As many of you know, we have been big fans of owning things which produce something from the earth that humans need. These things can include minerals, precious and base metals, agriculture, and energy.

An excerpt from the article below that backs up our thoughts on future demand:

World food demand is expected to increase 100 percent by 2050 due to a rapidly expanding population in countries such as China, India and the United States. And, yet 963 million people, 14 percent of the world’s population, are already chronically hungry.

Ag expertise needed to feed, fuel world’s skyrocketing demands for food, energy

National Teach Ag Day was held Feb. 25, and communities across the nation were asked to consider the teachers that will be needed to prepare students for the increasing number and complexity of agriculture-related jobs expected to be available in the United States. “Perhaps most importantly–we will need qualified teachers to prepare students for these increasingly sophisticated professions,” said Jay Jackman, Ph.D., executive director of the National Association of Agricultural Educators.

(more…)

Anglo Far East Bullion- Review

By Goldstockmania.com

Not too long ago, I received a request to do a review on Anglo Far East Bullion as a potential option for gold/silver allocated storage.  Per the request, I have done some digging and would like to report my findings. First of all, I do not and have not used the storage services of Anglo Far East Bullion. However, based on my findings thus far they seem to be a legitimate option for gold/silver storage. I have not been able to dig up any dirt or any reason someone should avoid using them for allocated storage of their gold/silver, in fact, it is quite the opposite.

Anglo Far East Bullion seems like a good solution for those seeking extreme privacy and are looking to hold a substantial amount of silver or gold. Which can be problematic to do so safely at home, a bank, or even a relative’s place.  I would personally avoid holding any gold or silver in any bank! If you want to diversify and minimize your risk, it makes sense to spread it around at carefully chosen locations that have a history of respecting property and privacy.  Also, I would want the storage facilities to have rigorous security and 3rd party auditing.  Insurance and reasonable fees are to be expected with any of the companies chosen to hold my gold or silver.  Lastly, I like to always see some sort of recommendation from at least one of the industry veterans for additional confidence before proceeding.  Anglo Far East Bullion meets all of my requirements.

“Never buy a “pool” account of unallocated silver.  Never let others hold your silver, either in allocated or unallocated form……Maybe you can invest a little bit into allocated silver; as a way to diversify the location of your physical silver.  Two companies I would trust (but do not use) are goldmoney.com and the Anglo Far East Bullion Company; they will hold silver for you in allocated form….”

-Jason Hommel src: How to Buy Silver, & Avoid Getting Scammed

Before proceeding with them you should of course do your own due diligence.  You should also understand your strategy for securing your physical gold/silver storage.  One of the things to consider is, how much do plan to hold? Anglo Far East Bullion has a minimum amount to open an account of US $50,000. Anglo Far East prefers servicing higher end customers looking to make substantial gold/silver purchases although they do have an unadvertised account minimum of US $5,000 too.  If you do not fit into the higher end, don’t worry about it too much as there are other viable storage options that cater to smaller investors too.  For the one I use, you can see my review here.

WHAT IS THE MINIMUM AMOUNT REQUIRED TO CREDIT MY BULLION ACCOUNT?
For bullion accounts, AFE has a minimum account guideline of $50,000 USD.

src: Anglo Far East Bullion – FAQ

You can read more about Anglo Far East in the February 2009 issue of DGC Magazine where David Morgan interviews them.

If the VXO is any indication, investors are feeling pretty safe and peaceful right now.

VXO Volatility Index Chart

Yes, the financial crisis is over…the storm has passed…happy days are here again.

Or are they?

What most do not realize, is that the fundamentals of the economy are actually in much worse shape today than “near death experience” of the financial system in 2008.

If/when California goes down, it can be likened to the first domino to fall in a chain of OTC derivative detonations.

Greece has been the victim of a short attack through the use of Credit Default Swaps….the unregulated instruments that place wagers on the likelyhood that a firm..and now countries…will go under. It was the same thing with Lehman Brothers, when the financial sharks smell blood in the water, they attack the weakest entity.

Credit Default Swaps are a type of “OTC Derivative”, which the Bank of International Settlements (BIS) has estimated there to be over $600 TRILLION worth – and thats AFTER changing their valuation models to arrive at the new numbers. The previous count was over $1000 TRILLION (Thats a quadrillion).

Expect short attacks on other Sovereigns, as well as US States. When this occurs, there will be two options here:

1. California will be allowed to go under, which could cause a domino effect throughout the US

2. California will be bailed out, which will again increase the chances of hyperinflation in the US (see Quantitative Easing)

Either way, I certainly hope you have some of your wealth stored in other forms than just paper.

California is a greater risk than Greece, warns JP Morgan chief

Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece’s current debt woes.

