Gold and Silver - The Monetary Metals

England Has Gold...Don't We?

2012-02-03T09:16:00.001+13:00

Here is a report in the Daily Mail today showing Englands hoard of gold booty stacked in a disused World War Two bomb shelter directly under the Bank of England. Actually, it was a canteen. Apparently, those pictures on the wall were for decoration during that time.

The Bank of England gold vault

The reporter states the gold is worth a whopping £156billion and the whole stash contains around 4,600 tons.

The article does state "Some is deposited by foreign governments as well as our own. Different shapes and marks distinguish the varying sources of the wealth". So there is an acknowledgment of owners other than England, but to get all excited that this 4,600 tons is somehow going to help England out of this financial crisis is wildly optomistic one would have to say.

We have all heard the saying "possession is 9/10ths of the law" but the United Kingdom of Great Britain and Northern Ireland officially only owns 310.3 tons of the yellow metal. This according to the World Gold Council. So England can get a little excited, but 310 tons doesn't really cut it in international finance.

Unless, other countries holdings are not what they think they are and the Bank of England could make a grab for it in times of distress?

Perhaps we now see how smart Venezuela was to expatriate the gold that was theirs from this very vault. All good so far from the Bank, but what if other countries tried and what if it wasn't all there, or maybe encumbered.

I just tend to think the journalist got a bit excited with all the gold around in kinda claiming it was England's

The actual owners would hope so too.

Gold in New Zealand dollars: $2107.59 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $41.14 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

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New Zealand House Prices To Go Gangbusters

2012-02-02T10:00:00.014+13:00

Whoopee, the supply of houses are down, money is going to be cheap for some time, and buyers are lining up with their new loans. House prices are going to begin a new bubble.

Well, so said a Financial Advisor on New Zealand TV today.

Let's think about this a little, and I would be interested in your thoughts also.

Perhaps the supply is down because prices are depressed and would be sellers don't want to lose that little bit of positive equity, let alone increase the negative equity losses they already have. They are holding on before selling; just.

The prospects of cheap money announced by the Federal Reserve last week means cheap money globally. Cheap money globally means bubbles anew. So prices could go up, not wholly unlikely.

But, recall this graph of New Zealand house prices since 1992, the time when house fever started to go a little bezerk. When measured against the ultimate hard asset, gold, prices have returned to where they were back then. In other words, the bubble burst and value is back where it started.

click to enlarge

So maybe don't buy now because you think prices are a good retirement income, that prices will always go up. That little lark appears to be finished.

Housing consents may be interpreted by some to be another indication of housing shortages going forward. Housing consents last year hit a 46 year low. Yes, 46 years. But this could also be an idicator of the current malaise in our economy. Danger signs for production and jobs. With cheap money, wouldn't you think building would be up?

Australian housing prices are staring to retreat. Brisbane prices are down around 3% and Sydney 2.7% and Perth prices are barely holding on, at least in the middle priced home bracket. There is an "orderly retreat' in house prices, as the SMH reported today A 4.8% decline nationally.

It is a similar story here. No crash in prices but a creeping orderly retreat if not a stagnation nationally. But looking at national prices here in gold terms, prices have dropped significantly from taking 227 ounces to buy the average house in December 2010 to 167 ounces in December 2011. A 36% percent decrease in housing value. Ouch.

But I guess that all depends on whether you think gold is the best measure of value.

So what is changing? Gold in a bubble? No, low interest rates, set by Central Banks, cause cheap money and cheap money is cheapened money. The more you increase the money supply, the more asset prices rise. Don't believe the money supply story? Here is a graph of the change in Central Bnak balance sheets worldwide since 2006.

You see, value is the key. Value is being whittled away by the very same forces that are causing interest rates to be low and it is catching people out. It is hoodwinking investors and new home owners into thinking that housing is a good deal right now.

Hoodwinking even Financial Advisors.

Gold in New Zealand dollars: $2094.88 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.60 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

"Not My Problem" - More Positive Gold news?

2012-02-01T13:31:00.000+13:00

Today, the gold and silver news is that Jim Sinclair is warning of a monetary event involving all Greek debt holders.

The gist of the interview with Ellis Martin is that the ISDA (International Swap Dealers Association) will not deem a 70% haircut for bondholders of Greek debt as a default (go figure). This will let them off the hook for the billions they would need to pay out to bondholders who own insurance on these debt derivatives. So the ISDA, owned by big banks, will not pay out but cut the bondholders (other large European banks) loose and let them deal with the consequences.

How will the market react to this?

