In an era when Fiat currencies are being printed indiscriminately leading to debasement of the currency itself it is satisfying to note that the worlds longest running consumer protection policy is still in place, to ensure the Great Britain’s physical coinage meets exacting requirements. Since 1282 our coins have been measured against the worlds most exacting standards  in the trial of the Pyx, which has taken place every single year, including in 1940 when a German bomb, just two days before, destroyed a large portion of the Goldsmith’s Hall. For the 728^th time the trial was conducted on the second Tuesday in February of this year in the Hall of the Worshipful company of Goldsmiths.

Goldsmiths Hall

The term Pyx is from the ancient Greek and refers to the boxwood chest in which the coins are placed for presentation to the Jury. Unlike many quaint customs in the UK this is legally binding procedure and is a trail in the true sense presided over by a judge with an expert jury of assayers. The Judge is the Queen’s Remembrancer which is oldest judicial position in continuance existence created by King Henry II in 1154. The jury is composed of at least six assayers from the Company of Goldsmiths. They have two months to test the provided coins, and decide whether they have been properly minted. Criteria are given for diameter, chemical composition and weight for each class of coinage. The verdict has to be reported in writing and signed by the Jury.

The benchmark against which the coins are measured is known as the Trial Plate, and these were kept under the personal guard of the Monarch, in the Exchequer. The earliest surviving Trial Plate is stored in the Royal Mint, and dates from 1279.

Trial Plates are still used today – although they are managed by the National Weights and Measures Laboratory – who send a representative to the Trial to deliver them to the Court.

Coins to be tested are drawn from the regular production of the Royal Mint. The Deputy Master of the Mint must, throughout the year, randomly select several thousand sample coins and place them aside for the Trial. These must be in a certain fixed proportion to the number of coins produced

The first phase of the Trial is the counting and weighing of coins brought to the hall in the Pyx boxes. Throughout the year, one coin from every single batch minted by the Royal Mint is set aside and put in sealed bags, each containing 50 coins. These bags are placed in the Pyx boxes for the Trial.  In a normal year of production in excess of 60,000 coins would be counted although the jury would only count about 1/10^th of them with the remainder counted by machines in a side room.

The Jury member opens the packet and selects a coin at random and puts it in the copper bowl and the remaining 49 coins in the wooden bowl. This wooden bowl is later weighed to check that the coins are the correct weight. The copper bowl will be taken away once the event is over, and the coins in that will be handed over to the Assay Office who will, over the next couple of months carry out detailed tests to confirm that the metallic content is as it should be.

Queen's Remembrancer

The verdict of the Jury is delivered to the Queen’s Remembrancer in May in the presence of the Master of the Mint, or his Deputy.  For those interested a copy of the verdict from the 2009 trial can be found on this link http://www.hm-treasury.gov.uk/d/pyx_2009.pdf. Our Interest is in Gold coins and you will see in the verdict how they were weighed, melted, assayed and compared with the standard gold plate within the prescribed tolerances.

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

We spend much time thinking about what to buy and when to buy it, when in fact knowing when to sell is more important. The case for owning gold is clear enough.

Gold, like all other commodities, is inherently speculative. Unlike well chosen stocks which you buy to hold to take advantage of their wealth-compounding properties, you only ever buy commodities to sell later. With this in mind, when should you sell gold?

Some would say the time to sell is now. Gold just isn’t the misunderstood, widely shunned asset it was a few years ago. Isn’t the gold bull market now long in the tooth, with better opportunities to be found elsewhere?

Willem Buiter called Gold a 6000 year bubble ft.com. The late and great Peter Bernstein subtitled his book about gold “the History of an Obsession”. But much as I admire these two great minds, such loaded phraseology implies there to be something irrational about owning gold and I think that’s just plain wrong. The fact is that there is a fundamental need for a medium of exchange. Early civilisations used pebbles or shells. Prisoners have used cigarettes.

Having a medium of exchange makes life easier than under barter economy and societies have always organised themselves around the best monetary standard they could find. Until industrialisation of the paper printing process, that happened to be gold, which is small, malleable, portable and with no tendency to tarnish. Crucially, it’s also relatively finite and this particular characteristic (in combination with the others) can be very useful in environments characterised by monetary mischief.

I view it primarily as insurance against such environments. It’s a lump of metal with no cash flows and no earnings power. In a very real sense it’s not intrinsically worth anything. If you buy it, you’re forgoing dividend or interest income and the gradual accumulation over time of intrinsic value since a lump of cold, industrially useless metal can offer none of these things. That forgone accumulation of wealth is like the insurance premium paid for a policy which will pay out in the event of an extreme inflation event.

