Jim Sinclair just posted an interesting article over at JSMineset
Posted: Aug 30 2010 By: Jim Sinclair Post Edited: August 30, 2010 at 1:34 pm
Dear CIGAs,
What Martin Armstrong offers you for free is amazing.
Knowledge of world economies is key to understanding your own economy and currency in this mirror image Forex market.
Click images to enlarge Martin Armstrong’s latest in PDF format
Alex’s Notes: Something I continue to hear echoed from many Fund Managers and Wealth Advisers is that “2008 was a Black Swan Event”…and “No one could have predicted this was going to happen”…
The fact is, these are weak attempts at justifying the massive losses their clients have faced in the last few years.
On the contrary, my colleagues not only predicted these events would unfold, but even made a movie about it over a decade ago: Millennium Money
This is not rocket science. We do not hold a crystal ball. We do not claim to be soothsayers. Anyone who bothers to study history can recognize the trends we are seeing right now.
“Still less clearly remembered are the years before the mark blew, with their breakneck boom, spending, pro fits,speculation, riches, poverty, and all manner of excess. Throughout these
years the structure was quietly building itself up for the blow.” – The Dying of Money, on the Hyperinflation of Germany in 1923
Sound familiar?
Massive speculations and wild volatility have preceded every major currency event in the history of man.
Why would it be any different this time?
Gold is the ultimate financial insurance against the dark art of shuffling and reshuffling the same paper assets over and over in cunning new ways.
Got gold yet?
By Jonathan Spicer
NEW YORK (Reuters) – A big high-frequency trading firm faces possible civil charges by regulators after its computer ran amok and sparked a frenzied $1 surge in oil prices in February, according to documents obtained by Reuters and sources familiar with the continuing investigation.
Infinium Capital Management confirmed only that it is the company at the center of a six-month probe by CME Group Inc into why its brand new trading program malfunctioned and racked up a million-dollar loss in about a second, just before markets closed on February 3.
The glitch explains for the first time the lightning-quick oil-trading surge of that day — and it may have been a catalyst for the abrupt and largely unexplained $5 slide amid record volumes the following two days.
The firm’s buying frenzy also reveals how faulty computer codes, known as algorithms, can spark sharp volatility and send electronic markets spinning all in the blink of an eye.
Futures exchange operator CME Group is looking into the incident, which occurred at the New York Mercantile Exchange and highlights some of the same electronic-trading concerns raised by May’s “flash crash” in the U.S. stock market.
Exchange compliance officials met last month with Infinium’s management, and separately with engineers and developers who quit or were fired following the mishap, according to two sources.
The U.S. Commodity Futures Trading Commission is also looking at what went wrong, said one of the sources, who were not authorized to speak to the press.
The regulator or CME Group could charge the firm with “conduct detrimental” to the NYMEX, or with smaller offenses, the source said. A manipulation charge is a remote possibility, the source added.
Sweeping financial reform that became law last month gives the CFTC far more muscle to crack down on manipulative trading. However it is unclear whether this case involves such trading, and unlikely that the regulator could use its new enforcement powers retroactively.
In an interview, Infinium CEO and co-founder Charles Whitman said it was a “routine investigation” into an incident that “was a result of both human and computer error.”
The investigation also comes as the CFTC reviews the impact and risks of high-frequency trading in commodities, made all the more urgent by the flash crash in which markets broke down in a matter of minutes on May 6.
THOUSANDS OF ORDERS PER SECOND
Infinium, a household name in Chicago’s burgeoning trading community, relies on computer horsepower and quantitative models to earn razor-thin profits from short-term trading. It uses its own money to make markets and capitalize on tiny imbalances, a common high-frequency strategy.
The documents, dated March, reveal that Infinium used an algorithm that was less than a day old to execute a “lead/lag” strategy between an exchange-traded fund called United States Oil Fund, which tracks oil prices, and the U.S. crude benchmark future, West Texas Intermediate.
The algorithm was turned on at 2:26:28 p.m. (Eastern) on February 3, less than four minutes before NYMEX closed floor trading and settled oil prices. It immediately started uncontrollably buying oil futures, according to the documents, which include letters from Infinium’s lawyer to the regulation unit of CME Group, and cite notes from a company developer.
Infinium placed 2,000 to 3,000 orders per second before its flooded order router “choked” and was “dead in the water” a few seconds later, the developer’s notes said. The algorithm was shut down five seconds after it was turned on.
By then, the documents show, the firm had sent 4,612 “buy limit” orders into the market. It quickly offset the position, mostly with large “block” trades in the next few minutes, leaving it with a $1.03-million loss.
Infinium’s burst of buying and selling represented about 4 percent of average daily trading volume in the contract, and caused a brief 1.3 percent jump in oil prices, from $76.60 to $77.60, before settling at $76.98, Reuters data show. Trading volume spiked nearly eight-fold in less than a minute — and the reverberations turned some heads.
The next day, February 4, commodities traders struggled to explain a 5 percent plunge in oil prices, the biggest one-day drop in half a year. On February 5, crude fell further, to $71 a barrel, and volume touched a then-record high.
Some people fingered London hedge fund BlueGold Capital Management for selling long positions — a charge it promptly denied — while others pointed to the unusual end-of-day market action the day before.
Stephen Schork, who runs market analysis company The Schork Group, told Reuters at the time the volume jump “reeks of someone making a mistake or (who) was in trouble and is in more trouble today.” CME Group said February 4 it was looking into the matter.
Infinium’s Whitman told Reuters the firm immediately alerted the exchange to the problem. “The parties associated with this error are no longer with the firm,” he said, adding the firm since adjusted its software “to ensure this error would not be repeated.”
CFTC and CME Group spokesmen both declined to comment on the Infinium probe.
“The ironic and sad part of the broken algo story is that the traders identifying patterns in the market unfortunately don’t use their expertise to identify abnormal patterns in their own trading,” said Larry Harris, a market structure expert and professor of finance and business economics at University of Southern California’s Marshall School of Business.
“The failure to have simple counters to identify potential problems with the algo, such as having thousands of buy orders in a row, is extremely troubling.”
ALGOS GONE WILD
Stock market regulators last year started pounding the drums on high-frequency trading, which is estimated to be involved in more than half of all cash equities and commodities trading volume.
While the U.S. Securities and Exchange Commission, under some political pressure, has led the charge in peeling back layers of the complicated marketplace, the CFTC this year followed suit with a new technology panel that aims to sniff out unfair advantages or systemic risks associated with high-frequency trading.
Whitman is a high-profile member of this panel. With 250 employees and offices in New York and London, Infinium is among the heavyweights in a group of proprietary firms called the Principal Traders Group, which formed this year to promote the benefits of electronic trading.
Meanwhile, Commissioner Bart Chilton told Reuters late last month he is “itching” to use the CFTC’s new authorities, under the Dodd-Frank Act, to fight trading practices that disrupt oil prices.
Under the new bill, the CFTC needs only to show that a trader acted in a manner that had the potential to disrupt markets to prove a manipulation case.
The documents did not suggest that Infinium was suspected of what is known as “banging the close” — an illegal practice in which traders try to move the futures market by flooding it with orders just before it closes.
Infinium said its primary failure on February 3 was allowing thousands of orders per side per contract, instead of limiting it to the planned one, according to the documents citing the developer’s notes. The notes also indicate Infinium’s computer may not have properly recorded that it was sending orders.
The firm has answered several questions related to the mishap and now awaits a response from the exchange or the regulator.
