Ben Davies of Hinde Capital “Gold is now the currency of first resort”

Key points:

1. Gold substantially undervalued compared to the amount of paper currency
2. Un-allocated positions are numerous, and dangerous
3. Central banks with more sophisticated managers are buying gold

UNITED NATIONS (Reuters) – A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.

“The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.

“Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,” it said.

The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

“A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,” the U.N. report said.

The report said a new reserve system “must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity — such as SDRs — to create a more stable global financial system.”

“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development,” it said.

MARKETS DECIDE

Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, told a news conference that “there’s going to be resistance” to the idea.

“In the whole post-war period, we’ve essentially had a dollar-based system,” he said, adding that the gradual emission of SDRs could help countries phase out the dollar.

Nobel Prize-winning economist Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, has advocated the creation of a new reserve currency system, possibly based on SDRs.

Russia and China have also supported the idea.

But Paavo Vayrynen, Finland’s Foreign Trade and Development Minister, told reporters that he doubted it was possible “to make any political or administrative decisions how to formulate the currency system in the world.”

“It is based on the markets,” he said. “I believe that the economic players in the market are going to have the decisive influence on that issue.”

European Union development commissioner Andris Piebalgs said it would be a bad idea to dictate what the reserve currency should be.

“It is markets that decide,” he said. “Any intervention would just create additional challenges and make things even less predictable.”

Article Source

Amid all the market doom and gloom, the world’s largest gold fund is quietly celebrating another major milestone: SPDR Gold Shares, an exchange-traded fund backed by physical bullion, has recently surpassed $50 billion in assets.

Driven by concerns over the euro zone sovereign debt crisis and a double-dip recession, investors have plowed $5.4 billion of net cash into the fund during the first five months. At the same time, gold prices have continued to set records – gaining 13.4% so far this year – helping boost the fund’s size.

As of Monday’s close, the fund -  boasts total assets under management of $53.3 billion.

The fund –  known as GLD because of its ticker symbol – now hoards a total of 1,316.18 metric tons of gold and rivals most of the world’s central banks. If GLD were a central bank, it would rank fifth – just below France and above China.

Gold’s safe-haven trait was in evidence again on Tuesday, as stocks were hammered globally and commodity markets were mostly a sea of red. Gold futures for July delivery eked out a gain of $3.8, or 0.3%, to settle at $1,242 per troy ounce at the Comex division of the Nymex.

Now, investors are holding their breath to see whether the gold fund can pass out the $75.6 billion SPDR S&P 500 to become the world’s largest ETF. The gap between the two ETFs – both run by State Street Corp. — has contracted sharply this year from $44.7 billion to $21.3 billion as gold prices have gained and stocks faltered.

Article Source

According to Shadowstats.com, we are clearly witnessing a massive collapse in credit and money:

Ben Bernanke needs fresh monetary blitz as US recovery falters

Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral.

By Ambrose Evans-Pritchard, International Business Editor

Fed watchers say Mr Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam. The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so.

Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts.

“We’re heading towards a double-dip recession,” said Chris Whalen, a former Fed official and now head of Institutional Risk Analystics. “The party is over from fiscal support. These hard-money men are fighting the last war: they don’t recognise that money velocity has slowed and we are going into deflation. The only default option left is to crank up the printing presses again.”

Mr Bernanke is so worried about the chemistry of the Fed’s voting body – the Federal Open Market Committee (FOMC) – that he has persuaded vice-chairman Don Kohn to delay retirement until Janet Yellen has been confirmed by the Senate to take over his post. Mr Kohn has been a key architect of the Fed’s emergency policies. He was due to step down this week after 40 years at the institution, depriving Mr Bernanke of a formidable ally in policy circles.

The Fed’s statement this week shows growing doubts about the health of the recovery. Growth is no longer “strengthening”: it is “proceeding”. Financial conditions are now “less supportive” due to Europe’s debt crisis.

The subtle tweaks in language have been enough to set bond markets alight. The yield on 10-year Treasuries has fallen to 3.08pc, the lowest since the gloom of April 2009. Futures contracts have ruled out tightening until well into next year.

Yet the statement may understate the level of angst at the Board. New home sales crashed 33pc in May to an all-time low of 300,000 after the homebuyer tax-credit expired, confirming fears that the housing market has been propped up by subsidies. Unemployment is stuck at 9.7pc. Manufacturing capacity use is at 71.9pc. The Fed’s “trimmed mean” index of core inflation is 0.6pc on a six-month basis, a record low.

“The US recovery is in imminent danger of stalling,” said Stephen Lewis, from Monument Securities. “Growth could be negative again as soon as the fourth quarter. There is no easy way out since fiscal stimulus has already been pushed as far as it can credibly go without endangering US credit-worthiness.”

Rob Carnell, global strategist at ING, said the Obama fiscal boost peaked in the first few months of this year. It will swing from a net stimulus of 2pc of GDP in 2010 to a net withdrawal of 2pc in 2011. “This is very substantial fiscal drag. On top of this the US Treasury is talking of a ‘Just War’ against the banks, which will further crimp lending. It is absolutely the wrong moment to do this.”

Kansas Fed chief Thomas Hoenig dissented from Fed calls for ultra-low rates to stay for an “extended period”, arguing that loose money risks asset bubbles and fresh imbalances. He recently called for interest rates to be raised to 1pc by the autumn.

While he has been the loudest critic, he is not alone. Philadelphia chief Charles Plosser says the Fed has blurred the lines of monetary and fiscal policy by purchasing bonds, acting as a Treasury without a legal mandate. Together with Richmond chief Jeffrey Lacker they represent a powerful block of opinion in the media and Congress.