By James Quinn, US Business Editor in New York

Mr Dimon told investors at the Wall Street bank’s annual meeting that “there could be contagion” if a state the size of California, the biggest of the United States, had problems making debt repayments. “Greece itself would not be an issue for this company, nor would any other country,” said Mr Dimon. “We don’t really foresee the European Union coming apart.” The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

(more…)

I have only said this would happen about two dozen times over the last few years.

Concerns grow over China’s sale of US bonds

By Ambrose Evans-Pritchard, International Business Editor

Evidence is mounting that Chinese sales of US Treasury bonds over recent months are intended as a warning shot to Washington over escalating political disputes rather than being part of a routine portfolio shift as thought at first.

A front-page story in the state’s China Information News said the record $34bn sale of US bonds in December was a “commendable” move. The article was republished by the National Bureau of Statistics, giving it a stronger imprimatur.

It follows a piece last week in China Daily, the Politburo’s voice, citing an official from the Chinese Academy of Sciences praising the move to “slash” holdings of US debt. This was published on the same day that US President Barack Obama received the Dalai Lama at the White House, defying protests from Beijing.

(more…)

Hat tip to Dave in Denver over at The Golden Truth

Global gold buyers vs. global gold sellers

I thought that I would publish this list, put together by my friend and colleague, Andy H., in order to put the global demand for gold in perspective.   Please keep in mind that many of the sovereign buyers were, at various times in the last 15 years, sellers of gold.  Also keep in mind that, on average over the last 15 years, the global demand for gold has been exceeding the globaly supply by roughly 1000 tons per year.  This deficit historically has been filled by Central Bank selling.  In addition to most Central Banks now acting as buyers, the global mining output has been in steady decline over the past few years, even with China displacing South Aftrica as the largest gold producer.

As you can see, there are only two known “official” sellers/lessors of gold.  With regard to the recent IMF 212 ton transaction, it is questionable as to whether or not this was an outright sale and transfer of physical gold OR an accounting transfer, in which India, Sri Lanka and Mauritius simply withdrew their gold “deposit” as part of their IMF membership terms.  All three countries have IMF gold depositories and the “sale” would have required nothing more than an accounting transfer.  I have yet to see the IMF or any other official source dispute this.  Here is the list:

Buyers:

1. Chinese government
2. Chinese population
3. Indian government
4. Indian population
5. Viet Nam
6. Russia
7. Middle East (Turkey, etc.)
8. Cambodia
9. European population (record demand)
10. American population (record demand)
11. Basically ALL populations (record demand)
12. CBGA signatories (at least no longer selling)
13. Gold companies, particularly Barrick
14. ETFs, such as GLD (record holdings, new funds being created every month)
15. Major hedge fund managers, such as Paulson, Soros, and Tudor Jones

Sellers:

1. U.S. government, via acknowledged swaps
2. U.S. government, via derivatives/paper gold futures contracts via bullion banks
3. U.S. government, via Federal Reserve, via Warsh et al admissions
4. U.S. government, via IMF, likely via U.S. government-owned or leased gold
5. Bank of England via sales or leasing
6. Bank of Canada (hat tip to Mike – see his comment posted in the comments section)

I think we can all come to the same conclusion about what happens when you have a commodity that has a large structural deficit between demand and supply…

Alot of speculation right now. Some say China, some say India.

I think its generally agreed that someone will buy it, which is probably the opposite of the effect they wanted by announcing the sale, ONE MORE TIME.

IMF gold purchase not feasible for China: CGA

BEIJING, Feb 24 (Commodity Online): China Gold Association (CGA) said Tuesday it is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility.

Instead the Association said the country would continue to shore up its gold reserves by acquiring gold mines abroad rather than purchases on the international market.

Reports earlier said China is a frontline runner to buy International Monetary Fund’s remaining 191.3 tonnes of gold which is up for sale.

The IMF said last week that it would expand its bullion sales to the open market. Central banks from India, Mauritius and Sri Lanka had purchased 212 tonnes of the yellow metal from the institution last year.

Analysts said China would not hike its gold reserves given the limited quantity available on the market as gold is only a small portion of the nation’s reserves.

According to China’s State Administration of Foreign Exchange, the country held nearly 1,054 tonnes of gold reserves as of April last year, a value that equals 1.2 per cent of the nation’s gross domestic product, but still far below the world average of 10 per cent.

Gold gained 24 per cent last year after hitting a record high of $1,227.50 an ounce in December as a weaker dollar boosted demand for it as an alternative investment.

China has been the world’s largest gold producer since 2007 and closing in on India as the world’s top gold consumer.

Article Source

UPDATE

China To Purchase Half of IMF’s Gold

China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.

World central banks started to increase their gold reserves after prices on gold began to climb in 2001. The IMF sells gold within the scope of a program to diversify sources of income and achieve an increase in lending.

The IMF announced an intention to sell 403.3 tons of gold in accordance with the adequate decision made by the board of directors of the fund in September of 2009. India, Mauritius and Sri Lanka purchased about 212 tons of the amount at the end of 2009. India purchased most – 200 tons.

