of International Setttlements (BIS) in May showed that the total notional value of derivatives contracts has reached an eye-popping record of $710 trillion. Read that carefully, it is not a figure in the millions or billions. It is the big 'T' with twelve zeroes behind it.
As we increasingly read about numbers in the range of trillions of dollars in the news, we may forget just how large a trillion is. A trillion is a million millions and a thousand billions. If you spend $10 million a day, it will take you 273 years to spend a trillion dollars. It calls into question how QE3 was able to create $1 trillion dollars in its first year! Surely, money printing has gone into overdrive.
The GDP of the United States is estimated to be about $17 trillion. The total GDP of every country in the world is estimated to be about $70 trillion. With this in mind, it is truly astounding how the global derivatives market is able to grow to a number that is more than forty times the size of the US economy and more than ten times the size of the global economy.
For the uninitiated, a derivative can be described as a contract between two parties whose value is determined by changes in the value of an underlying asset. Those assets could be bonds, equities, commodities or currencies. A derivative has no intrinsic value unlike precious metals. It is essentially a bet on the expected value of the underlying asset.
The data from BIS showed that the majority of derivatives are interest rates derivatives. They are bets on the movements of interest rates. Usually there is no problem when interest rates move gradually in a stable environment. However, should interest rates spike due to increasing default risks of borrowers, financial institutions with large exposure to these derivatives will lose massive amounts of money when these bets go sideways.
This massive derivative bubble is one of the many destructive seeds already sown for a coming crisis. With such dangers abounding in the global economy, there has never been a better time to redeem fiat currency for hard assets that have intrinsic value such as gold and silver.
British bank Barclays was fined £26m by UK regulator Financial Conduct Authority (FCA) last Friday for its failure to rein in an options trader who manipulated the gold price in 2012 to profit at a customer's expense. It was ironic that the incident happened in June 2012 - a day after Barclays was fined a record £290m for attempting to rig Libor.
What was disturbing was that the trader was actively working against the bank's client to whom a financial product was sold to. Knowing what levels of the gold price on 28 June 2012 would result in the bank paying out a profit of £2.3m to the client, the trader traded in a way to ensure that the price of gold fixed on that day would result in their client not receiving a profit. Such a trade also resulted in the trader booking a profit of £1 for the bank.
The trade screamed "win-win" for the bank and the trader and "lose-lose" for the bank's customer! The customer had transferred millions of dollars to buy the option and would have thought that the bank's employees would be looking out for his interest. Unfortunately, it was not.
This latest scandal only confirms how financial institutions can have substantial influence over the price of gold without taking physical delivery of any gold. Selling down the price of gold can be done through computerised trades executed from the office desk.
Moreover, it showed how a single trader working against the bank's client can have such an impact on the price of gold. If this is true, isn't it more plausible that there would be more of such cases in the revenue-focused industry given that there are millions of dollars of profit to be made both for the organisation and the individual? It cannot be just a single incident.
The price of gold today is certainly not reflecting the true value of the yellow metal. This price that is denominated in a fiat currency can be moved intentionally in directions favourable to well-resourced institutions. It is a number reflecting the buying and selling of non-physical paper gold. Investors should therefore not be too preoccupied with the daily fluctuations of this price but rather how many ounces of physical precious metals have they diversified their wealth into.
About a week ago the World Silver Survey 2014 was released by the Silver Institute. The report showed that demand for physical silver reached record levels in 2013. This record demand have been mainly driven by a 76% increase in retail investment demand for coins and bars. The production of jewelry and silver cutlery also gained momentum in 2013 after having slumped a bit in recent years.
The total physical demand was at 1,08 billion ounces during 2013. The industrial demand was down about 1% and totaled 586,6 million ounces, constituting 54% of total demand.
If we look at the supply side, mining production increased with 3,4% up to 819 million ounces. A large part of the increase came out of primary silver producers, meaning that these producers mine silver as their primary metal, and not as a by-product. The production form them increased 6% and constituted 29% of the total supply of silver in 2013. Accounting for ”Scrap”, ”Net Government sale” and ”Net Hedging Supply”, total supply in 2013 was at 978 million troy ounces.
Total demand was, as we can see, higher than the total supply, leaving us with a deficit of 113 million troy ounces.
It’s very compelling indeed to see the large demand increase in retail investment silver in the form of bars and coins. This category increased from 139,3 million ounces in 2012 to 245,6 million ounces in 2013. A whopping 76% increase!
This is yet another report showing that the silver market is in now way dead. On the contrary, almost every report being issued shows that the silver market is white hot! Silver is being increasingly used in everything from memory circuits and cutlery, to photovoltaic cells and bullion coins.
All this paired with a record low price shows us that silver is one of the most undervalued assets on planet earth and constitutes an enormous buying opportunity.
"Tapering is not tightening," this was the message the U.S Federal Reserve was desperately conveying to the markets as it prepared to reduce the pace of its Quantitative Easing (QE) program last year. With the QE taper, the Fed will be pumping lesser cheap credit into the economy. With the cheap credit spigot about to be wound down, the central bankers wanted to ensure that there will not be a catastrophic sell-off in the stock markets.
And so it was that the slogan "Tapering is not tightening" was created. When the Fed finally announced a QE taper of $10 billion in January 2014, the markets did not convulse violently. Instead, there was relative calm. The slogan did its magic!
Encouraged by the positive effect, the Fed continued to taper QE at a pace of $10 billion a month in 2014. The proponents of sound money and gold bulls were the only ones who did not believe in the slogan. If QE injected cheap credit into the economy through bond purchases, how can reducing the purchases not be tightening?
Well, the answer is out: It was revealed that as of January 2014 (the month QE taper begun) the third largest holder of U.S Treasuries is now... Belgium. For a country having a GDP of just over €100 billion, Belgium was able to find the money to amass $310 billion worth of U.S Treasuries.
As expected, it was not the country that was making the purchases but unknown parties buying through the Belgium-based clearing house, Euroclear. Traditional foreign holders of U.S government debt, like China, Russia and Japan, who have the financial muscle are certainly not making substantial purchases this year (or are dumping it). So where did the money to buy such large quantities of U.S Treasuries came from?
Some believe that one possible source of this buying is the Federal Reserve. So while they are reducing bond purchases under the QE umbrella, they are using another channel to surreptitiously buy bonds to support the bond market and suppress interest rates. No wonder tapering is not tightening!
Today, silver - the metal that has been used as money more than gold in history, is the most under-valued asset. It is also most oversold in 20 years. In a world awashed in central banks' over-issued fiat currencies, the price of silver is curiously stuck below USD 20 despite the many compelling reasons to buy it.
It is the best electrical and heat conducting element known to man. All our laptops, smartphones and tablets have some silver in it. With worldwide mobile computing usage at its highest today, the need for an efficient and cost effective conductor of electricity has never been higher. Unless there is a more efficient alternative, the demand for silver will continue to increase.
This demand for silver is also reported in the news. For example, India imported record amounts of silver in 2013.It registered an eye-popping 6,125 tons of silver - a 189% increase from the previous year. I have also shown in my past editorials that sales of silver coins by the major mints in 2013 had hit record levels and some of the mints had to increase shifts to meet the demand.
It is no secret that the amount of above ground silver is much lesser than gold. Above ground investment grade silver amounts to less than one fifth of the supply of gold. Gold is hoarded while silver used in commercial applications is used and discarded in landfills when those products reach end-of-life. With the price of silver so low, there is hardly any incentive for commercial recycling of the metal.
With its plethora of uses and an above ground supply that is much smaller than that of gold, it is amazing that silver is now about 65 times cheaper than gold. Yet it has the same characteristics as gold to qualify as money. On a monthly chart, the current price of silver matches its lows in June 2013 and Dec 2013 which makes it a great time to accumulate this extremely under-valued asset.
During 2013 we saw record breaking demand for one of the most popular silver investment coins - the American Silver Eagle. During 2013 The US Mint produced 42,7 million of these 1 ounce coins. The Silver Eagle experienced a 27% sale increase during 2013, year-on-year.
But the Silver Eagles’ northern cousin, the Canadian Maple Leaf, was actually last years winner and outperformed the Silver Eagle showing a whopping 56% increase in sales, ending the year with 28,2 million Silver Maples sold.
The Royal Canadian Mint only releases its mintages once a year but the US Mint updates its sales and production figures more than once a month. We know that the physical demand for both gold and silver is very high, so the question in the future may not be so much whether or not people will want to buy the coins that the US Mint produces, it is to a larger extent an issue of whether or not they will be able to keep their production up to pace.
Now we did see some delivery issues in the first month of 2013 when the US Mint wasn't able to start delivering Silver Eagles until late in January. This resulted in only 4,8 million Silver Eagles sold in January of 2014 compared to 7,5 million sold in January of 2013.
The first numbers for May of 2014 are now out and it is looking good indeed. With half of the month left to go the US Mint has already sold 3,2 million Silver Eagle coins. That’s how many were sold in the entire month of May in 2013.
The US Mint has sold more than 20,7 million Silver Eagles so far this year, 700 000 coins more than the same time last year. If demand will hold steady, and production keep its pace, we could be looking back at another record year by the end of 2014.
The Japanese Finance Ministry announced last week that Japan's national debt hit a new record high of ¥1.025 quadrillion at the end of March. It was ¥33 trillion higher from a year ago. The country's national debt had crossed ¥1 quadrillion for the first time towards the end of June 2013 and debt accumulation shows no sign of abating.
It was revealed that in a single quarter (since December 2013), the Japanese government piled on an additional ¥7 trillion of debt. This huge rise in debt was attributed to "ballooning social security costs in line with the aging population." Finance Minister Taro Aso was reported to say that the situation has become "very severe".
Also noteworthy was that "financing bills, used to procure funds for currency market intervention, totaled ¥115 trillion, up ¥420.8 billion." It is no secret that the government aims to devalue the Yen through the central bank's intervention in the currency market. The Yen has depreciated 30% against the U.S dollar since Prime Minister Shinzo Abe took office in late 2012.
With the nation's currency devalued, it is no wonder that Japan is finding it difficult to service its debts which include the social security costs mentioned above. The government, already indebted up to its eyeballs, would have to continue to issue more debt in order to repay its creditors. The country's procurement of energy externally after the Fukushima crisis have also increased causing the nation to go deeper into debt. This situation does not bode well for Japan as the country's debt has already reached more than twice its GDP.
So this is the reality of the world in which we live in today - a country deemed to be an economic powerhouse is in such terrible financial state. Japan's economy continues to limp on only because the government's debt continues to be monetised by money creation from its central bank. Currencies are essentially debt instruments that depend on the promises to pay by the governments issuing them. With Japan's plight in mind, how can one continue to have confidence in currencies?
A simple way to look at global trade is if a country A produces excess apples, it will want to trade with another country... say country B for other goods. If country B produces excess oranges that country A is keen to import, then a trade happens with the apples going to country B and oranges going to country A.
But what happens if a country wants something but it is not able to export a real good in exchange for it? In today's world, that country can pay for the good in a paper currency called the U.S Federal Reserve Note a.k.a U.S dollars. In reality, this scenario happens in the trading relations between the United States and China.
China produces the real goods such as electronic and food products and the United States pay the Chinese with the U.S dollar. Over time, the Chinese accumulates more and more U.S dollars which are essentially electronic digits and paper. A large part of the U.S dollars are ploughed back into U.S government bonds to earn a yield since there is no other market large enough to invest in other than the U.S treasuries.
China realises that buying U.S government bonds is essentially lending money to a bankrupt party who promises to pay back the principle with interest in a distant future date. There is no comfort at all for the Chinese. So what do they do?
The Chinese have been making loans to developing countries in exchange for commodities for years. For example, Zimbabwe owes China about $1.5 billion U.S dollars in loans since 2011. The collateral China wants for the loans include gold and diamonds - real commodities with intrinsic value!
It is a great way for China to use some U.S dollars to exchange for real products they want! They give up the paper currency for a good like gold that requires years to prospect, mine and refine. China's billion dollar loans in exchange for gold is speaking volumes about what the real wealth is. It is in gold and not in the current world reserve currency.
Falling EROEI (Energy Returned on Energy Invested) is an accelerating problem in the precious metal mining industry. Silver mines in particular have had their yields fall from 13 ounces of silver per metric ton of ore excavated in 2005 to only 7.6 ounces in 2013.
If we pair that up with heavily rising fuel costs it paints a bleak picture for the the precious metal mining industry, but a bright one for those investing in actual physical precious metals.
Having a failing EROEI means that you have to put in more energy to be able to get the same amount of metal out of the ground. In the case of mining, the energy comes from oil, or more specifically diesel fuel. The huge mining trucks used in these operations are real diesel guzzlers. Falling yields paired with increasing fuel prices means that the cost of operating a mine have increased heavily.
In an interview from august last year (2013) Steve Angelo from SRSRoccoreport.com tells how the largest gold producers used approximately 12.5 gallons (47 liters) of diesel fuel to produce an ounce of gold in 2005. In 2013 this amount had doubled to 25 gallons (47 liters). Thus, the amount of energy used has doubled in just 7 years.
Increasing production costs paired with an incredible demand from countries like China and India must sooner or later send the prices much higher. The other alternative is that the mining companies will go bust which will lead to shortages of gold and silver, sending the prices skyrocketing.
Either way, physical gold and silver wins.
It is not uncommon to hear some people say, "Gold is very expensive today." In reality, determining whether something is expensive or cheap is subjective to what that item is measured against.
Some may measure the current price of gold to prices ten years ago. Others may compare it to the price of silver. It is also common for people to compare the $1,921 2011-high in the price of gold with its $850 1980-high. Such comparisons result in some people concluding that gold is over valued or is in a bubble. They do not realise that it is inflation (i.e. the expansion of the supply of money) that has distorted the nominal price of a good like gold.
A recent article from Casey Research showed that if the 1980 CPI formula was used on the 2011-high in the price of gold, the inflation-adjusted 1980 peak would be $10,823.70 in today's dollars. Similarly, the $50 peak in the price of silver in 1980 would equate to $568 in today's dollars. These numbers for the price of gold and silver are probably unbelievable to most because they think of the current prices in terms of a heavily inflated paper currency.
Based on these inflation adjusted prices of gold and silver, the 2011 peaks in both metals were nowhere near a quarter of the 1980 prices. Moreover, the precious metals' prices had spiked in the 1980 because of an inflation scare in the U.S dollar.
If we compare the situation in 1980 with that of today, there are many more multiples of the monetary base created now. There are many more multiples of government debt created today. The 1980 world had not come to discover derivatives. Today we have a derivative timebomb easily in the range of hundreds of trillion dollars hanging over the global economy. The global economy today has become much more unstable.
Inflation masks the true picture of how much purchasing power currencies have lost over time. The nominal value of goods and services are rising simply because more units of the currency are required to buy the same unit of the good. Based on the inflation-adjusted prices of gold and silver, both metals are extremely undervalued today.
Non-Farm Payrolls data released last Friday showed that U.S employers added 288,000 jobs in April. This figure blew through economist expectations for growth of 218,000 jobs. It showed that hiring was at the fastest pace in more than 2 years.
The U.S unemployment rate also fell from 6.7% in March to 6.3%. Surely, this was a cause for celebration? Is the U.S economy gaining momentum in its recovery?
The nominal value of the unemployment rate fell because the labour force participation rate fell to a 36-year low of 62.8% last seen in 1978. Back then, there were far few women in the labour force. The rate for men was also the lowest ever recorded at 69.1%. The number of people in the labour force fell a whopping 806,000, erasing the labour force gains from January through to March this year.
The majority of the people who left the workforce were unemployed and had stopped looking for a job. The U.S Bureau of Labor Statistics does not count people not looking for a job as unemployed.
Moreover, most of the new jobs created were low-wage service sector jobs or temporary jobs. This painted a truly dire situation for the U.S economy - how can the tax revenues from those who have low-wage jobs support the unemployed and those who had given up looking for work? How much can the government tax someone working as a waiter or a temporary retail assistant?
Adding fuel to the fire, it was also reported that consumer spending rose 0.9% in March while incomes rose only 0.5% in the same month. The personal savings rate also fell to 3.8% - the lowest since January 2013. It showed that people were spending out of savings or debt since their rise in spending did not commensurate with the rise in income. It was likely due to people having to pay higher prices for goods and services due to price inflation.
The U.S economic recovery touted in the media is at best a phoney one supported by the central bank's money-creating Quantitative Easing programs. Six years after the financial crisis of 2008, the U.S economy continues to struggle with poor job growth while at the same time continue to pile on more debt at exponential levels.
In last Friday’s editorial we wrote about the newly issued World Gold Council report saying that Chinese gold demand is set to increase 25% within 4 years. This is significant since Chinese demand is already at record levels. The World Gold Councils official estimates says that the demand for 2013 was 1,132 tones. However, there are serious reasons to suspect that these numbers are severely understated.
The conclusion that WGC numbers are understated can be drawn from looking at the fine analytical work down by a blogger named Koos Jansen. On his blog Ingoldwetrust.com, Jansen presents data showing the amount of gold flowing thru the Shanghai Gold Exchange (SGE). The Chinese government requires all imported and mined gold to be channeled thru the SGE in order for them to keep track of how much gold is added to the non government supplies. Thus, the physical gold delivered from the SGE equals Chinese wholesale demand.
And the numbers are staggering. In 2013 the yearly total delivered physical gold from the SGE was 2181 tones. Compare this to the quite timid numbers from the World Gold Council.
We can only speculate of the reasons for the great disparity between the WGC's account and the data from the SGE presented by Koos Jansen. One of the reasons may be that the Chinese are trying to hide the true amount of their purchases, hoarding in the dark in order to diversify out of the US dollar, something that the Chinese hold record reserves of.
Dumping their US dollar reserves on the market is not an option as this could create a panic selling, something that both the US and China has a lot to lose on. Better then to, by stealth, diversify into something that has been an international currency and a preserver of wealth for thousands of years - gold.
If the World Gold Council’s estimate of a 25% demand increase in the next 4 years is correct it could mean that demand will severely outstrip supply, sooner than we may think. Look for the gold prices to skyrocket when that happens.
Data just released by the U.S Geological Survey (USGS) showed that the U.S exported a record 57 metric tons of gold bullion to Hong Kong in January 2014. Let us look at the U.S gold export figures in 2013 to have a better sense of the magnitude of this 57 metric ton figure.
In 2013, the U.S exported a total of 215 metric tons of gold to Hong Kong. This makes the January 2014 export figure amount to 27% or more than a quarter of last year's total exported gold. It was also more than 3 times the gold exported to Hong Kong in January 2013.
The record month for gold exports in 2013 was August which saw 31 metric tons of gold moved to Hong Kong. The January 2014 figure was 84% more than that record month in August 2013.
It is no secret that Hong Kong is a conduit for China to import gold via the international markets. China has been net importers of gold for several years now. Their hoarding of physical gold run parallel to their current efforts to internationalise their currency - the Renminbi. Obviously, the Chinese remember that it is gold that gives value to a currency. It is gold that gives confidence to people to invest and save in the currency.
The West continues to leak physical gold to the East. While western central banks are busy moving their interest rates levers and printing money to fix their uncompetitive economies, gold demand in the East is steadily rising. The artificially suppressed price of gold is only playing into the hands of Asian gold consumers who take the opportunity to accumulate the yellow metal.
At a time when paper currencies are being printed to oblivion, hold your wealth in precious metals. Hold physical, not paper.
45 years ago today on 28th April 1969, Charles de Gaulle resigned as president of the French Republic. The general-turned-president was one of the biggest critics of the US monetary policy at a time when the Bretton Woods system fixed the price of gold to USD 35.
In a famous speech in February 1965 to 1,000 invited journalists at the Elysee Palace, de Gaulle challenged the role of the excessively printed US dollars as the global key currency. At a time when the US dollar could be converted into gold only by foreign central banks, he understood that the US government was spending beyond its means and printing US dollars to fund its expenditures. (Sounds familiar doesn't it?)
Foreign countries were holding more dollars than there were gold to be redeemed at the then fixed price of gold of USD 35. In the speech, de Gaulle remarked that the then status of US dollars being as good as gold allowed the Americans to "get into debt for free at the expense of other countries". This is because the US can print more US dollars to pay other countries in trade - and ONLY the US was able to print dollars. This gave the Americans an unfair advantage.
The French president then said, "Considering the serious consequences a crisis would have in such a domain, we think that measures must be taken on time to avoid it." These words would prove prophetic 6 years later when US president Richard Nixon took the US dollar off any link to gold as a response to a run on US gold.
De Gaulle went on to remind the audience that international trade should be conducted "on an indisputable monetary base, and one that does not bear the mark of any particular country. " He defined this monetary base when he said, "Which base? In truth, no one sees how one could really have any standard criterion other than GOLD! "
China has an insatiable appetite for gold. And we’re not talking about any paper ponzi-scheme gold here - real physical metal is what the Chinese middle class craves. But how can we know that the demand will keep its pace? Maybe the gold craze will cool down in a year or two? Perhaps antiques or gemstones is where the Chinese middle class will want to spend their hard earned renminbi in the coming years? Well not so if you ask Mr Albert Cheng, managing director of World Gold Council Far East.
Mr Cheng is responsible for the publishing of a major report by the WGC called "China's gold market: progress and prospects”. The report outlines a compelling story for gold buying in China during the next few years. Using data about the projected economic development for the Chinese middle class, the report foresees that demand will increase 25 percent within the coming four years.
Just the other day, Mr Cheng appeared in an interview on Bloomberg in which he explained that the Chinese gold market is driven by different fundamentals than, for example, the Indian one. The Indian gold market is to a larger extent driven by long-standing traditions, while the Chinese market is driven by the middle class’s will to invest to invest in physical gold. This will has been spurred by the high availability of gold vendors and few attractive investment alternatives. The market has been largely deregulated and many banks offer physical gold products such as bars or coins to their customers.
100,000+ gold outlets exist in China and one of the most popular ways of investing in physical gold is thru the purchase of jewelry with a high gold content. The production cost of gold jewelry in China is low which means that the markups over the spot price are insignificant, often less than 10 percent.
The Chinese economy is in the midst of a transitional face, going from an export based to more of a domestic consumer driven economy. This will most likely be very positive for gold.
The London Bullion Market Association's (LBMA) Gold Offered Forward Rates (GOFO) are used to facilitate gold/U.S dollar swap transactions in London. That is, if someone possesses gold and is in need to borrow dollars, they are able to put up the gold as collateral to pay a smaller rate of interest for the loan.
In such a situation, the GOFO rate is positive and it shows a higher demand for dollars than gold. However, there have been times when the GOFO rate turns negative, signalling a preference for physical gold over dollars. It shows that there are parties who are willing to pay holders of gold to borrow the yellow metal. It indicates a shortage of London good delivery gold bars.
The GOFO rate going negative used to be a rare occurence in the past. It has happened only 3 times from 1989 to mid-2013 for a total of 7 days out of some 5,000 days or 0.14% of the time. However, negative GOFO rates are increasingly seen since mid-2013. In July 2013, GOFO rates turned and stayed negative for 40 consecutive days.
Since then, GOFO rates have wandered into negative territory for 98 out of 164 days or 60% of the time. When compared to the negative GOFO rate statistics from before mid-2013, the current phenomenon is a huge deviation in the trend. It is showing that shortages of gold is becoming increasingly frequent.
Moreover, it used to be a rare occurence for the GOFO rate to turn negative out to three months like in the July 2013 episode. Last week on 17 April, the GOFO rate went negative out to six months! Moreover, it has been noted that periods of negative GOFO rates coincide with COMEX delivery months. Turd Ferguson of the TF Metals Report believes that the extra physical gold demand during COMEX delivery months is now consistently causing these shortages.
The statistics do not lie. An occurence that used to happen 0.14% of the time is now happening 60% of the time. This shows an escalation - in this case an escalation in the shortage of physical gold.
The recent outcry within the G20 nations regarding giving emerging economies a more powerful voice at the IMF underscores the changing balance of power in the world. We are witnessing a growing challenge to the domination of the US on the world stage.
Policy changes at the IMF require approval by 85% of the IMF's voting shares. The US can be a roadblock for policies that the G20 nations want to push through because the Americans have 16.7% of the vote since they are the fund's largest member. So unless the US agrees, no policy will be approved.
This is viewed as unfair since the US is the largest debtor nation of the world. It relies on other countries to fund itself through their buying of US government debt. The US economy has also lost competitiveness and is still struggling since the recession of 2007. Wealth and jobs have flowed from West to East giving Asian nations growing influence on the world stage.
A G20 official was quoted saying, "At a time when the world has become multi-polar, why should one country should have the veto power?"
Emerging markets such as China and Russia are already increasingly flexing their muscles. In November 2013, China announced the establishing of the China Sea Air Defense Identification Zone despite protests from traditional economic powerhouses like the US and Japan. Russia's brazen annexation of Crimea this year despite warnings of US sanctions is another example.
Despite the joint competitive devaluation of all world currencies, many emerging market countries are doing at least one thing right - increasing their gold holdings. China and Russia bought record levels of gold in 2013. India has always been an accumulator of gold. Despite the Indian government's increase on gold import tariffs last year, Indians' insatiable appetite for gold continues unquenched. Gold smuggling arrests in India jumped 750% YoY!
At the end of the day, creditor nations with sizeable gold holdings will definitely fair better than a debtor nation like the US with dwindling (and suspect) gold holdings. They are the wealthy nations that will have an increasing influence on the world stage dictating global finance and trade. The US empire will continue to decline and its currency will eventually lose reserve currency status.
If anything, buying and owning physical precious metals should not be about clamoring on to a computer screen, desperately watching for the price to move up or down. Physical gold is about placing your wealth outside of the fiat denominated financial system. Its about sleeping well at night. When the fiat paper money system breaks down, the ”price” may not even be that important. If the dollar or the yen hyper-inflates into worthless pieces of paper, then who cares what an ounce of gold is worth in terms of dollars? It’s the value that's important!
The fundamentals for gold clearly shows us that gold should be valued much higher than it is today. Nonetheless, we still live in a world that uses the almighty dollar as a unit of account, and so when we buy an ounce of gold we look at the price in terms of dollars, or whatever fiat currency we happen to use, and then we buy.
Now the long term fundamentals for gold are very bullish indeed: Unprecedented debt levels are eating away prosperity, the bond markets are looking like a nightmare and physical gold demand is unprecedented. But the fiat denominated price doesn't always seem to follow along with the screaming fundamentals. Why is this?
The answers to the above question can be multiple ones, but one of the most interesting answers are that the market is actually manipulated. If you manipulate the price of gold - a monetary precious metal - the fiat currencies like dollars, Euros and yen will look stronger. A soaring gold price is often a sign that something is wrong with the economy in general and the money system in particular.
Some claim that a manipulative slamdown is exactly what we saw this Tuesday. The price had been rising for almost 5 consecutive days, fueled by the prospect of war in Ukraine, and then suddenly it took a sharp fall of almost 3 percent, from around $1320 down to around $1280, after which it made a small recovery.
According to financial blog Zero Hedge someone dumped thousands of gold futures contracts to the tune of over 500 million USD causing the price to fall instantaneously.
As with any market manipulation it can only go on for so long before it is overtaken by the true nature of things. In the end, supply and demand will prevail, and by the time that happens physical gold will appreciate significantly.
Just make sure you hold physical gold and not manipulated paper gold.
Mines in the US produced 14% less silver in November 2013 than a year before, the U.S. Geological Survey (USGS) reported. In Q4 2013, US mines produced 251 tonnes (8.8 million ounces) of silver, down 10.7% year on year. Since June 2013, monthly silver production has been on a continued decline. The 2013 output for US mines was a total of 1,040 tons of silver compared to 1,060 tons in 2012.
A similar decline in silver production was reported last year by KGHM Polska Miedz, the largest by-product silver producer in the world. The company's silver output had declined a whopping 17% to 544 tons in 1H 2013 when compared to the 653 tons in 1H 2012. The decline was attributed to lower ore grades and disruptions at the plant.
When 2013 ended and the annual numbers were in, KGHM Polska Miedz produced 3.7 million oz less (or 9% decline) than the previous year. It was the same for other major silver producers. BHP Billiton’s silver production fell 1.5 million oz, while Fresnillo’s production declined 2.4 million oz in 2013.
Silver demand on the other hand is rising. Facing restrictions in importing gold, jewelry demand in India had turned to silver. India's silver jewelry exports rose 109% between April 2013 and February 2014. Silver bullion sales at global mints are also seeing good volumes. The US Mint reported that the March 2014 sales of the American Silver Eagle coins was the fourth highest in history with more than 5.3 million sold. The Perth Mint is also seeing strong sales for its gold and silver bullion coins at the start of this year.
Silver is a monetary metal that was used as money more often than gold in history. In today's digital world, silver is indispensable in electronic products since it is the best element known to man in terms of electrical conductivity and thermal conductivity.
A situation where there is declining supply and increasing demand is always a good investment opportunity for any asset. This phenomenon is happening to silver right now.
A conservative estimate of the debt of the US government today is USD 17.5 trillion. This is a conservative figure since it excludes the government's unfunded liabilities such as Social Security, Medicare and other entitlement spending.
Even with a 'conservative' debt of USD 17.5 trillion, each American taxpayer is on the hook for USD 152,000 of that debt. A married couple would have a collective share of the debt of USD 304,000.
It is an undeniable fact that the US government is trapped in a cycle of spending more than it takes in. It then borrows from foreign investors to fund its spending binge making its debt grow continually. Unable to pay off maturing debt, it is always in need to print money to pay debtors. This destroys the value of each unit of the currency and punishes everyone who holds the US dollar.
When America pays for real goods with the US dollar, massive amounts of US dollars are accumulated with foreign trading partners overseas. It will be a truly terrifying prospect the day foreigners dump the dollar and the deluge of US dollars flow back to the US again.
Unfortunately, the major economies today are also engaged in this cycle of borrowing, printing and destroying the value of currencies. This same pattern is repeating in Japan and the euro zone. China and many other creditor countries are following this pattern of destruction only because no one is yet ready to let the US dollar fall.
As long as this pattern is ongoing, debt will continue to rise making the global financial system increasingly unstable. Price inflation in goods and services will continue to rise as each unit of currency loses more purchasing power. One's savings in currencies will certainly buy less over time.
Today, you can choose to escape this cycle by starting to put your wealth into hard assets. Precious metals are probably the best hard assets to accumulate right now because they are money and they are extremely undervalued. Gold and silver are extremely liquid and will always keep their value. Save in precious metals!
There was a time when much of the everyday money that circulated was made out of a precious metal. No, I’m not talking specifically about the gold standard, although in the US, bills redeemable for gold circulated up until 1933.
I’m referring to the coins that were used in everyday cash transactions. Up until 1965 the U.S. Mint included silver in much of its coinage. The U.S. dimes, quarters and half-dollars all consisted of 90% pure silver. It’s interesting to ponder that in the 50s and 60s the U.S. public carried around considerable amounts of real silver money i.e. money with intrinsic value. The notes, although officially backed by gold (but not redeemable by the public), were in essence a form of fiat money, but notes still traded at the same face value as the 90% silver coins.
