Originally the regulators, the Committee of European Banking Supervisors (CEBS), were only to look at the biggest European banks but they expanded the list to include 91, after there were some worries over some medium sized banks.  Collectively these 91 banks represent 65% of the European banking sector and the number and size of banks vary from country to country but must be at least 50% of each countries banking sector.

The failure rate was lower than expect as many experts predicted that as many as 12 would fail. Of the seven that failed 5 were from Spain (Diada, Espiga, Bianca Civica,Unnim and Cajasur, one from Germany (Hypo Real Estate) and one from Greece (ATEBank).

By conducting these tests it was hoped that international confidence would be restored to help finance economic recovery and to overcome the worry that European banks were either not strong enough to withstand a double dip recession or have large exposure to countries that might default on their debts. Also to identify any vulnerable bank so steps can be take to strengthen them. The aim is to continually test out the resilience of banks in the EU periodically and undertake a continuing program of improvement.

The banks were tested in scenarios where different assets might fall significantly in value, such as the collapse of a property market and if this resulted in losses so great that the banks capital was wiped out, then insolvency would result. E.g. if a loan cannot be recovered the bank writes down its capital by the amount of the loss and the investors take that loss and if the banks assets cannot repay all of its borrowings then insolvency follows.

The banks that failed will have to agree a plan over given time period to resolve their shortcomings.  The five Spanish banks to fail were regional savings banks with heavy losses due the downturn in the Spanish property market, but savings banks have been undertaking a restructuring process by the Bank of Spain so the overall picture in Spain is was considered sound.

The British Bankers Association said that work had already been  put in to strengthen UK banks and the four major UK banks RBS, Lloyds, HSBC and Barclays exceeded the standards set.  Also tested and passed was the Spanish giant Santander who own Abbey, Bradford and Bingley and the Alliance & Leicester in the UK, as was the Bank of Ireland who provide the banking services for the UK Post Office.

There are market concerns as although the EU set the parameters for these tests, they were conducted by national regulators who may have been lenient on their own banks. The test is against a ratio of tier one capital (capital of the highest quality) which is a core measure of the banks financial strength and a measure of insurance against loss. The trouble is that some of the forms of capital used in the test proved useless against losses in the recent crisis, thus the measure is more favourable to the bank. This pales into insignificance against the real problem with these tests and that is there is no test against sovereign debt, which is what brought us to crisis with Greece on the verge of bankruptcy.  So this appears to be more of a political exercise, as the EU will not even contemplate that a country within it, would default on its debt

However, the test that confidence has returned will be if today, the interbank lending market makes it easier for banks to borrow.

Read full report and results

Maurice Hall

During World War II the British sovereign was the only tangible and reliable currency in Greece and they were hoarded and hidden in every conceivable place. A girls dowry would often include a cache of sovereigns.  They were parachuted in to fund the Greek resistance to the German occupation. War is a crisis but now the Greek population face the crisis of being unable to repay its debts and once again they turn to the sovereign as the currency of choice.

It is remarkable and a tribute to the sovereign that it remained legal currency long after the war due to the unstable drachma until eventually in 1965  the Greek government placed restrictions on trading resulting in many hoarders cashing in their stocks. Even so at the slightest hint of uncertainty, and there have been many, the Greeks turned to their favourite foreign gold coin.

Greece has not really had a true period of financial stability for decades and markets are wondering whether they will default on repaying their debt given past behaviour  so the uncertainties  are understandable. The population is in panic resorting to strikes and riots and fear that Greece may leave the eurozone.

Once again  have returned to their known safe haven, the sovereign, as a hedge against financial collapse causing the the demand to increase year on year and the price to rise dramatically. For weeks citizens have been queueing at Athens central bank to buy sovereigns and have been prepared to pay the highest prices. It is estimated that in the first 4 months of the year 50,000 sovereigns were sold legally and as the demand increased so did the black market  and at least 100,000 were sold illegally with price up to €300 (£252).  The uncertainty and fear has driven people to pay a huge premium of almost 40% over the current value of the gold content to protect their wealth.

Without doubt the British sovereign has been the gold coin that has world wide recognition as mechanism for survival  whether it be a financial or physical crisis – see our article “Gold sovereigns open doors”

Maurice Hall

There are two camps of how to return the UK economy to growth and reduces our heavy debt, spend and cut or simply cut. What ever your personal view the new coalition government has decided that we will swallow the austerity pill with drastic cuts.  This has gone down well and the pound is at its strongest against the euro since November 2008 and the euro itself strengthened after the European central Bank has tightened monetary conditions.

We have seen a pull back in the gold price, but is this down to austerity which is the new buzz word in the UK and Europe. So as we start to live within our means does that mean that the need for gold as an insurance is weakened ?. We are rightly entangled in European economics as this is what affects our daily lives, but we found in 2008 that greed and subsequent collapse in America created an economic crisis in Europe, the worse since 1929 and the great depression. We are still feeling the affects and the steps taken to pump the economy lead to unprecedented sovereign debts and the collapse of economies in southern Europe. However, gold is intrinsically linked to the dollar so nothing has changed as the US try and spend there way out of the downturn, print more money to devalue the currency and have huge sovereign debt.

In the UK with CPI above 3% and more significantly the RPI above 5% it is virtually impossible after taxation  to get a ROI that does not lose money over the year. So that combined with economic fragility that could still lead to contagion means the case for gold is still strong.

What we are seeing is the seasonal adjustment that has been running for the last 40 years.  Gold has followed both seasonal and super cycles for decades and we are in the summer adjustment as predicted by my article on this blog in March (When is a good time to buy gold ?). However, gold has been stronger than my prediction by more than $100 per ounce, driven by more exposure to the fragility of world economies and unprecedented demand.  In fact we reached the end of year high I predicted before going into the summer recess so I would expect the price to now rise in Q4 to beyond $1300.  Traditionally investors who bought in summer made money by selling in Q4 a simple short term gain that has been repeated time and again.  Look also to the supercycle where the cycle and the seasonality meet in Q4 2011 and expect at least $1500 per ounce for the longer term investment.

The case for gold has not weakened and now is the time to buy gold the bull has a long way to run. Think also about ROI as gold and particularly legal tender gold coins (sovereigns and Britannias) stand out as a way to beat inflation and taxation. We have the best conditions in the UK for investing in gold coins no VAT or TAX applied.

Maurice Hall

In June our sister site (L’Or et l’Argent) has run a series of articles that follow the theme of a “house of cards” starting with Greece whose only resources, tourism and olive oil are not enough to lift them out of bankruptcy and a similar situation in Portugal. The next contagion is Spain, an economic giant in comparison, where unemployment is rife and debt would reach €225 billion in 2010. Although Spanish debt continues to grow, it remains lower than France which is the largest in the euro zone. Outside of the Euro Great Britain is cited as a contender for a “house of cards” following austerity measures announced at the budget and the marginalisation  of the GBP as we through national pride refused to join the eurozone.

