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Wealth is static money circulates – The Federal Gold Reserve New York

Thursday, January 28th, 2010

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

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

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

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

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

See our other article on “wealth is static

Analysis of Gold Price consolidation January 2010

Tuesday, January 26th, 2010

The current consolidation shows signs of weakness in dollar terms but not in Euros or pounds. The Euro is currently  11% stronger against the dollar and the British pound 16% stronger, so investors in those zones have seen that percentage increase over the gold price rises since the start of 2009 in real terms My technical indicators would be flashing warning lights if USD 1,091 were not to hold. Theoretically, we could fall back to the USD 1,000 – 1,030. In pounds terms, if £670 were not to hold, we could fall back to £620 – £640.

If USD 1,091 holds or if we have a false breakout, then the upward trend that started last autumn will probably continue until April / May 2010 and we can still expect to reach an objective of USD 1,400 – 1,500 (which is equivalent to about £900 per ounce, depending on exchange rates). If the consolidation continues downwards, this means that the last peak of USD 1,226 (£742) represents the end of the intermediate bull trend that started in September and indicates that we can expect an extended consolidation period before a new bull market develops. The maximum fall that we are likely to see will be 10% from the current level and will be due to panic selling from the £605 – £610 support zone, which also corresponds to the very long term moving average for this bull market (moving or rolling average = technical method of smoothing a graph showing an upward price trend to provide an average price that eliminates the highs and lows ).

As is always the case, the best strategy for a long-term investor is to buy the panic (when price is driven down by panic selling) and sell the excess optimism. Nevertheless, there are two important comments on this strategy. The last peak of USD 1,226 was not due to extreme optimism or, at least, nothing like what we saw during the previous peaks of May 2006 and March 2008.Hist corection LS article It should also be noted that the difference in % terms between the price and its long-term moving average has remained quite small in comparison to the differences that were present in May 2006 and March 2008 and this shows that there is still a certain upward potential to complete the bull trend. Additionally, as the difference is much smaller than during previous bull trends, the likely fall from current levels is also much smaller. It’s this that makes me suggest that liquidating one’s investment to avoid a possible fall of 10% whilst possibly missing a 30% rise in few weeks or a month is not a good strategy at all.

It’s the very long term moving average (the 325 day moving average) that has always allowed me to identify the best purchasing opportunities in this bull market. Only the 2008 crash has broken this moving average during the last 7 years but we should not have our heads in the clouds as a new crash on the market would not involve the gold price this time in the same way as in 2008. Why? Because institutions and traders sold their assets in a panic sell off in gold due to deleveraging (mainly hedge funds and other institutionnals) and perhaps central bank manipulation. During that time, most people weren’t aware of the dangers and did not think we were on the verge of a collapse of the financial system. The resulting bank closures would leave them prisoners to a possible monetary revision with a massive devaluation of paper money, the cash, that everyone was accumulating. Most people were unaware as to how serious the situation was! If a new crisis were to occur, I believe that gold will not be sold in the same way because the institutions and central banks, alerted by the 2008 crisis, are now much more aware of the terrible risks related to their system. Obviously, if there were to be a new crash, traders looking at the short term, speculators looking for margin calls and other weak individuals will sell all their positions on gold and this may cause a temporary decline, at the start of the panic. This will then be followed by many professionals and bankers taking advantage of the situation to make MASSIVE purchases of gold metal.

The 2008 crisis was financial but the next will be monetary because the financial health of countries will be in doubt with the possible bankruptcy of several of them. I don’t have to tell you what the best thing to own in a monetary crisis is –  gold . We could see massive selling of government bonds and people seeking refuge in anything tangible which retains its value. Under these circumstances, the leading beneficiary will be gold!

The weakness in the gold’s price that you have detected recently is due to credit conditions being tightened in China. China dominates the markets these days. World markets often undergo a strong correction in the two to three months following a change in its monetary policy. Traders are anticipating this at present and have sold their assets in raw materials and emerging markets, which is the reason for the weak gold market. If the correction on the stock markets is only 20 – 30 % then this is not the start of the next crisis but only a market correction. In practice, all the money that was used to support the economy in 2008 will eventually end up in the economic circuit and this is why stock markets have continued to be bullish despite poor economic indicators.

