Some thoughts on the return of gold as a means of exchange from L’Or et L’Argent (the original article may be read here).

Payment for Iranian oil in gold

More than a trend, there is a strong signal being sent: gold is returning to the markets as a currency of exchange. Thus, China, the largest importer of Iranian oil, follows in the footsteps of India and avoids the embargo imposed on Iran by choosing to pay for crude oil in gold. Because it decided to continue with its nuclear program, Iran saw sanctions imposed by the United States in late 2011. The oil embargo, which will take effect in June, prohibits payment for Iranian crude oil in international exchange currencies (Dollars, Yen, Euros…). Soon after, the European Union announced that it was also going to apply the embargo which will take effect in July.

Gold returns in trading

Although Iran does not represent a large percentage of oil imports to the US and to the EU, the same cannot be said for India and China which between them account for 40% of imports. India, which has a large demand for oil, has chosen to maintain its commercial trade with Iran by paying its bills in gold.

Recently, Forbes magazine reported that China was also intending to avoid the financial sanctions imposed on Iran by buying its oil with gold. China, the largest producer but also the largest consumer of gold, already imports huge amounts of the yellow metal (its imports tripled in 2011, to 428 tons). Such a decision will only amplify the economic effects on the price of gold.

Gold: exchange currency and political weapon

Gold, which is increasingly returning to the mechanisms of means of payment will also take a more political dimension and become a real weapon of war. These events confirm the most bullish gold market for years. In the same way that investors made wise choices by betting on gold since 2007, this also goes for today’s investors, when they will see the ounce crossing the $2,000 mark in the next few months.

 Gold has recently been undergoing a consolidation period – its price is below the value that in reality it should have. It is therefore the right time to strengthen one’s positions on gold, before the summer. Moreover, because of the presidential elections in the US next November, uncertainty over the economic future of the country will undoubtedly cause a new rush on gold… which will not stay at the current level of $1,640.

By Mark Rogers

Welfarism undermines democracy: this is one of the manifest lessons of the eurozone crisis, and is seen in many ways, the most recent being the Greek elections in the fissipiration of the political system, with the running being made by minority parties with unrealistic and self-aggrandizing agendas. Instead of there being any attempt at shrinking the state, more, and more aggressive, groupuscules want more of the same: “Syriza’s idealistic economic programme calls for providing students with free meals and doling out pensions equal to final salaries. Mr Tsipras says the state should hire 100,000 more workers to help reduce unemployment.” (The Economist, May 12th 2012). Is this “idealism” or ignorance (though the latter is, of course, the handmaid of the former)? After all one of the things that brought the Greeks to their knees was the number of people entitled to government largesse.

When the Greeks received the first bailout from the Germans, Papandreou publicly thanked the German government and people for their largesse and acknowledged that as a result the Greeks would have to do some serious cleaning up, starting with an attempt to find out how many people worked for the government. They didn’t know! This is welfarism with an insouciance.

Democracy and accountability

The idea that democracy is a device to hold government to account implies a responsible, independent citizenry and limited government. One of the things that the government is to be held accountable for is limitations on its growth. The welfare state, instead, thrives on factional interests which seek to carve out niches for themselves at the expense of others, with the state as overlord and facilitator – and therefore at the mercy of being captured by the bolder interest groups.

The Founding Fathers of the American Constitution wanted to strike the right balances between majorities and minorities, while recognizing both that majorities could become tyrannous and that minorities could descend into factionalism. The balances that the Founding Fathers sought were to prevent majorities from dealing with minorities in the old-fashioned European way – i.e. simply eliminating them, whether through exile or execution. This meant allowing minorities a functioning place within the body politic accommodating their ways where they were beneficial without creating vested interests which might put the public order at risk.

While it is self-evident that the Constitution of the U.S.A. has not prevented the growth of big government or the gradual assimilation of the American people to welfarism, it is also clear that modern government’s most serious derogation from constitutional principle is the emergence of the centralized state as a faction in itself. Large civil services become an end in themselves; the purveyors of welfare form a huge vested interest group, averse to change that may damage their own position however it may benefit the taxpayers who fund them.

