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Archive for March, 2010

When is a good time to buy gold?

Wednesday, March 31st, 2010

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.

supercycle

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%
souverain-elizabethII-avers (1)

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

When should we sell gold

Friday, March 26th, 2010
Willem Buiter called “Gold – a 6000 year bubble” – ft.com. The late and great Peter Bernstein
subtitled his book about gold “the History of an Obsession”. But much as I admire these two
great minds, such loaded phraseology implies there to be something irrational about owning
gold and I think that’s just plain wrong. The fact is that there is a fundamental need for a
medium of exchange. Early civilisations used pebbles or shells. Prisoners have used
cigarettes.
Having a medium of exchange makes life easier than under barter economy and societies
have always organised themselves around the best monetary standard they could find. Until
industrialisation of the paper printing process, that happened to be gold, which is small,
malleable, portable and with no tendency to tarnish. Crucially, it’s also relatively finite and this
particular characteristic (in combination with the others) can be very useful in environments
characterised by monetary mischief.
I view it primarily as insurance against such environments. It’s a lump of metal with no
cash flows and no earnings power. In a very real sense it’s not intrinsically worth anything. If
you buy it, you’re forgoing dividend or interest income and the gradual accumulation over time
of intrinsic value since a lump of cold, industrially useless metal can offer none of these things.
That forgone accumulation of wealth is like the insurance premium paid for a policy which will
pay out in the event of an extreme inflation event.
Is there anything else which will do that? Some argue that equities hedge against inflation
because they are a claim on real assets, but most of the great bear market troughs of the 20th
century occurred during inflationary periods. A more obvious inflation hedge is inflation linked
bonds, but governments can default on these too. More exotic insurance products like
sovereign CDSs, inflation caps, long-dated swaptions or upside yield curve volatility all have
their intuitive merits. But they all come with counterparty risk. Physical gold doesn’t. Indeed,
during the “6000 year gold bubble” no one has defaulted on gold. It is the one insurance
policy which will pay out when you really need it to.
There is nothing mystical about gold and I don’t consider myself a gold bug. In fact, I’m not
sure I’d even classify gold as an ‘investment’ in the strictest sense of the word. Well chosen
equities (not indices) will act as wealth-compounding machines and are likely to make many
times the initial outlay in real terms over time. These are ‘investments’ because so long as the
economics of each business remain firm, you don’t want to sell. As they say in the textbooks,
you ‘buy to hold.’ But gold isn’t like that. Like all commodities, it’s intrinsically speculative
because you only buy it to sell it in the future.
The reason I own gold is because I’m worried about the long-term solvency of developed
market governments. I know that Milton Friedman popularised the idea that inflation is “always
and everywhere a monetary phenomenon” but if you look back through time at inflationary
crises – from ancient Rome, to Ming China, to revolutionary France and America or to Weimar
Germany – you’ll find that uncontrolled inflations are caused by overleveraged governments
which resorted to printing as the easiest way to avoid explicit default (whereas inflation is
merely an implicit default). It’s all very well for economists to point out that the cure for
runaway inflation is simply a contraction of the money supply. It’s just that when you look at
inflationary episodes you find that such monetary contractions haven’t been politically
viable courses of action.

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

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

Some would say the time to sell is now. Gold just isnt the misunderstood, widely shunned asset it was a few years ago. Isnt the gold bull market now long in the tooth, with better opportunities to be found elsewhere?

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

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

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

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

because they are a claim on real assets, but most of the great bear market troughs of the 20thcentury occurred during inflationary periods. A more obvious inflation hedge is inflation linked bonds, but governments can default on these too. More exotic insurance products like sovereign CDSs, inflation caps, long-dated swaptions or upside yield curve volatility all have their intuitive merits. But they all come with counterparty risk. Physical gold doesnt. Indeed, during the “6000 year gold bubble” no one has defaulted on gold. It is the one insurance policy which will pay out when you really need it to.

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

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

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

What causes the political winds to change? A government crisis. In 2008, Ireland came very close to going the way of Iceland. They had their crisis. And historians today still refer to the inflation fatigue” in Britain by the end of the 1970s. This was our crisis. So what we learn from these experiences and others like them is that a fiscal crisis is required to force a majority acceptance of the implications of an overleveraged government. But the political winds in countries with central banks are a long way from blowing in the direction of fiscal rectitude. And while its true that more people are at least talking about it, talk is very cheap and no one is yet close to walking the walk. Such steps remain politically unpopular because we havent had our crisis yet. Given the clear unsustainability of government finances and the explosive path government leverage is on, a government funding crisis is both inevitable and necessary. Dubai and Greece are merely the first claps of thunder in what is going to be a long emergency.