Here is Turd Ferguson's summary of the possibilities of this move by the ISDA.

"If I understand this right, here is what Santa is saying:

In 2008, AIG had sold CDS on CDOs. CDOs defaulted and AIG had to pay. AIG went broke. The counterparties to the CDS were GS, JPM et al and had to be made whole on their losses that they thought were insured by AIG.
US Govt funnels TARP cash thru AIG to GS, JPM et al to cover losses
IN 2012, Greece is about to default, just like the CDOs of 2008.
ISDA (run by Big 5 banks) declares that 70% haircut on Greek bonds is not a default.
Therefore, Big 5 do not have to pay off on CDOs bought by Greek bondholders. Big 5 off the hook.
Greek bondholders who thought they had principal insurance are now screwed and left holding the bag.
Greek bondholders (big Euro banks, big Euro govts, big hedge funds) will now be insolvent.
Greek bondholders will need massive capital injection.
Short term euro negative/dollar positive.
Regardless, lots and lots of money printing to save Greek bondholders."

Gold in New Zealand dollars: $2103.83 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.26 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Gold: The Ultimate Store of Value

2012-01-31T11:07:00.002+13:00

"...the world is now waking up to the fact that gold is not a commodity, but currency with many functions such as performing insurance, liquidity, store of value, etc all because of gold’s absence of counter party risk. Gold’s risk has been paid forward. That is how it became a coin.

When one holds physical gold they are paid in full at that moment. All the blood, sweat, tears, intellect, etc that went into not only discovering a mineral deposit but the shear amount of man’s time, energy, and effort to extract, refine, mint etc that yellow element is trapped inside that physical asset. In a world awash in liabilities and the "daisy chains" of counterparty risks, very few assets stand outside that realm. Gold, the wealth and reserve asset of the ages, is coming back and will leave many a wondering "How did we miss this?"

This is a statement (I think) from Bill Haynes, of CMI Gold and Silver. It explains well the function of gold and leads in well to the topic of this blog post.

Recently I have been doing some reading around the concept of 'freegold'. There are quite a few websites out there which help explain this concept. It is nothing new, but it does help explain why the gold price is caught in a fiat valuation trap now and why, soon, this will stop when gold reverts to it's primary purpose as a store of wealth and value.

Here are a few sites for you to do some reading:
FOFOA
How the West was Lost

A quote:

"Freegold is beneficial to everyone - except those that can print a currency out of thin air that can be used to buy goods anywhere in the world. You and I CANNOT print money. You and I can only go into debt for currency today (Committing future work for currency today). That going in debt subjects us to the political ramifications of the management of the currency. That may be good or bad depending on how it's managed.

Gold stands separate of this mis-management.

And, as you may have already figured, the way the reserve-currency of the world has been managed, gold is extremely undervalued. We are going through the process of discovery - where those with paper riches figure out that it's really not real until it is settled. As the settlement process accelerates, so will the scarcity of gold."

If gold stands seperate, and I think it does, then when it is 'set free' from being inside the fiat paper system, then it's true value will be set free as well.

The basic tenet here is that gold is the ultimate store of value, no other asset holds the properties that gold does in order for value to be measured and stored. Why? Because of it's physical properties and scarcity and because it has been through the fire of history and is still recognised as such.

Got gold; at least some?

Gold in New Zealand dollars: $2113.15 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.95 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Plunder: A Respectable Word Now

2012-01-27T10:00:00.001+13:00

So then, work for 50 years and save for your retirement. Be careful with your money, put it away religiously in a conservative minded fund, with a generous but safe interest rate. When retirement comes upon you, as it surely will, you have the means to support yourself. Maybe even a little cruise to Alaska or New Zealand.

Not.

You see, the Oxford dictionary definition for the word 'plunder' has changed from "steal (goods), typically using force and in a time of disorder" to "steal (goods), typically using monetary easing and interest rates and in a time of order".

Nice going Federal Reserve. Yes, they announced officially yesterday that ZIRP (the zero interest rate policy) will be with us for at least two more years. A set policy of 2% inflation is going to be strictly kept to. That is, in these violent days of a deflationary spiral as debt goes to its true worth, the Fed will 'ease' (print) to keep inflation steady.

The wee problem is, this destroys wealth placed in conservation funds. It destroys the value of the savings over decades that people have stored for their retirement. To even get close to a positive rate of return, senior citizens may have to resort to wild speculation with all the risk consequences that entails. According to the Fed, that should be in the share market.

Otherwise, day by day, their wealth is plundered as inflation is high and interest rates low.