Is there anything else which will do that? Some argue that equities hedge against inflation

because they are a claim on real assets, but most of the great bear market troughs of the 20thcentury occurred during inflationary periods. A more obvious inflation hedge is inflation linked bonds, but governments can default on these too. More exotic insurance products like sovereign CDSs, inflation caps, long-dated swaptions or upside yield curve volatility all have their intuitive merits. But they all come with counterparty risk. Physical gold doesn’t. Indeed, during the “6000 year gold bubble” no one has defaulted on gold. It is the one insurance policy which will pay out when you really need it to.

There is nothing mystical about gold and I don’t consider myself a gold bug. In fact, I’m not sure I’d even classify gold as an investment’ in the strictest sense of the word. Well chosen equities (not indices) will act as wealth-compounding machines and are likely to make many times the initial outlay in real terms over time. These are investments because so long as the economics of each business remain firm, you don’t want to sell. As they say in the textbooks, you buy to hold. But gold isn’t like that. Like all commodities, it’s intrinsically speculative because you only buy it to sell it in the future.

The reason I own gold is because I’m worried about the long-term solvency of developed

market governments. I know that Milton Friedman popularised the idea that inflation is always and everywhere a monetary phenomenon but if you look back through time at inflationary crises from ancient Rome, to Ming China, to revolutionary France and America or to Weimar Germany you’ll find that uncontrolled inflations are caused by overleveraged governments which resorted to printing as the easiest way to avoid explicit default (whereas inflation is merely an implicit default). It’s all very well for economists to point out that the cure for runaway inflation is simply a contraction of the money supply. It’s just that when you look at inflationary episodes you find that such monetary contractions haven’t been politically viable courses of action.

What causes the political winds to change? A government crisis. In 2008, Ireland came very close to going the way of Iceland. They had their crisis. And historians today still refer to the inflation fatigue” in Britain by the end of the 1970s. This was our crisis. So what we learn from these experiences and others like them is that a fiscal crisis is required to force a majority acceptance of the implications of an overleveraged government. But the political winds in countries with central banks are a long way from blowing in the direction of fiscal rectitude. And while it’s true that more people are at least talking about it, talk is very cheap and no one is yet close to walking the walk. Such steps remain politically unpopular because we haven’t had our crisis yet. Given the clear unsustainability of government finances and the explosive path government leverage is on, a government funding crisis is both inevitable and necessary. Dubai and Greece are merely the first claps of thunder in what is going to be a long emergency.

Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK (witness the IMF’s recent recommendation that inflation targets be raised to 4%). Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the time to sell gold.

Extracted  from SOCIETE GENERAL Gross Asset Research Popular Delusions by Dylan Grice

We need to understand the difference between money and currency as one is real and the other a promise.  Money can be defined as a medium of exchange and a store of value and until fairly recent times was in fact coins made out of precious metal with an intrinsic value or for ease of use, notes backed by precious metal.

Money, when considered as the fruit of many years’ industry, as the reward of labor, sweat and toil, as the widow’s dowry and children’s portion, and as the means of procuring the necessaries and alleviating the afflictions of life, and making old age a scene of rest, has something in it sacred that is not to be sported with, or trusted to the airy bubble of paper currency. Thomas Paine (1737 – 1809)

Currency is still a medium of exchange but is not a store of value as it only derives its value by government degree or “fiat”. It’s value is based on the issuing the authority’s guarantee to pay the stated (face) amount on demand, and not on any intrinsic worth or extrinsic backing. All national currencies in circulation, issued and managed by the respective central banks, are fiat currencies.

A days wages in Germany 1923

The problem is that fiat currency runs the risk of central bankers printing too much and causing large inflation or worse. The more that is printed the more the currency is debased just as the Fed is doing now with the dollar. This has been going on for decades with central banks indiscriminately creating money to cover expenditure and ever increasing debt.  There are examples throughout history and in the 20^th Century most of us are aware that in Germany in 1923 it would take a barrow load of Deutschmarks to buy a loaf of bread but an ounce of gold could buy a reasonable house and one dollar was worth 4 trillion marks

This irresponsible printing of money has eaten away at the value of the world’s reserve currency the USD dollar and dollar based assets, to such an extent that they have lost 82% of value since 1971, the year the US cut links with the gold standard. The GBP has fared even worse that the USD losing around 85% of value since 1971.   There are many illustrations of then and now and how owning gold with intrinsic value would have more purchasing pro rata than currency. E.g the latest model Cadillac Eldorado would have taken 180 ounces of gold at $42.02 to pay the showroom price of $7,546. This same 180 ounces is now worth over $200k and would buy two Cadillac convertibles with enough left over to fuel to first service. In the UK an average family car cost £1000 around 60 oz of gold and now the same would cost £17000 around 23 oz of gold. The 60 ounces would have bought the same family car for you a sports car for your wife and a hatchback for your son or daughter. Gold retains its purchasing power year after year.

