Our Market Update on Friday led to queries regarding the nature of "paper gold". The important difference between actual physical gold and paper gold is something we have addressed frequently since 2003.
Reuters interviews Mark O'Byrne of GoldCore about the outlook for investor demand for gold, and the best way to own gold today. You can read the interview here.
The President of the World Bank, Robert Zoellick, called for a new post Bretton-Woods currency system involving gold, in November 2010. Zoellick said that gold was worthy of consideration as a reference point for modern currencies and as an indicator to help set foreign exchange rates.
Selected highlights of the latest ‘Popular Delusions’ note from Société Générale’s Dylan Grice:
Gold Bullion Unique as No Counterparty Risk Gold is unique among asset classes as it is the only asset class not dependent on the performance of auditors, management, corporations, financial institutions, banks, politicians and governments. Nor should physical gold be dependent on the performance of trustees, custodians and or sub custodians. Gold does not depend on the performance and health of the wider economy and as importantly when you buy gold in its physical form there is no third party liability or credit risk. Or at least there should not be. Gold has an intrinsic value in and of itself that is not contingent on someone else’s or some entities performance or mere promise to pay. Thus, gold in its physical form is still the ultimate form of financial insurance. This is why every major central bank in the world still maintains a significant portion of their reserves in gold bullion and many, such as the Chinese, are now increasing their gold bullion reserves.
Gold rallied 2% following news that China’s state holdings of the metal have been quietly raised by 76% since 2003. Rumours and speculation about Chinese buying have been rife for years, but many market participants remained in denial until this irrefutable proof was given. China is not only the world’s largest mine producer of gold, but also the fifth-largest individual country holder of gold with 1,054t.
The Financial Times published a relevant and interesting article by Nassim Nicholas Taleb, a veteran trader, a distinguished professor at New York University's Polytechnic Institute and the author of The Black Swan: The Impact of the Highly Improbable. 1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.
Essay by Meghan Brown “If the story of the past quarter of a century has a one-line plot summary, it is the rediscovery of market capitalism.” – Alan Greenspan, The Age of Turbulence, p.14 For the past thirty years, neo-liberal economic thinking has been the dominant orthodoxy governing policy and shaping development. Born from Adam Smith and his ideas of the ‘invisible hand’, this theory prevails in many well-connected and highly influential institutions such as the International Monetary Fund (IMF), the World Bank (WB), and the US Treasury, together known as the ‘Washington Consensus’. This essay will explore the theories behind neo-liberalism, which contend that unfettered markets provide the best arrangement for the allocation of resources and to which prominent thinkers such as Jagdish Bhagwati, Thomas Friedman and Martin Wolf subscribe.
Adrian Douglas of Market Force Analysis writes that in his experience, most ordinaly people have difficulty understanding why gold is the investment opportunity of a life time. Blaming the messenger, he explains it in simple terms, making a distinction between consumables and collectables:
The answer to this global credit debacle is transparency. There are enormous sums of investor money waiting in the sidelines. The reason they have not been invested yet is due to a lack of transparency within the balance sheets of those institutions that constitute the global financial landscape. Make no mistake; capital needs to be deployed in order to create a return. With such uncertainty surrounding the global capital markets it is entirely normal that investors would pull back until a sense of clarity itself develops.
Gold Outperformed Most Assets in 2008 - Gold Up 3.9% in USD; Up 5.3% in EUR and Up 34.4% in GBP. Today’s London AM fix (23/12/08) was $844.01 (USD), £570.85 (GBP) and €603.72 (EUR). At the start of 2008 (January 2nd 2008), gold’s London AM Fix was at $840.75 (USD), £424.81 (GBP) and €573.34 (EUR). Thus, in 2008 gold is up by 3.9% against the dollar, up 5.3% against the euro and up 34.4% against the pound. The London AM Fix is a widely followed benchmark for physical gold and silver prices and is reported in major newspapers and at many gold-related websites. 23-Dec-08 Last 1 Month YTD 1 Year 5 Year Gold $ 845.15 5.77% 1.42% 4.16% 105.83% Silver 10.80 12.07% -26.85% -24.60% 89.21% Oil 39.82 -20.93% -59.84% -57.45% 24.63% FTSE 4,283 13.27% -33.66% -33.43% -3.55% Nikkei 8,724 10.27% -42.85% -42.82% -15.89% S&P 500 872 8.95% -40.64% -41.28% -20.25% ISEQ 2,384 2.72% -65.62% -65.57% -51.03% EUR/USD 1.3990 11.15% -4.08% -2.71% 12.85% © 2008 Goldassets.co.uk This has led to a sharp outperformance of gold vis-à-vis every major equity indices and commodity in the word, not to mention most property markets (see Chart and Performance table). In March, gold fell from a record nominal high of just over $1,000/oz but it is important to remember that gold is only down some 15% from that record nominal high and this is after surging nearly 60% in the previous 7 months. In the seven months from the start of the credit crunch and the collapse of Bear Stearns, gold had surged by nearly 60% - from $640 in August 2007 to over $1,000 in March 2008.
