We need to go that way to avoid the rocks

The European Union is facing an economic and political crisis that threatens the single currency, exposes greed, bureaucratic strangulation, unsustainable social welfare programmes, raises questions on protectionism and the very fabric of the free market. If that was not enough, the weakness of its leaders becomes apparent and two of the giants France and Germany support a different solution. There is a very English phrase “ to muddle through” and that is what European leaders have been doing and hope they can continue doing so as not to put emphasis on radical change that can upset the apple cart either internally or externally. Muddling through depends on growth.

The European Union is still the world’s largest economy supporting over 500 million people of diverse race, cultures and languages. However, the EU is facing both an economic and a political crisis as governments and companies cannot easily borrow money and the euro wobbles. Initially the weakness of the euro was shrugged off as speculation and Anglo-Saxon conspiracy, but the real problem is that social welfare in many countries is so protected and expensive that it is strangling the economies. Europe has to grow just to maintain its welfare systems and innovation just to pay for increasing old age pensions and unemployment is not inspirational. Of the 27 countries in the EU only Poland managed positive growth in 2009, while it is true that recently many have now turned positive, but it can only be described as mediocre. Outside of Europe the perception is that the protectionist policies for citizen welfare indicate that there is no longer the guts to tackle the problems. A sick Europe benefits nobody and arguably, were it healthy, then the worst of the global crisis would be over.

It is the courage of Europe’s leaders to initiate structural reform that comes into question. As Jean-Claude Juncker, prime minister of Luxembourg, said memorably in 2007-  “We all know what to do, but we don’t know how to get re-elected once we have done it.”  Many of Europe’s problems stem from election seeking misallocation of public spending with years of subsidizing powerful interest groups, increasing civil service payrolls, early retirement schemes, job protection and unemployment benefits. Between 2005 and 2030 the working-age population of the European Union will shrink by 20m, and the number of those over 65 will increase by 40m. In Belgium only 35% of citizens over the age of 55 work. It is almost impossible to sack a person in Spain, great for those in work but for the 40% youth unemployment that it generates, it is immoral.   European leaders underestimate the realism of the voters and proposals in the UK and Netherland to raise the retirement age to as high as 70 have met with moans but no angry protest.  In France, according to an opinion poll proposals to increase the retirement age were unjust and did produce the usual French protest, few disagree that the current state pension scheme faces insolvency.

The single market does not truly exist and the EU is almost a third less productive than its American counter parts in services, because countries hide behind national barriers and so do not gain full economies of scale. Anyone who has worked in a multi national industry knows how difficult it is to get policies implemented, products introduced or to comply with a European directive that has been interpreted 27 different ways into national law. No company with any sense would open a factory or an office in France, Italy and some other EU countries, where protectionist employment laws could kill that company. I personally know of a case where a multi national company was trying to tighten its purse strings to remain solvent and Italian law forced that company to increase the salary of Italian employees and maintain periodic pay rises. In desperate times protectionism has raised its head. In France with Mr. Sakozy suggesting that French cars for French drivers should not be made in former Eastern bloc countries and the EC had to intervene to stop Germany offering incentives to a consortium proposing to buy the failing Opel company, to keep the German factories open to the detriment of more cost effective plants elsewhere.

This crisis has the ability to pull countries closer together or pull them further The key is Germany where they are furious that they have to bail out other countries until they realize that they created the situation in the first place. Germany companies have done very well and the economy has grown with exports particularly to Greece where they have risen by 130% in the last 10 years. So how did Greece pay for these exports. with loans from German banks. Therefore, it is essential that they and the French to a lesser extent rally around the single currency as they are sat on a large amount of southern Europe sovereign debt. That has been the pattern the industrious north has done well but those around the Mediterranean have been affected by the sun leaving the idyllic life but unable to pay for it. Great for a holiday but not for life, in fact Greece has become the most obese in Europe where once they had one of the healthiest diets.

The alternative approach is to a number of separatist theories with retraction from the Euro or a North South divide where the super efficient North have a strong euro and the languid south another. Which would France join?

Practically what can EU leaders do and which direction can they take and what have they done so far?  To date there have been last gasp austerity measures that may well in the short term pacify the bond market but is a risky course of action. These measures will inevitably lead to a weakening growth rate and increased unemployment. The same arguments were the difference between Labour and the coalition in how to solve the UK’s financial problems where at least there is time as the UK’s debt has the longest due date of all in Europe. Now Spain, Greece and Portugal face a log hard struggle to rebalance their economies

Markets have lost faith in the euro and the hope was that the economies of the 16 countries that use the euro would converge. The struggle to regain creditability with markets has lead to a divergence on the course to be taken by Germany and France. Germany has gone for stricter rules and discipline on borrowing and spending, sanctioning governments who fail to toe the line to the extent of freezing funds for EU mega projects and suspension of voting rights. The French favour a system of redistribution from richer to poorer members with some fiscal and social harmonization.

Germany’s proposals are unworkable, the reaction to losing voting rights is unacceptable particularly to the former communist countries where there has been such hard work to lead to democracy. Stopping funding on EU mega products where they cross boarders could penalize other countries. To redistribute, as the French recommend, to save the euro would require an equally unacceptable step towards political union.

What is the likely outcome?. It is likely to be a  form of compromise with temporary rescue packages, informal and semi formal discussions and agreements – in other words a muddle through.