But that isn't all. No one is really that safe. The MF Global fiasco showed commodities investors, that even though you own precious metals certificates on the COMEX, you are still exposed to the largest shark in the water. Sharks like JP Morgan Chase who cheated and stole their gold.

Plunder is coming in all forms now. The regulatory authorities do not seem to have the resources to stop it.

Anyway, the definition of plunder has beeen changed. Get used to it.

Or get smarter.

Gold in New Zealand dollars: $2103.68 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.87 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Gold for Oil; Paradigm Shift?

2012-01-26T10:00:00.000+13:00

Is the US dollar reserve currency status declining quickly as we move into 2012? Are events overtaking the ability for the US to control world economics as it has done since Bretton Woods in 1944 when the US dollar began its journey to supremacy?

There are only 'unconfirmed' reports to go on, but it appears that India has an agreement with Iran to swap gold for oil. Whether this is factual or not remains to be seen, but there are other transactions taking place between Russia and Iran, China and Russia, Japan and China that suggests a new paradigm may be emerging quickly to that of the primacy of the US dollar as the reserve currency.

The theory is the US has been able to control world markets by having control of the medium of exchange. For many years, Europe has sold its goods and services to the world by exchanging euros for dollars. These dollars are then stored in Europe to swap with other currencies during trading activities. Eurodollars are another name for these.

Oil exporting countries, like Saudi Arabia, do the same thing. Get paid in dollars for their oil. This creates a huge basket of what is called petrodollars to be used in the world markets.

But recently, something is amiss in the financial system and traders are turning their backs, slowly at first, on the US dollar. The probable reason? Value is being destroyed by rampant deficits and money printing in the US.

So 'who we gonna turn to'? Yes, gold. Here is an excerpt from a piece by Alex Stanczyk of Anglo Far-East Bullion Company:

"The old saying, “Black Markets are Free Markets that exist in times when the government does not approve of the Free Market,” may again be proving true. These events illustrat e how gold actually is the money of last resort, even at a government level. Recent sanctions include EU's accepting no further contracts and freezes by the US, IMF and EU of Iran’s ability to trade in gold. The element to note is that this is incredibly difficult to enforce.

Gold has been smuggled across borders for centuries as payment for strategically important items, securing armies, arms, and for serving as bedrocks of monetary systems. Gold continues to resurface as money throughout history. You can transfer large quantities of capital completely outside the control of governments’ ability to stop it."

If indeed we are seeing the loss of confidence in the US dollar then the next ten to twenty years could see turmoil in markets that would see the world's ability to trade curtailed by regional and national interests. It could also see a grab for value; often taking the form of hot wars.

Gold in New Zealand dollars: $2098.33 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $40.89 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Gold Storage

2012-01-25T13:32:00.000+13:00

Here is a worthwhile article from James Turk over at Goldmoney.com. He is talking about the best ways to store your physical gold and silver.

Gold in New Zealand dollars: $2054.91 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.55 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Where to for Gold and Silver from Here?

2012-01-24T10:00:00.000+13:00

Bottom callers are everywhere. Apparently $1535 gold and $26 silver was the bottom of the current correction.

However there are still a few 'analysts' who maintain that $1200 gold and $9 silver is possible. That might be a stretch. Others are calling for $4500 gold and $100 silver by year end. Nice for some, but imagine the state of the financial markets if this occured. Oil may be up around $200. Goodbye to that road trip!

Anyway, the most respected and level headed punters are charting their predictions for gold and silver. Some are saying that the battle royales will be fought at $33 silver and $1665 gold and then $35 and $1705. Once through, the trend higher will have commenced with vigour.

Will all this prophetic noise, though, one should always add the facts of the fundamentals. It helps keep ones mind in focus. Have the Central Banks stopped printing money? No, look at the ECB's balance sheet, it has nearly doubled since September 2011. It is nearly the size of the Federal Reserve's balance sheet. You see, back in November, they used swap lines to the local European banks. Cash for collateral. Only the collateral was horse-dodo. But they didn't let that get in the way of a good hefty money creation binge. The important factor in all this is interest rates. They must be kept low, otherwise it's all over.

This Central Bank policy is inflationary. Yes, the printing policy might be matching the deflationary effect of bad assets going bust, but it's the ongoing policy signal that is important, and the resaon why preserving wealth with precious metals is paramount.

Gold in New Zealand dollars: $2067.76 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.84 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Where do I sign!