Inflation will inevitably reappear sooner or later. The next crisis too, but it could occur later than the pessimist are suggesting because the re-launch plans and monetary injections are still supporting the markets. We are currently in the eye of the storm. We can expect to see the price of some agricultural products increasing during the following months, for fundamental reasons, and this will have a negative effect on the lives of many people who have already been severely hit by the crisis. Violent demonstrations can be expected. Some people, who have lost everything, simply have nothing more to lose, as Gerald Celente said.

In short, my view is that we have two options for the gold market, the best and the worst, either gold returns to the bull trend that started in September and reaches an intermediate peak of USD 1,400 – 1,500 in April/May or gold will continue its correction as a zigzag until June with an average floor of about £630 then stay flat during the summer before rising again in the autumn with an objective that exceeds USD 1,500 as the first signs of inflation returning become visible or we see the first effects of the sovereign risks that will effect some countries at that time. One thing is certain, 2010 will not be boring on the financial markets!

based on an article by Léonard Sartoni up dated by Maurice Hall

Gold Napoleons- Why are they of interest in the UK

Monday, January 25th, 2010

MarCoq 20FRFThe Napoleon to the French is what the Sovereign is to the British, their most revered coin and this “national” coin would be  each countries prime choice  for investment.  Both coins share the same principal of good design, quality minting and 22 carat gold. The Marianne Cockerel ( on reverse ) illustrated here is French coin  emblematic of a time when golden Franks shone all over Europe. The original design was by Jean-Clement Chaplain and is used on both the obverse and reverse. Because of the quantity produced they are traded as bullion coins and demand little premium except in times of crisis

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

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

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

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

Nap specifications

Maurice Hall

Why Invest in Physical Gold today

Friday, January 22nd, 2010

Recently gold has taken a significant correction from a high of $1,226 an ounce it fell to $1,075 – about 12% in two weeks. It fell by more than $50 in one day the greatest fall ever.  Should we be jittery that this is the end of the dramatic rises we have seen so far in the 21st century or is it a correction that will recover and rise above the high recorded in December 2009?

Recent History

As gold has been with us for 6 millenniums , recent history could be described as very recent but lets stick to the last 30 years, Golds previous high, where it rose to $850 per troy oz.  in 1980 was subsequent to the Russian invasion of Afghanistan. If the thought of gold rising to over $1200  made people nervous it is put into perspective by remembering that by taking inflation into consideration, the $850 in 1980 is around $2500 today so the price has to more than double to reach the previous high. In 1980 gold was in a bull market with only a few currencies. Now the bull markets contain all major currency and the new giants of India and China.

Historic correction pattern – I would suggest that the current correction follows a historic pattern as the chart below taken over the last 10 years shows.  The December  correction from high to low was 12% that has now almost halved with the current price of $1140 to 7%.  Below the chart shows four quite brutal corrections ranging from 10 to 22% from the highs to lows followed by a period of consolidation and subsequent rises usually for around 9 months .

Historic Gold spot correctionHistoric dips and recoveries are a repeated pattern (rise 6-9 months, heavy correction. Consolidation before upward trend

Current gold correction should ease and rise to + $1400 by mid year

Mechanisms for Investing

Paper Gold – 95% of the worlds gold business is unallocated in which you do not physically own your gold.