China’s interest in international trade is connected with the development of the nation’s economy, as well as with the growing consumer demand in the country.

“Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market. China is interested in the development of the domestic consumer market,” the agency reports.

Most of Chinese citizens believe that investing in gold jewelry is a good way to avoid inflation, Rough & Polished agency said.

The IMF has received the profit of $7.2 billion from gold sales. A part of the funds is to be used for crediting poor countries.

Article Source

UPDATE

India seen as potential buyer for IMF gold

* India’s gold holdings still lag other major economies

* India may seek to diversify reserves, gold seen a safe bet

* Closely watches gold prices for buying opportunities

By Abhijit Neogy and Suvashree Dey Choudhury

NEW DELHI/MUMBAI, Feb 24 (Reuters) – India’s central bank, which has increased its gold holdings to diversify its reserves, looks set to be a buyer again when the International Monetary Fund begins selling 191.3 tonnes of the precious metal amid volatility in major currencies.

The uncertain outlook for two of the world’s major reserve currencies — the dollar and euro — provides a spur for central banks, including India’s, to buy gold. India’s gold holdings lag those of major economies despite a big purchase in October.

“India is no stranger to gold. They are gearing up for growth and want to recalibrate their reserves,” said Mark Pervan, senior commodities analyst at ANZ.

“They can’t lift their gold holdings from domestic output, unlike China. And they have shown an appetite to buy in the past.”

Reserve Bank of India officials declined to comment on their gold plans but some said the central bank considered gold to be a safe investment strategy.

“We are closely looking at the gold market. We buy at market prices,” an RBI official said.

The RBI adjusts its reserve portfolio on a regular basis, officials at the central bank said. None of the officials would speak on the record, given the sensitivity of the matter.

“The RBI doesn’t want to take a credit risk as there are concerns on the dollar and the euro now,” said a senior RBI official who is not directly involved in the bank’s gold purchases.

“So, despite the interest being very low, gold is a safe bet,” the official said, referring to the low returns the bank receives through custodians for lending out some its gold.

Another RBI official noted that since India’s foreign exchange reserves have not risen as the bank has not been intervening heavily in the forex market, the proportion of gold has held steady after its last purchase of the precious metal in October.

CHINA UNLIKELY TO BUY

The IMF said last Wednesday it would soon begin selling the gold in the open market in a phased manner to avoid disrupting the market.

The sale is part of an IMF programme announced last year to sell a total of 403.3 tonnes of gold, or about one-eighth of its total stock.

China, with about $1.6 trillion in reserves, is a producer of gold and is unlikely to buy the gold being offered by the IMF, the official China Daily reported on Wednesday.

“It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility,” said an unidentified official from the China Gold Association.

The RBI was the biggest buyer in the IMF gold sale last year, snapping up 200 tonnes over two weeks and boosting its holdings to 10th largest among central banks.

“In the second tranche also it is possible they may bid for it. This is an opportunity for diversification of reserves,” said A. Prasanna, economist at ICICI Securities Primary Dealership.

The IMF’s announcement that it would sell more gold, which was expected, comes amid renewed doubts about the pace of global economic recovery and sovereign debt problems faced by a number of European nations, most notably Greece.

GOLD CONSOLIDATING

Gold prices XAU= climbed steadily late last year to touch an all-time high of $1,226.10 an ounce on Dec. 3 after the RBI announced in November it had purchased 200 tonnes of IMF gold.

Prices have steadied just above $1,000 recently, edging up to $1,107.30 an ounce on Wednesday, after falling 1 percent the previous day.

The RBI’s gold holdings rose to $18.1 billion, or 6.46 percent, of total reserves on Feb. 12, weekly data show. Its holdings on Oct. 30 were $10.8 billion or 3.80 percent, which did not include the IMF gold buy.

The average for central bank gold holdings as a share of overall reserves is 24.5 percent, ANZ’s Pervan said. Excluding Europe and United States, the average is 12 percent, he said.

For a graphic of top 10 gold holders by country, click: here

Greece’s debt woes have weighed on the euro while a slow recovery in the United States has kept the dollar out of favour.

The euro touched a nine-month low on Feb. 12, and has shed 10 percent since the end of 2009 amid worries over whether Greece could service its debt mounted. The euro EUR= remained subdued on Wednesday, holding just above $1.35. (Additional reporting by Nick Trevethan in Singapore and Ruchira Singh in New Delhi; Editing by Tony Munroe and Ramthan Hussain)

Article Source

Fact: China has surpassed India as the largest consumer of gold in the world.

Fact: The last bull market in gold (circa 1980) the Chinese were forbidden from buying gold.

Fact:The Chinese as individual citizens have one of the highest savings rates in the world, and they have a long cultural history of acknowledging gold as money.

Fact: This time around, there are over 1 BILLION Chinese who have disposable income with which to buy gold.

Opinion: This is an EXPLOSIVE situation.

