Archive for August, 2013

What has the Bank of England done with 1,300 tonnes of Gold?

Wednesday, August 21st, 2013

According to Goldmoney, the Bank of England recently became a major supplier of Gold, having rented out some 1,300 tonnes of Gold in just 4 months. So what happened to 100,000 Gold ingots?

While the Bank of England offers us a virtual tour of their vaults containing the UK’s Gold on their website app, it was announced in June that the bank had 400,000 Gold ingots. In fact, a mistake was made between this figure and the balance sheet at the February year-end which stated the Bank of England reserves were 505,000 Gold ingots.

In other words, 100,000 bars seem to have disappeared between 28th February (balance sheet date) and June. Where is the Gold? Incidentally, a wag remarked that the lovely app the BoE gives us to look at the Gold should be considered for entertainment purposes only!

It is assumed the BoE would have flooded the market giving us unsustainable prices. The Bank of England is trying to keep prices down at a time when demand for physical Gold is high – from the financial crisis in Cyprus to the frenzy for Gold in China and India.

A market influx of 1,300 tonnes would be sufficient to bring prices down!

Quantative Easing? Daylight Robbery

Friday, August 16th, 2013

The official justification for the Bank of England’s money-printing policy is that inspite of savers being impoverished, it is a price worth paying to rescue the economy. No mention of the redistribution of wealth from savers (you and me) to borrowers (banks, governments, other spivs).

So a price worth paying? These benefits which it has given us must be worthwhile. There is some measurable amount, some figure which is going to knock our socks off. Across the pond in the US, a new study has been released by senior economists. So ladies and gentlemen, I give you (cue drum roll, fanfare, firework display of Olympic opening ceremony proportions), the results of the latest study. Quantative Easing has boosted economic output by… 0.04%

Ah, that’s a typo, you mean 400%. No, right first time. 0.04%.

To put this into perspective, Vasco Curdia (Senior Economist – San Francisco Federal Reserve Service) and Andrea Ferrero (same job, New York branch) said that merely telling the markets that interest rates would remain low boosted that same output by 0.09%. Mark Carney at the BoE clearly learned this and did the same thing in his recent forward-looking statement.

Those experts did not of course calculate the figures for the British economy but it is fair to assume the story would be similar. If so, the huge amount of pain suffered by savers and pensioners at the hands of QE has been for nothing.

Annuity rates have fallen to record lows. Inflation is eating away at fixed incomes. Keeping interest rates at 0.5% has taken its toll. A scheme designed to encourage banks to lend called (unimaginatively) Funding for Lending, has taken away banks incentive to offer decent interest rates to savers. Banks can raise anything they need from the BoE at bargain basement rates.

Funding for Lending is not all bad. It was intended to boost the availability of cheap mortgages and judging by the upswing in the housing market, it has succeeded on that front.

Shame the same cannot be said for Quantative Easing.

What next? Money is worthless, so invest in Gold as a wealth preservation tool.

Gold on fire!

Wednesday, August 7th, 2013

On Sunday, it was incorrectly reported that the JP Morgan Gold vault in Broad Street, London, had caught fire. It is true to state that the Olympic Champion in Pyromania would probably fail to burn down a Gold vault.

Gold vaults are constructed not to burn. They are made of reinforced concrete and other non-combustible materials. And then what is inside a Gold vault? Er… Gold – which is not combustible. So perhaps somebody had left a fag-end burning in an ashtray which set the alarms off. Or they were holding a test of the system.

The best vaults are either inside a mountain, or ground-supported and built on material that does not burn, using material that does not burn. All high-end vaults have fire extinguishers too, although maybe superfluous except in the case of errant smokers. Generally once any bits of paper in a vault have burned, there is little else combustible for a fire to take hold. owns state of the art private vaults in the Geneva Freeport which has exemplary ratings. And we’re not allowed to smoke when we are inside!

However, let’s look at the Gold market and it would be fair to say that there is a bit of a fire going there. Most of the recent technical indicators suggested Gold would resume the bull market position and start to climb. This happened right on cue with a $40/ounce rise but we also suggest this is only the beginning. A more rapid rise is forecast for the Autumn and we should see new highs.

If hyperinflation is thrown into the mix, then extraordinary rises are forecast and preservation of wealth is an urgent action for the savvy investor. Silver will perform as well although remember the price is much more volatile than Gold and not for the faint-hearted. Remember also that Gold is money and Silver is an investment and industrial metal. For the end game, Gold will probably be safer than Silver but we are looking longterm here.

So Gold is sitting pretty. With Japan, Europe, UK, USA, maybe China, all printing money as fast as it will come off the press, Gold will be on fire! And that fire would not be extinguished with a quick blast of the Halon.