  • Mining Shares – no different than speculating on the stock market
  • Futures – is a way to trade gold at an amount and price decided today for a delivery at a time in the future. You do not have to pay the full amount, but the dealers margin usually anything up to 20%  and you do not own the gold. This is pure short term speculation and subject to market moves and if you do know what you are doing your investment will evaporate
  • Gold backed Exchange Traded Funds (ETFs) are securities designed  to accurately track the gold price.  Under an ETF a trust owns the gold, and you are a beneficiary of a debt owed by the trust and backed by its gold. This form of investment is better than a future but  probably more appropriate for investment institutions. If there was a panic and gold ETF investors try to take delivery of gold in exchange for their paper shares, gold funds may find it difficult to meet that demand.
  • Gold Certificates – are normally unallocated gold with an option to convert to allocated but at a high cost. An investor in unallocated gold does not own that gold and is subject o the insolvencies of the vendor
  • Bank Gold – this is always unallocated in effect you become a bank creditor and do not own the gold so any problems with the bank and your investment is at risk or total loss

Physical Gold

  • Jewellery – Not an investment mechanism
  • Large Bullion Bars – The main argument is that you can buy and sell your gold for very little premium and the rising gold price is great for ROI,  at the same time you hold a tangible asset. Bullion is not subject to VAT but is subject to Capital Gains.  The main disadvantage is that a large bar has a large value to initially purchase, your asset is not mobile and has moderate liquidity. If you own a 1 kilo bar it is not easy to sell off 100 or 200 grams
  • Small Bars – Similar to Large bars but require a greater premium to purchase but do not require such a large initial outlay.
  • Bullion Coins – e.g. krugerrands.  These are relatively new coins that are purchased for the value of their gold content and are of defined weights, they are in effect the same as small bullion with a small premium over the same value of gold in a bullion bar. Many bullion coins are not particularly attractive so is no different from bullion and are not subject to VAT but are subject to Capital Gains Tax unless they are legal tender.
  • Semi-Numismatic – Sovereigns, Napoleons etc.  These are beautiful coins that have aesthetic, historic value.  Due to supply and demand they attract a premium ( value over and above the gold value) and depending where they are bought and their condition, the premium varies. The quality of the coin is an essential aspect, those which are in poor condition ( unless extremely rare), are only worth their gold value less dealers cut and are melted down. Sovereigns which are legal tender are VAT free and also free of Capital Gains Tax. Beware of Uncirculated and Proof coins as though undoubtedly high quality the premium is such that for a proof coin you pay double the gold value and that could never be recovered on resale.
  • Numismatic – collectors coins that attract high premiums due to their collectability which is subjective in the collectors eyes and can only be re sold if wanted. Rare Sovereigns can be numismatic and may be VAT free if the premium is less than 180%.

Type of Investor

  • Speculator – someone who is looking for short term gains and would normally use one of the gold instruments rather than physical gold.
  • Investor – Again may be looking at the longer term gold instruments but may well want to take advantage of the rise in the gold price by owning physical gold
  • Saver – Will want to own physical gold, take advantage of any upturn but whose prime purpose is to insure their wealth for the future

Reasons for investing Physical Gold

  • Tangible Asset – Gold cannot  be printed like money. Governments worldwide are debasing their currencies as they print money.  It’s the oldest form of wealth in the world and does not rely on any third party promises. Gold is a “currency”
  • Limited Supply – Less than 2000 tonnes per year Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.
  • Demand greater than supply –  A World Gold Report said that investor activity had picked up strongly in the 4th quarter of 2009. An important part of this demand is long-term in nature, likely driven by positive sentiment toward gold’s supply and demand fundamentals and the corresponding price outlook.
  • Diversification – Portfolio protection -Most experts  agree that investors should be diversifying between 5-10% of their portfolio into gold
  • Insurance What is the purpose of insurance? Of course, it is to protect you against the unknown and the unexpected. You can’t risk not having it in your life, even if you never have to use it. Gold is an insurance policy just like on your car or your home. Given the current financial uncertainty are you comfortable with owning gold through a paper deed, especially if there is no formal audit procedure to verify your share. The primary and most obvious advantage to owning physical gold over paper gold is that it’s yours unequivocally. Gold and particularly recognized gold coin is universally accepted as money anywhere in the world, regardless of culture, language or local currency and can be convert it to goods and services.