Not long ago the gold standard imposed monetary discipline on countries as they had to hold enough gold to cover the money in circulation but this all changed with the Jamaica agreement in 1971 when the decision was 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 US money supply in 1971 was $776 billion and quickly became an upward curve which rose dramatically over the last decade where the US money supply doubled from below $7 trillion to $14.3 trillion indicating that spending is out of control.

What is the effect as the US and other governments including the UK go on this spending spree. It means that the risk of sovereign debt default becomes very high indeed. We have already seen Iceland’s debt rise to 7 times GDP and then go into financial melt down and economic depression. This is a warning and recently Greece has been the sick man of the Euro world  with its debt forecast to reach 130% of GDP, its credit rating cut, the country in turmoil and it has placed pressure on the Euro itself.  The UK has not reached that level yet, but we are heading that way with debt estimated to be 65% of GDP this year and a forecast for 78% by 2015.  Japan the world’s second largest economy has debt of twice its GDP but continues to spend. In the Euro zone Spain, Italy, Portugal former Eastern European countries all face serious financial issues.

Most worrying is that the US, whose dollar is still the world’s reserve currency, has debts of 100% of GDP and budget deficits over the next few years will send that figure soaring. Their solution instead of cutting expenditures is create more fiat currency which will inevitably lead to devaluation of the dollar.  There are already moves afoot to seek alternatives lead by Russia and China and gold has featured in their strategies. China’s long term goal is to dominate financially and replace the US and they are currently playing a political game as they have up to 2 trillion in dollar assets that they do not want to destroy but off load at the best value.

It comes as no surprise that both China and Russia are increasing their gold reserves along with India who recently bough 200 tonnes from the IMF to back its financial commitments. China is now the worlds largest producer of gold and has recently surpassed India as the worlds greatest consumer and actively encourage their citizens to put part of their savings into gold.  China has a predicament in that it wants its central bank to diversify into gold without increasing the gold price and to shed dollar assets without devaluing the dollar so they are building reserves from internal sources and buying small quantities during price dips.  The UK made a very bad move when Gordon Brown sold off 395 tonnes of gold a decade ago when gold was at less than 25% of todays value. In light of the of the world economic situation this was doubly bad as gold reserves are more important than ever.

In summary:

• Currency is not money and its value can be changed by monetary policy makers
• Currency can be created and printed at will with no substance to support it
• Currency depreciation in value is accelerating with subsequent loss of purchasing power
• National debt is increasing to disastrous levels with threat of sovereign debt default
• Confidence in the  USD is waning and its use as a reserve currency is under threat
• Countries and investors are shedding their dollar assets
• Central Banks are diversifying into gold and out of dollar assets
• Smart investors are diversifying their portfolios with a proportion of gold
• The value of gold has been consistent in retaining its purchasing power
• Gold is insurance for your wealth
• Gold is the only real money

The price of gold rose to its all time high in December 2009 to $1212 an ounce and since then it dropped to a low of $1048 but now is in a period of consolidation of just above $1100 which follows a pattern that has been consistent over the last decade. It is likely that we will face another financial crisis due  irresponsible printing of currency, the risk of sovereign debt and political pressure. Of the millions of investors throughout the world only a tiny proportion see gold other than as a commodity. Central banks have seen the need to diversify into gold. The discerning investor understands that apart from ROI gold is a protection for wealth and the person who holds gold will see out a crisis and that has been proved time and again throughout history.  Once a greater proportion of investors become educated in the need to diversify, as they inevitably will, the price of gold will rocket.  Now is the time to protect your wealth in the safest investment – GOLD and I would recommend that you invest in the form of gold coins and in the UK gold sovereigns.

For details of the worlds most popular investment coins http://goldcoin.org/investment-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

What if the future of anti-crisis investments involved virtually managing real gold?