It is possible for the EU to agree and force through essential legislation when it is a matter of survival. A key demand to European business is an EU wide patent that has been stuck for years over the status given languages in Spain and Italy. On 1^st July the EC forced this through to be valid in all 27 countries. Another example of the power of the EU market is where Germany was told it could not spend taxpayer’s money to protect Opel jobs in Germany without the same support to other countries. It is possible that the people understand the need for a free market economy better than their leaders where in a recent pole 73% of Germans and 67% of French said they were better off in a free market. Interestingly a greater percentage than in the middle of the boom and greater than America. We have already mentioned the need to pay for pensions and the less than feared reaction to raising the pension age. In the countries brought to the brink of disaster, the civil unrest was much less than expected and dominated by public sector workers with safe jobs. The leaders should have courage as this crisis gives the excuses for radical reform and there are hints that citizens are prepared to take there medicine.

However, the best bet would be a muddle through and hope for the growth that is needed to sustain it. An opportunity lost.

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 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

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

If you search the web for information on when and how to buy gold and in what format you will get a wealth of advice on both the indicators and how to get the best return on your investment.  You may also see warnings from fake coins, tungsten in gold bars to loss of value on resale as dealers take there cut.  More of this later as there are certainly pitfalls that are easily avoided.

You may be driven to gloom and despair when you come across many hypotheses on the dangers of Fiat currency, whereby central banks are printing money and devaluing currencies be that USD, GBP or the Euro. You will certainly not be comforted by articles on Sovereign Debt £1.4 trillion coming up in the UK, the greater and more dangerous debts of the US, Japan, and the current difficulties with Greece, Italy,  Spain and Portugal in the Euro zone. We have already seen the collapse of Iceland and some former eastern European countries and Ireland on the brink (UK citizens who hold money in our Post Office should be aware that this is directly with the Bank of Ireland who is now 1.9 billion in debt). If you delve further you will see more political manoeuvring in the East and Russia, where there is a drive to move away from the USD as the reserve currency, additionally China has a long term strategy for financial domination. You may be forgiven for feeling that the world as we know it will come to a halt as you listen to many experts predicting an inevitable systemic crisis that would make  2008 pale into insignificance and global contagion would cause capitalism itself to collapse.

I am not saying we should ignore those warnings, far from it but the optimist would have some faith that the western world could stabilise, otherwise we will not be concerned with gold and money but food and weapons, and yes you will find that advice already common amongst the growing number of survivalists in the USA.  There will no doubt be rocky roads to follow, financial difficulties, pressures on currencies, but currency is not money.  There is no doubt that many people will be looking for a safe haven, an insurance policy and the only world wide respected haven is gold.  This gold must not be in the form stocks, un allocated gold at a bank or certificates but physical gold which is tangible either held secured at your residence or in a vault where you own it.  Even the survivalists after the guns and ammo recognise that a stash of gold coins would be necessary as a medium to exchange for supplies.

I would say that the majority of investors are optimistic enough to believe that we will overcome a financial crisis to a greater or lesser extent and not be plunged back into the third world. There is no doubt that we are in an investor “safe haven” and even the most optimistic are and should be hedging by diversifying part of their portfolio into gold.  We in the UK have always believed in our currency otherwise we would be part of the Euro zone, we have not been successfully invaded for almost 1000 years hence we have no country wide safe haven investment history. Twenty two miles across the channel, our nearest neighbour France, following a century of invasion, dramatic devaluation understand the safe haven that gold provides.  Families have survived through crisis because they put their wealth into gold napoleons and today French citizens have 3000 tonnes held privately in gold coins. Should a new crisis occur then many French families will be able to ride out the storm whereas hardly any in the UK would be in a similar position. There is a lesson to be learned here.

I have researched long and hard and think I understand the drivers, the risks the patterns.  The case for owning gold is clear but investors will always be looking for Return On Investment so clearly the timing of buying and selling is essential.  We saw in December 2009 the gold spot touch $1227 per ounce and is now holding around $1100. Where will it go is the big question and what are the drivers and is their anything to be gleaned historically or seasonally.

Let’s take a look at the drivers that keep the price low:

• The West has become complacent and does not have the level fear of financial crisis that it perceived a few months ago. The truth is that we are not out of the crisis the economy is recovering very slowly and is very volatile and we have the £1.4 trillion sovereign debt to face
• The West although no longer fearing a crisis is still tightening is belt and there is not the money around to spend particularly on jewellery. People are taking note of the volatility, companies who have vacancies are fearful of taking on new staff and unemployment is still a huge issue
• The USD has been relatively strong recently and as we al know a strong dollar weakens the gold price. Interestingly the GBP and Euro price has risen from the all time high dollar spot price due to weakening exchange rates.
• India’s private demand dropped in 2009 as people did not buy as much jewelry due to the high price although India’s central bank bought 200 Tonnes off the IMF to back its international commitments
• China is now the largest consumer and the greatest producer of gold but is playing a very political game as it is determined to increase its reserves and shed dollar assets but it does not want to do anything to increase the price of gold or weaken the dollar while it holds $2 trillion of dollar assets
• It is believed if demand continues at the current rate it will not overstretch supply.

What will drive the price up?

• At some point inflation will incur and the dollar will weaken as more money is printed
• It is likely that there will be another financial crisis that will send all the gold bugs scuttling to protect their wealth
• China, Russia and India will take up any slack in demand particularly China who want to increase their gold reserve but also have encouraged their citizens to save gold
• Central banks do not find holding foreign currencies attractive so they can only turn to gold
• There is a finite supply of gold all that has been produce in the world to date would fit in a 20m cube. It is more difficult and costly to mine and the ability to supply is falling off.

The new drive will come from the East as their central banks diversify from dollar assets and the new found prosperity of their consumers will lead to purchase of gold for jewellery and investment. Eastern currencies will appreciate as the dollar losses its status thus driving up the price in dollars over a period of time.

When is gold bought and sold?