Even in a relatively stable environment but with turmoil in the stock market gold has performed very well. It can be said that gold performs well in bad conditions but stocks and shares performance rises in good times. We are now in a bad time with economies struggling to rise out of depression so gold is very attractive and safe form of investment.  According to a recent article in the Sunday times gold was the only investment that beat inflation over the last 10 years. One of the best ways to beat inflation is to own real assets

Recommendations

Gold Coins – Modern bullion coins such as Krugerrands represent good value as they can be purchased at only a little more premium or even similar to small bars; but we believe that older semi –numismatic coins such as Sovereigns, Swiss Francs, French Napoleons, American Eagles etc.  are a better buy. In the UK the coin of choice will always be the Sovereign. For small quantities these coins will cost more than bullion coins but in larger quantities the if they can be bought at 2-3%  above the premium on Krugerrands, they are the best buy.

In times of crisis when the demand increases the premium will rise under the law of supply and demand, thus on top of the gold value you may be able to sell at a higher premium.  The Sovereign is a beautiful coin, so has aesthetic and historic value, insures your wealth and has a liquidity that is recognised through world

Summary

  • Gold is the best way to protect your wealth
  • Gold should account for 10% of diversified portfolio
  • Every one should hold some gold coins to hedge against systemic failure

Maurice Hall

    There has never been a better time to invest in gold coins in the UK

    Friday, January 22nd, 2010

    There is no better time than now to invest in gold coin. Historically UK citizens have never been hoarders of gold unlike many other countries in the EU and the rest of the world as we have never suffered the trauma of invading armies, currency crash or totally destroyed economies. In countries where this has happened or threatened, people have turned to gold to protect their wealth knowing that no matter what happened they can exchange their gold coins for essential goods. E.g.  French citizens personally hold 10 times the value of gold that is currently held in the UK gold reserve. We also to not inherently have the “survivalist culture” that exist in the USA where apart from arms, food and shelter, it is seen as essential to own tangible liquid assets such as gold eagles.

    Until this century the UK government had discouraged the owning of gold by making it difficult. Until 1971 it was illegal to buy more than four gold coins without a collectors license and then in 1973, VAT was applied to gold coins, which dampened any new found enthusiasm. In common with the EU, the UK removed VAT  from investment gold including  specific coins in 2000.

    We have seen a steady increase in the gold price this century until the all time high of $1227 in Dec 2009  after which it dropped rapidly by more than 10%. Is this a concern?. Any downturn is bound to incline towards nervousness; but this is purely a correction as has been exhibited over the last ten years, where there have been savage corrections, followed by periods of consolidation for a few months then the upward trend continues.  Also when gold reached is last all time high in 1980 of $850, the equivalent with inflation is $2200 today.  Experts agree that the gold price still has a long way to go.

    The demand for gold coins rose sharply in 2009. This was a result of investors hedging against financial failure or diversifying portfolios into gold as there is a continuing lack of confidence as economies struggle to pull out of the worst recession in most peoples living memory. They also attract a premium over the value of gold which is dependant on supply and demand and currently world mints cannot keep up with demand. The Royal Mint quadrupled production in the last quarter of 2009 and we have seen increased production in Germany, Austria and US where there was a shortage such that “Gold Eagles” were on allocated supply

    It is not just panicky individuals but professional investment advisors and sophisticated traders who are purchasing 50 or more coins at a time.

    Gold coins are a tangible asset that can quickly and easily be realized and many such as Gold Sovereigns have liquidity that is recognized world wide. However, the sophisticated investor should view gold coins as an insurance policy within a diversified portfolio

    Experts agree that somewhere between 5-10% of an investment portfolio should be diversified into gold.

    Now in the UK we now have the best environment in the world for owning gold coins and particularly gold coins of legal currency, like Sovereigns as they are now VAT free and provided they were minted after 1817, free from Capital Gains Tax.  Plus you will own beautiful coins that have historic and aesthetic value to insure your wealth and provide a tangible asset that has world wide liquidity.

    Maurice Hall

    The store of wealth is static, currencies circulate – Yap Island stones – Yap Stones

    Wednesday, January 20th, 2010

    Wealth reserves are immovable whilst money moves, from pocket to pocket. A reserve of wealth is a mass and a currency is the measure of this mass.