Mr Bernanke has fought off calls from FOMC hawks for moves to drain stimulus by selling some of the Fed’s $1.75 trillion of Treasuries, mortgage securities and agency bonds bought during the crisis. But there is little chance that he can secure their backing for further purchases at this point. “He just has to wait until everybody can see the economy is nearing the abyss,” said one Fed watcher.

Gabriel Stein, from Lombard Street Research, said the US is still stuck in a quagmire because Mr Bernanke has mismanaged the quantitative easing policy, purchasing the bonds from banks rather than from the non-bank private sector.

“This does nothing to expand the broad money supply. The trouble is that the Fed does not understand broad money and ascribes no importance to it,” he said. The result is a collapse of M3, which has contracted at an annual rate of 7.6pc over the last three months.

Mr Bernanke focuses instead on loan growth but this has failed to gain full traction in a cultural climate of debt repayment. The Fed is pushing on the proverbial string. The jury is out on whether or not his untested doctrine of “creditism” will work.

“We are now walking on deflationary quicksand,” said Albert Edwards from Societe Generale.

Article Source

June 25 (Bloomberg) — BHP Billiton Ltd. and Rio Tinto Group financed a seven-week advertising campaign to end a mining tax in Australia. Instead, they got a new prime minister.

The ruling Labor party yesterday dumped Kevin Rudd, the architect of the tax, for Julia Gillard, who opened the door to talks on the proposed 40 percent tax that Morgan Stanley estimates would have taken A$85 billion ($74 billion) from the mining industry during the next decade.

“It’s amazing that one policy killed the prime minister,” Jason Teh, who helps manage $2.6 billion at Investors Mutual in Sydney. “The mining tax was a big thorn in the side for Rudd. I’m sure Gillard knows that and she will try to negotiate a better outcome to make herself look popular.”

Compromise may encourage producers to proceed with projects worth at least $21 billion that were stalled by Xstrata Plc and Fortescue Metals Group Ltd. By dropping the tax the government will need to cut spending to meet its goal of getting into budget surplus by 2013.

Gillard immediately ended the government’s A$38.5 million television and newspaper campaign backing the levy. BHP, the world’s biggest mining company, and Rio responded by suspending the advertising campaign against the tax, saying they are encouraged by Gillard’s invitation to talks.

“This looks to me like a circuit-breaker,” Owen Hegarty, vice-chairman of G-Resources Ltd. and a director at Fortescue, Australia’s third-largest iron ore exporter, said in an interview at Bloomberg’s Melbourne bureau. “The unpopularity of the previous prime minister was to do with introducing, slam- dunking, this penal resource super profit tax.”

Highest Rate

BHP dropped 2.1 percent to A$38.80 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio fell 3 percent, Fortescue slid 4 percent and Macarthur Coal Ltd. dropped 2 percent. The new leadership is more likely to alter than scrap the tax, Credit Suisse Group AG said today in a report, citing the influence of pro-levy unions.

“My priority is to deal with the mining tax, it has caused uncertainty,” Gillard, who has undertaken to call an election in coming months, told reporters today in Canberra. “I want to genuinely negotiate.”

She also met with Treasurer Wayne Swan, who has become her deputy, and Minister for Resources and Energy Martin Ferguson today to discuss talks with mining companies. Gillard, 48, said yesterday the parties need to reach a consensus on the tax.

Mining Row

“There is some prospect that she’ll drop the tax, which would effectively extinguish the row with miners,” said Rob Henderson, markets chief economist at National Australia Bank Ltd., the nation’s biggest corporate lender. “Or she may defer the tax until after the election with much greater consultation.”

Rudd, 52, stood down after refusing to relent on the tax, estimated to raise A$12 billion in the first two years from 2012, in the face of sliding support in the polls and mounting opposition within his own party.

“Mining is our strongest industry and it’s just been kicked in the guts,” said David Flanagan, chief executive officer of Atlas Iron Ltd., which is developing the A$3 billion Ridley iron ore project. “We are not going to get our mojo back until the government is prepared to negotiate all aspects of the tax.”

Under the Rudd proposal, miners will pay a 40 percent tax on all profits above a 6 percent return on investment on their projects in Australia, the world’s biggest shipper of iron ore and coal. The tax would give the nation the world’s highest tax rate for mining companies, according to the Minerals Council of Australia.

‘Positive Outcome’

Miners want the government to exclude existing projects, reconsider the trigger level and vary the rate for different minerals. Possible changes needed to make the tax work include an increase in the rate of return hurdle to a minimum of 10 percent and preferably 15 percent, as well as a reduction in the headline rate to 20 percent from 40 percent, Morgan Stanley said June 16.

“Gillard’s appointment is a positive outcome because the tax was too high at 40 percent,” Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about $10 billion, said in an interview with Bloomberg television. “Gillard will water down the tax, maybe to even lower than 20 percent.”

Gillard, who draws support from the Labor Party’s left wing faction, signaled the government won’t scrap the tax, saying “Australians are entitled to a fairer share of our inheritance, the mineral wealth that lies in our grounds.”

Felling Rudd

Morgan Stanley strategist Gerard Minack said Gillard was still likely to introduce a tax on resources profits after a negotiation process with the industry, given her close connection to Rudd’s policy decisions. “We will still get a super profits tax on the mining sector,” said Minack. “You can’t assume that a change in prime minister means that the tax gets dropped.”