This is an interesting take from a European prospective and draws attention to the two trains of thought in economic growth. The 2008 economic crisis still affects us today, we in the UK and most of the western world are in an era of fragility that needs to be stabilised. We could attempt to spend your way out of it as and stabilise growth before taking cost cutting measures as was the policy of the labour party or cut back immediately and risk stifling any growth. Meanwhile across the Atlantic Barack Obama seems to believe that the US can just spend their way out of it and print more dollars.

To me, if likened to a house hold, first you must recognise your debt and here in the UK we have gigantic debts to overcome, then you must take action. Spending on plastic has its day of reckoning and eventual you must cut your card in half, review expenditure and come up with a budget  that enables you to pay essential bills  and gradually repay your excesses with money saved. The economy of the country is no different, to improve your credit rating you cut wasteful spending, improve efficiency and live within means to gradually ease the sovereign debt. Austerity measures in the UK seems to have won respect in world markets as GBP has risen both against the Euro and the USD and the FTSE 100 has recovered to over 5100. More importantly the economy has grown marginally in the manufacturing section.

I have to say I have been pro Euro particularly when we could have joined in a position of strength but now I am in many ways glad we are still separate. Despite the Euro’s recent rally there is too much of a divide between the countries in the Euro zone, the efficient North and the chaotic South to the extent that the Germans would like to get out of the Euro as they feel they do not want to support the fragility of countries in crisis such as Greece, Spain, Portugal, Italy.

Do not the French and other eurozone countries recognize that the cost of pensions will drive many countries to bankruptcy. When many Europeans look at the UK, they scoff particularly at the raising of the pension age that is likely to reach 70 over a period of time.  There average ages of retirement age varies but in most countries people retire in their fifties and in Italy and France only 12%  are working beyond 60 years old.

Citizens should realise that there is a pensions time bomb with the average continental EU state pension equating to almost 60% of salary and with a much longer period of retirement, governments cannot afford it and it will drive many countries to bankruptcy.  A recent survey of 25 countries scored the UK highly and the affordability and sustainability of our pensions and France at the bottom. Those countries with such generous pensions and early retirement ages simply can no longer afford them and it will drive them to ruin. There needs to be a massive reformation, not only to increase working age  but to reduce the actual value, which would be so unpopular that one wonders if the their governments have the guts to take the action necessary.

In another time we should be screaming at our government at the unfairness of our pensions which are the lowest in Europe but with the aging population, the ratio of workers to pensions set to double and the current crisis we are in a stronger position to survive than our neighbours. Meanwhile proposals to raise the retirement age in France have typically been met with mass protests for what is a diminutive step to fight debt.

I am not suggesting by any means that there is reason for complacency in the UK situation and there is still danger of stalling economic growth as the cuts bite deeper but at least we have recognised the seriousness of sovereign debt while other bury their heads in the sand.

In the fragile countries of the eurozone, where sovereign debt could precipitate a financial collapse and even  in countries that fear the contagion, people are turning to gold as a protection and nowhere more so than in the strongest economy, Germany, where there is unprecedented investment in gold. In Britain we do not have a history with private individuals turning to  gold but rather we might buy a gold coin for commemorative purposes.  We are fortunate that we have so far not suffered hyper inflation, major currency devaluation or physical invasion so we do not hoard gold or in general even understand how gold can protect family wealth even though we have some of the best conditions in the world for gold investment. No VAT, no Capital Gains Tax on legal tender gold coins and up to 40% tax relief if we use gold within a Self Investment Pension Plan (SIPP). We need to save more to pay for our retirement and make wise investments, diversify our portfolios, utilise SIPPs and last but not least be aware of the potential of gold to protect our wealth.

Maurice Hall

The worlds largest gold coin, the $1,000,000 Canadian Gold Maple Leaf was sold in Austria’s prestigious Dorotheum  auction house on Friday 25^th June for over 4 times its face value  at  the Friday gold spot price fetching €3.27million (£2.68 or $4.02).  The coin had been on display in a Vienna museum as part of its coin display, lent by an Austrian Investment group AvW who went into insolvency after the owner and CEO was arrested on suspicion of fraud and breaches of trust. The auction was ordered by the administrators and was acquired immediately through a written bid by a Spanish gold trading company Oro Direct based in Madrid. They now join an exclusive club of owners of the five coins produced including Queen Elizabeth, whose face is on the coin, unidentified investors in Dubai and another so reclusive that their whereabouts is unknown.

The coin weighs 100Kg of 99.999 percent pure gold, the purest on the market, and is 53cm (21 Inches) in diameter and 3 cm thick.  The coin was struck by the Royal Canadian Mint to gain entry into the Guinness book of records for the world’s largest gold coin. The record was previously held by the Austrian Mint who produced fifteen €100,000 coins weighing 31.1kg (1000 troy ounces) to celebrate the 15^th anniversary of their world famous Philharmonics coin.

The Royal Canadian Mint says it takes about 6 weeks to make each one of these huge coins, which are made through an extremely high quality casting process. The real reason they made these coins was to draw attention to the new “Five 9s” standard of purity for the regular Maple Leaf issues and the record was secondary The RCM is proud to be able to offer the “finest and purest gold coins in the world.” In fact, it was the RCM that set the “Four 9s” standard back in 1982, which many countries who issue gold bullion coins have caught up with, costing the RCM market share.

Whilst undoubtedly the coins were produced as a form of extremely expensive marketing and spectacle appeal they have been an extremely good investment as when launched in May 2007 the gold spot was around $660 and to day that has risen to around $1250 and as the coin weighs 3215 troy ounces I make that a profit of around £1.9 million in 3 years.  Over a period of financial crisis where the stock market dropped dramatically and  traditional saving cannot beat inflation the coin has done very well indeed, hammering home the message to preserve some of your wealth in gold.

Maurice Hall

The Gold Train is a mystery emanating from WWII but the almost mythical  status developed because of the secrecy particularly in the USA. In reality it is story of horror, mass murder, theft and greed not revealed until Bill Clinton created the Presidential Advisory Commission on Holocaust Assets in the United States and had become a symbol of all that was lost by Holocaust victims

We begin in Hungary where prior to the war almost one fifth of the population was Jewish and had been integrated into the countries fabric. The government was increasingly sympathetic to fascism and gradually tightened laws against the Jews eventually the Arrow Cross party became the fascist government of Hungary. As the war went badly for Germany things got worse and with the Soviet Army only 100 miles from the border Hitler launched an invasion of Hungary in March 1944.