While it is usual to equate freedom with democracy and welfarism with fairness, in fact there is no logical or historically necessary connection between freedom and democracy, nor is welfarism necessarily fair. In fact, the larger the state’s involvement in wealth distribution, whether it is by cash transfers, or manipulations of the educational and health systems, the more that the least admirable moral qualities are promoted in the welfare state: envy and greed.

Entitlement

The welfare state encourages the vice of entitlement, actively encouraged by the administrators of the welfare state – through education, through multiculturalism and through the benefits system. If bankers are thought to be too quick to justify their salaries, it is only done in the language of the welfare state which all are encouraged to use. (An aside on bankers: while, as has been maintained here, here and here,their remuneration is an utterly inadequate basis for the crisis, bankers at least operate in a world of more immediate accountability: recently shareholders have risen to the task of curbing pay in relation to poor performance.)

Envy in the East?

I grew up in Hong Kong (my political and economic gold standard). That there were exceptionally wealthy people was well-known, but they tended not to live celebrity lives and had risen to their riches, in many cases from extreme poverty, through hard work and good judgment. That everyone had a chance to better themselves to the extent that they were prepared to work for it because the tax system was simple and equitable, meant that envy was at a discount in Hong Kong – people tended rather to admire the rich because they were hard working and philanthropic, and because each and all had the opportunities open to them to advance to similar riches. A breeding ground for hard work, thrift and imaginative enterprise rather than envy, greed and carping.

By Mark Rogers

While there is much speculation that there are moves afoot in some countries to rein in the private ownership of gold (see here and here), it is encouraging to read the following story (originally posted at L’Or et L’Argent) about how Singapore is opening up its markets to gold. This is yet another move in the free Asian economies to strengthen their positions, a welcome strength in view of the economic turmoil in the developed world and in China, whose economic future seems very uncertain.

Given that the following article points out the strong position of gold in Hong Kong, readers might like to read this fascinating account of gold dealing there; amongst other interesting points is the note that the Chinese Gold and Silver Exchange Society is the world’s oldest gold dealing exchange. Gold and stability could have no sounder exemplification than the growth of Hong Kong as one of the world’s strongest economies throughout the twentieth century and still leading the way in the new millennium!

Singapore’s move comes in tandem with growing speculation amongst gold observers that there is a slow but sure momentum building up to a return to the gold standard. The financial turmoil in Europe and the erosion of the US economy is fundamentally a crisis of paper money and cannot continue without a major shift towards the kind of stability that a properly backed currency provides. This shift will come either when the relevant governments realise that such a resolution of their problems needs to be carefully managed – or it will be forced upon them if they continue to do nothing other than roll the printing presses, which will in the end precipitate a catastrophe of an order such that even they will not be able to deny the obvious.

I shall in the very near future be posting reviews of Detlev Schlichter’s Paper Money Collapse and James Rickards’s Currency Wars, which contain detailed analyses of how our present woes are the inevitable result of fiat money, and, in Rickards’s book, an outline of how a return to the gold standard should be managed.

Meanwhile:

Singapore bows before Gold

The world’s fourth largest financial centre is seeking to open itself to the gold market. Thus, it has decided that tax cuts will apply to precious metals including gold.

The Finance Minister Tharman Shanmugaratnam confirmed a month ago that an exemption would be made to the 7% tax rate, hitherto applied to gold and all other precious metals, in order to encourage growth in trade negotiations and in particular as an incentive for producers to participate in the market.

Singapore will thus be able to compete on an equal footing with other neighbouring markets open to the gold trade, the most important being Hong Kong where producers prefer to sell their bullion – free of tax. It is evident that having to pay a 7% tax in Singapore discourages investors. This measure is completely logical and fair since no kind of taxes should be applied to a safe haven investment – the latter being basically currency.

This reduction will be initiated as of next October – which prompted certain declarations to be made at the time this measure was made public, for example, `that an important producer has expressed a particular interest in opening a factory in Singapore in the light of the announced tax change’ and furthermore that there will be more gold trading companies present in the country.

Gold has risen sharply and this is why there is so much competition between countries which are putting in place strategies to meet current requirements. If Singapore wishes to compete with its Asian neighbours who have a significant advantage, it will be extremely advantageous for it to adopt this fully justified initiative which will enable the gold market to benefit from a fall in tax or an exemption. By maintaining high taxes, Singapore has risked putting off all potential investors – the latter being welcomed with open-arms in Hong Kong and Japan.