Why has the demand for Silver increased in Europe?

Monday, August 5th, 2013

Since the start of the crisis in 2007 which found its beginnings in the American sub-prime crisis, the worries of savers were never important.

On each side of the Atlantic, the households who thought with certainty that their national economy would always be robust and worth something must have rapidly been disenchanted.

Bank failures, payment default by sovereign states, all the risks which we thought were reserved only for under-developed countries appeared before our very eyes in the so-called rich countries.

To overcome the crisis, the monetary authorities told the central banks that to “stimulate” the economy, they must print money without the consideration of new wealth.

Faced with all these risks, investors have turned massively towards precious metals as the ultimate guarantee of their savings and equally allowing them to place their money outside of the banking system.

It is this general worry which fundamentally explains the rise in Gold these last years and now, of course, Silver.

Once upon a time, it was money

The principal point in common with Gold: Silver was once money! If it has been a long time since Gold could be used to buy bread; with Silver, it was permitted until 1980 when Silver coins were demonetised.

Silver has therefore remained legal tender longer than Gold, indeed it still persists in many countries, unlike Gold which is now usually reserved for the central banks and risk-averse individuals worried by the global economic system.

Historically (and this has been the case in Europe), the rule was “Bimetalism”. Gold and Silver formed the currency and if the rarity of one gave it great value (Gold), the abundance of the other (Silver) allowed free and easy circulation which permitted small commercial transactions.

This small piece of history allows us to understand why Silver is not unknown to the population of Europe.

A metal in demand

In addition to its past role as money, like Gold, Silver has an important place in industry. One of the primary reasons is that it is an excellent conductor. Unlike Gold, it is exists in huge quantities on the surface of the Earth. The quantity of Gold produced to date is estimated in the region of 155,000 tonnes – it would form a large cube where each side was 20m. It is estimated 100,000 tonnes remains in the ground of which about half will be able to be exploited. Each year, it is estimated 650 million ounces of Silver are extracted – that is 19 565 tonnes.

The massive demand from the industrial sector should not pose a problem. For sure, if Silver is used in large quantities, it can be recycled although this accounts for about one third of the amount used annually. As Jason Hommel said in his note on 24h Gold, “In all of history, about 45 billion ounces of Silver have been mined. Of this, nearly everything, between 90% and 95% was consumed and eventually buried with other waste. Why? Recycling is not profitable! It is cheaper to extract than recycle. There is not much interest about this incredible amount of Silver extracted since the dawn of time – just enough to make the money markets interested”. Translation – money is a metal which “consumes”.

And you guessed it – little by little, Silver is becoming scarce, slowly but surely…

The end of Silver by 2021 ?

This is now certainly one of the main factors behind the rise, and also speculation on Silver, by the investment banks and funds.

In fact, according to several credible geological studies, Silver reserves may become exhausted by 2021 in view of the proven reserves and the current industrial consumption.

This is not a firm date, more a pivotal date which the tensions in the Silver market will be tangible and measureable. It is not that there will be no more Silver at all overnight. More prosaically, it is said there will no longer be more for everyone at affordable prices.

The awareness of this scarcity of resources is an added factor in the search and diversification of products to protect against bank or state failure. The savvy saver will be aware of this – the funds invested in traditional financial instruments are those turning to Gold and Silver as a tangible asset but also because of the “end” of abundant Silver approaching. In fact, 2021 is tomorrow… almost.

The poisonous European atmosphere!

Finally, the climate in Europe is poisonous. More and more countries are sinking into recession. The ECB, under German pressure, still refuses to print money as is the case in the USA or Japan which leads more and more European countries into bankruptcy or at least a partial default. Unemployment is rising. Consumption is falling. In short, all indicators are red. The negative climate can only encourage investors to turn to tangible assets and diversify their investments. There is Gold of course, and Silver.

So the three-headed threat of bankruptcy, scarcity of Silver and poisonous European climate will push up demand and should we not see any change in European policy, it will continue. In North America, the demand is already high due to the fear of hyperinflation related to the Quantitative Easing (money printing) undertaken by the Governor of the Fed, Ben Bernanke. The risk of bank failure is an unfortunate reality for many United States citizens.

CHARLES SANNAT, translation David HODGE

Charles SANNAT is a graduate of the School of Foreign Trade and the Centre for Diplomatic and Strategic Studies. He began his career in 1997 in the technology sector as a consultant and manager with the IT division within the Altran Group. (Banking and Insurance). He joined BNP Paribas in 2006 as “Chargé d’Affaires”. He is currently the Director of Economic Studies for