• Seasonally – Over the last 30 years the gold price has been at lowest with remarkable consistence in the northern hemisphere summer as European jewellery fabricators and customers are on vacation with the biggest drive in the fourth quarter. This coincides with harvest and wedding festivals in the East. On average throughout this period gold bought in summer turned profitable by the end of the year. Professionals tend to sell at the beginning of the year.
• Historically – Gold has reached a high in cycles followed by quite severe corrections and periods of consolidation. In fact in the last several years gold’s peak highs have followed a super cycle of around 22 months.  Gold reached its famous high in 1980 at $850 which equates to around $2200 when adjusted for inflation so there is a very strong argument that gold still has a long way to go before it reaches its previous high and now we have in addition Russia, China and India as major players. Bearing in mind that cycles constrict and expand please look at the chart below where the next predicted super cycle high will be around 21 months from the high in December 2009 and that will be Q4 2011 and this also coincides with the seasonal trend.

When to buy and when to sell:

All the indicators point a period of consolidation, both seasonally and historically gold should reach a 2010 low in July to August probably $1050 – $1060 and that is probably the time to buy. Do not expect  an immediate significant rise but the trends show that there will be an increase towards the end of the year and probably another period of consolidation in early 2011 so time to hold your nerve.  Late in 2011 the seasonal and the super cycle trends combine and we shall reach the next peak. Conservatively that would be in excess of $1300 but many experts are expecting the next peak to be $1500 or higher. If you are a speculator you may want to take your profit now but if you consider your gold to be your insurance policy then you will hold on to it. If you are in the later category then you will hold your gold until there is a stabilisation and that would not happen until we stop printing currency and take our contractory medicine. See the article on When should we sell gold for more details

What to buy and how?

I mentioned in the opening paragraph that there are pitfalls to avoid and it is not too difficult. Apart from fakes, which can easily be avoided by using reputable sources and not trusting to buying through private individuals through auction site, everything else is designed to take away you profit.

Buy:

• Investment gold(1) to avoid VAT
• Investment gold to include in your SIPP so the UK government will pay you back 20% or 40% depending on your income tax bracket
• Legal tender gold coins(Sovereigns and Britannias) to avoid Capital Gains Tax on profit
• From a reputable source

Avoid:

• Dealers or companies that charge a high premium
• Proof coins that can have a premium of almost twice the gold value
• Any gold coins that demand a high initial premium
• Numismatic coins as they are best left to the experts in that field
• Large bars that are difficult to liquidate
• Removing your gold from the professional system as it immediately depreciates by 10-15%

Sovereign Elizabeth II Obverse

Buying gold bullion is good because the premium is low but we would recommend gold investment coins and in particular semi numismatic coins can attract a premium differential over the gold price particularly in times of crisis. Coins have greater liquidity than bullion bars which can be difficult to split.There is  quite a choice  and that may be appropriate to the country in which you live. The Krugerand is one of the oldest and well known bullion coins and can be purchased with little premium over a bullion bar. In the UK, the British sovereign is in my opinion is the best investment,  ”safe haven” and emergency coin in the world and can be bought at very little premium from the right source with added attraction of owning a beautiful historic coin with aesthetic value.

There is clearly a case for a platform that enables the discerning investor to incorporate the factors that removes the risk and reduces purchase premium and commissions to the minimum. This mechanism did not exist until a unique platform was developed to enable the buying and selling of gold in real time with best prices and secure storage,  in France in 2008 AuCOFFRE.com.  The  UK website is currently under development and will be available very soon.

(1) Investment gold is

(a) gold of a purity not less than 995 thousandths that is in the form of a bar, or a  wafer, of a weight accepted by bullion markets or:

(b) a gold coin minted after 1800 that:

¨ is of a purity of not less than 900 thousandths

¨ is, or has been, legal tender in its country of origin; and

¨ is of a description of a coin that is normally sold at a price that does not exceed 180% of the open market value of the gold contained in the coin; or:

(c)  an investment coin as specified in Notice 701/21A Investment gold coins.

Maurice Hall

Now that gold is in a consolidation phase it is time to take the opportunity to review your assets  and understand the real advantage that they have given you is  ”life insurance ” .  For those that already own gold coins and know the many advantages of them, it’s time to strengthen your holdings.

We have heard people say “Personally I think that the price of gold will continue to drop because of all this news about a recovery.”  Recovery? What recovery?  The recovery of city traders’ morale because they have been offered two or three jobs a day for the past few months?  The recovery of your bank manager’s morale now that he is able to do his job like he did “before“?  No one has spoken to me about a recovery.  The budgets of many companies are still frozen as they wait for better days.  The bank accounts of some are nearly empty and uncertainties about their employees’ jobs have never been so great.  The global debt situation is frightening and the UK national debt is reaching dangerous heights, estimated at £1.1 trillion next year. In summary, nothing has been settled and we are currently navigating through a period of uncertainty, a vast smoke cloud. Most experts agree that gold is in a period of correction that falls into a pattern that has been repeated through out the last decade. There will be consolidation and that could be around $1100 an ounce and that will be followed by a rise of anywhere between $1300- $1500 by the end of the year.

To continue with this metaphor, the house is on fire in the basement but there is still time for those who don’t have any insurance to take some out.  The structure has been affected but there are still embers alive here and there and no one really knows where and how to extinguish them.  You can even consider yourself lucky because you know that the house could soon burn down entirely.

In this context, buying gold is a bit like placing Pascal’s wager: by not having it you have everything to lose.  By having it the worst possibility is that you will keep it and have to catch up on the rest (stocks, property etc.) Or put another way “Gold is not an investment, it doesn’t earn anything.  It’s a security blanket when monetary markers disappear.  Which is the biggest risk: having gold or not having gold? Not having it of course.”  – Simone Wapier Chief editor MoneyWeek

Those who today believe that you shouldn’t buy gold because the stock market is showing signs of recovery are those that systematically buy gold when its price is rising because it is talked about on the TV who sell when the price is dropping because no one is talking about it anymore.  In short, the same people who systematically lose on shares because they apply the same strategy to their stock portfolio. The simple chart shows a typical investment  cycle where the heavy public buying is a result of  greed and and the selling follows fear and despair but the overall trend is upwards for the discerning investor who holds his nerve.  Gold is still at this time the preferred investment of contrarians even if others are discovering its qualities.