The economic crisis that came to the surface in 2008, whilst not being comfortable, had at least brought to our attention many shortcomings, whilst today there is not the panic, the underlying causes still have not gone away and the risk of systemic failure is still real. States and governments for decades had great faith in the financial establishments, banks, credit agencies, specialised savings companies (some even public); but short comings and failure occurred again and again.  Billions of pounds of our money went into bailing out many of our best known financial institutions and even paying out to ordinary British investors who put their money into what was thought to be the safe haven of Icelandic banks, that fell in a systemic collapse that left the county bankrupt. Not only were the small personal investors caught out but to a greater or lesser degree so were many of our local government administrators, who lost millions, causing a shortfall in local services. Should Iceland pay this money back to Britain, morally yes, but they have voted overwhelmingly no and I can understand this as “charity begins at home”.

Today the fear of investors, and ordinary people, is still not so much knowing whether their economies are reasonably successful but knowing that they are simply not volatile.  We know that the UK government guarantees bank deposits up to £50,000 per person per banking licence, but to what extent?  What if a massive failure, that the Madoff case should have put an end to, occurred?. What if the largest UK banks went into liquidation?   How much would these guarantees be worth for the public economy when compensating for tens of thousands of people?  Wouldn’t Great Britain itself then become bankrupt as happened in Iceland?

Even those that don’t have £50,000 in the bank and they are the majority; but even more so amongst those who do or have even more than £50,000, there are a growing number of individuals who no longer have confidence in banks and who when all things are considered prefer to empty their bank accounts and retrieve their gold to protect their “nest egg” at home “under the mattress” . It is less secure even without taking into consideration the risk of fire, flood, theft or any other disaster, but ultimately, are these risks, even combined, really higher than seeing the bank collapse and then seeing the State being unable to meet the guarantees it has given?

Another sign of the times is the growing Internet trend of institutions that can be described as “semi-banks” such as Paypal, Moneybookers or Google Checkout.  Each day, millions of transactions are carried out between individuals and professionals that are beyond the control of banks (no cheque, transfer, or bank card transaction) but also delivery services (no cash either!)

100% virtual, what a good idea.  After all, thanks to debt-money, which is what banks have been doing for decades, you borrow money that has never been struck (in the technical sense of the term) and only as a last resort (withdrawal from a cash machine or bank) do you convert it into tangible money.  Besides, even your salary is virtual.  It is nothing more than a set of records between two banks, via the intermediary central bank (which we call the clearing house, which never compensates pound for pound, for reasons inherent to the monetary system).

The best formula and the most reassuring, is without doubt the most balanced.  It would be to combine virtual, with secure and tangible assets (gold, silver etc), which are more secure than the bank system.

“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

Maurice Hall

Tsar Nicholas II

A Gold Rush is set to hit Russia after claims that a huge treasure trove dating form the time of the last Tsar Nicholas II, with possible British claimants, remains buried in remote woodland near the City of KAZAN. Historian Valery Kurnosov says evidence of the hoard, estimated to be worth about half a billion pounds at today’s prices, lies in the files of both the KGB and MI6.

He has also unearthed documents showing that Stalin and Khrushchev both sought to get their hands on the loot but failed.

By rights, the haul, estimated to weigh 17 tons or more, belongs to descendants of its owners, nominally a tsarist financial institution with emigré and British investors. Many may have no inkling they could claim.

Mr Kurnosov has urged the Russian government to organise a search, putting his faith in old maps and modern technology.

The story of the Kazan gold has long intrigued the intelligence services of Russia and the West, despite claims that it was long ago raided.

“I am convinced the gold is still buried in its original location and can be extracted,” said researcher Ravil Ibragimov, 55, who heard stories as a Soviet child of its burial near his village of Astrakhanka. ”

“There is not a scrap of evidence that it was taken out of the ground by the Bolsheviks or anyone else.”

“There is always interest in shipwrecks but this is bigger than anything at the bottom of the ocean.” Gold was secreted in Kazan as Russia descended into revolution during the First World War. British agents were involved in the removal of tsarist treasures from the then capital Petrograd (now St Petersburg) to Kazan, east of Moscow for safe-keeping from Bolshevik forces.

In the months before July 1918, when abdicated autocrat Nicholas II and his family were shot on Lenin’s orders, it is estimated that 73 per cent of the world’s largest gold reserves were held in this Tatar city.