The CFTC has been mostly unsuccessful in prosecuting manipulation cases over the last few decades. It has had better success with other types of enforcement cases, which often result in a settlement in which the accused firm accepts a fine but admits no wrongdoing in exchange for avoiding court.
August 20, 2010
By David Bond, Editor
Silverminers.com
 |
|
| Molejon Manager Lazaro Rodriguez surveys the mine’s three main pits | |
Penonome & Panama City, Panama – In the 50 years following Christopher Columbus’s accidental discovery of the Americas, Spaniards hauled some 21 tonnes of gold out of the east-west isthmus of what is now called Panama. There ended, by AD 1550, Panama’s mining industry. Her dense jungles, populated by snakes and bugs and panthers, and overburdened with mud so slick and greasy you can bury a Land Cruiser in, forbade future prospecting.
Fast-forward 460 years, and Panama is back in the gold-mining game. Petaquilla Minerals, Ltd., (TSX: PTQ) entered gold production this year at its 2,200 tonne/day Molejon open-pit mine north of Penonome, the first of several new precious and strategic metals projects on Panama’s plate.
“Panama lies on a bed of copper and gold,” Robert Henriquez, Panama’s Minister of Commerce and Industry, told us in a recent interview in his Panama City office. “We feel that mining is an area of great potential for us.” He endorses Petaquilla’s Molejon mine as a model for future mining ventures in his country, including Inmet’s (TSX:IMN) nearby prospective $4 billion Cobre porphyry copper-gold deposit 20 km south of the Caribbean shore in Colon province. “They are doing a very nice job and we support their project.”
Forget what you think you know about Panama. Bananas, notes Henriquez, account for just $150 million of Panama’s $25 billion gross national product. The nation’s debt rating was upgraded to Investment Grade status earlier this year by Fitch, Moody, and S&P, joining Mexico, Brazil and Chile in the BBB-minus category. Panama grew its economy even in the depths of the global recession and its jobless rate peaked at 6.4 per cent, versus the 10 per cent in the U.S. and 20 per cent in Spain.
Ambitious public works projects are under way as well, including the $5.2 billion widening of the Panama Canal (under budget and ahead of schedule for its opening in 2014 – the new locks will handle ships with a beam of 200 feet, double the current width) and some $13.6 billion planned for infrastructure improvements, mainly in the areas of transportation, including a new international airport near Cocle to take some of the load off of Tocumen. If anything sucks about Panama, it’s the traffic in and around Panama City: included in the budget are an urban mass-transit system and replacing the city’s overcrowded and antiquated public buses. The country recently negotiated a free-trade agreement with Canada and is awaiting the U.S. Senate’s approval of a similar treaty. (For reasons unknown to this writer, the Obama Administration has held up free-trade deals with both Panama and Colombia that were negotiated during the Bush Administration.)
 |
|
| Panama Commerce Minister Robert Henriquez (center) greets a reporter (left) and Petaquilla Gold President Rodrigo Esquivel |
We digress. In 1968, the United Nations initiated a mineral survey of Central America and turned up multiple gold and copper findings the rivers and streams flowing through what is now the 842-square-kilometre Petaquilla Concession. Richard Fifer, a third-generation descendant of Panama ex-pats from Chehalis, Washington, is a player in Panama politics and business. Educated in geophysics, geology and finance, Fifer took an early interest in the Petaquilla district, as did Fifer’s father’s contemporary, the late Panamanian President Omar Torrijos, who saw Panama’s copper and gold deposits as a way out of the country’s chronic poverty. But mining was back-burnered in the aftermath of a chain of military dictators, culminating in Manuel Noriega’s fiasco in the late 1980s. Following Noriega’s removal from Panama by U.S. troops in 1989, Panama has conducted constitutional elections every five years, beginning in 1994.
The Petaquilla mining district returned to the front-burner status during the presidential tenure of Omar Torrijos’s son, Martin. When Martin Torrijos’s Democratic Revolutionary Party was turned out of office during the 2009 elections after a peaceful term (executives may not succeed themselves), it was replaced by the even more pro-mining Democratic Change Party, of which PTQ’s Richard Fifer was a founding member. As part of current President Ricardo Martinelli’s cabinet, Henriquez has been charged with making Panama the first Central American country to achieve First World status.
“Israel has done it, Brazil has done it. We will do it, too” he said.
Molejon is set to produce about 100,000 ounces of gold-equivalent ore annually over an 8-to-10-year mine life, which could be extended should preliminary laboratory successes in recovering gold from the muddy saprolite overburden prove up in the field. You can’t run gold-enriched mud through a jaw-crusher or a ball mill, but you can pelletize it with concrete and extract the yellow metal in a column with the right reagents. Mill capacity, currently at 2,200 tpd, is being expanded to 3,000 tpd, with a future second phase to 5,000 tpd from its existing foundations.
John Kapetas is an agreeable Australian who joined PTQ as exploration VP four years ago after a decade of jungle geology in Africa and Indonesia. He likes the odds of finding at least one more million-ounce gold deposit in the Petaquilla batholiths, and has spent his time with the company walking and canoeing its rivers and streams, collating data from the U.N.’s initial research with more modern sampling and mapping. Of special interest are gold anomalies along the Cocle del Norte River. Petaquilla has set up a 90-man camp and drilling station not far from the Atlantic coast to test Kapetas’ not terribly unconventional theory that where there’s gold in the river, there’s a gold mine waiting to be born nearby.
The first phase of drilling at the Oro del Norte camp will be completed in Q3 2010, which could lead to a mine-construction decision next year following an N.I. 43-101 workup. The company recently announced discovery of a new epithermal gold vein system from its drill and trench program there; Oro del Norte is within trucking distance (20 km) of the Molejon mill.
 |
|
| PTQ geologist John Kapetas (right) inspects core at Oro del Norte | |
“Panama is an easy place to work in,” says Kapetas, who has charge of PTQ’s $200,000 per month exploration budget. “Molejon is a simple ore body in an andesite host.” Between Molejon’s two gold-bearing quartz veins is a vast quantity of aggregate waste rock that has a commercial potential for the road-building that will be necessary to Inmet’s Cobre mine, slated to enter production in 2014. Mud is so predominant in the Panamanian jungles that as much as a metre of aggregate must be overlaid before a road can be stabilized. Petaquilla paid more than $40 per ton for the stuff to build its roads. The company can produce similar aggregate from below its upper quartz zone for a fraction of that price, making Molejon’s lower gold zone much more cost-attractive.
Grade control is critical to Molejon. Lazaro Rodriguez, PTQ’s vice president of operations and manager of the mine, oversees a futuristic high-tech operation that computer-monitors output from the three pits and mill throughput down to the decimal point. Processes can be tweaked from there to maintain a constant 2.9 gram/tonne mine grade. Three ball mills digest feed from crushers, sending 74-micron muck to thickener tanks, then to leach tanks. The solution then passes through carbon pulp columns, then to the cell room. Tailings water is recirculated into the mill. Molejon produces a gold-silver Dore and Petaquilla controls the product’s marketing through to the end-user.
“I think we can get more than 10 years out of that mine,” says Chairman of the Board Fifer, given preliminary test results of Molejon’s saprolite gold returns. Built at a cost of $150 million, Molejon was financed by $69 million of debt, with the balance in equity. On 19 August, PTQ announced it had reached a forward gold sales agreement with Deutsche Bank for $42 million of the remaining debt. In essence, Petaquilla will commit to deliver 68,243 ounces of gold to the bank over the next five years – about 6.3 percent of the company’s total gold resource at Molejon.