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

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


The Ancestors of our gold coins – History of Gold

Friday, March 26th, 2010

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.

Lydia gold coin 1

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.

Lydia gold coin 2

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.

Seasonal Variations in the price of gold

Thursday, March 25th, 2010

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.

Gold seasonal variation

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

The denunciation of money by Marx

Thursday, March 25th, 2010
Karl_Marx_001

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.

Now is the time to protect your wealth- with real money

Friday, March 19th, 2010

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

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

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

DM wheelbarrow

A days wages in Germany 1923

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

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

60oz gold 1971

Not long ago the gold standard imposed monetary discipline on countries as they had to hold enough gold to cover the money in circulation but this all changed with the Jamaica agreement in 1971 when the decision was taken by President Nixon on the 15th August 1971 to suspend the direct convertibility of dollars into gold, the keystone of the financial system created in July 1944 (the Bretton Woods Agreement).  On the 1st October 1971 the general assembly of the IMF asked the board of trustees to study and propose a comprehensive reform.  This would be adopted by member States during a meeting held in Kingston (Jamaica) on the 7th and 8th January 1976, and included a set of provisions which put an end to the reign of gold.  The US money supply in 1971 was $776 billion and quickly became an upward curve which rose dramatically over the last decade where the US money supply doubled from below $7 trillion to $14.3 trillion indicating that spending is out of control.

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

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

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

In summary:

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

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

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

Maurice Hall

Consolidation of the price of gold? It’s the right time to buy gold coins

Thursday, March 18th, 2010

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

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

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

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

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

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

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

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

Generally speaking we advise the following:

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

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

In summary:

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

You will find the following articles interesting:

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

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

Virtual Capital v Tangible Capital

Thursday, March 11th, 2010
Virtual gold

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

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

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

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

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

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

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

Gold is not an investment, it doesn’t earn anything.  It’s a security blanket when monetary markers disappear.  Which is the biggest risk: having gold or not having gold? Not having it of course.”  – Simone Wapier Chief editor MoneyWeek

Maurice Hall

How Gold is Produced

Tuesday, March 9th, 2010

This chart illustrates the general steps in open-pit gold mining. The specifics of the process vary from mine to mine.

1. Geologists use the latest technology, such as satellite surveys and geochemistry, to locate an ore deposit.

2. Computers are used to design the mine, which requires precise and accurate measurement of the ore deposit. Construction begins following the lengthy process of receiving permits.

3.3 Samples of ore are examined to determine grade and metallurgical characteristics. Broken rock is marked by type for efficient processing.


4. Based on its metallurgical makeup, a dispatcher directs truck operators to deliver the ore to the correct processing location.


4b

5abtrans

6. The gold is absorbed (collected) out of solution onto activated carbon. The remaining cyanide solution is recycled.

7. 7The gold loaded carbon is moved into a vessel where the gold is chemically stripped from the carbon which is then recycled.

8. 8Gold is precipitated from the solution electrolytically or by chemical substitution.

9. The pure gold is then melted into dore’ bars containing up to 90 percent gold. Dore’ bars are then sent to an external refinery to be refined to bars of 999.9 parts per thousand pure gold.

Reclamation is a long-term investment made by every gold mining company, and can cost anywhere from $2,000 to $10,000 per acre. It is the cornerstone of every mine plan and is considered the first and last step of the mining process.

Gold is produced at some mines as part of the process of mining and refining other metals, such as copper. At those operations, gold is refined to an acceptable purity as part of the copper production process. At most gold mines, the gold “dore” is sent to a refinery for further processing.

low grade material

High grade material

Russia – Gold mining in some of the harshest conditions in the world

Tuesday, March 9th, 2010

Every winter, an ice road is laid across 400 km (250 miles) of tundra to carry supplies to one of the world’s most isolated gold mines.

kupol-mine

Kupol Russian Arctic Mine

There is no other way for heavy machinery to reach Kupol, the $700 million Arctic mine behind a resurgence in Russian gold production after five straight years of decline.”It’s one of the harshest climates I’ve worked in, and I’ve worked in the Atacama desert in Chile and at 15,000 feet in Indonesia,” said Patrick Dougherty, general manager at Kupol. “But I don’t get to pick where the gold is.”