Until 1944 the Hungarian government had not cooperated with the Nazi but this all changed as the facist dominated government were eager and willing to collaborate and the SS saw the opportunity to continue their work of mass murder to solve the Jewish problem. Consequently the estimated population of 800,000 Jews were forced to hand overall of their valuables to government official including gems, gold, jewelry, gold coins, silver, wedding rings in fact anything of value. With typical efficiency everything was bagged, boxed and identified with receipt given to the owners.

After handing over their valuables the majority of Jews at a rate reaching 12,000 per day were shipped off to the concentration camps of Auschwitz-Birkenau where most never survived.  Meanwhile the Hungarian authorities resorted all the confiscated valuables into categories destroying the identification of the original owners but the inventory was fairly exact.

Car from the Gold Train

By December 1944 the Red Army were on the outskirts of Budapest and a decision was made to evacuate the Jewish booty and this was supervised by a Hungarian Árpád Toldi, the commissioner of Jewish affairs appointed by the SS. The valuables, estimated at around $5 billion in today’s terms, were packed into  a 42 car freight train that was designated for Germany. As the train moved slowly westwards through Hungary and Austria. Toldi bought off bands of marauding troops with small batches of loot but large amounts of gold and precious stones were off loaded into  trucks along the route and stories of Nazi gold  springing up all along the route ensured the  “Gold Train”  became one of the many myths of Nazi treasure.

However, the majority of the loot ended up in allied hands. Toldi  had two trucks loaded with valuables and they headed towards the French zone where they were seized by French troops at St. Anton. According to a report written by the Central Board of Jews in Hungary and referring to available reports at the time the trucks seized by French troops contained:

31    cases of gold

2        case of gold coins

3        cases of gold watches

8        cases of brilliants

2        cases of selected brilliants and Pearls

The French returned these valuable to Hungary but they did not reach the hands of any remaining owners or relations, but were mostly were stolen by the communists.

The Gold Train eventually fell into the hands of the United States Army nesr the town of Werfen in Austria in May 1945 and according to the Central board contained the following:

10              45kg cases of gold

1                100kg cases of gold coins

18              35kg case of gold jewels

32              30-60kg cases of gold watches

1560          cases of silver of different weights

1                case of silver bricks

1                trunk of currencies and brilliants

100            artistic picture

3000          Persian carpets

2                wagons of mixed valuable

American soldiers guarding the gold train

The Central Board of Jews and the Hungarian government were aware that the majority of the contents were in American custody and passionate pleas for them to return the valuables to Hungary, where they could be returned to their rightful owners or surviving family members, were continually ignored. Despite the clear country of origin ownership,  Americans decide that the contents were  ownerless property and that it should be sold for the benefit of non-repatriable  refugees who could be accessed through the International Refugee Organization (IRO). It is a matter of fact that some of the property from the train ended in the possession of high ranking US Army officers but the majority was sold off through US Army exchange stores in Europe and the remainder auctioned off in New York in 1948  with proceeds going to the IRO.  Approximately 200 paintings seized from the train should have been returned to Hungary but they came into possession of the Austrian government and disappeared to this day they have not surfaced.

As a result of Bill Clinton’s creation and subsequent freedom of information in 2001, there was a lawsuit against the United States government. This was filed by Hungarian Holocaust survivors in a Florida district Federal Court for the government’s mishandling of the assets on the Hungarian Gold Train. In 2005, the government reached a settlement worth $25.5 million. The money was allocated for distribution to various Jewish social service agencies for the benefit of Holocaust survivors. Hungarian Jewish survivors did not receive any money directly so justice was not seen to be done.

Árpád Toldi

There was gold, gold coin, jewelry and precious stone that did not end up in allied hands, spirited away by Toldi during the long  journey and the amount returned to Hungary, from the French. that was stolen by the communists and ended up in Russian hands.  The trail has disappeared  leaving many unanswered questions, the most important of which where is the gold now ?.

Toldi himself tried to enter Switzerland with a convoy of trucks but was turned away at the border. After hiding for some time in the French zone he gave himself up to the French authorities and led them to some bags of precious stones.  After a few months detention he was released and then disappeared. It is rumored that he lived under the protection of high ranking French officials but not substantiated.

This is a terrible story where thousands of people lost their lives and their wealth. Could it happen today, unlikely, but less unlikely is a family losing its wealth through crisis.   If a family were to put aside some of its wealth in the form of tangible assets in a safe haven, such as well documented vault in a stable country such as Switzerland, then there is a strong chance of surviving that crisis

Maurice Hall

I was listening to a programme on BBC Radio which is always an informative station and my ears pricked up on a discussion on the 2009 Bordeaux vintage which is reputed to be the best in 60 years.  I like wine very much but the grand Grands Crus of Bordeaux which have long catered for the discerning tastes of the elite in the western world are beyond my means. However, I thought it would be an interesting to understand why the wines are so great and if I had a rush of blood to the head and splashed out, what would be the best value for money. To my surprise there was little in the way of comparison of the various producers but a great deal on the destination of the very best of French wine

From the baroque tasting room of Chateau Mouton Rothschild, to the grand hall of the Union des Grands Crus, Chinese delegations declared their intent to siphon off huge quantities of first growths, the very best wines.  The price of the first growths are likely to cost £4000 per 12 bottle case and even as high as £1000 per bottle.  According to the Chinese importers money does not seem to be a problem and Lafite-Rothschild is said to be the tipple of choice for the Chinese industrialist.  Private companies are soaring and property values are rising fast so people have a lot of money.

You may wonder why I am writing about wine on a blog whose main interest is gold. Whilst critics were in raptures with the top wines from Haut-Brion, Margaux and Latour it seems to matter little to the Chinese consumer who are reported to glug their wine or dilute even the most expensive bottles with lemonade. The reason is one of economics, no longer do these famous vintages end up in the cellars of the rich in the western world and particularly recession hit America; but they have become prestigious gifts amongst Chinese business people.

Throughout history, all great powers have their day Egyptian, Greek, Roman. More recently countries such as Spain, France, and Great Britain all had periods of unrivalled power. Today, the United States still reigns as the world’s sole superpower but it is on the brink and is being credibly challenged by rising powers in Asia, India and more importantly China who have designs on world financial dominance. It is a process that will have huge implications for investors over the coming years. It is no surprise India is the greatest consumer of gold and China the largest producer.