China’s gold demand up 3% in Q4

Feb. 24, 2010 (China Knowledge) – Greater China’s consumer demand for gold rose 3% year on year to 116.3 tons in the fourth quarter of last year, the Shanghai Daily reported.

During the period, purchases of gold bars and gold coins increased 17% year on year while purchases of jewelry were flat.

Demand from the mainland supported demand for gold for both jewelry and investment, the World Gold Council said yesterday, citing figures released by GFMS, a precious metals consultancy.

The council said solid gains from mainland China were partially offset by weaker performance in Hong Kong and Taiwan.

In December, demand for gold jewelry on the mainland picked up strongly as prices fell from a high of more than US$1,200 an ounce, according to the report.

Retail investment demand was also strong throughout 2009 due to rising prices and inflationary pressures.

Article Source

Alex’s notes: This article is simply excellent.

A snippet:

The ruling elite in Washington is going to try to inflate its way out of its debt conundrum, attempting to pay off the government’s foreign creditors with greenbacks that lose value right before your eyes, like an ice cream cone melting on a hot summer day. The process is already well under way. If you could once buy a silver dollar for one greenback, but it now costs 15 greenbacks, then the dollar is now worth seven 1960 cents. If gold once cost $35 an ounce and it now costs $1,100 an ounce, than the greenback is now worth about three 1940 pennies.

By VIN SUPRYNOWICZ

The cyclical nature of life is reassuring. We are less afraid of the privations of winter because we’re assured the spring will come again.

Similarly, those who claim expertise in such matters — those currently encouraging us to buy stocks and government bonds, for example — insist that the market always comes back. Given a little time, everything will be the same as it was.

Because this is reassuring, we cross our fingers and hope they’re right. But they’re wrong. Not the assertion that some specific companies and stock issues will again prosper and that some people will again grow rich. Of course there will always be winners — especially when government bestows on itself the power to choose who shall (their rich friends) and who shall not (you) be bailed out. No, I refer to the part about “things being the same.”

A cartel of private bankers was given control over our money in 1913, in defiance of the wisdom of Andy Jackson and Martin Van Buren. Frank “Pal of Stalin” Roosevelt ended the convertibility — heck, the private ownership — of gold in 1933. But everything was fine again in the 1950s and ’60s, right? Then, after the ongoing devaluation of the dollar by the Federal Reserve forced Lyndon Johnson to also end the convertibility of paper dollars into silver in 1964, we had some tough times in the 1970s, but everything came roaring back in the ’80s and ’90s, right?

Actually, we were lucky that the development of new technologies like the cell phone and the personal computer generated new industries and new jobs, helping to replace (and disguise the eclipse of) the old industrial giants: coal, steel, railroads and automobiles. (Note that the failed industries were systematically crippled by the innovation-suppression teams known as “unions”; the fast-rising replacements were not.)

Still, everything was not the same. The vastly greater looting of our paychecks through taxation and regulation after 1964 meant that, where prior to 1960 a single blue-collar wage could support an American middle-class family in a freestanding house, after 1970 it took two incomes — husband and wife — to do that. The hidden but vast social cost of this new arrangement was that the schooling and nurturing of children was now turned over almost entirely to unionized government propaganda officers. The arrogance, the illiteracy and innumeracy, the knee-jerk collectivism and presumption that government can and must step in to solve every problem exhibited by the resulting generation-and-a-half has set the stage for the final decline not just of America, but of virtually all the remaining mighty nation states of the 19th and 20th centuries.

The ruling elite in Washington is going to try to inflate its way out of its debt conundrum, attempting to pay off the government’s foreign creditors with greenbacks that lose value right before your eyes, like an ice cream cone melting on a hot summer day. The process is already well under way. If you could once buy a silver dollar for one greenback, but it now costs 15 greenbacks, then the dollar is now worth seven 1960 cents. If gold once cost $35 an ounce and it now costs $1,100 an ounce, than the greenback is now worth about three 1940 pennies.

What are the new technologies that will spark the next American economic renaissance? Not those subsidized by government — they’re losers by definition. Rather, look precisely to those that can escape the stultifying mailed fist of government.

It’s already happening. In Las Vegas, it’s rarely necessary to call someone to haul away old furniture, old computers, anything else you want to be rid of. You simply set it out on the sidewalk. Long before the monopoly, government-franchised garbage men come around, the stuff is gone. Groups of men — often illegal Mexican immigrants — prowl the city in pickups, snatching this stuff up. They have to know where to haul it to make a quick sale. Do you think anyone involved in this trade applies for city and state business licenses, does business with traceable checks, collects and remits state sales taxes, gets a paycheck with “withholding” taken out?

The unemployed and the underemployed sell stuff online or at yard sales. The prices realized and the ratio of profit to labor may not be huge, but what do all these endeavors have in common? They avoid the “brick-and-mortar” store, which draws job-killing government tax men and code enforcement officers like a dead horse draws flies and maggots.