Extract from an article in the Sunday Express

The discovery of gold in Australia in the mid 19^th Century had more of an affect on the nation than its discovery in any other country, transforming Australia from a British penal colony to a nation that integrated many nationalities. To this day a term of endearment for Australians is “Digger”.   It was not an easy passage and on the way there was greed, dispute, revolution, racism and a new type of outlaw “the bushranger; but gold was responsible for the building of infrastructure, the end of transportation and financial viability. Britain no longer had any excuse for withholding self-government from its Australian colonies eventually leading to the formation of the Federation of the Commonwealth of Australia after the referendum of 1900. As for gold itself some of the biggest nuggets ever formed came out of Australia which gave the name to famous “nugget” gold bullion coin of today.

It all began when Edward Hargraves returned from the Californian goldfields and was convinced that there was  similarity in geological features between Australia and the California. In February 1851, Hargraves took his pan and rocking-cradle and with his guide, John Lister, set out on horseback to Lewes Pond Creek, a tributary of the Macquarie River close to Bathurst where he filled and washed several pans, some of which did indeed produce gold. He named the place ‘Ophir’ after the biblical golden city, reported his discovery to the authorities, and was appointed a ‘Commissioner of Land’. He received a reward of £10,000, plus a life pension

Australian gold fields

Word spread quickly and within a few days 100 diggers were frantically tunneling for instant wealth. The road over the Blue Mountains from Sydney became choked with men from all walks of life, carrying tents, blankets, and rudimentary mining equipment hastily bought at inflated prices. By June there were over 2000 people digging at Bathurst, and thousands more were on their way. Gold fever gripped the nation and the colonial authorities responded by appointing ‘Commissioners of Land’ to regulate the diggings and collect licence fees for each ‘claim’.

Hargraves could never have dreamt how significant his discovery would be. New South Wales yielded 26.4 tonnes (850,000 ounces) of gold in 1852. This was a mere drop in the ocean compared to the yield from neighbouring Victoria when they joined the rush for gold.

The Victorian authorities, eager to prevent its population from joining the gold frenzy in NSW, offered a reward of £200 for any gold found within 200 miles of Melbourne. In 1851, six months after the New South Wales find, gold was discovered at Ballarat, and a short time later at Bendigo Creek.

Very soon the fabulously wealthy alluvial goldfields at Ballarat and Bendigo turned Victoria into a magnet for immigrant adventurers, who came in their hundreds of thousands – literally. The Australian gold rush would transform the British colonies, eventually into a nation. In 1851 the population of Victoria stood at around 80,000, and a decade later it had risen to over 500,000. In 1852 alone, 370,000 immigrants arrived in Australia and the economy of the nation boomed. The total population of Australia increased threefold from 430,000 in 1851 to 1.7 million in 1871.

Deposits were also uncovered in other states: Western Australia and Queensland in the early 1850s, the Northern Territory in 1865, and Tasmania in 1877, though the rich Kalgoorlie and Coolgardie fields in the west were not uncovered until the 1890s. But Victoria was the epicentre of the Australian gold rush.

Holtermann's Nugget

In October 1872 Holtermann’s Nugget was found. At that time it was the world’s largest specimen of reef gold. It weighed 286 kg and measured 150cm by 66cm. The Hand of Faith (27.2 kg), the Welcome Stranger (73.4 kg) and the Welcome (69.9 kg) are other famous Australian nuggets. Between 1851 and 1861 Australia produced one third of the world’s gold

Despite the romantic attraction the reality was a harsh life with filthy and dangerous conditions made all the worse by the administration.  The system of licences caused great trouble at all the goldfields. Miners had to pay the fee of 30 shillings each month, which was exorbitant, whether or not they had found gold. They had to renew the licence each month. They had to carry their licence at all times to avoid prosecution. The frequent licence hunts caused great resentment within the mining communities, especially as the police employed to enforce the licencing system were notoriously corrupt and behaved with excessive brutality. As resentment and tension grew, under the leadership of Peter Lalor, an Irish immigrant, a group of several hundred miners erected a stockade of logs at Eureka near Ballarat. They withdrew into the stockade and unfurled the Southern Cross flag to proclaim an oath to fight to defend their rights and liberties. This was meant to be symbolic rather than revolutionary and most miners left after a day but some 400 troops stormed those that remained and 22 miners were killed and the leaders arrested and taken for trail. However, the courts refused to convict them and a following Royal Commission remedied the miner’s grievances and allowed them political representation  and Peter Lalor was elected to the Victoria parliament.

With Police concentrating on licence hunts they had little time to fight other crime and  travelers,  particularly those heading towards Melbourne from the gold fields were liable to be ambushed by groups of outlaws called bushrangers.