Translated from an original article by Charles Sannat, Director of Economic Studies, AuCOFFRE.com, Paris

The Fourth Summit of the BRIC nations, a major political event.

This is a huge story and yet has gone largely unreported by the major western media. On the 29th of March in New Delhi, the Fourth Summit of the BRIC nations took place (Brazil, Russia, India, China).

“The BRIC nations (Brazil, Russia, India, China and South Africa) should no longer use the US Dollar in their bilateral exchanges. That is what was decided on Thursday the 29th March, 2012, during the Fourth Summit of leaders of these five nations in the Indian capital”.

Source: algeriedz.info and rian.ru

The following was decided during this meeting: an essential step was taken towards a “multipolar” global monetary system. March 29th 2012 will undoubtedly not be the date remembered in history as marking the end of the era of the Dollar. Nonetheless, the change is major.

Towards an overhaul of the IMS

We are entering a phase of disintegration of the International Monetary System as we know it. Our monetary system dates back to the Bretton Woods agreement of 1944 which was brought to an end by the Jamaican agreement of 1976 (this ended the gold standard).

So what will happen now? Stock markets are starting to fall because the issuing of European bond funds is doing badly or is disappointing (depending on your degree of optimism about the outcome of this policy), which is the case for Spain and now Italy.

What one must understand is that according to the current economic system it is the surpluses of some which finance the deficits of others, thus creating a balance. In other words, western countries are in a chronic deficit which has been, and I stress has been, financed by the major Asian exporting nations on the one hand (China and India) and the oil-producing nations on the other.

For the last few years, nobody was lending to western states (by this we mean the US and Europe) which now find themselves in an irreversibly compromised situation.

It is this lack of external funds which is pushing the central banks, the FED and the ECB to massively intervene in the markets. The only option that remains for us is indeed the use of the printing press and the creation of money with all the negative consequences that follow.

Though this Fourth Summit of the BRIC nations is a founding step towards the overhaul of the IMS this is certainly not the ultimate goal.

Ground-breaking events in international relations

Discussing the topic of the monetary system without mentioning the political dimensions would be a mistake. The future International Monetary System will be shaped by the international balance of power and alliances between the major players in the context of the fight for access to energy and agricultural resources and in the broader sense to raw materials. A strong axis is taking shape amongst the BRIC countries, and Iranian diplomacy is also far from insignificant.

The trans-Atlantic relationship remains strong despite the strains and divergences. Lastly, one should not imagine that the United States of America will let their status as world leaders slip away without a colossal “fight”. American policy has always been based on a simple concept: “America First”.

We are thus entering a new phase in the current crisis:

In 2007, the subprime crisis led to a financial and stock market crisis.

The financial crisis led to an economic recession.

The economic recession lead to massive state intervention in the form of stimulus packages which resulted in massive debts for these states.

The debt crisis can only lead to a major monetary crisis.

The monetary crisis (which is on its way) will lead to the restructuring of the International Monetary System.

And… the manoeuvres have already begun. The global repercussions will be deeply felt, as the International Monetary System is to the global economy what tectonic plates are to geology. We are touching upon the essential part. The tremors will truly be felt.

Will you be ready?

By Mark Rogers

Is there a necessary connection between gold coins and politics? The short answer is: yes. Undoubtedly over the course of the last century, and beginning fairly early on, gold became, and still remains, a highly controversial political subject. The most influential economist of the century, John Maynard Keynes disparaged not just the gold standard but the metal itself: he thought wealth creation a sort of secular sin, and considered those who saved to be selfish. In 1933, President Roosevelt banned the private ownership of gold, and passed measures to confiscate privately held gold – something that may be about to occur in places as widely diverse as the European Union, Turkey and Vietnam, with a suspicion that the same is afoot in China.

Not surprisingly, these animosities towards gold have gone in tandem with the creation and expansion of the Welfare State, the political entity that is utterly bankrupt and is the prime cause of the financial crisis.

So, yes indeed gold, whether in the form of collectable coins or other types of investment, is very political indeed, but not just because it is seen as a store of selfish wealth, or, as its enemies derisorily call it, “hoarding”.