Only South Africa holds more gold than Russia, but Moscow’s fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.Russia is the world’s biggest energy supplier, but falling prices and reduced demand have cut income from natural resources to about 8 percent of its gross domestic product in the first quarter of 2009, from nearly 11 percent a year ago.

Gold, on the other hand, has been helped by recession. Its safe-haven appeal has shielded it from a demand slump that shredded other commodity prices, lifting it to over $1200 an ounce in December 2009

Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia’s gold in the first half of this year. Gold is the region’s passport to growth after Abramovich quit as governor last July.Russia ranked fifth among the world’s gold miners last year, between Australia and Peru, with an 8 percent share of output. Production rose 13 percent in 2008, the first increase in six years, and jumped another 25 percent in the first half of 2009. “This was solely due to the commissioning of Kupol,” said Olga Okuneva, mining analyst at Deutsche Bank in Moscow. “If other large projects in the Far East start producing gold, this will be a major growth driver for the Russian gold industry.”

Kupol — meaning dome in Russian — is named after a rounded outcrop of rock that juts skyward from the tundra in central Chukotka, over 200 km (125 miles) from the nearest settlement. The mine took five years to build. It is the largest tax payer in Chukotka, a land twice the size of Germany where reindeer outnumber people four to one. “With a deposit as large as Kupol, mining’s contribution to the regional economy is expected almost to double to 37 percent this year,” said Roman Kopin, the 35-year-old who took over as governor when Abramovich resigned.

Kinross Gold Corp, the Canadian miner which owns 75 percent of Kupol, is unusual among foreign investors for holding a majority share in a major Russian mineral deposit. The government of Chukotka owns the other 25 percent. Untangling the red tape that stifles some foreign investors in other parts of Russia was one of the main achievements of Abramovich’s more than seven years as governor, Kopin said. “The investment climate here, perhaps, is a little bit different, because we understand that it’s very difficult to work in Chukotka,” he added.Kinross has been the top performing gold stock on the New York Stock Exchange for the last three years, when the company’s value rose more than 160 percent. Kupol will supply about a third of its total output this year and 15 of 24 equity analysts polled by Reuters retain a bullish rating on the stock

ARCTIC CORRIDOR

About 1,400 jobs are related directly to Kupol, and Chukotka’s population totals around 50,000. Miners and catering staff spend four weeks on site and four weeks off, earning an average monthly wage of 50,000 roubles, 25 percent above the regional average. “We have equipment that works here,” said Alexander Puzovets, 48, a drill rig operator who works 10-hour shifts at the pit face. “I’ve been in mines where we’ve used hammers.”The mine’s in-house electricity plant could generate enough to power the regional capital, Anadyr.In winter, miners walk the purpose-built Arctic Corridor — an enclosed, 900-meter tunnel from camp to mine — to avoid temperatures that drop more than 50 degrees Celsius below zero (minus 58 degrees Fahrenheit).

About 60 percent of Kupol’s gold is mined underground. Zurab Samteladze, a 55-year-old Georgian more than 7,000 km from home, hauls 45-tonne rock loads to the surface in a Caterpillar truck.In deeper parts of the mine, skilled operators maneuver drill rigs by remote control. This avoids the need for miners to work long hours beneath areas vulnerable to rock falls.

“With all the video games they play, the younger generation has a better chance of operating these units,” said Dougherty, a native of Arizona. Alcohol is banned. Miners pass their time playing pool, in the gym or watching television. Popcorn is a popular snack, while eight tons of reindeer meat was served up last year. “I play guitar — they have a music room. I like basketball — they have a sports hall,” said Andrei Aksanov, 34, a mechanic in the truck shop.Like 80 percent of the miners at Kupol, Aksanov comes from Magadan, the port city 1,500 km (940 miles) to the southwest.

russia miner

A worker cast an ingot at the Koylma refinery Magada

This is where mining began in Russia’s Far East. Stalin, needing bodies to unearth new-found gold reserves, sent hundreds of thousands of prisoners to slave in the region’s labor camps over two decades from the early 1930s.From such grisly beginnings, Magadan has developed into the hub of gold processing in the Russian Far East. Kupol flies its dore  (bullion bars)  to be processed into almost pure metal to be refined at the Kolyma Refinery to the north of the city. Vladislav Feoktistov, the refinery’s 71-year-old director, raised a glass of vodka to visiting officials from Kinross Gold. Supplies from Kupol will guarantee the plant’s biggest turnover in its 11-year history, he said.”This a business that’s only as good as its suppliers,” he said. From here, 15 kg (33 pound) gold bars worth more than $450,000 each at current prices are delivered to Russian banks.