Support for Rudd began to slide after he shelved the government’s carbon-trading plans in April, a key campaign pledge when he won office in November 2007. His popularity dropped further after the mining tax was announced May 2, retreating to 41 percent from 60 percent two months earlier, a Nielsen survey published June 7 showed.

“It was without a doubt the mining tax that felled Rudd – that people didn’t want it,” said Clive Palmer, Australia’s third-richest mining magnate with a A$3.92 billion fortune, according to BRW magazine. “The real issue is whether or not you should have a tax. That’s what we need to discuss, not the terms and conditions and how it’s supposed to be implemented.”

–With reporting by Rishaad Salamat in Hong Kong, Jacob Greber in Sydney and Kan Nishizawa in Tokyo. Editors: Keith Gosman, John Viljoen

Article Source

I had originally received a request from a GoldStockMania.com reader who goes by the user name, “SW”, to do a review on Anglo Far East Bullion and weigh in on if I thought they are a legitimate option for buying and storing allocated gold and silver bullion. I complied to the request and posted a review on Anglo Far East (AFE) on February 28th, 2010. Since then I have taken the liberty to open up an account and personally talk with the folks over at AFE. I have more information I would like to bring you up to speed on in my Anglo Far East Review, Part 2.

It took a while to get this second review together because I wanted to take some time to open an account and get some more experience with Anglo Far East before posting a follow-up review. I am glad I got the opportunity to do this because, it has given me the opportunity to get more familiar with the folks over at AFE and their services. The thing I like the most about AFE is that they believe what I believe about the physical gold market. What I mean by this is that, they are not providing custodial storage services just to make money or just because gold so popular these days. They are providing their services because they believe the in the fundamentals of gold and want to provide a safe and secure service to like-minded clients.

Before reading Part 2 of my review on Anglo Far East Bullion, you may want read my original Anglo Far East Review as I don’t want to repeat the same information I posted there.

Why use AFE or A Bullion Custodial Company?

Also, if you are wondering why anyone would want to buy and store their gold and silver with a bullion custodial company, then see my list of reasons why I use custodial services to hold my precious metals by clicking here.

If you are like me, then you realize there are risk if you personally hold all of your precious metals or let a professional company do this for you. I have come to reason, that it is better not to have all of your eggs in one basket, be it at home or with a professional storage company. I believe that if you pick the best bullion custodial companies to store some of your metals with, it is a much safer strategy than storing it all at home. You will have to decide on the percentages that make sense for you.

For example, you could split up your precious metals holdings into 3 different places; at home, AFE, and GoldMoney.com. If your crazy broke government decides gold confiscation is a good idea again and comes to your house and cleans you out, you still would have 60% stored over seas. So you would lose 30% versus all of it. This scenario also works out well if a thief breaks into your house and cleans you out too. I don’t want to worry every time I leave the house that the majority of my savings could be gone by time I return home. I rather have the piece of mine knowing my wealth is safely stored in multiple locations.

Another primary concern of mine is mobility, or lack of it. If I want to get out of the States quickly, I don’t see how I can do it with a bunch of physical metal in my possession. I can see them holding me up at the airport and not letting me through. If my metals are stored safely over seas, I can pick up and go quickly while still having access to my precious metals.

This really is no difference than trusting your current bank or banks to hold your money in an account. Someone may say, well the banks are insured. Guess what, so is AFE and GoldMoney.com. Also, I would not count on the FDIC too much, as they are out funds and are now tapping the US Treasury cover cost of failing banks. And of course the US Treasury, is borrowing money to pay for that and just about everything else from foreign investors and their magical printing press.

Now let’s get down to the business of this review.

Unadvertised Accounts:

It is free to open an account with AFE. In Part I of my review I discussed how AFE is primarily interested in servicing higher end clients which typically make large bullion purchases. While this is still true, what is not widely known is AFE’s unadvertised account programs. You can start a monthly Silver Savings and/or Gold Savings account for as little as $50/month for the silver savings account and $500/month for the gold savings account.

I opened up a monthly savings account to start a savings program for my 3 boys. AFE debits your debit/credit card once a month for the amount you specify. Just set it and forget it.

All Accounts Are Allocated:

One of the best things about Anglo Far East, is that they are in no way associated with the Banking Industry. None of AFE’s vaulting partners or other strategic providers are controlled or majority-owned by banks. This is by design, not by accident. AFE is completely insulated from banking industry risk. Why is this important?  As a client of AFE, you don’t have to worry that your precious metals are exposed to any encumbrances due to bullion bank lease agreements or from pooled accounts. Better yet, you can rest assured that your metals are owned only by you, as it should be.

AFE does not deal with “paper gold.” With Anglo Far East, you get 100% allocated gold and silver bars. AFE will not only provide you with the individual bar numbers of the bullion bars you own, but you can also rest safely in the knowledge that each bar is sight-verified by a top Swiss auditor and annually checked off against AFE accounts to ensure that your metal is locked away safely. If at any time you wish to take delivery of your metal, AFE will arrange to have bars shipped to you anywhere in the world.

End To End Good Delivery Status:

By now you may of heard about the fake tungsten filled gold bars that were discovered at a very large german gold refiner. Professionals can catch this type of fraud quite easily as the german refiner did. Fake gold has probably been around for almost as long as gold has been of value to man. If you are concerned about fake tungsten bars ending up in your hands, then pay attention to what follows. I don’t know about you, but I do want to own real gold! However, I don’t want to worry about buying fake gold as I don’t have the background or experience to probably catch every fake. Fortunately, there are people who do have the background, experience, and get paid to make sure my gold is real! Say hello to the professional LBMA circuit.