In the 1960s the US saw increasing inflation which resulted in president Lyndon Johnson signing the coinage act of 1965 resulting in new dimes and quarters being minted from copper alloy. It was illegal for American citizens to own investment grade gold until 1971 and so the easiest way for the public to invest in physical precious metals was to hoard dimes, quarters and half-dollar coins.
The inflation of the 1960s with the following coinage act shows a perfect example of Gresham’s law in action, with bad money (copper/nickel) chasing the good money (silver) out of circulation.
So what if the U.S. Government decided to get their act together and start making coins out of 90% silver again? According to the blog ”SRSrocco report” this would demand that the US Mint scooped up almost half of the worlds yearly mine supply. A staggering 371.5 million ounces!
Circulating coins account for less than three percent of the total money supply. Now imaging backing the total money supply with silver! That would send the value of silver through the roof and beyond.
A German newspaper reported that in its bid to prevent a Japan-style deflationary spiral in the euro zone, the ECB is believed to have simulated models of large scale bond purchases (a.k.a QE) of as much as €1 trillion to assess its effect on inflation. €1 trillion - its a big number that has twelve zeroes behind it.
In the first model, €1 trillion of asset purchases spread over a year would only boost inflation in 2016 by only 0.2 percentage points while another model showed an increase of 0.8 percentage points. This confirms that continued money printing through QE is having less and less impact on the real economy.
The execution of QE of such magnitude seems inevitable in the coming months with European Central Bank President Mario Draghi saying last Thursday that the central bank achieved unanimity that QE will be necessary if inflation continues to be persistently low in the 18-member currency bloc.
All this talk of QE is a reaction to March's dismal print of the inflation rate at 0.5% - far short of the ECB's target of 2%. All eyes will now turn to April's euro-area inflation report which is due to be released on 30 April. An inflation rate equal or lower than March's numbers will increase the possibility of QE commencing.
The above confirms that the main tool the central bankers has to 'fix' the economy is always more money printing. While the central bank can decide how much QE it will engage in, it cannot control where and how the waves of printed money will eventually leak into the economy. Such expansion of the money supply will no doubt cause price inflation in goods and services without wages rising in tandem. It will erode the purchasing power of everyone saving in the Euro.
It was reported last week that the Royal Mint received 48 tonnes of silver bullion - 70 years later than expected. This silver delivery was part of the 2,800 ingots (1,100 ounces each) onboard the SS Gairsoppa, a British cargo ship, that had set sail from India on 16 February 1941 for the Liverpool port.
Unfortunately, the SS Gairsoppa was torpedoed by a German submarine off the Irish coast just after midnight on 17 February 1941 during WWII. The ship together with its silver treasure subsequently sat at the bottom of the Atlantic Ocean for more than 70 years. It was only found in 2011 by an American exploration company at a a depth of 5km.
The salvage operation managed to recover 2,792 silver ingots from the wreckage from the SS Gairsoppa or more than 99% of the insured silver reported to be onboard the ship. Under that terms of the contract, the American company would keep 80% of the treasure with the remaining going to the British Treasury.
The silver recovered from the ill-fated SS Gairsoppa would now be minted into 20,000 limted edition quarter troy ounce 99.9 pure silver Britannia coins to be sold to collectors.
This story is a good reminder of how well precious metals like silver can hold their value through time. The 2,800 silver ingots on board the ship was valued at about USD 17 million in February 1941. Today it would be worth about USD 62 million. Despite sitting in harsh conditions at the bottom of the ocean for more than 70 years, the recovered silver could still be used to mint collector coins and sold for a hefty premium!
If the same value of US dollar paper notes were lost, all these notes would no doubt have deteriorated to the point of being worthless today. There would probably be no incentive to salvage the wreck in the first place!
Preserve your wealth in gold and silver today.
Just a few days ago author Michael Lewis released a book called ”Flash Boys” in which he untangles the mystery of so called ”high frequency trading”. His conclusion: The US stock market is rigged! The pictures we see of the trading floors on the New York Stock exchange is just for show - a photo op.
The ”real” trading is now happening in front of computer screens hooked up to servers with super computers. Robot traders are racing against the clock to cut other traders in line. Firms are spending billions to gain just a few thousandths of a second.
With the help of these super fast HFT-systems, these firms can see the intentions of other traders before they have time to act, thereby driving up the price before the others have time to fill up their orders. In essence, the HFT-traders are skimming the markets of pennies and nickels. They don’t make a lot per order, but since they execute millions of orders per day, it adds up.
Much of Lewis’ book revolves around a young man called Brad Katsujama who used to work as a trading executive at the Royal Bank of Canada. Katsujama was wrestling with the problem of being unable to fill his costumers’ orders. Someone always seemed to beat him to it, and drive up the price.
Katsujama and his co-workers started digging deeper in to this and found that the problem was that their fiber-optic connection just wasn't as fast the HFT-firms' connections. This lead them to develop both hardware and software that made all orders arrive to the exchanges at the same time, leveling out the playing field.
CBS 60-minutes made a really interesting coverage on the topic featuring both Michael Lewis, the author of the book, and Brad Katsujama, the man who exposed the secret behind the high frequency traders’ advantages.
The financial industry is supposed to allocate capital towards productive businesses and create liquidity in the market place. Nowadays it seems like finance has turned into a computer game were the one who has the fastest computer wins the race and gets the money. In a system such as this, with ever increasing levels of complexity, it is nice to be able to invest your money in something tangible that has been used to trade and store wealth for thousands of years. That something is gold and silver.
The European Central Bank (ECB) goes into their policy meeting on 3rd April after raising the markets' expectations that further measures will be taken to fight persistently low inflation in Europe.
However, what other tools can the central bankers use to increase the level of inflation? When asked by the Wall Street Journal, Bank of Finland Governor Erkki Liikanen said that the options of having negative interest rates and further large-scale asset purchases were available to the central bank.
When the ECB embarked on its own version of quantitative easing (QE) a few years ago to fight the euro crisis, much of the printed money that re-capitalised European banks was kept with the ECB. This allowed the banks to meet reserves requirements and they were paid interests for the bailout money given to them - they were essentially earning risk-free profits. It was no wonder that banks preferred to park money with the central bank than to loan them into the economy.
With negative interest rates, the central bank would make the banks pay for money parked in its vaults. The ECB hopes that this will create a disincentive for banks to hoard reserves and not make loans on them. Should the tool of negative interest rates be used, banks will have to make loans to turn a profit. This in turns injects credit into the economy and causes price inflation in goods and services.
However, this tool ignores one important reason why the banks were unwilling to lend in the first place. They were scarred by the banking crisis that almost collapsed the major banks in the PIIGS nations and had become stricter in their assessment of the creditworthiness of borrowers. Having strict credit standards can be a good thing given that the financial crisis of 2008 had erupted because US banks had over-extended themselves by making loans to sub-prime borrowers.
With negative interest rates, it is possible that a future sub-prime bubble will be inflated again. It is a matter of time before bankers forget the lessons of the sub-prime crisis as they compete internally for higher profits and bonuses. The alternative to the tool of negative interest rates does not bode well either - more large-scale asset purchases (a.k.a more QE).
The annual Singapore International Coin Fair (SICF) concluded yesterday with the 3-day event attracting thousands of visitors. The SICF brings international mints, bullion dealers and numismatic retailers together in one common location and it has always been a must-go event on my calendar.
This year, I bought the uncut US dollar notes and some Zimbabwe bank notes. I had always wanted to buy them but was hesitant to pay for collectible bank notes that were essentially... paper. I would rather put money in silver or gold. Nevertheless, I bought them and would frame the notes for display in the house. It will be a good reminder of how ridiculous paper money can be printed to oblivion.
Walking through the coin fair is also a good reminder of the hundreds of currencies that were introduced in the past and are now gone. The showcases of numismatic bank note retailers are like collages of history lessons in currency failures. Due to the numerous number of bank notes, they are organised from the letters 'A' to 'Z' based on the name of the country that issued it to allow ease of browsing by buyers. Every letter had at least one banknote that was no longer in circulation.
It was a stark reminder that so many currencies had ceased to be legal tender and they are now merely collectibles. Even the current reserve currency of the world, the US dollar, was sold in uncut sheets meant for the novelty of display on the wall! History has shown time and again that paper currencies fail when they are over-issued and people lose confidence in them. Today, currencies around the world continue to be be issued in greater quantities. Nothing much has changed.
In the same coin fair today, gold and silver continue to be worth more than the collectible currencies! They may be minted with different designs but they never lose their intrinsic value. The wealth preserving nature of precious metals has not changed either! Such is an asset that one should put their wealth into.
The US spends somewhere around 17% of its tax revenue on paying interest on its national debt. But the United States of America is not the first empire in history to spend such an absurd amount of its money on interest payments alone.
We need not look to far back into history before we find examples of empires that has risen to great strength and power, only to perish as soon as it devoted itself to deficit spending and currency debasement.
One such very recent example is the Ottoman empire, founded somewhere around the end of the 13th century and dissolved in the 1920s. The Ottoman empire encompassed south-east Europe, the Arab world, northern Africa, parts of Asia, Caucasus and the Middle East. In the late 18th and early 19th century, the Ottoman government finances fell into disrepair. The state was running constant budget deficits, mostly due to rampant warfare. The government tried to curb the deficits thru certain types of internal loans and by diluting the currency, but to no avail.
In the year of 1868 the Ottomans spent 17% of their tax revenue just to pay the interest on their national debt. In 1872 they paid 52%, and later that same year the government went bankrupt.
Anyone who is brave enough to look at history and draw the right conclusions can tell that the United States is on the same route as the Ottomans once were. Promises to pay will be broken as governments go bankrupt and since todays fiat money system is based on just that - a promise to pay - it will also break down.
With all this in mind it will be comforting to know that you have already moved your savings out of the fiat money system, and in to an asset that is no ones promise to pay - gold and silver.
Today, it is common for people to feel that it is pointless to save money in currencies in the bank given the ridiculously low deposits rates. They are so low that the rate of inflation trumps them year after year. Money saved in the bank will buy you less things in the future.
The value of money is eroded over time because the supply of money in an economy is consistently inflated through money creation by central banks. As the supply of money grows, more units of money compete for the relatively same units of goods and services. This results in higher prices for goods and services over time.
In an environment where deposits rates are so low, people are discouraged from saving money. Instead, they are forced to take higher risks by investing their savings in instruments that give them a higher rate of return. However, in their quest to earn a better yield on their savings, they have unwittingly loaned their savings to another party.
The risk of loaning the principle of their savings to another party is low if the economy is growing healthily. However, if it is increasingly prevalent to see countries default on debt and financial institutions undertaking high levels of leverage, it is extremely risky to loan savings. It is likely for a crisis to wipe out the principle before the yield on the loan allows the lender to break even after accounting for inflation.
Instead of taking such risks, consider saving in gold and silver. Savings require a store of value without which there will not be an incentive to defer consumption and save. Gold and silver cannot be printed like paper currencies. Precious metals are a store of value. Unlike paper currencies, the value of precious metals will not go to zero. Buying gold and silver is a good way to sit out your wealth when assets are chased to overvalued levels and employ it when deleveraging causes asset prices to fall.
The words "six months" are now the most talked about timeframe in the media with regards to interest rates. They are also the words that US Federal Reserve Chairwoman, Janet Yellen, would regret uttering in her Federal Open Market Committee (FOMC) testimony last week.
The Fed's minutes had indicated that the Committee is likely to maintain the current levels of the federal funds rate for a "considerable time" should the Quantitative Easing (QE) program ends AND the inflation rate stubbornly remains below the Committee's 2% target. During the press conference, Janet Yellen was asked to give clarity on the timeline described as "considerable time" after which interest rate hikes could be expected.
Being her first press conference as Chairwoman, she made the rookie mistake of defining the time period as "something on the order of around six months or that type of thing". Given the current pace of QE taper, this could mean that interest rate hikes could start early 2015 - this was way earlier than the markets had expected. A sell-off in the stock markets ensued and the media began their fixation on the timeline of six months.
Unfortunately for the Chairwoman, this fixation did not do justice to what the Committee had wanted to convey in their painstakingly crafted minutes. In it, the Committee "reaffirmed its view that a highly accommodative stance of monetary policy REMAINS APPROPRIATE". The Committee's decision on when to raise interest rates would be based on data that show maximum employment AND achieving a persistent inflation rate of higher than 2%.
While their flawed measurement of the employment rate has fallen, their flawed inflation rate measurement has never stayed above 2% for more than two consecutive months since November 2012. Moreover, the Committee also said in the minutes that even if the unemployment rate and inflation rate have reached mandate-consistent levels, economic conditions may warrant keeping interest rates "below levels the Committee views as normal in the longer run".
In essence, the Fed's minutes lean towards continued loose monetary policy and low interest rates. Stay calm and read the minutes right. The Fed's money-creating spigot is still left wide opened.
In Monday's editorial we wrote about how global debt has skyrocketed due to central bank interest rate suppression during the last 6 years. In some countries the situation is more dire than in others. Japan has one of the worst government debt situations in the world with a national debt of 227 percent of GDP. In August of 2012 Japan broke through a 1000 trillion or 1 quadrillion yen in debt! That´s 1000,000,000,000,000 yen. Numbers too large for the human mind to grasp.
The Japanese government, like all other governments, gets most of its revenue from taxation. What it can’t finance through taxes it has to borrow. it does this by issuing interest bearing IOUs called bonds that investors buy. But when the government borrows too much, the lenders (in this case the bond buyers) starts to worry that they won’t get their money back. This is where the central bank comes in with its printing press. The central bank prints money which lowers the interest rates, which in turn allows the government to borrow even more. Of course this cannot go on forever and eventually the rates have to go up.
This video explains the Japanese debt crisis in an excellent way and shows us that when the interest rates on Japanese government bonds rises over 4%, it will be game over.
As always, money printing may work in the short run, but it is always futile in the long run. Investors that hold Japanese government bonds will have to form an exit strategy in the near future and a lot of the fundamentals point towards gold. Gold trader Tres Knippa recently recommended investors to short Japanese debt and buy gold - physical gold.
Recently, some people have said to me that they were selling precious metals because they found the price movements of gold and silver to the upside to be too slow. They preferred exchanging the monetary metals for paper currencies to invest in higher yielding but more leveraged investment vehicles.
While I agree that people have different investment strategies, I do not think it is wise to cite slow upside price movements in the short term as a reason to sell physical precious metals now. It reflects a mismatch of expectations in the asset bought.
Buying gold and silver is not a get-rich-quick scheme. Physical precious metals held outside the banking system offers a much needed insurance against the on-going banking and debt crisis. Never before has the whole world come to a point where every government is printing unprecedented amounts of currencies. It is no wonder that the money supply of every country has increased substantially and real price inflation in goods and services are increasingly pronounced.
At a time where bank failures and sovereign bankruptcies are rampant, it would be more prudent to insure your wealth with physical precious metals first and take higher risks with money you can afford to lose. Such a strategy together with reducing expenditure and paying down of personal debt would be a a better investment approach than speculating on the short term prices of precious metals.
Gold and silver is money. They have been money for thousands of years. They should be hoarded. They should be bought for the long term to preserve purchasing power and guard against against continuing currency devaluation.
The Switzerland-based Bank of International Settlements (BIS) reported recently that global debt has increased 40% in 6 short years since 2007 from $70 trillion to more than $100 trillion.
Bloomberg reported that "borrowing has soared as central banks suppress benchmark interest rates to spur growth" after the US sub-prime mortgage crisis of 2007. It does not get any clearer that this - central banks have suppressed interest rates to allow easy money to be borrowed by governments and corporations.
They have a playbook where the only solution to spur economic recovery is additional credit injection. 6 years after the 2007 crisis, the major central banks are still engaging in credit injection (a.k.a QE, stimulus, etc.). With credit created out of thin air, the central banks have gobbled up government debt that most private investors shun. This has exacted downward pressure on the yields of government debt making them seem safe and normal.
The truth is that most of the governments issuing the debt are bankrupt and will not be able to repay the outstanding debt at currently suppressed interest rate levels. The eventual rise in interest rates will make government borrowing unsustainable. It is no wonder that all the major central banks are adamant to keep interest rates at their current near-zero levels to allow government borrowing to continue.
In their bid to spur growth in their economies, governments are going deeper into debt and they are convincing themselves that it is the right thing to do. $1 trillion is a huge sum. To owe $100 trillion is truly unimaginable. The biggest bubble that has yet to pop is this credit bubble. This is why now is the time to diversify your assets into hard assets like precious metals and reduce exposure on assets linked to easy credit, low interest rates and leverage.
As most of you may know, China has now surpassed India as the world's largest consumer of physical gold. When the Indian government decided to curb the massive gold imports last year, black market entrepreneurs stepped in to fill the void, and gold smuggling has since become rampant.
Despite illegal smuggling making up for some of the loss in legal gold inflows, the Indian government’s import restrictions seem to have had the effect of increasing silver imports. Koos Jansen reports via his blog Ingoldwetrust.ch that India’s measures had pushed a lot of Indian precious metal savers into silver.
During 2012, India's silver imports were at a measly 2115 tons. Compare this to 6125 tons of silver during 2013. In December alone, 825 tons were imported - an increase of 108% month-to-month and a whopping 6560% year-to-year.
Silver continues to fare strongly in the US as well. The US Mint's sales figures were the strongest ever seen for the month of February, with almost 3,7 million coins sold. This is especially encouraging since February is usually a slower month.
If these numbers hold up, 2014 might become a year of record silver investment demand. This should, by all means, push the price of physical silver much higher.
The root of the US dollar can be traced to the United States Notes (also known as "greenbacks") that were issued as a result of the Legal Tender Act of February 1862. This act made greenbacks legal tender for all debts. It was enacted to pay for deficits incurred by the US government in the American Civit War.
Through this act, Congress first authorised the printing of $150 million greenbacks in February 1862. Five months later, a second issue of $150 million was authorised. In early 1863, another $150 million in greenbacks were printed. By 1864, the printing of greenbacks had reached a peak of $415 million. The issue of greenbacks had nearly tripled in 2 years.
Due to over-issuance, the greenbacks depreciated steadily in terms of gold. At a time when gold was money, over-issuance of greenbacks and the government's attempts to force private businesses to accept greenbacks only cause the public's confidence in the fiat currency to plummet.
California was one state that fiercely opposed payment in greenbacks. Its businessmen sought to protect themselves by inserting gold coin payment clauses in all their contracts. Newspapers also warned citizens about the dangers of accepting an inconvertible paper like the greenbacks. Even the state's banks refused greenbacks on deposit. The state's judicial institutions also fought to maintain the gold standard and rejected the depreciating greenbacks.
There was such a time in the past when people understood that gold was the only sound money. They saw the same bouts of money printing by the government to fund debts like we do today. They understood that being paid in gold was full payment and not a promise to pay. They were adamant about gold being the exclusive currency. This was the majority view at that time!
How then is it that so many have forgotten what money is today? How is it that the majority have more confidence in depreciating paper currency than precious metals which have been money for thousands of years?
Locals who had lived through the Japanese occupation of Singapore would remember the paper currency issued by the Japanese government between 1942 and 1945. It was informally referred to as 'banana money' due to the banana motifs on the currency.
Unfortunately for holders of the banana money, the Japanese government simply printed more of it whenever they needed more money to spend. Each unit of the currency subsequently lost its purchasing power dramatically. When the Japanese were defeated, the banana money became worthless.
Recently, I read an entry in the Singapore Memory website. The author of the page recounted how his grandfather, being the sole breadwinner of the family, had sailed on a Japanese ship for seven months. He was paid in banana money. After he returned to Singapore, his total pay of eighteen thousand banana money became worthless when the Japanese surrendered in 1945. The energy of his productive toil of seven months saved in banana money was lost overnight.
What if his grandfather was paid in gold? Would the value of his pay go to zero even with the end of the Japanese occupation? Absolutely not!
With gold, it does not matter whether it was a Japanese gold coin. It could always be melted and coined under a different nation's flag or made into jewellery. Gold will always retain its value simply because it is scarce and cannot be printed like paper currencies on a printing press. As we see central banks engage in competitive currency printing in a race to zero, remember that it is gold that will be the effective store of your wealth.
In the recent days and weeks, mainstream financial media has been giving the topic of gold manipulation a lot of room. Large media outlets like Bloomberg and Reuters has reported on what seems to be possible collusive behavior between a few large banks who takes part in the daily ritual of setting the benchmark for gold.
Kevin Maher, a New York resident that has been trading gold price derivatives since 2004, are now initiating a class action lawsuit to hold banks accused of collusive behavior accountable.
All this makes good as it brings to surface how this very old and outdated system totally lacks the transparency needed for a market to work.
But there are numerous other schemes that makes the supply of gold seem far greater than what it actually is, thereby keeping the price down. One of these schemes is the act of multiplying existing gold over and over again, until a single bar of gold amounts to a nearby endless supply.
In short, it starts with the New York Fed, for example, having gold in their basement, just dormant, not doing anything. This is where the bullion banks come to rescue. They will gladly borrow the gold, and the Fed will gladly lend it out for it allows them to make a profit from it.
The bullion bank, then, makes good use of the gold, pledging it as collateral for a hefty sum of cash. If the bullion bank doesn’t pay back, the creditor will at least get the gold that the bullion bank has pledged as collateral. The gold is ”hypothecated” by the creditor.
The story could have ended here, and in any sound economic system it probably would, but not in our system. Nowadays it is namely a common practice to ”re-hypothecate” an asset that has been pledged as collateral. This means that a creditor that has hypothecated gold could now turn around and pledge the same gold as collateral for some other deal. The gold has been ”re-hypothecated”.
The whole process makes it look as though there were much more gold in existence than there really is. But this is of course just double book entries, and the physical supply is unchanged.
But as soon as the entities inside of this daisy chain of re-hypothecated gold starts to default on their debts, the collateral - which is the gold - will be called in. A chain is no stronger than its weakest link and since the gold has been pledged multiple times the chain will break as soon as some entity defaults.
When defaults starts to spread like contagion thru the system, its nice to have the physical metal and not some paper that promises to pay gold upon demand.
Researchers now believe that the price of gold could be manipulated by the banks setting it after finding signs of collusive behaviour in trading patterns.
In a draft research paper, New York University’s Stern School of Business researchers found empirical data that are "consistent with price artificiality" and that "co-operation between (gold price fixing) participants may be occuring".
There was a time when a minority were pointing out that the London Interbank Offered Rate (LIBOR) was manipulated by the big banks. They were often dismissed as conspiracy theories until it became a fact in 2012. Barclays Bank was handed fines in the hundreds of millions of dollars by regulators and federal agencies in the US and UK. The LIBOR manipulation investigations are still on-going.
In 2013, it came to light that big investment banks were involved in the manipulation of energy and aluminium prices. In the case of the energy manipulation scandal, regulators found that JPMorgan devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers". This caused consumers to pay more every time they flicked a light switch or fill up a petrol tank. JP Morgan subsequently agreed to pay $410 million to settle the case.
Similarly, Goldman Sachs was accused by regulators for manipulating the prices of aluminium through a routine of shuffling aluminum among warehouses in its bid to control the metal's supply. This made aluminium more expensive for companies. These higher costs are eventually passed on to consumers.
With such more of such scandals being reported in the mainstream media, one cannot be blamed for concluding that the price of gold is likely to be manipulated given that the banks are all over it with the London gold fix. Just like the LIBOR, energy and aluminium, there would be a profit to be made by the banks' traders when there is advance knowledge.
If the current price of gold is manipulated, then what is the real price of gold? If we look into history, the yellow metal was often used to back currencies. Gold gave curencies value. So the question we need to find out is: What would be the price of gold if it backed all the US dollars that have been created?
Once the seat of power of a great Roman empire that spanned territories in Europe, Middle East and Africa, Rome came close to bankruptcy last week but was saved only by the an emergency bailout from the Italian government. Indeed, how far the Eternal City has fallen.
The crushing weight of debt has left the Italian capital with the prospect of not being able to pay the city's 25,000 employees, run public transport and collect garbage by March. “With the money currently at our disposal, I’m able to perform road maintenance every 52 years and clean out the city’s 500,000 manholes every 24 years. This isn’t really maintenance,” Rome's Mayor Ignazio Marino said last week. The canonisation of the two popes is also in doubt.
The unfortunate truth is that Rome has been bailout by the government every year since 2008. The city intends to pay off 14 billion euros of debt by 2048. Future generations of Italian will have to pay down this debt.
The Italian government's bailout of 570 million euros will go towards paying salaries of municipal workers and ensuring public services continue to function. This large sum of money is essentially spent on consumption to keep the status quo. Nothing concrete has been done to really reduce the deficit of the city.
As with other bailouts that had occured in the US and Europe, no one really knows where the source of this bailout money is coming from. If traced, these funds are likely to come from the central banks' money-printing-for-asset-purchases activities.
What has plagued Rome is reminiscent of the bankruptcy of the American city of Detroit last year. When an entity runs out of money in the face of mounting debt obligations, the natural conseqence is to declare bankruptcy. This is the fate of all who do not control the printing press. For the select few that has monopoly of money printing, they merely postpone the inevitable default by going greater into debt.
If your wealth is stored in a currency that is a claim on the government backing it, the current environment of countries and cities going bankrupt is not comforting. Your wealth needs the protection of hard assets such as gold and silver.
Will 2014 be the year of the bail-in? This was the question we posed in our first editorial of the new year. And sure enough there are some storm clouds showing up on the horizon.
A report from the IMF was issued last year where the controversial suggestion to levy a tax on all capital was laid out.
Now, the IMF suggestion may have caught some wind amongst EU executives. A document issued by the EU commission says that savings of the EU's 500 million citizens could be used to fund ”long term investments” meant to boost the economy.
One of the plans outlined was to put in place a law that would allow to ”mobilize more personal pension savings for long-term financing”.
Not only are governments stealing purchasing power from their citizens through the debasement of the currency, they are now discussing draft legislation that will make it legal to loot private funds. And the worst thing is that it is now being done on a supranational level by the technocrats of the European Union, totally out of reach of any democratic process.
Holding your wealth in precious metals, instead of an account denominated in fiat currency, solves the problem of the stealth theft known as inflation. Further, storing your precious metals in a jurisdiction with no specific reporting requirements and no ties to the EU or USA removes the risk of governments looting your funds.
For international and domestic investors seeking a safe haven for their precious metals, BullionStar’s “My Vault Storage®” offers a convenient, end-to-end solution for the purchase, sale, storage, and delivery of an assortment of bullion products.
The recent rally in precious metals prices have caused some physical bullion holders to liquidate their metals. A common reason for selling into this rally was that the bullion was bought at a lower price and a profit had been made now that prices are higher.
Unfortunately, now is not the time to be selling one's bullion holdings. When you sell your holdings, you are exchanging it for a fiat currency that is subjected to the risks of central banks' inflationary policies. Your wealth when stored in a fiat currency is linked to the banking system. It is a claim on the central bank issuing the currency.
Given that the problems of debt, cheap credit and over-leverage are still besetting the global economy, wealth kept in the banking system is money at risk. Buying physical precious metals is one of the ways you can diversify your wealth and disconnect it from the banking system.
Unlike instruments of debt, physical precious metals can never go to zero in their value. This is why institutions such as the central banks continue to hold physical gold today. In fact, they have been net buyers of gold for 12 consecutive quarters, or since 2009. Central banks hold gold as a self-defense asset against currency risks.
While the common wisdom on the street today is to encourage investing in an asset that gives a yield, it is equally important to ask if the current enviroment is becoming increasingly risky to even get back your principle. When government and corporate debt is piled on quicker than the rise in income, the priority is to insure your wealth against default and devaluation. Hold physical gold, not paper.
The big news last week was the announcement of Facebook's acquisition of the popular mobile-messaging startup - WhatsApp Inc. The price tag was an eye-popping USD 19 billion. Yes, it's billion with a 'B'.
Yes, Facebook spent this much to acquire a company of 55 staff with negligible revenue. It is also unsure how WhatsApp can be profitable in the future after such a huge price tag and since it gained popularity with users because its service was free.
The price paid by Facebook per employee in this acquisition was a new record - USD 345 million. The previous record was USD 77 million when Facebook bought Instagram. It's looking to be a case of too much money looking for a place to spend.
What if USD 19 billion was used to buy physical gold? Let's say the price of gold bought was USD 1500 per ounce. USD 19 billion will buy 12.7 million ounces (or 394 tons) of gold - if it was available!
This is amazing given that the estimated annual global production of gold is 2,700 tons. In other words, USD 19 billion will buy about 14.5% the global annual production - if it was available! And we have not done the same analysis with silver - the element with the best electrical and thermal conductivity known to man!
This simple illustration only show how undervalued precious metals are today. It also show how crazy money printing has become that it leaves a single company with so much money that it can single-handedly buy a large amount of gold more than the total gold holdings of most countries.
This is a clear indication that prices of precious metals will only skyrocket the day smart money realise the need to own physical gold and silver. By the time retail investors get the news to buy precious metals, prices will definitely be many multiples from today's prices and out of reach for most.
Virtually all of the precious metals including platinum and palladium have been very strong performers this year. Gold and silver increased about 10 percent measured in USD since the beginning of 2014. Silver rose up until Tuesday for 13 consecutive days, its longest winning streak since 1968. Both gold and silver have broken through their 200-day moving averages which is an important step that gives the metals velocity to trend higher.
This Wednesday the Federal Reserve’s FOMC committee gave their so called ”minutes” in which they announce future monetary policy. The Fed vowed to continue tapering their bond buying program with another 10 billion USD per month, as long as no big economic surprises shows up, meaning that they will now be printing ”only” US$65 billion per month. This announcement may have lowered the inflation expectations of some investors which in turn made gold fall about 1%.
The IMF has previously set their expectations for the global economy in 2014 at a growth rate of 3.75%, stating this Wednesday that they held firm in their belief but with the caveat that ’significant downside risks' existed, especially in the emerging markets.
And many signs of weaknesses there are. The statistics that the US unveiled lately has been weak. Many have tried to blame the weak numbers on the huge snow storm that recently hit the north-east coast of the US. But even parts of the country that has not been affected by the storm are showing weaknesses in areas like construction.The Euro-zone have also shown signs of weakness with PMI-numbers, which is a measure of manufacturing activity, trending lower.
But one of the most discomforting clouds on the horizon may be the threat of an impending credit crunch in China. A decade of extreme growth and loose monetary policy has landed the Chinese central bank, the PBOC, with more than USD 15 trillion of assets on its balance sheet. Beijing has tried to dampen the growth of credit, but to no avail.
Two weeks ago a USD 50 million coal-mining bond could not repay its investors as its bonds matured. There are allegedly USD 875 billion of other such products that are due to mature in 2014.
