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Archive for January, 2012

UNCLEAN GOLD AND ECO-CRISIS

Monday, January 30th, 2012

Earlier this month on Goldcoin.org, we looked at hazardous gold mining operations in South America (Unclean Gold). The context was the Peruvian economist, Hernando de Soto’s findings that the vast majority of the world’s poor operate in economies that give them no access to title and other capital-realizing legal arrangements. There will be a great deal more to say about these insights, but here I want to address an important distinction that needs to be made about eco-crisis and the environment. This is to clear up some of the misapprehensions voiced by critics of capitalism and free trade, such as “Occupy” and many of the rancidly left-wing organizations financed by Soros.

The anti-globalization movement has global ambitions far in excess of those entertained by the merchants and manufacturers who drive globalization. The latter want to acquire or produce their goods at the best possible costs and sell them for the best possible prices. Not only are these relatively modest ambitions, but they are also perfectly normal: merchants and manufacturers down the centuries have always traded on these assumptions.

A main platform of anti-globalizers against the despoliation allegedly caused by capitalist enterprise is environmentalism, and this vision is entirely holistic – i.e. global! They also embrace goals far in excess of what any economy can bear, especially a developing one: the grandest is the demand that carbon emissions are reduced by an improbable amount in an unachievable time…

The reason: “global warming”. However, this is an ideology and can have no bearing on what real people struggling in real economies must do to survive and prosper. Hence the refusal of India and China to sign up to carbon quotas; hence the puzzlement of Africans and South Americans that they should be sacrificed, denied the possibility to improve their lot because of the perceived “fate of the earth”.

Global warming is now a legislative fact, and it is so because the wrong science is used: the study of the “greenhouse effect” is based on the composition of gases, i.e. chemistry. However, what drives the climate is convection, i.e. physics. The Earth is 70% water, and the land mass that makes up the rest contains high mountain ranges: the effect is the creation of a planetary climate which helps regulate temperatures over time.

“Environmentalism” is merely another attempt by those who despise wealth creation, and all the benefits that flow from it, to reduce western economies and suppress emerging ones.

Yet are there not serious ecological problems such as the unclean and illegal gold mines discussed earlier? Of course there are, but refusing to be blinded by environmentalism means approaching such eco-crises more circumspectly. That is, each crisis must be seen on a case-by-case basis, and not dove-tailed into a wider and misleading perspective. Why should what needs to be done – and more to the point that can be done – to alleviate a local problem, be deferred until globalization and the environment are “fixed”? The attempt to co-opt the unclean gold mines into a productive framework, would demonstrate that such problems can be solved on their own terms – and give true value not only to the gold extracted but to the lives and work of the extractors.

By Mark Rogers

Amadeo I: the other 25 and 100 Peseta gold coins

Friday, January 20th, 2012
Amadeo I of Savoy

Amadeo I of Savoy

Son of the Italian king Victor Emmanuel II, Amadeo I was proclaimed King of Spain on the 2nd of January, 1871. Hitherto, the influence exerted by the Spanish government sought to found a constitutional monarchy – hence they selected a foreign king and put in place a system of mandates, namely: the people for the king, through Parliament.
Amadeo I was the first king of Spain to be selected by Parliament. He was not recognised by certain parliamentarians, including; Carlists, Bourbons, the church and by the people; who judged him as being unpleasant and reticent towards learning the Spanish language.
Upon the death of General Prim, the political alliance which had placed Amadeo I on the throne began to dissolve little by little. The pressures brought by the federalist revolts, the loss of support from capitalists and the Carlists war pushed the Italian monarch to renounce the throne on the 11th of February, 1873.
From his 2 years of rule, hallmarks bearing his effigy were designed for the 5 Peseta coins as well as the 25 and 100 Peseta gold coins – some were struck as trials.
In 1868, a new parameter was integrated into the Spanish monetary system. Unique to the world, two dates were to be inscribed on the coins: the approval date of the coin type and when it was struck. Nevertheless, this initiative was not correctly followed between 1871 and 1875, partly covering the rule of Amadeo I. According to information collected in el Catálogo de la Peseta, it appears that the number of coins issued with the year (between the stars) 18-71 are more common than those of 18-73, those of 18-74 appear in only 20% of cases while those of 18-75 appear in only 10% of cases, approximately.
It was only during the 1st republic, i.e. not before the end of the year 1873 that the process of the two dates began to function better, inscribing the correct date between the stars of the coins.
But this accuracy of dating came at a time when the currency did not reflect reality since Amadeo I renounced the throne in February 1873. The republic followed and thereafter, in 1875, came the rule of Alfonso XII, although the currency with Amadeo I’s effigy continued to be struck until mid-1875.