Anglo Far East has access to the LBMA system of refineries, vaults, and security providers. This allows AFE clients to maintain London “Good Delivery” status on your precious metals which ensures the authenticity of them as well. Anglo Far East purchases gold and silver directly from an LBMA refinery! This means that your metals are guaranteed to be real, since the gold & silver are directly poured, securely transferred to their LBMA vaults, and third party audited throughout the whole process. Real gold is poured gold, right. Your precious metals never leave the trusted LBMA circuit. Very few bullion custodial companies can make this claim.

Other AFE Benefits:

Time Tested: AFE is the oldest private bullion custodial company around. They have stood the test of time, while others have come and gone. “Anglo Far-East Bullion has been providing select international clientel the highest degree of privacy, security, and access to buy, hold, and sell allocated gold and silver bars.”

Privacy: I know many of my readers are very much privacy oriented as we all have a right to our privacy. I can’t of a better area to be concerned about your privacy, than where your you store your precious metals. AFE accounts are managed as numbered accounts in the Swiss private banking tradition. At no time does identifying information such as name and address appear on any account statement or your account documents.

Guaranteed market access and liquidity: “AFE buys and sells directly with LBMA-certified metal refineries only. In bypassing the commodities market exchanges such as the Comex and bullion banks, AFE provides clients a means of access to the global physical precious metals markets that may not be available to others should systemic issues in the bullion markets arise.”

Iron-clad governance: “By contract with AFE’s vaulting provider, no access may be made to the vaults without the attendance of an agent of the vault as well as an agent of the third-party signatory trustee, in this case top Swiss auditor Grant Thornton. All metal going into and — more importantly — coming out of the vaults requires the approval of a third-party signatory trustee as well as a detailed, sight-verified report of each bar and serial number by the auditor.”

What I Don’t Like About AFE:

I have talked a bit about what I like about Anglo Fare East. Now let’s look at what I don’t like about them.

This is not particular to just AFE, but to all bullion storage companies. You have to get use to the idea that your gold is safely stored miles and miles away from where you live. This is a great advantage and disadvantage. It is very similar to using a bank to hold your cash, but somewhat different.

I don’t want to sound nick picky, but AFE’s account panel seems a bit dated. It is functional and everything works, but it just seems a bit out of date an disjointed. This does not stop me from doing anything I need to do, but I would like to see the customer account panel updated to provide a better or more polished experience for customers.

Summary:

After talking with and personally dealing with Anglo Far East (aff) I have come away really impressed with their over all company, operation, and involvement with the gold and silver bullion industry. I feel that they are running a very private, safe, and secure operation. You always own 100% of what you purchase as it should be. AFE accounts are allocated, so your metals are real, accounted for, and belongs to no one but you.

You can get more information or open a free account at Anglo Far East by clicking here (aff).

If you have any questions or would like to share your experiences with Anglo Far East for the benefit of other readers, please leave a comment below.

Zero-Hedge says “watch for gold to plummet”…although this may be a bit pre-mature.

Subtanstial gold mines takes years to survey, and years more to bring to production, assuming there is a company willing to assume the risks of a war-torn area.

No…there are quite a few places where mining companies can operate without worrying about having workers captured and be-headed by a few lunatics in turbans.

I think it will be quite awhile, on the order of a decade, before the gold mines in Afghanistan affect the global gold price.

U.S. Identifies Vast Mineral Riches in Afghanistan

By JAMES RISEN

WASHINGTON — The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys.

The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists. The Afghan government and President Hamid Karzai were recently briefed, American officials said.

While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.

“There is stunning potential here,” Gen. David H. Petraeus, commander of the United States Central Command, said in an interview on Saturday. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”

The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion.

“This will become the backbone of the Afghan economy,” said Jalil Jumriany, an adviser to the Afghan minister of mines.

American and Afghan officials agreed to discuss the mineral discoveries at a difficult moment in the war in Afghanistan. The American-led offensive in Marja in southern Afghanistan has achieved only limited gains. Meanwhile, charges of corruption and favoritism continue to plague the Karzai government, and Mr. Karzai seems increasingly embittered toward the White House.

So the Obama administration is hungry for some positive news to come out of Afghanistan. Yet the American officials also recognize that the mineral discoveries will almost certainly have a double-edged impact.

Instead of bringing peace, the newfound mineral wealth could lead the Taliban to battle even more fiercely to regain control of the country.

The corruption that is already rampant in the Karzai government could also be amplified by the new wealth, particularly if a handful of well-connected oligarchs, some with personal ties to the president, gain control of the resources. Just last year, Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine. The minister has since been replaced.

Endless fights could erupt between the central government in Kabul and provincial and tribal leaders in mineral-rich districts. Afghanistan has a national mining law, written with the help of advisers from the World Bank, but it has never faced a serious challenge.

“No one has tested that law; no one knows how it will stand up in a fight between the central government and the provinces,” observed Paul A. Brinkley, deputy undersecretary of defense for business and leader of the Pentagon team that discovered the deposits.

At the same time, American officials fear resource-hungry China will try to dominate the development of Afghanistan’s mineral wealth, which could upset the United States, given its heavy investment in the region. After winning the bid for its Aynak copper mine in Logar Province, China clearly wants more, American officials said.

Another complication is that because Afghanistan has never had much heavy industry before, it has little or no history of environmental protection either. “The big question is, can this be developed in a responsible way, in a way that is environmentally and socially responsible?” Mr. Brinkley said. “No one knows how this will work.”

