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

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

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

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

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

Maurice Hall

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

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

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

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

Car from the Gold Train

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

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

31    cases of gold

2        case of gold coins

3        cases of gold watches

8        cases of brilliants

2        cases of selected brilliants and Pearls

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

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

10              45kg cases of gold

1                100kg cases of gold coins

18              35kg case of gold jewels

32              30-60kg cases of gold watches

1560          cases of silver of different weights

1                case of silver bricks

1                trunk of currencies and brilliants

100            artistic picture

3000          Persian carpets

2                wagons of mixed valuable

American soldiers guarding the gold train

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

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

Árpád Toldi

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

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

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

Maurice Hall

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

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

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

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

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

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

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

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

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

Read the china Gold Report on this blog

Maurice Hall

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

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

Commemorating King Kumaragupta's horse sacrifice

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

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

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

Reverse with the queen and ceremonial instruments

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

First Indian Coins

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

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

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

Maurice Hall

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

Central banks

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

Central Bank Holdings

Country                      Tonnes

USA                            8133.5

Germany                     3412.6

IMF                             3217.3

France                         2487.1

Italy                            2451.8

Gold Jewellery

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

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

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

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

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

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

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

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

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

Italian Gold Coins

20 Lire Victor Emanual

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

Italian Gold Coins as a safe haven

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

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

Maurice Hall

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

1980

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2010

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

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

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

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

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

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

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

Maurice Hall

The half sovereign is a British gold coin with a face value half that of a sovereign: equivalent to half a pound sterling, ten shillings, or 120 old pence. Since the end of the gold standard until 2000, with the exception of 1982, it has been issued only in limited quantities as a commemorative coin with a sale price and resale value far in excess of its face value.

The half sovereign was first introduced in 1544 under Henry VIII. After 1604, the issue of half sovereigns, along with gold sovereigns, was discontinued until 1817, following a major revision of British coinage. Production continued until 1926 and in Australia’s Perth mint until 1933 and, apart from special issues for coronation years, was not restarted until 1982 and then only as a proof issue

During Victorian times the half sovereign was more widely circulated than the full sovereign. The average life of both a sovereign and the half sovereign was around 15 years before it fell below the lowest legal weight. It is estimated that only 1% of all gold sovereigns that have ever been minted are still in collectable condition In 1891 a proclamation was made that members of the general public could hand in any gold coins that were underweight and have them replaced by full weight coins. Any gold coin struck before 1837 also ceased to be legal tender. This recycled gold was subsequently reminted into 13,680,486 half sovereigns in 1892 and 10,846,741 sovereigns in 1900.

In 1982 2.5 million coins were issued and mostly throughout history the design has followed the full sovereign with the reverse side, featuring the famous and beautiful St. George slaying a dragon designed by Benedetto Pistrucci, whose initials appear to the right of the date. There were variations on the reverse with royal shield and the simplified George and dragon. There were only proof issue until 2000 when bullion production commenced.

1989 marked the 500 year anniversary of the first gold half sovereign ever issued, for Henry VII in 1489. The entire design, including the lettering, in a style inspired by the original 1489 sovereigns. The obverse design is Her Majesty, Queen Elizabeth II, seated enthroned, facing forwards and the reverse a crowned shield at the centre of a Tudor rose. Again this design, and the lettering, are in a style similar to that on the very first gold sovereign issues. A total of 23,471 coins were produced in individual and coin sets. This proof issue and a single date issue makes it doubly attractive to collectors  thus  it attracts a high premium.

There is good availability of the half sovereign with some rare issues and they are popular as a first entry into gold coins or to purchase as memento. Because they are quite small many half sovereigns have been mounted in jewllery either as rings or pendants. In general you would expect to extra premium on the half sovereign as is the norm with most small coins and on occasions that is true. The average over the last month was 7.5%  but here are also some huge spikes in the premium differential such as in October 2009 where the premium was over 90% so it is a coin that needs to be watched carefully. Of course as the half sovereign is a gold coin of  legal tender it is not subject to VAT or Capital Gains Tax

Specifications

Isambard Kingdom Brunel in 1843, while performing a conjuring trick for the amusement of his children, he accidentally swallowed a half-sovereign coin which became lodged in his windpipe. A special pair of forceps failed to remove it, as did a machine to shake it loose devised by Brunel himself. Eventually, at the suggestion of Sir Marc, IKB was strapped to a board, turned upside-down, and the coin was jerked free.