Today, the price of gold coins means they are still worth purchasing, particularly because Napoleons have a premium of less than 5% and Krugerrands have a premium of between 5 and 7% as have sovereigns if bought from the right source.

All gold coins are not equal depending on what you want to do and where the coins are located and where you live.  You must choose coins that correspond with your profile and you must know how to diversify. Coins are also global and it pays to understand how coins are bought and sold in other countries and how profit can be made outside of your own country. We have this international experience.

Generally in Britain we should buy sovereigns, Britannias as they are our national coins and free from both VAT and Capital Gains Tax (CGT) but we may also consider the Kruggerand but accept CGT will have to be paid on profit.  However, we should be aware of the vibrant gold coin market in France where we can take advantage of their obsession with Napoleons where the premiums will rise at the slightest hint of any trouble. People who live in France  should buy Napoleons, also we have advised them to buy Tunisian 20 Franc coins (not sought after in France therefore a low premium potential in France) because they have a second home in Tozeur, in the middle of the Tunisian desert (place where the premium for this coin will be higher because of strong demand for gold).  We  have advised other people to buy sovereigns rather than Krugerrands because they travelled between France and China for business.

Generally speaking we advise the following:

• Medium and long term investors buying and selling in the UK should concentrate on the sovereign, Britannia or Krugerrand.  Other coins to consider internationally are the Napoleon, the Swiss 20 Franc Vreneli and the 50 Peso Centenario.  For info: the Sovereign is highly sought after in all the former British colonies but also in Germany, Greece and China. Without doubt it is the coin that has the greatest worldwide liquidity and is the coin of choice for use in an emergency and is issued by many nations armies, to personal likely to be exposed to danger. The Napoleon is essentially recognized in France, Switzerland and Belgium and could be interesting to the UK investor for the reasons above.  The Krugerrand is the international gold bullion coin and wherever you go this coin is sought after it may also be useful in shorter term investments.  The Swiss 20 Franc is the gold coin familiar to all the former investors in physical gold in particular the Germans, Swiss and French.  Finally the 50 Pesos Centenario can easily be traded for cash in all Hispanic countries.
• Those who like to play the markets and like us think that the price of gold will continue to rise and that there might be a rush on gold coins towards the end of the year, can consider the  Krugerrands which could become short in supply.  They could also follow the price of the $ 10 and $20 US  (Eagle and Double Eagle) which have very large differential premiums ( the difference between the base premium and the highest premium) and buy therefore when the premium is low (don’t expect the base premium to be lower than 10% however).  Such coins could gain or lose £40-45 in less than one day.  Finally, for those that want to play the French card, our preferred coin for trying to make a profit with is undoubtedly the 10 Franc Napoleon or the half Napoleon which can make 10 Euros in less than a day (which is enormous for a coin that is listed for around 80 Euros).  In France the half Napoleon is the coin with the highest differential premium.  But be aware, we recommend it for experts only because you have to know when to buy it at the best time (premium between 12 and 20%) and you must above all be certain of its quality (minimum VF condition)
• For Insurance, Investment and world wide liquidity and the added advantage of no Capital Gains Tax in the UK  buy the sovereign

An index of the most popular investment coins can be found at http://goldcoin.org/investment-coins/

In summary:

• You still don’t have any gold coins?
• You already have coins? Don’t sell them, strengthen your holdings.
• For the long term: Buy Sovereigns (antique but not numismatic or Elisabeth II), Napoleons, Swiss 20 Franc or 50 Pesos.
• For the short term: buy Krugerrands, $10 or $20 Eagle or double Eagle with a declining premium, or even very good quality half Napoleons when the premium is between 12 and 20%.  You know that you are taking risks with these purchases but in terms of profits you could very quickly increase your outlay.  This takes time, but you have everything to gain by monitoring the price of these coins and by creating email alerts for when a threshold (price and/or premium) is passed upwards or downwards.

You will find the following articles interesting:

• Investing with gold coins.  The novices guide – (to be posted)
• Analysis of Gold – Price consolidation

The Sovereign and Kruggerand also have internationally appeal but  the Swiss 20 Franc Vreneli, and the 50 Pesos are also interesting due to its very low premium but strictly as a long term investment for the day when everything implodes…

Updated by Maurice Hall for the UK market from an original article by Jean-Francois Faure president and founder of AuCOFFRE.com

The role of the Dollar in the Bretton Woods Agreement

Behind the changes that led to the Jamaica agreement can be found the decision taken by President Nixon on the 15th August 1971 to suspend the direct convertibility of dollars into gold, the keystone of the financial system created in July 1944 (the Bretton Woods Agreement).  On the 1st October 1971 the general assembly of the IMF asked the board of trustees to study and propose a comprehensive reform.  This would be adopted by member States during a meeting held in Kingston (Jamaica) on the 7th and 8th January 1976, and included a set of provisions which put an end to the reign of gold.  The decisions taken focussed on two main points:

1. The new exchange rate system

Member countries had to refrain from manipulating their exchange rate for competitive reasons and had to choose between three possibilities:
- not assigning a parity to their currency which floats freely on foreign exchange markets ;
- fixing the value of their currency by pegging it to another currency or Special Drawing Rights ( SDR )*– not to gold;
- linking the value of their currency to one or various other currencies as part of cooperation mechanisms

2. The role of gold

The solution presented was a compromise between the French argument that pushed for gold to remain part of the organization and running of the international monetary system and the American policy that had for a long time wanted gold to be withdrawn from its supreme position.  The agreement withdrew the status of the IMF and all references to gold and replaced it and its core functions with SDR whose dollar value is posted daily on the IMF website.  The consolation for gold was that central banks were given back the freedom to carry out transactions with metal without restrictions on them or the market.