With virtually no mining industry or infrastructure in place today, it will take decades for Afghanistan to exploit its mineral wealth fully. “This is a country that has no mining culture,” said Jack Medlin, a geologist in the United States Geological Survey’s international affairs program. “They’ve had some small artisanal mines, but now there could be some very, very large mines that will require more than just a gold pan.”

The mineral deposits are scattered throughout the country, including in the southern and eastern regions along the border with Pakistan that have had some of the most intense combat in the American-led war against the Taliban insurgency.

The Pentagon task force has already started trying to help the Afghans set up a system to deal with mineral development. International accounting firms that have expertise in mining contracts have been hired to consult with the Afghan Ministry of Mines, and technical data is being prepared to turn over to multinational mining companies and other potential foreign investors. The Pentagon is helping Afghan officials arrange to start seeking bids on mineral rights by next fall, officials said.

“The Ministry of Mines is not ready to handle this,” Mr. Brinkley said. “We are trying to help them get ready.”

Like much of the recent history of the country, the story of the discovery of Afghanistan’s mineral wealth is one of missed opportunities and the distractions of war.

In 2004, American geologists, sent to Afghanistan as part of a broader reconstruction effort, stumbled across an intriguing series of old charts and data at the library of the Afghan Geological Survey in Kabul that hinted at major mineral deposits in the country. They soon learned that the data had been collected by Soviet mining experts during the Soviet occupation of Afghanistan in the 1980s, but cast aside when the Soviets withdrew in 1989.

During the chaos of the 1990s, when Afghanistan was mired in civil war and later ruled by the Taliban, a small group of Afghan geologists protected the charts by taking them home, and returned them to the Geological Survey’s library only after the American invasion and the ouster of the Taliban in 2001.

“There were maps, but the development did not take place, because you had 30 to 35 years of war,” said Ahmad Hujabre, an Afghan engineer who worked for the Ministry of Mines in the 1970s.

Armed with the old Russian charts, the United States Geological Survey began a series of aerial surveys of Afghanistan’s mineral resources in 2006, using advanced gravity and magnetic measuring equipment attached to an old Navy Orion P-3 aircraft that flew over about 70 percent of the country.

The data from those flights was so promising that in 2007, the geologists returned for an even more sophisticated study, using an old British bomber equipped with instruments that offered a three-dimensional profile of mineral deposits below the earth’s surface. It was the most comprehensive geologic survey of Afghanistan ever conducted.

The handful of American geologists who pored over the new data said the results were astonishing.

But the results gathered dust for two more years, ignored by officials in both the American and Afghan governments. In 2009, a Pentagon task force that had created business development programs in Iraq was transferred to Afghanistan, and came upon the geological data. Until then, no one besides the geologists had bothered to look at the information — and no one had sought to translate the technical data to measure the potential economic value of the mineral deposits.

Soon, the Pentagon business development task force brought in teams of American mining experts to validate the survey’s findings, and then briefed Defense Secretary Robert M. Gates and Mr. Karzai.

So far, the biggest mineral deposits discovered are of iron and copper, and the quantities are large enough to make Afghanistan a major world producer of both, United States officials said. Other finds include large deposits of niobium, a soft metal used in producing superconducting steel, rare earth elements and large gold deposits in Pashtun areas of southern Afghanistan.

Just this month, American geologists working with the Pentagon team have been conducting ground surveys on dry salt lakes in western Afghanistan where they believe there are large deposits of lithium. Pentagon officials said that their initial analysis at one location in Ghazni Province showed the potential for lithium deposits as large of those of Bolivia, which now has the world’s largest known lithium reserves.

For the geologists who are now scouring some of the most remote stretches of Afghanistan to complete the technical studies necessary before the international bidding process is begun, there is a growing sense that they are in the midst of one of the great discoveries of their careers.

“On the ground, it’s very, very, promising,” Mr. Medlin said. “Actually, it’s pretty amazing.”

Article Source

More printing = higher gold price.

Fannie And Freddie Money Pit May Suck Down $1 Trillion Of Taxpayer Cash

Bloomberg checked in on the state of Fannie Mae and Freddie Mac, the two once-quasi-private mortgage subsidy companies that are now almost wholly owned by taxpayers.  Bloomberg found that Fannie and Freddie have already drawn down $145 billion in their unlimited line of taxpayer credit, and that their losses could ultimately be as high as $1 trillion.

To put that in context, Fannie and Freddie alone may consume more than the entire TARP Wall Street bailout, which was in the neighborhood of $800 billion.  Fannie and Freddie’s taxpayer-money-vaporization will likely dwarf even that of AIG, which most people still consider the most appalling bailout beneficiary of all.

Just as bad, Congress isn’t even pretending that it has a plan to stop the losses at Fannie and Freddie. Reducing the Fannie and Freddie losses would mean reducing a huge housing-market subsidy–and that’s the last thing Congress wants in an election year.

Also, the Fannie and Freddie losses are functioning as a back-door Wall Street bailout: Fannie and Freddie are using the taxpayer cash to buy mortgages from Wall Street, and they are paying prices so high that they’re taking a loss.

It’s certainly tough to decide what SHOULD be done about Fannie and Freddie, because just disbanding them immediately would likely have a negative effect on the housing market and economy.

But it doesn’t seem to much to ask to demand that Congress at least come up with a plan.

Article Source

You can download this report in PDF format here: http://www.research.gold.org/supply_demand/

Observations:

Average mine production over the last 3 years is 2484 tonnes, while average global demand is 3612.1 tonnes.