Bank of America also reported on an analysis from David Cui. He believes that the dominos in China could start to fall somewhere between May and July of 2014, when many of these bonds and trust funds have claims that will come due.
A snow storm is mostly local, or at least contained to a specific region, but in today's globalized economy a financial storm of this magnitude will have global consequences.
Secure your financial cargo in the safe harbor of precious metals before the storm hits the shore.
The Bank of Japan maintained its stance to continue expanding the monetary base at an annual pace of 60 to 70 trillion yen. This amount works out to be about $590 to $690 billion dollars a year or over $50 billion of stimulus a month.
The Japanese central bank is also getting aggressive in its bid to spur lending by the banks. This follows their belief that increased bank lending will increase credit availability in the economy that will in turn encourage spending and jobs creation. Of course, no one is asking where are they getting the money in the first place. With no firm anchor to gold, the paper currency is simply created out of thin air - all in the name of improving the economy.
The Bank of Japan intends to double the size of funds available for lending to banks and extend the duration of its loans to banks. Such a move is simply to make it as easy as possible for financial institutions to make a profit from extending loans. Given the current near zero interest rates environment, this move is the extra toppings on the cake to entice banks to be less risk adverse and start making loans.
It's truly incredible how banks are getting help from the central bank to make easy profits. Wouldn't it be great if you had a business and someone is making it as risk-free for you to turn a profit?
Finally, the Bank of Japan is now refraining from giving any forecast of the level of the monetary base by the end of 2015. This was a deviation from their previous forecast that they expect the monetary base to increase to 270 trillion yen by the end of 2014. Analysts believe that the Bank of Japan is now trying to make this stimulus an open ended program - much like what the US Federal Reserve did with the latest round of QE. This means QE without committing to an end date.
Expect such a move to lead to more currency defending manoeuvres by other countries which will lead to higher inflation.
The gold price broke through the important psychological level of USD 1300 last Friday. Not only did it crossed that level, it went further up by another USD 20 demonstrating strength in the rally.
Ironically, the gold price has risen about 10% since the US Federal Reserve announced the first taper on Dec 18th. This makes gold the best-performing asset since mid-December. This rally is a healthy correction of the fiat-denominated gold price that has been declining since August 2013. Despite this rally in the gold price, gold is still undervalued when compared to the stock market. It is without doubt that trend of stock markets breaking new highs is fueled and supported by the on-going USD 780 billion a year QE program by the Fed.
Despite new Federal Reserve chairman Janet Yellen declaring that the US economy is improving at a moderate pace, the US continues to have to raise its debt ceiling to pay for her debt obligations. The economy continues to be on the QE stimulus crutch. Jobs data continues to disappoint.
A rising gold price only reflects the continuing devaluation in currencies. When the gold price was fixed at US 35 an ounce under the Bretton Woods system in 1944, I believe none of the delegates would believe that one day the gold price will reach USD 1000 an ounce much alone cross it.
But this is our reality today. We now need more units of the paper currency to buy the same one ounce of gold. Buy precious metals to preserve your wealth from losing purchasing power.
In recent years the ”Big 4” central banks, the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England have all been criticized for creating money on a grand, never before seen, global scale.
Sure, these central banks have held their liquidity spigots wide open during the latest years, printing money like never before. The Fed has ballooned its balance sheet to encompass over $4 trillion in assets. The honorable second place holder, ECB has over $3 trillion in assets, Bank of Japan $2.1 trillion and Bank of England $0.6 trillion. Together these giant hold a total of over $10 trillion in assets.
While the sum total balance sheet of the ”big 4” might seem enormous, it is nothing compared to China’s central bank PBOC which has grown its balance sheet by €15 trillion dollars in just 5 years, bringing it up to a total of over $24 trillion. That is more than double of what the other ”big 4” have combined!
All the new credit money being put out into circulation during the last years has lead to diminishing marginal utility. The extra economic growth that each new Yuan of credit is said to create has fallen by a factor of three quarters in 5 years. Now, the new credit only seems to create higher food prices and no real economic growth.
The M2 money supply in China is up 1000% since 1999. If that isn't inflation, then what is?
All of this raises the question whether or not China is heading for a big credit collapse and if the collapse will be a sudden crash or a prolonged agony?
As always, precious metals like gold and silver stored in a safe jurisdiction with no taxes for bullion, and with strong property ownership rights, is probably the best insurance policy against the collapse of any fiat money system.
Data published by the China Gold Association showed that Chinese demand for gold soared 41.36% to 1,176 tonnes in 2013. China has now overtaken India as the world's largest consumer of gold.
China also imported an incredible 1,158 tonnes of gold through Hong Kong last year - more than double the total in 2012. This amount is significant because China's last reported official gold holdings in 2009 was 1,054 tonnes of gold. So in a single year, China's imports through Hong Kong already exceeds her official gold holdings. And we have not factored in China's domestic gold production numbers and gold obtained through its overseas mine aquisitions.
Domestic production of bullion also rose 6 per cent to 428 tonnes. This makes China the largest producer of gold for a seventh year.
Evidently, the fall of bullion prices in 2013 did not stop China from accumulating gold. Instead, it was seen as a good buying opportunity. This is consistent with China's intentions to internationalise the renminbi. What better way to instill confidence in a rising currency than to have the gold to back it.
China's large appetite for gold in 2013 dwarfs the amount of gold that Germany repatriated from the US last year. Out of the 674 tons of gold that Germany wanted to recover from the US by 2020, only a paltry 37 tons were obtained last year. Of the 37 tons obtained, only 5 tons came from the US - the rest had come from France.
China's import numbers show that if the physical gold is available and there is the will to obtain it, 100 tons of gold can easily be moved in a month. Moving only 5 tons in a year only calls to question if the physical gold is really available.
Just when the markets are beginning to think that the US economy can do without the Quantitative Easing stimulus with the Fed's recent 2 QE tapers, the US debt ceiling soap opera returns again. Last Friday, the US has again hit its debt ceiling of $17.2 trillion.
As if following a script, US Treasury Secretary Jacob Lew has again announced that he has to employ bookkeeping manoeuvres to keep the government functioning until the limit is raised by Congress. Once again, he has warned that in less than 3 weeks, the US Treasury will have just a paltry $50 billion on hand to pay for the country's obligations. Just in case if some think that is a lot of money, we are again told that the government's expenditures in a single can easily reach $60 billion.
However, this latest debt ceiling episode does have some changes in the plot. This time both the Democrats and Republicans seem to be in agreement that the country will not default on her debts. As such, the logical expectation is that the debt ceiling will again be raised in the coming weeks to allow the US government to borrow more to pay for her already ballooning debt.
It is a fact that the US is addicted to borrowing money to pay down debt. Such behaviour is discouraged when it happens to individuals and organisations. Such a habit is deemed financially irresponsible. However, when it comes to the US, their need to borrow is now painted as a responsibility to creditors. But how is it responsible if they are paying the creditors with a currency that is created out of thin air and is rapidly depreciating? With every increase in the debt ceiling, the US is only postponing the inevitable - the day when everyone realises that there is little incentive to lend to a country that is bankrupt.
Last Friday Ben Bernanke, chairman of the Federal Reserve, left the chair and his successor Janet Yellen took his seat. Janet has vowed to continue the easy monetary policy that Ben Bernanke has used to prop up the dwindling US economy. The QE program was initiated in 2008 just after the financial crisis hit the world economy blindsiding most mainstream economist including Mr. Bernanke. In the fall of 2012 the monetary spigots was opened up even wider, now flowing at a total of $85 billion dollars per month.
This is now, but since hindsight is 20/20, we need to look at what happened ”then” - before the crisis of 2007 - 2008. It is there that we can find Ben Bernankes worst misdeeds.
Bernanke surely did not see the crisis coming, neither in the housing market, nor in the stock market. As late as 2006 Bernanke stated that he did not see any risk with the sub-prime mortgage scheme. Further, he denounced any notion that a nationwide fall in housing prices could be triggered by the artificial lending standards imposed thru the ”Government Sponsored Enterprises” like Fannie Mae and Freddie Mac.
Mr. Bernanke began his period as chairman of the Fed in 2006. But his role in advocating loose monetary police goes all the way back to 2002 when he as a Fed governor warned about a deflation that did not exist. He also promoted a housing bubble to offset the dot-com- crash, and despite a roaring US economy, Mr, Bernanke pushed for the Fed to cut rates down to 1% back in 2003.
Sure, Mr Bernanke has done a lot to things to hurt the economy and cause inflation during the last 5 years. But his worst misdeeds lies in the past, before the crisis, when he as one of Federal Reserves prime intellectual leaders in partner with Alan Greenspan laid the foundation for the boom and the following bust. The boom is the disease and the bust is - like a fewer - the cure to the infection. By dampening the fever with monetary aspirin pills, Ben Bernanke allowed the economy to continue to ”go to work”, short term.
But the infection has not left the patient and sooner or later we need to let the fewer brake out and cure the patient from the infection.
With the supposed bear market in bullion, mints around the world curiously continue to report increasing demand for physical gold and silver. Bloomberg reports that Austria's mint is running 24 hours a day and hiring extra employees to meet demand for gold coins.
The mint's sales director was quoted saying, "We can’t meet the demand, even if we work overtime.”
This similar high demand for bullion is also reported across the Atlantic Ocean by the US Mint. Sales of gold coins surged 63% to 91,500 ounces in January - the highest since April. Sales of the mint's silver coins was even more dramatic as it tripled to 4.78 million ounces - the highest volume in a year.
Then across the Pacific Ocean, Australia's Perth Mint revealed that gold sales climbed 41 percent to 754,635 ounces last year.
So we have 3 separate reports from 3 big mints on 3 different continents confirming increased global demand for physical bullion. What is notable is that they seem to have problems coping with the current demand - pulling extra shifts, increasing staff headcount, running 24 hours a day. This 'high' demand comes at a time where most people are still clueless to the need to insure their wealth with physical gold and silver!
Imagine the day when everyone finally understands that fiat currencies are only going to devalue over time and is convinced that they need gold and silver in their portfolio. The demand would be much higher than current levels and can only be absorbed by much higher prices for gold and silver.
The US Federal Reserve has once again announced its decision to taper the monthly Quantitative Easing (QE) amount to $65 billion. Despite the Fed trying to assure markets that "tapering is not meant to be tightening", investors sold stocks sending the S&P and Dow Jones Industrial Index to their worst levels in almost 2 years.
The Fed's reduction of the addictive QE punchbowl also has repercussions elsewhere. Emerging markets such as India, Turkey and South Africa saw sharp selloff in their currencies as investors pulled money out of these economies to seek the 'safety' and higher yields in US Treasuries.
When the QE program was accomodative, investors were willing to undertake more risks in search of higher yields in riskier places like the emerging markets. Capital flowed into these countries exacting upward pressure on their currencies.
Now that the easy money of QE is cut back, captial is flowing out of these countries causing their currencies to devalue as investors buy dollars and sell emerging markets' currencies. Uncontrolled, this will lead to higher inflation in these countries and devastate their citizens' purchasing power.
Did they vote for their purchasing power to be reduced? Of course not! Yet it was not their choice. They are vulnerable to the rollercoaster ride of the value of their currencies as long as they save in them. The gold price in Indian rupees is now higher than the start of this year. It is the same phenomenon for the Turkish lira and the South African rand. Had they saved in gold, their purchasing power would have been preserved.
In this year’s first editorial we asked ourselves whether 2014 would become the year of the ”bail-in”?
”Bail-in” is a term that refers to the act of forcing creditors, in this case bondholders and depositors, to have some of the claims on their bank confiscated. This is what happened in Cyprus in the spring of 2013 where some depositors and bondholders got a hair-cut” and lost over 40% of their deposited money.
Last year the IMF issued a report containing a very controversial suggestion, namely to levy a tax on all capital. The suggestion is outlined on page 48 of the report.
Only one month of 2014 has past and so far no bail-in, but we’re starting to hear the confiscation rhetoric in the media and in the corridors of the central banks. As recently as this Monday, the German Bundesbank made a statement in which they called for a capital levy with the purpose of averting government bankruptcies. ”Countries about to go bankrupt should draw on the private wealth of their citizens through a one-off capital levy before asking other states for help”, said the Bundesbank.
The procedure of the ”bail-out”, that we have become accustomed to since the financial crisis of 2008, is in many ways no better, nor worse, than what a ”bail-in” is. In a ”bail-out”, capital is injected to help service an existing debt. But since the money to pay for the bail-outs often comes from the printing presses - i.e. inflation - it is a way of confiscating the depositors money by stealth.
So, whether or not 2014 will be the ”year of the bail-in” is to early to answer. It may happen this year or it may happen the next year, but one thing is for sure - the road ahead is either confiscatory or inflationary.
Customers of HSBC in the UK awoke one day and realised that could not freely make withdrawals of certain amounts from their savings. BBC News reported that the bank had been questioning customers on the reason for withdrawing small sums ranging from £5,000 to £10,000.
Many had their withdrawal requests declined because the bank deemed the reasons they gave as unsatisfactory. The bank had also restricted the amount that can be withdrawn per day. This outraged thousands and stoked fears that a bank-run is imminent.
It did not help that reports that the bank is facing a £70 billion capital shortfall is now circulated in the mainstream media.
Such a development is disconcerting because a healthy bank has no need to impose withdrawal restrictions. Preventing customers from accessing their savings for the amount they require is a severe breach of trust. Therefore, resorting to it only reveals how grave the finances of the bank is.
Unfortunately, such occurences are not new today. Last year, Cypriot banks also imposed withdrawal restrictions when they teetered upon bankruptcy. Many banks today are poorly capitalised and over levered. They will collapse if a small percentage of their assets decline in value.
In such an uncertain environment, it has never been more crucial to diversify your wealth into precious metals. Gold and silver is money. They represent full payment - not a promise to pay. Buying physical precious metals decouples your wealth from the increasingly unstable banking system.
China's gold consumption data for the full year for 2013 is finally out. According to the influential Thomson Reuters GFMS Gold Survey report, Chinese gold demand reached 1,189.8 tons in 2013. This is an incredible 32% year-on-year increase and a fivefold jump since 2003.
With such huge demand for the yellow metal, the Chinese has surpassed India as the top gold consumer nation. Despite new taxation on gold, Indian consumption rose 5 percent to 987.2 tons last year.
Even though 2013 was better known for falling gold prices, physical gold demand by the Chinese and Indians continue to rise. While western investors are selling gold-linked exchange traded funds, Asia is absorbing physical gold seemingly hand over mouth. The falling paper-denominated gold price last year is seen as a discount and a good buying opportunity!
Purchases of 24 carat investment gold by Chinese consumers also rose to a record of 366 tons last year. Many have already begun to protect their wealth by selling currencies for physical gold. It is without doubt that their actions are also largely influenced by witnessing the major central banks print records amount of paper currencies.
Debtor nations like the US are convincing themselves that printing money will solve their debt and economic problems. China, the largest creditor of the US, is now the top producer and consumer of gold. Obviously, their view of true wealth is very different from debtor nations!
Who would you follow? The debtor or the creditor?
Traders who where active in the mid to late nineties probably remembers the sudden tumble in the price of gold starting in February of 1996. On this date gold started to fall and continued to fall unabated during for consecutive years. The price went from just above US $400 per troy ounce to just below US $270 - a whopping 64 percent!
But after hitting an all time low in the early 2000s, the price of gold started it’s biggest bull market in history and despite attempts to manipulate the price, by ”leasing gold in increasing quantities”, (as former chairman of the Federal Reserve Alan Greenspan promised to do) the price continued to soar.
In September of 2011 the price hit US $1900. Shortly after this top it plummeted back down to $1600 but then recuperated back to US $1800, in February of 2012. After this we saw increased volatility in the market with heavy price swings. Still, the price kept itself within the range of $1550 and $1800
But then, in the beginning of 2013, something interesting happened. On the 16th of January Bundesbank demanded its gold back. On this graph (from the Zero Hedge article) you can see a clear Inflection point where the inventories of the COMEX and ETF holdings starts to plummet due to heavy outflows. Note how the price follows suit, plummeting in tangent with the ETF and COMEX holdings.
Since it is the paper trade that decides the price, the physical gold price has plummeted as well, despite the fact that demand is overwhelming.
16th of January 2013 might just have been the beginning of the end to the gold suppression scheme.
The Commodities Exchange, Inc (COMEX) is the largest gold futures market in the world and it operates out of New York. It offers its clients metal warehousing solutions which allows the settlement of futures contracts. In the case of gold and silver, these precious metals can be transferred between clients or withdrawn if requested.
Storage is always an issue when it comes to physical precious metals. For a minimal fee, COMEX allows banks and their other clients to easily store precious metals securely for the purpose of trading futures contracts.
COMEX's gold registered inventories is the amount of physical gold that is available for delivery against futures contracts. This number has declined to a new record low at the begnning of this new year - just 416,563 oz. Given that COMEX gold futures contracts are leveraged about 100:1, it is a fact that there will not be enough physical gold if everyone with a futures contracts wants to take delivery of physical gold.
Canada's mainstream news channel interviewed a trader last week who revealed that if a single entity takes on the maximum allowed long futures contract position for gold and demanded for delivery of physical gold for every contract, it would exhaust 81% of COMEX's registered gold inventories. Given COMEX's all-time low gold registered inventories, it is pure math to arrive at this fact. Should COMEX be unable to deliver gold against futures contracts, the message of gold shortage will ripple through the market.
We live at a time where records are made for the wrong reasons. They are warning signs to those who heed them. Hold physical precious metals, not paper.
Last week, Japan's Ministry of Finance revealed that the country posted a trade deficit of ¥592.8 billion in November 2013. This figure tripled year-on-year and was the biggest trade deficit on record since comparable data became available in 1985.
Japan's trade deficit in November 2012 was ¥222.4 billion. This was before Shinzo Abe took over as Prime Mnister in December 2012. This was before Abe introduced the world to 'Abenomics' which has devalued the Yen by 15% between January and November last year.
The pact between the Japanese government and the Bank of Japan was to conduct asset purchases to devalue the Yen for the purpose of spurring its export economy. A falling Yen was to make Japanese exports cheaper.
Following the March 2011 Fukushima nuclear plant disaster, all of the nation's 50 nuclear plants are currently closed. This has caused Japan to rely on energy imports. Unfortunately, a weaker Yen also meant imports like energy would be more expensive.
Even after the introduction of Abenomics, not only has the country's trade deficit tripled year-on-year, it has become the largest deficit since 1985. If anything, the money printing strategy of Abenomics has exacerbated Japan's debt problem. With a debt-to-GDP ratio of more than 200%, it is the highest in the world for a developed nation.
Money printing is never the path to prosperity. If anything, history has shown that it always ends with the destruction of the inflated currency.
Since 2008, when the Federal Reserve started their massive bond buying program called QE, the inflation expectations amongst investors have been high. Paired with interest rates near zero, this has lead precious metals to be seen as an attractive inflation proof safe haven. A place to hide away your capital and ride out the inflationary times.
So, the question is, have we come out the other side now? Is inflation gone? Well, despite a tidal wave of monetary stimulus and debt, many central banks claim that inflation is now running very low, in many cases below one percent per annum. Some economists claim that this has made gold less attractive, thus making the price fall thru out 2013.
The idea that inflation is running low probably comes from looking at the governments CPI measurements. But one should know that the CPI is actually the ”CP-Lie”. The way that the CPI (Consumer Price Index) is put together by the US government borders to outright deception.
Ever since the 1960:s the CPI has been manipulated thru various means like for example tweaking the input numbers. During the Kennedy administration, the government adjusted certain measurements so that the employment numbers should look better than they in reality were. The Nixon administration continued the deception by erasing food and fuel from the equation, and today the US Government is relying on the statistical morass that the Clinton administration left behind.
No wonder governments can't make out whether we have inflation or not. But $85 billion of freshly printed money each month since the end of 2012 logically means that we should be seeing some kind of inflation somewhere, right? So where is it?
Well, assets prices have been ballooning all thru out 2013 with both housing and the stock market reaching new highs almost every month. That's a form of inflation.
But there is another form of stealth inflation that we might be missing.
Many producers are doing their best to hide away the negative impacts of inflation by surreptitiously shrinking the size of their goods instead of increasing their prices. More and more mainstream media articles are surfacing on the web reporting on everything from tuna cans to chocolate bars that have been downsized in terms of volume and/or weight, but not in terms of price. They call it ”shrinkflation”.
So the fact is that inflation is everywhere if you’r willing to look for it. Governments usually aren’t. Governments are the source of the inflation.
I read with interest two articles in the local newspaper over the weekend. Within the same page was a story about how the US Federal Reserve is expected to persist with the taper of QE despite last week's disastrous jobs data and another article about Japan's recent economic growth as a result of the government's stimulus.
In the first article about the US, the tapering of QE was described as "the beginning of the end of the largest monetary policy experiment ever". With such a description used even in mainstream media news, sometimes I wonder if people are paying attention at all. Read it slowly, it is the largest. And it is an experiment.
And if by the beginning of the end of this experiment we mean the taper of QE, it means that we are still in the midst of this experiment since there is still $75 billion of QE every month. This is definitely not a comforting thought.
In the second article, it highlighted how the Japanese government's own monetary stimulus experiment is causing the economy to grow "faster than in any year since 1996". What could not be done to make the economy grow for 17 years could suddenly be done one year after the new PM took over and aggressively devauled the currency in a bid to generate growth. This is not just a stimulus. It is looking to be a steriods jab. It highlights how money printing can be an easy tool for politicians to show the country a report card with an 'A' for economic growth.
Unfortunately, the loss of purchasing power for savers and the inflating of asset bubbles are detrimental side effects of money printing. As renowned economist Peter Schiff said, "the economy that lives by QE will die by QE." Expect a rough ride ahead with monetary stimulus becoming the norm to fix a broken economy,
The US jobs data for December 2013 came out last week showing evidence that the QE-driven economy is not in recovery. Following November's strong payrolls number of 241,000 jobs created, many economists were expecting a similar strong print of payrolls in December. Some were predicting numbers from 195,000 to as high as 250,000.
Unfortunately, December's jobs data totally missed expectations with only an abysmal 74,000 jobs created. This was the smallest increase in three years. In addition, more than half these jobs that were created were temporary jobs.
The US official unemployment rate also fell from 7% to 6.7%. One may think that this is a positive sign but it is not. The unemployment rate fell because more Americans have left the labour force. This is due to older workers retiring, younger workers going back to school and people giving up looking for a job after months of unsuccessful job searching.
The labour force participation rate showed that only 62.8% of Americans had a job or were actively seeking work. This is the lowest participation rate since 1977. If you were to look at the historical labour participation rate, it is evident that the US economy is still unable to create job opportunities for Americans. After 6 years of QE with trillions of dollars willed out of thin air, the participation rate continues to decline. It begs the question of who is benefiting from all the QE? It is certainly not the middle and lower class as the jobs data is showing.
23rd December last year marked the 100th anniversary of the US Federal Reserve System also known affectionately as the Federal Reserve or just... the Fed. The enactment of the Federal Reserve Act in 1913 paved the way for the rise of central banking in the US.
One of the reasons the Federal Reserve System was introduced was to mitigate the occurrences of bank runs. The Fed was to be a lender of last resort should a bank run occur and banks urgently need capital to stay afloat. To achieve this objective with substantial success, the people behind the Fed theorised that an elastic money supply was required. The idea was to expand the money supply when banks need recapitalisation and contract the money supply when economic conditions warranted it.
Unfortunately, this was only a good idea in theory. 100 years of central banking has caused deep damage on the global economy. During this period of time, the money supply of the US has mostly been expanding, not contracting. Today the US base money supply stands at an incredible $3.67 trillion. The Fed's balance sheet has crossed the $4 trillion mark. It used to take 95 years for the money supply to reach $800 billion. Today, QE at $75 billion a month creates $900 billion in a year.
These numbers are truly frightening and it is a big red arrow that is pointing to the high probability of a currency collapse in the near future as a result of over issuing of the currency. If one were to study the history of past paper currencies that had failed, the overissue of currencies is often the main cause of currency collapse. After 100 years of central banking with interest rates cut to zero, the only tool the Fed has left to jumpstart the economy is increasingly looking to be more money printing.
For a year that saw gold prices decline 28%, 2013 ended with increased gold coin sales for mints. In fact, "gold continued flying off the shelves". This is yet another evidence of increasing gold physical demand at a time of massive money printing by world central banks.
The Royal Canadian mint reported sales of the popular Gold Maple Leaf coin surging 82.5% in the first three quarters of 2013 compared to the year before. The Perth Mint, Australia's national producer of coins and bars, also reported 41% higher sales in 2013. The US Mint saw record silver coins sales of 42.675 million troy ounces and sold 14% more gold eagles than in 2012.
This record demand of physical gold is coming at a time when most people are still clueless about gold's intrinsic monetary value. Many are still heavily invested in leveraged debt and paper instruments. They do not realise that the current environment is setup in such a way where one has to take on more risk in search of higher yields.
Gold demand is a barometer of people's confidence in the global financial system. Stubbornly high physical gold demand shows people are allocating more of their wealth to gold - which also means they are selling paper assets in exchange. It shows that people want to realise the true value of their wealth - they want payment in full and not promises to pay.
Imagine the day when more people realise the need to preserve their wealth with gold. I believe the mints will not only be reporting new sales records but shortages and delays in deliveries will appear. Only an upward correction of the value of gold will allow the supply and demand to be rebalanced. The question then for investors is if they want to buy now while prices are down or jostle with many others later to compete for an even more limited gold supply at higher prices.
Most people have probably heard of the term "bail-out". The term refers to the activity of injecting capital to help service an existing debt. Since the world was plunged into the current financial morass back in 2008, bail-outs has become something of a standard procedure for rescuing banks and other financial organizations deemed too-big-to-fail. The cost of these bail-outs have mostly been laden onto the shoulders of tax payers.
The term ”bail-in” is, by contrast, a term that refers to the act of forcing creditors, in this case bondholders and depositors, to have some of the claims on their bank confiscated. The most recent example of a bail-in is the one in Cyprus were depositors and bondholders with more than 100,000 in their accounts got a ”hair-cut” in which some lost over 40% of their deposited money.
An increasing amount of analysts are now issuing alerts that we might get more of this bitter tasting bail-in medicine in the years to come. An increasing amount of investors are starting to price in the risk of loosing some of their deposits in a new bail-in, triggered by the same economic environment that led to the Cypriot financial crisis.
The IMF has also spurred fear amongst larger account holders by releasing a report that suggest several controversial measures. The most controversial of them is doubtless the one on page 48 were IMF discusses the possibility of levying a tax on all capital. An extraordinary confiscatory measure indeed.
Now, the Cyprus debacle may just have been ripples on the water, warning us of an impeding financial storm were the IMF, the EU, and the European governments will not settle for the €100,000+ depositors, but will go after ordinary people that have €10,000 or less in their bank accounts.
In this case, anyone who has reallocated some of their capital in to the safe harbor of precious metals, stored in a safe jurisdiction such as Singapore, won’t have to lose any sleep. Even if 2014 should turn into the year of bail-in.
It is now certain that 2013 will be the first bear market year (after 12 consecutive bull market years) for the fiat denominated gold price. Sentiments on precious metals are very negative with almost everyone expecting prices to go lower. Most of it are influenced by the negativity of witnessing continuing falling prices this year and not based on fundamentals.
When gold prices rise, it is telling you that the fiat currency you hold is buying less gold - you need more units of the currency to buy the same 1 troy ounce of gold. Conversely when gold prices fall in the current largely inflationary economic environment, it is a unique situation where your fiat currency allows you to buy more gold.
This is truly a rare event because the data that we see is pointing to an increasingly inflationary future - a trend that is actually a fact for the past several decades! Money printing by global central banks are in full force. Prices of goods and services only rise over time - not fall. Bubbles in assets such as the stock markets, property prices and bond markets continue to be inflated due to artificially suppressed historically low interest rates. Major global economies continue to be mired in economic malaise.
Buying of physical gold has skyrocketed. Central banks continue to be net buyers of gold. Global gold production is not increasing as fast as the printing of fiat currencies. Falling gold prices are also resulting in the closure of many gold mines thus affecting future supply.
2013 has been a great year for buyers of physical gold. The yellow metal has become ridiculously cheap in terms of fiat currencies and presents a great opportunity to accumulate for those who see the inflationary signs in the global economy.
December is a month in which many westerners succumb to heavy consumption in a lot of eastern made products, increasing the ever growing pile of electronic gadgets together with the ever growing pile of private debt.
In China, on the other hand, demand for both jewelry and bullion have been stronger than ever. Chinanews.com just reported from the gold jewelry shop Taiyuan in the Shanxi province where low gold prices of around 287 yuan/gram has created a rush to buy on what people consider to be discount prices.
China's gold imports have been rising steadily thru out the year and many jewelers and retailers has been buying the metal early to build up inventories in an effort to keep up with demand before the seasonal peak.
China is on course to overtake India as the world's largest consumer of bullion. More than 2000 tons of physical gold has been withdrawn from the Shanghai Gold Exchange during 2013. This equals the Chinese gold demand very closely.
Interestingly there are sometimes voices being raised claiming that Chinese and Indian citizens are "spending" to much money on gold jewelry. But most Indian and Chinese people view their gold purchases as a form of investment or savings rather than consumption and spending. They view gold, in whatever shape or form, as money.
As proven by the ages, gold is the only imperishable, immutable and lasting currency.
In his 2 terms as Chairman of the US Federal Reserve, Ben Bernanke has quadrupled the institution's balance sheet to an unprecedented 4 trillion dollars since 2008. The Fed’s holdings rose $14.1 billion to $4.01 trillion in the past week.
4 trillion is an amount larger than Germany's GDP, which has the world's 4th largest economy. It is a figure that is more than double the GDP of strong commodity exporting countries such as Canada and Australia.
It is a staggering amount belonging not to a country but to a private institution called the US Federal Reserve. This massive balance sheet is the result of all the bond buying programs called Quantitative Easing (QE). Even with the recent tapering of QE from $85 billion a month to $75 billion, it will expand the Fed's balance sheet by $900 billion a year.
Ben Bernanke admitted the danger of the Fed having such a large balance sheet when he said, “As the balance sheet of the Federal Reserve gets large, managing that balance sheet, exiting from that balance sheet become more difficult. There are concerns about effects on asset prices, although I would have to say that’s another thing that future monetary economists will want to be looking at very carefully.”
In other words, after ballooning the balance sheet to dangerous levels, he is readily relinquishing the task to unwind the balance sheet to 'future monetary economists' such as his successor Janet Yellen. She will either have to continue ballooning the balance sheet or attempt to reduce it and risk causing a crash in asset prices.
In March this year Fed chairman Ben Bernanke made a statement saying that the Fed was considering a taper of their long running QE stimulus program. In November of 2008 the Federal Reserve started it's buying of $600 billion of mortgage backed securities. Then QE2 came along in which the fed purchased Treasury securities for another $600 billion.