Marks of guarantee of the Amadeo I coins

Five people were charged with assuming the guarantee of these coins. On the obverse side are affixed the first name and surname initials of the engraver – on the reverse, the surname initials of the two Testers and Beam Balancers:

Engraver: L.M.: Luis Marchionni

Testers and Beam Balancers:

SD M: Donato Álvarez Santullano, Eduardo Díaz Pimienta y Ángel Mendoza Ordóñez.

DE M: Eduardo Díaz Pimienta, Julio de Escosura Tablares y Ángel Mendoza Ordoñez.



25 Peseta gold coin

Amadeo I 25 Peseta coin

Amadeo I 25 Peseta coin

Characteristics:

Fineness: 900 Thousandths.

Diameter: 24mm.

Weight: 8.0645g.

Workshop: Madrid.

Edge of the first coins: Relief engraving of 27 six-ray stars, using the hoop system open to three points.

Edge of the coins struck later out of reddish gold: JUSTICIA Y LIBERTAD (JUSTICE AND FREEDOM) separated by three groups of two six-ray stars.

Obverse: AMADEO I REY DE ESPAÑA *1871* (AMADEO I KING Of SPAIN *1871*) – portrait of the king facing right.

Reverse: Ley 900 Milésimas (Title 900 thousandths) – 124 piezas in Kilog. (124 coins in Kilog.) SD 25 PESETAS M, around the Spanish armouries carrying the coat of arms of Savoy, surrounded by the coat and fleece.

Number of strikes: 1871 (75) SD M = 25

<The first strikes were made with an alloy containing 10% silver and conferred a bright yellow tone to the gold of these coins, which differentiates them from the other coins struck later, these latter ones displaying a more reddish tone of gold.

These coins, as well as the 100 Peseta coins of the same year were the first gold coins displaying a face value in Pesetas, emanating from the Reform of October 19th 1868. Struck under the Order of the General Directorate of the Treasury of August 22nd 1871, “as tests, and it is impossible to specify the quantity of coins manufactured in 71”>

(Information extracted from the Catálogo de la Peseta by J.Aledón & Modern World Gold Coins).

In general, the 25 Peseta coins began to be struck under the Royal Decree of March 15th 1871. Previously, the reform of the Peseta did not integrate in the values struck out of gold the 25 Peseta coins, omitting the 8 gram model so well-known in Spain, Germany, Holland, etc…

Of these coins, only some were struck as tests. It is under the reign of Alfonso XII that they started to be manufactured in series.

100 Peseta gold coin

Amadeo I 100 Peseta coin

Amadeo I 100 Peseta coin

Characteristics:

Fineness: 900 Thousandths

Diameter: 35mm.

Weight: 32.25g.

Workshop: Madrid.

Edge: Relief engraving using the hoop system open to three points with the words JUSTICIA Y LIBERTAD (JUSTICE AND FREEDOM), separated by three groups of two six-ray stars.

Obverse: AMADEO I REY DE ESPAÑA *1871* (AMADEO I KING OF SPAIN *1871*) – portrait of the king facing right.

Reverse: Ley 900 Milésimas (Title 900 thousandths) – 31 piezas in Kilog. (31 coins in kilog.) SD 100 PESETAS M, around the Spanish armouries bearing the coat of arms of Savoy, surrounded by the coat and fleece.