The diggers had come from many nations but by far the largest national contingent other than British and Irish were the 40,000 Chinese who had made their way to the Australian goldfields. They were mostly under contract to businessmen and worked the goldfield until the debt for their passage was paid off. As the deposits dwindled there were moves to restrict the Chinese diggers as they worked untiringly and were able to sustain the viability of their claims longer than their Western counterparts. They would rework ground abandoned by Europeans, and continue to work a claim until the whole of the gold bearing earth had been cleaned. There were campaigns to oust the Chinese from the goldfields and the motivation was based on racism and fear of competition for the  dwindling amounts. Victorian Parliament imposed a tax of £10 a head on all Chinese entering the colony and a poll tax of £1 per annum levied on every Chinese person on the goldfields. Restrictions were eventually placed on Asians in general, to prevent an influx from other nearby nations: Indonesia, Malaysia, and the Philippines. And of course the native Aborigine was rarely permitted to own gold.

At the turn of the century the Australian gold fields were the most productive in the world and today the hold second place ironically to China who have raced to the head of the gold producers in the last decade. The richness of the gold fields brought large numbers genuine traders who supplied the tools, timber and transportation plus the usual hotchpotch of drinking dens, hotels and prostitutes.  New towns and cities sprung up and merchants of all types flourished and hundreds of companies were floated and a new wealthy bourgeoisie was created. They eventually wanted to distance themselves from the riffraff so more respectable areas were built, trams were required for transport in the towns and railway networks were needed to join them. By 1853 under pressure from the new wealthy inhabitants the British ceased the process of transporting convicts to Australia. Many large public works programmes were undertaken as prosperity increased. This dramatic improvement in wealth and facilities led to the formation Federation of the Commonwealth of Australia after the referendum of 1900.  A new Nation was born

Maurice Hall

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

Gold Istanbul 2010 took place on 18-21 February, a cooperation with Jewellery Association of Istanbul and the TUYAP Fair, Convention and Congress Center is expected to see 20,000 people from 60 nations attend. It will showcase a wide array of gold rings, earrings, bracelets and watches, among other items, that reflect the latest design trends in the sector. Almost 400 firms from 15 countries are displaying their wares at Gold Istanbul 2010. Turkey’s jewellery market is estimated to be worth $7 billion (£4.6 billion).

Gold has always been an intrinsic part of Turkish and figures from the Turkish ministry of energy and natural resources suggested that the country’s gold production will rise to 38 tonnes by the end of 2010 compared with 11.1 tonnes in 2008. Whilst Gold Istanbul 2010 showcased the products, gold and jewellery have been traded and produced for hundreds of years in Istanbul’s gold market in the Grand Bazaar ( Kapali Çarsi or covered market), constructed between 1455 and 1461 and is largest in the world. Considerably more gold pours through this Bazaar in a year than the total held in the UK’s gold reserves.

Here is how it works, a report by Arnaud Blin for France3:

Istanbul's gold market

8am. The banks are still closed.  However, one financial centre is already welcoming its first customers of which there are many.  Each year, 22 billion Euros pass through here, either through direct sales or via its exchange.

But there are no computers or luxurious offices here.  At the heart of Istanbul’s Grand Bazar, only a telephone is needed to buy and sell gold all over Turkey.

A merchant « It’s very stressful to be next to them, it’s not easy.  What’s more, we cannot live to be old in our bazar because of the stress.  But anyone who breathes the air of the bazar cannot live anywhere else afterwards. »

Sheets of gold sold to traders and transformed into jewellery in workshops

Gold galore, gold that is sold, bought and displayed.  In the largest covered market in the world, hundreds of items of jewellery sparkle like Aladdin’s lamps.  All of Turkey, all classes mixed together, have walked around here for more than five centuries.

A merchant: “It’s a tradition for us, we buy this gold to give away at weddings and circumcision ceremonies.  It depends on people’s wealth but I know people who buy 50000 dollars worth of gold for a wedding. It varies between 500 and 50000 dollars.  For our marriage, we received roughly 300 grams of gold, which is worth about 3000-4000 dollars today”

“It depends on each individual’s desires, but generally in Turkey, the weight in grams is a lot more important than the beauty of the jewel.”

In the grand bazar, gold determines everything, even the sale or rental price of stores.