“The lower payments that will now be due to the Company’s note holders will allow for an increase in funds to be directed towards the exploration of the Oro Del Norte region where significant gold mineralization has been discovered,” Fifer said. Also, the company is in the process of spinning off its considerable mine-building and infrastructure development capabilities into a new company, Panamanian Development and Infrastructure, Ltd. PTQ will retain a 47.78 percent interest in the new entity. Fifer will settle for a small portion of the $4 billion Inmet is expect to spend building the Cobre.
“Our track record should speak for itself, and for the future of mining in Panama,” Fifer says. “We have opened the door for the mining industry here.”
 |
|
| PTQ Chairman Richard Fifer, at his finca in Panama. He works in his spare time to save Panamanian wildlife | |
Casimir Resource Advisors, LLC, of Cartersville, Georgia, put PTQ on its radar screen in March. Concluded Casimir President Eric T. Allison: “CRA’s review of the Molejon Gold Project has not revealed any fatal flaws. The geological modeling and interpretation is very good and the resource estimates and the Life of Mine Plan based upon them are sound. The mining activities are well planned and appear to be professionally executed. The plant has successfully gone through its start-up and commissioning phases and is currently fine tuning its processes and upgrading equipment as needed to fully achieve and maintain its design capacities. The careful attention to grade control coupled with the close interaction with Geovectra to continually revise the mining plan should allow the project to mine sufficient amounts of ore at high enough grades to meet its planned target of 6,000 ounces of gold per month. The exploration efforts are of high quality and are just beginning to tap into the significant potential of the balance of PTQ’s concessions. Additional growth and revenue generating projects are in the pipeline.”
Rodrigo Esquivel is a Panamanian attorney and President of Petaquilla Minerals’ wholly-owned subsidiary, Petaquilla Gold S.A. He negotiated the companies’ gold-export permits and also the so-called Petaquilla Law, by which the Panamanian National Assembly certified by law PTQ’s leases in the batholiths concession. Among its components:
- A 2 percent royalty once mine-building costs have been recouped;
- Monthly inspections holding PTQ to drinking-water standards for water discharges;
- Expenditures of $1.2 million annually on health centers, schools, road-building, agronomic activities, and chicken- and cattle-farming support.
Additionally, PTQ has agreed to re-vegetate 1,000 hectares of jungle for every 100 hectares it digs up and has a “gentleman’s agreement” to provide hot meals for the schools it has built. The anti-mining NGS can pound sand, or in Panama’s case, mud.
“It has been a wonderful experience for me to be involved in commercial mineral production. We are creating jobs and wealth in an area that was long forgotten,” Esquivel reflects. “Mining can be in a good harmony with the environment and it is the policy of Panama’s government to develop the mining industry.”
Commerce Minister Henriquez says miners and explorers are welcome in Panama so long as they play by the country’s very stringent environmental rules and establish good social contracts. “We are advancing mining projects that previously were only on paper. We welcome their state-of-the-art technologies, their commitment to international standards of environmental quality, and their willingness to support, and to get the support of, their local communities,” he said.
I like these guys. They know their country, they know their geology, and their federal government would like them to succeed. What a refreshing departure, on all fronts, from the U.S. government’s thuggery in the hard-rock western United States.
Alex’s Notes: This is the reason the London Good Delivery system exists, regardless of what newsletter writers claim.
By VM Sathish
Several tons of gold imported into the UAE by traders and investors turned out to be fake on closer inspection, resulting in millions of dirhams in losses and high levels of stress to the victims.
Speaking to Emirates 24|7, Mohamad Shakarchi,, Managing Director of Emirates Gold, said: “A lot of people in the UAE who tried to import gold at lower prices or through dubious overseas companies have been cheated.
We have inspected many consignments from African countries, especially Ghana, and found that there is not an ounce of gold in them.
For importing pure dust or other metals with yellow colour, these traders have paid several million dirhams.”
Dubai Customs sources confirmed the incidence of fake gold imports, but did not reply to a questionnaire sent by Emirates 24|7 ten days ago.
“The concerned official is on leave,” said a spokesman.
Emirates Gold has stopped examining gold imported from Africa. “We send specialists to examine a gold consignment only if it is routed through a local company.
We don’t have time to waste because most of these so called gold imports are fake. The traders got greedy. They thought they were getting gold at a discounted rate.”
Mohammed said that at least five tonnes of fake yellow metal is lying with Dubai Customs.
A tonne of gold will cost approximately $40 million. Merchants estimated that the minimum loss of fake gold imported by local traders is nothing less than $200 million.
He said many clients and Dubai Customs have requested the use of company’s expertise to verify the purity of gold. “The fake gold issue has affected many people. Some of the traders got heart attack, after our inspectors said there is no gold in the tonnes of imports brought from Africa,” Mohammed said.
Recent media reports suggested that several million dollars worth of gold with the Ethiopian Central Bank turned out to be fake. These bars of gold turned out to be gold plated steel bars
African gold merchants claim to be in possession of large quantities of gold dust or gold bars, which they offer to sell at below market prices.
The would-be buyer is made to send money for travel of the seller, for insurance, for shipping and for refinery assays before they would receive anything of any value. Investors are shown samples, which may be original gold.
But when the consignment reaches the port, it will be only mud or sand. Once Dubai Customs tightened controls, fake gold imports started reaching the UAE through other ports.
The seller can walk away at any point with virtually no risk of being caught as all contacts are via anonymous free webmail accounts accessed from Internet cafes and via prepaid mobile phones.
After the real estate and stock market investments became dull, many local investors have turned to commodity, especially gold investment, said the Chief
Executive Officer of JRG Commodities, Sajith Kumar PK.
Alex’s Notes: China’s economy continues to develop, with more and more people with discretionary income.
Combine this with the fact that Chinese tend to be a culture of savers instead of debtors, and China’s own experiences with hyperinflation, and it lays a pretty good argument as to why we can likely expect to see continued and increasing demand from both Chinese citizens as well as the government of China as they diversify out of USD based foreign reserves and into gold to solidify their position in the global economy.
By Leslie Hook in Beijing
China has moved to liberalise its gold market further, increasing the number of banks allowed to trade bullion internationally and announcing measures that will encourage development of gold-linked investment products.
The move by Beijing’s central bank comes as the country’s investors pour record amounts of money into gold, in a trend that is becoming a significant factor on global prices.
Last year, Chinese investors bought 73 tonnes of bullion, up from 18 tonnes in 2007. The new policies were likely to increase liquidity in the domestic gold market and spur the development of gold financial products, analysts said.
China is the world’s largest gold producer and the second-largest consumer, after India, but its domestic market remains constrained by limited investment products.
“This is a positive sign for the gold market,” said James Steel, precious metals strategist at HSBC in New York.
“The Chinese statement reaffirms the vigour of the emerging markets’ demand for retail physical bullion.”
Gold prices rose in London, partly on the back of China’s announcement, but also on signs of robust buying from India’s jewellery sector.
Spot bullion traded at $1,190 a troy ounce, up from a three-month low of less than $1,160 an ounce last week.
GFMS, the London-based precious metals consultancy, said recently that Chinese investors, who are building wealth at an unprecedented rate, were diversifying their assets into gold to “protect themselves against inflation”.
The People’s Bank of China said “the need to perfect foreign exchange policies in the gold market is clear.”