Maurice Hall

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

Gold can be found in its purest form on the earth’s surface, mainly in sand found in rivers.  This metal has been known about and used since the early times of mans’ history.  Great ancient civilizations such as the Egyptians, Assyrians and the Etruscans etc. left behind gold treasures, ornaments and jewellery.  The “Monetary Phenomenon” began in part of Asia Minor in the kingdom of Lydia which lay along the edge of the Aegean sea along the coast of what is now Turkey, criss-crossed by rivers whose names have remained famous: the Meander, with many bends and the Pactolus, symbol of wealth.

Lydia

Herodotus, who wrote around 430 BC, talks about the Lydians as “the first people we know of to have struck gold and silver coins.”  We can therefore place the birth of currency in Lydia due to the fact that archaeologists working in the twentieth century on the site of ancient Sardis, capital of the kingdom, found small round ingots of a metal called electrum.  This is not pure gold but a natural alloy of gold and silver.  It could be found in abundance in the mountains of Lydia and especially in alluvial deposits in the Pactolus River, which retained a reputation for being wealthy that its current condition no longer merits.

Lydian gold coin issued under the reign of Croesus (Fifth century BC) - Obverse - Source Sacra-Moneta.com

Historians are generally in agreement that currency first appeared around 650BC during the reign of the King Ardys of Lydia, (652-615).    Metal plates dating back to this period were found with deep recesses in them produced by a hard object such as a punch.  On the other side there were lines like scratches.  It is highly likely that a few drops of molten electrum were poured onto an anvil with a rough surface.  A punch with a design on it would then have been placed on the metal and it would have been struck by a hammer which would have printed the design on one side and stripes from the anvil on the other.  This very simple design was often nothing more than the mark of a broken nail.

Gold and silver had been used for trading for centuries before this, but each nugget or ingot had to be checked and weighed each time it changed hands.  Punched marks used by merchants were only useful for recognizing coins they had previously controlled or accepted.

Lydian gold coin issued under the reign of Croesus (Fifth century BC) - Obverse - Source Sacra-Moneta.com

Under the reign of King Alyattes (610-561) a new form of Lydian money appeared.  The surface of the anvil was replaced by a lower die with an intaglio design engraved in it.  Using a hammer and a punch the metal was pressed into the lower die so well that the design appeared in relief (it was a lion’s head).  The punch itself left a deep mark on the reverse side of the coin.    It was a square or rectangular indentation, usually divided into four compartments, each with a pattern with the relief as a focal point.  Before being struck the blank pieces of metal were adjusted to a standard weight.  The heaviest coins weighed about 10.90g, and were called “staters” which signified balance or standard value.  Fractions of “staters” were also used with various weights and values.  A third of a “stater” only featured the head of a lion; smaller coins only showed the foot.

The lion was the symbol of royal authority.  It served as a guarantee of the weight of the coins doing away with the need to carry out tedious and time consuming checks of coins each time they changed hands through a commercial transaction.  However, in electrum, proportions of silver and gold were not fixed; the intrinsic value of each coin could vary considerably.  Electrum coins would not have been easily accepted outside of the region in which they were produced.  This is why they were soon abandoned in favour of pure gold.

The first issue of pure gold coins on a large scale took place under the reign of King Croesus of Lydia (561-546) whose name remains to this day a symbol of opulence.  So great was the wealth of Lydia that the King gave one gift to the shrine of Apollo at Delphi of ingots and ornaments containing an estimated 4 tons of gold.  Coins issued under the reign of Croesus were oblong coins minted in Sardis and contained about 98% gold.  They were the closest to pure gold it was possible to get with the refining methods available at the time.  They soon led to the end of electrum coins due to the difficulties of determining the proportion of gold and silver content.

The obverse of Croesus’ coins featured the royal symbol: the head of a lion and the head of a bull clashing.  The reverse, as with previous coins, only featured the indented square made by the punch of the money maker.  Aside from these gold coins, Croesus also had silver coins struck which were identical except for the fact they had a larger diameter.  The purchasing power of one gold stater was equal to ten silver coins.  The relative value of equal weights of gold to silver was in fact 13 1/3 to 1 at the time.  The king strictly controlled the sources of precious metals (mines and rivers) in his kingdom, because a fixed relationship between the value of gold and silver could only be maintained if there was a regular supply of metal.

Lydia’s wealth could not save Croesus.  In 546 the Lydian army lost to the Persians of Cyrus.  Minting of Lydian money ended.

The price of gold rises more during the second half of each year.  A study by the International Speculator has confirmed this fact and is based on an analysis of the rise in the price of one ounce of gold in dollars over a period of thirty years.

