We have previously reported at Goldcoin.org in Chinese queue at malls to beat Bernanke’s inflation with gold that the a Chinese Gold rush is underway from investors who are looking to beat inflation and devaluing currencies by buying and hoarding gold bullion and gold coins.

In January 2010, China recorded an inflation rate of 1.5%. But just 12 months later, the rate of Chinese inflation has climbed to 4.9%.

Rising inflation has sent food and property prices in China skyrocketing.

The price of food in China has increased 10.3% on an annual basis. The price of grain rose 15.1% and fruit prices were up 34.8% since January of last year.

Chinese inflation has been fuelled by an economic stimulus during the financial crisis two years ago of $585 which has resulted in excesses of liquidity in the economy.

The Chinese Government has tried to curb the inflation with measures such as raising interest rates several times and tightening lending requirements but so far this hasn’t worked. Even worse is the fear sweeping through the Chinese economy that inflation could go out of control and even lead to hyperinflation.

This has already prompted Chinese citizens to buy gold and their appetite for the yellow metal is insatiable.

This trend is not only set to increase but possibly explode into action following recent reports that the People’s Bank of China (PBOC) is actively recommending that over 1 Billion Chinese citizens buy gold as a way of preserving and protecting their wealth against inflation, economic crisis and the falling values of major currencies .

This recommendation was given in the Financial Markets Review from the PBOC and its publication coincided with the decline of several major currencies against the value of gold notably, the Swiss Franc fell 2.5%, The Japanese Yen 2%, The Pound Sterling 2% and of course the US Dollar  which fell 1%.

Chinese buy almost half the Gold produced in the world

According to the gold-specialising Swiss Bank UBS the Chinese demand for gold in the first 2 months of 2011 exceeded  7.05 Million ounces.

This unbelievable demand is the equivalent of 47% of all gold produced in the world during the same period. So the Chinese are buying almost half of the world’s gold production.

If this continues then the Chinese are set to buy in excess of 42.3 Million Ounces of Gold this year!

To put this quantity into context it is more gold than China’s Central Bank officially stores in its reserves.

The Financial Times recently quoted a senior executive at the Industrial and Commercial Bank of China ICBC, who spoke of the “voracious” appetite for gold in China…

China’s largest bank started a physically-backed gold savings account in December with the World Gold Council. Account openings have already surpassed 1 million, with more than 12 tonnes of gold already stored on behalf of investors.

Zhou Ming, deputy head of ICBC’s precious metals department, said the nation’s largest bank sold nearly 250,000 ounces of physical gold in January — the equivalent of 50% of all the bullion ICBC sold last year.

Added to this is the continuing diversification out of Forex by the People’s Bank of China into gold and other precious metals. They have around $3 Trillion which they would like to change because the weakening dollar is eroding its real value. How much gold will they need for $3 Trillion?

We know that China has been accumulating gold surreptitiously by buying up its own domestic production.

This suggests that increasing gold production was part of a long-term strategic plan to become a global leader in gold investments among governments.

The World Gold Council even reported:

Some market participants believe that China may also be continuing to buy local mine production, which it has done regularly in the past. There is certainly no shortage of experts, both domestic and from overseas, advising China to do so.

The World Gold Council estimates China’s gold demand could double in 10 years as more investors embrace precious metals.

But even in the short term, the expected demand for gold in China over the coming month will be enough to put significant strain on global supplies.

According to Tom Bulford  “China has spent the last decade buying every ounce of gold it can lay its hands on.

In fact, the Chinese have increased their deposits by 1,054 tonnes since 2001.

That’s 76% more than it was buying just a decade ago!

And it’s not just the Government we’re talking about here.

Ever since private gold ownership was legalised in China…and the Shanghai Gold Exchange opened – regular Chinese citizens have also started buying up gold in a BIG way”.

Quite simply, the Chinese seem to want to buy ANYTHING gold…

…gold coins…gold bullion…even foreign gold miners.

In fact, according to Want China Times…

“Chinese state-owned gold miner China National Gold Group announced… that it will step up overseas mergers and acquisitions in an effort to increase its gold stockpiles by 100 tonnes this year.”

Chinese production figures

China Produced $35 Billion in Gold in 2010

According to China’s Ministry of Industry and Information Technology, gross output from domestic production increased 67% to 230 billion yuan ($35 billion) in 2010.

Of this, China’s gold industry earned 5 billion yuan ($3.8 billion) in profit — 78% more than in the previous year.

China’s gold mines produced 9.9 million ounces of gold in 2010 — an increase of 7% over 2009.

Meanwhile, total domestic gold output grew 9% to 12.0 million ounces. (source WGC)

India is also encouraging Gold acquisition

Traditionally there has always been a strong demand for gold in India  with its specific seasonal demands for weddings and a cultural attachment to jewellery. However, they are also strengthening demand in Asia which is fast becoming the most important Continent for gold investment.  Gold is selling extremely well to the ordinary citizens looking for wealth protection and preservation. There are over 460 Post Offices that sell gold direct to the people. India also has public companies that offer credit to anyone wishing to purchase gold – in other words you can get a loan to buy gold!

This incredible demand throughout Asia is sure to impact the price of gold which may not have been factored in to the so-called expert calculations/ predictions/guesses.

Gold Price set to go skyward with Asian demand and World events

Similarly there are other significant factors that cannot have previously been factored in to annual gold price predictions such as;

• The continuing European Sovereign debt crisis with Portugal the latest Eurozone country in difficulty,
• The on-going Japanese catastrophe following the Earthquake, Tsunami and nuclear crisis,
• The popular uprisings in North Africa and around the Middle East with Syria and Yemen on the brink and the conflict in Libya worsening by the day. This has drawn military (and therefore financial)  resources from France, the UK and the US which have their own deficit problems and now has involved NATO countries.

It is becoming increasingly difficult to see how all of this can be paid for or accommodated in a World Economy already faltering.

It is no wonder that the Chinese are hedging against another crisis and with their ever increasing hoards of gold they are aiming to back the Yuan with gold and ultimately replace the Dollar as the world’s reserve currency.

We are heading for a spot of $1500 within weeks – and then…..$3000+

In view of the colossal demands for gold already discussed, the possible collapse of the dollar and the unknown outcomes of other world events a crisis bigger than 2008 looms large and we cannot predict which event will trigger it but be sure that it will happen. When it does make sure you have copied the Chinese and secured your wealth in the only safe haven for the crisis ahead. Buy Gold and buy now before the price takes off exponentially surpassing $2000 and even £3000 an ounce before the end of the year. The worthless dollar, hyperinflation, extraordinary demand and debt crisis dictate the course of gold to re-establish itself as the only real measure of currency and wealth. When the dust settles and re-evaluations have been made just pray you have gold as it will be worth upwards of $3000 an ounce.

I am sure it will not come as a shock to learn that there is an on-going investigation into a host of « big banks » who are accused of fixing their inter-bank lending rate (LIBOR) to effectively disguise and downgrade their indebtedness. The period involved reveals this was taking place pre-2008 crisis.

The investigation is well under way and involves the major Financial Service Regulators of the US and UK amongst others.
The scale is breath-taking and the accusations extremely serious as indicated by the issuing of subpoenas to retrieve sensitive documents for the prosecutor’s evidence.