Number of strikes in Yellow gold: 1871 (71) = 25

Number of strikes in Red gold: 1871 (71) = 50

> An auction was held in Madrid on March 16th 1995, selling one of these coins at the starting price of 15 million pesetas (€ 90,151.82)

(Information extracted from Catálogo de la Peseta by J.Aledón & Modern World Gold Coins)

Re-striking of these coins

Unable to gain possession of the original specimens of the said coins, King Alfonso XIII commissioned the re-striking of specific ones in order to honour certain obligations. Thereafter, it was discovered that these coins appeared in 1963 coming from Switzerland.

The Decree of March 21st 1871, which enacted the creation of the 25 Peseta gold coin, stipulated that it would contain any caption on the edge, and if possible that the smooth part of the corners would contain differences to distinguish these coins from those emanating from other countries.

But the coins re-struck out of reddish gold display on their edge: Justicia y Libertad (Justice and Freedom), separated by three groups of two six-ray stars, similar to the engraving on the edge of the 100 Peseta coins.

Thus, these two coins of reddish gold were a re-striking produced in an unofficial way with the original coins, and to purely profit-driven ends.

As these are very unusual and rare coins, to possess or decide to purchase some is a true luxury – a great treasure!

How the loss of France’s triple A could effect Gold

Thursday, January 19th, 2012

France’s loss of the triple A rating sharpens the focus on what needs to be done to avoid the Eurozone’s crisis deepening further. What happens in France in the immediate as well as the long term future is therefore of concern to those outside France as well as those within. This week it was made clear that through increased IMF funding, the UK is likely to be contributing to the bail out funds, although the UK remains committed to countries not currencies. Of particular concern to English readers is the likely reaction in France to the required social reforms. And of course the flight into gold helps strengthen the hand of the wise investor.

The loss of the triple A is only one of the superficial symptoms of the trends of 2012. The economic crisis continues to deepen, which may well cause the price of gold to climb more quickly than envisaged, but not initially.

The consequences for the economy…

This is not due to having been warned of the possibility of such a loss. Since October last year, the agency Moody had been holding the sword of Damocles over Gallic heads.
The downgrading of the French credit rating from AAA to AA by the credit rating agency Standard & Poor’s has far graver consequences than would be implied by the speeches of leaders who wish to give reassurances, a mere few months ahead of the elections.

The interest rates at which France borrows and which are already twice as high as those of Germany will increase, to cover the risk of default. The first direct impact on the economy is the flight of investors and thus a fall in the CAC 40 index.
And for individuals
Higher interest rates on mortgages, tax hikes, diminished access to credit… the French will have to curb their spending. All the large companies in which the State has a stake (EDF, GDF, France Telecom, Renault, SNCF…) will see their financing costs increase, which inevitably will impact the expenditure of individuals, not to mention the degradation of public services.

Is the A lost forever?

Of course, France can regain its triple A, but how soon and, especially, at what cost?
The corporate VAT plan is only a tiny initiative when viewed in the light of the catastrophic impact of such a downgrading. According to Norbert Gaillard, consultant at the World Bank, France can only recover its AAA at the expense of important social reforms and “a drastic reduction in public expenditure”. Flexibility of the job market for greater competitiveness, extending the period of contributions to pension funds, elimination of the 35 hour working week… Are the French ready to give up their social gains whilst increasing their daily expenditure? Working more and earning less money?

The consequences for gold

As soon as the credit rating of a country is downgraded, the cautious markets fall, demand for gold increases and hence its price. Initially, the need of banks for liquidity can result in a massive withdrawal following the resale of credit and a fall in the price of gold on the markets, as has been already more or less the case since December. One should therefore take the opportunity to strengthen one’s position on gold and buy now because the secondary effect once the selling off stops will see: gold reach new highs this year breaking the $2000 an ounce barrier and beyond.

Fools or Gold?

Once the dominoes of Debt start to tumble the skies the limit but more importantly, when states fail, currencies collapse or sovereign debt strangles everyday life, where would you rather have your “money”?
In a tangible precious asset with perennial true value?
Or tied up in the worldwide web of debt derivatives, Special Purpose Entities (SPEs) and untraceable off-ledger accounts?