The first observation is that pricing patterns in June and July have  with near perfect consistency, allowed investors to buy gold at levels still below the average annual price for that year. And the key point here is any purchases throughout June and July on average proves to be a fruitful maneuver by year-end.

The simplicity of this seasonal trend is a useful insight for bargain hunters. In fact, over the past 30 years, this trend holds on average, and over two-thirds of the average annual gains have been registered between August and December.

70% of all gold manufactured each year goes into jewelry, and is one of the major reasons for the seasonal pattern in gold.

Consumption causes prices to be low in summer when European jewelry fabricators are on vacation but then to rise immediately thereafter. The fourth quarter is the peak season for gift-giving, with gold jewelry most highly prized.

Harvest and wedding festivals begin in September in India, the world’s largest consumer of gold. Then come year-end holidays in the United States and finally Chinese New Year. By late December, gold demand can be exhausted.

In January, when most amateur traders are bullish, the professionals are starting to sell the gold they accumulated way back in July.

Maurice Hall

Karl Heinrich Marx

For the Soviet system, inspired by Marx, currency was the manifestation of social evil, the relationship with commodity production.  There were certainly some countries where this practice was even more radical than the Soviet system.  This was particularly true of Cambodia and the Khmer Rouge, where trade itself, including bartering, was the objectification of evil itself.  To some degree, it surpassed even Marx’s theories.  In his book the “Critique of Political Economy,” Marx spoke about exchange values and not exchange itself.  It is for this reason that André Malraux called “PolPotism” the Marxism of imbeciles.

That said, the conclusion that Pol Pot and his friends and family made from Marx’s theories, is not that far away from Marx’s ideas, because for Marx the historical process itself results in the production of useful values.  For this reason, Pol Pot’s followers condemned the production of exchange values; therefore exchange itself.  This explains the terrible reality of the demographic collapse in Cambodia during the implementation of what some have called a “murderous utopia.”  The dismissal of exchange can only lead to the disappearance of all systems for satisfying needs; therefore an empire of death, collective suicide.  Of course, in this system characterised by the dismissal of production for trade, access to goods and services has always been conditioned by a hierarchical order of socialist societies, the needs of leaders, including their ostentatious needs, were covered by society.

Boris Yeltsin, who was the first president of Russia after the fall of communism in the 1990’s, declared in October 1987, in a speech to the Central Committee of the Communist Party of the Soviet Union: “Yes comrades, it is not easy to explain to a factory worker why in the seventieth year of political power, he is forced to queue to buy sausages in which there is more starch than meat whilst on our tables there is sturgeon and caviar and all sorts of fine meats obtained without any problems from a place which he is not even allowed near.  In these special shops reserved for the nomenklatura (the ruling bureaucratic elite of the former Soviet Union), “the prices of goods were inversely proportional to the position the “customer” had in the nomenklatura.  The higher your position in the hierarchy, the lower the price was.”.  More precisely, this means that for members of the nomenklatura money was certified, that is to say that the higher up a person was in the nomenklatura the higher the value of their money.
EXTRACT FROM THE BOOK by Norman Palma and Edouard Husson –  Capitalism is sick of its currency

According to this book – It has often been said that it was not possible to predict the economic and financial crisis that is currently sweeping across the world.  Nothing could be further from the truth.  At the root of the crisis is an International Monetary System that has been seriously affected by the dollar standard system.  For several decades, informed minds had warned of the possible devastating effects on the world economy as a result of the American Federal Reserve’s issuing policy.  As Maurice Allais, the French Nobel Prize Winner for Economics, emphatically said with general indifference “what will happen will happen” What has happened today always happens with paper money systems: after the euphoria of increasing credit without any restrictions the crash arrives.  This is why the dollar is heading towards total depreciation.”

Although every effort is being made to postpone it, we cannot avoid the collapse of the dollar and currencies which unwisely held it up.  To limit the effects of this unavoidable catastrophe, if it is at all possible, we must urgently create an International Account Unit which is a basket of major paper currencies to which we must add gold in order to restore vital credibility to paper money.  Then, we should not be content with returning to a gold reference system, which will in any case impose itself on the market, no matter what top political and economic leaders think.  Due to limits on the quantity of gold, it will be necessary to return to its vital circulating complement: silver, which ruled alongside gold, during the historical rise of the wealth of nations.  With this diagnostic put forward, and with the only possible remedy analysed, all that remains is for an immense reform to be implemented by a politician largely responsible for the situation, who has nothing planned and whose actions will in all respects be judged by this present tragedy.

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

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