Here are the details as reported by C Powell of GATA following a report in the Financial Times:

Regulators in the United States, Japan, and UK are investigating whether some of the biggest banks conspired to “manipulate” the benchmark interest rate used to calculate the cost of billions of dollars of debt.

The investigation centres on the panel of 16 banks that help the British Bankers’ Association set the London interbank offered rate, or Libor — the estimated cost of borrowing for banks between each other.

In particular, the investigation was looking at how Libor was set for US dollars during 2006 to 2008, immediately before and during the financial crisis, people familiar with the probes said.

The probe came to light on Tuesday when the Swiss bank UBS disclosed in its annual report that it had received subpoenas from three US agencies and an information demand from the Japanese Financial Supervisory Agency.
The bank said the regulators were focusing on “whether there were improper attempts by UBS, either acting on its own or together with others, to manipulate Libor rates at certain times.”
All the panel members are believed to have received at least an informal request for information — an earlier stage in an investigative process before a subpoena.

Witnesses had been interviewed by investigators from the US Securities and Exchange Commission, the Department of Justice, and the UK’s Financial Services Authority, people familiar with the probe said.

The inquiry has been under way for some months. At least one bank received its initial request for information in October, people familiar with the matter said.

The BBA produces Libor rates for 10 currencies using eight to 20 contributor banks. The contributors submit the rates at which they think they could borrow on the open market. Outlying submissions are tossed out and the reported rate is the mean of the middle values.

Critics of the process for setting Libor — which is used as a reference rate for about $350,000 Billion in financial products — have long claimed it is antiquated and lacking in transparency. Commentators complained bitterly during the financial crisis that the rates were distorted because they believed weaker banks were unwilling to admit higher borrowing costs.

UBS declined to comment beyond its disclosure. The regulators declined to comment. The other banks on the panel at the time covered by the probe either declined to comment or spokesmen could not be reached.

They are: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JPMorgan Chase, Lloyds, Rabobank, Royal Bank of Canada, Bank of Tokyo-Mitsubishi, Norinchukin Bank, Royal Bank of Scotland, and West LB.

HBOS, which has since merged with Lloyds, was also a member.

The BBA said: “We are committed to retaining the reputation and integrity of BBA Libor, which continues to be the authoritative benchmark of the wholesale money market. It has a straightforward and unambiguous calculation method, which excludes any rates which are significant outliers. It is fully transparent — all of the data inputted by the contributor banks is publicly available, as is our methodology.”
(By Brooke Masters, Patrick Jenkins, and Justin Baer , Financial Times)

Banks outside the law?

This type of activity is typical of the banking sector who operate amongst themselves as if they are untouchable and above law and regulation.
They believe in their own importance because of their size and apparent power which disregards national boundaries because of their global clout. They play by their own rules and we know where that leads us.

Even then, when they cause misery, mayhem and crisis for the whole world by their own greedy practices and mistakes they still come begging for more money to play with – and the worse thing is that incompetent governments full of over-educated, posh, millionaires who have absolutely no notion of the real world because of a privileged, sheltered, upbringing give them our taxes. I believe this should also be investigated as it stinks of incestuous, undeclared interests by senators and ministers who post politics suddenly appear on boards of directors doing nothing (consultants) for some enormous salary.

Do you trust your bank?

Do you know what they do with your money?

If there’s another crisis where will your money be?

If your bank gets into trouble will they have enough money to pay back all their customers?

Who do you think they will pay first? You? Yeah right!

If you’re not part of the Politocrat & Banking club you’ve got no chance.

I believe that Bankers should be personally responsible for their actions, decisions, judgements and huge mistakes they make and personally bankrupted to repay some of the missing funds. It should be in their contracts and not some huge retirement pay off for complete incompetence like Fred Goodwin (RBS).

Let’s face it they’re quick enough to give themselves performance related bonuses (when there’s the slightest positive news) so why doesn’t it work both ways? When a bank underperforms they should be responsible and pay for it just as they like to cream off their “rewards” for guessing right.

Stop bailing out incompetence – Let them fail!

I also believe that Banks that get themselves into a mess should get themselves out of it or let them go bust like any other business that fails – after all that’s why we have the word Bankrupt isn’t it?

It is two words combined – Bank & Corrupt! That about explains it!

The increasing problems of disasters and political unrest are putting further strains on all these large institutions that are exceptionally nervous because they know they are exposed and overstretched as pre-2008. Another feature is they never learn by experience!
In 2011 we will witness an economic crisis on a scale not yet seen.

The foundations of Countries economic policies and Financial Institutions “Good Practice” have not been prepared for the shock that is gathering strength and they will not withstand the shock and its magnitude.

Can you afford for them to go down with all your savings?

Should you wait until it starts and it’s on the Tele before you do something?

Should you buy fire insurance before or after a fire?
Act now and preserve some of your wealth by investing in tangible assets that will survive a crisis.

Act now to put your money into something that you own, that is not linked to a failing or devalued currency that will be a means of survival when you need it most.

Put your wealth into gold which has been the universal “currency” throughout history.

Don’t invest in “paper promises”.

Get Physical!

Own gold and gold coins.

People survived wars, crises, recession and depression because they owned Gold.

People also perished – because they didn’t!

What would you rather do? Survive or Perish?

Make your choice!

In last nights website update resistance was listed at 1432-1438 and the high was 1431.50 — initial support levels at 1417-1425 were broken — and 2nd tier support was listed at 1403-1409 and the low so far is the 1410.50

Last nights website update discussed a break below the 1420 area would be suggestive that this weeks pullback would still be in play and that next support would be the 1398-1412 area.

Gold and other commodity prices were undermined by softer than expected Chinese economic data, increased jobless claims in USA and renewed concerns of Euro debt because of news of a Spanish debt downgrade. News that PIMCO was turning bearish toward US government securities has also provided the potential for higher interest rates.

News that South African gold output in January rose by more than 15% over last year may have added to today’s downdraft from a short term perspective.

Developments in the Middle East should continue to provide some measure of support for gold prices, especially with the day of protest directly ahead in Saudi Arabia and the situation in Libya in a continued state of flux.

While equity markets in Asia and Europe were lower during overnight trading and the US stock market down hard in early trading, there’s a lot of bearishness this morning.

Looking a today’s chart — we can see that once the lower channel line gave way —- a lot of stops were set off and are getting cleared out. We’ve discussed this potential since Tuesday evening on the website.

Support for the remainder of the day is the 1398-1409 area and resistance is the 1418-1425 zone. PRICE IS AT THE LOWS from the first week of March near 1410 and should bounce around that area plus or minus a few dollars. If that area gives way then a test of the dotted trend line at 1398-1405 will be in play.

In summary — the lower than expected weakness in China and USA woke up complacent equity bulls. With commodities overbought in most area’s — it has brought on a lot of weakness.

On the chart, the lower red channel line was finally broken — and now we have to see whether gold holds a few dollars above or below last weeks lows near 1410. If prices can’t hold there — then a test of 1398-1403 will be the next test area. With the Saudi demonstrations on Friday — there should be some support going into the close near these levels but the sell off is very hard in equities — and may keep pressure on all fronts.

