Europe–Again

October 11, 2012

Just when many investors assumed that they could forget about Europe, news from across the Atlantic has cropped up again–and that news is not good.

The European Union has supposedly taken action to “solve” the fiscal, monetary and economic crises plaguing Spain and Greece, but the fact is, both countries are still in dire financial straits.

The unemployment report from Greece came in and fully 25% of Greece’s workforce is unemployed. There is only one word that can describe that sorry situation: DEPRESSION.

Meanwhile, in Spain, the news was no better.

Standard & Poor’s downgraded Spain’s credit rating two notches (again) to just one level above junk status. This will raise the cost of borrowing for Spain and is a reflection that past band aids put on by the European Union have not solved that nation’s problems.

What all this means to investors is that, though the financial world is oblivious now, it won’t be able to remain oblivious forever. And though right now investors are not seeking the safe haven of gold due to the European crisis, we can be sure that eventually they will.

It is best to accumulate safe havens BEFORE everyone else does!


Gold: Protection from Economic Turmoil and Military Crisis

October 9, 2012

JR Nyquist is a long-time respected observer of world affairs from an economic and financial standpoint. He has been writing on such subjects for some 15 years.

This week he has penned an informative analysis of various crises that are simmering around the world which could have a profound impact on the world economy and financial markets.

Paper assets provide virtually no protection from these exogenous factors. Gold is the crisis commodity that has historically protected wealth in such scenarios. But it is important that investors stay informed of these factors, which the mainstream media largely ignores…

http://www.financialsense.com/contributors/jr-nyquist/economic-turmoil-and-military-crises


IMF Warns of ‘Alarmingly High’ Risk of Deeper Global Slump

October 9, 2012

The International Monetary Fund is back issuing warnings about the global economy and investors best heed those warnings. The IMF may be controversial in many ways, but when it comes to the individual investor’s perspective, they don’t really have an axe to grind.

The IMF cut its global growth forecasts as the euro area’s debt crisis intensifies. This comes as a bit of a shock to many observers since the European crisis has been pushed to the back burner by the US presidential election and Middle East issues. This is a stark warning that Europe is still sick and not in recovery.

“Confidence in the global financial system remains exceptionally fragile,” the IMF said. “Bank lending has remained sluggish across advanced economies.”

What all this means to investors is that the global economy is fragile and when the economy is fragile, the financial markets are under duress as well.

That requires action, specifically acquiring investment assets that can provide a hedge against turmoil. Hard assets, particularly gold investments, are ideally suited for that purpose. And when it comes to gold investments, rare gold coins offer a unique combination of performance and security benefits.

http://www.bloomberg.com/news/print/2012-10-08/imf-sees-alarmingly-high-risk-of-deeper-global-slump.html


Central Banks Moving Into Gold

August 7, 2012

Punctuated by a sharp increase in gold holdings by South Korea’s central bank, world central banks are moving into gold, expanding their gold holdings in a major way.

What do these ultimate insiders know that the average investor doesn’t know? Central bankers have access to information and statistics that we are kept in the dark about. This makes their move into gold an important signal for the rest of us.

Do not dismiss South Korea as a minor player in the world economy and financial markets, they’re not. South Korea is an Asian economic juggernaut, with one of the fastest growing economies over the past quarter century.

More from Reuters:

South Korea buys gold; central bank purchases set to rise

South Korea boosted its gold holdings by nearly a third in July, buying 16 tonnes as
part of the central bank's efforts to diversify its massive foreign exchange reserves.

South Korea is Asia's fourth largest economy and its central bank said on Thursday that it now holds 70.4 tonnes of gold,
after paying $810 million last month for the purchase.
    
The increase barely lifted gold prices but supported expectations that central banks will remain gold's key buyer as
increased volatility in global markets and waning confidence in the U.S. dollar fuel a global drive to vary foreign reserves
away from the U.S. currency and government debt securities.
CENTRAL BANKS TO BUY MORE GOLD
    
The latest purchase was the third by the Korean central bank since June last year, when it started increasing its reserves
after leaving them unchanged for more than a decade. 