It called for better financing services for bullion, opening the door for Chinese banks to hedge their gold risk overseas.
The central bank also hinted at changes in taxes on bullion. But it failed to endorse gold as an investment and to suggest it planned to increase the size of its bullion reserves, one of the world’s largest.
The new gold guidelines are part of the gradual internationalisation of the Chinese banking system. Restrictions on some renminbi-denominated investment products in Hong Kong have been lifted recently, and renminbi cross-border settlement programmes have been expanded this year.
Well you dont see this every day.
Ben Davies of Hinde Capital “Gold is now the currency of first resort”
Key points:
1. Gold substantially undervalued compared to the amount of paper currency
2. Un-allocated positions are numerous, and dangerous
3. Central banks with more sophisticated managers are buying gold
by Louis Charbonneau
UNITED NATIONS (Reuters) – A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.
But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.
“The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the U.N. World Economic and Social Survey 2010 said.
The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.
“Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,” it said.
The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.
“A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,” the U.N. report said.
The report said a new reserve system “must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity — such as SDRs — to create a more stable global financial system.”
“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development,” it said.
MARKETS DECIDE
Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, told a news conference that “there’s going to be resistance” to the idea.
“In the whole post-war period, we’ve essentially had a dollar-based system,” he said, adding that the gradual emission of SDRs could help countries phase out the dollar.
Nobel Prize-winning economist Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, has advocated the creation of a new reserve currency system, possibly based on SDRs.
Russia and China have also supported the idea.
But Paavo Vayrynen, Finland’s Foreign Trade and Development Minister, told reporters that he doubted it was possible “to make any political or administrative decisions how to formulate the currency system in the world.”
“It is based on the markets,” he said. “I believe that the economic players in the market are going to have the decisive influence on that issue.”
European Union development commissioner Andris Piebalgs said it would be a bad idea to dictate what the reserve currency should be.
“It is markets that decide,” he said. “Any intervention would just create additional challenges and make things even less predictable.”
By Carolyn Cui
Amid all the market doom and gloom, the world’s largest gold fund is quietly celebrating another major milestone: SPDR Gold Shares, an exchange-traded fund backed by physical bullion, has recently surpassed $50 billion in assets.
Driven by concerns over the euro zone sovereign debt crisis and a double-dip recession, investors have plowed $5.4 billion of net cash into the fund during the first five months. At the same time, gold prices have continued to set records – gaining 13.4% so far this year – helping boost the fund’s size.
As of Monday’s close, the fund - boasts total assets under management of $53.3 billion.
The fund – known as GLD because of its ticker symbol – now hoards a total of 1,316.18 metric tons of gold and rivals most of the world’s central banks. If GLD were a central bank, it would rank fifth – just below France and above China.
Gold’s safe-haven trait was in evidence again on Tuesday, as stocks were hammered globally and commodity markets were mostly a sea of red. Gold futures for July delivery eked out a gain of $3.8, or 0.3%, to settle at $1,242 per troy ounce at the Comex division of the Nymex.
Now, investors are holding their breath to see whether the gold fund can pass out the $75.6 billion SPDR S&P 500 to become the world’s largest ETF. The gap between the two ETFs – both run by State Street Corp. — has contracted sharply this year from $44.7 billion to $21.3 billion as gold prices have gained and stocks faltered.
Big push coming up for another massive injection of money into the system.
According to Shadowstats.com, we are clearly witnessing a massive collapse in credit and money:
Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral.
By Ambrose Evans-Pritchard, International Business Editor
Fed watchers say Mr Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam. The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so.
Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts.
By Rebecca Keenan and Elisabeth Behrmann
June 25 (Bloomberg) — BHP Billiton Ltd. and Rio Tinto Group financed a seven-week advertising campaign to end a mining tax in Australia. Instead, they got a new prime minister.
The ruling Labor party yesterday dumped Kevin Rudd, the architect of the tax, for Julia Gillard, who opened the door to talks on the proposed 40 percent tax that Morgan Stanley estimates would have taken A$85 billion ($74 billion) from the mining industry during the next decade.
“It’s amazing that one policy killed the prime minister,” Jason Teh, who helps manage $2.6 billion at Investors Mutual in Sydney. “The mining tax was a big thorn in the side for Rudd. I’m sure Gillard knows that and she will try to negotiate a better outcome to make herself look popular.”
I had originally received a request from a GoldStockMania.com reader who goes by the user name, “SW”, to do a review on Anglo Far East Bullion and weigh in on if I thought they are a legitimate option for buying and storing allocated gold and silver bullion. I complied to the request and posted a review on Anglo Far East (AFE) on February 28th, 2010. Since then I have taken the liberty to open up an account and personally talk with the folks over at AFE. I have more information I would like to bring you up to speed on in my Anglo Far East Review, Part 2.
It took a while to get this second review together because I wanted to take some time to open an account and get some more experience with Anglo Far East before posting a follow-up review. I am glad I got the opportunity to do this because, it has given me the opportunity to get more familiar with the folks over at AFE and their services. The thing I like the most about AFE is that they believe what I believe about the physical gold market. What I mean by this is that, they are not providing custodial storage services just to make money or just because gold so popular these days. They are providing their services because they believe the in the fundamentals of gold and want to provide a safe and secure service to like-minded clients.
Before reading Part 2 of my review on Anglo Far East Bullion, you may want read my original Anglo Far East Review as I don’t want to repeat the same information I posted there.
Also, if you are wondering why anyone would want to buy and store their gold and silver with a bullion custodial company, then see my list of reasons why I use custodial services to hold my precious metals by clicking here.
If you are like me, then you realize there are risk if you personally hold all of your precious metals or let a professional company do this for you. I have come to reason, that it is better not to have all of your eggs in one basket, be it at home or with a professional storage company. I believe that if you pick the best bullion custodial companies to store some of your metals with, it is a much safer strategy than storing it all at home. You will have to decide on the percentages that make sense for you.
For example, you could split up your precious metals holdings into 3 different places; at home, AFE, and GoldMoney.com. If your crazy broke government decides gold confiscation is a good idea again and comes to your house and cleans you out, you still would have 60% stored over seas. So you would lose 30% versus all of it. This scenario also works out well if a thief breaks into your house and cleans you out too. I don’t want to worry every time I leave the house that the majority of my savings could be gone by time I return home. I rather have the piece of mine knowing my wealth is safely stored in multiple locations.
Another primary concern of mine is mobility, or lack of it. If I want to get out of the States quickly, I don’t see how I can do it with a bunch of physical metal in my possession. I can see them holding me up at the airport and not letting me through. If my metals are stored safely over seas, I can pick up and go quickly while still having access to my precious metals.
This really is no difference than trusting your current bank or banks to hold your money in an account. Someone may say, well the banks are insured. Guess what, so is AFE and GoldMoney.com. Also, I would not count on the FDIC too much, as they are out funds and are now tapping the US Treasury cover cost of failing banks. And of course the US Treasury, is borrowing money to pay for that and just about everything else from foreign investors and their magical printing press.
Now let’s get down to the business of this review.
It is free to open an account with AFE. In Part I of my review I discussed how AFE is primarily interested in servicing higher end clients which typically make large bullion purchases. While this is still true, what is not widely known is AFE’s unadvertised account programs. You can start a monthly Silver Savings and/or Gold Savings account for as little as $50/month for the silver savings account and $500/month for the gold savings account.
I opened up a monthly savings account to start a savings program for my 3 boys. AFE debits your debit/credit card once a month for the amount you specify. Just set it and forget it.