The choice is simple, give your money to the crooks you’ve been conditioned to trust with blind faith and risk losing everything or buy something solid that you own and trust yourself to manage it properly?

It’s what they call a no-brainer!

UNCLEAN GOLD

Monday, January 16th, 2012

In the poorest parts of the world, gold is extracted in lawless and unclean ways: an earlier article on this site gives an example in the Peruvian Amazon Forest (The other side of Gold mines in Peru).

Open mine in Madre de Dios

Open mine in Madre de Dios

The mines lack proper extraction tools and machinery; far from public gaze and legal regulation, they are hazardous, not only at their hidden locations, but to towns and villages exposed to toxic waste in the water supply. To protect their interests, the miners engage in arms smuggling. Those who work in these conditions are exposing themselves to extreme danger, with no certainty that they will reap the long-term benefits for which they hope.

So why do they do it?

The clue is the word “lawless”. Hernando de Soto’s remarkable book “The Mystery of Capital”, first published in 2000, was the result of him and his researchers from the Institute for Liberty and Democracy in Peru (www.ild.org.pe) asking: why has capitalism worked in the west, but not in the developing and ex-communist world?
The usual answer is that capitalism shouldn’t work in the west and shouldn’t be fostered in the developing world, but after the failure in the twentieth century of all variants of socialism and state direction of economic planning, capitalism is “the only game in town”.

Yet looking at the shocking conditions that prevail in these illegal mines the typical response is an anti-western moralism that regards “capitalism” and “rapacious greed” as synonymous: all one has to do to “understand” poverty is rail against the rich.

This attitude of campaigners of the traditional sort, fair-traders, charities and NGOs, churches and environmentalists is unhelpful: it is misleading to demonise the alleged capitalist forces behind the miners, misleading because the miners are themselves capitalists of a sort, and therefore should presumably also be demonised, unless one sees them as mere helpless puppets – but that is simply another way to dehumanize them.

The problem that de Soto identifies throughout the developing economies is that the overwhelming majority of the world’s poor work completely outside any legal system: the businesses and buildings they create therefore operate without title, which means that the assets they “own” are dead capital. In such an environment, unprotected by clear rules, poor people’s only guarantee of prosperity rests with themselves. Wherever there is potential value and a market for it, with gold just as with any other commodity, they will exploit and protect it without any legal roots to sustain them.
The problems of these unclean gold mines, the use of dangerous chemicals in unsupervised environments, the use of child labour in dangerous places, water tables filled with toxic waste, are the result of there being no clear title to the mines or their products and no legally defined responsibilities. Even the violence is explicable: in the absence of legal title, there is no other way to defend what might anyway turn out to be a temporary interest, rather than a clear and justiciable and therefore legally marketable property right.

In the light of these observations, it should be obvious that what needs to be done is to recognize the “illegal” gold miners as the entrepreneurs they are and co-opt them, bringing them into the legal fold.

In contrast, there is hope regarding the improvement of mining conditions and extraction methods.

The first commercial product exclusively made from “Clean Extraction” gold has been launched.  The Vera Valor is a 1 oz “Bullion” bar-coin, 999.9, Good Delivery and it is made from pure gold from “Clean Extraction”.

The “Clean Extraction” initiative encourages mining companies to behave properly towards their workers, the environment and the lasting aftermath of their activities.

Our friends at Cleanextraction.org have produced the “Clean Extraction” charter which you can consult from their website.

It just shows that “there’s nothing wrong with doing things right” and proves that it is possible for some Gold to have a conscience.

by Mark Rogers

GOLD STORAGE, THE HONG KONG WAY

Sunday, January 15th, 2012

I returned home to Hong Kong after undergoing my last two years of schooling in the UK; I quickly found employment and after work (six days a week) and on Sundays, I began to explore areas of Hong Kong that I had never visited during my childhood and adolescence.