Miners closing out hedge books continues to subtract from overall global supply, with miners closing 254 tonnes of hedges off their books in 2009 ($9.8 Billion with gold @ $1200)

Official sector sales (Central Bank Sales), has dropped for 3 years in a row, with only 41 tons of sales in 2009. It is important to note, that this area of supply has historically been in the area of 500 tonnes per annum, and Central Banks halting sales of gold leaves a large hole in the supply equation, that is only now being taken up by recycling gold scrap.

The gold scrap industry is booming. From 2007 to 2008, there was a 334 tonne year over year increase in gold scrap recycling, which is roughly $12.87 Billion with gold @ 1200 /ounce. From 2008 to 2009, gold scrap supply increased yet again by another 352 tonnes year over year, which is roughly another $13.58 Billion year over year from 2008. Total gold scrap supply in 2009 was 1668 tonnes.

We have considered that perhaps this is what is paying for those MC Hammer commercials.

Summary:

Overall supply has actually been increasing due to increased scrap recycling and a lower amount of net hedge reduction.

Overall demand for jewelery and industrial (electronics and dental) use has been falling. Total fabrication demand for industrial and use in jewelery has gone from 2882 tonnes in 2007, to 2632 tonnes in 2008, and finally as low as 2132 tonnes in 2009. This continued drop in industrial demand does not reinforce the idea that the US or other economies are in a recovery.

The investment demand category has been consistently increasing year over year, and now is approaching as much as jewelery demand, coming in at 1323 tonnes for 2009.

Official coin sales have increased consistently over the last 3 years, from 134.6 tonnes in 2007, to 187.3 tonnes in 2008, and finally 228.5 tonnes in 2009.

The fascinating thing is the trend in ETF type vehicles, which in 2009 for the first time in history surpassed all other investment demand at 617 tonnes (approximately $23.8 Billion), compared to 472 tonnes for bar and coin retail.

GLD ETF added record tonnage in a single day. According to Adam Hamilton of the Zeal Speculator,

“May 25th, GLD made one of its biggest bullion buys ever. Differential buying pressure on this vehicle from stock investors was so intense that GLD had to add 30.4t,taking its total holdings to 1267.3t.”

This is the equivalent of 977,390 troy ounces, or $1.172 Billion dollars worth of bullion in a single day.

Note: the largest increase in the ETF demand category came in Q1 of 2009, right after the Q4 2008 near collapse of the global financial system. It is possible we will see another large increase following the ECB bailout of the Euro in Q1 2010, although Q1 2010 ETF demand seems to have fallen off a cliff from previous quarters in 2009.

Total investment in nominal terms for 2009 was approximately $51.05 Billion.

The Wall Street Journal’s War On Gold

by Gary Northby Gary North

Brett Arends writes for the Wall Street Journal. He is a standard Establishment financial journalist. They are all anti-gold. I have read these people for 50 years. They never change. Their arguments never change: stupid. Their timing never changes: bad.

They ignore gold when it is at the bottom. They ignore it when it has doubled. When it has tripled, they write articles on why it’s not a good investment, because it is overbought. When it has quadrupled, they call it a bubble.

Arends takes anti-gold hackery to a new level. He calls gold a Ponzi scheme.

Gold was $105 in 1976. It peaked at $850 for one day in January 1980. If there was a Wall Street Journal series on why you should buy gold, 1976 to 1979, I do not recall it.

Arends is writing a 3-part series for the Wall Street Journal, which has been anti-gold for all of my lifetime. That the Wall Street Journal runs a series of anti-gold articles is about as innovative as a New York Times editorial opposing a Federal budget surplus.

The case for a gold coin monetary standard is simple: no one should trust the United States government or the Federal Reserve System to maintain the purchasing power of the dollar. Since 1914, the dollar has declined in purchasing power by 96%. As Casey Stengel used to say, you can look it up. Unlike Casey, I’ll show you where to look it up. Here.

The case for gold as an investment is different. First, it is an inflation hedge over long periods of time, though not necessarily in the medium term, e.g., 1980–2001. Second, it is a crisis hedge when the international capital markets are in turmoil. (So, for that matter, is the U.S. dollar.)

Gold is not a deflation hedge. It was for the whole world in 1930–33, when it was a price-controlled commodity that the Treasury would buy for $20 per ounce. It was for central banks and foreign governments, 1934–1971, when the Treasury would buy it for $35 an ounce. It is no longer.

There is a legitimate case against a rising price of gold in U.S. dollars over the next few months, based on the recent move of the Federal Reserve System, in conjunction with the Treasury, to shrink the FED’s balance sheet (monetary base), which has been in progress for the last few months. You can see this here in a chart published by the St. Louis FED.

To understand Brett Arends, you must read his article, line by line. To help you do this, I will provide a running commentary. Note: I took on Milton Friedman on this issue on numerous occasions. Brett Arends is no Milton Friedman.

Let us begin.

A SAD, SAD DAY

The article begins: “This is a very sad day for me.” I hope to make it sadder.

In Part One of this series, when I argued that gold might be about to go vertical, I made a whole bunch of new friends among the gold bugs. And now I’m going to lose them all.

That’s because even though I think gold might be about to take off, I don’t recommend you rush out and put all your money into gold bars or exchange-traded funds that hold bullion.

This is rhetorical trickery. It is indulged in by hacks who have a hidden agenda, but who don’t want to reveal it. It is also indulged in by wishy-washy non-forecasters, who want to cover their behinds when the market goes against them – either way, up or down.