Prices need to get back above the 1420-1425 area in gold to neutralize this pullback.

by Bill Downey

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As previously reported on Goldcoin, Gold currency is making a comeback! In Utah, they could soon be buying a hamburger with gold!, the state of Utah has been considering a bill that would allow gold coins to become a new inflation-proof currency that would also be exempt from state capital gains tax.
The bill, HB317, was introduced by Republican Brad Galvez and it passed by 7 to 1 in the Utah House Government Operations Committee on Wednesday.

The bill sets out a framework for the Legislature to explore the possibility of an alternative legal tender system being created but the use of a gold currency would remain voluntary. The timing stipulated is for conclusions to be submitted for the 2012 session.
The “Utah Sound Money Act” was drafted by local attorney Larry Hilton who said that “un-backed money created by the Federal Reserve to stimulate the economy, is hanging over us like the sword of Damocles waiting to just come down in an avalanche and destroy the value of our currency.”

In short it represents the frustration of ordinary people who feel that the “paper dollar” no longer serves their needs. They have simply lost faith in a devalued currency which has eroded their wealth, their incomes and their purchasing power.

A Symbolic Act that brings back the Gold Standard?

Further comments came from Jeffrey Bell who is Policy Director for the American Principles Project based in Washington D.C. He explained that this bill would be viewed as a “symbolic act”. He added “But it sends a signal to Washington that political elites who want to leave the value and staying power of our currency uncertain, indefinite, so that they can at will intervene to do what they think would ameliorate the situation facing the U.S. economy.
The last time we had the system that we are recommending — the  International Gold Standard — it set a record for least inflation”.

It is interesting to note that the US Dollar is under pressure from all sides and its role as a “Global positioning Currency” is severely under threat as is its very existence.
We have previously discussed the possible role of Gold as a future money in Gold Money, a currency of the past…. and the future? And the demise of the Dollar in Financial Armageddon from worthless Paper Money.

Word is not only spreading but people are taking action against worthless fiat currencies and you too can do something now by taking out insurance against a fiat currency collapse – buy gold and gold coins. Remember it is always prudent and advisable to have insurance before the event – in this case an Economic crisis that could happen any time soon.

If the fat finger flash crash of 2010 taught us anything, it’s that our financial markets aren’t as sound and secure as officials want us to believe. With heavy leverage, computer trading platforms, financial secrecy laws, and the unabashed greed that pervades the halls of international financial centres, the entire global marketplace is susceptible to manipulation. The official post-mortem on the 2008 downturn suggests that the economic collapse, which started with rising oil prices and a sell-off in stocks, was caused by, among other factors, an over-leveraged and over-insured financial system with the culprit being an alphabet soup of financial instruments like Mortgage Backed Securities (MBS) and Credit Default Swaps (CDS).

As is the case with the lone gunman who shot Kennedy and the two planes that brought down the towers, the investigations surrounding the financial crisis were expedited, streamlined and have been officially closed.
A recent report from an independent contracting firm, however, warns that the events behind the financial crisis of 2008 and our economic woes today should not be underestimated and simply dismissed as having been a one-off event.

Evidence outlined in a Pentagon contractor report suggests that financial subversion carried out by unknown parties, such as terrorists or hostile nations, contributed to the 2008 economic crash by covertly using vulnerabilities in the U.S. financial system.
The unclassified 2009 report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman, a copy of which was obtained by The Washington Times, states that “a three-phased attack was planned and is in the process against the United States economy.”
While economic analysts and a final report from the federal government’s Financial Crisis Inquiry Commission blame the crash on such economic factors as high-risk mortgage lending practices and poor federal regulation and supervision, the Pentagon contractor adds a new element: “outside forces,” a factor the commission did not examine.
Regardless of the report’s findings, U.S. officials and outside analysts said the Pentagon, the Treasury Department and U.S. intelligence agencies are not aggressively studying the threats to the United States posed by economic warfare and financial terrorism.
“Nobody wants to go there,” one official said.

In a previous report titled When China Pulls the Peg, Cardiac Arrest Will Follow in the USA we opined that the US, China and other nations are involved in economic warfare as a matter of policy. While diplomats enjoy State Dinners, luxurious travel and smile for the cameras, behind the scenes is a tug of war where entire populations of people, numbering in the billions of souls, are affected by negotiations and trade agreements. In the case of China, one must have their head in the sand to believe they are not actively competing on the economic battlefield. Not only do they have a direct influence on the future of the US dollar, but they have spent the better part of the last three decades mobilizing their labor force by significantly undermining US trade influence. The effect on the US economy is clear. While the Chinese grew their economy, they set into motion a series of events that have begun to impoverish the middle class in America. The result is fewer jobs and an indebted social system on the brink of collapse.
This did not happen by chance. It is by design.

“This is the ‘end game’ if the goal is to destroy America,” Mr. Freeman said, noting that in his view China’s military “has been advocating the potential for an economic attack on the U.S. for 12 years or longer as evidenced by the publication of the book Unrestricted Warfare in 1999.”

According to the report, elements within China, Russia, middle east oil producers and other interested parties may, separately or in unison, be actively pursuing policies and actions that are specifically designed to collapse the US economy.

“The preponderance of evidence that cannot be easily dismissed demands a thorough and immediate study be commenced,” the report says. “Ignoring the likelihood of this very real threat ensures a catastrophic event.”
The report concluded that the evidence of an attack is strong enough that “financial terrorism may have cost the global economy as much as $50 trillion.”

The Pentagon report indicates that there is a strong likelihood that whoever is behind the machinations is operating under a three phase approach. The first phase of the attack was the build up of excessive leverage and credit in asset markets, real estate and commodities. The second phase was the crash we experienced in 2008 and early 2009. International hedge funds and financial firms, some of which may be direct extensions of certain governments and operating under international secrecy provisions, initiated sell offs through the use of techniques like “naked short selling” and traditional “bear raids.” Lehman Brothers and Bear Stearns were wiped out and went down as the first casualties of phase two.

Since March of 2009 the economy has seemingly been growing, at least that’s what we’ve been told in official government memorandums and mainstream financial analysis. As evidenced by a rising stock market, the economy is well on it’s way to recovering the losses that occurred between 2007 and 2009.

While everything may seem fine to most Americans, including our elected officials and financial gurus, according to the threat assessment discussed in the Pentagon report, the powers-that-be who were responsible for the first two phases of the attack against our economic and financial system are now actively in the process of implementing and executing Phase III:

“Based on recent global market activity, it appears that the predicted Phase III may be underway right now.”
The third phase is what Mr Freeman states in the report was the main source of the economic system’s vulnerability. “We have taken on massive public debt as the government was the only party who could access capital markets in late 2008 and early 2009,” he said, placing the U.S. dollar’s global reserve currency status at grave risk.

The end-game is approaching, and as we’ve suggested in previous commentary, it is predicated on excessive government leverage, spending and monetization. The United States may very well be in the final bubble, one that trend forecaster Gerald Celente has referred to as the bailout bubble.

The formation of the final bubble, if it were a planned event, would have first required the first two phases of the attack as outlined in the report. Build up the leverage in the private sector, then completely crash it. This strategy necessitated a political response from the President, Congress and all manner of financial regulators.

As we saw in 2008, the strategy worked perfectly. Within days of the stock market collapse Presidential candidates were pausing their campaigns, Congress was having emergency meetings, and the Secretary of the Treasury threatened that there would be tanks in the streets if something wasn’t done. The response, of course, is well known and has led to tens of trillions of dollars in more debt in an attempt to stabilize the economy.