Ray Vicker in The Realms of Gold (published by Robert Hale, London, 1975) makes this very important point:

“The deeper one gets into monetary matters, the more one realizes that the whole argument about gold’s monetary role, or its inability to perform it, involves fundamental emotional attitudes toward man and his environment.

“Not only technical monetary systems are at odds when the chrysophilites and the chrysophobes argue money. This is cash versus credit. Sound versus easy money. A balanced federal budget versus deficit spending. Rugged free enterprise versus government economic management. A black-and-gray world versus utopia. The belief in sinful man meeting the conviction that man is essentially good. The idea that progress only comes through individual gain clashing with the contention that communal efforts spell forward movement.”

Gold, therefore, is not only a measure of prudence, it is also the summation of the political arguments of the last century – and even a repository of some of the profoundest truths of human existence.

Those who invest in gold are, in the long run, realists, as the following account by Vicker of what happened in the 1960s and 70s makes clear:

“When sense and nonsense are being evaluated the chrysophobes must explain how come they erred so much in the 1960s when they were denigrating gold and claiming that it was on the way out. It was in the 1960s and early 1970s that the great monetary battles involving gold were fought, with few people in the United States realizing what was happening even after the dollar experienced two devaluations. Briefly, the dollar, which had been ‘as good as gold’ for so long, no longer was as good as a thirty-fifth of an ounce of gold. And many people were discovering this fact.

“These people were termed ‘speculators’ through the monetary cyclones which erupted. Actually, they were ordinary businessmen, bankers and others who had sense enough to protect their assets. In politics, whenever anyone disrupts a pet project of the party in power, it is customary to tack some derogatory term onto the disrupters. The word ‘speculator’ has enough of an unsavoury connotation that it appealed to those in government who saw themselves as ‘defenders of the dollar’, though they couldn’t see the easiest method of preserving the whole system – a doubling of the monetary price of gold.”

Therefore, however unlikely it may seem on the surface that a numismatic website should feature regular political commentary, the central role that gold plays in human affairs means that its political and economic aspects need constant analysis.

By Mark Rogers

At the end of the post on the U.S. Federal Reserve’s non-existent gold I quoted C.H.V. Sutherland on paper money, which he points out  ”is not money at all, in any true sense, but an extension of credit”, hence “credit currency”. The latter term now of course encompasses electronic money, the device which makes quantitative easing so much easier.

The idea that paper or electronic money is really nothing more than an extenstion of credit, a promise to pay, raises an interesting point: to borrow money is in effect to take out a mortgage on the paper credit you hold and earn, that is, to extend credit on the basis of credit currency earnings is to extend credit on credit.

This raises the issue of trust that lies behind such a system to the level of the most important practical as well as moral feature of that system, and potentially compromises any sense of value that the monetary system embodies.

This post is by way of reflecting on some basic ideas about value and how it arises and what systems best embody it and allow it to function. These are introductory ideas merely, and the examination of this problem will continue in later posts, embracing history and anthropology as well as economics.

Hernando de Soto (whose work has already been referred to here and here) makes the interesting claim that we are only beginning to understand the nature of money, what brings it into existence and what supports it. His work in the extra-legal economies of the developing world has thrown up this question in sharp relief. His discovery that the poor, some 87% of whom live and work outside any formal legal structure, are camping on assets worth trillions (the value of which cannot be realised because of the absence of workable legal systems that realise title to those assets), raised the question of how assets are dissociated from their potential value.

There would appear to be a formula that runs from assets to value to capital to money, and that the jump from the first to the second of these, which in turn gives rise to the latter two, is a jump over a very large gap. That jump is taken very much for granted in the developed world because we do it all the time without necessarily realising it, so secure are our legal arrangements; but the gap effectively immobilises the poor in developing economies. They have assets in the form of unrealisable savings, which renders them, therefore, essentially worthless.

There is an interesting anthropological speculation arising from the idea that without property there can be no money system: that is if the formula suggested above turns out to be a true and fruitful one, then the common understanding that things such as cowrie shells and cattle were a form of pre-currency is a misunderstanding of the functions of money. That is, they may have been no more than a more highly stylised form of bartering and possibly, again against previous understandings, a less efficient one, not a rationalisation that led in time to formal money currencies.