The Washington Times's Lawrence Hunter wrote last week that U.S. President-elect Barack Obama has an opportunity to reset the economy and restore the U.S. dollar to its preeminence as the world's reserve currency by reestablishing the gold standard.
Rollover is the story of faded Hollywood siren Jane Fonda who inherits a multi-million dollar company after her powerful bank president husband is murdered. While trying to find her dead love's killer, she runs his corporation with the help of charming banker Kris Kristofferson in the weeks before a worldwide currency and financial collapse. It was the 1981 movie Jane Fonda "got made" after her exploration of the dangers of nuclear power in the "China Syndrome" back in 1979. She was driving to tell the story of real money - gold and how people throughout the world value gold as real money while most Americans and people in western societies don't understand gold and have forgotten its importance and value. The plot line is about wealthy Arab investors not rolling over their certificates of deposits (CDs) in American banks and buying gold in order to hedge themselves against a fall in the dollar and paper currencies ... and what the loss of those foreign investments means to the financial establishment in New York and the international financial and monetary system. Rollover: Financial Apocalypse This movie was a "financial thriller" and there are not many of these movies made. Movies need bank financing, and banks usually won't finance anything that makes them look bad or stupid. They show "It’s a Wonderful Life" with Jimmy Stewart on TV only once a year now because it shows "run on the bank" at the Bailey Savings and Loan - not something the financial establishment wants Americans to even think about.
Today's Daily Mail has a rare picture of the Bank of England's Gold Reserves You are looking at the room most likely to weather the credit crunch, a vast vault filled with the final word in financial security: gold. As stocks and shares tumble, house prices crash and previously unassailable institutions crumble into dust, the sight of several thousand 28lb bars of 24-carat gold stored in the Bank of England's massive underground
It's only Thursday and the Treasury has gone to the credit markets for $194 Billion so far this week for short term paper alone. Let's say they only borrow another $6 Billion tomorrow and end up at 200 Billion. Let's do the math. 200 Billion times 52 weeks is ..........$10 Trillion 400 Billion Dollars. This coincidentally equals the amount of the current national debt.
Shortages of certain bullion products is possibly the most important issue facing the gold and silver markets today. The sole maker of South African Krugerrands, Rand Refinery Ltd., largest gold refinery in the world, today ran out of the iconic bullion coin after an 'unusually large' order from an unnamed buyer in Switzerland. Rand Refinery has delivered more than 46m blank coins over the years since it opened in 1967. [caption id="" align="alignleft" width="360" caption="South African Krugerrand"]
Gold as Essential Diversification and Financial Insurance Gold bullion remains an essential diversification and essential financial insurance to have in all properly diversified portfolios. Besides the ever more important factors of inflation hedging and financial insurance, gold is likely to continue to outperform other asset classes and to provide significant returns to gold buyers. Many of the world’s major investment banks are in agreement that gold is again in a long term multiyear bull market. Many believe gold will surpass its inflation adjusted 1980 high of $2,400/oz in the coming years. Citigroup’s former head of technical research and managing director of Yamada Technical Research Advisors LLC., Louise Yamada sees gold on its way to $3,000 within a decade. "Gold is the purest play against the dollar,'' said Louise Yamada, Yamada is highly respected and was voted Wall Street’s best technical analyst from 2001 to 2004. Credit Agricole’s (France's largest bank and the fourth largest bank in the world) brokerage, Cheuvreux see the possibility of a rise to $2,000/oz or higher. How to Invest in Gold in Preparation for 2,000/oz Gold? Gold and Silver Investments Limited agree and believe gold will surpass its inflation adjusted high of $2,400 per ounce in the next 5 years. This is why we continue to advocate investors continue to diversify and increase their gold holdings. So, how should one invest in gold? There are many different ways to invest in gold and one’s motivation for buying gold should dictate how one buys gold. Are you a speculator, investor or saver? Are you buying to make a capital gain or as a hedge against systemic risk and using your gold as financial insurance? Is your motivation a little of each? ETFs, mining funds, digital gold, Perth Mint certificates, gold bullion coins and bars in one’s possession and or semi numismatic gold coins are good ways to buy gold. Given the extent of current macroeconomic and systemic risk a diversified precious metals holding makes sense and it should not be a question of “either or” rather a combination of these various ways. Having eggs in various gold baskets so to speak is the most sensible and prudent strategy. As part of this mix, older gold coins should be looked at. Classic European and world gold coinage is an often overlooked but extremely important sector in today's gold market. Pre 1933 and 19th Century European and world gold coins are an intelligent alternative to modern gold bullion coins or bars as there is often more room for appreciation with these beautiful old coins due to their rarity and yet they can often be bought at bullion prices. [caption id="" align="alignleft" width="150" caption="2006 Gold Proof Half-Sovereign depicting Saint George"][/caption] Importantly from an investment point of view is the fact that gold bullion and older gold coins are not subject to VAT due to the EU Gold Directive. Even more important is the fact that unlike the other forms of gold investment outlined above, British gold sovereigns are also not subject to capital gains tax (CGT). Thus all post-1837 British gold sovereigns due to them being legal tender and having a legal tender face value are capital gains tax free, which is obviously a massive benefit to investors vis-à-vis other gold investments. The prices of these beautiful coins are only slightly more expensive than modern gold bullion but offer many advantages. Besides not having to pay CGT, other advantages include increasing scarcity, aesthetic value and historical significance. European and British gold coins are recognised as one of the most advantageous ways to invest in “bulk” gold, by sophisticated investors. European, American and world gold coins are bought by both collectors and investors at a small premium to the price of bullion coins. Perhaps the most popular semi numismatic gold coins internationally are British Sovereigns.