The balance of power is swinging eastwards. First the West exported industrial plant to Asia leading to investment in technology in the East which coupled with a cheap workforce produced a number of startups. Their cost effectiveness captured markets normally supplied from the West and eventually western domestic markets were flooded by cheaper imports leading to a decline in the manufacturing base and vast trade deficits. Now we find our selves in a situation where we are even being financed by the East. Iconic UK brands MG and Jaguar are Chinese owned and the new Californian bullet train was not only funded by money borrowed from China but built by a Chinese company.

Sovereign debt is threatening the fabric of western society and dragging down our currencies. It reminiscent of the 1930s as austerity measures have been running in Ireland fore some time, problems in Greece and Spain have lead to strikes and a general strike is threatened in Italy. Portugal is in the same mould as Spain and Italy, later additions to the EU from former Eastern Europe are in great difficulty particularly Hungary, France has to tighten its belt and Germany is in a domestic struggle over the Euro. Outside the Euro zone, the UK debt is of a greater GDP of all but Spain and its only because our repayment has a longer time span that we are not in quite the same mess as Greece. If the June budget does not show sufficient promise to bring down our deficit our triple –A rating maybe under threat.

So how does the American superpower stand?. The economy is the country’s top concern, with persistently high unemployment the greatest threat the public sees. Eight of 10 Americans rate joblessness a high risk to the economy in the next two years, outranking the federal budget deficit, which is cited by 7 of 10. An increase in taxes is named as a high risk by almost 6 of 10. Fewer than 1 in 3 Americans think the economy will improve in the next six months….Only 32 percent of poll respondents believe the country is headed in the right direction, down from 40 percent who said so in September.” (Bloomberg).

The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress. ( Reuter 8^th June). Economic contraction will continue with record numbers of foreclosures, personal bankruptcies, the highest rate of unemployment with millions more jobs to be lost as purse strings tighten.

Going back to the origination of this theme if Chinese businessmen can afford to mix lemonade with £1000 bottles of Bordeaux to impress friends and associates then there truly has been a swing to the East and that is where the demand for Gold will be driven. Currently the USD is the reserve currency but as power is being challenged so is the dollar as  both Russia and China are pushing for alternatives where gold may play a part.

Read the china Gold Report on this blog

Maurice Hall

Every culture or civilisation has a period termed its “golden age” and for India that was between the fourth and sixth century, the Gupta dynasty which covered most of modern India. The Guptas were prolific minters of gold coins and some of great beauty. The coins were named the dinara after the Roman denarius aureus- a reflection of Indian trading contacts with the West and the export of Roman coinage as bullion to India. However they were not a copy of Roman coins but completely Idianised and closely followed the concept of a universal monarch or ideal ruler. The original coins adopted the standard Roman weight of 8 grams but this was not very acceptable so the Guptas minted coins in a standard Indian weight called Suvarna around 9.2 grams. It must me remembered at this time the three world powers were the Roman Empire , the Byzantine Empire from  modern day Iran and the third the Indian Empire under the Guptas

We are at a period of time where religion in India was at a crossroads and the Guptas  were said to be responsible for patronizing a new temple based religion recognized as Hinduism. However, Kamuragupta  ( AD415-455) still practiced ancient Vedic rituals

Commemorating King Kumaragupta's horse sacrifice

Normally gold coins would feature the king or ruler on the obverse of the coin but this coin of King Kumaragupta I features a magnificent tethered stallion ordained with banners and ribbons. It symbolises the ashvamedha ( horse sacrifice) the Vedic ritual of legitimizing the conquests of a honourable and pious king. The reverse features the queen with ritual instruments for the ceremony. The Sanskrit around the rim says “King Kamuragupta the supreme lord who has conquered his enemies”

The Ashvamedha could only be conducted by a king. Its object was the acquisition of power and glory, the sovereignty over neighbouring provinces, and general prosperity of the kingdom. This was immensely expensive and is usually only performed once in  a Kings life time.

The horse to be sacrificed must be a stallion, and it is ritually purified and the sacrificer whisper mantras into its ear. The horse is then set loose towards the North-East, to roam around wherever it chooses, for the period of one year. Anyone who should stop the horse is ritually cursed, and a dog is killed symbolic of the punishment for the sinners. If the horse wanders into neighbouring provinces hostile to the sacrificer, they must be subjugated. The wandering horse is attended by a hundred young men, sons of princes or high court officials, charged with guarding the horse from all dangers and inconvenience but manly to stop it mating thus keeping it pure.

Reverse with the queen and ceremonial instruments

After the return of the horse, more ceremonies are performed. It is and bathed and anointed with ghee by the chief queen and two other royal consorts. The chief queen anoints the fore-quarters, and the others the barrel and the hind-quarters. They also embellish the horse’s head, neck, and tail with golden ornaments.  The king performs the sacrifice with a golden Knife. It concludes with the eulogy “May this Steed bring us all-sustaining riches, wealth in good kine, good horses, manly offspring”

First Indian Coins

Based on the available evidence today, it appears that the concept coins as means of trading (money), was developed by three different civilizations independently and almost simultaneously. Coins were seen in Asia minor, India and China in 6th century BC. Most historians agree that the first coins of world were issued by Greeks living in Lydia and Ionia around 650 BC using Electrum a natural alloy of gold and silver . However some historians have suggested that coins were minted in India as long ago as the 8^th Century BC.

What is beyond doubt that the first coins of India were minted just before 5th century BC in central India. Archaeological evidence confirms that the Indians were minting coins between 5th to 6th century BC. Coins are also mentioned  in ancient literature from 500 BC.

The Indians love of gold continues to this day as the world number one consumer of the precious metal.

Maurice Hall

Grading is probably the most controversial and by far the most important area of coin collecting and there are almost no grading guides for world coins. Grading issues have caused disputes between buyers and sellers since collecting begun and will continue to do so for ever more. Grading coins accurately is a skill acquired in time and after looking at many similar/identical coins in all ranges of condition. Many coins fall in between grades, and so terms such as ‘nearly VF’, ‘good VF’, ‘gem BU’ are encountered. The numerical system (1 -70) popular in the USA is not common in Europe but it does allow greater flexibility within key grades. We should bear in mind that their grading system is more generous than that of the UK. E.g. the lower ranges of Almost Uncirculated ( AU50 – 57) allows for some wear which is not acceptable in the UK, so care is needed. There are also differences between European countries where FDC (Fleur De Coin) is used to describe an uncirculated coin but in the UK, FDC is a perfect coin that could only be attributed to the best of proofs and is equivalent to the to the top number on the American system (MS70) and is rarely found

We are not numismatists and our concern is only with gold and silver coins as an investment so the grade is not as critical as it is for a collector of rare coins. Nevertheless the condition of a coin is important and numismatists agree that in most cases the condition of the coin is more important than its rarity.