Historians can now look back and pick a specific week in the fifth century when the Roman empire can be said to have fallen, but it must not have seemed nearly so clear-cut to those watching the caesars debase the currency and raise the tax rates till farmers were better off just picking up and abandoning their fertile lands than trying to grow enough to pay taxes that were essentially more than 100 percent.

We’re now living in a system hardly to be distinguished from the greed, corruption and arrogance of ancient Rome. A government of “limited powers, specifically designated”? Ha!

The great benefit of the election of Barack Obama as president is that he is such a pathetic, unqualified, teleprompter-bound clown. Not only has he left our foundering economy in the hands of greedy, crooked bankers, he’s left it in the hands of the same gang of greedy, crooked bankers, from Goldman Sachs and the New York Federal Reserve Bank. He speaks of the need for austerity and submits plans for the biggest spend-fest and deficit in history, for all the world like a little kid preaching the benefits of bean sprouts while barfing in the corner after eating his entire bag of Halloween candy.

Develop a second business or avocation — under the radar — even if you start small and part-time. Get used to buying and selling in non-regulated environments.

Hold greenbacks or securities denominated in greenbacks only for short-term commerce. Buy guns, gold and particularly 90 percent “junk” silver coins.

As for which other assets may hold their value over time: ammunition, primers, incandescent light bulbs, and Freon antifreeze remain viable. What’s most important is to deal in something you know and love — I wouldn’t attempt stockpiling and subsequent commerce in any collectible heavily dependent for its value on “grade” or “condition” unless you care enough about rare coins or collectible comic books to become an expert grader. Besides, collectibles are subject to bubbles: Take a warning from the current depressions in stamp collections and sports memorabilia.

Original Article

Use your brain, listen to you instincts.

Banks do not spend the time or money to create fine print unless they envisioned a scenario where they would have to use it.

If you do not have some portion of your wealth foundation outside of the paper system, you might consider doing so.

Citigroup Warns Customers It May Refuse To Allow Withdrawals

John Carney

The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts for seven days.

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change,” Citigroup said on statements received by customers all over the country.

What’s going on? It seems that this is something of an error. The seven day notice policy only applies to customers in Texas, Ira Stoll reports at The Future of Capitalism. It was accidentally included on customer statements nationwide.

“Whatever the explanation, it doesn’t exactly inspire confidence in Citi,” Stoll writes.  “But it’s hard to believe a bank would be sending out a notice like that on its statements.”

UPDATE: According to Stoll, Citi issued a statement saying that it has been required to make this change by Federal regulations–and it no longer sounds like it’s limited to Texas:

Update: Citibank has now released the following statement by way of explanation: “When Citibank moved to unlimited FDIC coverage in 2009, we had to reclassify many checking accounts to allow for immediate withdrawals in order to ensure all customers qualified for the additional coverage. When we moved back to standard FDIC coverage with most major banks in 2010, Citibank decided to reclassify those accounts back to make them eligible again for promotional incentives. To do so, Federal Reserve Reg D requires these accounts, called NOW accounts, to reserve the right to require a 7-day notice of withdrawal. We recently communicated this technical requirement to our customers. However, we have never exercised this right and have no plans to do so in the future.”

Original Article

From the Constitution of the USA:

Section 10 – Powers prohibited of States

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

Amendment 10 – Powers of the States and People. Ratified 12/15/1791.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

US Cities are starting to drop like dominoes.

Bond markets are going to be looking not so rosy in the years ahead.

Where, oh where, could that money go.

Muni Threat: Cities Weigh Chapter 9

by Ianthe Jeanne Dugan and Kris Maher

Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.

The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.

(more…)

There will be no bottom in the economy until jobs recover and spending resumes.

Real Estate still heading for trouble over next few years.

OTC Derivatives are alive and well.

US new jobless claims post surprise jump

New claims for jobless insurance benefits in the United States posted a surprise rise, the Labor Department said Thursday amid concerns unemployment could dampen economic recovery.

The seasonally adjusted initial claims in the week ending February 13 rose to 473,000, an increase of 31,000 from the previous week’s revised figure of 442,000, the Labor Department said.

(more…)

US bank lending falls at fastest rate in history

By Ambrose Evans-Pritchard, International Business Editor

Bank lending in the US has contracted so far this year at the fastest rate in recorded history, raising concerns that the Federal Reserve may have jumped the gun by withdrawing emergency stimulus.

(more…)

The gold price you see quoted around the world is usually set by the commodities trading markets such as COMEX, TOCOM, and the LME.

What most do not realize, is that the price you see does not truly represent the value of metal in terms of physical delivery.

To fully understand this, you must understand the difference between physical gold sales and “paper” gold sales.