First, he uses the word “might.” “Gold might be about to take off.” He wants to cover his backside when it does. After it does, he can say to any critics, “See? I said it might take off.” Well, whoopdy-doo. The issue is this: “When did you tell people to buy? At what price? And how much?”

I told people to buy in October of 2001, just after 9-11. Bill Bonner, my publisher, told people to buy in 2000. You could buy gold at under $300 back then.

Anyone who recommended gold after it cleared $400 an ounce is a Johnny-come-lately.

Second, notice this rhetorical flourish: “I don’t recommend you rush out and put all your money into gold bars or exchange traded funds that hold bullion”

Hack alert! Hack alert!

He creates a stick man: someone who says to put all your money into gold bullion bars (400 oz). Who is this someone? Who can afford 400 oz bars at $1,200 an ounce?

I don’t know any pro-gold columnist who recommends that you rush out and put all your money in American eagle gold bullion coins.

OK, I did this in 1999. I put 90% of my money into gold coins. I sold half of them when it peaked in the third week of March 2008. I called that peak within 24 hours after the peak at $1,033. I warned my subscribers that gold and silver would fall. This is a matter of public record. Both metals fell. I figured in 2008 that when you make 300% on your investment, and you think it has peaked, it’s time to take some profits. But I never told my subscribers to put 90% of their money into gold. I was crap-shooting in 1999.

I won. Yes, I should have stayed in, but I’m conservative. I go by Jimmy Napier’s rule: “When someone puts a million dollars in your hand, close your hand.” Also, I told my subscribers not to sell their coins, only non-coin gold.

I wonder what Mr. Arends’ track record is with respect to gold. I wonder what percentage of his portfolio is ever in gold or has ever been in gold. I think I know.

And this is for one simple reason: At some levels, gold, as an investment, is absolutely ridiculous. Warren Buffett put it well. “Gold gets dug out of the ground in Africa, or someplace,” he said. “Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

Warren Buffett was merely quoting Milton Friedman, who used the identical argument. Friedman hated the idea of a gold standard for most of his career. For a good summary of his war on gold, read Hans Sennholz’s obituary of him.

Sennholz taught me monetary theory in 1962. I have always taken his side against Friedman’s position of fiat money.

Friedman argued that gold as a monetary standard is wasteful. The Wall Street Journal repeated it in an editorial in 1969. I replied to that argument in 1969, in an article titled “Gold’s Dust.” I argued that gold has a major economic function: restraining governments and central banks from inflating. You can read it here.

Warren Buffett has been in a lifetime revolt against his father’s political legacy. His father was the Ron Paul of the late 1940s. There have only been two gold-standard libertarians in Congress over the last century: Howard Buffett and Ron Paul. Warren Buffett has always rejected his father’s position.

So has the Wall Street Journal.

Here is my objection to the Journal: its long-term hostility to the idea of a gold as a legitimate and viable monetary system. This hostility to gold is basic to the acceptance of the modern fractional reserve banking system. It is basic to the acceptance of central banking. It is hostile to the idea that the masses should control monetary policy through a full gold coin standard, which is established by the free market and enforced through the law of contract. The Journal may run an occasional article on gold as a potential money-making investment (money defined as fiat dollars), such as this one, but the Journal has long maintained its support of a fiat money standard.

Arends goes on: “And that’s not the half of it. Gold is volatile. It’s hard to value. It generates no income.” This is another standard cliché against gold. Gold is volatile. Right. So is the stock market. So are commodities in general. So what?

“It’s hard to value.” It is? You mean the commodities market’s moment-by-moment pricing of gold is hard to value?

“It generates no income.” What commodity does?

Land pays no dividends.

Arends knows all this. He offers this as an excuse.

Yes, it’s a “hard asset,” but so are lots of other things – like land, bags of rice, even bottled water. It’s a currency “substitute,” but it’s useless. In prison, at least, they use cigarettes: If all else fails, they can smoke them. Imagine a bunch of health nuts in a nonsmoking “facility” still trying to settle their debts with cigarettes. That’s gold. It doesn’t make sense.

Are you beginning to sense that two of this guy would not make a halfwit?

We are not in prison. We are outside prison. If we have gold, we have a marketable asset. It is liquid. Land isn’t. We can sell a tenth-ounce gold coin. How do we sell a bag of rice? How do we sell a carton of cigarettes?

As for being a “store of value,” anyone who bought gold in the late 1970s and held on lost nearly all their purchasing power over the next 20 years.

Quite true. And anyone who bought it in 2000 has quadrupled his money. Tell me about the Dow, which is down since 2000. Tell me about the NASDAQ, which is way, way down. See for yourself.

Did the Wall Street Journal tell people to get out of the stock market and into gold in March of 2000? No? Did it at least tell them in February and March 2000 that the market was a bubble? I told my subscribers that it was. The NASDAQ peaked the week they received my March REMNANT REVIEW warning them.

I get worried when I see people plunging heavily into gold at $1,200 an ounce. What if the price goes back to where it was just a few years ago, at $500 or $600 an ounce? Will you buy more? Sell?

I can see him, worrying about this. So, so worried. He is about as worried about this as I am about the anti-gold hacks’ pension funds at the Wall Street Journal when gold is at $3,000 and the Dow is at 3,000.

“My concerns about gold go even further than that.” They do? Will wonders never cease! “Let’s step inside the gold market for a moment.” Yes. Let’s.

Everyone knows the price has risen about fivefold in the past decade. But this is not due to some mystical truth or magical act of levitation. It is simply because there have been more buyers than sellers. Banal, but true – and sometimes worth repeating.