2012-01-23T09:46:00.000+13:00

When my best friend borrowed $1000 from me, he insisted that he pay interest as he didn't want to see me out of pocket for his use of my money. Of course, this was after he had asked all his other mates to lend to him as well. So I had even won a bidding war with the lowest interest rate charged.

Great, in one year I would receive $1050 for my trouble.

But the year came and went, and I didn't get my money back. Turned out my friend had spent it on increasing his retirement plan and also a new gun. But I had believed he was such a good risk, after all, he had assets that looked real juicy. Paper gold ETFs and a bunch of other mortgage backed derivatives. He even belonged to a club that guaranteed his debts as long as he kept them below 3% of his budget.

But he succumbed to temptation and borrowed too much. Naturally, his club got mad and banned him from coming to meetings.

It was kinda sad for my friend, but his fault I guess. But a funny thing happened. I managed to get my money back. The club contacted me privately with an offer. I learned from sources that they had a money printing machine out in the back room. It seems they were great counterfeiters. Who knew?

As long as no one dobbed them in, they would be willing to cover the debts of club members. They would do it through a complex system of fancy names and bank accounts to fool the police. All I had to do was not tell anyone my friend had defaulted. So I played the game and as promised, the money turned up.

Next day I went into the barbers for a haircut and wondered how I could increase the loans to my friend by a factor of at least two and perhaps ask for a better interest rate. I had these guys over a barrel and the sky was the limit. In fact I could take out insurance from the same dodgy banks the club used and win either way.

Where do I sign!

Gold in New Zealand dollars: $2067.98 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $39.95 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Tails I Win, Heads You Lose

2012-01-20T14:26:00.000+13:00

After, reading various articles about the state of Greece, one can get befuddled as to how Greece got into this mess and why they cannot get out of it. Or even understanding the implications.

After all, it is just debt and debt can be covered in many ways, least of all by money printing. Well, as we know, Germany doesn't like the presses. Phoney money destroyed their middle-class in 1923 with hyperinflation. Printing makes them nervous.

The other way is to reduce the debt by restructuring it and making the holders take a loss. However, this is a bit sticky. Why, because of large the funds that own the Greek debt and the unregulated and huge credit default swap insurance derivative time-bomb.

It appears that the large funds around the globe, that actually own Greek debt, don't care about a good outcome. Any outcome will do as they will win either way.

Here's why.

The current negototiations around restructuring Greek debt revolves around asking (and the important word is 'asking') fund mangers to take a reduced bond value and interest rate on their current holdings. Now, 'asking' is important because if Greece underwent a hard default the credit default swaps insurance (the insurance the funds took out on the bonds) would activate and payouts to these fund managers would begin in full.

But it looks as the 'asking' option is not to the fund managers liking. After all, they would lose. They have the upper hand with the CDS insurance on this debt. They will get paid in full when default occurs. Why would they want a voluntary haircut on value?

But it's brinkmanship of the highest order. What if the triggering of insurance causes the world financial system to implode? Then fund mangers would get nothing. Maybe, but perhaps their central banker friends could still step in and print some bailout funny money to steady the system. Like the AIG bailout in 2008, it could happen.

Either way, it looks like the big fund guys win again and the middle-classes will lose. Now this is not a particularly 'left-leaning' blog, but if the funds win here, value will need to come from somewhere and as in Germany during the Weimer hyperinflation, it came from the middle-class. Hard-workers who do not deserve this.

Who says history doesn't repeat.

Gold in New Zealand dollars: $2063.63 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $38.09 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

The Housing Market: Thoughts

2012-01-19T09:33:00.000+13:00

Now, I am no housing guru. I sold my house nearly three years ago and removed debt altogether from my system. Will I buy a house again one day, yes, but not at these prices in New Zealand; especially Auckland. Could I be wrong; maybe.

The latest median house prices and sales volume figures are out from the Real Estate Institute. In Auckland, sales volume is up 28% and the median price down just 1%.

Maybe house prices in Auckland will hold up a little longer as people migrate internally. There has been an influx of people from earthquake ridden Christchurch for example. Also, external immigration is still supporting demand for housing in Auckland. Especially in the East Coast Bays.

Around the globe, house prices in major cities are holding in the middle price ranges. Migration to these cities from provincial towns is a factor as jobs are harder to come by. However, even cities, like Sydney, Australia, boom towns for real estate in the 2000s, are showing signs of falling house values.

The graphs below show what has happened to real value over the last 20 years. What do these figures mean? Well, you can now buy a house in New Zealand for the same amount of 'value' in gold ounces that you could way back in 1992. If you had been lucky enough to sell your house for 475 gold ounces at the peak in 2005, you would now be able to buy two houses with that same gold.