You can view the full article here: http://www.rapidtrends.com/understanding-paper-versus-physical-gold/

I wrote an article on July 11th, 2008 explaining the math, which you can find a copy of here: http://www.rapidtrends.com/inflation-if-your-gains-do-not-exceed-the-rate-of-money-creation-you-are-losing-buying-power/

It is not wise to attempt to keep “savings” in paper.

Millions of Britons losing money on savings

Telegraph -UK -Millions of savers are losing money by putting their cash into a savings account due to poor investment returns and the increasing cost of living, it has been disclosed.

Rising inflation is eroding the spending power of savers’ cash and, combined with historically low interest rates, is leaving them with less money than when they started.

Savers have already been badly hit by shrinking rates of return following Bank of England interest rates dropping to 0.5 per cent.

But the jump in inflation to 3.5 per cent, released in official figures yesterday, came as a fresh blow to hard-pressed pensioners and those trying to live off their savings.

Politicians and financial experts said it will leave millions of savers “devastated”.

(more…)

From the fine folks over at GATA:

Dear Friend of GATA and Gold:

Below is the press release issued this evening by the International Monetary Fund announcing that it “shortly” will sell 191 tonnes of gold on general markets, unlike the 212 tonnes it claimed to sell last year directly to India, Sri Lanka, and Mauritius. While the gold price quickly fell $7 or so on the news, there are a few things to remember.

1) The IMF really doesn’t have any gold, just a tenuous claim on the national gold reserves of its members. Where the IMF’s supposed gold is kept is a state secret. So is the location of the gold the IMF supposedly recently sold to India, Sri Lanka, and Mauritius. So are the gold bar numbers. There is no public evidence that the IMF’s gold even exists, no public evidence that last year’s supposed IMF gold sales were anything more than bookkeeping entries. Indeed, those sales may have been nothing more than a few press releases. See what is, as far as GATA knows, the only attempt to address these issues journalistically with the IMF:

http://www.gata.org/node/8052

2) In its announcement the IMF says again that its supposed gold sales will fit comfortably within the annual quotas set by the Central Bank Gold Agreement. That’s because the signatories to that agreement — the Western European central banks — stopped selling gold last year. Since the Western European central banks are not selling, the IMF gold sales are a hint that any gold now being dishoarded is coming straight from U.S. gold reserves. The IMF is headquartered in Washington, the United States has a de-facto veto on its operations, and there can be little doubt anymore that the United States is operating surreptitiously in the gold market, the Federal Reserve having acknowledged last September that it has at least contemplated such intervention in the gold market via gold swap agreements with foreign banks:

http://www.gata.org/node/8192

3) The rationale for the IMF’s supposed gold sales — to raise cash for its operations helping (that is, expropriating) poor countries — is ridiculous on its face. The IMF is the issuer and custodian of the world’s supreme money, Special Drawing Rights (SDRs), and in just one afternoon last year the IMF conjured $250 billion of them into existence:

http://www.imf.org/external/np/sec/pr/2009/pr09264.htm

By comparison, the first 212 tonnes of gold supposedly sold by the IMF last year raised only $7 billion, or less than 3 percent of the money created by mere conjuring:

http://www.bloomberg.com/apps/news?pid=20601087&sid=alOoEXinykfo&pos=5

In such circumstances gold is not sold to “raise money”; it is sold to suppress the price of a currency that competes with fiat currencies and, when traded freely, is a measure of their debasement.

4) That is why, as Jim Sinclair and others have noted many times, official gold sales correspond with rising gold prices, not falling gold prices. Official sales are manifestations of central banking’s controlled retreat when money and credit creation have gotten out of hand relative to the gold supply and gold’s price is threatening to explode and make a scene very embarrassing to governments and central banks. The last decade has been a time of massive Western central bank gold dishoarding, probably a time of cash settlement of central bank gold leases that could not be settled by recovery of the borrowed metal without exploding the gold price, and during this time gold has risen from $250 to more than $1,000 per ounce:

http://www.kitco.com/charts/popup/au3650nyb.html

If central banks were not on the desperate defensive with gold, how, amid all that official gold selling, could the gold price have quadrupled?

No doubt some gold holders and traders will be duly frightened out of their gold by the IMF’s latest announcement, and that will be discouraging for those who remain gold investors. But if this gold “sale” turns out like the others over the last 10 years, before long the gold price will be higher still.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

IMF to Begin On-Market Sales of Gold

International Monetary Fund Press Release
Wednesday, February 17, 2010

http://www.imf.org/external/np/sec/pr/2010/pr1044.htm

WASHINGTON — The International Monetary Fund (IMF) today announced that it will shortly initiate the on-market phase of its gold sales program. This is the second phase of the total sale of 403.3 metric tons approved by the Executive Board in September 2009 (see Press Release No. 09/310). The first phase was set aside exclusively for off-market sales to official holders. A total of 212 metric tons was sold during this phase, comprising sales to the Reserve Bank of India (see Press Release No. 09/381), the Bank of Mauritius (see Press Release No. 09/413), and the Central Bank of Sri Lanka (see Press Release No. 09/431).