This desire to remove gold as the standard parity system and to abolish the official price of the metal was completed by:

- abolishing obligatory payments in gold for operations between the IMF and member countries;

- obliging the IMF to get rid of a third of its gold holdings (50 million ounces) by returning half to Member states at the old price ($ 35 an ounce) and by selling the other half through public auctions.

Again we must add that the abolition of the official price of gold resulted in central banks being able to carry out transactions at a price derived from the market and to reassess metal stocks in their possession (as was very quickly the case of France and Italy).

Even if the United States made it known that they would continue to assess their reserve at the old official price of $ 42.22 an ounce and even if the first auction by the IMF lowered the price of gold on the world markets, at least for short periods, we can say that in the fact the results expected by the American policy and the IMF were a long way from being achieved.  The price of gold and gold itself still remain important elements of a vast political game: all things considered, if gold has survived, it’s because it has not stopped being the official metal that governments didn’t want it to be and wanted to forget.

Today - As the dollar struggles and the new gold giants Russia, China and India are all looking in different ways towards gold as the international medium to back commitments or in the long term to oust the dollar as the international reserve currency. Closer to home the crisis that rose to the surface in 2008 has caused us to once again look at the stabilisation that resulted in the Bretton Woods agreement, which collapsed, partially due to economic expansion in excess of the gold standard’s funding abilities on the part of the United States and other member nations. However, the problems of currency systems not pegged to gold lead to economic problems far worse.

Both France and Britain have envisage such a stabilization. French President Nicolas Sarkozy and British Prime Minister Gordon Brown were recalling the previous success and called for a “new Bretton Woods” agreement in October 2008. What Sarkozy and Brown envisaged was a new multilateral agreement to stabilize international finance in the 21st century, the way the 1944 conference, which established the International Monetary Fund and the World Bank, stabilized financial relations among countries in the second half of the 20th century. The summit meeting of world leaders held in Washington, D.C., in November 2008 started a process that could lead to such an agreement. What would that take to succeed? What kind of leadership, and what kind of commitment, would be needed? History offers some useful lessons.

On several occasions throughout the 20th century, political leaders in major countries sought international agreements on the global economic or financial architecture. Many of those efforts failed, Bretton Woods being the major exception. The central lesson that emerges from these efforts is that successful reform in response to a crisis requires three ingredients:

1. effective and legitimate leadership combined with inclusive participation;
2. clearly stated and broadly shared goals
3. a realistic road map for reaching those goals.

The goals, achievements also that which is deferred is dependant on the participant countries. New rules in finance can only be devised by the those who are the major players in the financial markets, industrial and emerging markets. The more inclusive the participants in the next Bretton Woods the more likely to conclude with  long lasting benefits

* The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (equivalent to about $ 321 billion).

Maurice Hall –  based on extracts from Jules Lepidi’s book gold and article by JM Boughton IMF Historian

In March 1999, gold is almost as low as $250 an ounce.  In December 2009 it cost more than $1200 an ounce.  In ten years, the price of gold has exploded and despite the recovery of the financial markets you will have seen that the price of gold has not dropped.  Why?  Because one central bank has announced that it secretly accumulated gold reserves, multiplying its gold reserves by three – that Bank is the Chinese Central Bank.

Peoples Bank of China HQ

The Chinese Central Bank announced that it now holds the fifth largest stock of gold of any central bank.  Central banks hold gold, they always have.  Since they were first created, gold has been used for stabilisation in times when only the gold standard determined trade values and currency values.

Since most currencies became free to convert, gold has lost its importance and in early 1999 most central banks decided to sell gold because gold wasn’t making them any profits. The Bank of England started to sell its gold stock leading to a drop in the price of gold.  France, Spain and Portugal followed suit.  Almost all countries decided to sell gold except the United States, Italy and Germany.

On one side there are all these vendors, the Bank of England being one the Swiss National Bank another  On the other side there is one central bank that is accumulating gold reserves, China.  All central banks have gold to protect themselves against possible crises and against possible chaos we have talked about. We talk less about a kind of end of the world where currencies are worth nothing and there remains only one way of trading, with gold.  We are reminded that gold earns you nothing and yet the price of gold continues to rise.
Today, there are three different camps emerging within central banks holding gold:

- Those that want to get rid of their gold stocks in the belief that it is not strategic.  The Bank of France is one of these central banks.

- Those who want to retain their gold stocks, but who do not want to engage in battle by buying or selling gold, for example Germany and Italy.

- And then there are two countries that are going head to head in confrontation with each other.  On the one side there is the United States which has 8000 tons of gold in its reserves but which has decided not to touch it and could increase its stocks if China appeared to want to challenge them on this front.  On the other side, the Chinese Central Bank has passed the milestone of 1000 tons of gold to 1054 and has openly announced that it will continue to buy gold.
Central banks’ gold will probably become a new episode in the gold war which will last for centuries.  The Central Banks’ gold is a theme that must be closely followed.

Marc Fiorentino – CFO of Euroland Finance

Prior to 1860 the Germinal system was adopted to create a monetary community between Belgium, France, Italy and Switzerland.  In 1803, the “germinal franc” (named after the month Germinal in the (revolutionary calendar) was established, creating a gold franc containing 290.32 mg of fine gold. From this point, gold and silver-based units circulated interchangeably on the basis of a 1:15.5 ratio between the values of the two metals (Bimetallism). This system continued until 1864, when all silver coins except the 5 franc piece were debased from 90% to 83.5% silver without the weights changing. It, however failed because these countries had to lower the fineness of their coins to curb the disappearance of silver coins.  There was no harmony between the countries.  The Swiss reduced their 2 franc coins and higher value coins to 800 thousandths.  Italy reduced their coins to 835 thousandths.  Due to the need for small coins, France overruled the Legislative Body and tentatively decided to reduce the fineness of 50 and 20 centime coins to 0.835 thousandths (law passed on the 25^th May 1864).