But, who can tell the future as to what happens now? There aren't any signs, other than immigration, to suggest that prices can maintain these values. Maybe, now that median prices are back to 1992 prices in gold ounces, that it's a bottom and it's time to buy.

However, for now the primary trend appears to be down and still consolidating and with the turmoil in the international monetary system and our large sovereign debt, you would have to think seriously about not buying right now.

Click to enlarge

Gold in New Zealand dollars: $2056.49 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.83 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Real Wealth: A Reminder

2012-01-18T09:30:00.000+13:00

Here's an excerpt from a recent interview with David Morgan of the silver-investor.com. David is one of the world's pre-eminent silver gurus and understands the market very well.

Often we can get caught up in the paper money prices of gold and silver and forget why we swapped our paper for physical in the first place. David's excerpt below reminds us of why we made that decision.

"It's not a number (price) I think people should focus on. People love to know what number, how high and all that, because that's how everyone thinks.

You know, my net worth is how many dollars do I own. But really you got to get out of that paradigm because in a depreciating currency, to think of how much you have in dollars is really not thinking very clearly. Because which dollar are you talking about? The 1913 dollar, the dollar the day you were born or the dollar of today, because it is a variable, it is not a constant.

Whereas an ounce of silver and an ounce of gold is a constant. What you need to think about is how many ounces of silver or gold have I accummulated over the years. Is it higher or a larger amount than I had a year ago or two years ago.

If you think of that shift, that paradigm where you are looking at your real wealth, not just paper derivatives, I think you actually come to the conclusion that it is not that bigger deal to focus on the price.

It is more important to focus on the amount of value, how much purchasing power do I have, how much wealth have I accummulated. How much savings do I have.

Gold in New Zealand dollars: $2066.62 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.52 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

The Unpredictable French

2012-01-17T10:26:00.001+13:00

The French always seem to have a flamboyance that no other culture can match. Except perhaps the Italians with their flare for style. The French have a knack for the unexpected.

Just when you thought, rightly so, that the credit downgrade of France last Friday was a negative indicator for French bond prices, in comes a surprise showing overnight for a French bond sale. Instead of the interest rates going up, like they did for the PIIGS when they were downgraded, the yield rate actually fell.

Well hit me with with a feather. But wait, what is that which wafts towards my financial nose? Smells like a rat.

And a rat it is, in the form of the ECB. Yes, the very same ECB that promised never to print money or buy the bonds of a sovereign european nation. Lo and behold, last night they did that very thing. And I bet the Germans didn't like it, but that's another story. France is too big to fail and this print-up is the latest attempt to hold it all together, especially for the US markets which open tomorrow (today is a holiday in the US). This ruse is especially important considering Greece has dispatched a posse of technocrats to Fort Fed to tell them of the coming Greek default - unless of course you print some of you bucks for us; seems the ECB will only print them for France.

So up went the euro stock market by 1% and down went the French bond yield from 0.45% to 0.40% on demand from the ECB.

So we have no demand except the demand from the infinite money machine. Honestly, this is getting ridiculous, but then I'm not a purveyor of flamboyance.

Gold in New Zealand dollars: $2071.89 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.80 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Iran: The War Has Begun?

2012-01-16T11:58:00.000+13:00

Here are two opinions on the state of the war between Iran and the US and it's allies.

The first is by respected commentator Jim Rickards and is an audio interview over at King World News. The second is an article by blogger GolemXIV.

It appears there is no going back on a hot war, unless Iran gives up it's nuclear ambitions.

Gold in New Zealand dollars: $2065.11 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.49 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Money: Oh the Mess

2012-01-13T10:00:00.000+13:00

Ponder this. If no one spends any money, what is it's value? Pretend we all barter again; go on, just for the fun of it.

The paper stuff you have in your wallet or the numbers stored in your bank account, or even the physical gold and silver you might possess. All this is money, but if it's not used as a medium of exchange, it's useless. Although paper could light a fire and gold could be used in my teeth.

Now, this is not rocket science, but it does help one to understand where money is at right now.

As long as you and I accept that when we sell something of value and receive a paper note for that value, we can then turn around and purchase something or someone's labour at similar value by handing over that note to the party involved. He/she then goes and spends it on something else, and so on.

All well and good until an ill wind blows through the system and we raise an eyebrow of doubt about the stable value of the money we are receiving. If we cotton-on that money supply is increasing faster than values we will understand we are being duped. At this point we will likely batten down the hatches and look to other stores of value.