There are key grades and grades between these grades so it is often easier to start with buckets, Circulated, Almost Uncirculated and Uncirculated.

The coin should be graded on its weakest side, look for overall wear and loss of design detail such as strands of hair, feathers or coats of arms.  Detecting wear can be made more difficult where relief is low particularly applicable to coins of Edward VII and George V

Some tips for sovereigns

The majority of Sovereigns since 1820 contain Benedetto  Pistrucci’s fantastic engraving of St. George slaying the dragon and there are some high points that can indicate wear.  Look at the helmet above the eye this is the first place wear occurs, the strap across St George’s chest, the fingers on the hand, signs of wear on the reins, relief of the sword against the flank. This reverse covered a number of monarchs on the obverse. In general look for detail of the ears on males and hair on females.

Look at the example below of a 1918 Halfcrown. With examination under magnification the slightest rubbing can be seen on the ear, cheek and moustache. A very nice coin but not Uncirculated

1918 Halfcrown AU (About Uncirculated) American AU58-59

KEY GRADES

I have listed the Key grades below with some sample coins of various denominations to give an idea of grading but please remember this is subjective and maybe variable in the eyes of the expert who would examine with magnification.

Poor: A very worn coin but better than a smooth disc. Inscriptions worn off, date illegible, only outline of design visible. Such coins are generally of no value to a collector.

Fair: A heavily worn coin but date and denomination legible, type recognisable. Very little detail visible , worth no more than the metal value

Penny Fair American F2

Good (G): (sometimes Mediocre) Inscriptions and date considerably worn but legible. Generally worth no more than the metal value

Very Good (VG): Considerable wear over the whole coin, and high spots worn through. Coins in this or the previous grades are really only collectable if extremely rare and generally worth no more than the metal value

Fine (F): Worn over whole area, but only the highest spots are worn completely through. Some of the hair volume should be visable but not individual strands (US Grade about VF)

Farthing F (Fine) American F12-14

Very Fine (VF): Detail clear, but obvious evidence of limited circulation. High spots worn but detail remains. More hair detail is evident and also detail of other designs. Traces of mint lustre may linger amongst the letters of the inscription. (US Grade about XF)

Sixpence VF (Very Fine) American VF25-30

Extremely Fine (EF): A coin with little sign of being circulated. Slight wear on high spots on close inspection, and all other detail clear and sharp with minimal scratches and marks. Much mint lustre may remain. (US Grade about AU)

Half Penny EF(Extremly Fine) American XF40 - 44

Almost Uncirculated (AU): Not quite in Uncirculated condition could be down graded because of heavy bag marks, edge knocks or other undesirable feature but without the slight wear that determine it to be EF, would usually contain more than half of its mint luster.

Florin gEF (Good Extremly Fine) American AU About Uncirculated AU55

Uncirculated (UNC): No wear, although it is possible for the design not to be fully struck up in the minting process. Not perfect as there may be bag abrasions and knocks through mass production. The coin should have most of its mint luster present. Older coins may be tarnished or toned.

Shilling UNC ( Uncirculated) American MS60-62

Brilliant Uncirculated (BU): There will be no visible signs of wear or handling and ideally no bag marks.  Usually implies full mint lustre, in other words no toning or tarnish.

Half Penny BU (Brilliant Uncirculated) American MS67-69

FDC: (Fleur de Coin) Perfect mint state, with no abrasions or marks, and full lustre. Usually applied to proof coins only, as coins intended for circulation are in contact with others during production.

Penny FDC (Fleur De Coin) American MS70

Proof: Not a condition, but the coin has been struck using specially prepared dies and polished blanks, and the minting process has been carried out usually twice with extra pressure to ensure the die is filled. A characteristic of proof coins is that they have very sharp edges because of the high pressures used to ensure that the metal flows into all details of the design.

All the above photographs are by courtesy of Wybrit British Coins

The table below attempts to show in detail the Key Grades in bold and grades in between

Maurice Hall

TG-Gold-Super-Markt, a company based in Reutlingen, southwestern Germany, has developed a machine to dispense pieces of gold as small as one gram.

A prototype was launched in the summer of 2009 in Frankfurt Airport where many passengers queued to buy one gram, 5 gram or 10 gram bars. The machine was linked to the internet to update the gold value every few minutes to provide the lowest possible price The idea is to undersell the small group of banks and dealers who dominate the gold market in Germany  and make it convenient for anyone to transfer Euros into tangible gold

CEO Thomas Geissler announced then that they would be ready to delivery the first commercial machines in a few month time to potential buyers in Asia, the Middle East, Britain and the U.S. He said he came up with the idea of gold dispensers in 2008 and was  convinced by a heightened interest in gold as a hedge against inflation as the financial crisis rippled around the globe.

“People do not believe that the worldwide financial changes will have a good end,” Geissler said. “So I say give the people what they like to buy.”

Gold to Go vending machine

The demand in Frankfurt was brisk enough to install a more sophisticated machine in the lobby of Abu Dhabi’s emirate Palace hotel. The exterior of the machine is coated with a thin layer of 24-carat gold. Customers using the unusual ATM can choose from many items, including gold customized with logos.

One,five and ten gram gold bars were available and other options including a Maple Leaf Five Canadian dollar coin and a Kangaroo Fifteen Australian dollar coin. Both represent about one tenth of an ounce of gold and the price is updated in real time based on the gold value.

The margins are lower than those offered by banks but fluctuate at about 20 per cent higher than market prices.

The vending machines are easy to use and a virtually burglar and tamper proof and can be adapted to produce personalized logos

The company’s business plan is to install up to 200 gold ATMs world wide.

Maurice hall

In the credit crisis of 2008, gold went down with everything else. Gold stocks were hammered as the world deleveraged. But gold and gold stocks were also among the first to rise from the ashes. They made their low in November 2008, while the major Western stock indices carried on declining until March 2009.

Gold was not the safe haven it was touted to be. However, this only reflects what was happening in the paper markets of stocks, futures and exchange-traded funds (ETFs).

In the ‘real world’, bullion dealers reported unprecedented activity. Such was global demand, that there was a Krugerrand supply crunch in South Africa; the US Mint was unable to supply gold and silver coins; and Tony Baird of Baird & Co, one of the UK’s main dealers, confessed to me that he could have had ten times the number of people working for him and still not have had enough staff.

And something similar is happening again today.

Germans are buying up gold fast

The FT ran a story on Saturday, headlined: ‘Germans lead gold rush frenzy’. It seems Germans are panicked by the inflationary implications of last week’s €750bn eurozone bail-out. They have been buying up gold coins and small bars at a faster rate than during the Lehman bankruptcy of autumn 2008. Krugerrands are now commanding a premium of about 8% above the spot price of their gold content.