    Here is the first part of two articles that illustrate this proposition:

    Yap stones

    Yap Island Stone- offical money of Yap

    Astonishing as it may seem, the stone shown here is still a perfectly valid means of payment on the island of Yap in Micronesia in the centre of the Pacific Ocean. Tourists who visit the island are always surprised to see the islanders leave their ‘money’ lying around in the street. Especially as we are not talking about small change! The biggest examples are 4 metres in diameter and can weigh up to 15 tons. But what is the origin of this very unusual currency?

    Several centuries ago, the population of Yap Island visited the neighbouring island of Palau, 400 km away, where they found a very special rock: aragonite. This rock was unknown on Yap Island and they set about extracting it in large quantities from the caves on Palau. Then, once they had brought it home, they cut it into discs with holes in their centres where a stick could be placed which allowed them to be moved, rolled like a wheel on an axle. Over time the yap islanders started using them as a means of payment and the stones became known as ‘rai’.

    The boat trip from Palau to Yap used to be full of dangers. Many lost their lives or returned with nothing. Given the number of discs available and the number of victims, the value of these stones never stopped increasing. In short, the danger of the boat trip and the rarity of the material (aragonite) made these stones an asset with great value to the Yap islanders.

    But, you say, how can you correctly value a stone?
    The rock’s specific beauty (aragonite is found as a component of pearls) and the history linked to the stone itself (its age, the number of victims produced by its extraction and transport) and its size all had an effect when determining the value, as did the social status of the parties in the transaction. Consequently, stones that were owned by rich people were worth more than those owned by common folk.

    No stone has been produced since 1931. Due to their size and weight, they have slowly been replaced during the 20th century by US Dollars, at least for everyday transactions of little value; However, major purchases, such as a house or land, are still completed even today using aragonite stones. In addition, they are used to pay compensation.

    What is also quite remarkable is the manner in which transactions were conducted on Yap in the past (and still, today for major purchases). In practice, stones that changed ownership usually did not move! They simply remained at the location where they had been initially placed, alongside a road, in front of house or other building. The most surprising anecdote concerns a rich Yap family that had a huge ‘rai’ that no one had ever seen and, what’s more, could never see.  Apparently, according to the family, their ‘rai’ is at the bottom of the sea. Several generations earlier, an ancestor was towing it on a raft attached to his canoe when he was hit by a terrible storm. He cut the cord and left the raft to drift and watched as his enormous stone dived to the ocean’s bottom. As he survived, he was able to tell his story, describe the exceptional size and quality of the stone that he had lost. No one has ever questioned the truth of his testimony. The purchasing power of this stone has the same value as if it had been placed where everyone could see it next to its owner’s house.

    The theft of a ‘rai’ is rare because these islanders operate mutual social control. Most of the Yap islanders know who owns the stones and have a great respect for other people’s property. And in any case, how do you steal a 15 ton stone without being spotted?

    Source: Lautz, Th.,Steinreich in der Südsee. Traditionelle Zahlungsmittel in Mikronesien, Cologne, 1999

    See our second article on “wealth is static”

    Golds History – 7kg nugget used as door stop

    Wednesday, January 20th, 2010

    It all started one morning in the spring of 1607 when three ships anchored off the Virginia coast. Jamestown was the first British village worthy of the name to be established in the New World in the hope of finding gold.  The trip’s sponsors had instructed the settlers not to return to England without the yellow metal which was reputed to be plentiful in the Americas.

    These first colonisers included two goldsmiths and two metal refiners amongst their number but gold fever is contagious.  Captain Smith wrote in his ship’s log: “The nastiest pieces of work were our metal refiners with their glittering promises of gold. They spoke of nothing else, had no other hopes or other work except to dig for gold, wash gold and refine gold.