If money only arises against a property system, and that in turn is the result of the development of formal legal systems, there can be very little connection between any system of bartering and formal money. The idea that money is a realisation of value inherent in property means currency is the result of a property holding system which, to be realisable, must have clear title. Then, on the basis of that title, the value of the asset can be ascertained and then realised as capital which then has a representational form as currency. That is, money as a representation of value, as a means of realising that value and being a store of that value is the result of a legal system that can render property fungible – that is, that the asset can be more than one thing.

This, of course, means that property is a form of savings, and that savings are therefore at the root of money. As we have seen in earlier posts, savings have been under attack throughout the twentieth century, with Keynes as a cheerleader of that attack, an attack which has been redoubled recently with quantitative easing and with measures against the purchase of gold being enacted in Europe. Even George Bernard Shaw saw through the paper money promise and recommended the purchase of gold! 

The failure to realise the necessity of savings and their wider functions in a workable economy is at the root of the financial crisis.

Those wise Cantonese grandmothers in Hong Kong understood the vital nature of savings – and, moreover, the best way to store them as gold.

By Mark Rogers

In Gold in Iraqi Kurdistan, we mentioned the Iranian government’s facilitation of gold exploration in its Kurdish province. The mining of gold at Sari Gunay was abandoned in 2007 by Rio Tinto, because the mine was not commercially viable being apparently too small at a mere 16 tons. Proven reserves of gold in Iran are some 220 tons, with an annual production of about 2 tons. In January 2011 it was reported that Rio Tinto was to sell its 70% stake in Sari Gunay, having failed to dispose of it earlier when a deal with a Chinese investor fell through.

While this little venture has collapsed, there is some interesting news out of Iran – which may help explain certain mysteries about the Chinese purchasing of gold.

In February 2012, the question was raised as to how much gold the Chinese central bank was purchasing: Did China’s Central Bank Buy 139 Tonnes Of Gold In The Fourth Quarter?  In the last quarter of 2011 “China’s imports from Hong Kong, which account for the majority of its overseas buying, soared to 227 tonnes in the last three months of 2011 … That compares to demand of 191 tonnes for gold jewellery, bars and coins … Since China does not allow the export of gold, there was a domestic supply/demand gap of about 139 tonnes during the last three months of the year and central bank purchases likely accounted for some or all of that gap.”

The fact that the Chinese Central Bank prefers to go about the purchase of gold on the quiet, only revealing the size of its purchases long after the event, helps explain the uncertainty over the surge in buying at the end of last year. There is another intriguing fact, though, which may cast light on this purchasing  in the not-too-distant future.

In order to continue to facilitate its export of oil and minerals, “Iran’s central bank governor said on Tuesday [28 February 2012] Tehran was willing to accept gold as payment for its oil as sanctions imposed by the United States and Europe hamper the country’s financial institutions and force its trading partners to seek alternative ways to settle transactions.” (Full Reuters’ story here.) So a very interesting game is being played out, with results that are far from clear both for Iran and those who continue trade with it. “Iran used gold and oil to pay for shipments of grain earlier [in February], according to European grain traders. It has also used currencies such as the yen or the rouble to pay for grain imports, thereby skirting the need to employ either dollars or euros.”

And this is, potentially, where China comes into play. Although it is the world’s largest producer of gold, its mines cannot keep up with demand. Hence the Central Bank’s purchasing. The Reuters’ report quotes Ross Norman, CEO of the bullion dealer Sharps Pixley as saying: “China interestingly enough is under-resourced in terms of its gold reserves but, not withstanding that, it’s also the world’s biggest gold producer so presumably it’s got the ability to fund any purchases from Iran that it needs to put through. What the Iranians are saying is that there are other financial mechanisms out there for those who want to transact.”

Does this help explain the Chinese Gold Rush?

By Mark Rogers

This street 观前街 Guan Qian Jie, in Suzhou, near Shanghai, is full of Gold shops

During the seven days of the Chinese New Year’s holidays, people have bought 3.62 billion yuan’s worth (0.5761 billion dollars) of gold in Beijing, 15.5% more than last year. It was also reported that just two shops in Beijing during this same period managed to shift 1.5 tonnes (GoldCoin.org Chinese source). At GoldCoin.org we have previously reported on the expansive buying of gold in China in our article “Chinese queue at malls to beat Bernanke’s inflation with gold“.