Belgium gold coin from Latin Monatary Union - Leopold II

The story began when Belgium adopted the French franc in 1830. Switzerland harmonized its currency to the franc in 1848 and Italy joined in 1861, both retaining the names of their national currencies but adjusting their values to match the franc. In 1865, this arrangement was formalized as the Latin Monetary Union. Greece and Bulgaria joined in 1867, and a number of states (Spain, Romania, Austria, Finland, Venezuela, Serbia, Montenegro, San Marino and the Vatican) issued currency following the conventions without officially joining the Union.

The basic idea was that each member country would have identical coinage made from gold and silver. While the names of the individual currencies were kept, the weights were identical, so 5 French francs were worth exactly the same as 5 Italian lire and could be used through the Union like national currency (minus a 1.25% handling charge). Each country could mint as many coins as it wanted, there being no risk of inflation due to the intrinsic worth of the metal. The following coins were issued throughout the Union:

Belgium used French gold for all its dealings and therefore made it legal tender in 1861.  The Belgian delegate remarked that because his country was situated between France, England, Holland and Germany it formed the perfect natural link for payments to these States.  Some were using gold and others silver.  The balance of the National Bank was suffering from the aftershocks of these actions which disrupted credit and trade.  Belgium, Italy and Switzerland therefore demanded adoption of the gold standard.  The agreement was signed reducing the fineness of coins worth less than 5 francs to 835 thousands.  The money supply was voluntarily limited.  Individuals could only make maximum payments of 50 francs.  Each country was also forbidden from printing more than 6 francs per capita.  A very simple system that Greece joined in 1868.

However, there were problems that eventually lead to failure. The exchange rate of gold to silver was fixed at 1:15.5, which soon turned out to over value silver significantly. The Union countries tried to unload their silver coins into other countries, so they could profit by turning them into gold. Speculators could buy 16 francs of silver, go to the Mint and strike four 5 franc coins which enabled them to go and buy a beautiful Napoleon. France’s gold was disappearing.

Germany shamelessly profited and benefited greatly from the situation.  German agents came to Paris and Brussels with silver ingots from the recent demonetisation of thalers and transformed them into 5 franc coins which were then converted into notes and then gold.  To put an end to these practices Belgium, France, Italy and Switzerland limited (1874) and then soon after suspended (1876) the striking of écus. A larger problem was that there was also a second set of subsidiary silver coins for smaller amounts, issued by each country on its own and not fully convertible elsewhere. Even though these coins had a lower silver content than the primary coins, Union members were by law required to accept up to 100 units of them at face value per transaction, very much a loss-making proposition for the receiving side. Also, while the ending of silver convertibility stopped the minting of new silver coins, outstanding ones remained legal tender. With the advent of World War I and the massive financing strains involved, not to mention war between members of the Union, the system collapsed totally, although it remained in legal fiction until the end of the 1920s.

The United Kingdom entered discussions of  Britain joining the Latin Monetary Union. The proposal involved reducing the amount of gold in one pound sterling by less than 1% to make one pound equivalent to 25 Francs and also decimalising the currency. During the period of the Latin Monetary Union, the United Kingdom was already in a monetary union with territories now commonly known as the “Commonwealth” The gold standard of the British gold sovereign existed in these territories until the outbreak  World War I.

Maurice Hall

Before they even enter a gold mine, travellers are surprised by the logistical ability of the countries in the Amazon region to transport everything that is needed for the miners, from food through to petrol. Extracting about two hundred and fifty tonnes (and probably more) gold per year as chips, fine grains or nuggets, transporting the precious metal and its ingredients, fuel and mercury all represents a highly profitable business whether using dugout canoes, quads or small stunt planes. Attempts to protect the Amazon require the involvement of the region’s countries to implement campaigns, to ban  illegal mining and the use of mercury, but are faced with the complete hypocrisy of these countries’ representatives irrespective of whether it is Brazil, France, Surinam or Venezuela.

Why criticise the business when these same country representatives are using every available means to extend it, by a laissez-faire attitude, by turning a blind eye or even by their active involvement. Not only is the situation in the Amazon rain forest not improving but it is worsening to the point where you have to wonder if even the countries are profiting from its destruction. Part of the problem stems from how the gold is pulled from the ore. Across Brazil, thousands of garimpieros, itinerant gold miners, remove ore by washing a rock face with a high-pressure stream of water. The ore is then broken down in a hammer crusher, and the gold-bearing ore is sluiced with mercury in a process known as amalgamation. The amalgam is filtered manually and then retorted to release the mercury from the gold. The mercury vapor that results is distilled and reused, although a small fraction remains bound to the gold, to be released by the gold dealers during processing. The Brazilian Gold Rush began in 1980 when gold was discovered in Serra Palada in Palá state. Most of the incoming population (at least 250,000) worked for a low wage in very crowded, highly competitive gold mines with very lax environmental practices. Up to 9000 tons of mercury, used in the mining process, has been washed into the region’s rivers, along with huge quantities of sediment. The miners have also polluted the rivers with oil, litter and human sewage. All around the vicinity of the mines, vegetation, animals and settlements have been destroyed.