The total amount remaining to be sold is 191.3 metric tons. In accordance with the priority of avoiding disruption of the gold market, the on-market sales will be conducted in a phased manner over time. This follows the approach adopted successfully by the central banks participating in the Central Bank Gold Agreement. Participants in the agreement have noted that the fund’s sales can be accommodated under the agreed ceilings of 400 tons annually and 2,000 tons in total during the five years starting on September 27, 2009. The initiation of on-market sales does not preclude further off-market gold sales directly to interested central banks or other official holders. Such sales would reduce the amount of gold to be sold on the market.

The IMF will continue to provide regular updates on progress with the gold sales through its normal reporting channels.

Currently, 69.41 ounces of silver buys you one ounce of gold.

Historic norms have gone as low as 5:1 in ancient egypt when all silver was imported and thus less available in supply than gold which was mined locally.

Each time we have seen a gold top in history, silver also tops but tends to swing to the extreme.

See below a chart that few have seen:

Imagine a pendulum swinging and if it is currently swung out to the far left at 69.41, where will it swing back to. All markets do this in terms of swinging in and out in cycles.

A return to a historic ratio of 17:1 at todays gold price would make silver $65.59 / ounce. This is conservative.

We will see price moves in the hundreds of dollar per ounce of gold in a single day moving forward, many will be scared out of their positions.

Remember that hardly anyone owns gold – real gold, not the paper stuff. Same with silver, only with silver the supply demand equation last existed in ancient Egypt.

Do your due diligence to understand silver, it is perhaps one of the most undervalued items on the shelf today – if your gut isnt telling you that we are on the verge of huge changes, please turn off the boob tube long enough to listen to yourself.

We are watching in Greece nothing less than an attempt to short a sovereign. This trend will continue.

Gold is the only currency on earth that cannot be created at will. At the end of the day, only those who own it will be left standing.

Whenever I think about oil, and the fact that we are likely already past peak oil production, I am reminded of what oil has done for us as human beings.

For those of you unfamiliar with the Peak Oil concept, it is not so much a belief that we are running out of oil so much as a historically proven description of the behavior of producing oil fields. For a great video primer on the subject, see Chris Martenson’s fine work in Crash Course Video 17a.

Oil is, obviously, stored energy. But what I think many fail to consider, is that it is cheap energy, and it accomplishes a great deal of work that otherwise may have had to been performed by human energy.

Cheap energy has affected everything about our lives as human beings ever since the combustion engine.

I am reminded of how America went from an agricultural society with most of its citizens living and working on farms, to today the work that would take perhaps a few hundred men or more can be accomplished by two guys, and an oil powered tractor.

By ancient standards, every single person in the western world lives a lifestyle of a King. From the wide variety of foods we so conveniently have available to us in our grocery stores, to simple conveniences we have for generations taken for granted. Is this solely because humans are so much more advanced technologically, or does it perhaps have something to do with how cheap energy has been for the last 50 years?

We run lights all day and all night, each light bulb if powered by humans would require a man riding an exercise bike 24 hours a day in your basement. The food in your refrigerator for example is more energy intensive than you may realize. It has been estimated that 1 lb of beef can take up to 8 lbs of grain to produce, and each pound of grain that goes into raising that livestock again goes back to those oil powered tractors. It also took oil powered trucks to bring that beef from the farm to your grocery store shelf, and even more oil to fuel your car or truck taking it from the store to your home. Even something so simple as water takes power to bring to your faucet, and more power if its filtered first either by your favorite bottled water company, the local muni water system, or your private filtration system.

In terms of gold, it also comes back to that labor/energy component. You see, in our view, gold is simply a method of storing energy, as it has been for thousands of years. It could be argued that this ability to store labor is a primary requirement of money.

Another way of looking at it, is that labor produces wealth, as any labor above that needed to accommodate basic needs such as a roof over our heads, food and water, basic transportation and clothing can of course be opted into savings accounts, stock markets and other paper instruments, and for some of our more astute readers, gold and silver.

Gold has performed this role of wealth/energy storage for thousands of years of human history, and indeed has been referred to as the Money of Kings.

So the question might be asked: Why then is gold so good at storing wealth?

It comes back to the labor component. In ancient times, it took the measure of a mans life to extract and refine a single ounce of gold from the earth. There was no internal combustion engine, and no oil burning trucks that could haul literally hundreds of tons of ore.

Can you imagine how many mens labor it would take to move the ore that a single truck like the one below could move?

For a good deal of history, a mans life could be purchased, for his entire life, for an ounce of gold. This of course makes mathematical sense, if it took an entire mans life labor to extract an ounce of gold, of course it would make sense that it would equal a mans lifelong labor.

All through history, right up until the last century, extracting gold from the earth was a labor intensive process. With the adoption of the use of oil powered machinery, the ability to extract huge amounts of gold from the earth became possible.