“We have some extraordinary sales to German customers,” says Deborah Thomson, treasurer at the Rand refinery in South Africa. “The refinery,” writes Jack Farchy in the FT, “which usually sells 2,000 coins to each customer at a time, says that last week it received an order from one German bank for 30,000 coins. Another bank requested 15,000 coins”.

We seem to be threatened with another bout of deleveraging. But this time, unlike in 2008, gold has remained strong in the futures markets. In fact, it is sitting at a vital inflection point. Against the euro and the pound, both of which have been exceptionally weak, gold has gone near parabolic and has long since broken out to all-time highs.

Here we see gold against the pound. It costs nearly £850 an ounce – it was just £570 last summer.

And here is gold versus the collapsing euro:

Against the US dollar, however, it is trading at or barely above the all-highs of December 2009 at $1,224 an ounce.

The futures markets are where the price of gold is, largely, determined.

If I was a futures trader – and I’m not – I would be long gold (betting on the price to rise) in the belief that it could easily go parabolic from here, as has happened in euros and pounds when it broke out.

But, assuming that I have enjoyed a nice run, I wouldn’t want to give too much profit back, so I would also have my stops very tight, perhaps at just below $1,220 (near the old high). If not there, I might have them just a little lower, a little beneath the $1,200 mark.

Other traders might not think like me, but there is the danger, in my opinion, that just a small sell-off here could easily trigger a load of stops and drive the price down.

Why would gold sell off?

But why would gold sell off, given the circumstances? Well, for several reasons. First, sentiment – as demonstrated by the Germans – is wildly bullish. It is hard to find a gold bear out there. That is often a bearish sign.

Second, gold’s move has not been confirmed by silver. Silver, trading at $19 an ounce, is still $31 off its all-time high of 1980, and $3 – or 15% – off its more recent high of $22 set in spring 2008. I know silver has, for various reasons, a tendency to be rather, shall we say, errant, but like me at school, it should be doing better.

Third, gold’s move has not been confirmed by the gold stocks. These are still trading below their highs of March 2008 and December 2009. Perhaps that makes them a buy here, but purists like to see gold stocks leading gold.

Fourth, open interest on the futures exchange is extremely high, with the commercial traders short a worrying 282,644 contracts. These are often levels concomitant with a top.

Now, I am not calling a top here by any manner of means. I remain wildly bullish about gold in the long-term and think we are eventually going to go back to some kind of botched gold standard as the only solution to this ballooning monetary crisis that just won’t go away.

And in the event of ‘another bout of 2008′, I don’t think gold will be hit so hard. What was a credit crunch largely in the private sector is now morphing into a full-blown sovereign currency crisis. That should be bullish for gold.

But as I noted above, there are some grounds for ’short-term concern’, and it doesn’t do any harm to be aware of them.

A report by Dominic Frisby London 18th May 2010

We are well aware of France as the leading gold hoarder in Europe both in the central bank with second highest reserve and by private citizens who are reputed to have over 3000 tonnes in private hands. French gold is mainly in the form of gold Napoleons widely distributed as safe haven for family wealth. Whereas Italy is a consumer of gold whose jewellery industry is the world’s leader a tradition that goes back to Roman times; but they are not lacking in gold reserves either.  It is certainly worth exploring the Italian gold situation.

Central banks

The gold bullion stored beneath Rome’s Palazzo Koch stands at 2,451.8 tonnes, the fourth  largest central bank hoard in the world, just behind France as third in Europe. It has been unchanged at 2,451.8 tonnes for the last 11 years or more making Italy the only Eurozone nation not to sell any of its gold reserves since 1998. It’s also the only signatory to the Central Bank Gold Agreements of 1999 and 2004 not to sell any gold either. Italy’s fellow CBGA signatories, in contrast, have shrunk their gold reserves by more than one quarter on average.

Central Bank Holdings

Country                      Tonnes

USA                            8133.5

Germany                     3412.6

IMF                             3217.3

France                         2487.1

Italy                            2451.8

Gold Jewellery

Italy has a large jewellery industry contributing to a considerable portion of Italy’s economy and is located in the regions of Veneto, Toscana, Lombardia, Lazio and Piedmont. About 45,000 workers engaged in this sector and there are two major clusters located in Vicenza and Arezzo where there are over 2500 companies employing around 22,000 workers.

Fine Italian gold jewellery in both its handmade and mass manufactured designs generally continues to hold the lead in customer appeal for a variety of styles and products. Many Italian gold designs reflect hundreds of years of influence while still appealing to those who value trendy style, romance and quality. The country remains as largest producer of gold jewellery in the world and its exquisite designs date back to the fifth century. Over 400 tons of the precious metal a year is processed and shaped into beautiful bracelets, necklaces, earrings, rings, medallions, broaches and other items that are worn with pride by both men and women in every corner of the globe.

The home of the country’s first goldsmith organization is in Vicenza and dates back to the early 1300’s. From that time until the present, artisans have passed the trade down to subsequent generations. The city is also known to produce the best machinery for producing precious metal chains used in some of the finest pieces world wide. Combining machinery and handcrafted techniques, a goldsmith may produce only approximately 12 inches a day of chain to be later fashioned into necklaces or other finished pieces.

This technique takes years to learn and goldsmiths who achieve success in the art of chain production in Vicenza produce products that are adored by many jewelry connoisseurs.

Italy has faced substantial competition from lower-cost manufacturing centers in China, Turkey and India in recent years and its fabrication has declined. Its domestic market has suffered too as consumers, against the background of a sluggish economy and increased competition.

Despite this, Italy remains the undisputed leader of fashionable and high quality jewellery design and the city of Vicenza hosts the leading trade fair each year. This is not a position of complacency  as Turkey has the skill, a growing market is determined to overtake Italy  While demand for basic products is declining, that for more innovative and high quality pieces is now showing healthy growth.

Vincenza Oro’s fair for yellow gold remains a high selling point, and this year’s fair paid tribute to the market with Gold Expressions, a collaboration between the World Gold Council, the Vincenza fair, and sixty-nine premier Italian goldsmiths. The exhibit featured new and creative works (almost all in yellow gold) by the goldsmith artists invited to participate. The works are now scheduled to tour the China, the Middle East, and the United States as part of an international marketing campaign

The sector is coming from a very long and deep recession. The demand for gold and jewellery in 2009 recorded a steep fall of about 18% at world level with very marked downturns in the United States (-17%), in the Arab countries and in Europe. The sole sign of solidity came from the Chinese market where there was a 12% increase in the demand for gold and 8% growth in jewellery.
The forecasts indicate a market recovery for 2010, the scale of which will however be linked to the performance of the economy in the various parts of the world.