The profits to be made from providing transport are often as great as those to be made from mining. The town of Maripasoula in French Guyana controls an area the size of Belgium and gains a large part of its revenues from the gold. However, in Brazil, the transporters do not care as they send their goods to the other side of the river Oyapock, on the Guyana side, and wait for their commissions. The same occurs with Surinam, where the gold money ends up in bank vaults or on casino tables. Why bother saying that the gold helps the local population when everyone from Caracas to Cayenne, from Rio to Paramaribo, knows perfectly well that it provides no local benefit and is removed to foreign countries?  The gold leaves whilst the mercury penetrates into the Amazon basin. The alchemy is damaging for the forest and is affecting the human population particularly those who eat mercury contaminated fish.

Includes exerts from the book J’Aurai de l’Or by Olivier Weber. See video clip  curse for gold

When Nixon broke the link between gold and the dollar the world did not stop turning.  The economy rebounded and prices dropped. There was a lot of dissatisfaction about price controls and other things.  However the economic recovery happened and the president was triumphantly re-elected.

Nixon however didn’t put an end to the love affair between gold and the Americans.  Gold had never been in such high demand for decorations or jewellery.  The link between man and this precious metal is seemingly not ready to break.

Gold contacts on computer chip

Gold still plays a central role in our daily lives.  This metal, which was discovered in Ancient times, is a key component of modern technology. It is an unalterable metal and an excellent conductor of electricity.  Each year the electronics industry uses 200 tons of gold. In this highly technological age, if you told an engineer or an electrician that they would have to do without gold they would explain to you that a large part of the IT, audiovisual and many more industries would have to stop, at least until an alternative to gold could be found.

Scientists themselves are looking at gold in a new light.  We know that its medicinal properties have been studied for a long time.  The Chinese are credited as being the first to use gold for medicinal purposes around 2000 BC.  It was not until the late 19th century or early 20th century that chemistry was used to design drugs containing gold.  The German bacteriologist and Nobel Prize winner, Robert Koch for example discovered that TB causing bacteria could be killed using a mixture of gold, aurous cyanide.

Pure gold inner ear insert

Before antibiotics were discovered, gold based drugs were an important weapon against disease.  Compounds containing gold are still used to treat certain forms of rheumatoid arthritis.  With current laboratory research, technicians are interested in manufacturing new soluble gold compounds to treat viral infections but there are also some soluble forms which are capable of killing cancerous cells which we have been able to test in recent years.  These products are not yet at the clinical experimentation stage and there is still a lot of work to be carried out on the chemistry of gold which is an active research area.  However, gold possesses a high degree of resistance to bacterial colonisation and because of this it is the material of choice for implants that are at risk of infection.

Further studies are underway to prepare for the next gold rush.  But this time, in space.  Rocks more than 4.5 billion years old, contain ten times the concentration of gold that can found in any mineral on earth and there are millions of rocks like that in space, in what are known as near earth asteroid belts and in the main asteroid belt.  For Jim Benson, there must be a way of collecting this extraterrestrial gold: “We could envisage launching a space rocket to one of these near earth asteroids between Earth and Mars and landing smoothly on it.  The first time we would certainly be able to take a sample and analyse it.  But on the next mission we might be able to bring back some of the rock or even use a space tug to bring a relatively small near earth metallic asteroid into the earth’s orbit where we could process it at a lower cost.  An incredible challenge but it will be possible not too far into the future.  Fortunes and empires could be built and I think for many generations to come.  Space offers infinite resources with no boundaries.”

If you believe Benson, one single asteroid could produce 80000 billion dollars worth of gold.  But like King Midas, who turned everything he touched to gold, when there is a considerable amount of gold to be had, the magic doesn’t work anymore, it’s finished, done.  And yet all throughout history the fascination in gold has never waned.  When the Romans found gold in Spain or when the Spanish carried out operations in Peru, all the gold that was discovered was used.  The discoveries of the 19th Century brought production levels to unimaginable levels, but gold has not lost its value.  We always want more.  The obsession with gold has been constant since the dawn of time.

Gold has pushed men and women to carry out the most extreme acts, of cruelty, bravery or beauty.  For thousands and thousands of years, owning gold has been of the utmost importance to become not only rich but also powerful.  Gold has survived all civilisations.  It was a central part of religion and the arts.  The economy of nations relied on gold, for better or for worse.  If one day we discretely gathered up all the gold of the USA, UK, Germany and France and we threw it into the sea, the economy would not stop.  Life would continue but in hard times we turn to gold.  Gold is something special.  It is not a product manufactured by man but by nature which is why we have confidence in it.  It is your insurance for a rainy day.  Gold is capable of surviving disasters.  Indestructible and universal, it has incomparable power.

Don’t be put off by last weeks sell off in gold as it was not physical gold that was sold but paper gold.  No one sold their sovereigns, eagles ,napoleons, kuggerands.  Nor did the Chinese, Indian or Russians sell gold from their national vaults. Do not think we are about to experience a reversal in value of gold.  World output of gold has declined by 1 million ounces annually since 2001.

All indications are that we should expect an impending gold shortage. Total ETF holdings of the yellow metal now exceed total world production. South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US.

Here’s a chart that goes back over 30 years. It’s clear that gold output from South Africa is steadily falling and the rest of the world has not yet taken up the slack.
South African mines are, overall, getting so deep, hot and dangerous that they are on the edge of a major rapid decline in gold output. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce. It takes a lot of labor, fuel, and heavy machinery to get gold out of the ground, and none of these are getting any cheaper.

Political risks are heating up. In the meantime, the financial crisis has driven a surge to the safety  of physical gold pushing demand for gold bars and coins to all time highs. The big gold players China, India and Russia are building their reserves so that they can meet international commitments with gold as they are carefully moving away from the waning USD, the fallback international currency.