Banal, and not at all worth repeating. Banal because the anti-gold hacks never told investors to buy, all the way up. They missed the boat. If these guys knew anything about gold, they would tell readers to buy close to the bottom. They never do. Why pay any attention to them when they say it’s too high?

“More buyers than sellers.” Is this what it takes to earn a paycheck at the “Wall Street Journal”? When it comes to writing hit pieces against gold, it is. It has been for over 40 years.

The relevant question is this: WHY have there been more buyers than sellers (at yesterday’s price)? What has happened in the international markets that persuaded buyers to bid up gold’s price? Did they have a better sense of what would happen to the euro and EU finances than the experts at the “Wall Street Journal” did? (Note: that is a rhetorical question.)

“If the price rises you’d think there must be a shortage.” Not if you understood gold, you wouldn’t.

Most of the gold that has been mined for over 2,000 years is still above ground, either in someone’s vault or on someone’s wife. The marginal increase in production affects the marginal price. The question is not shortage. The question is this: the supply offered for sale to the general public compared to the demand offered by the general public.

If the price rose, then there was more demand than supply at the 2000 price. Or was Adam Smith wrong about this supply and demand thing?

“But data provided by the World Gold Council, an industry body, tell a remarkable story.”

Over that period the world has produced – or, more accurately, recovered – far more gold than anyone actually wanted to use. Since 2002, for example, total demand for gold from goldsmiths and jewelers, and dentists, and general industry, has come to about 22,500 tonnes.

Say, that really is remarkable. All those gold buyers out there were buying more gold than – and I quote – “anyone wanted to use.” That is so remarkable that it calls into question one of two things: (1) economic theory, or (2) the reasoning ability of Brett Arends. You know which answer I select.

“But during the same period, more than 29,000 tonnes has come on to the market.” First, no one knows how much has come on the market through central banks’ gold leasing, which is not reported as sales, when in fact it is sales.

The surplus alone is enough to produce about 220 million one-ounce gold American Buffalo coins. That’s in eight years.

Arends ignores Indians’ purchases. He ignores Chinese purchases. He ignores central bank purchases. He focuses on American coins, which hardly any Americans buy (sadly). The market for gold is the bullion market (central banks), the jewelry market, and the ETF market.

“Most of the new supply has come from mine production. Some, though a dwindling amount, has come from central banks.” He does not know this. GATA has been trying to get this information for 11 years.

And a growing amount has come from recycling old jewelry and the like being melted down for scrap. (This is a perennial issue with gold. I never understand why the fans think gold’s incredible durability – it doesn’t waste or corrode – is bullish for the market. It’s bearish.) So if supply has consistently exceeded user demand, how come the price of gold has still been rising? In a word, hoarding.

Hoarding! The horror! There are people out there who hoard gold. But how many? There are very few coin stores. There are very few active buyers of gold coins. If people are buying 400 oz bars, they are people with a whole lot more money than staffers at the Wall Street Journal possess. They are people who are very rich, very savvy, and with a lot of wealth to protect. They have allocated a small percentage of their wealth in gold bullion.

Mr. Arends, as a salaried writer in a dying industry, thinks of how much gold costs in relation to his salary and his future pension. Gold is so expensive!

Not if you are a Saudi prince, it isn’t.

Gold investors, or hoarders, have made up all the difference. They are the only reason total “demand” has exceeded supply.

Tell me why this principle of demand does not apply to every investment category. He used the word “investors,” as well he should. People buy and hold, hoping the price will go up. What an amazing concept!

Lots of people have been buying gold in the hope it would rise. But the only way it can rise is if still more people buy it, hoping it will rise still further. And so on.

And are we to believe that this does not apply to every stock, every bond, and every asset reported on by the Wall Street Journal?

This man is treating his readers as if they were economic imbeciles. If his readers continue to take him seriously after reading his article, then they really are economic imbeciles.

What do we call an investment scheme where current members’ returns depend entirely on new money brought in by new members? A Ponzi scheme.

There are hacks. There are also confused people who are in way over their heads. And then there are morally corrupt deceivers.

A Ponzi scheme is an arrangement in which the seller of an investment says that the investment will earn a high rate of return, all on its own. Then he uses the income from later buyers to pay off the early ones. It is totally corrupt. It is fraud. It is also illegal, except when done with the Social Security system and Medicare trust funds.

There can be asset bubbles. They are governed by the greater fool theory of investing. But a bubble is not a Ponzi scheme. Either Arends is morally corrupt or else he is an ignoramus who cannot distinguish a bubble from a Ponzi scheme. You decide.

Yes, as I wrote earlier, gold may well be the next big bubble. And that may mean there is big money to be made in speculation. But I don’t trust it as an investment.

I don’t trust the analytical ability of Brett Arends. I suggest that you retain the same skepticism.

How can you square this golden circle? I’ll tell you in Part Three.

I can hardly wait. I will get another shot at this incompetent hack.

CONCLUSION

In my book, The War on Gold, which I offer for free, I wrote about this sort of anti-gold journalism. I have been at war with it for over 45 years. I will have lots of opportunities to fight more of these battles, hopefully with people of greater intellectual firepower than Brett Arends.

The newspaper industry is dying. Hacks like Mr. Arends will have to find gainful employment doing something more productive. But the war on gold will go on. It will go on for the same reason that it has gone on: a high-level hatred of the public’s attempts to shield themselves from the monetary destruction being engineered by central banks and governments.

For a copy of The War on Gold, click here.

May 29, 2010

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.