One of the consequences of the several waves of refugees from communist China (the revolution itself, the Great Leap Forward in the 1950s, the Cultural Revolution in the 1960s) was the rapid accumulation of informal dwellings on the mountainsides. These shacks were made out of anything handy: packing crates, corrugated iron, planks. They were incredibly hardy edifices: typhoons capable of lifting a battleship, blowing it out of the harbour and impaling it on a rocky island in the South China Seas, would leave the squatter huts crowded onto an exposed side of the island at the harbour mouth intact!
As a child I had always been fascinated by these places: they embodied escape, freedom, the mastering of adversity; they had an air of romance and adventure. Yet I had never visited one: this was something I remedied as I explored Hong Kong anew during 1975.

What I discovered was remarkable. First of all, these places were orderly and clean, the natural drainage of the mountainsides enabling the latter. The homes were sturdily constructed despite their flimsy materials. What was truly astonishing, however, was the discovery that the expensive cars parked at the foot of the hills belonged to the owners of these huts! This was not all: the informal lifestyle of the hillsides meant that the hut doors tended to be left open: there were always a few children or an ancient grandmother (whom we shall meet again) to keep an eye on things. Through these doors I glimpsed the good life inside: the huts had all the conveniences – fridges, deep freezes, television sets, electric fans, air conditioners, electric lighting: the hills were ablaze with electricity, all legally installed.

This lifestyle reflected a dominant desire among the Hong Kong Cantonese: the ambition, if not for themselves, then for their children to emigrate to one of the Anglosphere countries, far from China, which had caused them such grief. This being so, many prosperous people simply did not want to spend on property. The millionaire who lived on the hillside above us had built himself a house – it was in the style of a mansion, to accord with his status but was really very modest: what was the point of investing in substantial real estate when you might have to abandon it?

Portable Purchasing power?

The personal or family memory of enforced flight also gave rise to the idea that if you were going to have to pick up and go, then property should be portable. The wealthy of Hong Kong are unusual amongst the world’s richest in that they spend more of their money on jewellery and watches than any other type of investment and/or luxury good, mansions and yachts coming right at the bottom of their priorities – only a tiny percentage bother with these things. The desire for wealth in a safe and portable form surely means that the idea of putting their assets into gold coins would appeal to the wealthy, economy-stimulating entrepreneurs of Hong Kong.
Enter Grandma: while I was exploring the shacks and shanties, I saw the most revealing thing of all: the family wealth of these entrepreneurs was stored in gold – in Granny’s teeth: the fillings were so abundant that their mouths gleamed with gold!

by Mark Rogers

Buy Gold, be wise – it lets you take back control

Tuesday, January 10th, 2012

The twentieth century saw in both extreme (Nazism/Communism) and mild (the European-style welfare state) forms the strange phenomenon of governments repeatedly taking against their own peoples – in the name of the people. No longer was an independent citizenry to be trusted to look after itself, educate its children, defend its homes and families, and generally stand on its own feet: the munificent state was to do all that, and the end result is bankruptcy. And evasion: the bankrupt states of Europe are not prepared to be honest about where state intervention leads, even though the lessons have been spelled out twice in the twentieth century in draconian form: Nazi Germany and the Soviet Union.

As the eurocrisis deepens, measures antipathetic to savings are being mooted across the continent, involving amongst other things bans on the purchase of gold over certain amounts and bans on cash transactions. Any attempt by savers to convert increasingly worthless cash into solid investments like gold are to be thwarted, raising fears that a Franklin D. Roosevelt style confiscation of privately owned gold may be on the horizon.

Certainly measures proposed or drafted into law in the last quarter of 2011, in Italy, France and Austria, give cause for concern: in Austria there is a restriction on the purchase of more than 15,000 euros’ worth of gold; in France, all metal sales over 450 euros must be paid for by credit card or bank transfer; in Italy it is proposed to ban all cash transactions over (the figures vary) 300, 1,000 or 5,000 euros. The effect of these measures would be to render all significant purchases of precious metals recorded and therefore traceable to their owners.