In the last 13 months, South Korea's gold reserves have grown five-fold but remain only a fraction of China's over 1,000
tonnes and Japan 765 tonnes, according to the World Gold Council (WGC).

Central banks bought 80.8 tonnes of gold in the first quarter, adding to 2011 purchase of more than 450 tonnes, the
WGC said. In recent months, a number of countries including Russia and Kazakhstan also increased their gold reserves, data
from the International Monetary Fund showed. 
"We have been of the view that we would increasingly see more diversification of reserves and investments into gold,"
said Chirag Mehta, gold fund manager at Quantum Mutual Fund in Mumbai, India. "This trend is likely to continue".

Two Possible Crises on the Horizon

July 16, 2012

There are two recent news articles recently published which point to two possible crises on the horizon for which investors better be prepared.

In both cases gold investments offer the best means of protection.

The first article comes from the Financial Times, which often places its articles behind a registration requirement so we will excerpt and summarize here…

Food crisis fears as US corn soars

Is the world on the brink of another food crisis?

It has become a distressingly familiar question. With the price of agricultural staples such as corn, soyabeans and wheat soaring for the third summer in five years, the prospect of another price shock is once again becoming a prominent concern for investors and politicians alike.

http://www.ft.com/intl/cms/s/0/ad1ec426-cd07-11e1-92c1-00144feabdc0.html?ftcamp=published_links%2Frss%2Fmarkets%2Ffeed%2F%2Fproduct#axzz20hO4WLRV

Essentially, what the Financial Times is warning us about is that the recent heat wave and drought conditions across much of America’s breadbasket threatens to bring us sharply higher food prices. Already we have seen the price of corn rise 44%, wheat 45% and soybeans 17%. This is similar to the type of price spikes which occurred in 2007-2008 when there were food riots in some 30 countries.
The food crisis in those days contributed to the economic crisis which touched off the worst bear market in stocks in a generation. It should be noted that the price of gold rose in both 2007 and 2008. This suggests that gold investments could provide a safe haven from any crisis that is touched off by this sudden development.
But the food crisis is certainly not the only crisis on the horizon and, while we all know about the tenuous situation in Europe, what many people do not realize is that America has severe debt problems of its own that could conceivably touch off a crisis not unlike what Europe is going through now. One key difference however is, if the US debt situation reaches crisis proportions, who will bail the US out???

Per capita debt in the United States is higher than in all — or at least some, depending on how it’s calculated — the European nations that have accepted bailouts to date.

Based on official 2010 International Monetary Fund data released earlier this year, the U.S. debt per capita is $46,208.

Here’s the same figure for the four European countries that have accepted bailouts.

Ireland: $41,906

Greece: $38,159

Portugal: $19,686

Spain: $18,162

It’s all too easy to dismiss warning signs such as this by assuming that the US is different or that our economy is too big and diversified for the debt situation to derail it.
Perhaps. But perhaps not. And even short of crisis, the US still needs to service its debt obligations, which are growing all the time. And one possible outcome would be a decision by Washington policymakers to service that huge debt burden with dollars cheapened by inflation. In such a scenario, gold would be absolutely vital to investors since the dollar would plunge in value and periods of high inflation have historically been bad for stocks and bonds.

Forbes: Somebody Has Been Buying A Bunch Of Gold

January 31, 2012
Great Speculations Buys, holds, and hopes
Investing | 1/30/2012 @ 5:43PM |2,051 views
Adrian Ash, Contributor

After the Fed’s latest zero-rate promise pushed gold back to the financial front pages, it’s worth asking who’s buying in bulk, and why?

There’s plenty of noise, for instance, about Chinese households buying gold during last week’s New Year holidays.

Away from the massed decisions of private investors and savers, gold holdings amongst the world’s central banks have quietly risen to a six-year high, according to data compiled by the International Monetary Fund.