Confidence in money can quickly turn from complete to zero. If that happens to paper money, welcome to hyperinflation. Hyperinflation is merely everyone spending the paper dollars they have no confidence in as quickly as possibly (eg as in Iran right now). This sends the velocity of money soaring (ie. the pace at which money transacts) and more and more volume of the stuff is needed to try and maintain value.

This is where gold and silver come into their own. One ounce of gold represents a certain value of labour, say, seven days work. When this 'thing of value' (gold and silver) is swapped for something else, it has shown to maintain that value for the thousands of years it's been used in this way. An example, an ounce of silver will just about buy the same amount of petrol (gas) as it did 30 years ago. Can gold and silver hyperinflate? No. Why? Because they are finite things. They cannot be printed with a keyboard or readily gathered from dying stars.

The system is OK if we all permit it to be. If we all try and keep confidence in the 'thing' (paper or gold/silver) that we accept as a medium of exchange. Nothing wrong with paper per se. But right now, confidence is the key. Watch for it to continue to fall as people get wind of the large printing mechanisms underway at central banks worldwide.

Gold in New Zealand dollars: $2074.93 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.89 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Gold; The Huge Mind-Shift

2012-01-12T10:59:00.000+13:00

People are fascinating.

They make decisions based on detailed reasoning or they can just rely on the opinions of someone who seems right. And all variations in-between.

When you make a life-changing decision to remove debt from your personal system and buy precious metals, you can receive all manner of reactions. However, many of these reactions are unspoken. Until, that is, the watching, thinking, pondering faze is completed and that person is unpredictably ready to comment on your decision.

Some of these verbal 'blurts' include statements like; "How's gold going, I see it's been going up"? This is a common one, because it tells you that the person not only has been watching your decision, but also watching the gold price. The motive could be to see if there's any credence in this precious metal thing or an idea to diversify their savings a little, or it may be they have been a little unnerved by your investment and want to talk more.

Another common comment goes like this; "But gold isn't an investment, it doesn't earn a return". Well other than saying, "Correct", this also lets out a little information about the said person. They have begun to do a little homework on gold, and this time it's serious, but not serious enough for them to jump ship.

Hmm. All this confirms that our wealth is important to us. We want to preserve it. We don't want to be left having nothing to provide for our basic needs, and perhaps a little for enjoyment. There's an old saying; "Your heart is where your money is". People think seriously about their wealth. However, in times like these, many are considering their options and wondering worrying thoughts about the state of their financial well-being.

But not many move from being paper-bugs to gold-bugs very easily. It's a huge mind-shift.

Gold in New Zealand dollars: $2058.72 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.63 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Concentrated Positions Have the Ability to Manipulate Markets

2012-01-11T17:45:00.002+13:00

CFTC Commissioner Bart Chilton: “Concentrated Positions Have the Ability to Manipulate Markets”.

Here Bart Chilton outlines the possibility that entities with large short positions, especially in silver, are able to manipulate the price of commodities. He also issues a veiled warning against those that portray these events as a 'time to buy' as these people are often just peddling their gold and silver bullion businesses. I agree. However, the CFTC is looking closely at regulations against these large short positions which may send the price higher when enforced as the shorts attempt to cover their positions (ie buy back silver to give back to the lenders)

Sorry for the short blog today, but I have been working hard on getting my wife's Raw Food Seven Day Program up and running. It should be ready to go public in about two weeks. nothing like a dose of good health to go with finances!

Gold in New Zealand dollars: $2064.04 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.75 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Collateral Damage

2012-01-10T13:29:00.000+13:00

Money, the folding paper type, is really only as good as the value of the 'stuff' it represents.

If you loan money to someone, you expect to have a 'thing' of similar value backing that monetary loan in case (hypothetically) the borrower defaults on the loan ie. if the borrower doesn't pay, you get the 'thing' in return.

You may have heard of the latest buzz word made famous by the MF Global bankruptcy. Rehypothecation. Well, in the example above the first 'hypothecation' is the collateral pledged for the loan. However, if the original lender wanted to borrow money off another party, then he could theoretically use the 'thing' of the first loan as collateral for his loan. This would be rehypothecation. So the same collateral is re-pledged to another party. Apparently this can go on for many agreements. The same asset used many times.

If the first borrower defaults, the hole shebang crashes.

But it's the value of the 'thing' or, using more financially aware language, the asset that is the problem. Assets such as mortgages in the early 2000s were packaged up and sliced and diced and sold to fund managers on a world-wide scale. These packages were bought and sold many times, all for profit. But then some poor soul, who owned a mortgage in America, decided not to pay anymore. And down came the dominos, ending in large disasters like Lehman Brothers. You see, the asset side of their balance sheet suddenly became worthless.