After that QE3, with its $40 billion per month open-ended bond purchasing program, was initiated in September of 2012. In December of 2012 the total amount of stimulus in QE3 was increased to $85 billion per month.
When Mr Bernanke earlier this year made a statement about the possibility that the Fed might cut back on QE, the markets instantly reacted in a negative manner. This led some to believe the the Federal Reserve was bluffing and that they simply wouldn't back away from their inflationary purchase program since this would throw the economy in to a state of withdrawal - withdrawal from the drug of easy money, that is.
But after all said and done, it now seems like the Fed will be initiating its tapering in January of 2014, initially cutting their bond purchases with $10 billion dollars per month. Some claim that the stock market highs can not be sustained without the current levels of easy credit that the Fed has been feeding investors thru QE. But there are other voices saying it is their belief that the Fed will taper QE to zero within the coming 12 - 18 months.
Will this be bearish for gold? No, says retired Merrill Lynch broker Stewart Thomson. He claims that we have now gone into a different market where QE doesn't drive the gold demand any more. Many investors from the west have invested in gold as a hedge against a suspected inflationary environment caused by excessive money printing or "QE to infinity". While inflation oriented buyers from the west may have been a price driver 2008 - 2011, demand from Asia has now taken over.
Mr. Thomson says that if most western QE-oriented gold investors grasped the ramifications of the massive physical gold demand increase in Asia, they wouldn't fear any tapering, not even if the QE would go down to zero. This is due to the fact that it is gold demand versus mine supply that will ultimately move the gold price in it's primary trend.
So even if "QE to infinity" is going away, "gold demand to infinity" is here to stay.
Sentiments on precious metals prices have been extremely negative this year. Gold prices have declined more than 30% since the start of 2013. This puts gold in its first bear market after 12 consecutive bull market years.
One phrase has stood out in news reports on gold in the mainstream media - 'investors have lost faith in gold'. Goldman Sacs called gold a "slam-dunk" sell in October. Out-going Federal Reserve chairman, Ben Bernanke, said that gold prices have dipped because investors now see lesser need for a "disaster insurance" like gold.
This excessive negative outlook on gold is misplaced. The debt binge of the US, Europe and Japan is still uncured - they continue to pile on more debt and at a much faster pace. World central banks are still resorting to printing money to jumpstart their economies. 5 years have passed since the Great Recession of 2008 and monetary stimulus is still a crutch much needed by the major world economies. If anything, the need for disaster insurance has never been greater today.
Gold is now most oversold since 1985. An asset with good fundamentals like gold will not remain oversold indefintely. The negativity we are seeing is mainly in the fiat currency denominated spot prices. However, exploding physical demand in 2013 is telling a very different story. Now is the time to accumulate precious metals. Now is the opportune moment to diversify your wealth away from the teetering debt-laden monetary and banking system. Don't wait until the mainstream media changes its tune to sing gold's praises. It will be too late to join in the public's mad rush for gold then.
Precious metals spot prices have declined to levels last seen 3 years ago. If one is to consider the waiver of the Goods and Services Tax (GST) in Singapore in 2012, today's prices are even better. Given that central banks are still printing boat loads of money and governments of major economies are accumulating more debt, the current levels of precious metals prices are indeed very attractive.
In addition, there are more reports that precious metals spot prices have crossed below the all-in mining costs of many mining companies. Sentiments regarding precious metals prices are extremely bearish now although physical demand has skyrocketed. All these factors all point to a good opportunity to accumulate both gold and silver.
Despite these factors, it is common for people to watch the spot prices hoping that it will go lower before they buy. This can be dangerous if they have not diversified a substantial part of their wealth into precious metals. Should prices run up due to a confidence crisis in fiat currencies, their wealth will lose a substantial amount of purchasing power immediately. Seeing months of low prices can sometimes lull people into the complacency of expecting lower prices ahead without a basis for it.
A better strategy would be to dollar cost average your purchases now. It allows you to buy the bulk of your bullion at prices that are at 3-year lows. You will not rue missing out on buying more should prices run up. Someone once said, "Crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought." Protecting your wealth should take priority over excessive price watching.
Information, stemming from several sources, says that the North Korean Government and its leader Kim Jong-Un has decided to part with substantial amounts of their gold reserve in a bid to curb a looming financial disaster. This has happened despite the fact that Kim Jong-un's grandfather, Kim Il-sung, vowed to never sell the countries gold.
Recently Jang Song-thaek, uncle and guardian to North Koreas leader Kim Jong-un, were purged from the regimes inner circle as he was believed to be responsible for bad economic decisions in his dealings with foreign countries. The gold divestment that now followed suit has brought about speculation whether North Korea might be facing an impending economic collapse.
According to The South Korean News agency, Yonhap News, the buyer of the gold is China. This should come as no surprise to anyone following the gold market. Both the Chinese citizens and their government has shown an insatiable appetite for gold during the latest years. In week 47 of 2013, Chinese gold buyers had taken physical delivery of no less than 1928 tones of gold, year-to-date, from the Shanghai Gold Exchange.
A truly earth shattering amount of what is probably the most stable and liquid financial asset ever known to man.
Tomorrow marks the first anniversary of QE4. On 12 December 2012, the chairman of the US Federal Reserve, Ben Bernanke, announced that the central bank will buy an additional $45 billion in US Treasuries per month.This announcement came 3 months after the Fed unveiled the much awaited QE3 program which saw the central bank commit to buy $40 billion in mortgage backed securities per month. This brought the total purchases per month to $85 billion.
QE4 also got the nickname 'QE4EVER' since unlike previous QE programs, it did not have an end date. This gave the Fed the freedom to continue buying debt as it saw fit. It was also a reaction to their observation that the stock market were sold down as the end dates of previous QE programs drew closer. This gave cause to critics of the QE program to say that QE only gave a temporary boost to the markets but had little effect otherwise.
Before QE1 began, the Fed's balance sheet was about $900 billion. By the end of 2013 and after 4 QE programs, the Fed's balance sheet has ballooned to $4 trillion. With equity of only $55 billion, the central bank is leveraged at 60 times its net worth. This means that a mere decline of 2% in the Fed's asset value will constitute a wipe out of its net worth. Compare this to Lehman Brother Brothers having levered up to 31 times total assets to shareholders equity in 2007 before it went into bankruptcy.
The risks that we are seeing in the global economy are undoubtedly immense. You don't want your wealth to be in the banking system when the house of cards come tumbling down.
The Australian government scrapped the country's debt ceiling last week. Australia's debt was expected to hit the A$300 billion debt limit on December 12. The government had wanted to raise the debt ceiling to A$500 billion but failed to garner support in Parliament for it to be enacted.
As the debt ceiling drew near, it became clear that the country's debt would exceed the limit if the government could not cut expenditures in time. The other option of defaulting on the country's debt was unthinkable and would be embarrassing. It would also cause the government to face greater difficulties in selling government debt at low interest rates in the capital markets. Raising taxes would be too slow to see revenues increase sufficiently and it would be an unpopular political move. The only option was to scrap the debt ceiling altogether.
This move was supported by the major political parties in Australia. It shows that the politicians realise that no matter which party has a majority in the government, the debt ceiling represents a thorn in their flesh. It is a constant restraint on the government's spending. Apparently, no politician regardless of party affiliation had the political will to solve the problem of increasing government debt. Scrapping the debt ceiling benefits every political party.
This is starkly similar to the situation in the United States where government debt continues to grow exponentially and no political party has the will to resolve it. It also shows that it is likely that the US will follow the Australians to abolish the debt ceiling at some point in the future as they realise that the debt ceiling will be reached again and again. This episode reinforces the view that the future continues to be inflationary with more money printing required to service debts that cannot be reined in.
The foundation of todays' moderns society rests on a highly developed infrastructure that supplies us with essential goods and services wherever and whenever we want it, on demand.
Our advanced transportation system with trucks, boats and airplanes, gives us the ability to ship goods worldwide at a low cost. Our society is built on a Just-In-Time structure where many producers keep very little raw-material in stock. This gives society high efficiency and it gives the consumer low cost products. In many ways, this is greatly beneficial to us all. But sometimes the efficiency and low prices may come at a high cost.
When many producers and retailers hold low inventories it means that disturbances in the Just-In-Time transport system may, if prolonged, cause substantial disruptions, even in essential goods such as food and water. The average metropolitan city can endure disruptions in its transport system for about three days before water and food becomes acutely scares. Such disruptions can be caused by anything from power outages to fuel shortages, or natural disasters.
But it's not just the transport infrastructure that might be subject to interference. The financial infrastructure that we so heavily depend on has, during the latest years, shown to be extremely fragile and vulnerable. The ever increasing debts within the system, stemming from both public and private borrowing, has put it on a trajectory towards a financial cliff. Debts can not increase forever and when debt saturation is reached the system will come to a grinding halt. Now power outage needed.
This is why we regard precious metals, such as gold and silver, as the ultimate financial security for any saver that is a little more "Just-In-Case", and a little less Just-In-Time.
It is common for people to think of gold and silver as an investment. This is because they see precious metals' value in terms of the fiat currency denominated price. If the price of precious metals in a fiat currency goes up above what they bought the gold or silver for, it is deemed as a good investment vehicle.
Unfortunately, gold and silver are not investments. Having a physical bar of gold at home does not generate a passive income for you nor does it pays you an interest. If the price of gold goes up, it is only because more units of the fiat currency is required to buy the same ounce of gold. The fiat currency has devalued.
What gold and silver do is that it preserves your wealth. For example, during the time of Christ, an ounce of gold could buy a Roman citizen his toga (suit), leather belt and a pair of sandals. Today, an ounce of gold could still comfortably buy you a suit, leather belt and a pair of shoes.
In 1963, a gallon of gas could be bought for 31 cents in America. Back then this was equivalent to 3 silver dimes (.217 of an ounce) - the coins had actual content of silver. Today, .217 of an ounce of silver will still buy you a gallon of gas in America.
As you can see, gold and silver protect your wealth from being devalued by inflation. Wealth put into precious metals can be stored over time and are an excellent way to ride out the storm during currency devaluations and overvalued asset bubbles. It gives you the ability to sit out whilst maintaining your purchasing power and time your next winning investment!
This month we saw the Dow Jones Industrial Index (DJIA) crossed the 16,000 mark and the Standard & Poor's 500 Index (S&P) crossed the 1,800 mark - levels that have never been reached before.
The mainstream media was quick to attribute this to an improving US economy, low inflation and accomodative monetary policy by the US policy reserve. Given that the United States is not making significant progress on the reduction of her debt and trade deficits, it is hard to understand how is there substantial improvement to warrant such record levels in the stock markets. Regarding low inflation, I do not think the man on the street would agree to this assessment.
Unfortunately, the CPI numbers that show low inflation is the main tool for the Federal Reserve to defend their continued pouring of easing money into the economy through monetary stimulus programs such as QE. It is this easy money that is fueling the rise in the stock markets.
While QE tapering in the coming months is still up in the air, precious metal prices have taken a hit while the stock markets have been given a boost. This is interesting given that for the most of this year, the stock markets had tanked when QE taper loomed over the horizon. Somehow, this is not happening at the moment. One way to see it is that investors are chasing yields albeit at a much higher risk now. Remember the old adage of "buy low and sell high". It may not be a good idea to put money in an asset class that is hitting record highs when the fundamentals do not warrant it.
Gold is a metal that has a very high density. Its weight to volume ratio is 19.3 grams per cubic centimeter. This means that a liter of gold equates to 19.3 kilos of weight. The high density of this monetary metal makes it an excellent way to store and transport a huge amount of wealth in a small space.
Last fall it was revealed that Iran had begun to accept gold from Turkey as a payment for oil. This is Iran's way of circumventing the economic sanctions that has ostracized the country from the international credit clearing system - SWIFT. The gold transactions has been conducted thru a number of couriers that has been transporting the gold in brief cases. The route allegedly goes from Turkey thru the United Arab Emirates and onwards in to Iran.
In august of 2012 alone, Turkey exported gold for an estimated value of US $1.9 billion, meaning that tones of gold has been used to pay for Iranian oil.
This shows us that when all else fails, gold is still a universally excepted form of money that can not be shut down or rendered worthless by the flick of a pen. It also shows that, if anything, the issue of transporting large sums of wealth in the form of gold lies not in lack of space but rather excessive weight.
But for most investors, weight is not an issue and gold still constitutes an excellent way of storing large sums of wealth in a format that is not only compact and convenient, but inflation-proof and universal.
The People's Bank of China (PBOC) governor, Zhou Xiaochuan, wrote recently in a guidebook that the PBOC will "exit from normal foreign-exchange market intervention". This development from the Chinese central bank was a clear announcement to the world that they intend to allow the renminbi to trade more freely. It is likely that this will lead to the appreciation of the renminbi.
Usually the appreciation of a nation's currency is frowned upon as it makes exports more expensive. However, in China's situation, they may have finally decided to eventually stop the practice of purchasing US dollars to suppress the rise of their currency.
With the Federal Reserve's unending QE program spewing out a huge amount of dollars, further suppression of the renminbi will result in higher inflation within China - something that will only increase unhappiness of her own populace. Moreover, the US debt ceiling debacle in October has caused increased awareness amongst the Chinese citizens that their country is being held ransom due to the large amount of US dollar reserves she holds. The Chinese are questioning their government's decision to continue on this path with a money-printing insolvent trading partner that largely pays for physical goods with paper currency.
Allowing the renminbi to rise is also a nod in the direction of focusing on China's domestic consumption - to allow their citizens' purchasing power to increase to buy goods domestically. It looks like the Americans will have to pay more for imported goods in the future when the 1 billion Chinese start to consume more with a currency with better fundamentals than the US dollar.
One of the goals of practicing the ancient philosophical tradition of alchemy was to be able to turn base metals, such as copper or iron, into precious metals. As most of you may know, any attempts to create gold out of nothing have always failed since it requires huge amounts of energy to produce even tiny amounts of gold. The thousands of tones of gold that has been dug out of the earths crust is originaly the product of intergalactic events, namely the collision of two neutron stars.
But the fact is that man has invented a form of alchemy. Gold can be produced in particle accelerators at the rate of 2 million gold atoms per second! This might seem like a breath taking amount. Just leave it on over night, or? Well, you could leave it on day and night except you wouldn't get much more than a hefty electricity bill. Atoms are namely infinitely small, which means that you'd have to leave your particle accelerator on for about 50 million years before you'd have about a gram of gold.
Thus, the modern cutting-edge technology of a particle accelerator won't take away gold's value retaining properties any time soon. But just as the alchemists failed to produce gold out of base metals, so will our politicians fail in their creation of money out of thin air.
Anything that can be produced in infinite amounts is bound to sooner or later loose its value.
The World Gold Council's latest Gold Demand Trends report shows physical gold continues to flow from the West to the East as a result of continuing strength of Asian gold demand. Year-to-date gold demand in jewellery, coins and bars was 26% higher than in 2012. Gold investment in coins and bars reached 1,252 tons in the first 3 quarters of this year - a rise of 36% compared to the same period in 2012. Central banks were also net buyers of gold for the 11th consecutive quarter, purchasing 93 tons.
The only exception was in Exchange Traded Funds (ETFs) which saw net outflows of 119 tons. In October, it was reported that investors' withdrawals from gold ETFs reached nearly 670 tons this year. Compare this distinct reversal from the average inflows of 332.3 tons over the past 5 years. It is no wonder that the fiat denominated price of gold fell substantially this year.
UK gold exports to Switzerland have also increased an astounding tenfold to 1,016.3 tons in the first 8 months of this year from 85.1 tons in the same period in 2012. This is believed to be the result of gold being sold out of ETFs and shipped Switzerland for refining before being sent to Asia. This has resulted in a boom in business for Swiss refiners like Pamp, Metalor and Argor-Heraeus as they melt the large 400oz bars from London into smaller products preferred by Asian buyers.
The data is undeniable - physical gold demand is increasing especially in Asia. The foundations of the paper gold market is weakening rapidly. The transfer of wealth from West to East is already in motion.
Are you on the right side of this trade?
Janet Yellen, nominee for Federal Reserve chairman, announced last week that the Federal Reserve will continue its $85 billion a month stimulus and that there is "no set time" for tapering. It looks like the Fed has changed its mind about tapering the Quantitative Easing (QE) program after the market demonstrated taper tantrum for the larger part of this year as a result of QE-reduction expectations.
Earlier this year, the Fed had consistently mentioned the possibility of tapering (or reducing) the amount of assets that it purchases in the QE program. This led the market and many expert analysts to firmly believe tapering will be announced in September this year. This expectation led to a sell-off in equities and treasuries. The Dow lost more than 300 points back in June and the yield on the US 10-year note reached 2.86 percent in August, the highest since July 2011.
Given that the reason QE4 did not have an end date (unlike QE1 and QE2) was to prevent the market from selling off when the QE end date nears, this development was certainly self-defeating for the Fed. In September, the Fed's decision to not taper QE took all but a few by surprise. It is therefore expected that they continue with QE full steam ahead into 2014. It looks like the Fed has now taken the stance of preferring to be accused to be inflationists than to try to defend QE by saying that they have plans to taper it.
When December comes in a few weeks time, QE4 would have seen the Fed's currency printing reach $1.02 trillion (that's 1 with 12 zeroes behind it) within its first year. This is certainly an astounding number and clearly shows that the way forward to be inflationary.
Hong Kong-based precious metals vault operator, Malca-Amit, opened a new gold vault in Shanghai this month. It is their biggest vault facility yet and it is able to store 2,000 metric tons of gold. This Shanghai vault will target international and Chinese banks to allow them to trade amongst themselves easily within the facility.
Building a vault of this size is no small investment. It is a testimony to the growing view that physical gold is flowing from west to east. Although some banks like Goldman Sachs and Credit Suisse Group AG are forecasting lower fiat denominated gold prices ahead, physical gold demand in Asia is rising. Demand for gold in India has more than doubled since 2008. Within the same period, gold consumption in China has risen almost 350 percent. China's gold consumption is expected to exceed that of India's this year and is likely to hit a record of more than 1,000 metric tons.
Gold buyers see the writing on the wall with regards to the increasing instability of the global financial environment. A case in point being the US, issuer of the world reserve currency, coming close to default in October threatening the stability of the world economy. They realise that gold is the ultimate asset to preserve wealth in such times.
Joshua Rotbart, Malca-Amit's precious metals general manager, sums it up saying, "“There’s going to be more gold coming to China.”
Two government mints reported rising gold sales in the month of October last week. The US Mint reported sales of 48,500 troy ounces of the American Eagle gold coins in October, more than triple gold sales in September. Sales of the gold eagle coin of 752,500 ounces for the 10 months in 2013 are already matching sales for the entire year of 2012 of 753,000 ounces. Across the Pacific, the Perth Mint also reported an increase of 13% in the sales of coins and minted bars in October compared to September.
It is no doubt that the increase in sales in October was fueled by fear from the political tussle between American politicians over the budget (which led to the government shutdown) and the debt ceiling. Well, the debt ceiling is an issue that is still not resolved and it will rear its ugly head again in 3 months. It is likely that we will continue to see higher gold sales in this unstable economic environment permeated by fear and uncertainty.
If we were to zoom out and review the US Mint's gold American Eagle sales figures since 2000, we can see that sales of gold coins have spiked since 2008 - the year of the Great Recession. The average annual purchases of the American Eagle gold bullion coins totaled 341,500 ounces per year from the year 2000 to 2007. From 2008 to 2013, yearly purchases of the gold coins have skyrocketed by 300% to an average annual rate of 1,011,000 ounces.
The economic crises that we witnessed in the past years are banking and currency related. Despite the attempts of central banks to contain the crisis, the systemic risks are still there and debt accumulation have reached unsustainable levels. In view that precious metals prices have retreated this year, it is a good opportunity to seriously consider diversifying your wealth into physical gold and silver.
Numbers for China's gold imports from Hong Kong for the month of September is out. Net gold imports from Hong Kong were 109.4 metric tons. This was slighly lower than the import figures in August.
Nevertheless, these are very strong numbers showing China's high demand for physical gold. It marks the fifth consecutive month that gold import numbers are in excess of 100 metric tons. In the first 9 months of 2013, China has imported an estimated 832 metric tons of gold. The Chinese are already the No. 1 gold mining nation today and they are enroute to become the No. 1 buyer of gold this year.
Such strong gold import numbers continue to support the view that China is accumulating her gold reserves. This is in line with China's intention to prepare for the on-going efforts to internationalise the renminbi and reduce potential currency exchange risks of using the US dollar.
In today's fiat currency dominated world, it is easy to lose sight of the true value of gold when it is relegated to being a commodity traded with other commodities (such as corn, cattle or copper) on the futures market. China's immense gold appetite and increased gold purchases by central banks show the true value of gold as the form of money that anchors confidence when currency risks abound.
5 years ago today, on 4th November, Barack Obama won the US presidency after he defeated Republican nominee John McCain. As the 44th and current President of the United States, he inherited a US economy that was on its knees as a result of the financial crisis of 2008. The debt of the US then was about $11.6 trillion.
His predecessor, President George W Bush, had added about $5.8 trillion to the country's debt in his 2 terms in office - a 100% increase of the debt when President Clinton left office. Unfortunately as of October 2013, President Obama has added about $5.1 trillion to the debt within the first year of his 2nd term in office. He is enroute to hit the $20 trillion debt level by the end of his second term in office in 2016.
If we look at the debt of the US from 1913 till today, it took about 82 years for the US to accumulate about $5 trillion of debt. It took President Bush slightly over 7 years to accumulate $5 trillion of debt. President Obama has added $5 trillion of debt within 5 years. It is without doubt that the rate of growth of the debt of the United States is on an exponential rise.
The trouble is that this debt has an interest that needs to be serviced by the US government. A growing debt would require more interest to be paid. Matters can be made worse if interest rates rise. It increases the burden of servicing the debt. The Quantitative Easing(QE) program was introduced to keep interest rates low. It remains to be seen if the QE amount can be tapered. It is more likely to increase.
Many analysts claim that the UK is in the midst of a housing bubble. A bursting housing bubble is troublesome for society at large but it is especially troublesome for banks and politicians, since banking and political institutions are the ones that have the most to lose from it.
The most prolific way to create a man made bubble is to adopt a policy of "easy money". In such a policy environment the price of money, hence the interest rate, is set artificially low. Since prices are the signaling system of the economy, tampering with them will distort the signals that both consumers and producers use to make their decisions. Consumers will consume when they should save. Producers will produce things that are abundant instead of things that are scarce, thus creating shortages even in places with utterly abundant natural resources. Such absurd situations have occurred several times in history. One of the most famous of these situations is probably the 1930's US depression, created by a Federal Reserve fueled stock market bubble which bursted and threw the economy into a grinding halt in 1929. There were no shortages in natural resources that could have caused the depression. Land, labour and capital were all to abundant in the US during the 1930's. Despite this, hoards of people were unemployed, on the brink of starvation for more then 10 years.
Today many countries are showing signs of serious bubbles in housing. The UK is one of those countries. UK prime minister David Cameron have decided to avert the housing bubble by essentially doing the same thing that created it in the first place: Adopting a form of easy money policy called "Help to buy".
This program will make it even easier for poor people to buy a home since the government will guarantee the mortgage for them.
These kind of state sponsored lending programs sets the stage for a bubble that will sooner or later crash. This was exactly what happened when George W Bush started his version of what Cameron is doing now. Thru Government Sponsored Enterprises, such as Fannie Mae and Freddie Mac, the government guaranteed loans for people that would never have been able to lend in a free lending market. This created a gigantic housing bubble that bursted in 2007 - 2008. The effects of this bursted bubble still echoes in the economic landscape.
But Cameron is determined to make it work. If he does, he will be one of the first politicians in history to pull such a thing of.
Today in Singapore, property is still thought to be the darling asset to invest in by the majority. Unfortunately, reading a book that advocates buying property to create passive income ten years ago is very different from reading it now.
Now, property prices have more than doubled. Interest rates are now backed against a wall – artificially held down at record low rates. Governments are accumulating debt at alarming rates. Bank failures are common and more countries are at the risk of defaulting on their debts.
This increasing uncertainty and instability is also threatening job security. The property you deem affordable now (based on your income) can easily become a strain when interest rates climb. Companies trying to stay afloat in an economic crisis will cut wages or retrench staff. Should you lose your job, your mortgage repayments will become a tremendous burden.
Leverage cuts both ways. While you leverage on banks’ money to generate passive income, you will also bear the compounding risks when things go south.
The reason we are witnessing frequent economic instability in recent years is because the fiat monetary system is on the verge of breaking under a massive debt load and an overuse of leverage. Central banks have to resort to currency printing to service the rising interest on debts in order to keep the system going.The old adage to buy low and sell high is simple yet true. Why not sell the asset that has more than doubled in value and exchange for an undervalued asset like precious metals? The bull market for gold and silver still has a long way to go in view of the excessive currency printing ways of central banks.
Less than 2 weeks ago, the prospect of a US default on its debt was reported in the media akin to an end-of-the-world crisis. A week after the much dreaded Oct 17 deadline, little has been mentioned about the US default in the media. Serenity seems to have settled over the financial markets. Everyone is relieved that the crisis is over.
But has it? Has the debt of the US increased? Yes, in fact it has blown past $17 trillion (excluding unfunded liabilities of course). Is the US continuing to borrow to service its debts? Yes. Will the new debt ceiling be reached soon? Yes, in fact the debt ceiling will be reached in about 3 months. Will we be faced with the prospect of a US default if the debt ceiling is not raised? Yes, because nothing has really changed.
As we can see, the explosive ingredients that caused the US debt crisis are still there. In fact, it has been there for many years. It was there during the July 2011 debt ceiling debacle. It was there when the debt ceiling was again reached on Dec 2012. And it re-surfaced again on Oct 2013 when the US Treasury told the world that it had reached its accounting limits to fund the US government's debt. The problem is like a can kicked down the road. Debt continues to be accumulated in greater amounts. For all the great minds in the US government, no one was able to decisively solve the issue.
Before you take the next investment decision, plan for it around the underlying fundamentals - not on the latest sensational news in the media.
When we say that an asset has counterparty risk, we mean that it is dependent on another party’s promise to pay.
For example, the cash we deposit at a bank has counterparty risk since it depends on the bank paying you back the day you need to use it. For example, when the major banks in Cyprus teetered on bankruptcy in March 2013, many Cypriots tried to withdraw their savings from the automated teller machines but were unable to. The banks renege on their promise to pay.
Government bonds have counterparty risk since it depends on the government to make good their promise to pay the bond holder when it matures. China and Japan are the largest foreign holders of the US government’s bond. They had lent the US government money expecting to be paid the principle plus interest the day the bonds mature.
When the debt limit fiasco threatened to cause the US government to default on its debt payments, foreign bond holders risked losing their country’s money which was lent to a party that may not pay them back.
Physical gold is an asset that does not have counterparty risk. When you buy physical gold, you hold an asset that has intrinsic value. Even if its paper denominated price goes to zero due to the collapse of a paper currency, you still hold the physical gold. Unlike currencies, gold will always be widely accepted as it is scarce and cannot be created out of thin air.
Have you diversified your wealth into an asset that does not have counterparty risk?
IMF's latest report discusses the possibility of levying a super tax on all savings in the Eurozone. The tax would be a whopping 10%. They claim that this would solve the debt problem in "most sovereign countries". So if you'd have €10,000 in a savings account, the state would confiscate €1000 of that.
According to the report, this would bring the debt ratio down to "acceptable levels".
What the report fails to address is the underlying cause of the crisis. How can you decrease debt levels long term in a money system based on debt? For there to be money in today's world, somebody has to go into debt. If debts are decreased the amount of circulating monetary medium will also decrease, causing financial turmoil and unemployment.
On top of this we have the issue of compound interest. Every unit of bank credit issued thru a "bank loan" carries a stated amount of interest.This interest then compounds in to ever increasing debt. This is caused by the fact that when a loan is issued, only the money to pay the principal is created. The money to pay the interest is, however, not created. Where is the money to pay back the interest supposed to come from? You guessed it! The money to pay the interest needs to come from the issuance of yet another loan, thus creating an ever increasing spiral of debt.
IMF's suggested super tax solution is no solution at all. It's just a facade. It's like adding new paint to your wooden house without scraping of the old paint first. It might look nice for a year or two, but sooner or later the new color will fall of, revealing the old one. If you just keep adding new paint the problem won't be solved and your wooden facade will soon rot away.
The rot in the monetary system has been building up for over 40 years and it is increasing in both pace and scope.
It seems unlikely that the politicians and the IMF will come up with any real solutions to the problem of the debt money system. But you do not have to wait for any authority to fix the problems. You can protect your own wealth now by buying gold and silver and storing it in a safe jurisdiction with no ties to the EU. Singapore is such a jurisdiction.
From time to time, there have been the occasional enthusiastic banter in the mainstream media that the US is in the midst of an economic recovery.
However, a look at two of the major economic events in the past years show escalating deterioration instead.
Last month, all eyes were on the US Federal Reserve to see if they will reduce the currency creating program known as Quantitative Easing (QE). They did not.
5 years after the Great Recession of 2008, the US economy still requires an enormous $85 billion a month stimulus. QE1 and QE2 had definite end dates. QE3 and QE4 are currently indefinite.
In the 2011 US debt ceiling crisis, the US government could not come to an agreement and the Treasury had to resort to 'extraordinary measures' to keep funding the government longer. The US debt ceiling was again reached on 31 Dec 2012. The US Treasury then went through the same motions of 'extraordinary measures' to keep funding the government. In February 2013, the US government postponed the debt ceiling to May 2013. When May came and gone, the debt ceiling issue was not addressed and the US treasury began 'extraordinary measures' again. The new deadline to raise the debt ceiling thus became Oct 17 2013.
How is this a picture of a US recovery? If anything, it resembles someone who is heavily indebted trying his best to put off an inevitable bankruptcy.
When hazy skies shrouded Singapore in June 2013, the Pollutants Standards Index (PSI) readings on several days reached the highest band of ‘hazardous’.
What was interesting was at the onset of the haze situation, few thought the use of a mask was necessary. And the minority who were wearing masks looked odd to the majority.
As the haze worsened, wearing masks in public became more common. However, there were still many who were without masks. Soon, masks became sold out in pharmacies. When news of the shortage got to the general public, everyone wanted to buy some. Due to the demand and the lack of supply, some private retailers sold the masks at much higher prices. Wearing masks in the public became the sensible thing to do. Those who did not were thought to be silly.
This change of perception was certainly interesting. It mirrors the behaviour of people in a crisis.
There are many signs in the troubles we see in the world economy today that point to the need to diversify our wealth into precious metals. Some have noticed the signs early and have taken action. However, many are still unaware of how inflation is eroding their wealth. Seeing precious metals as money is still a minority view.As central banks continue to create currencies excessively, the day will come when investors lose confidence in paper assets. We will then see great demand for hard assets like precious metals. With trillions of currency chasing after a smaller amount of precious metals, you can draw your own conclusions of how this scenario will play out.