John Stepek, editor of Money Week, recently pointed out that “Chinese citizens don’t have many options as far as saving their money goes – you can’t get an above-inflation return from your bank account, and the local stock market is a casino.”

What is happening? And why is it happening?

As with the eurozone, the flight – on this scale – into gold indicates extreme economic uncertainty and a desire to shore up one’s savings in the only real safe haven. Yet isn’t China supposed to be an economic powerhouse? Isn’t Beijing planning to float the renminbi (yuan), in an attempt to replace the dollar? Isn’t the Chancellor of the Exchequer actively working with the authorities in Hong Kong to make “sure that London is the western trading centre for the Chinese currency”, turning “the City into an offshore trading centre for the renminbi” (The Financial Times, 16 January, 2012)? The renminbi is about to become fully convertible this year – isn’t it?

Well, perhaps not: “capital account liberalization looks off the table … At the moment, the transfers out of China are manageable, but then again the economy has only begun to falter. No officials, even ones less obsessed about control than Beijing’s, would open up a capital account in a quickly deteriorating economic environment. Therefore, events are working against Zhou Xiaochuan [Governor of the People’s Bank of China], and so is Chen Deming, the boss of the Ministry of Commerce. Chen has tenaciously defended the interests of exporters by blocking currency liberalization, and with the country’s trade surplus set to decline—to about $150 billion last year from $183.1 billion in 2010 and $196.1 billion in 2009—it is unlikely that Chen will now let central bank reformers get their way. … If Beijing opens the currency wall and the markets are not ready, flows of investment cash could—and probably will—lead to a catastrophe. At this time, it will take years to get China’s banks and markets in shape for unregulated flows of currency. So don’t expect capital account convertibility this year or even next.” This is the analysis of Gordon Chang (author of The Coming Collapse of China, and Forbes contributor, here: “China says Yuan will be fully convertible soon”).

Declining demand for Chinese exports

Certainly the Chinese economy gives plenty of reasons for this degree of pessimism. One of the most important indicators of China’s burgeoning woes is the troubled eurozone: Europe was China’s biggest export market, but Europe has practically ceased importing. The immediate consequence of this is that recession is perceptibly looming in China, indeed there are, for example, reports that China’s steel industry is seriously struggling with the potential closure of many mills (The Economist, Jan. 23-Feb. 3, 2012). Add to this the optimism expressed at the recent Davos summit by American business leaders that the coming on stream of shale gas in the United States is going to dramatically reduce manufacturing energy costs there, thus enabling American manufacturers to repatriate production.

So does this explain the Chinese flight into gold?

Inside a typical gold retailer in Suzhou, China

See a previous article on Goldcoin.org called “1 Billion to buy gold as Chinese gold rush grows” for some facts and figures.

The figures are certainly impressive – not to say astonishing. But is it certain that these figures represent only concerned citizens anxious to preserve their wealth? The active encouragement of the People’s Bank of China, referred to in the cited article, that “1 Billion Chinese citizens buy gold as a way of preserving and protecting their wealth against inflation, economic crisis and the falling values of major currencies” could bear another interpretation: namely that the Chinese authorities are contemplating at some future tipping point to announce a patriotic handing over of individual gold holdings to the state – i.e. confiscation.

Moreover, let us look again at the declared intention of that same People’s Bank of China to make the renminbi fully convertible this year. The massive purchases of gold may have yet another interpretation: as a means of supporting the value of the renminbi when it floats in spite of the problems that both Mr Chang and Mr Stepek discuss in their articles cited above. And that raises another enigma.

China remains, politically, a Communist state, and remains fundamentally unfriendly to the Western powers – witness its recent active unwillingness to censure the Syrian butchers. That it has liberalised its economy since the reforms of Deng Xiaoping, and that this has opened trade barriers and brought prosperity to millions of Chinese is not to be doubted; but this has all taken place in terms of a closed political system that holds the whip hand over the economy, “state capitalism” interpreted in the interests of the Chinese Communist Party, that is, a fascist-corporatist economic model.