One of the best things about Anglo Far East, is that they are in no way associated with the Banking Industry. None of AFE’s vaulting partners or other strategic providers are controlled or majority-owned by banks. This is by design, not by accident. AFE is completely insulated from banking industry risk. Why is this important? As a client of AFE, you don’t have to worry that your precious metals are exposed to any encumbrances due to bullion bank lease agreements or from pooled accounts. Better yet, you can rest assured that your metals are owned only by you, as it should be.
AFE does not deal with “paper gold.” With Anglo Far East, you get 100% allocated gold and silver bars. AFE will not only provide you with the individual bar numbers of the bullion bars you own, but you can also rest safely in the knowledge that each bar is sight-verified by a top Swiss auditor and annually checked off against AFE accounts to ensure that your metal is locked away safely. If at any time you wish to take delivery of your metal, AFE will arrange to have bars shipped to you anywhere in the world.
By now you may of heard about the fake tungsten filled gold bars that were discovered at a very large german gold refiner. Professionals can catch this type of fraud quite easily as the german refiner did. Fake gold has probably been around for almost as long as gold has been of value to man. If you are concerned about fake tungsten bars ending up in your hands, then pay attention to what follows. I don’t know about you, but I do want to own real gold! However, I don’t want to worry about buying fake gold as I don’t have the background or experience to probably catch every fake. Fortunately, there are people who do have the background, experience, and get paid to make sure my gold is real! Say hello to the professional LBMA circuit.
Anglo Far East has access to the LBMA system of refineries, vaults, and security providers. This allows AFE clients to maintain London “Good Delivery” status on your precious metals which ensures the authenticity of them as well. Anglo Far East purchases gold and silver directly from an LBMA refinery! This means that your metals are guaranteed to be real, since the gold & silver are directly poured, securely transferred to their LBMA vaults, and third party audited throughout the whole process. Real gold is poured gold, right. Your precious metals never leave the trusted LBMA circuit. Very few bullion custodial companies can make this claim.
Time Tested: AFE is the oldest private bullion custodial company around. They have stood the test of time, while others have come and gone. “Anglo Far-East Bullion has been providing select international clientel the highest degree of privacy, security, and access to buy, hold, and sell allocated gold and silver bars.”
Privacy: I know many of my readers are very much privacy oriented as we all have a right to our privacy. I can’t of a better area to be concerned about your privacy, than where your you store your precious metals. AFE accounts are managed as numbered accounts in the Swiss private banking tradition. At no time does identifying information such as name and address appear on any account statement or your account documents.
Guaranteed market access and liquidity: “AFE buys and sells directly with LBMA-certified metal refineries only. In bypassing the commodities market exchanges such as the Comex and bullion banks, AFE provides clients a means of access to the global physical precious metals markets that may not be available to others should systemic issues in the bullion markets arise.”
Iron-clad governance: “By contract with AFE’s vaulting provider, no access may be made to the vaults without the attendance of an agent of the vault as well as an agent of the third-party signatory trustee, in this case top Swiss auditor Grant Thornton. All metal going into and — more importantly — coming out of the vaults requires the approval of a third-party signatory trustee as well as a detailed, sight-verified report of each bar and serial number by the auditor.”
I have talked a bit about what I like about Anglo Fare East. Now let’s look at what I don’t like about them.
This is not particular to just AFE, but to all bullion storage companies. You have to get use to the idea that your gold is safely stored miles and miles away from where you live. This is a great advantage and disadvantage. It is very similar to using a bank to hold your cash, but somewhat different.
I don’t want to sound nick picky, but AFE’s account panel seems a bit dated. It is functional and everything works, but it just seems a bit out of date an disjointed. This does not stop me from doing anything I need to do, but I would like to see the customer account panel updated to provide a better or more polished experience for customers.
After talking with and personally dealing with Anglo Far East (aff) I have come away really impressed with their over all company, operation, and involvement with the gold and silver bullion industry. I feel that they are running a very private, safe, and secure operation. You always own 100% of what you purchase as it should be. AFE accounts are allocated, so your metals are real, accounted for, and belongs to no one but you.
You can get more information or open a free account at Anglo Far East by clicking here (aff).
If you have any questions or would like to share your experiences with Anglo Far East for the benefit of other readers, please leave a comment below.
Iron, copper, lithium, niobium, and gold.
Zero-Hedge says “watch for gold to plummet”…although this may be a bit pre-mature.
Subtanstial gold mines takes years to survey, and years more to bring to production, assuming there is a company willing to assume the risks of a war-torn area.
No…there are quite a few places where mining companies can operate without worrying about having workers captured and be-headed by a few lunatics in turbans.
I think it will be quite awhile, on the order of a decade, before the gold mines in Afghanistan affect the global gold price.
By JAMES RISEN
WASHINGTON — The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.
The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.
Quantitative Easing is the only solution to this. It certainly isnt going to be covered from tax receipts.
More printing = higher gold price.
Bloomberg checked in on the state of Fannie Mae and Freddie Mac, the two once-quasi-private mortgage subsidy companies that are now almost wholly owned by taxpayers. Bloomberg found that Fannie and Freddie have already drawn down $145 billion in their unlimited line of taxpayer credit, and that their losses could ultimately be as high as $1 trillion.
To put that in context, Fannie and Freddie alone may consume more than the entire TARP Wall Street bailout, which was in the neighborhood of $800 billion. Fannie and Freddie’s taxpayer-money-vaporization will likely dwarf even that of AIG, which most people still consider the most appalling bailout beneficiary of all.
Just as bad, Congress isn’t even pretending that it has a plan to stop the losses at Fannie and Freddie. Reducing the Fannie and Freddie losses would mean reducing a huge housing-market subsidy–and that’s the last thing Congress wants in an election year.
Also, the Fannie and Freddie losses are functioning as a back-door Wall Street bailout: Fannie and Freddie are using the taxpayer cash to buy mortgages from Wall Street, and they are paying prices so high that they’re taking a loss.
It’s certainly tough to decide what SHOULD be done about Fannie and Freddie, because just disbanding them immediately would likely have a negative effect on the housing market and economy.
But it doesn’t seem to much to ask to demand that Congress at least come up with a plan.
World Gold Council Q1 2010 Supply and Demand Statistics Report (Years 2007 through 2009)
You can download this report in PDF format here: http://www.research.gold.org/supply_demand/
Observations:
Average mine production over the last 3 years is 2484 tonnes, while average global demand is 3612.1 tonnes.
Miners closing out hedge books continues to subtract from overall global supply, with miners closing 254 tonnes of hedges off their books in 2009 ($9.8 Billion with gold @ $1200)
Official sector sales (Central Bank Sales), has dropped for 3 years in a row, with only 41 tons of sales in 2009. It is important to note, that this area of supply has historically been in the area of 500 tonnes per annum, and Central Banks halting sales of gold leaves a large hole in the supply equation, that is only now being taken up by recycling gold scrap.
The gold scrap industry is booming. From 2007 to 2008, there was a 334 tonne year over year increase in gold scrap recycling, which is roughly $12.87 Billion with gold @ 1200 /ounce. From 2008 to 2009, gold scrap supply increased yet again by another 352 tonnes year over year, which is roughly another $13.58 Billion year over year from 2008. Total gold scrap supply in 2009 was 1668 tonnes.
We have considered that perhaps this is what is paying for those MC Hammer commercials.