    Only, there was no gold. The Jamestown settlers would explore up to 60 km into the savage lands in a race fuelled by the belief that they would soon find a miracle. It was not until 200 years later that we would start extracting significant amounts of gold in a newly independent country.

    little-meadow-creek

    Meadow Creek

    It is the story of John Reed an illiterate Hessian mercenary from Germany,an illegal immigrant, who deserted from the British army in Savannah and made his way to backwoods North Carolina, where he settled near Meadow Creek in Mecklenburg County.  One Sunday morning in 1799, Conrad Reed, John’s 12 years old son skipped church to go fishing. What he found that day far exceeded everything that John Smith and countless numbers of American pioneers had set out to find: gold. Not only the most precious asset of the period but above all a single unique 7.7 kg nugget.

    His family didn’t have the least idea as to what they held in their hands. For several years, it was used as a door stop until a local jeweller heard about it and bought the nugget for 3.50 dollars even though the nugget was worth almost 5,000 dollars.

    At the start of the 19th century, thousands of Americans set off to find gold on the slopes of the Carolina mountains.

    For thirty years, the gold that was extracted helped the United States support its currency. However, this flow quickly dried up to just a trickle. Large deposits still had not been discovered and it was a later find in the American west that gave birth to a new profession “gold prospector”, and started the Californian gold rush that would transform the west and the country.

    Gold’s Unique Properties

    Monday, January 18th, 2010

    Gold has been used for decoration or for transactions between men for almost 6 millennia. Gold has never stopped being in demand due to its rarity, its beauty and its physical properties which make it an exceptional metal: gold does not corrode, does not oxidise and does not tarnish.   tutsmall(3,500 years later, Tutankhamen’s mask is still just as shiny as the day it was made!)

    But there is more, gold has record electrical conductivity (this means it is especially useful in electronics). It is also a very ductile metal (one ounce of gold – about 31 g – can produce an 8 km long wire). Gold is very reflective with little absorption of infra-red radiation. What else? Universally accepted, high value by weight, divisible, interchangeable, difficult to counterfeit, easily recognised, rare but found all over Earth, desirable, with a stable and intrinsic value. Such characteristics make gold the sole designated champion to become a currency or at least a safe value that is universally recognised.

    The first true gold coins started to appear in Persia ( Iran) in the 6th century BC on the banks of the river Pactolus  during the reign of King Croesus ( ruler of Lydia (560-546 BC). Another gold coin, the Ying Yuan, was issued in the Chu province of China  between the 5th and 6th century BC. Gold coins have not been used for common currency for a number of years, most of the world stopped using gold as currency by 1933; but the US did not completely uncouple the dollar from the value of gold until 1971.  The main central banks still consider gold to be THE ultimate refuges in the event of a crisis and continue  to hold tens of thousands of tons of it as ingots and coins.

    Touching Pieces

    Monday, January 18th, 2010

    Sovereigns of England and France were to thought to have  the God given power of   healing by touch and they  practised this power to cure sufferers of Scrofula an unsightly tuberculosis commonly known as the “King’s Evil”.In France it was called the “Mal De Roi” . The ceremony and cure was a “laying of  hands ” by the monarch and the touching piece was the talisman of the monarch healing power.

    Angel

    Gold Angel

    This developed into crossing the sore of the sick person with a Gold Angel, which was a currency piece that portrayed the Archangel Michael slaying the dragon. This was good overcoming evil and the gold itself stood for purity.  The Angel which became known as a « touching piece » was then worn around the neck until cured. It was believed if the touching piece was removed the disease would return. The sovereigns of the House of Stuart also used the ceremony to help bolster the belief in the ‘divine right of kings’ . The practice peaked with Charles II touching over 100,000 people; but it was discovered that a good number of people were not sick but were attracted by the gold. It was a considerable drain on Royal Coffers.

    Maurice Hall

    Why do we hoard gold?

    Monday, January 11th, 2010

    Why do we hoard gold? In defiance of the world of fiduciary payments. Because of fears about war, revolution, devaluation, taxation. To avoid paying inheritance taxes. To remain true to ancestral reflexes that ensure that gold as a refuge and gold as a reserve prolong the gold fetish.