As the theorized Phase III continues to play out, we are likely to see more intervention in the form of crisis spending and quantitative easing. This continued printing of money is the Achilles’ heel. In just the last two years, because most global investors have begun shying away from US debt instruments like Treasuries, it is our very own Federal Reserve, a private banking conglomerate that is the number one buyer of US debt. The Chinese are already cutting back on their investment. And in due time, when the time is right, the Chinese simply have to say “no more,” at which point the government bailout bubble will burst.

Once in motion, there will be no more magic bullets for the Federal Reserve, Treasury Department, Congress or the President. We’ll have crossed the Rubicon.

What it will look like on the other side is anyone’s guess, but it could be that magic financial bullets get replaced with lead and missiles, as is usually the case when economies of nations are destroyed.
While US officials may not be overtly discussing economic warfare, one thing is for sure, and that is that the Pentagon and Military are Actively War Gaming ‘Large Scale Economic Breakdown’ and ‘Civil Unrest’. Army game theorists have spent time on financial exchanges with traders attempting to learn how an economic attack could be identified and are reportedly working on preventing such a possibility.

It’s our view, however, that if military and intelligence agencies are just now getting on board with the idea of economic warfare, it may very well be too late. If those who would bring down the US and global financial systems, be they foreign governments or shadow elements operating outside of traditional national boundaries, are actively engaged in “Phase III,” then it is likely that such an attack cannot be prevented – only managed and mitigated.

If this most recent report is accurate in its assessment, the only thing left for the average American at this point is to prepare for an imminent catastrophic shock and awe that will destroy life in America as we have come to know it.
Author: Mac Slavo from SHTFPlan

Planning for a crisis and survival means protecting wealth in universally accepted tangible assets such as Gold Sovereigns or other gold coins. Paper money will only keep you warm for a short time as it burns to make a fire. Gold has proved throughout history to be a means of survival through crisis and even wars. Click here for more.

Malls Witnessing Gold Rush as Shoppers Fear Inflation

Jewelers at shopping malls across the capital are witnessing a gold rush as residents spooked by inflation fears look to protect their money.
Statistics from Beijing Caibai, the city’s largest jewelry store, show sales of gold and other jewelry have totaled about 4 billion yuan so far this year, a 70 percent increase year-on-year.

Wang Chunli, general manager, told METRO that hundreds of customers are lining up outside every day to buy gold accessories, such as necklaces and rings. To cope with demand, the store has even introduced a string-weave service, she said, adding: “We’ve also arranged experienced staff to be on duty and increased the number of security guards.”

After seeing the enthusiasm for gold investment, insiders predict prices will continue to rise this year.
Zhou Xiangrui, deputy general manager of Guo Hua, an established gold and jewelry store, even suggested that the surging demand could set a new record, saying: “The price is estimated to increase by 10 percent this year.”

The price has already reached 338 yuan a gram at Caibai and 375 yuan a gram at Beijing branches of Chow Tai Fook and Chow Tai Seng, according to data from cngold.org, a popular gold investment website.

Concern over the volatile conditions in the Middle East and the debt crises in Europe could also impact gold prices, said Ji Zhiguo, an analyst the Beijing Gold Trade Center.
“This year we might see some investors purchasing more than 10 kilograms of gold bars again,”
he said. “A booming gold market coupled with a stable price increase could prompt more individuals to rush in and invest.”

Gold sales in large shopping malls citywide increased by at least 40 percent year-on-year during the first two months of 2011, Legal Mirror reported.

According to China Central Television, about 40 investors are rushing to purchase gold bars every day at the Wang Feng shopping mall in the Xinjiekou area, with most snapping up several kilograms at a time.

Wang Qiming, 34, who lives in Haidian district, said he has purchased both gold bars in malls and paper gold online.
“The capital has limits on house and car purchases, and it might be hard to preserve the value of my assets if I save cash in a bank account. So I’ve started to focus on gold investment,” he said, explaining that he plans to spend 300,000 yuan on 100 grams of gold bars.

“Stock markets change very fast and are not stable,” said Wang. “Gold investment seems much safer.”
A report released by the World Gold Council at the end of 2010 said China is the strongest market for gold investment and gold accessory purchase.

By Xu Fan
China Daily, Beijing

and courtesy of Chris Powell and GATA

German philosopher Arthur Schopenhauer once said that “all truth goes through three stages. First it is ridiculed. It then it encounters strong opposition and finally it is considered to have always been obvious”.

Think back to January 2007. All the elements of the crisis were already in place but the prophets were rapidly called “doom-mongerers”, stupid pessimists who were incapable of imagining the power of interventions made by the monetary authorities and the central banks. Countries had relatively little debt. Sovereign debts were therefore on assets held as a priority.

Certainty is illustrated by the expression “Fly to quality”. Each stock market shock leads to massive arbitrage away from equity markets to bonds which are considered to be “invulnerable”.

We were in the first stage which was described by Schopenhauer. The one during which we ridicule those casting doubt on the soundness and financial sustainability of large states.

Then came the great crisis of 2008. The one needing billions of Euros and Dollars of stimulus, monetary creation and social expenditure.

Deficits were dug out quickly and in a way never imagined by all the economic commentators. Caught in the cross fire of sagging tax revenue and massive spending support, the hole could only become quite cavernous. By the end of 2010, the idea of the widespread failure of Western States is now only encountering soft opposition. “No, come off it, a Country does not really go bankrupt; anyway, growth is starting in the United States which is, after all, the World’s largest economy”.

Exactly. Remember the figure of 2.9% which was the growth rate for the U.S. economy in 2010. Remember it well, we’ll come back to it.

Growth does not cure the crisis

Despite this 2.9% (which needs to be borne in mind), unemployment did not fall at all. Some kill-joys who were looking at the real unemployment rate in the United States (the one published by the FED and which also records those looking for work but receiving no benefits) even dared to say that this figure had reached more than 17.4%.

Despite this 2.9% (growth), approximately 43 Americans eat every day thanks to “Food Stamps” which are handed out to the poorest of society to enable them to go stores and buy basic items of food. It is a modern version of the soup kitchen that avoids shocking images of queues of the miserable and hungry unemployed. In short “food stamps” are a cross between ration books and restaurant vouchers.

Let’s turn now to the kingdom of perfidious Albion. Our English friends had the brilliant idea of electing a new “Conservative” Prime Minister, Mr Cameron. He argued that “If you do not deal with the the debt, you will never grow”. His main opponent the “Labour” Ed Miliband replied: “If you do not grow, you will never get out of the debt.”

That’s a neat debate. How can we get out of this crisis? How do we get back to growth? By spending more in stimulus measures to stimulate the economy as argued by our Labour friend? Why not…but with 11% deficit it is difficult to spend more without going immediately bankrupt.

So, the Conservative Prime Minister is exploring the only path which theoretically still holds out some hope…..the one of austerity. We cut all spending. Not a little but very much. Civil Servants are laid off (490 000 less up to 2015). Tuition fees? Tripled, quadrupled or quintupled. Teachers? Laid off. Parents will have to organise themselves to provide teaching for their children. Judging by how things are going over there, there will be no shortage of available parents in the coming months.