Thanks to cheap energy (that would have been mens labor), over 80% of the known above ground reserves of gold have been extracted from the earth just in the last 100 years.

So let me bring that into perspective for you across the timeline. For over 5000 years of history, gold has been very difficult to remove from the earth, yet in the last 100 years has become relatively easy in comparison.

In ancient times, one ounce of gold was valued at the the amount of productive capacity of a mans life. This changed because of the energy equation of cheap energy in the form of oil.

If the Peak Oil argument is true, and we have good reason to believe it is, then the energy equation in regards to gold extraction may be reverting back to what it was previous. Energy inputs are one of the most important costs in the production of gold. If it is clear oil production will continue to drop, while demand continues to rise, then the cost of oil must also rise, and therefore the cost of extracting gold from the earth.

How will this impact the value of an ounce of gold?

It has occurred to me that some of the greatest fortunes ever made have been at the front of trends that affect all of mankind. Clearly, energy, or rather is lower availability in the years ahead is something that will change drastically over the next 30 years. This massive shift will affect every aspect of life, just as computers have over the last 20 years.

Interestingly, gold has retained its purchasing power well over time in terms of raw materials if not in paper. I say this because if we wanted to use the mans life labor model, how much does a man in a typical western nation earn in his lifetime in dollars? Certainly far more than the the price per ounce we see reflected in the “paper gold” markets.

Yet even with the advances in how much has been mined by use of cheap energy, the ratio of gold per capita has remained fairly constant.

In terms of the price of oil in the future and the effect it will have on the price of gold, I am of the opinion that it will be somewhere between what it is now, and the amount a man is capable of earning in his lifetime. It may not go so high as that number, but it certainly has in the past, and it will certainly be higher than it is now.

Branson warns that oil crunch is coming within five years

Sir Richard Branson, founder and chairman of the Virgin Group

Sir Richard Branson and fellow leading businessmen will warn ministers this week that the world is running out of oil and faces an oil crunch within five years.

The founder of the Virgin group, whose rail, airline and travel companies are sensitive to energy prices, will say that the ­coming crisis could be even more serious than the credit crunch.

“The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well,” Branson will say.

(more…)

Fisher added, “According to our calculations at the Dallas Fed, that unfunded debt of Social Security and Medicare combined has now reached $104 trillion — trillion with a “T” — in discounted present value. And while much attention in recent years has been devoted to Social Security, the lion’s share of the total entitlement shortfall (nearly $90 trillion) actually comes from Medicare.”

Fed’s Fisher: Obstacles Remain On Road To Economic Recovery

(more…)

Great email this morning from Jim Sinclair.

The main point: Gold is the only remaining store of value.

Dear Comrades In Golden Arms,

Will the Euro be the vehicle to increase the floating exchange rate system or the vehicle for the next step in the devolution of paper money?

What you are presently witnessing is the unwind of sovereign entities as a product of their adventures into OTC derivatives and disregard for economic law.

Greece is the Lehman Brothers of the euro, making it harder to accept Soc Gen’s position today that the euro is about to break up.

I see this as a crisis situation by design for the establishment, in time, of a single Western currency and a single Western central bank of central banks. Gold will then be attached at the hip in the inverse to this single Western world currency with the single western currency trading lower against Asian currencies or a single Asian currency.

In that situation gold emerges as the only real storehouse of value.

My feeling is that this well publicized event today of sundering confidence in the euro will simply accelerate the devolution of paper money as any storehouse of value, upgrading gold in the final analysis as the most trustworthy currency form.

It is unlikely that central bankers would want to have history record them as the caretaker when a system dissolved. They would much more likely prefer to be known as the architect of something new.

Trichet certainly wishes he kept his mouth shut when the euro was at $1.52 as the decline thereafter to his verbal intervention set the stage for the attack that followed.

Think about this for a moment. A collapse of the euro would retrogress to the dollar trading against a host of currencies, opening up each currency to a successful attack on whatever was deemed to be the weakness, picking off each country’s debt one at a time. The dollar will be in more, not less, danger when it is valued second to second, not against the simple euro, but rather a host of other Western currency units. It would set the stage for a Western world collapse of confidence in money as a storehouse of value.

Consider the implications if the Korean press is right about a common asian currency amongst the strongest asian nations.

We have created so much paper in the world that it is now considered kindergarten to attack individual stocks when you can bankrupt countries.

To assume the dollar is insulated against this “Art of War” approach to planetary destruction is silly. That would mean you accept the December hog wash of a sustainable US recovery.

The US is headed towards the same economic conditions of the second leg of the Great Depression. A 1933-1934 type unwind is coming. The only argument for a sustainable equity market in the Western World is the Weimar case.

All currencies are headed in one direction: down in storehouse of value character.

Gold is the only storehouse of value. Gold has demonstrated that clearly even in the face of the Crimex and the gold banks fighting it.

Respectfully,
Jim