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Archive for April, 2014

Monopoly money is no game nor investment

Friday, April 25th, 2014

The US would have exported a total of 215 metric tons of gold bullion to Hong Kong as well as other small quantities of Dore’ not yet specified.

Hong Kong is the only country to have received so much gold. If you have a close look at the table below, Switzerland comes in second at 150 metric tons.

TOTAL US GOLD EXPORT 2013

TOTAL US GOLD EXPORT 2013

August is the highest month at 30.7 metric tons.

According to the information released by the USGS, the US exported 57 metric tons of gold bullion to Hong Kong last January.

US total gold bullion export to Hong Kong

US total gold bullion export to Hong Kong

This new record is three times more than the amount of gold exported in January 2013 (17 tons) and 84% more gold than the record set in August 2013 (31 tons). Gold bullion goes from the US to the East;

Total gold exports in January 2014 (80.7 tons) nearly surpassed the total hit in March 2013 (80.8 tons).

Where was the majority of the remaining gold exported in January 2014?

Gold Bullion:

Australia 3.1 tons, Thailand 2 tons, Switzerland 1.5 tons and Singapore 1.0 ton.

Dore’:

Switzerland 10.6 tons, India 2.7 tons and United Arab Emirates 1.4 tons.

The Western countries carry on playing with Monopoly money whereas the Eastern countries accumulate as much gold as they can.

Fiat money or Monopoly money is no good. So much of if has been and still is printed out but is not backed by gold. It’s worth nothing. The Eastern countries have understood the importance of having gold. One should invest while prices are low.

India’s silver imports dropped by 40%

Friday, April 11th, 2014

This is what has been announced by the Indian Government.


India is the second largest buyer of silver and Indian trade ministry confirmed the information that silver imports  dropped to $33.46 billion in 2013/14. This could be due to a series of restrictions rules that the government imposed in order to decrease the current account deficit.

Last March, gold and silver imports dropped by more than 15%.

The Reserve bank of India (RBI) finally allowed five private banks to import gold. Will that mean that the tough rules on imports will be eased ?  We do not think so since Indian authorities made physical checks of gold stocks held by wholesalers in order to ensure that inventories tally with the amount imported through legal channels. The checks were part of efforts aimed at curbing gold smuggling.

Pakistan even temporarily prohibited gold imports so to check smuggling to neighbouring India.

One has to expect that next Indian elections could change somehow the present situation.


The Premium on Gold Coins

Friday, April 4th, 2014

Some of you have been enquiring about the Premium. What is it ? What does it mean ? Here are a few answers.

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Sovereign Price= Premium + Price of Gold

In the United Kingdom, the current premium is dependant on source, quantity, supply and demand and currently can range from 5% to over 40% depending on source and condition.  But what is this premium for gold coins?

The premium is the difference between the current gold value contained in the coin and the price paid for the coin and is usually expressed as a percentage. The price and premium depend on market factors at the time and are constantly changing.

e.g. a Sovereign may contain gold with a value of £160 but be worth £199 and for a newly minted proof coin £299 . The difference between these two figures, expressed as a percentage, is the premium thus a the proof coin is sold at approximately 46% premium

The premium for a coin is linked to several criteria:

· production: The smaller the coins and the harder they are to produce, the more chance there is that they will have a high premium, this principle that explains why the smaller half sovereign have a higher premium .  The quality of a proof coin usually demands a higher premium

· speculation: the premium changes to reflect supply and demand. In a period where more coins are being sold than are being bought, the premium is zero or slightly negative (in this situation, coins of moderate quality are often melted down). When there is high demand or excess speculation, the premium resulting from this speculation climbs sharply. The premium is therefore a very good indicator of the balance between supply and demand, the latter’s potential and also what actions should be taken. A negative, zero or slightly positive premium should stimulate purchases whilst a high premium of should lead to selling.

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· conservation: a quality coin that has no trace of being handled will retain all its premium. Poor conservation conditions (contact with fingers, scratches, wearing…) results in a reduction of 4 – 10% and can lead to a negative premium. When this happens the coins are melted down and sold for the price of their precious metal

· collectors: some coins are rarer due to them being minted in small numbers or because they have special characteristics related to numismatic rarity criteria. In certain years where very few coins were minted a sovereign can cost several thousand pounds depending on its rarity and its condition. This value is therefore completely unrelated to the value of the coin’s gold content.

· geographical location: gold coins are not equally popular in every country and generally speaking coins that were the currency of a country are more popular in that country e.g.: Napoleons are very popular in France but are much less well known in China or the USA and people there prefer to buy local coins the exception is the Sovereign which is the most popular in the UK but also has an international reputation.

Premium differential: This the differential between the basic (normal ) premium and the highest sale price usually in times of crisis where there is great demand.

Below is some translated correspondence that occurred with our partner in France:

LORetLARGENT.info editor and a reader about the premium:

Xavier (blog reader): Why do you consider that the ingot is “banal”? Although its premium is not high, or even zero, isn’t this the simplest means of buying investment gold at its market price? When the price goes up (very high, I hope), the deal becomes interesting. A coin currently has a high premium so is interesting if you want to sell but not necessarily if you want to buy…

LORetLARGENT.info: If you want to invest 2,000 Euros, don’t buy an ingot. Wait until the premium for Napoleons drops below 5% to develop your position.
The premium has a real lever effect. Consider the cases of buying, in a few months, an ingot or the same value of 20 FRF Napoleons with a premium of zero. If you sell when you need your capital (don’t forget that gold is an insurance against the crisis but not against life’s challenges – in this latter case, other investments are better), you will have at least 20% more for equal weights with your coins (the premium) without considering the greater ease of selling them.
In summary, starting from the principle that gold coins are an anti-crisis investment, an insurance where you get back what you pay (normally insurance is lost money), you have to take account of the concept of the premium from the start, especially the premium differential. You must buy gold coins with the greatest potential growth from their base premium (the average premium outside of crisis periods) and the highest premium recorded during a crisis. There is a differential of 5% for an ingot but 76% for a half Napoleon. Consider what this means for our investment of 2,000 Euros when we come to sell. Obviously, the coins must be in excellent condition. (Above all, avoid buying via generalist on-line auctions where about 1/3 of the coins are good for the smelter even if the photos are flattering).
Bear in mind that the only thing that should determine your gold purchase (coins or other) is its resale (when and how). Usually, you should do it quickly and at the best price. The ingot is not a winner in this type of competition…

Xavier: (…) Can the premium fall as the value of gold increases ?

LORetLARGENT.info: Trying to compare the changes in the price of gold with the premium on a Napoleon is like trying to compare the ethics of American and English bankers with those of French households. My proposition is a bit exaggerated but it is a good reflection of the fact that the criteria leading to an increase in the price of gold are not the same as those determining the premium on a Napoleon. To confirm this, look at the sharp rise in the price of gold in March 2008 and the dead calm for the premium during the same period. In March, the French only had a vague idea that a crisis was coming and continued to sell Napoleons until September 2008. You should be aware that our own bankers were using every conceivable method to try and sell gold coins to us in January 2008 whilst they had no difficulty in offering us LYXOR GOLD. In summary, we are talking about the same precious metal but certainly not the same investment instrument and the premium is an excellent indicator of the difference between the price of gold on the markets, linked mainly to changes in the price of oil and the US Dollar, and the value of gold coins sold in France, which is more linked to the moral of small investors with tangible values such as the readers of this blog.

Xavier: OK, I accept your arguments, which are logical. It’s a question of investment instruments.