Gold Expressions is a collaboration between the World Gold Council, the Vincenza fair, and sixty-nine premier Italian goldsmiths. The  tour of China, India, the Middle East, and the United States as part of an international marketing campaign was successful particularly in the worlds greatest market, India, where the quality has attracted the new rich Indians.

Italian Gold Coins

20 Lire Victor Emanual

Italy for a large period of time was in the form of a number of states with different governing bodies, because of which various kinds of coins as currency were used. However, “fiorino d’oro” or the gold coins of the republic of Florence were probably the first European coin to be made and used in larger quantities. The time of the birth of the first Italian gold coin is estimated to around 1252. This gold coin had approximately 3.5 grams of gold content. Apart from fiorino d’oro, many other famous gold coins used as currency were ducat, scudo d’oro and sovranos. Italy began using the currency Lire from 1861 and were in production until 1940. The most readily available of modern Italian gold coins is the 20 lire of Victor Emanuel and Umberto 1

Italian Gold Coins as a safe haven

The Italian gold coins have now attained the status of being a collectors’ item. People buy and sell these coins and investors take them as safe investments because of rising prices of gold. Whilst the economy of Italy is not in such a dangerous state as Greece, it is incorporated in the Southern European euro demise.  An Economy Ministry document trimmed the forecast for 2010 gross domestic product growth to 1.0 percent from 1.1 percent and slashed the 2011 forecast to 1.5 percent from 2.0 percent. As fears grew of contagion from Greece’s debt crisis to other euro zone countries, Rome raised its public debt forecast to 118.4 percent of GDP this year, up from a forecast of 116.9 percent made in January. The 2011 forecast was hiked to 118.7 percent from 116.5 percent and 2012 raised to 117.2 percent from 114.6 percent.

In times of impending crisis families who understand the situation will try and protect their wealth in intangible gold.

Maurice Hall

The American Gold Buffalo was introduced by the United States Mint in 2006 as a new 24 carat gold bullion coin program and was first offered for sale on 22^nd June. Production was authorized under Public Law 109-145 (also known as the Presidential $1 Coin Act) , dated December 22, 2005. The new program was created in addition to the existing American Eagle Bullion Coin Program, which included 22 karat American Gold Eagle bullion coins. The new coins were created in part to compete with 24 karat gold bullion offerings from other world mints, such as the Canadian Gold Maple Leaf and the Chinese Gold Panda and was the first time that the United States Government has minted pure (.9999) 24-carat gold coins for the public. Large scale bullion dealers purchase directly from the United States Mint and then resell the coins to other dealers and the public. They are also responsible for creating a two way market to ensure liquidity. The one ounce bullion coins have been produced each year from 2006 to 2009.

The American Buffalo, also known as a Gold Buffalo Coin follows the greatly admired design of the Indian Head nickel and has gained its nickname from the American Bison on the reverse side of the design The coin has a legal tender (face) value of US$50. On the American Buffalo coin, the mound area of the reverse with the words FIVE CENTS has been changed to read $50 1 OZ. .9999 FINE GOLD. Also, the motto IN GOD WE TRUST, appearing on all U.S. gold coins since 1908, can be seen on the reverse to the left of and beneath the buffalo head.

The design is a modified version of James Earle Fraser’s design for the Indian Head nickel(Type 1), issued in early 1913. After a raised mound of dirt below the animal on the reverse was reduced, the Type 2 variation continued to be minted for the rest of 1913 and every year until 1938, except for 1922, 1932, and 1933 when no nickels were struck. Generally, Fraser’s Indian Head nickel design is regarded as among the best designs of any U.S. coins. The same design also was used on the 2001 Smithsonian commemorative coin.

The obverse of the coin depicts a Native American, whom Fraser said he created as a mixture of the features of three chiefs from different American Indian tribes, Big Tree, Iron Tail, and Two Moons, who posed as models for him to sketch.

Atop a mound of dirt on the reverse of the coin stands an American Bison, which commonly are referred to as buffalo. The animal depicted on the reverse is believed by most to be the bison named Black Diamond, who lived in the New York City Central Park Zoo during the 1910s. It is said that Fraser had to have someone distract the buffalo while he snuck to a position beside it to draw. Otherwise, the buffalo would turn to face him and Fraser couldn’t get the profile he wanted.

The 2006 and 2007 coins have only been issued in a one ounce version, but in 2008, $5, $10, and $25 face value coins were minted with 1/10 oz, 1/4 oz, and 1/2 oz of gold respectively in proof finishes.

The collectible versions carry the “W” mint mark, while the bullion coins do not have a mint mark.

The  2009 mintage was not issued until October 2009 and production was sold out in March 2010.  The 2010 issue is due to be available on 29th April 2010

Gold Buffalo Bullion Coin Mintage

Gold Buffalo Proof Coin Mintage

Gold Buffalo Uncirculated (W) Coin Mintage

People are questioning whether the bull  run on gold over the last decade reached its climax with the December 2009 high of $1227 and we are on a downward slope. Let’s compare the conditions in 1980 with today and we will find that they are quite different.

1980

In 1971, the United States suspended the free exchange of U.S. gold for foreign-held dollars, then in 1974 lifted its four-decade ban on the private purchase of gold. At that time, gold bullion was being traded in European markets at highs approaching $200 an ounce. In 1975, the U.S. government began to sell some of its holdings on the open market and in 1978, along with most other nations, officially abandoned the gold standard. After being released from government control, the price of gold soared and touched $850 in January 1980.  In the three years before 1980 gold price grew eightfold  as the result of mainly fear but also greed

In Dec 2009 the gold price soared to $1227 per ounce. So was this the zenith and comparable to the 1980 high? Was this the end of the bull market that was running for almost a decade?.

There are many differences between 1980 and today not least of which the world is not the same following the most significant financial crisis since the great depression of the 1930’s, global warming threatening our existence and the economic balance between East and West swinging to the East. In 1980 the cold war still raged, the Berlin wall separated East and West Germany, and Eastern Europe was in soviet control, the Russian bear was feared. We must also remember that gold in real terms is trading at only half of the high reached in 1980 as the $850 to day equates to approximately $2200 when inflation is applied.

Political Fear – The Soviets had  signed a “bilateral treaty of cooperation” with Afghanistan in 1978, but by the next year relations had deteriorated and  the Soviet Invasion of Afganistan, which began around Christmas 1979, was a terrible global shock., Russian forces seized all major governmental, military and media buildings in Kabul, including their primary target – the Tajbeg Presidential Palace, where they killed President Hafizullah Amin and announced on Radio that Afghanistan had been liberated

It was a slap in the face to a cold war America.