“There’s a perception perhaps that gold is no longer a crucial part of the financial system in the way that it was under the gold standard before 1970, 1971,” as Marcus Grubb of the World Gold Council put it in an interview last week. “But in fact that’s not really true because even with the ending of the gold standard, gold remains as an asset held by the world’s central banks.”

A good chunk of this weaving is due to official reserves. As our chart shows, central banks control a shrinking proportion of what’s been mined from the ground. A far greater tonnage of gold again is finding its way into private ownership, and it’s having a greater still impact on how money and finance work.

First, private individuals have led the rediscovery of gold bullion as a financial asset, rather than the decorative store-of-value it had become by the close of the 20th century. Institutional finance has caught up, however, and gold is now in front of the Basel Committee on global banking, proposed as a “core asset” for banks to hold and count as a Tier 1 holding for their liquidity requirements.

Turkey’s regulators already acknowledged physical gold as a Tier 1 asset for its commercial banks starting in November, with the cap of 10% worth some 5.5 billion lira ($2.9bn) according to Dow Jones. Also, a growing number of investment exchanges, meantime, as well as prime brokers, now accept gold as collateral, posted as downpayment by institutions against their commodity and other leveraged positions. Just on Friday, London market-maker Deutsche Bank was added to the CME’s list of approved gold custodians.

Gold pays no interest of course. But in our zero-yielding world, that only puts it ahead of where the capital markets are being herded by central-bank policy anyway. Nor does gold have much industrial use (some 11% of global demand in the 5 years to 2011), a fact which highlights its unique “store of value” attributes. Being physical property, gold is no one else’s debt to repay or default.

Being globally traded, it’s deeply liquid and instantly priced. Turnover in London’s bullion market, center of the world’s gold trade, is greater at $240 billlion per day than all but the four most heavily traded currency pairs worldwide.

And being both rare and indestructible, it couldn’t be any less like “money” today.

Scarcely a lifetime ago, gold underpinned the globe’s entire monetary system. Outside China, which tried sticking with silver, the compromised and then bastardized gold standard which followed first World War I and then World War II still saw the value of central-bank gold reserves vastly outweigh the paper obligations which those banks gave to each other.

Even three decades ago, 10 years after the collapse of what passed for a gold standard post-war, central-bank gold holdings still totaled some three times central-bank money reserves by value. Look at the decade just gone – the 10 years in which gold investment beat every other store of value hands down. Pretty much every currency you can name lost 85% of its value in gold. Yet the sheer quantity of new money pouring into central-bank vaults saw their gold holdings only just hold their ground.

Gold’s rise, in short, has been buried under wood-pulp. To recover its share of central-bank holdings as recently as 1995 would now require a further doubling in value. To get back to the 1980s average would require a 15-fold increase. Or, alternatively, a 93% drop in the value of foreign currency reserves relative to central-bank bullion holdings.

Such a trend is not yet in train, neither on the charts nor the fundamentals. The US Dollar remains the biggest reserve currency, weighing in at 62% of stated reserves according to IMF data, down from its peak above 71% in 2001 but more than equal to its share in the mid-1990s. Even so, as former FT columnist and current ButtonWood at The Economist Philip Coggan writes in his latest book, Paper Promises:

“If Britain set the terms of the gold standard, and America set the terms of Bretton Woods [in 1944], then the terms of the next financial system are likely to be set by the world’s biggest creditor, China. And that system may look a lot different to the one we have become used to over the last 30 years.”

Coggan rightly notes that China isn’t the only large creditor, and nor does it hold anything like the dominance which the U.S. held at the end of World War II. Whether this switch starts today or only starts to show 10 years from now, the risk of such a change of direction can hardly be discounted to zero.

Repudiation of government debt, the form which most foreign currency reserves take, will only begin with the Greek bond agreement, perhaps leading first to a rise in U.S. dollar holdings but also highlighting the ultimate risk of holding paper promises. And that fear, of having to write off money thanks to default or devaluation, is clearly driving the rise in gold demand from central banks already.