A merchant: “For the bride, gold is a guaranteed resource if she gets divorced.  She can bury it and get it out again if necessary.  Gold never loses its value.  During times of war, paper money burnt or mice ate it.  It therefore lost its value but gold never lost its value.  Personally, I don’t have a bank account, I keep gold to hand and if a bank goes bankrupt I don’t have any problems.”

Few countries are so devoted to gold and not one has a place dedicated to it like the Grand Bazaar.  Before, it came from Sudan and Egypt.  Now it comes from South America and Russia.

A store with a visible front, has displays in flashy windows and trades out in the open.  But there is another type of store which is strictly forbidden to the general public, where secrecy and discretion are the golden rules.

Gold crafting in Istanbul

To gain access, you must pass through the door of warehouses where caravans on the Silk Route once went.  There, in these tiny workshops, merchants are giving way to artists.

Each year, more than 400 tons of gold pass through their fingers.  A third goes abroad making Turkey the second biggest exporter of worked gold in the world behind Italy.

A craftsman: “Each piece of jewellery has its own value.  We create very different pieces.  As such, each piece of jewellery has a place in my heart.  When I see a woman in the street, I look straight at her neck and her hands to see if she is wearing one of my pieces.”

An old Turkish proverb states that Istanbul is paved with gold.  In the 3000 workshops which surround the grand bazar, it is true that it permeates everywhere.

A craftsman: “I take the piece of jewellery that I am working on and I clean it well so that I don’t lose any of the dust.  We always have a brush in our hands to push the dust into our leather apron, because gold is precious’.  We don’t need to wash our shoes because there are grills on the floor which the dust slides through.”

Processing gold dust

A collector of gold dust: “A whole sector has been developed around dust collection. Eight to ten companies take care of it.  They come, sweeping, picking up dust from the pipes and the buildings.  They then take it to refineries, burn it and finally recover the gold.  For each kilo of gold that we work on here, fifty to seventy grams leave as dust.”

“We process around three to four tons of dust per week.  We use old techniques and chemical products.  We process the dust from each customer separately.  This customer will have this dust and that customer that dust.  Therefore we can send each customer their ingots separately.  Today we processed a ton of dust and look at what we got: 90 grams of gold.  That’s pure gold.”

Whilst the Turk’s attachment to gold remains as strong as ever, some things have changed.  By filling more and more windows, gold seems to have lost some of its magic.

The expertise for this meticulous work is being lost

A craftsman: “When I was little, jewellery was made differently, but now there is no master who knows his art.  There are no customers either who pay attention to this work.  In the past, the master carried out his work with the greatest of care.  Now it has to be finished as quickly as possible so that it can be sold as quickly as possible.”

“You must have seen walking round here that there is tons of gold here and there, its a bit like the tip of an iceberg, in fact it’s just like that.»

830pm.  The doors of the Grand Bazaar close on one hundred tons of gold.  It’s the biggest vault in Turkey.

Transcription:  ABW for goldcoin.org

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.

The British gold Sovereign has to be the most respected and secure gold coin ever issued. It has influenced important achievements in history, safeguarded any number of people and nationalities in all sorts of circumstance and has featured in comedy and fiction. Gold sovereigns were accepted as money and as payment throughout the world At the height of the British Empire they were so  powerful that they were  known as the army of St George, after the depiction of St George slaying the dragon which has been on the reverse  since 1817. The Sovereign helped create and strengthen the Empire.

WWII Survival Kit

They have been nicknamed “the gold survival coin”. As early as 1916 Pilots were supplied with gold sovereigns (for which they had to sign a form before each flight) in packets of either 4, 6, 8, or 12, depending on the perceived dangers of the mission. During World War II American and British airman and SOE operatives carried a supply of sovereigns as they could be relied on to buy the way out of trouble,  irrespective of the country in which they found themselves in difficulty. With paper currencies fluctuating wildly, SOE commandos who raided the Nazi missile base at Peenemunde in the Second World War took gold sovereigns with them as means of persuasion if captured. This inspired Ian Fleming to write them into From Russia with Love, where Q gives James Bond a special briefcase containing hidden weaponry and 50 gold sovereigns secured in the lining.
More recently many armies have included sovereigns in the survival pack, both British and American airman and Special Services had sovereigns sown into their clothing to buy emergency food, shelter, safe passage or bargaining power if confronted by unfriendly forces. In 1991 the Ministry of Defence  purchase £1 million of gold sovereigns for use in the gulf war and sold those that were returned at very good profit some years later.