Heavy debt + recession = insolvency

Is this good or bad? This is not important in terms of ethics (although the debate is fascinating). But will this work in economic terms? Will the treatment of austerity lead to “healthy” growth?

The answer at this time is clear and unequivocal. No. The United Kingdom has double-dipped back into recession. Not officially, because there needs to be three months of negative growth, as Mrs. Largarde calls it, for an economy to be officially considered to be in recession. We are only talking about one quarter at the moment. The first one. However, a recession also means a fall in tax revenue which, given that this revenue is to be used to pay the debts which have already reached monstrous levels, is not the best of news. In summary therefore heavy debts + recession = insolvency.

Yes, but look! Going back to the United States of America. Remember our figure of 2.9% growth (the one that you must not forget!)? This is indeed a reason for hope. The Americans have decided, unlike the British, to let deficits “spin” in order to stimulate growth. And it works, 2.9% growth! Well, at the risk of shattering a few wonderful hopes, it does not work. Why?

Three figures:
The 2.9% growth represents a total increase in GDP of 541 billion U.S. dollars.
To create these 541 billion dollars of new wealth, the political and monetary authorities have created … 1,700 billion in new debt. To be clear, for every dollar of growth, you need 3.14 dollars of new debt.

Therefore, we can make two observations:
- The debt is growing faster than the wealth created with these new debts.
- The global economy is no longer able to create growth without debt.

Is the “stimulus” the last hope of humanity?

In 2011-2012, we return to the last stage of the truth according to Arthur Schopenhauer. The bankruptcy of countries will be “deemed to have been obvious.” The world will acknowledge the widespread insolvency of the Western nations. This will occur either because the stimulus will have created a debt which is too large … or because austerity measures will have created excessive debt; the end result caused by the austerity plans is essentially the same when adjusted for social and human damage.

Both routes lead us straight into insolvency. The only advantage of austerity measures is that they enable you to save time.

Everyone could see that the stimulus led to disaster. The austerity measures still have another 12 to 24 months to go before they either convince or else show that they will not work any better ….
There is always the French way of course; the one espoused by Mrs. Lagarde.
The path of the “Stimulus”.
Half austerity – half stimulus; half angel, half demon.
The stimulus is the last hope of humanity. A bit thin isn’t it?

Translation of an article by
Charles SANNAT
Chargé d’affaires BNP Paribas

The remarks did not reflect the opinion of BNP Paribas and in no case constitute an incitement to invest.

Driven by persistent inflation in China and the worry about the appreciation of money, the demand for gold in the Asian continent remains high and in the first month of 2011 this reached a record. In this context, the “new rich” and those in the higher income segments both in China and India are throwing themselves into gold as a sure way of diversifying their investments.

Only last January, the Commercial Bank of China, one of the main financial institutions in the country, sold a total of 7 tonnes of gold ingots, which is the equivalent of around half of all the sale operations recorded by the bank in 2010. However, the attraction for gold is not limited to the buying of ingots: the growing demand for non-physical investments involving gold, through term deposits, could exceed 5,000 million Yuans by the end of the year.

One of the keys to this growing demand for gold in China is connected with high prices, which increased by 4.9% in January, compared to the same month of the previous year. Even though analysts are projecting a higher figure, around 5.3%, worries over inflationary pressures in the Asian giant could trigger an increase in interest rates by the Central Bank.

Faced with this scenario, a recent report by the World Gold Council (WGC) indicates that it is expected that the demand for gold from China will increase during 2011, as will demand from India for jewellery. According to the WGC, the growing interest in gold is shown in the recovery being enjoyed by the jewellery sector which registered an annual global demand which was some 17% higher than that shown in 2009.

Maybe you think it sounds extreme but daily we move closer to the real possibility that a major fiat currency such as the US Dollar or the Euro could collapse in the blink of an eye.
The mounting economic pressures mean that eventually something will have to give.
Inflation is rising.
Oil prices are rising.
Debt is unresolved.
Property prices are falling.
Unemployment is rising.
The cost of living is rising.
Wages are stagnating.
Raw material costs are almost out of control.
Energy costs are rising.
Growth is negligible (and most estimates are over-egged by floundering politicians)
North Africa and the Middle East are unstable. The knock on effects are pure guess work at best.
What will happen next?
What will be the net effect of all these things stirred up with a huge dose of uncertainty?
It’s like a tinderbox to start a Finacial Armageddon.
Just one single event could trigger an unstoppable domino effect that would lead to financial meltdown.

Don’t believe me?
What if Greece cannot keep to the rescue plan imposed on it? What if it defaults? Will a whole country go broke? And then what?
What if the Eurozone feels the knock on effect or what if another bigger Eurozone country requires a bailout?
Any of the major currencies could be put under extra pressure resulting in a run and a collapse and at any time.
The US dollar is a benchmark for the world, for oil prices, trade, banking etc.
Is it conceivable that this , the most important currency on the planet as we know it , could collapse.
Take a look at this video and decide for yourself. Impossible, Possible, Probable or highly likely?

This is a timely reminder to the fragility of wealth stored in currency or as a paper promise reliant on the success and existence of a large institution.
Wealth needs protection for survival and the acquisition of valuable physical assets that can survive a crisis is the only way. No wonder Central banks and the biggest fortunes on the planet are stocking up on Gold!

The recent uprisings in several North African countries have already suggested the beginning of a new global crisis. Today, Libya was engulfed in flames, and this more than tense geopolitical situation has a major impact on a product whose course is scrutinised daily: oil.
Libya, producer of 1.6 million barrels per day, remains one of the major black gold suppliers in the world. Could this Libyan revolt completely change the landscape of the economic markets? Goldcoin.org will try to clarify.

The Libyan people revolt, the markets panic

On a daily basis, the markets increasingly fear a reduction in their stockpile of oil.
On Monday 21st Feb the markets showed a significant trend upwards in New York with the price of a barrel from its Friday finish of $86.08 to $89.53. In Britain, North Sea Brent barrel climbed up to $105.08 during the session. Major Oil companies are leaving: Wintershall, a German subsidiary of BASF stopped its production, Norwegian Statoil ASA has closed its doors and made employees redundant, the French company Total and the Spanish company Repsol have repatriated their teams and the Italian company Eni has returned home.
In short, the markets are apprehensive that the uprising in Libya will have an unprecedented and real impact on oil supply. Let’s look at the Libyan statistics: it is the fourth largest producer of oil in Africa, the country has reserves estimated at 42 billion barrels. Libyan oil accounts for more than 20% of the oil imports by Ireland, Italy, Austria and not insignificant amounts by Switzerland, Greece and Spain (source: International Energy Agency).

Facing anxiety: what will happen in the coming days?

Tunisia, Egypt, Libya: the countries of North Africa that have had uprisings. What do the international markets fear? That this scale and fervour reaches other Middle Eastern countries like Syria, Jordan and even beyond in the so-called domino effect. We have already seen significant problems in Bahrain and Saudi Arabia is taking preventative reform measures. Investors expect the worst and this latent situation promises little of good. The failure to anticipate or predict these uprisings evokes a feeling of unease and even fear for the coming days. We are not alone in this view! Victor Shum, an analyst with Purvin and Gertz in Singapore said that “the concern goes beyond Libya, which is a relatively small producer and concern is growing that larger producers may also be affected by the risk of contagion of these revolts”, while Vladimir Putin sees a “serious threat” to the global economy.
The beginning of the crash of 2008 began with rising raw materials: 2011 could be another year of crisis?
Soaring oil prices, rising inflation, raw material and commodities costs spiraling, energy prices still rising, unemployment increasing, Sovereign debt issues unresolved, lack of economic growth and recession looming.
Economies are shrinking and they have inflation – a tough call even for Houdini!
So what can one do to offset the worry, when crisis looms we must look to protect our savings in real tangible value that is unattached to currency or failing institutions? It isn’t black gold; it is real physical gold that remains the safe haven for securing your wealth and is the only insurance against the crisis ahead.