There's much volatility in the world right now, both in the economic and political realm. Investors are frightened for many reasons. The Fed's decision not to taper but to continue to print money might be one the reasons for investor weariness.
The Fed made a statement earlier this year indicating that they would decrease their bond buying, therefore shocking the market when they recently decided not to. This leaves investors with uncertainty of what to make out of future statements coming from the Fed, as the Fed might say one thing and then do another. Continued money printing will in the long run undoubtedly ramp up inflation, decreasing the value of dollar denominated assets and savings.
The still unresolved US budget deal, paired with fears of US hitting its 17 trillion dollar debt celling, is also affecting investor behavior. Initially gold prices backed down but are now moving upwards as there seems to be no end to Washington's political stalemate, making investors move in to safe haven assets.
While many Western countries depict gold as something bad, even hindering investors from accumulating it, many eastern countries seem to have an insatiable appetite for it, even encouraging its citizens to accumulate. The SOFAZ, State Oil Fund of Azerbaijan, has vowed to increase their holdings of gold by 33% during 2013, totaling a purchase of 30 tones by the end of his year.
Executive Director Shahmar Movsumov states that gold investments are strategic in nature. “Gold price volatility does not bother the Fund, because this is a continuous process. Currently, there is a debate with the government to continue the purchase of gold”, says Movsumov
As long as the US dollar has reserve currency status, and the US Government has the keys to the printing press, money printing will continue and inflation will soar. Holding physical precious metals are one of the few ways of protecting your wealth from being stolen through monetary inflation.
Today, the United States dollar is the most widely held currency in the foreign exchange reserves of countries. It obtained this privilege understandably since the United States went into the WWII as the strongest nation both in economic prowess and military might. Back then, she was the largest creditor nation. No wonder the world agreed to peg their currencies to the US dollar under the Bretton-Woods system in 1944.
Nearly 70 years on, we see a very different United States. Although she still is the issuer of the world reserve currency, she has become the largest debtor nation in the world. She is beset by one financial crisis after another – most notably the financial crisis of 2008.
Last week, the US government was partially shut down due to political in-fighting regarding its budget. In the coming weeks, the US will need to address its debt ceiling again. Without the debt ceiling raised, the US government will be left with approximately $30 billion to pay its debts. And expenditures on certain days can be as high as $60 billion.
The signs are glaring that the issuer of the world reserve currency is having systemic fiscal problems. The days that the reserve currency status of the US dollar are certainly numbered. The next country that aims to take over this privilege will certainly need substantial gold reserves to instill confidence in its currency.
This is because gold is seen around the world as a store of value. This is also why central banks around the world continue to be the biggest institutions that buy the yellow metal today.
Large numbers like billions or trillions can be hard for human beings to asses. How much money is this really? One great example is given by Chris Martenson in this episode of his video series "The Crash Course". The example shows us that one trillion equates to a stack of US $1000 notes that is 67.9 miles or 109 kilometers high.
Some people might think that the US $1000 dollar banknote is a fictive denomination used just for the example with the 67.9 mile high stack. But the fact is that US $1000 notes do exist. There are even US $5000 and US $10,000 notes. However, none of these have been printed since 1945.
Up until 1969 you could withdraw these notes from banks in the USA. The same year Richard Nixon issued an executive order which halted the distribution of these notes. However, they are still legal tender and you can deposit them at a US bank. Upon deposit they are sent to the US Treasury for destruction.
In the year of 1934 a "gold certificate" was issued in the US with the denomination $100,000 US dollars. This note was only used for official transactions in between the different branches of the Federal Reserve, and never circulated amongst the public. The note was backed by a corresponding $ 100,000 in gold held by the U.S. Treasury.
A certificate of US $100,000 in gold was at the time representing a fairly considerable amount of gold. With gold fixed at about US $34.69 per troy ounce this note was equivalent of 2882,7 troy ounce or 89.6 kilograms of gold.
Today Singapore is the country that is issuing the world's largest denominated banknote. The SGD $10,000 note is worth about US $8000.
Last week, financial markets around the world had expected that the Federal Reserve would reduce the pace of its bond-buying program. Against expectations, the Fed announced that it would continue its $85 billion bond purchases per month.
The markets heaved a huge sigh of relief. Stock markets and US Treasuries rallied. Locally, the Singapore’s Straits Times Index rose 1.9% on this news.
This reaction is interesting. The stock markets did not rally because the companies contributing to the index were reporting bigger profits. The US Treasuries climbed not because the issuer became more creditworthy.
Instead, it was the Fed’s continued money-printing ways that gave investors confidence to put their money in the stock and US Treasury markets.
Such is the strange behaviour of our financial world today – continued money printing is a green light to invest and attempts to slow it conjures fears of economic slowdown. Five years after the financial crisis of 2008, the US economy continues to be addicted to monetary stimulus with no sustainable improvement. The debts of major economies continue to grow exponentially. No one seems to bat an eye to the poor foundations on which the rallies in the stock market and US Treasuries are built upon.These rallies are not sustainable. When it comes to investing, fundamentals always win.
The last time the People’s Bank of China (PBOC) announced its gold holdings was in April 2009. China’s official gold holdings then was 1054 tons of gold. It’s been four years since that announcement and there has not been an update from the PBOC.
With 1054 tons of gold, China ranks sixth in the list of countries with the largest gold reserves today. In this list the country with the largest gold reserves is the United States with supposedly 8133 tons of gold. With 1054 tons of gold, China's gold reserve is however only equating to 1 % of China's total foreign reserve.
China’s recent moves in the gold market are bullish for gold. They have become net importers of gold. In the first half of this year, China has imported 493 tons of gold through Hong Kong. Very little gold leaves the country.
China also obtains gold from its own gold mines and the acquisition of foreign gold mines by its state-backed companies. This allows China to bypass the international markets to buy gold. The volume of such purchases cannot be tracked accurately by parties outside of China.
The financial markets are expecting China to announce the next update of their gold holdings in 2014. Expect gold demand to increase when the world realizes China’s insatiable appetite for the yellow metal.
Many of us are accustomed to thousands as a measurement of wealth. Once in a while in the media, we hear about millions.
In the last decade, we are increasingly seeing units such as billions and even trillions mentioned especially when describing debt and amounts of currency created by central banks.
For example, the US Federal Reserve has been creating $85 billion per month to buyback US government bonds since December 2012. The US recorded a trade deficit of over $540 billion in 2012. The US student loan debt recently crossed the $1.2 trillion mark. Going even higher, the national debt of the US is rapidly approaching $17 trillion.
Frequent exposure to such figures in the news around us can desensitise one to the impact of such great amounts of debt and currency.
To appreciate the magnitude of a trillion dollars, here are some fun facts…
If your job pays you $100 a second for a 40-hour work week, it would take you about 1335 years to earn a trillion dollars. If you spent $5 million a day, it would take you 547 years to spend a trillion dollars.These numbers are truly mind boggling. It is amazing how the US can pile on over a trillion dollars in debt annually. It is now mathematically impossible for the US to pay off all its debt. It makes one think if real wealth is found in fiat currencies when they are created in such great amounts so easily.
John Exter was an American economist who had lived through the Great Depression of the 1930s. His illustrious professional career included serving as member of the Board of Governors of the United States Federal Reserve System. He is known to have created the Exter’s Inverted Pyramid.
Exter’s Inverted Pyramid was born out of his belief that money printing cannot bring about economic prosperity.
As a central banker, he witnessed how the printing of too many dollars had led to the depreciation of the currency. Dollars flowed out of the United States into foreign central banks who in turned exchanged dollars for gold. The flow of gold out of the US was finally stopped when President Nixon closed the convertibility of dollars into gold in 1971.
The Exter’s Inverted Pyramid was made up of layers of different asset classes. At its base was gold which was money and was considered most liquid and having the least risk. It was real wealth. The next asset class was paper money followed by other assets such as government bonds, corporate bonds, stocks, real estate, private businesses and derivatives. Assets at the top of the pyramid were the most risky.In an economic downturn, assets at the top are liquidated first and money moves swiftly down the pyramid. The day government bonds and paper money are deemed risky, guess which asset class will over-printed paper money rush into?
According to a newly published report from the World Gold Council, global demand for bullion in the second quarter of 2013 increased significantly by 78 % compared to the same quarter last year. Demand for gold bars and gold coins totalled a record of 500 tonnes in the quarter. In China, demand for bullion surged 157 % compared with the same quarter last year, while in India, it jumped 116% to a record of 122 tonnes. Data also revealed that central banks remained committed to gold. For the 10th consecutive quarter, central banks were net buyers of gold, purchasing 71 tonnes.
Gold and silver buyers as well as general investors should take note of the current data trend for gold demand because it vindicates the self-balancing nature of gold market. Although there was a net outflow of 402 tonnes from ETF:s in the quarter, this was more than counterbalanced by inflows into physical bullion bars, coins and jewellery. This is yet another sign of gold moving from weak speculative hands to strong hands, particularly in Asia. It should also be highlighted that the support are not only driven by demand from the Chinese and Indian bullion and jewellery retailers, but also from central banks. Some central banks have thus seized the opportunity to get in at lower prices to build up their gold reserves.
The Syria conflict has pushed oil prices to a six-month high and triggered a flight to safe haven for gold. Unrest in the Middle East region has always been a source of conflicts and tensions. Whenever there are uncertainties arising from unrests in the Middle East, investors scramble for safety and turn to gold, traditionally viewed as a safe haven for investors.Precious metal is often viewed as a form of hedge against price inflation. If oil, which is a commodity that consumers use daily, increases in price, gold usually follows suit. This year's corrections in the gold and silver prices may be healthy in the longer run as it has shaked out speculative investors investing in gold and silver like any other asset class. Physical gold and silver is shifting from weak to strong hands as there is a big net flow of gold going from western to eastern economies. The current year may thus be a unique window of opportunity to buy gold and silver at affordable prizes to position yourself for the future.
An important but sometimes overlooked property of money is fungibility. This means that any unit of the money can replace any other unit.
Grain is typically used as an example. If someone deposits 100,000 bushels of class A grain at a warehouse, all this person cares about when he or she goes to withdraw the grain is that he or she will be getting 100,000 bushels of class A grain back. It does not have to be the exact same unit of grain that was once deposited. As long as the grain is of the same amount and quality, all is good.
Same goes with gold or silver. A gold coin with a specific fine weight can be exchanged for any other gold coin with the same fine weight. A 1 troy ounce Australian Kangaroo can be exchanged for a 1 ounce Canadian Gold Maple. Both of these coins are made of 99.99 % pure gold and have a gold weight of 1 troy ounce.
Based on this, any gold coin with a fine gold weight of 1 troy ounce can be exchanged for any other gold coin with a fine gold weight of 1 troy ounce. Whether the coin consists of an alloy of gold and copper or whether it's a 99.99% pure gold coin makes no difference. Thus, a 1 troy ounce Australian Kangaroo can be exchanged for a 1 troy ounce South African Krugerrand. This is despite the fact that the Krugerrand just contains 91.67% gold. The fine weight, i.e. the amount of pure gold, or gold weight, is the same in both coins, namely 1 troy ounce.
All gold and silver coins with the same fine weight are thus fungible.
During the great depression of the 1930s, the American government made it illegal to own gold and confiscated gold holdings. In reality, basically nothing was confiscated, but with the history of governments being prone to confiscate and tax in times of economic turmoil, it is important to consider how you can diversify to countries with strong property rights.
Singapore is one of the most stable countries in the world. Property rights are vigorously defended. The crime rate is very low. There is no capital gains tax.
Furthermore, bullion is exempted from GST since October 2012 and there is no general reporting requirements to anyone for bullion sales.
As opposed to other countries, the government is encouraging precious metals companies to come to Singapore and want to create a gold trading hub in Singapore. The large world renowned refinery Metalor is e.g. currently setting up operations in Singapore.
With this in mind, there is simply no better country, to buy and store gold!
Most people believe that the bank need savings deposited into the bank by savers to loan out money. Nothing could be more wrong.
Under our current FRB system, a bank only needs a fraction of its liabilities in reserve and can loan out much more money, up to 10-20 times, depending on jurisdiction, than what has been deposited by savers into the bank. For many this may be too simple, and distort their perception of some complex money creation process so much, that they won’t believe it at first.
Except for a tiny portion, usually about 2-5 % that exists as physical coins and notes, money is created out of thin air at the same time the bank is loaning out money. The money lent out does not exist beforehand but is created electronically in the bank’s balance sheet at the same time the loan is created.
There are however alternatives to the flawed FRB-system. Yes, you guessed it. It is shiny. It has been money for 6000 years. It has never destructed due to irresponsible governments or inflationary policies. It keeps wealth over generations.
Got your Gold & Silver yet?
Internet is great. Never before have we had the opportunity to seek and explore information like today. The playing field is leveling out. When western mainstream media reports that the politicians reassure the population that everything is fine with the economy, we have a choice whether to accept it as a truth or seek alternative information.
We hear the politicians and central bankers stating that the economy is showing good signs of growth and that there’s no problem with the economic and monetary system.
Never have we been so rich - Never have we been so much in debt.
How is it possible that the value of all things combined globally is higher than ever before at the same time which we have never been so much in debt.
How come there is so much more debt than savings? The answer is the monetary system.
Today, we have the opportunity to actively seek information outside the mainstream channels. If you haven’t done so already, I suggest that you read about our current monetary system called fractional reserve banking (FRB) in which the banks can create money at will. Why don’t start at our article section here.
Numismatic coins refer to collectible and rare coins. Buying such coins requires much expertise because the value of numismatic coins depends on rarity, age, condition and circulation.
During good economic times, numismatic coins can fetch good premiums. In July 2002, a rare US $20 1933 Double Eagle gold coin was sold for a record $7.6 million at Sotheby’s, making it the most valuable coin ever sold. However during economic downturns, numismatics often suffer declines in the premiums they command and can be very illiquid because of the small market of collectors.
On the other hand, the value of bullion coins is dictated mainly by the coins weight and the spot price of the precious metal. Therefore, you are able to know exactly how much your gold or silver coin is worth at any point of time. That is why bullion coins are popular with investors whose objective is to hedge against inflation. BullionStar recommends investors, especially the novice ones, to buy bullion coins instead of numismatic coins.
BullionStar has recently introduced new products such as the 1 oz Austrian Gold Philharmonic as well as 1/2 oz and 1/4 oz Canadian Gold Maples. This is in addition to other popular coins already held in stock such as the 1 oz Canadian Gold Maple, 1 oz American Gold Buffalo, 1 oz Australian Gold Kangaroo, 1 oz South African Krugerrand and 1 oz Chinese Panda.
Gold is often looked at as a commodity and not as a currency. The chairman of the US Federal Reserve, Ben Bernanke, has previously stated that he does not look at gold as a form of money, but rather an "asset" or a "commodity". This view is questionable to say the least.
But what is really the difference between a commodity and money or currency?
Well, commodities are usually consumed while something that acts as money circulates, is used as a unit of account and retains value over time. A commodity is a useful economic good that is produced, traded, and then consumed by industry or individuals, while money isn't consumed. The money, or currency, is circulated or saved for future consumption.
Mr Bernanke has also stated that he does not understand gold prices: "Nobody understands gold prices and I don't pretend to understand them either"
The reason for not understanding them might be the refusal to see gold as a money, that is saved or circulated, rather than seeing gold as a commodity, that is consumed by industry or individual consumers.
More and more people, institutions, hedge funds, pension funds, etc. are starting to refuse governmental notion that gold is a commodity like any other commodity and that its price is impossible to understand. The truth is that gold prices are not that hard to understand if you only look at gold the right way. Gold is a form of money. The only immutable and lasting currency. Gold is the unit of account. Gold is stable over time whereas fiat currency fluctuate (mostly downwards).
When you have an easy money policy with zero interest rates and money printing through quantitative easing, gold stands out as a tremendous alternative for retaining value.
Gold, silver, platinum and palladium are considered precious metals. Like gold and silver, platinum can and has been used as money. Platinum coins have been present in Russia for more than 3000 years. However, the scarcity of platinum and the relatively high refinery costs makes it a poor choice for this purpose. In fact, platinum is rarer than both gold and silver and the overwhelming majority of the supply is originating from two countries only - Russia and South Africa.
Like other precious metals, platinum has industrial applications as well. It is commonly used as catalytic converters in diesel engines. However, unlike gold, more than 50 %of the platinum refined is used for industrial applications. In addition, there are no substitutes for most of the platinum’s industrial applications. All these factors make platinum a very valuable asset class to hold. In 2008, platinum hit a record high of USD $2,250 per troy ounce.
If you are looking to invest in platinum, BullionStar currently has newly minted 100 gram Heraeus Platinum Bars in stock. Heraeus, which is a well-established mint that has been in business for more than 160 years. With a platinum bar from Heraeus, you can rest assured that your platinum bar is of German quality from a mint that is among the most renowned in the world. Premiums at only 9.98% above spot!
The collapse in gold price from a high of USD$ 1,900 per ounce in August 2011 down to USD$ 1,340 has led many investors to wonder whether gold will continue its downward spiral.
One of the most powerful price indicators is the net positions by professionals who hedge gold. These hedgers are not those speculators or traders in the commodity market, but rather, most of them are legitimate hedgers who are owners of mining companies. They use options and futures contracts to hedge their position, to ensure a positive fiat-margin on the mining. If they dont hedge, it is usually an indication that the market will turn bullish because these hedgers hope to profit from a rise in the price of the commodity. Conversely, if there is an increase in the net short position, it would be an indicator of a bear market looming.
Currently, the hedgers are the least net short in a dozen of years. This means that they have not been so bullish on gold since it was priced at USD$ 300 per troy ounce. If you choose to follow these insiders, now would be the time to buy gold.
In July, Australia and New Zealand Banking Group Ltd (ANZ) opened a second bullion vault in Asia to meet the growing demand for physical gold. According to a Bloomberg report, the leased facility is located at Singapore Freeport and could hold up to $2.13 billion worth of bullion. ANZ joins a slew of other banks, such as JP Morgan Chase & Co., UBS AG and Deutsche Bank AG, in offering gold storage facilities in Singapore, which aspires to become a regional hub for gold trading.
Despite plunging earlier this year, ANZ is bullish on gold. The bank forecast that gold will rise to USD$ 1,400 an ounce in 2014 and USD $1,500 in 2015. The bank’s co-head of fixed income, currencies and commodities, Mr Eddie Listorti, is confident that physical gold demand will continue to be robust. In an interview in Singapore, he said “We see demand coming from financial institutions. Gold accounts for a very small percentage of some central banks’ reserves. There’s room to grow there”.
The world continues to witness insatiable demand for physical gold, irrespective of prices. India and China are the world’s two largest gold consumers. According to World Gold Council, the Chinese central bank’s gold holding accounted for 2 percent of total reserves at the end of March, while the proportion for India was 10 percent. That compares with a 76 percent share for the U.S. and 72 percent for Germany. Demand for bullion will thus likely continue to increase from the instutional as well as the private sector in the Asia-Pacific region.
In a press release by World Gold Council on 31st July 2013, it was shown that the long term return for gold is 6-7 % when counted in USD. Furthermore, it was stated that the correlation between gold and global equities is slightly negative, in line with its long term average correlation of zero. More significantly, the impact of the US on the gold market appears to have reduced significantly in the recent years. The US physical demand for gold (including ETF:s) currently accounts to less than 10 % of the market. Emerging markets, like India and China, make up close to 70% of annual demand.
In view of the news report, gold investors should not overestimate the effect that US interest rate rises may have on the gold in their portfolio. The fundamentals of gold remain intact. Even if US adjusted its interest rate to a more normalized real rate, it should be noted that the investment demand is not the sole factor for gold prices, neither does it comes solely from US. For example, the Chinese gold consumption reached record growth, rising by 132% between 2007 and 2012, and looks set to continue even if its economic growth slow to 5-6%. In Asia, people are saving in gold rather than speculating. People in Asia is aware of gold's long-term fundamentals being value retaining over time.
Although media reports have focused on the recent correction in gold prices, the long term drivers for gold, including demand from emerging market and central banks, hold firm. This is particularly so, with the likely reduction in supply from both mine production and recycling.
With precious metal prices decreasing throughout the year, I title this year as the year of opportunity. I don’t really like to use the expression that prices go down since gold and silver are the stable unit of account whereas fiat-currency fluctuate in value and over time mostly lose value to eventually become worthless. Nonetheless, your fiat currency currently gets you more precious metals than it did a year ago. This at the same time as demand for physical metal is very high. Between April and June, we had significant problems sourcing physical metal. There were wide spread shortages of especially silver.
With prices going down (or should we say fiat-currency bouncing up momentarily) while the demand for physical metal going up, this year may prove to be a unique window of opportunity. With gold going below USD$ 1200, it starts to become uneconomical to mine gold for many miners. We thus have a situation with high demand, risk of diminishing supply but with downwards trending prices! That is a unique opportunity that cannot last. Prices either have to go up or there will be severe shortages of physical metal which will result in the price of physical metal decoupling from the paper metal price.An example of such a decoupling happened in 2008 during the midst of the financial crises. The spot price of silver briefly touched below USD $9 and many people thus say that silver wasn’t good to hold during the crises. Nothing could me more wrong. Whereas paper metal decreased in price, physical metal decoupled with Silver Eagles being priced at USD$ 17 at the wholesale level in the US.
During bad economic times, many experts will advocate that cash is king. The expression refers to having one's assets in a liquid form to better be able to seize market opportunities.
However, most people tend to overlook the fact that inflation can erode away the purchasing power of money. This is especially so in today’s context as governments print money relentlessly without control in order to mend their countries’ economy and prevent high unemployment rate. In Singapore, the average inflation rates for the past 5 years have been hovering around 3-5% but bank deposit saving rates remained stubbornly below 0.1%. So effectively, your saving in the bank is earning negative interests for you. Compounded over the years, the amount of losses you incurred can be substantial.
Conversely, gold is considered the savers safe haven. In times of economic uncertainty, gold is still king and BullionStar believes that one should hold physical gold to counter the ill effects of inflation. This is because during inflation, gold will rise in value as currencies continue to lose value.
Gold has a long history of serving as money. Gold is still king wheras fiat currency cash is soon to be worthless.
Markets collapsing - Gold & Silver run
With big price falls in share prices overnight in the US, gold and silver once again, demonstrated its ability to move inversely with the stock market.
Gold is up around 3 % while in the last two days while silver is up around 6 %. When demand is going up while supply is still, market economics has it that the price would balance at a higher level than previously. This is 101 Economics.
For gold and silver things are not as simple. The price of physical precious metals is affected by the price of commodity futures (certificates). Large banks like JP Morgan is active in this commodity market where there's far from full physical backing of precious metal. Some commentators argue that the ratio of paper metal to physical metal is as high as 100.
With the growth of the Asian gold market, where people do take physical delivery as opposed to in the West, it is likely that there will simply not be enough physical metal at these prices. Physical deliveries at the commodity market in Shanghai alone currently match the global production of gold.
Something must go soon. Will the prices run or will the market continue to be suppressed with new shortages appearing enabling for a separation between the price for the physical market and the paper market.
Gold bullion refers to physical gold coins and gold bars. If you are looking to preserve your wealth and hope to pass it down to the next generation, gold bullion represent one of the best asset classes to store value. This is because gold is typically favoured by investors to be used as a hedge against financial market stress. When the returns of stocks, bonds and real estate do not adequately compensate for risk and inflation, demand for the precious metal rise.
According to the World Gold Council, demand for bullion and jewellery made up 72 % of global gold demand and had begun to increase in Q1 2013, having witnessed a surge following the mid-April price fall. BullionStar witnesses everyday that the long-term appetite for physical gold remains strong, despite the recent price correction.
Interestingly, in Q1 2013, the total mine production was actually up 4 % compared to last year at 688 tonnes. Central Banks remained significant acquirers of gold, making purchases in excess of 100 tonnes for the seventh consecutive quarter. When it comes to physical gold, the dynamics of supply and demand may not be applicable. The price mechanism is broken since it is the sentiment of the paper markets that sets the price. This can not continue indefinately as demand is overshadowning supply resulting in physical gold shortages. Gold buyers should thus see any price correction as a golden opportunity to increase their gold assets.
Being the world's second largest consumer of gold after India, any change in demand from China has a significant impact on gold market. According to a recent Barclays Research, a significant slowdown in China‘s economy could spark a change in the gold buying pattern among the Chinese. Traditionally seen as a safe haven and an effective hedge against inflation, the Chinese might be adding more gold to their holdings when inflation pressures are high, instead of buying gold only during festivals.
The economic data for China has not been looking good during the past months. Exports decreased unexpectedly in June, marking its first decline since January 2012. Imports also fell 0.7 percent, against a forecasted rise of 8 percent. Against this backdrop of dismal economic performance by China, gold could be the unexpected beneficiary.
The Chinese government is furthermore encouraging the public to buy gold. The Chinese government is also accumulating gold quietly as it buys up domestic production and invests in overseas mining, especially in Africa, through direct investments.
For many years, investors have been trying to figure out the role of gold in their investment portfolio. The recent slump in gold prices has led to what many commodity analysts claimed, a “fundamental shift” in the way people view gold. Many people have some concerns over paper gold like ETFs and mining shares. They are beginning to appreciate the true value of physical bullion and at the moment, they would rather own gold bullion than paper gold like ETFs, according to Tom Price, global commodity analyst at UBS.
In the midst of this dramatic price correction, Singapore is establishing itself as a regional gold trading hub. Singapore has recently attracted several large companies to set up facilities in the country. BullionStar was set up partly due to the government initiative of exempting investment precious metals from GST and the governments' objective of making Singapore a gold trading hub.
To prove the advantage of BullionStar's superior solution for storing bullion called My Vault Storage®, BullionStar has waived the fee for all storage of precious metals. You can either select to buy specific products like e.g. a 100 gram gold bar from us for storage or buy physically allocated precious metals for trading called Vault Gram®. We guarantee that storage will be free for a minimum of two years from the day which you place your order with us. BullionStar will strive to continue to keep My Vault Storage® free of charge indefinately. By using My Vault Storage, you can buy, sell and trade physical precious metal 24/7.
With the long weekend and the celebration of Singapore's national day coming up, why not take some time to read up about monetary economics.
As a precious metals investor/saver, it is important to seek and follow alternative information as opposted to the propaganda of mainstream media. Whereas mainstream media often downplay gold with the familiar rhetoric of it not bearing any interest, not being possible to eat or other uninformed statements, there’s a thriving community online that understands gold and silver s preferential characteristics making it not only money but the ultimate form for retaining value for savings.
Many of our customers are frequent visitors to sites like Zerohedge, GATA and King Wolrd News zerohedge.com, gata.org. Notable blogs on international diversification and wealth management include Nomadcapitalist and Sovereignman.
Wheras mainstream media try to sell you a story and make you keep watching, the above mentioned channels keep you informed about real world developments. By reading up on the fundamentals, you can form a stronger opinion not needing to follow the often meaningless random short term trends.
While you are at it, why not also read a book on money and the monetary system. I would recommend the classic “What has government done to our money” by Murray Rothbard as a very good starting point to learn about gold, silver, currency and the monetary system.
On 19th July 2013, Detroit became the largest city in United States history to file for bankruptcy protection after piling up a debt of more than USD$18 billion. For more than a decade, the city has been borrowing money to pay for its expenses and to fund its expensive pension system. Apparently, the breaking point came after Detroit failed to reach agreements with the bondholders and creditors to restructure the city’s debt out of court.
People who are familiar with The Federal Reserve’s money creation process would not be surprised by Detroit’s bankruptcy. Since President Nixon decoupled the link between gold and the U.S dollar in 1971, it effectively ended any form of gold peg internationally. Without any convertibility to gold by any currency, governments all over the world are free to create as much fiat money as they wish without any restriction. As a result, debt levels began to climb. At this point of writing, U.S debt alone amounts to more than USD 100 trillion.
The dire consequence of our current debt-based system is that it could get out of control, resulting in hyperinflation and social security problems. Today, Detroit faces the tricky problem of obtaining bailout from the Federal government because of its credit rating junk status. Unemployment and crime rates in the city are high. Creditors are expected to wrangle with the pensioners for the city's diminished wealth. It's likely that in such a scenario, there could be complete loss of personal wealth, unless that wealth is held in gold.
Is the market for precious metals manipulated? Are prices on the market for futures contracts being suppressed?
Some people claim that they are. Among them is whistle blower Andrew Maguire. He has alleged that fraud and manipulation within the precious metals market is rampant. Maguire is himself an independent bullion trader and whistle blower. In march 2010 he reported to United States regulators that fraud had been committed, and that prices in the international gold and silver markets had been manipulated.
In an interview with CBC aired in April 2013 Andrew Maguire describes what he refers to as "mysterious traders", probably working for bullion banks like JPMorgan or HSBC, that were trading virtual or electronic silver anonymously with the use of algorithmic trading systems. "They where moving in and out of the futures markets in the blink of an eye. 400 contracts a second, each contract representing 5,000 troy ounces of silver."
Maguire then goes on to describe a massive wave of selling 45,000 contracts, driving the silver price silver down. Then all of a sudden this mysterious investor turns around and starts buying electronic silver again. But before this happened, many smaller investors had already sold their positions to try to cut their losses, losing everything. But since the big seller changed side to be a a big buyer, the price of silver soared again, making the big seller/buyer very profitable.
Maguire also delivered ample proof of the manipulation when he gave detailed information to the Commodity Futures Trading Commission regarding a coming event two days into the future. Sources tell that the event transpired exactly as Maguire predicted, making him the Nostradamus of the precious metals market.
One must remember that the paper gold, or electronic gold, of the futures market is not the same as owning physical gold. There is a much larger number of gold and silver ounces issued through futures contracts than there is real physical metal ounces in the vault of the COMEX. How many more ounces of paper than physical? Well, that's hard to know. Some claim a hundred paper ounces for every physical ounce. Some claim that the trading of paper gold and silver is conducted in the multiples of hundreds compared to the underlying physical commodity.
Whichever the case, owning real physical gold and silver, stored at your own convenience, is the way to go if you don't feel like just owning a paper instrument.
The authorities in Dubai are concerned about the growing health problems among the population. The number of people suffering from obesity has risen dramatically. The government's plan to tackle this issue lies in offering a gram of gold for every kilogram of weight a person loses. The terms of participation are that you have to suffer from obesity and that the dieting is not conducted in an unhealthy manner.
Health officials in Dubai, the commercial hub of the United Arab Emirates, are spending millions to control obesity among their citizens. Five of the ten countries where diabetes is most prevalent belong to the Gulf-states, says the new agency Reuters.
The three most successful dieters can win gold up to a value of 20,000 dirhams.
Dubai is home to one of the region's largest gold markets and have something as unique as gold vending machines, where bullion bars and coins can be purchased in cash.