    Hoarding gold has both advantages and disadvantages. On the side of the advantages, one has to include its discretion, gold can not be identified. Unlike notes and cheques, which are numbered, coins have no serial numbers and whilst ingots are numbered, it is easy to remove the mark or simply melt the metal. Gold’s longevity must also be added to the positive side of the scales: neither the air, nor the earth damage it; as the Indians say: ants don’t eat it. It does not change over the centuries. Gold is a durable security.

    In terms of disadvantages, the metal’s sterility must be considered. It has no yield, unlike a security, goodwill, an industrial company, a bit of land or rental property, it provides no revenues just like a diamond, a precious stone; a painting, a carpet or a collector’s piece. The capital that it represents can even decline if it has been bought at a high price. But gold hoarders usually consider gold to be an insurance policy and the insured does not complain until he/she wants to make a claim. Like insurance, gold only pays when a misfortune occurs.

    However, investors often hoard gold more by instinct than for good reasons and, to them, gold’s virtues are primarily sentimental. Even when you demonstrate that they are wrong, they continue.

    Their attitude is different depending on their geographical location, their social status, their profession and their age.  Whether it is more or less logic to conserve gold depends on the country where you live, your wealth, the profession you practice, your life expectancy. A amateur philosopher would say “the reasons for hoarding gold are subjective”.

    Alongside these simple instinctive gold hoarders, there are others, fewer in number, who see gold as an investment and the opportunity to make a capital gain. These people are looking for a revaluation of the official price. They speculate on a decision that will make them richer.

    It goes without saying the gold hoarder, of either type, only acts based on what he or she considers to be in their own best interest without worrying about the general good. From the State’s point of view, they are subject to taxation. From the nation’s point of view, its ties up investment funds which, if used differently, could be productive. From a higher economic and ethical view point, their behaviour is useless and egoist. However, the severity of these negative criticisms does not worry owners of gold. They believe that they are defending themselves against a State that robs them and a society that threatens them. They add that we will be only too happy to have them and their gold when they decide to put it back into circulation.

    René Sédillot – “Histoire de l’or” – Publisher Fayard

    Robert Cohen: “Gold is a value for the future”

    Monday, January 11th, 2010

    RobertCohen1Robert Cohen trained as a metallurgy engineer and manages the Canadian company Dundee Wealth’s Dynamic Precious Metals Fund. Here he shares his opinion on gold’s potential:

    During the implosion caused by the Latin American debt crisis and the savings and loan crisis during the eighties, gold had a stratospheric rise, private and institutional investors were looking for a defensive security during a period when the dollar’s value was in doubt.
    Other reasons also favour an increase in the price of gold which should stay in the 900 dollar zone and could even reach 1,000 dollars. One of them is obviously the fall in the dollar, which should continue, especially compared to Asian currencies such as the Chinese Yuan.
    The increase in global liquidity also favours an increase in the price of gold. The current rate of growth of global liquidity, defined as the amount in the American exchange reserves and the currency base, has reached a record level of 28 %.

    Given the current uncertainty in the capital markets, the economic slowdown in the USA and elsewhere and the crisis involving residential and investment property, it is highly unlikely that the level of liquidity will fall in the near future.
    Gold is still relatively affordable, given that supply is limited and investment demand is increasing.

    Gold provides protection against inflation, currency devaluations and the stock market volatility.  It also has a low or negative correlation with the main types of assets, especially stocks and bonds.

    UN to licence the minting of Gold Currency

    Monday, January 11th, 2010
    UN_Coin_1_

    The 1€ gold "Oro"

    The announcement by the United Nations that it will license the minting of silver and gold bullion coins bearing the UN logo may be the button that launches metal prices into orbit.

    In its wide-ranging report this fall, the UN Conference on Trade and Development (UNCTAD) stated that the system of currencies and international banking practices within today’s economies were inadequate, and responsible for the present economic crisis. The report advocates that the present monetary system, wherein the dollar acts as the global reserve currency be re-examined “with urgency”.

    The UNCTAD Report was the first time a major multinational institution had forwarded such a suggestion or measure, although a number of countries, including Russia and Brazil have supported replacing the dollar as the world’s reserve currency. China’s central bank chief Zhou Xiaochuan has mentioned that the dollar could become a basket of currencies instead.