Kinross report – The production at Kupol mine was started during the second half of 2008. During the second half of 2009, Kupol mine reported production of 234,265 gold equivalent ounces. Out of this, Kinross has produced 75% or 175,699 gold equivalent ounces. The production includes 151,327 ounces of gold and 1,633,673 ounces of silver. Kinross says that, with a cost of sales of about $205 per ounce on a co-product basis using a gold price of $400/oz and a silver price of $6/oz, Kupol will become one of the lowest-cost gold and silver mines in the world.

Processing – The Kupol mill is a conventional gold/silver cyanidation plant that incorporates a CCD thickener washing circuit and Merrill-Crowe zinc precipitation because of the high silver ore grade. Cyanide destruction is accomplished with calcium hypochlorite. The Kupol mill is designed to process about 3,000t of ore per day (1,100,000t per year). Run-of-mine ore is crushed in a jaw crusher and conveyed to a crushed ore storage bin. The crushed ore is ground in a SAG grinding mill followed by a ball mill. Gravity separation of free gold and silver will be carried out with a Knelson concentrator in the grinding circuit.

MORE GOLD TO MINE

There should be more to come. Polyus Gold, owned by billionaires Mikhail Prokhorov and Suleiman Kerimov, plans to launch Natalka, the world’s third-largest gold deposit, in 2013. Annual production of between 25 and 30 tonnes will put Natalka on the same scale as Kupol. Beyond 2017, Polyus plans to raise output to more than 40 tonnes a year. “It’s a deposit with reserves of more than 1,000 tonnes that will create jobs, infrastructure and become a major center for Magadan region,” said German Pikhoya, Polyus Gold’s deputy chief executive for strategy and corporate development. If Chukotka is to retain its leading position, it must do more. Current reserves at Kupol will last only until 2016. To extend the mine’s life beyond this date, more reserves must be found, mapped and registered with Russian authorities. Kinross and others are already exploring. “Chukotka is definitely a key gold-producing region, particularly in the long term,” said Vitaly Nesis, chief executive of St Petersburg-based miner Polymetal. His company plans to launch the Mayskoye gold deposit in Chukotka by 2011.

Maurice Hall from Sources Reuters, Kinross and mining-technology.com

Russia’s lost Gold

Monday, March 8th, 2010
Nick II

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

Bulgaria commissions gold coins from New Zealand

Monday, March 8th, 2010

There are a vast variety of gold coins available  from many countries in Europe. Many of these coins are beautiful and historic yet they do not find attraction in Bulgaria where they have gone to the other side of the world to meet their demand.

NZcoin_220x14729950

Valentina Grigorova Gencheva with the Panagyurishte Treasure

Bulgaria’s First Investment Bank has commissioned a new collection of gold coins from the New Zealand Mint. The bank’s head of gold and coin collecting Valentina Grigorova Gencheva said the country is a rapidly growing market for gold coins, as they are popular as both gifts and a safe haven for investors. New Zealand-made coins are popular in her homeland because they are more vibrant than those made in Europe.

Grigorova-Gencheva, the head of gold and numismatics at Bulgaria’s First Investment Bank, said the bank had been in a partnership with coin maker New Zealand Mint (NZM) since 2007. “The coins are very beautiful and the designs are very modern,” she said. Grigorova-Gencheva said coins produced in European mints were often “very conservative”, while coins produced here incorporated a wide range of colours and designs.European mints also focused on producing coins related to their own countries, while NZM produced coins with a variety of global themes.

The coin maker released a Bulgarian-themed coin – featuring the country’s fourth-century Panagyurishte Treasure – last year which proved popular with Europeans. Grigorova-Gencheva said she was working with designers to put the final touches on two more Bulgarian-themed coins. In the last three years, Ms Gencheva said the First Investment Bank alone has imported 20,000 coins struck by the company. They are highly prized among collectors for their “avant garde” designs, she added.

NZM managing director Gary McNabb said 98 per cent of the coins produced by the privately owned company were exported. He said coin collecting was not popular in New Zealand. “The bullion side of the business is the Kiwi market.”

The company exported $20.7 million worth of coins to eastern European and Balkan countries last year. It produced a coin to mark the 60th anniversary of the Kalashnikov rifle, in 2007 which proved a hit in Russia.