Last year, the US Treasury ran out of blanks for one ounce $50 American Gold Eagle coins and major mints in Europe reported dramatic increases in production in the latter half of 2009. This shows that American citizens are waking up to the need to own some gold and when they are fully awake it will drive a  huge increase in demand. Some  European countries and notably the French, are fully aware of the power of gold and in particular gold coins, that hedged currency devaluations and political turmoil throughout  the 20th century. Consequently they continue to put their faith in gold to hedge financial instability in the 21st.  Competitive devaluations by most central banks mean that currencies are not performing as the hedge that many had hoped. It all has the makings of serious gold shortage for the future. The current downturn has to be just a blip in the long term bull market.

Now is the time to carefully watch the spot price as it is possible that gold may fall as low as $1030  and that will be time to buy, as it is predicted that we could be seeing $1500 the fourth quarter as demand increases.

The gold was stored in large compartments about ten feet wide, three meters high and six meters deep.  The stacks of gold bricks filled the space to the ceiling, each that brick is approximately the size of three bars of chocolate. They weigh a dozen pounds each and were worth in those days, fourteen thousand dollars. It was 1940, six years after  gold was officially thirty-five dollars per ounce. Even at this value the pile was worth  up $ 2 billion, a sum sufficient at that time to  buy the total output of goods and services of the United States for four days. It was, however, in a small secure volume, lying in five floor’s under the  traffic of the streets of New York. The contemplation of  more than one hundred miles of gold ingots stacked to the ceiling and under the bright lights was an experience both chilling and unforgettable.

This gold was not owned by the  United States. It belonged to France, England, Switzerland and many other countries. For a long time, these countries kept some of their official holdings of gold in the Federal Reserve Bank of New York, both for reasons of safety and convenience. Each bar was recorded and  bore the stamp of its owner and any other identifying mark. This process of marking is called “earmarking,” a phrase which undoubtedly refers back to the method  used to indicate membership of animal herds. This marking avoided each nation the  worry and expenses associated with the transport of gold from one country to another (especially if it had to cross an ocean), when for one reason or another, gold changed owner. For example, if England had to pay gold to France, an employee of the Federal Reserve just took a cart to the compartment assigned to  England, loaded the appropriate ingots and transported them to the  French compartment, changed the signs on gold bullion and noted the change in a book.

I landed a job in the documentation department of the Federal Reserve Bank of New York at the heart of the financial district. One day, as a favor, my boss took me to see the gold that was stored in the sanitized vaults of the bank, five floors underground. They were dug deep into the rock to deter burglars building an access tunnel. We entered the secured area by heavy cylindrical stainless steel doors, waterproof and airtight, which unlock automatically at nine o’clock in the morning and lock automatically at five o’clock in the evening. A basket was placed inside, just after entry, with fresh sandwiches, renewed daily, for any unlucky employees who sometimes found themselves locked in, when the doors automatically locked at the end of the day. A little further, there was a scale for weighing gold. It was so sensitive that a small speck would set it in motion. With gold, even dust counts.

These movements of a few meters from one compartment to another, often corresponded to significant changes in the distribution of wealth between countries, with profound impact on the level of living. However, citizens of each country never saw the gold of their governments. If all this gold, for example, had been submerged in the Hudson and we have continued to keep books of accounts the same way as before, the economic and financial implications for each nation would have been exactly the same and just as profound as when gold was physically moved from one compartment to another.

From the book The Power of Gold by Peter L. Bernstein

See our other article on “wealth is static“

The Napoleon to the French is what the Sovereign is to the British, their most revered coin and this “national” coin would be  each countries prime choice  for investment.  Both coins share the same principal of good design, quality minting and 22 carat gold. The Marianne Cockerel ( on reverse ) illustrated here is French coin  emblematic of a time when golden Franks shone all over Europe. The original design was by Jean-Clement Chaplain and is used on both the obverse and reverse. Because of the quantity produced they are traded as bullion coins and demand little premium except in times of crisis

There is a huge difference between the two countries in our attitudes towards gold and gold coins and this is historic. In short the French are gold hoarders and the British are not. French citizens hold approximately 10 times the amount of gold that is in the UK national reserve. Due to the uncertainty and trauma of war and occupation over the last 100 years , the French transferred a proportion of their wealth into a tangible asset, mainly gold Napoleons. Conversely the British have never suffered in this way so had no need for gold insurance and in fact were actively discouraged by the government making it difficult for UK citizens to own gold coins.

Why is this of any interest to someone in the UK who may want to invest in gold coins?. The French will always turn to gold as insurance to protect their wealth and this creates issues of supply and demand causing the premium on the Napoleon 20 FRF and the half Napoleon 10 FRF  to rise in times of crisis.  During October 2008 when financial panic was dominant in the world the premium differential ( the difference between the normal premium and the highest sell price) on the half Napoleon rose to over 80% as the French sought refuge in gold. There is a similar history with the Napoleon during the panic in the eighties the premium on the Napoleon ran to 100% and in October 2008 it rose to 48% for a short time; but in the table below we use the regular premium in that period.   In the UK a premium rise on Sovereigns in time of crisis is far more conservative. It follows that buying Napoleons at a time of normal premium and holding for a time when there is unrest be it political or financial would generate a very good ROI.

The table shows the premium that coins attracted at the hight of the crisis in October 2008. Remarkably some coins can be bought at very little or even negative premium in certain times and there is then the potential of a premium rise.  Coins that are in short supply, are difficult to mint and or are minted in small numbers generally attract a higher basic premium

A very attractive mechanisms is  to buy the Napoleons and store them in secure third party vaults in France or Switzerland where they are fully insured, you have an independent certificate of ownership and they are in your control.  Even better is to belong to a community that allows you store your investment in a vault; but at the same time allowing you to buy and sell amongst  that community, without moving the coins, thus simplifying the whole process and removing any dealer cuts.

Maurice Hall