"You can't eat gold"
This argument is often heard from people who wants to argue against investing and saving in gold. To buy gold and just put it away is, by some, considered uncivilized, dishonest and even barbaric, hence gold's mentioning as "the barbarous relic".
But what is really the difference between stuffing away precious metals in a safe and stuffing away paper currency issued by state? Both is a way of storing wealth for future consumption, but one is called "savings" (paper currency) and the other is called "hoarding" (gold).
One of the reasons for this is probably that gold is looked upon and traded as a commodity and not as a from of money. The fact that many people don't see gold as money, but as a commodity, could be the reason as to why they don't understand its price and the way it's traded. Even the chairman of the US Federal Reserve Bank, Mr Ben Bernanke, does not understand gold prices. He blatantly admits to not understanding them in a video recently released on the web. The reason for his lack of understanding could lie in his inability to see gold as money.
Regarding the assertion that you can't eat gold, it is interesting to note that it is not to uncommon, in some countries, to use gold leaf or gold powder as a decorator for pastries, fruits and snacks. Europe has a longstanding tradition to put gold in liquor, such as champagne, dating back to the 16th century. Certain tribes among the native Americans also believed that consuming gold could make you levitate.
Although consuming gold might not make you float from the ground, or even provide you with any essential nutrients, eating gold in small amounts should be harmless. (With that being said, this is just written as a trivia and for informational purposes. Consuming gold is nothing we condone since eating larger pieces of gold might but you in serious harm.)
So when anyone throws you the argument that "you can't eat gold", you can tell them about the gold pastries, fruits and champagnes that all have been decorated with gold for probably hundreds of years, perhaps even thousands.
Also, try to ask them if they have ever seen champagne or pastries decorated with paper money.
According to Scott Morrison, Chairman of Swiss precious metals processor, Metalor Technologies, gold refineries were unable to keep up with the demand from Asia investors as the plunge in gold price sparked frenzy in buying gold bullions and jewelry from China to India. His company expects to complete its US$15 million gold refinery on Singapore by the end of this year. The refinery will have a capacity of 150 metric tons a year, he said.
In a bid to expand Singapore’s share of gold bullion trading, the government removed 7 percent GST from investment-grade precious metals in 2012. The aim is to enhance trading and encourage the buying and selling of gold and silver. Retail players should welcome this move as having an vibrant ecosystem of trading facilities will help to boost the liquidity of precious metals.
As a result of this policy change, international financial institutes like Deutsche Bank and JPMorgan Chase have opened vaults in Singapore. In recent years, in order to meet the demand for physical gold which is being highly sought by the local investment community, premiere online bullion dealers like BullionStar Singapore were established to facilitate the trading of gold and silver at competitive prices.
There are many reasons for gold’s recent big decline, which has made many investors writing off gold as the true asset to hold. Indeed, gold price recent performance has led to many academic discussions on the actual root cause for its free fall. But beyond these noises, retail investors should really ask themselves whether this is the opportunity to buy physical gold. Spotting value in gold price can be subjective as it depends on individuals’ judgment. More importantly, investor should be buying gold bullion only when he is comfortable with the current price.
BullionStar Singapore encourages investors to buy gold bullions in small quantities regularly. This strategy of dollar cost averaging, as opposed to buying gold bullions in single large transactions, allows investors to buy at a lower average price and helps to hedge against portfolio volatility and inflation in the long run. Whenever there are any global uncertainties or financial crisis, property and stocks tend to underperform. This provides the best time for investor to add more gold bullion to their portfolio or gold holdings.
Nobody can accurately predict when gold price will hit bottom. To ensure that you do not miss out on the opportunity to buy physical gold within your means, there is a need to hold a long term view on gold and enter the market during price crashes.
Physical gold investment is a good way to preserve your wealth, especially during war, financial crisis and instability. The question many novice gold investors may ask is whether to buy gold bars or coins. Before making such a decision, it is important to consider several factors, such as whether you are a large or small player, how long you plan to hold the gold, where to store it and the method of realizing the value of investments.
Because of economy of scale, gold bars usually cost a smaller premium as opposed to bullion coins. For example, it is more cost effective to buy a 1 kilo gold bar than to buy an equivalent amount of bullion coins. However, the trade-off will be the lack of flexibility and liquidity when it comes to selling your gold at a later date. For example, if an investor had 50% of his portfolio held in 1 kilo gold bar but wanted to release half of his gold assets to invest in stocks, he would either have to sell their entire gold bar or miss out on more lucrative investment opportunities. With gold coins, investors can have the flexibility to liquidate partial holding in small lots.
BullionStar Singapore offers a large variety of physical gold bars, gold coins, silver bars and silver coins at competitive prices. Investors can choose to have their gold and silver delivered worldwide or opt to store it with BullionStar’s unique storage solution in Singapore.
There is a big difference in being paid in full and carying a claim check or a debt.
When you have money in the bank, then that is a claim. This means that the bank owes you cash in the form of government issued paper bills, and thus you are not paid in full until you redeem your cash by making a withdrawal.
When you have money invested in the stock market, you have a claim on the firm who issued these stocks and you are not paid in full until dividend is paid.
When you have money invested in treasury bonds, you have a claim on the government. You are not paid in full until the maturity has passed, the interest is paid, or you have sold of your bonds to someone else.
When you own paper gold, you are not paid in full because you just own a claim check on gold that may or may not exist.
The truth is that even when you hold paper cash you might not be paid in full.
Cash is really also just a credit instrument issued by the state. The state can mismanage its paper currency by keeping interest rates artificially low or by printing to much money to pay for unfunded liabilities, like social security or pension funds.
Cash is, therefore, also just a promise to pay and you are not really paid in full.
Compare this to gold and silver. When you have physical gold and silver you have an asset of stable value that is no one's liability to anyone. It is an asset with a historically established value stemming from thousands of years of use as both jewelry, money and store of wealth.
With physical gold and silver, you are paid in full.
Argentina is a Country in which its citizens can tell you a thing or two about inflation. In 1989 the argentinian people experienced an inflation rate of almost 5000%. During the year of 2002 the currency was devalued and all dollar denominated bank accounts where converted to peso. The market, then, dropped the peso which made the value of it plummet. The rate of inflation was somewhere around 80% during 2002 in the currency that the argentinian people did not want, but was forced to use anyway - the peso. An inflation rate of 80% is, of course, dwarfed by the late eighties rate of 5000%. However, one must take into account that even 80% amounts to an almost doubling of the prices, all the while wages where fixed or even falling.
The problems of the argentine economy is, however, far from over. For instance, there is a serious issue with the production of wheat. The government now wants to force holders of wheat - or hoarders, as they are called - to dump their stockpiles on the market. The aim of this measure is to curb inflation. To implement this measure, they rely on a law passed in 1974. Those who do not sell their stock in accordance with the provisions risk both fines and imprisonment.
Will inflation be dampened by this action? Probably not. Inflation can not be suppressed by a government decree that tries to set the prices in a market. Prices are ultimately determined by the physical reality, i.e. supply and demand, and not by government fiat. A more likely outcome of this action is that when the shortage of wheat becomes really acute no stockpiles will exist as "speculators" have been forced to sell their stock to an artificially low price.
Always remember that inflation is an expansion of the money supply and rising prices are the symptom. When you have an expansionary monetary system, like the one we are living under today, inflation is a constant.
One of the very few things that gives you an insurance against this is gold and silver.
Singaporeans are perennially divided whether to invest in jewellery, gold bars or coins. For gold jewelleries, buyers need to be aware that they are not only paying a premium for the workmanship, GST is applicable as well.
With effect from 1 Oct 2012, precious metals in the form of a bar, ingot, wafer and coin which meet certain criteria, are exempted from GST. To provide certainty, precious metal coins that qualify as IPM are prescribed in the GST Act.
Precious metals which do not meet the criteria cannot qualify as IPM and the supply of non-IPM continues to be taxable. Examples of non-IPM are jewellery, scrap precious metals, numismatic coins and precious metals which are refined by refiners who are not on the "Good Delivery" list of the London Bullion Market Association or the London Platinum and Palladium Market.
Criteria for IPM bar, ingot and wafer
In order to qualify for GST exemption, the precious metal must meet all of the following criteria:
(a) It is gold of at least 99.5% purity, silver of at least 99.9% purity or platinum of at least 99% purity.
(b) It is capable of being traded on the international bullion market.
A precious metal bar, ingot or wafer refined by a refiner with the following accreditation/ endorsement is regarded as meeting this criterion:
(i) For gold and silver, a refiner in the current or former "Good Delivery" list of the London Bullion Market Association (LBMA)
(ii) For platinum, a refiner in the current or former "Good Delivery" list of the London Platinum & Palladium Market (LPPM)
(iii) A refiner who intends to be in the "Good Delivery" list of the LBMA (for gold and silver) or LPPM (for platinum) and is endorsed by the International Enterprise (IE) Singapore. Refiners with such endorsement will be published on IRAS website.
It is based on LBMA and LPPM accreditations because the precious metals produced by refiners with such accreditation are widely recognised by the industry as having the requisite quality to be traded on international bullion markets and they are readily accepted for delivery on many international commodities exchanges.
(c) It bears a mark or characteristic that is internationally accepted as guaranteeing its quality.
An example of such a mark is the hallmark of a refiner in the "Good Delivery" list of the LBMA/ LPPM stamped on the bar, ingot or wafer.
(d) It trades at a price based on the spot price of the metal it contains.
By now, any self-respecting gold investor would have known that gold has fallen to its lowest levels since September 2010. The precious metal has dived more than 20 per cent this year and is probably on course to its greatest annual slump since 1981. The market trend looks frightening to many investors, and even renowned commodities big player such as Jim Rogers (who is based in Singapore) has been steering clear of gold.
In light of the current situation, readers may think that many Singaporeans are having cold feet and giving gold the cold shoulder right now. But they are absolutely wrong. According to The Straits Times article on 22 June 2013, goldsmiths and jewellery shops are having a brisk business selling gold jewelleries as the price tumbles to record low. In fact, according to the article, Ho Bee Goldsmith and Jewellery business manager Jessica Chia, the company has seen a rise of 30-40 per cent increase in sales from March to June this year compared to last year. This situation
The key reason for the plunge in gold prices may be due to the impending slowing down of US Federal Reserve’s money-printing programme, commonly known as “Quantitative Easing”. Gold investors, especially small players, should view it as a window of opportunity to buy physical gold at reasonable prices, rather than avoid investing in the precious metal. When gold prices were trading at record prices of USD 1800 per ounce during 2011-2012, many retail investors were priced out of the game. Now that the price has dropped, investors need to ask themselves whether this is the comfortable level for them to enter the gold market. In a bullish gold market, it is difficult for you to adopt a “buy low and sell high” strategy. You stand a higher chance of making money from gold in the long run only if you take action and invest during gold crises now.
In a major financial city like Singapore, investors are spoilt for choices when it comes to investing in gold. There are many gold investment instruments which retail players can choose to invest in, such as gold savings account, Exchange Traded Funds (ETFs), stocks on gold mining companies, bullions and jewellery. Broadly speaking, there are three categories of gold instruments: physical gold, allocated gold or unallocated gold. Each instrument has its own pros and cons. In all matters of finance and investment, it is prudent to consult your personal financial advisor before embarking on any investments, be it gold or equities. Nonetheless, BullionStar Singapore would like to share with readers on how the allocated and unallocated system works.
An allocated gold account means that the gold is physically owned by the investor. Usually, an account consisting of a certain amount of gold holdings is allocated to the investor. The holdings are normally secured against the account holders name and a serial is registered to that account holder. In turn, the account holder pays a storage fee or sometimes an insurance fee. Depending on the investment schemes, some dealers allow account holders to redeem the gold in their names at any time and have it shipped elsewhere.
For unallocated gold accounts, the account holder does not own any specific physical gold at all but only a value 'backed' by gold kept in storage by the bank or company. In fact, London Bullion Market Association defines unallocated gold vaguely as:
"Unallocated account: 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 metal. The units of these accounts are one fine ounce of gold and one ounce of silver based upon a .995 LGD (London Good Delivery) gold bar and a .999 fine LGD silver bar respectively."
Essentially, this means that the investors are lending money to an entity in exchange for a certain amount of gold credits. You cannot redeem unallocated gold since you do not actually own any physical gold in the first place. In addition, there is also an unknown risk that the institution may not have sufficient resources to cover the total value of all unallocated gold accounts.
In conclusion, BullionStar strongly recommends investors to buy physical gold because one can buy physical gold on a regular basis, depending on your personal financial situation, and build up a gold portfolio. For a small amount of fee, investor can choose to insure or store their gold holding safely. BullionStar certainly do not recommend one to buy unallocated gold as, really, you are only buying paper gold, which can be very risky for a retail player.
“If you don't hold it, you don't own it!”
There seems to be more and more proof that this old slogan holds true. Especially when it comes to physical precious metals. The only thing worth its weight in gold is, well, gold. Paper surely is not worth its weight in gold. The “value” of paper lies in its utility value - what u can use it for. Otherwise it is worthless.
But let’s say that someone has written on a piece of paper that they owe you a specific amount of gold. Is the paper then worth something? Well, that depends on the ability of the debtors to make a payout when such is requested.
The LME - London Metal Exchange - seems to be having problem making payouts of gold bullion. There is right now a 100-day withdrawal time for those holding futures contracts. The question we must ask is: How can it take a hundred days in todays just-in-time-society for gold to be delivered from a vault to its customer? Should not the stockpiles at the metals exchanges be filled due to the falling gold price? Normally, this should be the case, but in this market, demand seems to be decoupled from price. The truth is that many dealers of physical precious metal has had record high demand the latest months.
One reason for the long withdrawal times could be that the metal, that is scheduled for delivery, is actually not in place. It might still be in the ground of the mines in the form of ore, or perhaps being smelted into gold bars as we speak. We might be looking at a serious supply crunch here.
In practice, investors may have bought gold ore that is still in the ground, instead of physical metal in the form of bullion.
Let’s start this editorial with a trivia. Where is the largest gold mine in the world located in? America? Wrong. Or perhaps resource rich Australia or South Africa? Wrong as well. Freeport-Grasberg, owned by Freeport-Mamoran, is the largest gold mine in the world and it is located in Indonesia. Mining over a million ounces of gold annually, this is truly a gold mine not to be scoffed at.
Recently, there was a collapse in the gold mine, resulting in the deaths of 28 miners. The Indonesian government has since ordered the mine to be closed for a minimum of three months whilst investigators find out the causes of the accident and if it has the potential to occur again. A three month work shutdown would mean that roughly 300,000 ounces of gold would not be supplied to the market this year and this might have a short term impact in the prices of gold pushing prices for physical gold further up.
At BullionStar, we strive to keep ample inventory for our customers regardless of the supply situations happening around the world. Log in orders 24/7 at the comfort of your home via our website when you feel that the price is right.
Anyone who is following the precious metals markets knows that both silver and gold has been taking a big hit this year. Silver, for example, which started out at around $31 in January 2013 is now down below $20. But is this price drop really sound? Is it based on the fundamentals of the real physical world, or on an unsound and manipulated paper market? I discussed this subject briefly in my latest editorial, "Have We Reached Peak Silver?", in which I came to the conclusion that the real world fundamentals and the prices of silver are in a state of great divergence. Many of the biggest silver producers have a falling ROEI - Return On Energy Invested. This means that since 2005 they have been putting greater and greater amounts of energy into their mining operations, and still been getting ore grades of lesser and lesser purity.
In a normal market, the relationship between supply and demand is said to set the price. If the demand of something is rising rapidly, prices should follow along with little or no time lag. However, this has not been the case with the demand for physical silver.
One of the most sought after investment vehicles when it comes to investing in physical silver is the American Silver Eagle bullion coin, issued by the US Mint. The demand is surging year after year with new record sales almost every year since 2001. In 2001 the US Mint produced slightly over 9 million American Silver Eagles. This might seem like a lot, but compared to the record year 2011, when the US Mint produced a whopping 40 million units, it is nothing!
Since the Silver Eagle is probably one of the most popular silver investment vehicles as of today, its demand reflects the physical silver market very well. Therefore, it is interesting to note what an anonymous silver analyst by the name of Drutter has noted, namely a great divergence between the demand for Silver Eagles and the spot price of silver. This divergence has been going on since at least the beginning of 2013. In this video Drutter shows the divergence with a simple chart.To quote Drutter: “It is incredibly obvious, and incredibly striking, that demand is decoupled from price. However, one thing that is useful to point out is that the demand we are talking about is the demand for physical silver bullion, and the price that we are talking about is the price of an electronically traded fund which is essentially limitless and manipulated”
Everyone would have heard of the adage, “If you don’t hold it, you don’t own it”. However, how many of us actually follow this advice when it comes to precious metals? There are still too many individuals who trade what is known as “Paper gold” or allow banks to be their custodians for physical gold and silver. Here are two more reasons why you should not do so.
In April 2013, Dutch mega bank ABN AMRO sent a letter to some of its customers informing them that the bank would no longer allow delivery for the precious metals that were entrusted to them and all outstanding accounts or contracts would be settled in cash, valued according to the spot price. This is a very significant development as it shows that it is possible for banks to renege on their promises of precious metals delivery to individuals.
In another case that occurred just last month in May, the Hong Kong Mercantile Exchange closed it gold and silver futures trading platform immediately, citing insufficient revenues to cover costs as a reason for shutting down. All customers with them will see their contracts settled in cash, at an amount determined by the exchange and its clearing house. Customers would most probably see some loses, as the exchange might not even have enough money to compensate their customers.
The moral of this story is clear. Remember the adage that, “ If you don’t hold it, you don’t own it”.
News came out of India on 6 June that the Indian government would raise taxes of gold imports from 6% to 8%. This surprised many as just lesser than two months ago in the middle of April, the government had already raised the import taxes for gold by 50%, from 4% to 6%. The reason provided by the government was that the initial round of increment in the import taxes did nothing to stem the high demand for gold and the trade deficit in India. In other countries like the United Kingdom, Austria and Poland, the value added tax for purchase of silver could run up to more than 20%.
For many investors, there is therefore a need to search for a country that is politically stable, has low crime rates and is relatively safe with zero taxation on precious metals. This is where Singapore comes in.
In October 2012, the government in Singapore lifted taxation on silver that are at least .999 in purity and gold that are at least .995 in purity. By doing so, Singapore aims to ultimately expand our share of the precious metals market from the current 2% to 10% within 10 years. BullionStar aims to be one of the key drivers.
Other than offering prices that are very competitive, BullionStar is offering to store the precious metals that customers have purchased from us for free as a valued added service. The storage will be free of charge for a minimum of two years and to give investors a further peace of mind, all storage is fully insured.
There are many different theories regarding the depletion of certain resources like oil, gas, copper etc. These key minerals are essential for the world production of most of our goods and services. Silver is, except for being money, an extremely usable mineral that literally has thousands of different industrial uses. Silver is the most thermally and electrically conductive metal and, therefore, has a myriad of uses within the electronics industry. It is also the most reflective metal which means that it will be an immensely important resource for the energy industry in the coming years, building solar panels.
Regarding theories of a “peak” in resource depletion, these theories simply state that once you have reached a peak in production it is really hard, if not impossible, to increase the production anew, no matter how much money or capital you throw at it. Whether you like it or not, the better part of the resource is now gone, and we will have to live with ever decreasing yields. According to many experts the world's oil production has been at the same levels since 2005, and although producers have done their utmost to increase production by investing large amounts of capital, the extraction rates are falling.
So where does silver come into all this? Well, there is something called ROEI - Return On Energy Invested - which means: The amount of the resource that you will be able to get your hands on in contrast to the energy input. If you look at the silver mines the ROEI is falling and therefore the yields are declining. This phenomenon is not limited to the oil industry. Mining operations is also experiencing this.
So, let's look at silver mines since silver is what we are mainly interested in here.
Some of the top primary silver producers are Fresnillo, BHP Billiton Cannington, Pan American Silver, Polymetal, Hochshild & Hecla. If you look at their data, which constitutes things like production, average yield and total processed ore, it clearly shows that the ROEI is falling.
In 2005, they got 13 ounces of silver out of every tonne of ore mined and their production stood at 123 million ounces. As of 2012, their production, counting from the year 2005, was slightly up to about 127 million ounces, but the number of ounces of silver that could be extracted from every tonne of ore had fallen to only 8.1 ounces. This means that yields have declined 38% in seven years!
This also means that they have to put in a lot more energy - energy that is getting increasingly more expensive - to be able to extract the same amount of silver. So how can the extraction rate of silver be falling simultaneously with the price? Should not the price of a resource go up if it gets more expensive to extract it?
Let’s just say that fundamentals are sound but prices are not. The price of silver has to go up, or mines will have to shut down.
Over the past couple of days, countries have taken turn to release their Purchasing Managers Index (PMI) numbers. Let us take a look at some of the numbers and consider the implications that it has. Any number above 50 would indicate an expansion and any number below 50 would indicate a contraction of the economy.
Starting off with America, the Institute of Supply Management (ISM) reported that the manufacturing PMI for May decreased 1.79% to stand at 49.0. This number is the worst that American has seen in 4 years. You read right. For a country that supposedly have recovered from the financial crisis that started back in 2008, America is now faring as badly as when the financial crisis just started.
Elsewhere, the HSBC/Markit PMI for May stands at 49.2, the fall dip after growing consectively for 7 months. Other BRICs nations also saw their PMI numbers falling. Indonesia and Vietnam, two manufacturing powerhouses in the South-East Asia region, also saw their PMI numbers fall.
These fall in numbers have been translated to losses in the stock markets as the Japanese Nikkei fell to a six week low, erasing the profits it saw for the past couple of weeks. The Dow Jones in the United States meanwhile, closed below 15,000 points for the first time in a month.
All these uncertainties and the weaknesses of the financial data presented should see investors seeking refuge in safe haven investments like physical gold and silver.
World savings exceeded more than USD$ 8tn this past year and it is an amazing phenomenon how despite the problems that the United States face and the amount of debt that they currently have, they remain a strong investment choice when investors are looking for opportunities to invest their money. There are many reasons as to why we see this happening.
Firstly, the American financial markets and economy are highly developed and sophisticated and therefore in times of financial crisis, even if the United States is affected by it, money will flock into the United States. For investors, it is simply a question of, “If not America, then who?” With other countries, we are looking at political instability, even wars. The second reason is assets in the United States have generally produced stable and higher yields as compared to assets in other countries. Therefore, this inflow of money into the country continues.
However, the United States will only continue to enjoy this inflow of cash if it remains the world’s economic superpower, retains politically stability and provided that the other countries do not start taking quick steps to try and attract investors’ money. Once this is no longer true, we might see the weakening in demand of United States assets, even the withdrawal of assets from the United States to invest in other countries and this is likely to cause the world to spiral out of control financially and investors who have been holding precious commodities like gold and silver should be protected from the rampant inflation that we are likely to see in the future.
In April, US unemployment hit a 4-year low and stood at 7.5%. Long term unemployment, defined as individuals who have spent more than 7 months looking for a job, has also fell by more than 200,000 people. All these seem to suggest that the United States economy is recovering quite nicely and finally, we have seen the end of the global financial crisis that has plagued us for years. However, is that really the case?
The fact is that all these fall in numbers are inflated and the actual number of people who got jobs might be much lesser than what the governments would like you to believe. How is that possible? Doesn’t a fall in unemployment means that all those people got a job?
The issue comes from how unemployment is calculated. It considers only the people who are actively looking for a job out of the total number of people that are able and willing to work. Here lies the problem. If an individual who was previously looking for jobs got sick and tired of the entire process and drops out from the job search, he would be counted as a statistic in the fall in unemployment, even though he has not been employed in a job. This would give an inflated number when the United States Bureau of Labor Statistics announced their unemployment numbers for the month. That is to say, the number of people who got employed might not be that high afterall.
Fiat money. We use them everyday to pay for transport, food. When we head overseas we exchange currency from our own country for currencies from the other country and we accept it as cash and spend it without giving much thought to it. However, do you really know what fiat currency is backed by and what does it represent?
Once upon a time, citizens used to be able to head to their central banks and then exchange their currencies for gold if they felt that there was inflationary pressure coming. However, today it is no longer the case. The reasons for that would be discussed in another editorial.
In a nutshell, fiat currency is a currency that derives its value from government regulation or law and the word “fiat” is actually Latin for “it shall be done”. There are no tangible assets attached to it and hence, governments can print as much as their law would allow (as seen in Japan and the United States of America for example). To look at it from another angle, it is sort of like a social binding contract; people accept it as money because other people accept it as money. So this entire fiat currency medium is a little mind boggling as we are using it based on a lot of trust between one another and based on the promise by the government that these fiat currencies does indeed have value.
We have to be worried when it comes to anything that is circulated based on trust and promises. There is the danger that a party will not honor his end of the contract and the entire fragile system will collapse. When this happens, everyone will turn to safe haven investments like precious metals, known to have survived the test of time and has retained its value throughout the years.
When we look at the spot price of silver on the commodities market, that represents the costs of mining the precious metal buried deep within the ground right? Well, not exactly. You see, the prices reflected on the commodities market have long been accepted by many as reflecting the attempts by banks and governments at manipulation. Why do they do so? Many say that this is so they can keep the value of the United States currency. Others say this is a ploy so that they may stockpile their reserves for a future where they know fiat currency will not hold it’s ground.
The true cost of mining an ounce of silver in reality is much higher. Some firms calculate this by taking costs, which is revenue minus net profit before taxes, and then adding the taxes they have to pay to come up with the total costs. This cost is then adjusted for write-downs and currency fluctuations and then the number of counces of silver that is unearthed from the ground for that year is divided by this number. The calculated amount is on average USD$ 23.68, which is higher than the current price it is trading on the commodities market for.
Simple math would show us that for every ounce of silver mined by the silver company, they are actually losing money. In the long run, these companies will not be able to survive and no way would any of them be willing to do business where they constantly lose money. Therefore, even if the paper market continues to fall, there is a certain threshold that the physical market can handle. Premiums are already on the rise to counter the impact and it will not be surprising to see 40 or even 70% premiums if the spot price of silver continues to fall.
When the cost of mining is higher than the price that the commodity is trading on the markets, that represents an excellent opportunity to enter the market and purchase physical metals.
When one purchases silver bullion, it is never at spot price. The price that one would have to pay includes a premium “over spot” and this premium covers everything from minting costs to insurance costs during shipping to the costs bullion retailer faces.
Buyers of silver bullion would notice that the American Silver Eagles generally carry a higher premium compared to the other two commonly sold silver bullion (Canadian Maple Leaves and Austrian Philharmonics) and one of the questions that we at BullionStar get asked a lot is, “Why is the American Silver Eagle sold at a higher premium compared to the other two bullion coins? Aren’t they all the same?”
Well, turns out that there are several reasons why people choose the Eagles over the other coins. Apart from the US Mint charging higher premiums than other mints around the world, the other reason has to do with the worldwide recognition that the American Eagles garner. Most people would instantly recognize an American Eagle when they see one and this leads to the third reason why the Eagles command a higher premium – the huge demand for them. In 2011, about 40 million American Eagles were minted and sold throughout the world. This far, in 2013, mintage of the American Eagles have already exceeded 18 million and we are only halfway through the year! The Canadian Silver Maple Leaf managed to sell about half of what the American Eagles did and the Philharmonics shifted about 11 million copies in 2011.
It is this worldwide recognition and acceptance that results in the huge demand for the American Eagles, hence resulting in them commanding higher premiums.
Everyone who has bought bullion coins would have noticed that most of them carry a “legal tender value”, a nominal value of USD$1 on the American Silver Eagle for example, or CAD$50 on the Canadian Gold Maple Leaf. What does the two words “Legal Tender” mean?
When any currency is said to be “Legal Tender”, it would mean that everyone is legally required to accept it for the repayment of debt, even though gold and silver is not issued by the central bank. That is to say, if you go to a restaurant in Canada and started eating, you would be considered to be in debt since the final bill will not arrive until you have finished eating. If you choose to pay with your Canadian Gold Maple Leaf, the restaurant must accept that as a form of payment. Of course, the value of the gold bullion within the coin far exceeds the face value of the coins so one would obviously not use it to pay for the meal. Due to the intrinsic value of bullion, they are traded based upon the current spot price of gold and silver and not the value assigned by the government.
Another interesting point to note about legal tender gold and silver is that since it can be treated as legal currency, it could cross borders without being taxed by the authorities of that country.
In the last editorial, I mentioned that the gold production has only increased with 5.4 % in 11 years even though the gold price has increased 516 % for the same period.
Sure, it takes a long time for mines to be constructed and ready for production to start with. However, with more than a decade of rising prices, gold production should have increased more than it has if there were any gold to mind.
It’s interesting to compare the static gold production against the soaring global demand. My feeling is that something has to give in given that investment demand is increasing quickly. We’ve already seen supply disruptions for bullion products with the effects of increasing price premiums.With the proliferation of scrap gold recycling, unwanted gold jewelry has been recycled to somewhat compensate for the lack of growth in supply. The supply situation is however often overlooked. Sooner or later, the price equilibrium of gold has to move to a point where there is balance in supply and demand.
With the rising gold price during the last decade, normal market economics would dictate increasing gold production. Gold mine production has however only increased from 2560 metric tonnes in 2001 to 2700 metric tonnes in 2012 which is an increase of merely 5.4 % in 11 years. This increase seems very meager in the light of the 518 % increase in gold price from USD $ 271.1 per troy ounce Jan 1, 2011 to USD $ 1676 December 31, 2012.
There was even a dip in the midst of the period where only 2280 tonnes were produced in 2008. What is the reason for production not increasing more?
There are several reasons. The price increase of 516 % doesn’t mean that the value of gold has increased the same since inflation has been high.
Even though the value of gold has been increasing after adjusting for inflation, geology is not giving in to easily. It’s just not easy to find any new substantial gold discoveries. And when something is discovered, it is more and more costly to extract the gold which is often buried further down in the earth.There are very few large gold mines left in the world. Of the approximately 400 gold mines producing gold, only 6 mines are producing over 1 million troy ounces per year.
Central banks around the world with the US Fed and Bank of Japan taking the price, is doing its utmost to re-inflate stock and real estate bubbles. Sure, the stock markets have been rising de-coupling from their underlying economies and real estate prices have been rebounding slightly in some countries.
However, fewer and fewer people own their own home. The rate of home ownership in the US is at a 17-year low at 65 %. Instead hedge funds are buying properties from foreclosures as speculation.
Is money printing really in itself a source of viable growth? When the problem is that the global economy is soaked in debt and over-leveraged, growth cannot come from more debt which caused the problems from the beginning.Central banks are useless at creating real economic growth but very skillful in building asset bubbles. When the biggest bubble of them all crashes i.e. the bond market bubble, it will take the fiat-money bubble with it. It is then game over and you do best in expecting unprecedented economic mayhem.