This raises intriguing possibilities in terms of those thousands of purchasers of gold. For while there are corporations that clearly function under the rubric of the Chinese State there are many more enterprises that appear to be private corporations but are in fact shells for the State (the Chinese corporate structure emulates in many ways the systems of incorporation that for a long time successfully hid the fact that ultimately it was the shameless and cruel King Leopold II of Belgium who owned the Congo Free State). And just as this operates at the corporate level, so may it operate at the individual level: there is simply no way of knowing how many of those individual or smaller-scale enterprises who are buying up gold may in fact be agents of the state.

A Chinese Gold Standard?

Remember that according to the World Gold Council and GFMS reports, China is the World’s largest producer of gold and is second only to India for gold consumption (but catching up fast). No coincidence here either!

So to answer the questions raised at the beginning of this article: What is happening? We don’t actually know. And why is it happening? One shudders to think….
…. But then imagine if one day the Chinese government “requires” private investors to place their gold in the People’s Bank for the good of the Nation – the national gold stock would swell considerably – maybe enough to back the Yuan with a Gold Standard and thus achieve its ambition to be the World’s Reserve currency?

A young investor contemplates the potential of gold

I returned home to Hong Kong after undergoing my last two years of schooling in the UK; I quickly found employment and after work (six days a week) and on Sundays, I began to explore areas of Hong Kong that I had never visited during my childhood and adolescence.

One of the consequences of the several waves of refugees from communist China (the revolution itself, the Great Leap Forward in the 1950s, the Cultural Revolution in the 1960s) was the rapid accumulation of informal dwellings on the mountainsides. These shacks were made out of anything handy: packing crates, corrugated iron, planks. They were incredibly hardy edifices: typhoons capable of lifting a battleship, blowing it out of the harbour and impaling it on a rocky island in the South China Seas, would leave the squatter huts crowded onto an exposed side of the island at the harbour mouth intact!
As a child I had always been fascinated by these places: they embodied escape, freedom, the mastering of adversity; they had an air of romance and adventure. Yet I had never visited one: this was something I remedied as I explored Hong Kong anew during 1975.

What I discovered was remarkable. First of all, these places were orderly and clean, the natural drainage of the mountainsides enabling the latter. The homes were sturdily constructed despite their flimsy materials. What was truly astonishing, however, was the discovery that the expensive cars parked at the foot of the hills belonged to the owners of these huts! This was not all: the informal lifestyle of the hillsides meant that the hut doors tended to be left open: there were always a few children or an ancient grandmother (whom we shall meet again) to keep an eye on things. Through these doors I glimpsed the good life inside: the huts had all the conveniences – fridges, deep freezes, television sets, electric fans, air conditioners, electric lighting: the hills were ablaze with electricity, all legally installed.

This lifestyle reflected a dominant desire among the Hong Kong Cantonese: the ambition, if not for themselves, then for their children to emigrate to one of the Anglosphere countries, far from China, which had caused them such grief. This being so, many prosperous people simply did not want to spend on property. The millionaire who lived on the hillside above us had built himself a house – it was in the style of a mansion, to accord with his status but was really very modest: what was the point of investing in substantial real estate when you might have to abandon it?

Portable Purchasing power?

The personal or family memory of enforced flight also gave rise to the idea that if you were going to have to pick up and go, then property should be portable. The wealthy of Hong Kong are unusual amongst the world’s richest in that they spend more of their money on jewellery and watches than any other type of investment and/or luxury good, mansions and yachts coming right at the bottom of their priorities – only a tiny percentage bother with these things. The desire for wealth in a safe and portable form surely means that the idea of putting their assets into gold coins would appeal to the wealthy, economy-stimulating entrepreneurs of Hong Kong.
Enter Grandma: while I was exploring the shacks and shanties, I saw the most revealing thing of all: the family wealth of these entrepreneurs was stored in gold – in Granny’s teeth: the fillings were so abundant that their mouths gleamed with gold!

by Mark Rogers

The G20 in Cannes is in crisis as its host President Sarkozy remains distracted by the Greek referendum announcement and the implications for his cunning Franco-German solution, hatched with best chum Chancellor Merkel to the European debt crisis.
The G20 group accounts for 80% of global wealth but also brings together huge differences in perception of where the world is at.