Summary:
Overall supply has actually been increasing due to increased scrap recycling and a lower amount of net hedge reduction.
Overall demand for jewelery and industrial (electronics and dental) use has been falling. Total fabrication demand for industrial and use in jewelery has gone from 2882 tonnes in 2007, to 2632 tonnes in 2008, and finally as low as 2132 tonnes in 2009. This continued drop in industrial demand does not reinforce the idea that the US or other economies are in a recovery.
The investment demand category has been consistently increasing year over year, and now is approaching as much as jewelery demand, coming in at 1323 tonnes for 2009.
Official coin sales have increased consistently over the last 3 years, from 134.6 tonnes in 2007, to 187.3 tonnes in 2008, and finally 228.5 tonnes in 2009.
The fascinating thing is the trend in ETF type vehicles, which in 2009 for the first time in history surpassed all other investment demand at 617 tonnes (approximately $23.8 Billion), compared to 472 tonnes for bar and coin retail.
GLD ETF added record tonnage in a single day. According to Adam Hamilton of the Zeal Speculator,
“May 25th, GLD made one of its biggest bullion buys ever. Differential buying pressure on this vehicle from stock investors was so intense that GLD had to add 30.4t,taking its total holdings to 1267.3t.”
This is the equivalent of 977,390 troy ounces, or $1.172 Billion dollars worth of bullion in a single day.
Note: the largest increase in the ETF demand category came in Q1 of 2009, right after the Q4 2008 near collapse of the global financial system. It is possible we will see another large increase following the ECB bailout of the Euro in Q1 2010, although Q1 2010 ETF demand seems to have fallen off a cliff from previous quarters in 2009.
Total investment in nominal terms for 2009 was approximately $51.05 Billion.
Alex’s Notes: I wrote an email to Brett Arends of the Wall Street Journal after he posted this article, to see if he would be interested in discussing what he failed to mention in the article regarding golds role in the modern economic system, and included that it might be useful unless of course he had already made up his mind on the subject and was closed minded, but he never responded. I have to say, I am not surprised.
by Gary Northby Gary North
|
|
|
Brett Arends writes for the Wall Street Journal. He is a standard Establishment financial journalist. They are all anti-gold. I have read these people for 50 years. They never change. Their arguments never change: stupid. Their timing never changes: bad.
They ignore gold when it is at the bottom. They ignore it when it has doubled. When it has tripled, they write articles on why it’s not a good investment, because it is overbought. When it has quadrupled, they call it a bubble.
Arends takes anti-gold hackery to a new level. He calls gold a Ponzi scheme.
Gold was $105 in 1976. It peaked at $850 for one day in January 1980. If there was a Wall Street Journal series on why you should buy gold, 1976 to 1979, I do not recall it.
Arends is writing a 3-part series for the Wall Street Journal, which has been anti-gold for all of my lifetime. That the Wall Street Journal runs a series of anti-gold articles is about as innovative as a New York Times editorial opposing a Federal budget surplus.
The case for a gold coin monetary standard is simple: no one should trust the United States government or the Federal Reserve System to maintain the purchasing power of the dollar. Since 1914, the dollar has declined in purchasing power by 96%. As Casey Stengel used to say, you can look it up. Unlike Casey, I’ll show you where to look it up. Here.
The case for gold as an investment is different. First, it is an inflation hedge over long periods of time, though not necessarily in the medium term, e.g., 1980–2001. Second, it is a crisis hedge when the international capital markets are in turmoil. (So, for that matter, is the U.S. dollar.)
Gold is not a deflation hedge. It was for the whole world in 1930–33, when it was a price-controlled commodity that the Treasury would buy for $20 per ounce. It was for central banks and foreign governments, 1934–1971, when the Treasury would buy it for $35 an ounce. It is no longer.
There is a legitimate case against a rising price of gold in U.S. dollars over the next few months, based on the recent move of the Federal Reserve System, in conjunction with the Treasury, to shrink the FED’s balance sheet (monetary base), which has been in progress for the last few months. You can see this here in a chart published by the St. Louis FED.
To understand Brett Arends, you must read his article, line by line. To help you do this, I will provide a running commentary. Note: I took on Milton Friedman on this issue on numerous occasions. Brett Arends is no Milton Friedman.
Let us begin.
A SAD, SAD DAY
The article begins: “This is a very sad day for me.” I hope to make it sadder.
In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs. And now I’m going to lose them all.
That’s because even though I think gold might be about to take off, I don’t recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion.
This is rhetorical trickery. It is indulged in by hacks who have a hidden agenda, but who don’t want to reveal it. It is also indulged in by wishy-washy non-forecasters, who want to cover their behinds when the market goes against them – either way, up or down.
First, he uses the word “might.” “Gold might be about to take off.” He wants to cover his backside when it does. After it does, he can say to any critics, “See? I said it might take off.” Well, whoopdy-doo. The issue is this: “When did you tell people to buy? At what price? And how much?”
I told people to buy in October of 2001, just after 9-11. Bill Bonner, my publisher, told people to buy in 2000. You could buy gold at under $300 back then.
Anyone who recommended gold after it cleared $400 an ounce is a Johnny-come-lately.
Second, notice this rhetorical flourish: “I don’t recommend you rush out and put all your money into gold bars or exchange traded funds that hold bullion”
Hack alert! Hack alert!
He creates a stick man: someone who says to put all your money into gold bullion bars (400 oz). Who is this someone? Who can afford 400 oz bars at $1,200 an ounce?
I don’t know any pro-gold columnist who recommends that you rush out and put all your money in American eagle gold bullion coins.
OK, I did this in 1999. I put 90% of my money into gold coins. I sold half of them when it peaked in the third week of March 2008. I called that peak within 24 hours after the peak at $1,033. I warned my subscribers that gold and silver would fall. This is a matter of public record. Both metals fell. I figured in 2008 that when you make 300% on your investment, and you think it has peaked, it’s time to take some profits. But I never told my subscribers to put 90% of their money into gold. I was crap-shooting in 1999.
I won. Yes, I should have stayed in, but I’m conservative. I go by Jimmy Napier’s rule: “When someone puts a million dollars in your hand, close your hand.” Also, I told my subscribers not to sell their coins, only non-coin gold.
I wonder what Mr. Arends’ track record is with respect to gold. I wonder what percentage of his portfolio is ever in gold or has ever been in gold. I think I know.
And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous. Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
Warren Buffett was merely quoting Milton Friedman, who used the identical argument. Friedman hated the idea of a gold standard for most of his career. For a good summary of his war on gold, read Hans Sennholz’s obituary of him.
Sennholz taught me monetary theory in 1962. I have always taken his side against Friedman’s position of fiat money.
Friedman argued that gold as a monetary standard is wasteful. The Wall Street Journal repeated it in an editorial in 1969. I replied to that argument in 1969, in an article titled “Gold’s Dust.” I argued that gold has a major economic function: restraining governments and central banks from inflating. You can read it here.
Warren Buffett has been in a lifetime revolt against his father’s political legacy. His father was the Ron Paul of the late 1940s. There have only been two gold-standard libertarians in Congress over the last century: Howard Buffett and Ron Paul. Warren Buffett has always rejected his father’s position.
So has the Wall Street Journal.
Here is my objection to the Journal: its long-term hostility to the idea of a gold as a legitimate and viable monetary system. This hostility to gold is basic to the acceptance of the modern fractional reserve banking system. It is basic to the acceptance of central banking. It is hostile to the idea that the masses should control monetary policy through a full gold coin standard, which is established by the free market and enforced through the law of contract. The Journal may run an occasional article on gold as a potential money-making investment (money defined as fiat dollars), such as this one, but the Journal has long maintained its support of a fiat money standard.