It was not only allied military who believed in the power of the sovereign but in history people as diverse as the Sikh freedom fighters in the 1920’s who were opposed to British rule in India made good use of the sovereign. They concealed the coins in a pouch in their throats  and used them to bribe their way out of Prison.  The son of a wealthy industrialist residing in Thessaloniki, Macedonia recalls how his family converted their entire wealth into 3000 gold sovereigns and hid them in door frames just before the German occupation. This allowed them to survive the war without starvation as did many of their friends who did the same, but others lost their entire fortune when left with bundles of worthless Greek currency.

Many of you may remember the well loved 1960s’ BBC TV series based on the Home Guard during WWII in the seaside town of Walmington.  In the episode entitled “Miser’s Hoard”,  private Fraser the local undertaker of Scottish decent, has his life saving of hundreds of sovereigns discovered. Captain Mainwaring, who’s day job is the bank manager trys to persuade him that he should put his fortune in safety but Frazer does not trust the bank. However, his fortune becomes known to the community and he has to try and bury it at night to avoid his spying neighbors.  He would never feel safe again and would always worry his wealth would be lost. Private Frazer’s catch phrase was “Doomed, we’re doomed”

So the sovereign is the worlds most respect and liquid gold coin from, Arab souks to Punjab mountains to occupied Europe. History has proved that in time of conflict your best safeguard would be to hold some gold sovereigns. Unlike paper money they can be neither burnt, shredded or destroyed by water and will retain their value whilst the paper currency can in many circumstances become worthless. However, as private Frazer discovered, if you keep  all or part of your wealth hidden, apart from the worry of discovery, it will always be subject to exposure and loss.  Our advise would be to store any significant quantity of gold in a secure vault under your control such as those provided by LinGold.com.

Maurice Hall

A gold reserve is the gold held by a central bank or nation intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency. Today, gold reserves are almost exclusively, albeit rarely, used in the settlement of international transactions

The Chinese, Indian and Russian and other central banks are buying gold. The Indian Government recently bought 200 tonnes from the IMF to support international commitments. This new trend for buying gold by the Asian, Brazilian and Middle Eastern central banks (who still have very little gold compared to their reserves in dollars) is a supporting factor for gold prices.  As for Occidental central banks, they are less and less inclined to get rid of a metal which could become part of a new world reserve currency as desired by Russia and China.

The table below shows the proportion of gold in the foreign exchange reserves of central banks and not the gold reserves ratio of the currency.  As the FED has very little foreign currency in its reserves, its gold stock seems considerable, but this stock of gold is only 1.6% of  the quantity of dollars in the money supply.

National Reserves December 2009

Potential candidates for large gold purchases over the next few years are in the order they appear on the list: Japan, China, Russia, India  and Taiwan.

Astonishingly, in March, a European bank signed agreements with Washington II (with a sales quota of 500t per year) to buy gold! This is astonishing because since the beginning of the 1980’s, central European banks have not stopped liquidating their gold stocks which has had a heavy impact on the price of gold which dropped from $850 in 1980 to $256 in 2001.  Between 1999 and 2002 Gordon Brown then, Chancellor of the Exchequer, sold off 395 tonnes, 60% of the UK’s gold reserves, at rock bottom prices averaging $280 per ounce, about a quarter of its current value.

As for the USA, their gold reserves have remained virtually unchanged since 1980 and today are 8133 tonnes.  But doubts remain about the proportion of physical gold that would be available to control gold prices, as the gold may not longer physically exist in the reserves but is in paper form.

A year ago, the International Monetary Fund (IMF) announced that it would sell  off 403t from the 3217t that it had held for several years  in its reserves.  During the G20, the gold market was nervous due to speculation about possible additional sales by the IMF.  The IMF had simply stated that it would allocate the sale of these 403t of gold to help poor countries.  Subsequently the IMF sold 200 tonnes to India , 10 tonnes to Sri lank and 2 tonnes to Mauritius. That this announcement is part of a deliberate plan to curb the price of gold in these difficult times is clearly questionable.  But it will be impossible to counter market forces in the long term.  When the price of gold rose from $200 to $850 at the end of the 1970’s, the IMF sold 1600t of gold on the market without being able to stop the rise.  To these sales were added the sales of the USA who liquidated some of their gold stocks.

Today the central banks’ gold stocks are a lot lower and the state of the economy is in a lot more trouble than during the stagflation of the 1970’s.  The price of gold no longer has formidable adversaries who can curb its rise.  Instead it now has formidable allies in countries such as China and Russia!

Adapted from an article  by Léonard Sartoni first published in Q1 2009