But it didn't end there. Even now, most of the European banks have bad collateral on their books. This is why the Europeans are in a bit of a fix. The money, or the values, they thought they had are gone. This causes mistrust between each bank as each one doesn't have the confidence that the other has any collateral for it to lend against. When this occurs, short term financing grinds to halt. That's why central banks recently did huge EURO/USD swaps. They managed to oil the system for a few more months.

They managed to delay the fateful day

Gold in New Zealand dollars: $2046.28 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $36.79 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Back to the Future

2012-01-09T13:14:00.000+13:00

The "Back to the Future" Trilogy are among my favourite movies.

Somehow, if I had managed to jump in a DeLorean at the beginning of 2012 and time travelled back to January 2011 and looked at a Bloomberg screen and then headed back to January 2012 and again looked at a Bloomberg screen, what would I see? Surprisingly, the numbers on the screen would look similar. The market went nowhere over twelve months. Hmm.

Strange times indeed. Does this mean that we are in for a similar ride this year? Who knows. No one really predicted such a wild ride up and down last year, so the commentators all got it wrong. Some of the predictions for this year are for the end of the current financial system, war with Iran, gold prices at $2500 per ounce and silver at $60 per ounce (David Morgan). Well, perhaps, but who can tell in this volatile world where a true measure of value is difficult to find.

You see, the sovereign debt crises around the globe have caused currencies to devalue against each other. I read Jim Rickards "Currency Wars" over the holiday break. Currencies are in a mess. Each sovereign currency must devalue against it's main competitors in order to maintain an edge in it's balance of payments. Receiving more for exports and paying less for imports. But Rickards main thesis is that the US must maintain it's currency edge over the rest of us and that it will be willing to do so at any cost.

Is the move by Iran a number of years ago to use euros instead of dollars for oil transactions the real reason the US is destroying the Iranian economy. Perhaps Iran's more recent move to trade with China and Russia in their own currencies caused the latest move from President Obama in December to sideline the Iranian Central Bank. Perhaps the same threat by Saddam Hussein was the reason why the coalition of the willing invaded Iraq in 2003? I don't particularly think so, but it's worth pondering in the context that the US needs the dollar to remain number one in order for it's powerful status quo to remain.

But one thing we all have to admit for 2012 is that debt is too large to manage and simply papering over the problem will only make it get worse. I don't have any specific predictions for 2012, but what I do know is that unless a global plan is put in place to deal with debt, the crisis will get worse.

Gold in New Zealand dollars: $2069.44 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.03 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Biggest Economies Face $7.6 Trillion Bond Tab

2012-01-03T19:19:00.000+13:00

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show... more

Gold in New Zealand dollars: $2025.50 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $36.20 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

The Future Tense: David Morgan: Gold Opportunity

2011-12-29T11:28:00.000+13:00

The Future Tense: David Morgan: Gold Opportunity: David Morgan, probably the best analyst in the world on silver mining stocks, discusses the current gold "massacre" with Fox Business News. ...

Gold in New Zealand dollars: $2024.32 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $35.31 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Holiday Viewing - The Crash Course

2011-12-23T11:08:00.000+13:00

If you are wanting a relaxed educational session during the holidays, then have a look at "The Crash Course' here.
_____________________________________________________________

YOUnique Gold and Silver
Buy small, affordable physical gold and silver or start a savings program towards
physical gold or silver grams for as little as US$25 per month.
_____________________________________________________________

The Anglo-Far East Company
AFE is the gold bullion custodial provider of choice for the sophisticated investor,
families, and institutions that require the highest level of discretion, competence,
safety, and service. Your reference: an-001
_____________________________________________________________

The Next Three Weeks

2011-12-19T16:12:00.000+13:00

It has been a more than eventful year. I have enjoyed bringing you my take on the issues at hand as they relate to the precious metals sector and also financial issues in general.

I will be intermittently contributing to the blog over the next three weeks as this is Christmas holiday time here in New Zealand. Thank you for your support this year.