It has been claimed that the various reasons for these measures are an attempt to rein in credit, to comply with U.S. requests for assistance in combating money laundering, or to help prevent the theft of ordinary metals: in the case of the latter there have been widespread spates in recent months of the theft of metals from anything ranging from telephone poles to industrial plant. While these may all be true goals (whether the proposed remedies will work is another matter – it always is), there is the significant problem that nowhere are the precious metals excluded from the measures. Hence the fears of confiscation.
Gold is a safe haven competitor against fiat money; this may not cause problems when economies are genuinely booming (i.e. the boom is not fuelled by easy expansions of credit). Yet when the fiat money system is collapsing and inflation is rampant the idea that people may protect their assets and their pensions by converting their cash into gold becomes a serious “problem” for the state: savings are seen as a threat.

We have seen how Keynes thought “wealth accumulation” a vice (Austerity for you – privileges for Politicians, December 16th, 2011). He further mockingly remarked: “The duty of ‘saving’ became nine-tenths of virtue and the growth of the cake the object of true religion.” Reckless governments are hardly likely to admire or condone prudence in their peoples; whatever the ultimate reason for this, such an attitude on the part of the authorities will only widen the gap between the political elite, unable to admit the error of its ways, and nervous private citizens wondering whether they have a future.

Finally, savings based in fiat currencies or related to debt-ridden financial institutions have the possibility to fall to zero in a crisis. Savings based in physical assets that you own help protect to preserve your accumulated wealth as they retain worth through a crisis.

The best physical asset to own during a crisis is gold which has proved its perennial purchasing power for over 6000 years – no fiat currency has ever existed that long to compare it and no other asset can compete with the value retention of gold. After all Gold can never be worth zero – it has intrinsic value, it is relatively rare on the planet and it has always been revered as precious because it is and has chemical and physical properties unmatched by any other metal.

By Mark Rogers

Are Bankers Greedy?

Monday, January 9th, 2012

It is taken for granted that to qualify as a banker one must be greedy. The proposition is so silly that it is distressing to note how widespread is its acceptance. Of course there are greedy bankers, just as there are greedy butchers, bakers and train drivers; yet if banking was based on greed, it couldn’t exist. (This is another example of the misunderstanding of self-interest: see  Austerity for you – privileges for Politicians, December 16th, 2011).
The web of trust that is banking could never have come into existence if it was driven by the unqualified greed of all those who tried to participate. Banking arose out of the need of merchants to protect their monetary assets from theft en route as they travelled about Europe trading. They established networks of trust, whereby assets, often gold, could be placed in a secure depository, and redeemed through paper pledges at other trusted depositories, thus ensuring that the merchant carried as little as possible of his wealth about with him. This web of trust is the basic principle which still governs modern banking, and without it the system would collapse.
Isn’t the system already collapsing; doesn’t this prove that governments and people no longer trust the bankers because they are greedy? And the answer to the problem? Legislation: there must be more regulations to fetter the bankers, and to make them pay.
The trouble is they already do. Take bonuses: they are taxed as bonuses, and not as part of income, at a 40-50% rate. The greater a banker’s earnings, the more he already “contributes”. The level of income even without bonuses ensures that the wealthiest people in the country pay a huge percentage of the nation’s taxes, which are largely wasted: the tax-funded welfare state is notoriously inefficient, and a main driver of inflation.

The curious aspect of the demand for regulation is that it is MPs who are to be the overseers of this legislative campaign against greed. There is a strange dichotomy in the democratic mind: nobody much trusts politicians (though like bankers there are eminently worthy men and women to be found amongst them); nevertheless we entrust our health, our education, and all manner of things the state really has no business being involved in, to just these unloved politicians.
The question arises as to whether playing to the masses, which is what democratic politics now largely consists of, is likely to produce viable policies to prevent another crisis. In an editorial in the London Evening Standard, 19 December 2011, concerning the likelihood that parliamentary and public pressure will force the Chancellor to accept the Vickers recommendation on banking reform that banks must separate their investment and retail banking operations, it was pointed out that “[s]ome of the banks most exposed to the sub-prime crash – notably Northern Rock – did not conduct investment bank-style ‘proprietary trading’. Conversely, Lehman Brothers conducted only such activity, having no retail arm. Then again, Barclays Capital, Barclays’ investment banking arm, survived the crisis.”
In other words a key recommendation is based on prejudice and not the facts. So much for financial probity!

By Mark Rogers