The Chinese have 3 Trillion dollars to help out the troubled western economies if it chooses. But then the Chinese are a nation of savers, hard earned cash they earn from long days of toil, often in self-enterprise ventures, is regularly put aside as investment for their future. On average the Chinese put aside 25% of monthly income for a rainy day. However their view of our crisis is somewhat different as one guy likened it to “ a bankrupt wealthy old man asking a poor man for money”. Some Chinese also remember the past experiences of decadent Western capitalism and imperialism. As Holly Williams from Sky News said “They don’t see why they should invest their hard-earned savings to help out economies and people to continue to have much more than they ever have had or ever will.

It is worth remembering that the average Chinese citizen lives below the poverty line and the new found wealth and middle class does not benefit the majority of China’s population – just like every other country you may care to analyse. The distribution of wealth always remains top heavy to keep our governing powers in the manner they’re accustomed and the bankers with enough profits to pay for it as well as their own hefty bonuses.

If you want to know to whom all the “money” has been paid that has resulted in this planet-sized debt then look no further than Goldman Sachs, their lawyers, all ex-heads of state and the personal fortunes of other prominent world politicians over the last 40 years, the Federal Reserve, the history of the Rothschild fortune and the IMF.

Will this debt ever be properly accounted for or ever paid back? No and No.

That’s why China does not want to lose value of its accrued wealth to the whims of US or European debt. Both lack a credible and coherent plan. Obama and Sarkozy have both got one eye firmly on domestic matters as they prepare for re-election next year.

Greek Tragedy?

The joke is they were all so smug thinking they’d sorted out a plan to buy time with Greece and then Papendréou goes and drops a bombshell with his referendum offer as a democratic gesture to the Greek people – oh yeah!
Trouble is he doesn’t actually care because he has nothing to lose and he knows what is coming as we wrote in “Greeks prepare a coup d’état ?”

He has taken this opportunity, his last on the European and G20 stage, covered by the world’s media, to play centre stage and enjoy his moment. He was called before the Headmaster and Headmistress of the Franco-German alliance, to explain his unilateral approach to life and to discuss the question that will be put on the referendum.
He indicated that sovereignty of Greek affairs remained the jurisdiction of the Greek parliament and its decisions are binding before all others and not open to outside interference. So not your average pro-European stance!! As I’ve said he’s got nothing to lose and knows what is coming.

US upgrades priority on plans for Iran airstrike

I also heard that the US and therefore by default the UK as well are bringing forward their plans to conduct air strikes on Iran. Seems they’re centrifuges are back in business as is the possibility of producing weapons grade nuclear material. Looks like they’ll hit their not-so-secret secret mountain production facilities. Intelligence reports backed up by International Atomic Energy Agency gives this story more than usual credibility. The word on the street is that Obama is nervous.
Israel says report proves “we told you so” for years that Iran posed a significant threat to its existence.

UK General strike will paralyse a nation

In the UK a massive general strike looks set to take place at the end of the month over public sector pension reform plans. The nation could be brought to a standstill with a 3 Million walkout planned. Negotiations between the Government and Trade Union leaders are not making any progress even if there is an improved offer on the table. The taste of austerity is always bitter.

Silvio doesn’t want to spoil a party

Finally Italy rushed out a message on the eve of the G20 to announce a package of austerity measures no doubt to comply with some previous handshake and just to make sure drinks with the others went well in Cannes! We’ll believe them when they’re implemented, successful and have brought about the desired effect.

Ever wondered why the announcements of “new improved measures and offerings to us all” from politicians always get great airtime but we rarely see a “results show” – then again fixing figures is a way of life for some so don’t settle for less than “seeing is believing” proof.

Crisis, what crisis?

So the world, its economies, all nations and globalization are working fine and there’s nothing to worry about – fine – and remember in this case do nothing, just enjoy every moment of a beautiful daily life.

If you thought for one minute this may be in jeopardy would you insure against it? Just like you would a car against an accident so you can afford to replace it if necessary, or against a fire so you could rebuild your home?

How do you insure yourself against a crisis?