Small to medium enterprises are the life blood of modern economies. In Ireland for example, up to 56% of the national workforce is employed in by Small to Medium Enterprises, that is to say companies that employ less the 250 employees and would include local industries and mom and pop business outfits. From the United States to Germany and beyond small to medium enterprises are responsible for a large component a countries transactions, employment, provision of goods and services and general day to day activities and are critical to the health of any economy. Given the increasingly uncertain economic climate critical questions must be asked – How can these critical and indigenous industries survive a rapid economic contraction – can they react to a swift fall off in demand for goods and services; do they have the management skills and Management Information Systems to not only recognise the problems but be able to formulate a cohesive response; how robust are their finances; how flexible are their employees? Concerns are growing that with the economic success enjoyed by many countries over the past ten years we have inadvertently created a weak and desperately soft underbelly – That is to say we have forgotten how to manage our business competently. Many small businesses have grown lazy and despondent and lack the management skills needed to properly navigate their business through difficult times.
Browsing through digg this morning I notice an article titled 9 ways you can take advantage of this "terrible" economy.It's currently riding high in the digg popularity stakes with just shy of 1000 diggs. It is, I think, a great example of what I choose to call The lalalalalalalalalala Effect - named after the sound one must make
Precious metals remain the most undervalued of all the asset classes. Precious metals, and particularly silver, remain the most undervalued of all the commodities. Silver is even more undervalued than gold and is undervalued when compared to other strategic commodities such as oil. Silver has excellent and unchanged strong fundamentals but also the technical picture for silver is textbook bullish with a continuing series of higher highs and higher lows. Silver remains one of the most under analysed and inaccurately analysed of all the commodity markets and this creates a huge opportunity for investors who are willing to do their own research and go against the herd. Silver remains the preserve of a tiny “hard asset” demographic and the majority of investors in the western world have not got a clue what silver is, how to invest in it and why one would invest in it, let alone what it’s price and price history is. The herd have not even considered silver yet. Incidentally the herd were wrong on the NASDAQ, on property and they will be wrong on assuming that this will be another short benign recession. Most institutions have been bearish on silver since it was above $6 per ounce and continue to be as they fail to look at the big picture supply and demand and macroeconomic fundamentals. Silver is currently trading at just above $18.00 per ounce. Gold Investments continue to believe that silver will surpass $25 per ounce in 2008. It will likely reach its non inflation adjusted high of $48.70 per ounce before 2012 and its inflation adjusted high (as many other commodities including oil already done) of some $130 per ounce in the next 8 years. After healthy corrections, gold and silver are again table thumping buys. Indeed it could be argued that the fundamentals for gold and particularly silver have never been as bullish as they are today. This is due to the myriad of real fundamental macroeconomic, systemic, geopolitical and geological factors all of which are combining into what will likely create price moves that will in time make the price moves of the 1970’s look small in comparison. The fundamentals reasons for our very bullish outlook on silver is due to continuing and increasing global macroeconomic and geopolitical risks; silver’s historic role as money and a store of value; the declining and very small supply of silver; significant industrial demand and most importantly significant and increasing investment demand.
Gold and Silver Bullion - News and Commentary Gold prices notch fifth week of gains in a row (MarketWatch.com) Gold notches 5th week of gains, palladium hits record (Reuters.com) London Housing Woe Endures as Prices Drop to 2 1/2-Year Low (Bloomberg.com)[...]
Goldnomics Podcast - Gold, Stocks, Bitcoin in 2018. Everything Bubble Bursts? [iframe sandbox="allow-popups allow-same-origin allow-scripts" src="//player.blubrry.com/id/29580649/#time-0&darkOrLight-Light&shownotes-ffffff&shownotesBackground-444444&download-ffffff&downloadBackground-003366&subscribe-ffffff&subscribeBackground-fb8c00&share-ffffff&shareBackground-1976d2" width="300px" height="138px"] Press play to listen to podcast In this our first GoldNomics podcast we take a look at the major financial market themes[...]
Gold and Silver Bullion - News and Commentary Gold prices inch up as dollar hits 3-yr lows (Reuters.com) Dollar stoops to three-year low, euro shakes off Merkel coalition concerns (Reuters.com) Gold rebounds and rises to $1340 as USD slides (FXStreet.com) Bitcoin[...]