In our twisted economic world where retail sales figures are claimed to be the driver of the economy, retail sales figures are taken as an indicator of the well-being of the economy. I don’t agree but even so, the figures are flawed.
First of all, price inflation is not taken into account. Price inflation is high. Global price inflation for food was running at an annualized rate of 120 % last year. It has slowed somewhat since but a modest assumption is that price inflation for essentials are running at 10 % +.
The retail sales figures are not adjusted for price inflation which means that retail sales in reality plummeted even more than the reported 0.5 %.
Furthermore, expectations of the figure was said to be a decrease of 0.6 % why the news is perceived to be positive giving the news media’s love of a narrative to explain the rising stock market.Although, the importance of these figures is exaggerated, it is interesting to see that the same people that were talking about the US economy recovering are cheering about the decline being explained as a positive surprise.
The spot price of silver has declined approximately 16 % over the last year in SGD. At the same time, it has been very difficult to find any physical silver whatsoever on the bullion market lately.
Supply has been drying up with few if any bullion coins available. BullionStar has, due to its wide network of suppliers been able to source most products, but with a higher price premium than what is normal.
News media likes to bash precious metals and are quick to report falling prices. When the spot price in silver is falling, it is however apparent that this no longer has anything to do with the physical market as there are simply very little physical silver available.
The effect of this is an increasing discrepancy between the paper market and physical market where physical silver is priced based on the supply and demand of the physical market rather than the price of silver on the paper market.
It is apparent from the price of e.g. a Silver Eagle that whereas the spot price has decreased about 16 %, the price of a Silver Eagle has only decreased about 7 % and may be difficult to find at all although BullionStar currently has Silver Eagles available for ordering.The lesson for investors and collectors is that the spot price might not be a great indicator of the value of physical metal. The spot price might very well go to 0 at the same time which the value of physical metals skyrocket.
Having assets can sometimes be a curse. The one who has no assets do not need to worry about losing them. Being constantly worried about the performance of the stock or bond market can affect your health negatively. If your assets are making you feel trapped and worried, we have a solution.
Gold and silver have been money throughout most of recorded history. Gold and silver have retained its value i.e. its purchasing power over thousands of years. Gold and silver preserve wealth, insure against the fragile financial and monetary system and diversify your portfolio, all at the same time.
With gold and silver you don’t have to choose, you get an asset that preserves your wealth and allows you to sleep well at night.
Everyone makes mistakes. A mistake doesn’t make you a loser.
Not learning from the mistake makes you a loser. When you fail, you have invaluable information. You have learnt that what you did wasn’t successful. You can thus move on not doing the same mistake again.
You are only a loser if you, after making a mistake, don’t exploit the information gained and feels defensive rather than enriched with a new piece of information. You’re furthermore a loser if you try to blame your mistake on someone or something else instead of moving on, learning from your mistake.
If something is apparently failing, something new must emerge. By saving and bailing out something that needs to die, the suffering is only delayed.
Bailing out banks – A loser mistake?
Continue to give power to central banks – A loser mistake?
Fractional Reserve Banking – A loser mistake?
Growth? Employment? Inflation? Trade surplus/deficit? Budget surplus/deficit? Taxes?
I don’t know...
...which is why I hold gold and silver. Planning and predicting in a complex world is difficult not to say impossible. Predictions of the above numbers by so called experts are consistently incorrect.
My only prediction is that gold and silver will continue to preserve wealth, beat inflation and insure against risks long term. It has done so for 6000 years.
The longer something has survived, the longer it can be expected to survive in the future.
What are the similarities and the differences between a plane crash and bank crash? The similarity is that people are hurt in both. In a plane crash, people are hurt physically and emotionally while people are hurt financially and emotionally in a bank crash.
What is the most significant difference between a plane crash and a bank crash? Because of a well-developed feedback loop every plane crash makes the next one less likely. For a bank crash the opposite is true. Every bank crash makes the next one more likely.
Why can’t we learn from the response and feedback loop of a plane crash also when a bank is crashing? If a bank is crashing because it has been loaning out too much money created out of thin air and taking too high risks, wouldn’t the logic solution then be to lower debt, increase capital and possibly investigate how the monetary system can be improved?
What we see today is the exact opposite. The financial crises 2008 emerged because of too high debt levels. It is now viewed as being solved by adding more debt. More petrol on the fire.It will be harder and harder to bailout governments and companies from a system which is doomed to fail because of its misconstruction. More of the same that led to the problems are not likely to solve them.
…insert anything you like.
By presenting us with explanations and theories, the media induce an illusion of understanding the world.
Why is it that a “cause” always has to be inserted even though there is usually no causality whatsoever? There’s definitely a demand for journalism that explains things even though most of the time there’s no causation and the price is moving randomly.
In a complex world like ours, the notion of a “cause” to explain everything is suspect. It is impossible to detect a real cause for a small price movement simply because the world is too complex. The more data you get, the less you know what’s going on.
One advantage of holding gold and silver in your portfolio is that you can ignore newspapers if you wish. Gold and silver is not dependent on a cause written by a journalist after the fact. Gold and silver have retained their value for 6000 years.
Can the confidence for the EU be reinstilled after the latest Cyprus debacle?
My answer is that as soon as you hear an institution or a company trying to reinstill reputation, you know that they are doomed. Reinstilling confidence is only necessary if the underlying problems are out of control already.If you are stable and have no debt, you don’t need to reinstill confidence. No narratives are necessary for successful companies and governments as people can draw conclusions themselves.
The Indian government is trying to curb investment and import of gold by raising taxes, presenting alternative investment ideas and by stating that investing in gold is discouraging domestic savings and accentuates the current account deficit.
In my opinion, the Indian government is misguided by Keynesian advisors. When the fiat-money system implodes, previous artificial growth reports don’t matter, real capital does. By saving in gold, the Indian population is accumulating real capital that is making them more robust from crises.
The more gold is discredited, the more it will shine. The more institutions are trying to talk people out of their gold, the more they will hoard. Criticizing gold is criticizing money itself. The more people are discouraged from holding gold, the more people find gold as a sustainable alternative. We should thus welcome the gold smear campaigns since they will spread the message of gold even more.
If it weren’t for gold’s superior characteristics, there would be no one having enough energy to attack it. The harder they are trying to harm gold, the stronger it will be.
Stress-test your economy. Imagine the worst-case scenario and use it to estimate future risks. By doing this you can prepare for uncertainty and have a buffer of savings.
My recommendation is however to always add an extra buffer to the worst-case scenario if your economy allows.
Stress-test of Banks
The problem with stress-testing has been clearly exposed in the EU. All the failing or near failing banks have cleared the stress-tests. By taking the worst historical recession during 40 years, they don’t realize that when this worst-case event happened, it exceeded the worst case at the time. “It never happened before” is not good enough if you lose your assets. A good tip is thus to prepare not only for what has happened historically but also for what has not happened.
With precious metals, you can lower risk as gold and silver is a stabilizing like no other asset class and performs well in times when everything else fails.
“Greece does not need to be bailed out.”
“Cyprus does not need to be bailed out.”
“There is no news here, everything is ok.”
“The euro is a stable currency and if you don’t understand that, you listen to the wrong dangerous people. The EU is a stability project.”
The Eurocrats are loudly proclaiming that everything is fine and that business will go on as usual. They have since long lost all credibility and it is surprising that anyone listens at all. The general public is however starting to turn against the EU-bureaucrats and the days for the EU and EURO project is numbered.
Coined by the excellent author, Nicolas Nassim Taleb, A Black-Swan event is an event that is difficult to predict beforehand but will have vast effects on society and be narrated afterwards like it was obvious from the beginning.With the overwhelming risks and the fragility of financial and monetary system, the question is if we are lined up for a series of unimaginable Black-Swan events that will easily be explained afterwards because of the fragility in the system.
And never been more in debt… As I’m writing these lines, many western countries like the US and the EU are in the midst of a debt crises. Not only governments but a lot of individuals are living off borrowed money.
It seems that the richer we get the harder it is for us to live within our means. Abundance is much harder for us to handle than scarcity.
It further seems that the easy way out by borrowing today - paying back tomorrow - has weakened the will of the people. The softening is not just at the personal level, but the entire western society has fallen ill.
Passive entertainment, drugs to distort reality and borrowed money is creating an unsustainable mountain of debt with zombies walking around aimlessly.
Has fiat money created an illusion of well-being that we no longer have to work hard for our survival and for our comfort? Has fiat money distorted our senses so much that we can no longer recognize that we are in the middle of the largest debt-bubble ever in mankind?
With the Cyprus bailout still fresh in our minds, one can't help but ponder whether forcing private investors, instead of taxpayers, to pay for the bank failures will become the future of what bailouts look like. These so called "bail-ins", introduced by the European leaders is having a huge detrimental effect on people's perception of safety of their wealth, stored with banks in fiat currencies, and the credibility of the Western Governments.
Geographical diversification into fully insured and segregated precious metals accounts is a suggested course of action for European investors. However, storing metals within the EU or through subsidiaries of EU financial institutions abroad may be far from ideal. A country that has an independent and politically stable jurisdiction with no reporting requirements to any foreign governments or institutions and no history of capital controls should be considered by international clients. Very few countries fit the bill and the natural choice among them is Singapore.
The United States’ inflation rate as of late is the highest it has been in more than three years. The last time prices rose like this was just soon after the 2008 crash, when markets had dropped after much panic selling.
June 2009 was when a recovery was being trumpeted by officials in the US, and also around the world. Today, we know better than to believe there was really such a recovery. And if there have not been enough symptoms telling us something’s wrong, we are experiencing price inflation that points to lower and lower purchasing power.
The important thing now is to do something about it.
The People's Bank of China, through its governor Zhou Xiaochuan, has issued a warning of price inflation up ahead in the country. This points to a possible tightening of monetary policy which will have its effect on businesses, and their projects that are dependent on easy credit. The effect on prices may not be apparent soon, because earlier easy money has yet to flow into 'real' goods bought by consumers. But the money has to go somewhere eventually. With less yields from merely keeping this money in reserve, banks will have to find the outside world to put the money.
In any case, gold is a good idea to have for storing one's savings. Actions such as those of China's central bank will affect the gold price positively.
Gold has just hit an all-time high... in terms of Japanese Yen, that is. Japan is the country that has been in constant 'QE' (quantitative easing) since the 1990s, resulting in near-zero or slow economic growth since. It seems that attempts at boosting exports by inflation or currency depreciation have only led to a slowdown in general productivity... not to mention higher prices.
This inflationary policy in Japan is quite evident in the record gold price. The Yen appears to have devalued even faster relative to other currencies. In addition, the fact that governments themselves are buying gold sustains this rise in price. It's not just gold going up, but nominal prices of stocks, the paper value of which remains unsustainable.
The demand for physical precious metals is astonishing. During China’s Spring Festival, for instance, gold bar sales doubled from last year. Even in a place like China where people are generally aware of the value of gold, awareness is still rising. You wouldn’t expect this to happen with the price of gold remaining in its narrow range over the past month, but it has. While mere certificates for gold and silver may be trading near spot price, premiums are rising for the physical metals themselves.
Increased gold buying is a trend all over Asia, including Singapore. Who knows how much longer the price will be at its current dip? The continued demand for gold, along with its diminishing production, points to the gold price bouncing back not too long from now.
We've written before about the Indian government's attempts to curb the purchase of precious metals. Yet in spite of tighter import restrictions on gold, the buying of gold continues to rise. Apparently, Indians are acting on well-founded fears of inflation, which threatens to wipe out one's wealth kept in government currency.
Government policy can be incongruent to its people's preferences, as in this case. And it is the people that eventually win out, even if this means buying in black markets. But even legal purchases online are rising at a phenomenal pace.
The Bank of England seems to be holding off on any more money printing or 'quantitative easing' (QE) as a means of getting England's economy moving again. Even though the BoE is maintaining its target of buying £375 billion worth of instruments, it appears that officials are recognizing that simply printing more and more money is not the recipe for prosperity it is claimed to be. It may in fact lead to the opposite result of depression, as preceded by higher costs and higher unemployment.
We don't know how long the BoE could restrain itself, amid its debt problems, shared by many countries in the West. It's as prudent decision as ever to accumulate precious metals in order to protect one's wealth from devaluation.
Gold production worldwide is dropping. This will soon translate to higher gold prices. Sure, there are other reasons to be bullish on gold. This includes the continued money printing that cuts away at the value of currencies. This drives people to search for more stable forms of money such as gold and silver.
And now we learn that it is getting harder for mining companies to extract the yellow metal from the earth. This, along with the continued shrinking of currencies' values, means higher prices up ahead. Now, during a dip, is as good a time as any to buy gold, and silver.
Should we be concerned about the Bank of Japan now being led by someone planning to take a more aggressive approach towards 'stimulating' the economy, i.e. money printing? For sure, this will have its repercussions on Japanese prices, as well as the interest rates on Japanese debt. But will the effects go beyond the shores of Japan, and in the gold price? Well, time will tell how great the effect will be. More importantly, we see this as just one of many policies enacted all over the world addressing the financial crisis, a crisis that itself was brought on by much 'stimulus.' And these policies tend to be bullish for gold, if history is any indication.
You might remember from last September, the news of the Nevada man who died and left behind US$7 million in gold. Well, a portion of this collection was recently sold. So far, proceeds amount to US$3.5 million. I can imagine that some BullionStar clients would have liked to hold on to such a collection a bit longer!
In any case, the fact that the partial auction was so successful points to the large demand present for physical gold. At least some people know the value of the things that were sold. But we bet that in the not-too-distant future, the importance of precious metals and sound money will be known not just to a small percentage of the population. When talks of debt and deficit return in grand fashion, expect this to be reflected in higher gold and silver prices.
It has been reported that demand for silver is picking up, for both industrial use and as an investment. China investment demand, in particular, can be expected to bring prices upward, after a correction that has made silver and other precious metals a bargain.
If you have purchased silver, hold on to it; things are looking up. You may even consider purchasing more. And if you haven't purchased silver yet, the current dip is an ideal time to start doing so.
The United Kingdom is the latest to receive a cut in its credit rating by Moody's, from AAA to AA1. The Telegraph publication likened the Bank of England's activities to that of Japan. That is, the country could end up like Japan, which has been experiencing no-growth for more than 20 years, through constant 'quantitative easing' or 'QE' operations, the same operations that have increased bullishness for precious metals over the past decade.
It may be too early to tell what will happen in the UK, if policies will change in time to stop further disaster. What we do note is an increasing awareness of the dangers of debt, and the importance of savings.
Singapore's economy grew 1.3% in 2012, which is already better than expected, according to analysts. For 2013, the Ministry of Trade is looking at growth of 1% to 3%.
It doesn't sound like much, but it highlights how, amid problems elsewhere in the world, funds move to where they are more profitable.
There are also concerns that part of this growth is a brewing Asian bubble. Whether or not this is the case, it is practical to place precious metals in one's portfolio as a means of avoiding the damaging effects of inflation.
India gold imports increased in January, in spite of all the import controls planned or implemented by the Indian government. The increased figures come along, naturally, with an increase in smuggling as well. People take on the risk of smuggling, for the sake of more affordable gold.
Whatever sanctions the Reserve Bank of India imposes, it should be forewarned that gold will not be made less appealing to Indians, where gold continues to have great cultural significance. By prohibiting or limiting imports of gold, they may even drive demand further up, as Indians seek to protect themselves from the inflation and depreciation occurring.
G20 officials continue to reassure us that they will not be engaging in so-called 'currency wars.' We will soon see how well this reassurance is kept, even as countries like the US and China have been trying to edge the other by keeping their currency exchange rates down. The justification is that a weaker currency makes for more competitive exports.
Gold will likely be a beneficiary of such policies. There will be more of quantiative easing (QE) carried out, in relation to stimulus programs where more debt is piled on. As this continues, gold will naturally reflect the falling value of currencies, as people seek alternatives to cureencies that fail to store value.
It was recently reported that world gold sales fell last year, for the first time since 2009. Could this be a sign that the market for gold is cooling down?
First of all, it should be noted that 2012 numbers were still impressive at 4,405 metric tons, just a little below 2011 figures showing 4,582.3 metric tons sold. The important question an investor should ask is if the trend will continue from here on. Will gold and silver still serve their purpose of maintaining one's purchasing power?
The answer is a resounding 'Yes!' And as demand picks up this year, we can expect prices to go up further.
In this video, Mark Dice goes around offering a gold Canadian Maple Leaf ounce to anyone who could give the price of gold, with a 50% room for error. Of the many people offered the prize, no one is even close in giving the price of gold.
The gold price in itself can be found easily on the internet. But the point of the video was to show how little knowledge there is yet of what real money is. But as people seek out answers to the current crisis plaguing the world, perhaps more people will get around to recognizing what money is and should be.
This growing appreciation and awareness of money and economics could only make for a higher price of gold, silver and other precious metals.
In Venezuela, the currency has been devalued from 4.3 bolivars to a US dollar, to 6.3 bolivars. This is meant to limit the redemption of the Venezuelan currency in dollars, but it will definitely result in drastically higher prices.
The financial troubles in Southa America at present reveal that the financial crisis is not limited to the developed world. It may not be the case all the time that governments manipulate the foreign exchange rate so deliberately, but the effect of price inflation could not help but be seen soon everywhere. This includes a rise in the price of gold, silver and other precious metals, which, as a means of storing value, have no equal.
Based on the S&P GSCI index, commodities have never been as high in price at this time of the year than they are now. The index includes, among other commodities, precious metals, whose rise reflects the devaluation going on in currencies.
For most people, their living costs are going up, just because they don't know how to mitigate the problem of inflation. They keep their savings in some or other currency, or invest in unreliable instruments. This makes them subject to devaluation. It is by storing one's wealth in gold and silver that one can get through higher prices and currency crises unscathed.
With Germany's Bundesbank demanding physical possession of its gold reserves now stored in New York, we are seeing a growing concern that an investment in gold must involve physical backing and not just paper certificates.
Whatever comes of this matter, we are made more aware that there is quite no substitute to holding physical metals. Other gold-related assets can ride on the rising price of gold, but to protect one's self from inflation and the uncertainty of large financial institutions exposed to bad debt if not outright fraud, physical possession or adequate means of storage is necessary.
Savings are important for any household. Not only does it protect people during rainy days or emergencies, but it also ensures sufficient funding of ventures in an economy.
So what are we to think of the fact that one-third of Europeans do not have savings? Is it just a coincidence that the entire EU is facing a currency crisis? We don't think so.
If one is to save money, it is necessary to preserve purchasing power, which gold has managed to do for millennia.
In this remarkable video from nearly 50 years ago, former French president Charles de Gaulle denounces the monetary system back then, as it was shifting further away from a gold standard. He even predicted crises as those we see today. Perhaps when he first made his declarations, few listened, or at least they failed to act to shift the incoming tide.
Now that gold is making a resurgence as an investment option, even being considered by some as a currency itself, de Gaulle's words are finding more receptive listeners. But we do not have to believe that the present currencies are going to collapse, in order to see that gold serves to mitigate the risk of inflation. It is becoming more prudent to allocate a portion of one's savings in gold.
Today, the US' Dow Jones Index is at the 14,000-point level. Locally, the Straits Times Index is at levels last seen more than five years ago, when it rose to the 3,800-point level. How long could these markets continue to rise?
In addition, how much of these rising markets is a result of an increase in real productivity and in the amount of savings? On the other hand, how much comes from what is referred to as 'money printing'?
Answering these will allow us to spot bubbles, and to know where to invest accordingly.
In an effort to shift away from riskier assets, the Russian central bank will continue purchasing gold. Already, the central bank has doubled its supply of gold in the past five years. At present, the share of gold in its reserves is already near 10%.
These facts say much not just about Russia's central bank, but about large institutions and agencies in general, who are seeking alternatives to the assets that have contributed to the financial uncertainties of the past decade.
It doesn't matter if gold is not officially declared as the basis for a new monetary standard. People, including officials of central banks, have been making choices so as to preserve wealth.
It was recently reported that the US Federal Reserve's balance sheet has gone over US$3 trillion for the first time. This is on account of the central bank's purchase of financial instruments that many blame for the crisis that has gone on since 2007.
What does this mean to an investor? It means that officials are keeping up the financial system in its present form, by perpetuating debt. They seek to maintain demand for loans that no one else would buy of their own accord.
Now, how much longer can the Fed keep up its asset-buying program before confidence in the US Dollar is completely lost and it loses its world reserve status? This couldn't be ascertained exactly, but we do no need to wait to find out in order to act to protect our savings.
Germany has made quite some noise recently in its attempt to get back the gold it has long stored in US shores. It is questioned whether such gold is even still around in the vaults of the Federal Reserve Bank of New York.
This may be just the beginning of a worldwide reaffirmation of the importance of backing currencies with physical gold and silver. Since the collapse of the Bretton Woods agreement in the 1970s, our paper money has been largely based on faith, and such confidence is fading. This is quite evident in the crises of today. The fate of currencies is largely dependent on whether they can be once more anchored in precious metals.
With a shrinking of supply of copper comes an increase in demand, as well an increase in thefts of the commodity. Wherever copper can be taken from, such as railways and generators, thieves have no reservations, even as this puts lives at risk.
As unconscionable as these acts may be, they point us to the fact that it is becoming harder to come by not just copper, but precious metals in general. If we look at gold and silver, which are heavily traded on mere paper, their official spot prices do not quite show how investors have been scooping them up with fervor and urgency. There aren't too many places, even here in Singapore, where one can still purchase physical investment-grade gold and silver.
Some economists predicted the collapse of the Euro by 2012. Although this did not come to pass, it is still no cause for celebration. The situation Europeans find themselves is graver than ever, in fact, and this is evident in the unemployment figures. Spain's unemployment, for example, is at 26.6%, and 56.5% among youths, with similar numbers given for Greece. No real productivity can come about in such an environment, and efforts at stimulus have thus far failed to stimulate.
A bumpy 2013 for Europe, and the US, can be expected. With this comes lower demand for goods and services, which will affect even Asian producers, due to the interconnectivity of economies. Clearly, any solutions brought to the table would have to address not just debt levels and market indexes, but employment and productivity of the countries involved.
In spite of the deep cultural significance of gold in India, its government has been enforcing policies in an effort to curb gold purchases from abroad. Now, it is being proposed to raise the import tax on gold from 4% to 6%. The result is that Indians are buying at a faster pace, before the feared tax increase is implemented. Regardless of what laws come about or are proposed, markets are going to speak loudest, and best reveal what the people desire. India, which is very import-dependent for its gold supply, will not be dissuaded in acquiring the yellow metal.
No anti-gold policies can distract people from the inadequacies of currencies, in particular the continued slide in purchasing power, which incidentally manifests in higher gold prices.
Zero Hedge recently reported of a pending bill in the US Congress to require increased tracking of precious metals purchases. Even though the bill itself hasn't moved much, the existence of such proposals ought to be concerning for someone whose precious metals are purchased or stored in US territory. If a crisis gets to a certain critical point, any pending legislation can be expedited to suit the purposes of policymakers. The precedent is the Great Depression, when Americans were banned from owning gold bullion.
More than ever, non-US storage of bullion is an option for investors. We are not just talking about Europe's vaults, but those in Asia, and Singapore in particular. Singapore's track record of affirming the property rights of investors is rarely paralleled, and a Singapore vault is about the safest way to store your gold and silver.
The long awaited moment has finally arrived (and no, I am not talking about Mayan's prophecy or the end of the world :) ). After months of hard work and dedication, the BullionStar team is proud to launch its online trading platform for physical precious metals. You can now buy precious metals such as the Canadian Gold Maple or the American Silver Eagle with a click of the mouse. Choose to take delivery, personally pick it up or have the precious metals stored with us in My Vault Storage.
As the US and Europe economy crisis worsen, one can only expect more fiat currency (yes, we only view Gold & Silver as money. No offence to the paper currency!) to be printed out of thin air, causing further devaluation of the dollar bills that we have inside our wallets right now!
Iran, facing international trade sanctions and a devaluing currency, has been boosting its gold imports. Even as it is barred from the use of the US Dollar, the small country must still acquire goods somehow. It is no wonder that Turkey's total gold exports have gone up 800% year-on-year. More than half of the US$12.7 billion exported went to Iran, it is reported.
Soon, even without political sanctions imposed on countries, they will be constrained by their falling currencies to seek alternatives for exchanging goods. It is not too far-fetched to believe that gold will play a role in establishing monetary stability when this happens.
With all the chaos going on in Greece, people have no choice but to make adjustments in their manner of buying and selling. More than ever, Greeks are engaging in a barter system, in lieu of the euro. Even though the currency is all out of whack, and European governments are in debt over their heads, people still have things to produce, and sell.
This goes to show that real people seek solutions regardless of what governments may thrust on them — including faulty currencies. It is reassuring to know that whatever institutions may collapse during this crisis, society itself won't collapse. We can be confident that people will go on, and markets reflect this perseverance.
It was reported several days ago that in the US, Republican and Democrat lawmakers had managed to stave off the so-called 'fiscal cliff' by agreeing on the extension of tax cuts, among other things. However, if we are to consider that budget deficits have not so much as narrowed, and trillions and trillions of the US government's obligations remain unfunded, we can see that nothing has really been resolved.
When making investing decisions, it is best to drown out the noise and the spin, in order to see the reality. And the reality is that the US Dollar, among other currencies, remains in a precarious position. The only real protection from this is the accumulation of goods valued by markets.
Among the many bubbles brewing in the United States is that of student loans, the volume of which have inevitably resulted in higher education costs, and in a vicious cycle, more borrowing to cover rising costs.
We are not concerned at the moment with the particular systems of education as practiced around the world, but rather on the nature of bubbles. It seems that bubbles form regardless of industry, if it is promoted in a way so as to justify a piling on of debt. This is the case in real estate, as it is with university education. As with all bubbles, there comes a time that they must burst, after which all the money once placed in that one sector or several must go somewhere else, one considered a safe haven. If you're reading this at the BullionStar site, you are surely aware that gold, and precious metals in general, is one such haven that investors and savers have gone to for protection of their wealth, amid popping bubbles.
Every year, among donations given to the Salvation Army, there turns up a gold coin, or several, worth hundreds if not thousands of dollars. This year, three coins worth US$250 were reported, and afterwards, a Krugerrand ounce worth over S$2,000 was discovered among the Salvation Army's Red Kettles.
The giver, or givers, remains anonymous. But it is safe to say they know something about the importance of sound money. Whether or not it is intended, these mysterious donations, being intriguing phenomena, are able to educate the casual observer who hears about them, while of course also providing aid to those in need.
There was news recently of US$11.5 million in gold recovered from a heist committed in Curacao, an island in the Caribbean. The perpetrators of the crime were actually connected to a jewelry store in the area, which goes to show the importance of knowing your bullion dealer! You never want to be associated with someone who sells products of questionable ownership.
The loot may have been recovered, but the best protection for one's gold is still prevention, of course. Robbery is an extreme example; of more concern to the average investor is the political jurisdiction where one's bullion is stored, which determines the amount of paperwork and inconvenience needed to keep one's gold safe, not to mention determines the premiums charged. We would recommend nothing less than Singapore as location for bullion storage, because of the country's record in affirming property rights and ease in doing business.
Barring wild changes today, 2012 is the first year since 2008 that gold did not set a record high. Yet it is poised to rise year on year, for the 12th straight year. Silver is in the same boat, still much below its record high but up year on year all the same.
We know that the fiscal and financial woes plaguing many countries today have not been fixed. Indeed, they have even worsened, if the escalating chaos in Greece and Spain is any indication. So it is doubtful that gold and silver, being known safe havens during times of crisis, have ended their run. The 'breather' we experienced in 2012 was profitable enough as it is for those who came to the party at the start of the year, yet gold and silver prices are still considered bargains in light of all the inflation going on. 2013 looks to be just as profitable, if not more so.
Brazil's central bank was recently reported to be stacking up on gold since August, doubling its reserves within this short period. This is yet another sign that economies around the world are bracing for the unknown, with many currencies including the US Dollar and the Euro losing their purchasing power. Gold, silver and other precious metals remain as dependable stores of value.
Not only does increased central bank buying signify an increase in demand for precious metals, but it also means ever-tightening supply, with less physical gold for non-institutional entities to get a hold of. As 2013 unfolds, and international financial turmoil rages on, where are you going to procure your gold?
The governments of China and Japan have been contending for ownership of several territories for some time now, and tensions have been escalating recently. It remains to be seen how this conflict will be resolved. For investors, it highlights the need to choose wisely as to where to park one's funds.
Political uncertainties around the world are just one reason why many investors choose Singapore, which is known as a stable political jurisdiction. Its vaults for storage of bullion, in particular, are already among the most secure in the world. In addition to this, Singapore tends to remain politically neutral and has no imperialist past to live up to. Thus, if you buy gold and want to store it without worries, Singapore remains your best bet.
China has become the world's largest market for silver. Thomson Reuters states that production of silver, along with demand for it, have yet to grow in the country.
This looks indicative of a general trend of increased gold and silver buying in Asia. Those in the West have more and more people with whom to bid for the limited physical supply. China and India, the two most populous countries in the world, in themselves already account for one-third of the world's population, and the number of Chinese and Indians rising from poverty and being able to buy bullion is increasing rapidly.
Singapore itself is now becoming more popular as a place for storage of gold and silver bullion. Its strong record when it comes to property rights and market freedom should attract many Asian investors looking to park their bullion somewhere nearby.
A recent survey conducted in Sweden shows ever-increasing hostility towards the Euro. Sweden, which has not adopted the EU currency and voted against doing so in 2003, continues to use its Krona. In hindsight, it looks like a good decision. It remains to be seen if Sweden will yet be pressured into adopting the Euro, but considering the debt woes of Greece, Spain, etc., there doesn't seem be a selling point that can still be made to the Swedish people.
All state-issued currencies eventually die or get replaced; some sooner, some later, depending on inflation levels and respective fiscal policies. The one constant has been precious metals, which was adopted by people through a market process rather than a political one. This fact, of gold and silver being chosen voluntarily, is instructive of precious metals' general appeal and stability no matter what happens.
Even US Federal Reserve Chairman Ben Bernanke has had to concede that his agency can only do so much to offset the US' 'fiscal cliff.' This admission is significant in the context of his earlier statements where he considers central bank-spurred spending as the cause of growth.
Considering that the 'fiscal cliff' is precisely a problem of spending too much, what does this say about the likelihood of resolution of debts and deficits? The uncertainty of the crisis, and the helplessness of even our most powerful institutions, should lead us to question what can be done to protect ourselves. Some will look to cutting down on unnecessary personal expenses as a means of coping, yet others will look to buy gold and other stable forms of money. And still others are doing both, that is, saving more and investing wiser.
Bloomberg reports that Singapore is undergoing an "adjustment period" where it is faced with higher prices amid a larger population. Even as the Lion City remains an economic powerhouse, there are concerns of tighter monetary policy resulting in slower GDP growth.