Official figures released recently by the World Gold Council confirmed that demand for gold continues to rise. In 2010 the annual demand for gold rose by 9% equating to 3,812.2 Tonnes which is worth around $150 Billion. This is a ten year high and a strong indicator that the current price is not only sustainable but likely to increase further.
This increasing demand can be attributed to several factors.
First, there is an even higher demand for Jewellery.

Secondly, demand strengthened in key Asian markets, notably in China and India.
The Indian market is based on strong cultural references such as the Wedding Season and 2010 saw a revitalisation of the sector as awareness grows regarding the protection of wealth in gold.

The Chinese demand is backed by a strengthening retail investment by private affluent investors who are looking to gold bars and gold coins as a safe refuge for their newly acquired wealth.
The Chinese market saw the greatest increase in investment demand growth. The annual demand showed a 70% increase year on year and was equivalent to 179.9 tonnes.

After 21 years Central Banks are Net Purchasers

Thirdly and even more significant is the fact that after 21 years of being net sellers of gold the Central Banks became net purchasers of gold. This can be seen as a consolidation of their position in troubled times because they feel exposed to Forex fluctuations due to currency dilution and devaluation. It is also proof that they see gold as a safe haven to protect their reserves of wealth when they are aware of instability and potential crisis ahead. The instability in the Middle East, the soaring oil price and the risks of increasing inflation in developed economies is causing anxiety.
Central Banks are all too aware of the possible Eurozone collapse as Sovereign debt issues, austerity measures and bailouts fail to shake off the looming depression that awaits.

What will happen if Greece, Ireland or any other of the Eurozone Members are unable to abide by their debt resolution measures? Chances are there will be more than one if not all of them. Politicians wrangle with the shackles of increasing debt which they are trying to defer to another generation on a daily basis but fact is they can’t run away fast enough and they WILL get caught out. What then?

Paper Gold or Physical Gold?

It is hardly surprising that real demand is focused on physical gold and this can be illustrated by a drop of 45% for the year in demand for ETFs (or paper gold). Investors know that protecting their wealth ahead of a crisis can only be achieved by owning physical tangible assets.

When a crisis hits hard no-one can guarantee the value or indeed honouring of paper transactions as the financial institutions offering such products are themselves vulnerable to the systemic debt that pollutes all economies and that influences everyday life across the globe. Nobody predicted that an institution such as Lehman Brothers would fail or that RBS and Lloyds Banks would be brought to their knees. Similarly no-one can tell you today who will be the next casualty when economies falter. It could be your bank, your pension provider, your employer.

Act now or do nothing?

If you really like a bet then do nothing and take a chance on life not changing for you.

If you prefer to protect what you have and want to be sure that you are left with something for your future survival then get in to gold now. It is the inflation proof investment that is like fire insurance for your personal wealth. Exactly like fire insurance, do you think you should buy it before or after the event?

There are more and more options for physical gold investment and it has become accessible to everyone.
The most difficult step to take is to start, the rest is logical and reassuring.

Remember that investing in bars is good but investing in gold coins is even better. Click here for a guide to gold coin investment and don’t wait to start.

I’m sure that we all believe that governments control the money supply especially in their own country and their own currency.

I’m sure that when we place our blind faith in the banks for loans, mortgages and everyday banking we trust that they will do their best for us and operate with upstanding principles to protect our assets.

I’m sure that those of us living in a free democracy believe our liberty and rights are being controlled by fairly elected governments representative of the people.

I’m sure that as you watch the daily news about unrest around the world you begin to sympathise with the poor oppressed peoples and hoping that soon they can have the same safe system bestowed upon them that we all apparently enjoy.

I’m sure that you would be horrified to learn that the controlling influence on the largest economy in the world and therefore an influence that stretches right around the world does not actually belong to the US government at all.

Despite its self-appointed name, the US Federal Reserve which controls Quantitative Easing, the printing of the US Dollar and US Economic Policy is actually a private company steeped in mystery with a special status completely outside the control of law.

You don’t believe it? Well just take a few minutes and watch the video for a quick insight into the real world of money laundering and absolute control.

Remaining ignorant could be bliss but then again if your livelihood and survival depends on it sometimes it’s better to be informed.

Disclose.tv – “the american dream” Video

You may now understand why your continued use and enslavement in paper assets is important to those who would seek to control.

When a crisis hits or the bubble bursts you will be left with nothing and no way of reclaiming a cent or a penny of your hard earned cash.

Do you think the politicians, bankers and enormous fortunes of the world will really care?

After all when was the last time you saw a poor politician or a poor banker?

When crisis strikes they remain the great untouched because they have the personal means and wealth to survive wars or economic disaster. They won’t feel hardship or hunger but you will.

During World War II many ordinary French families managed to survive the occupation because they had stashed a few gold Napoleon coins away which they could use to buy food. This is fact and is borne out by many a testimony from the time.

If the monetary system imploded or crashed and your Dollars, Euros, pounds or whatever became worthless, how would you survive?

Gold ownership is like a fire insurance for your personal wealth and is an investment in a physical entity that you own. When a crisis hits it has always proved to be vessel of value irrespective of the currency or era.

The logic for fire insurance is quite simple – should you buy it before or after the event?

Gold investment for the masses has never been encouraged because the Banks prefer you to believe in paper money which they can print, lend to you and make huge profits for themselves in the process.

It has never been in their interest to tempt you or advertise its qualities because they have been “stealing your gold” since money was invented.

In the Age of Austerity we find ourselves, not knowing whether currencies or countries may collapse at any time, what have you done to protect yourself from destitution and desolation?

Maybe you like taking chances and are hoping for the best but that may not be enough to survive and feed yourself.

Maybe you could plan ahead and maybe you should start now?

Remember, after the fire it is too late to buy insurance!

There are many potential investors wondering what all the fuss is about concerning Gold because for the longest time it has been viewed as a past time for millionaires and Countries. The Gold we refer to here is “allocated” gold i.e. a specific, referenced, visible piece of gold bullion or a gold coin that is allocated to and owned by one person. It does not necessarily include quantities of gold held as anonymous parts of anonymous bars in anonymous vaults (“unallocated”) because this type of gold cannot be repatriated to the owners if the need arose as no-one knows which bits of which bar belong to each investor.