Arends goes on: “And that’s not the half of it. Gold is volatile. It’s hard to value. It generates no income.” This is another standard cliché against gold. Gold is volatile. Right. So is the stock market. So are commodities in general. So what?
“It’s hard to value.” It is? You mean the commodities market’s moment-by-moment pricing of gold is hard to value?
“It generates no income.” What commodity does?
Land pays no dividends.
Arends knows all this. He offers this as an excuse.
Yes, it’s a “hard asset,” but so are lots of other things – like land, bags of rice, even bottled water. It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.
Are you beginning to sense that two of this guy would not make a halfwit?
We are not in prison. We are outside prison. If we have gold, we have a marketable asset. It is liquid. Land isn’t. We can sell a tenth-ounce gold coin. How do we sell a bag of rice? How do we sell a carton of cigarettes?
As for being a “store of value,” anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.
Quite true. And anyone who bought it in 2000 has quadrupled his money. Tell me about the Dow, which is down since 2000. Tell me about the NASDAQ, which is way, way down. See for yourself.
Did the Wall Street Journal tell people to get out of the stock market and into gold in March of 2000? No? Did it at least tell them in February and March 2000 that the market was a bubble? I told my subscribers that it was. The NASDAQ peaked the week they received my March REMNANT REVIEW warning them.
I get worried when I see people plunging heavily into gold at $1,200 an ounce. What if the price goes back to where it was just a few years ago, at $500 or $600 an ounce? Will you buy more? Sell?
I can see him, worrying about this. So, so worried. He is about as worried about this as I am about the anti-gold hacks’ pension funds at the Wall Street Journal when gold is at $3,000 and the Dow is at 3,000.
“My concerns about gold go even further than that.” They do? Will wonders never cease! “Let’s step inside the gold market for a moment.” Yes. Let’s.
Everyone knows the price has risen about fivefold in the past decade. But this is not due to some mystical truth or magical act of levitation. It is simply because there have been more buyers than sellers. Banal, but true – and sometimes worth repeating.
Banal, and not at all worth repeating. Banal because the anti-gold hacks never told investors to buy, all the way up. They missed the boat. If these guys knew anything about gold, they would tell readers to buy close to the bottom. They never do. Why pay any attention to them when they say it’s too high?
“More buyers than sellers.” Is this what it takes to earn a paycheck at the “Wall Street Journal”? When it comes to writing hit pieces against gold, it is. It has been for over 40 years.
The relevant question is this: WHY have there been more buyers than sellers (at yesterday’s price)? What has happened in the international markets that persuaded buyers to bid up gold’s price? Did they have a better sense of what would happen to the euro and EU finances than the experts at the “Wall Street Journal” did? (Note: that is a rhetorical question.)
“If the price rises you’d think there must be a shortage.” Not if you understood gold, you wouldn’t.
Most of the gold that has been mined for over 2,000 years is still above ground, either in someone’s vault or on someone’s wife. The marginal increase in production affects the marginal price. The question is not shortage. The question is this: the supply offered for sale to the general public compared to the demand offered by the general public.
If the price rose, then there was more demand than supply at the 2000 price. Or was Adam Smith wrong about this supply and demand thing?
“But data provided by the World Gold Council, an industry body, tell a remarkable story.”
Over that period the world has produced – or, more accurately, recovered – far more gold than anyone actually wanted to use. Since 2002, for example, total demand for gold from goldsmiths and jewelers, and dentists, and general industry, has come to about 22,500 tonnes.
Say, that really is remarkable. All those gold buyers out there were buying more gold than – and I quote – “anyone wanted to use.” That is so remarkable that it calls into question one of two things: (1) economic theory, or (2) the reasoning ability of Brett Arends. You know which answer I select.
“But during the same period, more than 29,000 tonnes has come on to the market.” First, no one knows how much has come on the market through central banks’ gold leasing, which is not reported as sales, when in fact it is sales.
The surplus alone is enough to produce about 220 million one-ounce gold American Buffalo coins. That’s in eight years.
Arends ignores Indians’ purchases. He ignores Chinese purchases. He ignores central bank purchases. He focuses on American coins, which hardly any Americans buy (sadly). The market for gold is the bullion market (central banks), the jewelry market, and the ETF market.
“Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks.” He does not know this. GATA has been trying to get this information for 11 years.
And a growing amount has come from recycling old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold’s incredible durability – it doesn’t waste or corrode – is bullish for the market. It’s bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising? In a word, hoarding.
Hoarding! The horror! There are people out there who hoard gold. But how many? There are very few coin stores. There are very few active buyers of gold coins. If people are buying 400 oz bars, they are people with a whole lot more money than staffers at the Wall Street Journal possess. They are people who are very rich, very savvy, and with a lot of wealth to protect. They have allocated a small percentage of their wealth in gold bullion.
Mr. Arends, as a salaried writer in a dying industry, thinks of how much gold costs in relation to his salary and his future pension. Gold is so expensive!
Not if you are a Saudi prince, it isn’t.
Gold investors, or hoarders, have made up all the difference. They are the only reason total “demand” has exceeded supply.
Tell me why this principle of demand does not apply to every investment category. He used the word “investors,” as well he should. People buy and hold, hoping the price will go up. What an amazing concept!
Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.
And are we to believe that this does not apply to every stock, every bond, and every asset reported on by the Wall Street Journal?
This man is treating his readers as if they were economic imbeciles. If his readers continue to take him seriously after reading his article, then they really are economic imbeciles.
What do we call an investment scheme where current members’ returns depend entirely on new money brought in by new members? A Ponzi scheme.
There are hacks. There are also confused people who are in way over their heads. And then there are morally corrupt deceivers.
A Ponzi scheme is an arrangement in which the seller of an investment says that the investment will earn a high rate of return, all on its own. Then he uses the income from later buyers to pay off the early ones. It is totally corrupt. It is fraud. It is also illegal, except when done with the Social Security system and Medicare trust funds.
There can be asset bubbles. They are governed by the greater fool theory of investing. But a bubble is not a Ponzi scheme. Either Arends is morally corrupt or else he is an ignoramus who cannot distinguish a bubble from a Ponzi scheme. You decide.
Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation. But I don’t trust it as an investment.
I don’t trust the analytical ability of Brett Arends. I suggest that you retain the same skepticism.
How can you square this golden circle? I’ll tell you in Part Three.
I can hardly wait. I will get another shot at this incompetent hack.
CONCLUSION
In my book, The War on Gold, which I offer for free, I wrote about this sort of anti-gold journalism. I have been at war with it for over 45 years. I will have lots of opportunities to fight more of these battles, hopefully with people of greater intellectual firepower than Brett Arends.
The newspaper industry is dying. Hacks like Mr. Arends will have to find gainful employment doing something more productive. But the war on gold will go on. It will go on for the same reason that it has gone on: a high-level hatred of the public’s attempts to shield themselves from the monetary destruction being engineered by central banks and governments.
For a copy of The War on Gold, click here.
May 29, 2010
Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.
What a spectacle…
In an utter and complete repudiation of its founding principles, the European Union’s central bank (ECB) has decided to copy the U.S. Federal Reserve’s 2008-2009 strategy of “papering over” Europe’s massive debt problems. The ECB will provide nearly unlimited credit to Europe’s sovereign borrowers, while also buying troubled assets from Europe’s largest banks.