At the same time the Russians were building up their strength  in southern Yemen close to Saudi Arabia and the oil fields. Also in Bulgaria’s border with Yugoslavia, a liberal communist country, whose 87 year old president Tito solely responsible for binding the  Serbs, Croatians and Muslims together since the end of WWII was very ill.

Iranian fundamentalists took over the US embassy in Tehran in November 1979 anther slap for America.  Ayatollah Khomeni became supreme leader in December and relations ships with Sadam Hussein’s Iraq were at an all time low eventually leading to the Iran –Iraq war.

Economic Fear – The 70’s were a period where inflation was spiraling out of control, stagflation unemployment, oil embargoes and subsequent spike in oil prices spread gloom and despair.  In 1979 inflation in the US was at 12% and was in double figures in most western countries  In the UK the winter of 1978-9 was known as the “winter of discontent” and during 1979 nearly 30 million working days were lost due to strikes.  Debt in the USA had risen to almost $1 trillion and the dollar was weak.

Another catalyst that shook the markets was Bunker Hunt’s run on silver. Hunt, an oil billionaire, his brother and friends by October 1979 had bought up all the silver paper propositions to the tune of 192 million ounces.  In early January 1980 , it became evident that COMEX intended to change the rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. Of course, the CFTC promptly backed up the ruling. The escape hatch for the Hunts and some of the other large longs was simply to convert their futures contracts into physicals, On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt’s silver position was worth $4.5 billion dollars. This caused chaos as there was no silver to be had to supply and the Hunts were driven to ruin.

Oil revenue to Gold – The rapid rise in oil price produced a sudden surge of wealth in  Saudi Arabia and the Gulf States  and enormous sums were diverted into gold. This was further accelerated by the fall of the Shah which exposed vulnerability of people in power in the Middle East and led them to protect their positions. It was common for Saudi dealers to bid for 50-100,000 ounce in a morning and one bank was asked to buy 300,000 ounces for a single client.  Speculators also used the opportunity to dupe the market to increase the price of gold by bidding for huge sums  through a Gulf bank giving the impression that Arabs were pouring money into gold, a story carried by media for some time.

Greed – Of course speculation reached the phase of public awareness which is always the last phase close to the peak just before the decent.

The world was in turmoil and inflation was out of control so everyone was scared. When people are scared fiat currency is not enough. They return to traditions going back to the beginning of civilization to secure wealth in physical gold that gives portability and liquidity. During times of crisis and fear gold rises and individual governments can’t stop it; but in peaceful times governments are able to maintain control. The future of the American economy and American power did not feel at all certain. As a safe haven in times of panic and strife, gold simply reflected that fear. As soon as the emotion subdued and rationality returned  the buying panic quickly subsided and turned to selling phase taking down the price.

The Fall – Prices will rise as supply cannot meet demand but in 1980  when the price touched $850 all over the world people began dishoarding their coins and  old jewellery in an unprecedented scale to the extent that dealers were running out of money to pay for the re cycled gold and Refinieries  had more than enough scrap gold. Thus supply quickly out grew demand.

In early 1980, Paul Volcker’s (Fed Chairman) new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted. There was a rush out of Gold and back to Dollars. The Dow was already rising in 1979 and really took off in 1982.

The gold price dropped off dramatically after its January 1980 high in short because people lost their fear as inflation the bane of the 1970s was finally coming under control, interest rates and the stock markets rose making other investments more attractive. Supply was greater than demand and the Middle abruptly exited the gold market.

2010

The financial crisis that rose its ugly head in 2008 and continued through 2009 is comparable to the fear generated in 1979-80 and was one of the reasons for the rise in gold as people sought a safe haven. The dollar has been weak, a norm for a corresponding high gold price and this was catalyzed by India buying 200 tonnes from the IMF to drive the price to the December high.

The Future – The difference between 1980 and today is that in 1980 we were exiting a terrible decade and the future looked bright economically. Today the future is far from bright and whilst we have managed the worst financial crisis since the depression and are even complacent; but the truth is we are not out of the crisis. The economy is recovering slowly and is still very volatile and in the UK we have £1.4 trillion in sovereign debt to face. According to the IMF spiralling sovereign debt in Europe, the US, and Japan has emerged as the top threat to the world economy and risks setting off a fresh financial storm. The eurozone is heading for one per cent growth this year, limping out of recession under the threat of a sovereign debt crisis. The main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion. The economies of Ireland, Spain and Portugal will shrink. The US’s ratio of total debt to GDP is likely to exceed 90% this year, making it more indebted even than Spain and Portugal. It is similar to Weimar Germany but for different reasons and has printed trillions of dollars of fiat currency which will eventually lead to debasement. The dollar is weak and is likely to get weaker. The Chinese Yuan is undervalued but it is not in China and the worlds interest to drop the dollar just yet but the time will come and dollar will fall. The Chinese are on the unmistakable path towards challenging the dollar and the ultimate aim is financial supremacy The dollar’s status as the worlds reserve currency is under threat and both Russia and China are pushing or an alternative in which gold must surely take a part.

Today we have a world of low interest rates where it is almost impossible to obtain an interest rate that does not lose on the capital invested each year when taking into account inflation and tax. With the right gold product tax on profit can be eliminated.

In 1980 Central banks were auctioning off gold, today central banks are turning to gold as many countries increase their gold reserves. Last year India bought 200 tonnes from the IMF to meet its international commitments. China has increased its reserves to 1054 tonnes and announced its intent to continue buying.

India is currently the largest consumer, China the largest producer and second largest consumer and Russia were not players in 1980 and it is these countries where the demand is currently driven. China is consuming all it can produce and quietly everything it can buy with out upsetting the price.

Public Awareness – In 1980 public awareness led to speculation and to frantic selling of gold, de hoarding which was contributory to the drop in price as the amount of scrap gold created an over supply. Today you can hardly open a newspaper or watch television without seeing an advert to persuade you to sell your old gold. This is the reverse of 1980 as the refineries need the re cycled gold to ease the demand. Also investment has not yet reached the public awareness stage. From the chart below  you will see that there is no slide just a correction which is normal

In conclusion gold is still a safe hedge, the world is uncertain with threats of sovereign debt, inflation and the weakening of the dollar. Gold is finite all the gold ever produced would fit into a 20 metre cube. As mining becomes more difficult production costs are rising to almost $800. The demand from the East cannot be met so demand is greater than supply and there will be more pressure on supply as the gold fields dry up. I have seen an analogy where more gold can be extracted per ton by harvesting old mobile phones than the majority of modern mines. Were are currently in a period of correction fed by a certain amount of complacency but trends indicate that we should see a breakthrough of $1300 by Q4 2011.

Maurice Hall