Merry Christmas!
_____________________________________________________________

YOUnique Gold and Silver
Buy small, affordable physical gold and silver or start a savings program towards
physical gold or silver grams for as little as US$25 per month.
_____________________________________________________________

The Anglo-Far East Company
AFE is the gold bullion custodial provider of choice for the sophisticated investor,
families, and institutions that require the highest level of discretion, competence,
safety, and service. Your reference: an-001
_____________________________________________________________

The Family of Debt versus The Family of Gold

2011-12-16T10:25:00.002+13:00

With how many members of your family would you sign a financial agreement that says; spend as much of our money you like (a blank checkbook), even borrow more if required, and if you get over your heads we'll pay out the lot.

Not this parent. How about you?

But this is kinda like Europe's problem. The kids were given free reign with cheap euros, now the parents have to step in. But the parents are balking at the consequences. The Eurobond (agreement to bail out the family) is simply not going to happen. Daddy Germany and Mummy France will not cover the kids bad debt behaviour (even if they did provide them with the checkbook).

The only way out for this family is to restructure its debt by ending the European Monetary Union, creating separate currencies again and devaluing them where necessary. Over €2 trillion euros is coming up to be refinanced in Europe next year. Are there any buyers of this debt? Remember they had problems raising a meagre €3 billion for the EFSF last month.

And the US debt situation is continuing to deteriorate. $1 - $2 trillion deficits cannot last forever. Spending $1.60 for every $1 they receive. The Europeans are in the same debt laden boat. The Planners keep coming up with plans, but the plans turn into dust and more plans are required. All a part of what should happen in a system that is broken. Can't be fixed.

Like your children and their bad spending behaviours, it is the behaviour that needs to change. Perhaps they have to sell something on Ebay or get more work to cover the bills. Perhaps countries need to sell something and produce more wealth creating jobs. I'm a parent, and, through experience, the cure for bad behaviour is not acquiessence. It is setting strict boundaries and keeping them. The Europeans had strict boundaries on debt (a limit of 3% deficits for each member country) but let the kids put their feet over the line. There are always consequences for breaking smart rules.

The fiat currency system is breaking down. The family finances are in a complete shambles. The parents and kids have run amock. If you own and have physical gold, be glad of a 5% correction. Buy more if you can. Don't be concerned that a 200 day moving average has been breached. When paper wealth is finally destroyed, what would you and your family rather own?

Gold in New Zealand dollars: $2082.020 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $38.55 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)

Gold and Silver: The Wobbles before the Crash?

2011-12-15T11:07:00.000+13:00

Gold and silver have had a marked sell-off this week. Various mainstream news commentators call this the blow-off of a precious metals market too far extended. Gold commentators are saying this is a sell-off of Lehman's proportions in the markets. Investors rushing to liquefy their assets and park it in USD cash. Just like after the Lehman's event in 2008.

Markets are deeply troubled with debt. No one knows value anymore. Trust is disappearing and counter-party risk is just too great to trade. You can smell the fear.

Here is an excerpt from Franklin Sanders:

We are seeing come to pass what I have long anticipated. Paper markets are unraveling. Now the very structure of the market itself must be questioned. In the bull market that peaked in 1980, paper (futures) prices drove silver and gold market. This time around, I think it will be more important to have actual physical possession, and that will means the physical price would be driving the market as the "real price", not the futures. We already saw that happen in the 2008 panic, when paper silver prices were 33% or more below physicals prices (physical silver carried a 50% premium over the paper price). Now, if some big entity that claims to have beaucoup silver stored suddenly goes belly up like John Corzine sent MFG belly up, well, who'll want "stored" silver then?

Here's an excerpt from James Turk over at King World News. His view is that what is happening now is a Lehman's in slow motion:

"Notwithstanding the enormous fallout from Lehman’s collapse and the disruption and distortions occurring in markets from all of the government interventions with their so-called ‘bazookas,’ the market structure itself was not questioned. Today is very different...The aftermath of the Lehman collapse was a liquidity scramble. So precious metals prices were hit back then as people needing liquidity threw out the baby with the bath water. They sold what they could sell, not necessarily what they wanted to sell. It was a great buying opportunity, and largely irrelevant to all long-term holders and accumulators of the precious metals.

This time I have been expecting a ‘fear event,’ with money rushing into the precious metals for safety, to avoid counterparty risk. Therefore, higher metal prices will be the result. [The Precious metals] price may go down, but the price of everything else would go down even more, so you would still be better off owning the precious metals. And even more importantly, physical gold and silver do not have a counterparty risk, so you never need to worry about the precious metals defaulting on some promise."

No matter what the price fluctuations, precious metals are the ultimate monetary asset and it looks like higher prices are coming. After all, can you imagine Ben Bernanke letting these defalting prices last too long before he calls in the QE?

Gold in New Zealand dollars: $2098.37 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $38.55 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)