This latest development has caused a significant change in what I call “the most important chart in the world.”
Readers of my investment advisory are familiar with the chart by now… as we’ve been publishing it nearly every month… and even more frequently in the daily S&A Digest. It shows the value of U.S. government long bonds (NYSE: TLT), the price of gold (NYSE: GLD), and the price of silver (NYSE: SLV).
This is the battle for monetary supremacy… The market is arguing over a fundamental question: What is money? Dollars? Gold? Or silver?
The Safest, Most Liquid Form of Money… The U.S. Dollar
For more than 60 years, the U.S. dollar has unquestionably been the world’s safest, most liquid form of money – its reserve currency. During times of economic trouble, investors rush to buy U.S. bonds as a safe haven, causing their value to rise sharply.
And that’s what happened – briefly – during the Greek crisis last month. But then, something changed. As soon as the ECB announced its big bailout and established a swap line with the U.S. Treasury (more about this below), investors realized there’s no real difference between the U.S. dollar and the euro. They are simply different names for the same thing: paper money. And investors understand the value of paper money may finally collapse under the weight of these massive sovereign debts.
What did investors buy when they sold the U.S. dollar in this crisis? Where did they run? As you can see, in reaction to the ECB announcement, investors bought gold… and to an increasing degree, silver. I believe this preference for metallic money will continue to strengthen as the financial problems of the U.S. Treasury begin to mount.
The Greatest Single Investment Decision of Your Life
If you ignore this trend, you will be financially destroyed over the next several years. If you act now to protect yourself and your family, it will be the greatest single investment decision of your life.
Now… let’s look more closely at what the Europeans have done to stave off the collapse of the European Union…
To maintain a veneer of legality, the ECB will create an off-balance-sheet entity to “borrow” roughly $1 trillion from itself, the U.S. Federal Reserve, and the IMF. Europe’s member states agreed to guarantee these debts, which the ECB claims will be “riskless” because they’re simply loans between central banks.
At the root of every paper currency arrangement is a simple scheme to grant credit where none is due. In this case, the scheme is designed to give credit to bankrupt governments in the European Union, via guarantees from those same bankrupt governments and additional credit from the U.S. Treasury, which is itself a troubled creditor at best.
In short, the ECB is going to print up lots of euros and give them to the least creditworthy states and the worst bankers in Europe.
The politicians apparently believe this massive infusion of new money and credit will “jumpstart” the European economy, which will then produce enough tax revenue and banking profits to finance these new debts. Don’t laugh…
Meanwhile, to ensure this action doesn’t result in a collapse of the euro currency, the Federal Reserve has agreed to open a “swap” line, which will allow the ECB to fund as much of these new “loans” with dollars as is necessary to prevent a run on their currency.
Will this work? At the risk of dramatic future inflation, will creditors really be willing to accept devalued euros, which offer investors almost nothing in interest payments? I don’t think there’s a chance in hell.
The Reason Paper Money Systems Fail…
The reason paper money systems always fail is because they provide no practical limit to credit.
The stability of paper money systems seems like a virtue. The ability to simply manufacture money – without a deposit or true asset as collateral – is the ultimate financial sinecure. As long as confidence in the system remains, the amount of credit that can be manufactured seems limitless.
Unfortunately, this always leads to more debt. At some point, the whole system simply collapses. The debts become so large, they create an untenable economic imbalance, overwhelming the real economy. And when the credit bubble finally bursts, it doesn’t destroy just one or two banks’ house of cards. It wipes out the entire system, which is linked together by the currency itself.
Remember… this just isn’t about problems in far-off Europe. The U.S. is in the same situation: under huge debts we cannot hope to repay.
I recommend you protect yourself by holding real assets… like energy, gold, and silver bullion.
Porter Stansberry
This video points out exactly how ludicrous the current global economic predicament is:
Very astute observation by Trader Dan over at JSMINESET.
America is headed down the same path as we do the same thing that the Western nations have all been conditioned to do in times of economic crisis – issue even more debt and flood the system with liquidity. Promise government funding for all manner of things such as home buying credits, auto credits, cash for caulkers, cash for golf carts, etc, ignoring the train wreck that is coming our way in the form of entitlements such as Social Security and Medicare. At its current trajectory, US total debt as a percentage of GDP will soon be at levels that have always engendered a currency crisis elsewhere throughout the rest of the world. It then becomes almost inevitable that the giant hedge funds turn their guns on the US Dollar and the US debt market. Once that occurs, the current monetary system as we know it comes to an end. That is when gold will be reintroduced into a new and different monetary system.
The thing that very few consider when trying to determine golds role is that gold is in fact money. It is money just as the USD is, just as the Euro is, just as the Yen is, just as the Swiss Franc is.
The difference between gold as money, and paper as money, is that you cant print more gold at will.
“Foreign nations like to repay their debts with dollars, other foreign currencies, with SDR’s, and with gold, in that order” – Those Swiss Money Men, Vicker 1973
The reason it is “in that order”, is that gold is the ultimate currency, and it is still to this day the reason central banks hold it. If it was such a “barbarous relic” as Keynes claimed, why do central banks still keep it?
They keep it, because they know what it is, regardless of what you are taught in economics class.
To understand golds role in the international economy and monetary system, one only need study Bretton Woods, and what evolved into a global system of currency exchange where all currencies were fixed to the USD and basically “orbited” around it.
The reason the USD could perform this function, is that the USD was fixed to gold at $35 an ounce.
That ended in 1971 when Nixon removed dollar redemption for gold, but it did not change the fact that all currencies still tried to “orbit” the USD even though they ended up floating as they had to in order to maintain any semblance of order with which to conduct global trade against a perpetually inflating dollar.
To understand the role gold plays, all you need to do is ask yourself, if all currencies float, and all currencies inflate, how then do you arrive at any way to measure value since you have no stable point of reference?
The answer is, gold IS the point of reference, it always has been, and until we find a measure of value with no counter party risk that can replace it, it always will be.
I am at this point 100% sure this economic cycle will end with gold playing a fixed role in the next monetary system.
I have noticed two very interesting things this week regarding the MSM.
Gold price shows up now and then on the Bloomberg ticker.
People are openly talking about the benefits of gold on CNBC.
I find it interesting to note, that the host of the show keeps trying to wrap his mind around what role gold performs in the modern economy.
Some people ridicule what he is saying as it points out his ignorance, but what I find more interesting is that he is thinking about it at all.
He uses certain phrases that indicate he doesnt quite grasp what gold is for, such as saying you can bite down on a gold coin and it doesnt really feed you, but cattle on the other hand does.
It shows that people are still not drawing the connection that gold is money, and money is just as necessary for a modern economy the same as food, oxygen, and fuel for your car is.
When people start to click this on, that gold is indeed money (there has never been a time when it hasnt been), and that money is a critical requirement to survive, as much so as oxygen, and then finally that gold is the only money that cannot be created at will (and thus debased at will) – combined with food inflation – this might be the mental trigger that sets off a paradigm shift in culture.
We shall see, it certainly has been interesting to observe.
Subscribe to our Exclusive Newsletter and receive our perspective on the economy and markets from the view from a bullion desk. Receive our beginners guides on gold and silver as well as an industry leading report with our compliments.
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_2.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/charts/metals/silver/t24_ag_en_usoz_2.gif)
Bad Behavior has blocked 767 access attempts in the last 7 days.