McNabb said revenues had grown significantly over the past six years,

Earlier this year, a new one-ounce gold coin issued by New Zealand Post became the country’s most valuable legal tender. The coin, which is valued at NZ$2,650 (£1,173), features a depiction of a heitiki, a form of Maori art, designed by self-taught sculptor Raponi Wilson.

NZ heitiki

Its design features a depiction of a heitiki, an iconic form of Maori art, created by self-taught carver Raponi Wilson, who has created over 1,000 heitikis since the late 1960s. The coins are housed in a waka hua, or treasure box, by Warren McGrath, master carver to the Maori king.
Garry Nicholas, chief executive of Maori Arts New Zealand, said: “It’s wonderful that Mr Raponi’s art is featured on this special coin.”
The obverse of the coin features a portrait of Queen Elizabeth II by Ian Rank-Broadly.

Denomination: $10
Composition and finish: Pure gold proof (fully struck) 0.999
Weight: 1 ounce
Diameter: 40mm
Edge treatment: Milled
Obverse design: Portrait of Her Majesty Queen Elizabeth II by Ian Rank-Broadley, England
Reverse design: Heitiki with huia feathers

Maurice Hall sources NZ Herald, Reuters

The Australian gold rush – Gold creates a nation

Thursday, March 4th, 2010

The discovery of gold in Australia in the mid 19th 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

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.

holtermanns nugget

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 eureka flagSouthern 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

Central Bank’s Gold

Thursday, March 4th, 2010

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

People's_Bank_of_China

Peoples Bank of China HQ

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

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

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

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

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

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

Marc Fiorentino – CFO of Euroland Finance

Carlin Trend’s gold

Wednesday, March 3rd, 2010
carlin PIT

Carlin Trend pit

The USA was the fourth  largest world producer of gold  in 2009 with the most prosperous mining region located in the state of Nevada. Millions of years ago, hot springs laden with flecks of gold boiled up through deep fractures in the earth’s crust. But the golden residue did not accumulate in rich veins, instead, it disseminated throughout the sedimentary rock laid down by an ancient ocean

The vast bulk of this production is from large mines where the deposits consist of microscopic particles principally hosted in this sedimentary (or sometimes volcanic) rock. Many of these deposits lie along a few well known geologic trends, and the two best known are the Carlin Trend, and the Eureka trend. Its tiny size also explains why the old timers never found these deposits as their principal means of exploration was the gold pan.

Carlin Trend’s largest mine is the Goldstrike Property. The two o clock siren indicates that it is time to leave the pits so that the daily explosions can begin in the mine.  Before the dust has time to settle, routine work resumes in the pits, 24 hours a day, 7 days a week.  The best way to achieve high productivity is to use the most advanced technology, and the bigger it is the better.  These six storey high shovels can load a truck with four shovel loads.  Each truck carries 190 tons of ore equalling about 107 kilos of gold but what differentiates Goldstrike from a conventional open pit is a computerised management system run from a tower located on the edge of the pits.

What we are trying to do here is to optimise the efficiency of all the equipment we have to run the mines.  All operations are computerised; each transportation or loading vehicle is fitted with a computer which communicates with the system in the tower.

carlin cranes

Cranes and giant trucks extract gold from Goldstrike mine. Around 100 kilos of gold per truck

This screen shows us which shovels are available and unloading areas to which we can send the trucks, we can see which trucks are leaving the shovels and those which are leaving the unloading areas to return to the shovels.

To extract gold from such low-grade deposits, miners must crush tons and tons of rock, which is piled into mammoth heaps and irrigated with cyanide. The cyanide percolates through the heap, extracting the gold. In the early days of the invisible-gold rush, a ton of ore might contain a few tenths of an ounce of gold. Today that minuscule amount would be considered high grade. Nevada mines are now digging up a ton of rock to get back as little as 0.025 oz. of gold which would have been considered waste rock back in 1961.”

After this process, the purified ore is melted and cast into ingots with a purity exceeding 92%.  Carlin Trend has become the industrial mining centre of America and has enabled the country to become the second biggest producer of gold in the world.

Timothy S Green, author of The World of Gold: “The boom in gold mining in the USA has created thousands and thousands of jobs.  Somehow it has enabled Nevada to be reborn as a State.  There is a whole life surrounding this industry which didn’t exist when I started being interested in gold in the mid 60’s.  In North America, you will find Homestake mine plus one or two small producers.  In Canada this industry lived off state subsidies and in the North of the Country we really struggled to keep mining towns standing.  Today, this industry has been totally transformed, it is alive and dynamic.

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."