    The UN commission dismissed such a widening, saying a multiple-country system “may be equally unstable, and not transparent.”

    The panel is seeking more monetary balance for developing countries, and a means for them to retain their reserves and domestic savings independent of foreign agencies and arrangements.

    Panel Chair US economist Joseph Stiglitz, a Nobel economics laureate, has made plain that there was “a growing consensus that there are problems with the dollar reserve system. Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves,” Stiglitz stated.

    “It’s indicative of the nature of the problem. It’s a net transfer, in a sense, to the United States, a form of foreign aid.”

    A report contributor, Detlef Koffe, concluded that “Replacing the dollar with a bullion currency would solve some of the problems related to the potential of countries running large deficits and would help stability,”

    US Fed spokesperson Patrick Paulsen acknowledged that there could be some strong reaction in the US to the global currency, and that it would “…be viewed as a step toward a New World Order. But those same people have probably lost patience with the money-changers as well.”

    He clarified that he would “…nonetheless anticipate that the western currencies will continue to depreciate, given Asia’s ascendancy in trade and manufacturing, to find their own value and enable their economies to compete. This is a UN perogrative we cannot and should not control, it’s returning to what we had with Bretton-Woods.”

    The UN decided to provide a “public option” savings currency, whereby currency mints will be licensed to mint two kinds of bullion coins the size of the 1€ coin – the Uno (silver ~$5) and the Oro (gold, ~$500). The names were adopted from the book “The Humanist”, which foresees the UN being better funded by 2015 via its licensing fees, expected to be 10-15%.

    The coins have a marker chemical in them that enables their authentication and processing by modified retail ATM and exchange machines in Europe, which will be distributed globally. Any licensee, public or private, can produce such bullion coinage under contract. The United Nations is doing no more than what most countries do already, except that the value of its coins will reflect their bullion weight.

    Armand Dufour of the European Bank welcomes their introduction. “People have enough Fiat currency options, government and banks cannot intrude on bullion coins – they will have their own inviolable value.”

    He does have one concern, however. “If we see a dismounting from the US dollar, as is inevitable in the main view, there will be a strong move to the Oro, which may drive its price up to the point where governments will not allow its circulation; they will try to isolate it.”

    “That’s when the fun begins.” he said.

    Source: Before It’s News

    Exceptional demand for gold coins in 2009

    Monday, January 11th, 2010

    The demand for gold coins has risen sharply in 2009. This was a result of investors hedging against financial failure or diversifying portfolios into gold as there is a continuing lack of confidence as economies struggle to pull out of the worst recession in most peoples living memory.

    The Royal Mint more than quadrupled production of gold coins in the third quarter after demand increased as investors sought to hedge against a weakening dollar.

    Output rose to 32,735.8 ounces from 7,500.2 ounces a year before, according to data obtained by Bloomberg News under a Freedom of Information Act request. Production in the first nine months more than trebled to 100,391.3 ounces.

    Sales of American Eagle gold coins by the U.S. Mint more than doubled in the first nine months to 954,000 ounces, its Web site showed. Harrods Ltd., the London department store, began selling gold bars and coins for the first time in October.

    The strong demand for American Gold Eagles has lead to a shortage of blanks  forcing the U.S. mint to sell  on a weekly allocation basis thus dealers are charging a higher premium.

    According to Muenze Oesterreich AG, the Austrian mint and the world’s largest marketer of pure gold coins, by the end of Q3 production was up 23 percent more last year’s total sales.

    It is not just panicky  individuals but professional investment advisors and sophisticated traders who are purchasing 50 or more coins at a time The surge in investors is creating shortages in mints across the world as they struggle to meet demand driving premiums above normal levels.

    Gold coins are a tangible asset that can quickly and easily be realized and many such as Gold Sovereigns have liquidity that is recognized world wide. However, the sophisticated investor should view gold coins as an insurance policy within a diversified portfolio.

    Maurice Hall

    FRANCAIS ESPANOL ITALIANO CHINESE

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    Thoughts
    "For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."