1. It is an investment that you own, it is your property and it cannot be lent out to a third party or used to form credit.
2. It has increased in value over 600% in the last 10 years and has shown a healthy return on investment year on year.
3. It is not a paper asset vulnerable to to the performance, viability, stability or existence of an intermediary.
4. It is not an investment in a Bank which cares little about paying you interest and a return on investment because it is preoccupied making money for itself.
5. Historically it is the only “currency” to maintain a real value in purchasing power throughout centuries.
6. It is a debt free investment, not linked to the worldwide black hole of sovereign debt and spiralling deficits.
7. It is THE safe haven for wealth and used by Countries and the largest Private fortunes on the planet as a protection against inflation, currency devaluation, economic instability and ultimately pending crisis.
8. Economic and financial experts the world over recognise and advise that Gold should form part of every investment portfolio.
9. The price of gold has been suppressed and controlled for decades by those who seek to control global finance. Since 2008 the rules have changed and control has been lost. If the gold price was corrected by the same factors as fuel, food and currency it would be worth at least $2100 an ounce today.
10. It is a precious metal available in a finite quantity that is constantly in demand the world over.It is always a good time to invest in gold because demand is extremely high and supply is dwindling. Prices will fluctuate but in the end Gold will continue to rise because it is irreplaceable, a precious metal with unique properties and it cannot be manufactured or printed.

There may well be more good reasons to invest in gold so feel free to leave a comment and add yours because there can never be too many.

The financial elite have guarded the control of Gold for far too long and would prefer that it remained their sole property.

However, in a current day climate of democratic rebellion by the masses against authoritarian elitist control of wealth it is time for everybody to share in the prosperity of gold investment.

After all, your wealth in gold is a lot safer than your wealth in the Banks!

In June our sister site (L’Or et l’Argent) has run a series of articles that follow the theme of a “house of cards” starting with Greece whose only resources, tourism and olive oil are not enough to lift them out of bankruptcy and a similar situation in Portugal. The next contagion is Spain, an economic giant in comparison, where unemployment is rife and debt would reach €225 billion in 2010. Although Spanish debt continues to grow, it remains lower than France which is the largest in the euro zone. Outside of the Euro Great Britain is cited as a contender for a “house of cards” following austerity measures announced at the budget and the marginalisation  of the GBP as we through national pride refused to join the eurozone.

This is an interesting take from a European prospective and draws attention to the two trains of thought in economic growth. The 2008 economic crisis still affects us today, we in the UK and most of the western world are in an era of fragility that needs to be stabilised. We could attempt to spend your way out of it as and stabilise growth before taking cost cutting measures as was the policy of the labour party or cut back immediately and risk stifling any growth. Meanwhile across the Atlantic Barack Obama seems to believe that the US can just spend their way out of it and print more dollars.

To me, if likened to a house hold, first you must recognise your debt and here in the UK we have gigantic debts to overcome, then you must take action. Spending on plastic has its day of reckoning and eventual you must cut your card in half, review expenditure and come up with a budget  that enables you to pay essential bills  and gradually repay your excesses with money saved. The economy of the country is no different, to improve your credit rating you cut wasteful spending, improve efficiency and live within means to gradually ease the sovereign debt. Austerity measures in the UK seems to have won respect in world markets as GBP has risen both against the Euro and the USD and the FTSE 100 has recovered to over 5100. More importantly the economy has grown marginally in the manufacturing section.

I have to say I have been pro Euro particularly when we could have joined in a position of strength but now I am in many ways glad we are still separate. Despite the Euro’s recent rally there is too much of a divide between the countries in the Euro zone, the efficient North and the chaotic South to the extent that the Germans would like to get out of the Euro as they feel they do not want to support the fragility of countries in crisis such as Greece, Spain, Portugal, Italy.

Do not the French and other eurozone countries recognize that the cost of pensions will drive many countries to bankruptcy. When many Europeans look at the UK, they scoff particularly at the raising of the pension age that is likely to reach 70 over a period of time.  There average ages of retirement age varies but in most countries people retire in their fifties and in Italy and France only 12%  are working beyond 60 years old.

Citizens should realise that there is a pensions time bomb with the average continental EU state pension equating to almost 60% of salary and with a much longer period of retirement, governments cannot afford it and it will drive many countries to bankruptcy.  A recent survey of 25 countries scored the UK highly and the affordability and sustainability of our pensions and France at the bottom. Those countries with such generous pensions and early retirement ages simply can no longer afford them and it will drive them to ruin. There needs to be a massive reformation, not only to increase working age  but to reduce the actual value, which would be so unpopular that one wonders if the their governments have the guts to take the action necessary.

In another time we should be screaming at our government at the unfairness of our pensions which are the lowest in Europe but with the aging population, the ratio of workers to pensions set to double and the current crisis we are in a stronger position to survive than our neighbours. Meanwhile proposals to raise the retirement age in France have typically been met with mass protests for what is a diminutive step to fight debt.

I am not suggesting by any means that there is reason for complacency in the UK situation and there is still danger of stalling economic growth as the cuts bite deeper but at least we have recognised the seriousness of sovereign debt while other bury their heads in the sand.

In the fragile countries of the eurozone, where sovereign debt could precipitate a financial collapse and even  in countries that fear the contagion, people are turning to gold as a protection and nowhere more so than in the strongest economy, Germany, where there is unprecedented investment in gold. In Britain we do not have a history with private individuals turning to  gold but rather we might buy a gold coin for commemorative purposes.  We are fortunate that we have so far not suffered hyper inflation, major currency devaluation or physical invasion so we do not hoard gold or in general even understand how gold can protect family wealth even though we have some of the best conditions in the world for gold investment. No VAT, no Capital Gains Tax on legal tender gold coins and up to 40% tax relief if we use gold within a Self Investment Pension Plan (SIPP). We need to save more to pay for our retirement and make wise investments, diversify our portfolios, utilise SIPPs and last but not least be aware of the potential of gold to protect our wealth.

Maurice Hall

People are questioning whether the bull  run on gold over the last decade reached its climax with the December 2009 high of $1227 and we are on a downward slope. Let’s compare the conditions in 1980 with today and we will find that they are quite different.

1980

In 1971, the United States suspended the free exchange of U.S. gold for foreign-held dollars, then in 1974 lifted its four-decade ban on the private purchase of gold. At that time, gold bullion was being traded in European markets at highs approaching $200 an ounce. In 1975, the U.S. government began to sell some of its holdings on the open market and in 1978, along with most other nations, officially abandoned the gold standard. After being released from government control, the price of gold soared and touched $850 in January 1980.  In the three years before 1980 gold price grew eightfold  as the result of mainly fear but also greed

In Dec 2009 the gold price soared to $1227 per ounce. So was this the zenith and comparable to the 1980 high? Was this the end of the bull market that was running for almost a decade?.

There are many differences between 1980 and today not least of which the world is not the same following the most significant financial crisis since the great depression of the 1930’s, global warming threatening our existence and the economic balance between East and West swinging to the East. In 1980 the cold war still raged, the Berlin wall separated East and West Germany, and Eastern Europe was in soviet control, the Russian bear was feared. We must also remember that gold in real terms is trading at only half of the high reached in 1980 as the $850 to day equates to approximately $2200 when inflation is applied.

Political Fear – The Soviets had  signed a “bilateral treaty of cooperation” with Afghanistan in 1978, but by the next year relations had deteriorated and  the Soviet Invasion of Afganistan, which began around Christmas 1979, was a terrible global shock., Russian forces seized all major governmental, military and media buildings in Kabul, including their primary target – the Tajbeg Presidential Palace, where they killed President Hafizullah Amin and announced on Radio that Afghanistan had been liberated

It was a slap in the face to a cold war America.