The article explains the price increases as a result of rising costs, increased demand from a larger populace, and labor disputes. Perhaps it underestimates the Monetary Authority's role, which controls the money in circulation by which prices are likewise bid up or down. But regardless of the reason for the price increases, we would have to consider ways to protect ourselves, and this includes investing in gold, silver or any other item that can maintain its purchasing power over time.
This Marketwatch article looks at how silver is gaining favor as a financial investment. There is also its industrial importance which constitutes part of the demand for silver, but according to the article, it is ultimately silver's value as money that is responsible for its stellar performance in the recent past.
This is good news for precious metals investors. Part of silver's volatility has to do with its sensitivity to industrial conditions, wherein a drop in silver-related production would thus exert downward pressure on the metal. But with pronounced demand as an investment, any fall as a result of waning industry would be offset.
When making your purchases, keep in mind that the only silver worth having is the actual metal, and not its paper certificates.
Goldman Sachs analysts recently made statements about a "renaissance" in commodities in the coming years, as shortages ensue and demand rises. What is significant about the reports is the conspicuous absence of gold in this foreseen renaissance. The commodities referred to are primarily raw materials. In fact, gold is seen to drop to the US$1,600/oz. level by 2014!
We believe articles such as these are indicative of the mainstream view of gold being a 'mere' commodity, without consideration of its monetary significance. But it is no coincidence that the concept of money is being challenged and reevaluated during the present financial crises.
Without an appreciation of how gold, and silver, are far more stable in purchasing power than any currencies in history, you can only have faulty reporting.
Time will tell just what commodities are a part of this renaissance.
Sales for coins manufactured by the US Mint, which produces Eagles and Buffalos, among other coins, are higher than they've been since 2008. It seems that with gold and silver's corrections this past year, thoughtful investors have taken an opportunity to 'buy the dip.' Plus, more people are learning about precious metals, and subsequently buying for the first time.
No matter what is said about gold being in a 'bubble,' popularity is growing. Yet, it is still a tiny percentage among worldwide assets. Expect higher prices in the foreseeable future. It's also encouraging to consider how gold has risen since the last quarter of 2008, to double in price in less than three years' time.
15 governments, representing half of the world's population, are participating in a regional economic partnership to better coordinate trade policies. Significant about this planned international agreement is the conspicuous absence of the world's largest economy, the US.
There are two things to take from this news. First, Asia is where the next economic powerhouses will thrive. We can expect formerly laggard countries like Burma to take on a more significant role in the world economy, and to attract investors in the absence of a military junta that hinders business. China, in spite of its growth slowing down, is still a force to be reckoned with as the largest economy next to the US.
The second lesson is that no economy is forever stable, not even the might US. If over time, its policies degenerate into making it debt-ridden and unstably consumerist, the largest economy could yet decline. It's a lesson Asia would be well-advised to remember.
The World Bank, one of the largest international lending institutions, has declared a "new norm" of high food prices, which continue to grow year-on-year. Food components such as oils and fats are up in price by double digits.
The alarming data could just as well be used as justification for more subsidizing and loaning in order to aid agencies in providing food to their constituents. Or, it could be a turning point for banks and other financial institutions, for them to look to the high prices as a symptom of the unsustainability of their lending programs which inevitably lead to a rise in the inflation rate.
Either way, the high prices should alert us as individuals to prioritize on the goods we consume, and to allocate a part of our incomes into savings.
The end-of-year holidays are just around the corner. You might want to consider getting your loved ones a bar or coin of gold or silver. This could be the beginning of the road to financial security and independence for the recipient of your gift. Kids can be educated early on about protection from currency devaluation, and be encouraged to set aside savings for bullion rather than the latest video game or tablet. Perhaps for the younger ones, a coin with a unique design will interest them. Or maybe the kinegram of Heraeus kinebars will do the trick.
And further learning about precious metals is much easier now, with the tons of resources on the internet, including our site. For this season, which is often considered as 'consumerist,' buying people gold and silver items can be a way to reorient them towards saving and sound money.
George Soros is one of the few investors who is a household name, and when he speaks, everyone has to listen, even those who don't like his politics or his politiciking.
Even more significant is what he does. Soros has not made the kindest statements about gold to the press, but his actions speak louder. Take for instance his purchase of gold shares in ETFs GLD and GDX. His bullishness is also implied in purchases of gold ETF call options, which are bought in anticipation of a rise in price of an asset. If history is a guide, these purchases come before massive price jumps, as we have seen late last week and this week. It is fair to say that Soros knew what the EU's reaction to the ongoing crisis would do to precious metals.
Granted, Soros' ETF portfolio isn't the best way to hold gold. Physical gold is the only way to be certain of ownership of specific bars, and coins. But still, we have a generally good idea where prices are headed. Expect a strong finish for gold and silver before the end of 2012.
We saw some upward price action in gold and silver Friday last week, in spite of the American Thanksgiving holidays. This reflected investor sentiment over the likelihood of a resolution in the Eurozone crisis. Officials' implied policy of continued bond buying (to finance operations for the next few years) saw precious metals soar. We have seen this rise in price in such spurts over many years, but this is not to which we credit the 400% increase of the gold price since the start of this century. After all, corrections regularly happen.
Nonetheless, prices are continuously bid up, not always with notice in the headlines. Smart investors take note of 'the dip' such as we had for the past two weeks, and buy during this time. When all is said and done, it is never too late in choosing the most stable currencies around, gold and silver.
India just recently celebrated its annual Diwali festival, where gold is the object of choice as adornment. This has often propped up gold prices at around this time of year.
We now read of reports of silver taking prominence during Diwali, as a substitute for gold, which has never been as pricey during any previous Diwali festival. This phenomenon could be explained by the fact that silver is seen as a 'poor man's gold,' being more affordable than the yellow metal. It is no wonder more Indians opt for silver instead. But in addition, this shift in preferences also points to two things: first, that economies are slowing down, or not growing as fast, even in the BRIC countries of which India is a part. Secondly, demand for physical silver is rising. Whether or not silver could ever eclipse gold as the choice of medium of exchange, it is a good idea to watch out for price movements in silver.
'Hyperinflation' is a word not to be tossed around so easily. It is recognized as an extreme scenario of a currency losing value. But in these uncertain times, investors should be on the lookout for any signs of its impending arrival.
When hyperinflation occurs in somewhere like Zimbabwe, it is of little worry for those outside of the country. But what about the United States, still the largest (although declining) economy in the world, whose currency is stored in every central bank? That would mean an unprecedented crisis.
Contrary to what some may think, the best indicator of hyperinflation is not prices of goods, but the interest rate at which bonds are offered. And 30-year US Treasury rates are as low as they'll get; the bond bull market is over. Although the timing of a jump in asset prices (including that of gold) could not be predicted, it is about time to start planning accordingly.
Over the past couple of weeks, the term 'fiscal cliff' has gained quite some traction, as a result of reelected US President Barack Obama's speech where he highlighted the difficulties the US government faces in financing its operations. For some, this signified higher taxes. Perhaps others saw spending cuts, or at least a smaller rate of increase of spending. But there were also those who saw a turning point in the price of gold, which has maintained its level in spite of a stronger Dollar over the past week.
The long-term fate of the Dollar is of significance to the entire world, because it has been the world reserve currency for much of the last century until now. Where will investors park their worries? Chances are, in a yellow metal whose supply remains constant. Also look for upward movement in silver at the same time.
Japan has reported a 0.9% decline in GDP for the third quarter of this year. The country has not quite snapped out of the recession at the end of the 1980s, which was preceded by apparent prosperity. It's no wonder that Japan is now lagging behind China and the US in the size of its economy.
Japan serves as a warning, to the US, to China, to the EU, indeed to the rest of Asia, of what happens when financial problems are covered up by even more debt and deficits. A country's unemployed population can only grow when productive activities do not come about from real savings but from mere credit.
This expansion of credit, in Japan as much as elsewhere, is also responsible for gold and silver prices rising, and why we can expect these prices to continue rising. With consumer prices continuing to rise, isn't it just right to hold on to an asset that rises in price accordingly? What's more, countries will eventually have to maintain the stability of their currencies, and this will involve backing them in gold and silver, which are most ideal as media of exchange.
Fake gold bars and coins have always been a concern of an investor in bullion. How horrifying it must be to be holding on to a 10-oz. bar (over S$20,000/oz.) only to discover it contains nothing but tungsten or some other cheap element inside. This has made people less inclined to buy bullion enclosed or sealed in plastic, which makes it impossible to test via cheap means such as an acid test. In addition, smaller bars or coins are harder and less cost-effective to counterfeit, due to the smaller returns counterfeiters can get for much greater effort.
All of this spells greater demand for smaller items, and less inclination to keep one's bullion in their original seals. But does this mean that you can no longer keep your PAMP bar in its beautiful and elegant case? This is a judgment call on the part of the buyer, but we foresee testing methods such as ultrasound to become cheaper as concerns over genuineness become more prominent. Later on, if it comes time to sell or exchange your gold or silver, you and your fellow transactor will have the means necessary to ascertain that what you are trading is as good as gold.
In the meantime, make certain your dealer is reputable.
With rising demand in gold and silver, it is becoming tougher to procure the physical products — as opposed to paper futures and ETFs. Even dealers here in Singapore have less and less to offer their clientele. If able to sell coins and bars at all, these are in limited supply and variety. Some shops have even closed down or have limited their business to other products, such as stamps, or numismatic coins whose value is determined not by their bullion content but their year of mintage, etc.
Luckily, buying gold and silver, and storing them, has become much easier with the internet. With a few search words typed in Google, anyone can find the shops that cater to their desire to own investment-grade bullion, and have these precious metals delivered or stored in a vault. This is primarily why BullionStar has entered the Singaporean market. In the face of diminishing supply of physical metals and increasing demand, you the client are assured of a source of gold and silver, with options for delivery, storage, and personal pickup.
China reports a slowdown in price inflation, to 1.7% year-on-year. This is taken to be a sign that the government is more at liberty to ease monetary policies as a means to combat a slowdown in economic activity.
We take notice of this because China has emerged as an economic superpower since the end of the 20th century. More loose-money policies means higher asset prices and a propping up of statistics like GDP. This will also translate to more demand in gold as people seek to preserve the purchasing power of their savings. In addition, the Chinese government, itself a leading importer of gold, will be able to allocate more funds towards its gold acquisition program, further increasing demand, and prices.
The US election results are no surprise. Barack Obama will remain the US president, for the next four years. Some have predicted the path of the gold price based on the winner, and there might be some merit to this. Although we did not see much change in direction of economic policy had Romney won, the short-term gold price may be affected by initial impressions of Obama's leadership as opposed to Romney's 'conservativism.'
If Ben Bernanke remains in favor as Federal Reserve chief, few would doubt the continuation of policies that have seen prices such as that of gold rise year-on-year over the past decade. If history is a guide, it really doesn't matter who's in the hot seat. The attempt to keep the US fiscal machine going bodes well for precious metals.
It is a bullish fourth quarter of 2012 for precious metals. Clearly, an understanding of how gold is a hedge against inflation is growing.
Some say that projections by mainstream analysts may be right, but are too conservative in their price predictions for gold. One often reads price projections close to US$2,000 per ounce of gold.
If history is a guide, however, the financial conditions which we are now in reflect early stages before precious metals' prices explode, and it is not too far out to see a fivefold increase in the next few years. So we're not looking at minor percentages, but hundreds of percentages' increase, just as has already happened in the past decade!
Make sure you hold physical gold and silver, and not just certificates.
The magazine Global Finance releases a 'World's Top Central Bankers' list every year. There is a short description of the criteria that make for good central banking, including success in 'inflation control.' While the criteria presumes, questionably, that there is such a thing as 'good central banking,' we draw focus on another aspect, that is, the relatively low marks of the US' and EU's central bankers (Ben Bernanke and Mario Draghi, respectively). There is, then, an understanding that the policies perpetrated and perpetuated by these bubble-burst economies are not very good in terms of improving the employment and productivity situations.
Also ask yourself, could the 'A'-rated central bankers be any better, or could their countries just be at the 'bubble' point of the boom-bust cycle, where a future bust is inevitable? And what can be done about all this seemingly inescapable financial chaos?
To the second question, we can provide you the delivery and storage of investment-grade bullion at the best prices.
At BullionStar, we only sell physical, fully allocated precious metals. We recognize that most bullion-related instruments out there have no backing in gold or silver. In particular, exchange-traded funds (ETFs) often do not hold the physical bullion on which their share prices are supposedly based on, which makes for a risky asset. Some people who invest in ETFs might make money, but there is no protection from the implosion of financial systems.
In any case, today we are seeing an increased interest in physical precious metals as opposed to ETFs and the like. Unbacked paper money, whether directly issued by government or traded in artifically inflated markets, will eventually be reduced to their non-fiat value closer to zero.
More and more people are coming to see that silver has a bright future along with gold. Brighter than gold even, some would argue. This is based on analyses of silver's supply, which is tightening. It has its uses both in industry, and as medium of exchange. Furthermore, the current situation where paper silver is traded in quantities beyond that of actual supply could not last when the price disparity between merely 'paper' and actual physical silver widens. We discuss investing in silver in this article.
Trickier for some people is figuring out in what proportions they should hold gold and silver. There is no hard and fast rule here, and it largely depends on your appetite for risk, and assessment of just how well the metals will do. But rest assured that both choices are likely to be good alternatives to financial instruments as well as to other currencies.
It remains to be seen whether government officials will find a way to solve their debt and inflation problems, but it's significant to see a Wall Street Journal article suggesting that the crisis can be solved by way of backing currencies with physical gold once more. It is said that with a gold-backed currency, borrowing risk would go down.
Whether or not the proposal is seriously taken up, and whether or not it is too late to turn things around, individual savers at least already have the 'golden option' when it comes to storing their wealth in stable form. Gold may seem to have gone nowhere the past year after reaching record highs in September 2011, but this has been part of its upward movement since the beginning of the 21st century.
This video is an interesting look at how gold can be manufactured out of nature. The initial reaction would be to suppose that the alchemist's dream has finally bore fruit, and gold would soon no longer be scarce.
Actually, the gold chloride from which the gold is 'created,' is just as rare, as the Slate video itself states. But it does make one think. We appreciate gold, not out of a mentality of "gold for gold's sake." Rather, there are certain properties that make it best for money. If gold stops exhibiting such properties, if, say, there is a method of producing gold in the lab and making it common as iron, then we would then go to the next best thing, in this case, silver.
There remains nothing like gold. But it is sound money, not sound gold per se, that is so valuable to society.
Singapore's lifting of the 7% GST on investment-grade precious metals is generating plenty of interest in buying gold and silver in the country. Switzerland-based Metalor, one of the world's premier suppliers, has expressed its intentions of putting up a refinery in Singapore itself. We can expect competition in the precious metals industry to heat up as more firms come in. This bodes well for Singapore's plan of becoming Asia's precious metals trading hub.
While all this is underway, you can avail of GST-free precious metals through our site. We are dedicated to providing the lowest premiums available. All these developments bode well for you the customer.
There are no worries of price inflation hitting the euro zone, in spite of all the money printing and bailouts being done. At least, this is how concerns over the euro's purchasing power are being brushed off.
Perhaps not considered sufficiently by European officials is the possibility that money now being pumped into bonds and stocks, will one day go to consumer goods. When this happens, price inflation will explode. In addition, with countries like Greece and Spain suffering high unemployment, production is going down. The dwindling of supply of goods is bound to lift prices further.
While price increases may not be immediate (at least based on official stats), they are forthcoming. The question is, is there enough time to prepare?
Iran is the latest country to engage in hyperinflation. We are now witness to the third hyperinflation of the 21st century, after Zimbabwe and North Korea.
Here's where holding on to gold proves useful. When the savings in your local currency are diminished by 70% a month (as of now), and foreign currency exchange is restricted, to where do you turn? Iranians resort to the one thing that can save them, and that's precious metals. It wouldn't be surprising to hear stories of Iranians trading their rial for double spot-price, if this means retaining any savings at all.
Given the current monetary policy of nations, we can expect more hyperinflations to come. And it won't be limited to the developing world either.
Did you hear about the Nevada man who died a few weeks ago with US$7 million in gold stored in his house? This news account portrays 69-year-old Walter Samaszko, Jr. as a crazy old man, but if we are to compare what he did with his savings, to the way most people are investing, he comes out on top. Samaszko made huge gains over this past decade, as measured in dollar terms.
The saddest thing about the news is that Samaszko left no last will and testament, thus enabling the US government to lay claim to his wealth. This is something that all precious metals investors can learn a lesson from. It is best to take precautions so that one's savings go to one's intended beneficiaries.
When you look through the BullionStar store, what particular items catch your eye? Are you partial to bars, or coins? Gold, or silver? Made in China, or Australia? There is no 'right' answer here; we are only discussing preferences.
Your preference may have to do with investment implications, such as choosing between gold or silver according to what you believe will go up in price more. The question "gold or silver?" is one we hear all the time, without any definite resolution reached so far.
Your preference may be about aesthetic taste. You might prefer the ever-changing Pandas by the Central Mint of China, or Canadian Maples, or the simple elegance of a Heraeus bar.
Tastes vary, but the underlying purpose of bullion investing is always there. Preserving your wealth can also be fun and fascinating.
Looking at The Economist's global debt clock, you have to wonder: Where is all this money/debt coming from? The only way that the world as a whole could be racking up more and more debt indicates that even the creditors are debtors as well. Just look at China, fueling its ongoing bubble via its printing press, while at the same time lending to the biggest spendthrift yet, the USA.
We always advise gold and silver as a means of defense from profligate nations. But even in calmer times, would you rather hold your money in physical, finite form (e.g. precious metals) or in a form dependent on depreciation and the accumulation of debt? It's not that hard a choice, really.
The Hong Kong Monetary Authority has ordered banks to limit home loans, in the wake of the US Federal Reserve's latest 'QE3' effort. This is for the sake of preventing a bubble, the officials say.
However, real estate bubbles are merely symptoms of easy-money policies. A bust is the inevitable result of a low-interest rate regime. If it doesn't happen with homes, then it will happen elsewhere, such as commercial property. And the effects are not limited to the origin of the bubble; they encompass an entire economy. Since money is used in every sector, any manipulations to money are manipulations of the economy.
There is one type of money whose value stays intact over time. We are referring to physical precious metals such as gold and silver. Yes, living through an economic crisis is undesirable, but there are ways to minimize the pain, starting with the right investments.
It has been a week since US Fed Chief Ben Bernanke announced 'QE3,' or a third round of aggressive bond buying meant to 'stimulate' the US economy. Some allege that this was meant to boost markets in time for the US elections, to improve incumbent President Barack Obama's chances of being reelected.
But political beliefs or alliances don't really matter here. We have observed that QE1 and QE2, while propping up stock indexes for some time, resulted in no net gains for the economy as a whole. The bottom line is that QE hasn't worked. It has, however, had its inevitable consequences. Most relevant to us is the positive effect on the gold price this past week, as people flock to a form of money whose value is not so changeable by policymakers. Meanwhile, in just a week's time since QE3, stocks are floundering once more.
Even as people lose confidence in QE and other schemes, their money will have to go somewhere. In this regard, we have a strong case for gold.
While we tend to think of the present financial crisis as a worry of the West, the fact is that most governments have been engaging in the same inflationary practices that eventually lead to bust. For example, it was recently announced that China's manufacturing activity is its lowest in three years, suggesting that China's bubble is bursting or about to burst.
One should be suspicious about any 'growth' stories right from the start. It seems that all countries engage in the same practices that make it appear an 'economic miracle' is taking place, when in fact a recession is about to happen.
The lesson here is that no one is exempt in suffering from financial crises. Keep your eyes and ears open for any new 'miracles,' and don't be caught flat-footed. All bubbles must eventually burst, but there are precautions that one can take to protect one's wealth. We of course recommend buying gold and silver.
The US government has recently reached a debt level of $16 trillion. It doesn't look like the accumulation of debt is going to slow down, regardless of which party wins in the November elections.
The consequences of a shrinking US dollar and a bankrupt America will be felt worldwide, in the months and years to come. One of its effects will be that funds will be moved away from US Treasuries, and into more stable assets such as precious metals where debt and deficit could not grow uncontrollably.
But it isn't the demise of the dollar, or the euro, or any particular currency that makes us bullish for gold and silver. Since we understand gold and silver to be money, precious metals are actually a choice of currency. We believe that their value is not dependent on the decisions of policymakers. And even in relatively calm periods, it is more assuring to have one's savings in gold and silver, rather than reproducible bank notes.
Before Facebook had its IPO last May, many analysts predicted a drop in its US$38 share price, on account of future profits not justifying such a high price. As of this writing, the ticker FB hovers at US$19, less than half its initial price.
Most people understand what happened to Facebook, yet few see that the same principle applies to the stock market, and indeed the economy, as a whole. Applying the business cycle theory of the Austrian School, we see that inflation has allowed stocks to maintain certain nominal levels, in spite of future profits remaining uncertain.
An indication of uncertainty is that stock indexes rise, while manufacturing indexes shrink, not just in the US but also in Europe and China. We shouldn't think ourselves immune to these problems, as they have a direct implication on the goods we consume.
If we can see the problems of buying FB at US$38/share, we should be able to recognize where we should place our savings instead, namely in the most trusted of currencies, gold.
The World Bank recently said that food prices jumped 10% in July. While climatic conditions and restrictive government regulations have played their part in reducing supply, and thus bringing up prices, there is another factor at work here: inflation of the money supply by central banks. If money supply was constant, there may be price increases in one sector, but these would have to be offset by reduced demand and prices in another sector. Prices could not be bid up so high beyond what people actually hold as money.
It is only a money supply increase that can cause a general increase in prices. While we see food prices go up, we also see the price of oil, of stocks, as well as gold and silver, rising. This is an indication that no value is being created, in spite of the numbers getting bigger. Everything is just getting more expensive.
If money is to retain its value, it has to be in a form not subject to the whim of policymakers. That's why gold and silver are considered the most definitive forms of money, and why it is a good idea to hold your savings in precious metals. Their value lies in markets, and not governments.
‘The gold standard’ is such a common expression to denote the best in a field. We readily talk about the ‘gold standard’ when it comes to computers, cars, phones… almost anything except the asset from where the expression originated.
The phrase “so-and-so is the gold standard of…” is used even by advocates of fiat currency inflation who think an actual monetary regime of gold would push us back to the 19th century. Today, we are conditioned to visualize ‘growth’ in terms of increasing zeroes, even when these zeroes buy less of real things. It’s hard to believe that a stable money supply and more affordable goods (“deflation”) is considered a horror to end all horrors in a modern economy.Perhaps in these times of crisis caused by a fiat standard, ‘gold standard’ will become known once more in its literal sense, because there still really is nothing quite like gold, and the quality of all money must be compared to it.
How did it happen that the gold standard has suddenly become part of the platform/rhetoric of the Republicans, one of the two major US political parties? We here at BullionSafe do not endorse any particular candidate from either party, but must try to trace the implications of this new development.
When Ron Paul advocated pro-gold policies during the 1980s under Reagan, his report was largely dismissed, if not completely ignored. Three decades later, the idea of a gold standard is still slowly creeping into the mainstream. Chances are, most of your friends and relatives still don't know much.
But we could not ignore that gold's time is coming. The investment implications are astounding. Anyone who loaded up on gold just two weeks ago is sitting on a 4% gain already! Silver has risen about 10%. What more can we expect when everyone, and not just flip-flopping politicians, is talking about gold? Or when central banks are given less rein over the economy? We just hope by then that you will have made the right portfolio decisions.
Since last week, we have seen gold and silver on a tear, with the latter suddenly reaching the S$38/oz. level for the first time in months. Apparently, the US Federal Reserve's latest statement has had investors flocking to precious metals. But we should note that among the buyers are fair-weather buyers, who will just as easily sell when the Dollar appears to 'recover' in relation to the Euro.
Our basis for buying gold, and holding on to gold, is deeper than the day-to-day movements and announcements. Just as we stayed calm when gold and silver fell from their record highs, we remain collected at times when the price shoots up all of a sudden. The problem of debt, deficit and inflation is not something to be resolved by more of the same. Gold and silver are our allies for the long run. Accumulate now, and again, at regular intervals.
We are almost deadened to the financial news, of confidence falling, of confidence coming back, while meanwhile, stocks go up, stocks go down. As repetitive as this crisis seems, as repetitive as policymakers’ “solutions” have become, the value of our money has been going down, steadily enough so that we only notice the depreciation in flashes of realization: “I can’t buy much with this S$50 bill!”Even though governments seem to be in a conspiracy to bore us to death or depreciation, we’ve seen gold rising slowly, with its ups and downs but generally in an upward trajectory. Gold is our assurance of not being caught unawares when some financial havoc comes on.
In an episode of ‘The Twilight Zone,’ several gold thieves put themselves in cryogenic sleep so that when they wake up in the future, they can enjoy their ‘earnings’ without the hand of the law to touch them. Little do they know — and they do not live long enough to know, sorry for the spoiler — that a way of reproducing gold had meanwhile been discovered, thus rendering their long-stored gold of little value.This is completely fictional and impossible of course, and gold and silver are the premier media of exchange in large part because of their rarity and irreproducibility. But the episode does reveal the nature of the delusion of many governments. They hope to print their way to a brighter future, but only manage to impoverish holders of paper cash. It’s up to us as individuals to let others know what commodity has retained, and will retain, its value for millennia.
If you were to ask a regular broker what your investment options are, he would probably refer you to certain stocks to “play,” or, if it’s your thing, Treasuries. Commodities, in general, and gold and silver, specifically, remain off the radar of these people. Why so? We’d conjecture that it has a lot to do with brokers being taught to maintain the current institution, the status quo, a status quo that becomes less and less relevant.
Bonds and stocks are no longer the order of the day, but it’s all that our traditional ‘experts’ know. Bonds’ and stocks’ value are largely dependent on a currency maintaining its strength and reputability, both of which have been diminishing for many countries lately.Much has changed in finance these past few years, but you’ll still get blank stares from ‘experts’ with the mention of ‘gold and silver.’ At most you’ll receive lip service about wealth protection, but no specific recommendation. It’s times like these that self-education is more important than ever.
Monetary inflation, as done by central banks, is said to be a ‘stealth tax.’ Although you retain the same amount of cash in nominal terms, the value is lost over time with more of the same bills printed and circulated in the economy. This is reflected in rising prices, of being able to buy less as time goes by.
Gold, on the other hand, is not so readily printable by any human agency, and that’s why it tends to retain its value over centuries. There is only a finite amount of gold in the planet, and while miners continue to extract more gold from Earth, the rate of extraction is nowhere near the rate of paper money printing. You can say that your best bet for a ‘tax exemption’ on inflation is stocking up on gold (and by gold, we mean gold and silver).
What does "gold and silver market manipulation" mean to you? Considering that the Commodity Futures Trading Commission (CFTC) is reported to be throwing out an investigation on the big banks' attempts at selling down the price of precious metals, this is worth asking, so that you can form your own judgments.
Let's do a little analysis. If such futures manipulation was affecting the price of gold and silver, this couldn't be done for much longer. As much as merely paper and not physical gold and silver have been sold, these will have to be bought back, thus rocketing prices upwards, keeping the prices at market supply-demand levels.
And if such manipulation has failed, the case for buying precious metals is more straightforward, in view of all the debt and inflation around us. Just make sure that in buying, you allocate a significant portion in physical, not futures, metals. Look around our website, and feel free to ask us how to go about protecting your wealth.
It is said that the fall of the Roman Empire was preceded by massive inflation or debasement of the currency, the economic chaos of which made the Empire susceptible to outside attacks.
We don't know how bad the damage is going to be to the US, European and other governments, which have been devaluing their currencies with abandon as a matter of course, but it is worth noting that such a problem has never been so encompassing. It is left to individuals to devise their means of securing their wealth.
We're lucky to live in a more decentralized information system, particularly with regards to the internet. This is an advantage not enjoyed in previous generations (and empires), and makes the message of 'buy gold and silver' easier to spread, bypassing the usual pro-inflation news transmitted via traditional networks.
You know Federal Reserve Chairman Ben Bernanke is in over his head when he tries to divert attention from his failings in bringing down unemployment and raising output. He is now urging a new system of measuring progress: "happiness."
Granted that being happy is a good condition to be in, do we really need central bankers to focus on this? If people were getting jobs and able to buy things on their savings instead of credit, "happiness" would take care of itself.
But it isn't Bernanke's sole fault either; he's just part of a faulty institution that couldn't improve much with personnel changes. The whole system has to be rethought. The fact is, sound money is at odds with central bank interventions. We are already seeing gold reassert its dominance, in spite of all the machinations that Bernanke and his European counterpart Mario Draghi are up to. A gold-based monetary system is coming, and for precious metals investors, that's something to smile about.
How high can the price of gold go? While imagining US$10,000/oz. (S$12,500) gold makes for pleasant daydreaming, no one knows for certain if such a price is attainable at all, or too conservative. The simple answer to the question "How high?" is: gold will go up to the level that it needs to go up.
We don't say this to confuse you. The point we are trying to make is that the price of gold has managed to stay in pace with the decline in purchasing power of fiat money. It isn't so important what nominal level it reaches, but that gold continues to function as this maintainer of purchasing power. Unless some new element springs out of nowhere to claim gold's place and status as universal medium of exchange, investing in gold is your best bet contra central banking currency debasement. And considering recent controversies such as of MF Global and the overselling/overbuying of ETF shares, it's always good to have the actual, physical metal within reach.
Inflation or deflation? Traders want to know if markets are headed further upward, or downward from here on. Perhaps the question should be, which markets are headed up, and which ones down.
The inflation-deflation debate also reminds us to understand what inflation is in the first place. Price changes are actually just symptoms of changes in money supply. The late Milton Friedman, who recently turned centenarian, famously said inflation was and always a monetary phenomenon. And given that we haven't seen asset prices explode to the degree of monetary expansion, suggests that there is much, much more room for price inflation.
But prices of goods don't rise, or fall, all together. We can expect that even as government bonds lose all credibility and fall, alternatives such as gold will rise. There may come a time when the gold price itself will go down, but not anytime soon, not anytime before governments worldwide face their day of reckoning. There is still plenty of opportunity to accumulate gold and silver, and thus protect your savings from the coming storm.
It must be tough to be a central bank nowadays. Taking a glance at the latest statements of ECB President Mario Draghi and the China central bank, you could detect the delicacy in the wording, trying to assure investors of their willingness to do "whatever it takes" (Draghi's words last week) without stoking inflation or hyperinflation fears. One wonders if acclaimed wordsmith Alan Greenspan would have fared any better in these unprecedented times.
Yet for all their attempts to keep bond and stock markets from crashing, central banks worldwide are loading up on that one asset once described as a "barbarous relic": gold. Even with a correction in the prices of gold and silver, central bank buying is at a record high. If they couldn't trust each other not to print currencies to oblivion, they at least recognize where markets will turn to in a worst-case scenario.
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