At the same time the Russians were building up their strength  in southern Yemen close to Saudi Arabia and the oil fields. Also in Bulgaria’s border with Yugoslavia, a liberal communist country, whose 87 year old president Tito solely responsible for binding the  Serbs, Croatians and Muslims together since the end of WWII was very ill.

Iranian fundamentalists took over the US embassy in Tehran in November 1979 anther slap for America.  Ayatollah Khomeni became supreme leader in December and relations ships with Sadam Hussein’s Iraq were at an all time low eventually leading to the Iran –Iraq war.

Economic Fear – The 70’s were a period where inflation was spiraling out of control, stagflation unemployment, oil embargoes and subsequent spike in oil prices spread gloom and despair.  In 1979 inflation in the US was at 12% and was in double figures in most western countries  In the UK the winter of 1978-9 was known as the “winter of discontent” and during 1979 nearly 30 million working days were lost due to strikes.  Debt in the USA had risen to almost $1 trillion and the dollar was weak.

Another catalyst that shook the markets was Bunker Hunt’s run on silver. Hunt, an oil billionaire, his brother and friends by October 1979 had bought up all the silver paper propositions to the tune of 192 million ounces.  In early January 1980 , it became evident that COMEX intended to change the rules to only allow 10 million/oz of contracts per trader and that all contracts over that amount must be liquidated before February 18th. Of course, the CFTC promptly backed up the ruling. The escape hatch for the Hunts and some of the other large longs was simply to convert their futures contracts into physicals, On January 17th silver hit $50/oz, Bunker had continued to buy. At that point in time the Hunt’s silver position was worth $4.5 billion dollars. This caused chaos as there was no silver to be had to supply and the Hunts were driven to ruin.

Oil revenue to Gold – The rapid rise in oil price produced a sudden surge of wealth in  Saudi Arabia and the Gulf States  and enormous sums were diverted into gold. This was further accelerated by the fall of the Shah which exposed vulnerability of people in power in the Middle East and led them to protect their positions. It was common for Saudi dealers to bid for 50-100,000 ounce in a morning and one bank was asked to buy 300,000 ounces for a single client.  Speculators also used the opportunity to dupe the market to increase the price of gold by bidding for huge sums  through a Gulf bank giving the impression that Arabs were pouring money into gold, a story carried by media for some time.

Greed – Of course speculation reached the phase of public awareness which is always the last phase close to the peak just before the decent.

The world was in turmoil and inflation was out of control so everyone was scared. When people are scared fiat currency is not enough. They return to traditions going back to the beginning of civilization to secure wealth in physical gold that gives portability and liquidity. During times of crisis and fear gold rises and individual governments can’t stop it; but in peaceful times governments are able to maintain control. The future of the American economy and American power did not feel at all certain. As a safe haven in times of panic and strife, gold simply reflected that fear. As soon as the emotion subdued and rationality returned  the buying panic quickly subsided and turned to selling phase taking down the price.

The Fall – Prices will rise as supply cannot meet demand but in 1980  when the price touched $850 all over the world people began dishoarding their coins and  old jewellery in an unprecedented scale to the extent that dealers were running out of money to pay for the re cycled gold and Refinieries  had more than enough scrap gold. Thus supply quickly out grew demand.

In early 1980, Paul Volcker’s (Fed Chairman) new Fed policy began to bite. U.S. interest rates began to skyrocket. As they rose, the Dollar first slowed its descent, then stopped falling, and then began to rise. Both the public and the investment community which had stampeded into Gold was lured back into paper by this huge rise in interest rates – and by the prospect of a higher U.S. Dollar. The threat of financial meltdown was averted. There was a rush out of Gold and back to Dollars. The Dow was already rising in 1979 and really took off in 1982.

The gold price dropped off dramatically after its January 1980 high in short because people lost their fear as inflation the bane of the 1970s was finally coming under control, interest rates and the stock markets rose making other investments more attractive. Supply was greater than demand and the Middle abruptly exited the gold market.

2010

The financial crisis that rose its ugly head in 2008 and continued through 2009 is comparable to the fear generated in 1979-80 and was one of the reasons for the rise in gold as people sought a safe haven. The dollar has been weak, a norm for a corresponding high gold price and this was catalyzed by India buying 200 tonnes from the IMF to drive the price to the December high.

The Future – The difference between 1980 and today is that in 1980 we were exiting a terrible decade and the future looked bright economically. Today the future is far from bright and whilst we have managed the worst financial crisis since the depression and are even complacent; but the truth is we are not out of the crisis. The economy is recovering slowly and is still very volatile and in the UK we have £1.4 trillion in sovereign debt to face. According to the IMF spiralling sovereign debt in Europe, the US, and Japan has emerged as the top threat to the world economy and risks setting off a fresh financial storm. The eurozone is heading for one per cent growth this year, limping out of recession under the threat of a sovereign debt crisis. The main risk is that, if unchecked, market concerns about sovereign liquidity and solvency in Greece could turn into a full-blown sovereign debt crisis, leading to some contagion. The economies of Ireland, Spain and Portugal will shrink. The US’s ratio of total debt to GDP is likely to exceed 90% this year, making it more indebted even than Spain and Portugal. It is similar to Weimar Germany but for different reasons and has printed trillions of dollars of fiat currency which will eventually lead to debasement. The dollar is weak and is likely to get weaker. The Chinese Yuan is undervalued but it is not in China and the worlds interest to drop the dollar just yet but the time will come and dollar will fall. The Chinese are on the unmistakable path towards challenging the dollar and the ultimate aim is financial supremacy The dollar’s status as the worlds reserve currency is under threat and both Russia and China are pushing or an alternative in which gold must surely take a part.

Today we have a world of low interest rates where it is almost impossible to obtain an interest rate that does not lose on the capital invested each year when taking into account inflation and tax. With the right gold product tax on profit can be eliminated.

In 1980 Central banks were auctioning off gold, today central banks are turning to gold as many countries increase their gold reserves. Last year India bought 200 tonnes from the IMF to meet its international commitments. China has increased its reserves to 1054 tonnes and announced its intent to continue buying.

India is currently the largest consumer, China the largest producer and second largest consumer and Russia were not players in 1980 and it is these countries where the demand is currently driven. China is consuming all it can produce and quietly everything it can buy with out upsetting the price.

Public Awareness – In 1980 public awareness led to speculation and to frantic selling of gold, de hoarding which was contributory to the drop in price as the amount of scrap gold created an over supply. Today you can hardly open a newspaper or watch television without seeing an advert to persuade you to sell your old gold. This is the reverse of 1980 as the refineries need the re cycled gold to ease the demand. Also investment has not yet reached the public awareness stage. From the chart below  you will see that there is no slide just a correction which is normal

In conclusion gold is still a safe hedge, the world is uncertain with threats of sovereign debt, inflation and the weakening of the dollar. Gold is finite all the gold ever produced would fit into a 20 metre cube. As mining becomes more difficult production costs are rising to almost $800. The demand from the East cannot be met so demand is greater than supply and there will be more pressure on supply as the gold fields dry up. I have seen an analogy where more gold can be extracted per ton by harvesting old mobile phones than the majority of modern mines. Were are currently in a period of correction fed by a certain amount of complacency but trends indicate that we should see a breakthrough of $1300 by Q4 2011.

Maurice Hall