Archive for April, 2013


Monday, April 29th, 2013

livre3DReview by Mark Rogers

Gold, A Different Point of View by Paul McGowan

With a Preface by Bill Bonner

Published by Ferrington in association with

Following the drop in the price of gold a few weeks ago, record sales of gold coins were reported (see here, and here for a rise in its price). The publication of this little book is therefore timely and pertinent.

There may be many people who would like to hold some gold but are dissuaded by the thought of large and expensive ingots. But bullion is not the only way in which to invest in or purchase gold. Yet as the author states: “Gold is not just ingots. The common response to gold is that it is only for the wealthy: those heavy bars, alluring though they may be, are simply unaffordable.”

This book argues that this view of gold is misguided and misinformed: there are affordable routes to investment in gold.

Although short the book contains a wealth of information. There is an introductory chapter giving a brief history of gold’s 6,000 history, which includes its denigration by politicians and academics in the twentieth century; Keynes for example thought it a “barbarian relic”. Proudhon, Marx, Lenin, Hitler all denigrated it, and to this day it troubles the likes of Ben Bernanke and George Soros.

Gold’s function as a stabiliser of value and its use over time as actual currency coin in circulation suggest that gold is today an alternative currency, and this first chapter ends with a comparison of gold with modern economies, noting that the latter are not working, while attempts to remonetize gold are afoot in, for example, Utah.

There is also discussion of the vexed problem of clean extraction with some useful information about the certificating process that reassures investors that their gold has been mined under the highest standards.

Chapter Two, “Gold, the last bastion of individual freedom”, examines the role that gold may play in hedging one’s investment portfolio, as well as its potential as a regulating device, controlling the whims of politicians and central bankers. This chapter contains a concise guide to the problems of paper currency unsecured against tangible value, with the inevitable consequence that savings are eroded and destroyed and more and more paper is required to purchase fewer and fewer goods. In other words, paper currencies are a direct attack on people’s individual control of their lives, rendering it harder and harder for them to provide for themselves, their families and their futures. We have been here so many times in history, with the latest example being the eurocrisis, that it is nothing short of scandalous that the political and academic classes cannot see the lessons to be so plainly learned.

Gold on the other hand “observes a constancy. With one ounce of gold you can almost buy today the same quantity of basic goods as at the time of the Roman Empire or Egyptian civilization. Inder the Pharaoh Tutmosis III, one needed the equivalent of 2 ounces of gold to buy an ox. Today, 2.5 ounces would be needed. Inflation has been rather weak in 4,000 years!”

This is a salutary reminder of gold’s stabilising power, which is just the very thing that the modern politician resents about it.

A strong bullish potential

The importance of gold in the contemporary world is underlined by an examination of those countries which invest heavily in it, both at the national as well as the individual level. Russia, China and India are at the forefront of this investment, with others, such as Vietnam, making significant moves in this direction. There is a useful digest of information about these countries, the role gold has traditionally played in them and how they are managing their portfolios at present. This analysis clearly establishes trends which are not going to vanish: China indeed buys enormous quantities of it, even though she also produces it.

These markets ought to assure the potential gold investor that while prices do indeed fluctuate, bullish potential is always there in gold, and has been for most of human history. Any falls in the market have identifiable causes – for example, the wedding season in India sees a rise in prices. Indeed, this analysis is testimony to the fact that we have had 6,000 years to observe people’s behaviour with gold and make it one of the easiest assets to manage.

An Investment Portfolio

Nevertheless, the author does not argue that gold should be the sole asset in one’s portfolio, far from it. Instead it should be looked on as the preserver of a portfolio’s value, that depending on the scale of one’s other investments a relevant proportion should always be kept in gold to support the rest of the portfolio.

There is a very useful chapter on investments other than gold, such as arable land and forestry, fine art and fine wines. These all have valuable potential (after all, we all need to eat), but each has significant drawbacks which are clearly and carefully spelled out. Gold’s position as being free of such drawbacks means that it is essential to invest in it, as a hedge against the dormant disasters in the rest of one’s investments.

And gold enjoys an enormous potential over any other investment, including in things such as diamonds that might seem to share some of gold’s economic potential. Gold is superbly versatile. Cut a diamond, and much of it is waste; melt an ingot of gold, and you still have the same amount of gold.

Gold Coins

The heart of the book is in its last chapter which really gets down to brass tacks – or gold coins! Coins represent gold at its most versatile, allowing even those who do not have huge fortunes to start saving in gold. While one ingot is beyond the reach of most, a single coin, perhaps purchased at the rate of no more than one a year, is a realistic and feasible option.

The book contains a wealth of information on tax regimes; storage; what to do and what not to do in actually physically handling coins and how to transport them; what to look out for as enhancing a rare numismatic coin’s value and what depletes it – all fascinating information in itself, and eminently practical.

“If we had to state only three reasons to buy: gold is a recognized and accepted safe haven throughout the world, demand from the emerging countries is strong and the total demand over the mid to long term is reliably forecast as being higher than the supply.”

The book is available on Amazon in a Kindle version (price: £5.14). Those readers who would like the printed version, should send a cheque for £12.50 (includes p+p) made out to: Ferrington, and send it to: Ferrington, Bookseller & Publisher, 24 Shipton Street, London E2 7RU. The book is also available as Buy It Now on eBay.


Tuesday, April 23rd, 2013

By Mark Rogers

I looked here at the recent drop in the price of gold, and suggested that the problem lay not so much in the price itself as in the perception of the value of gold. This is always a problem with prices; as James Rickards has accurately noted, market transactions (in context, he is discussing financial markets, but the observation applies to all types of market) consist of price discovery between bid and offer. (I first reviewed his exceptionally informative book, Currency Wars, Portfolio/Penguin, New York, 2011 here.) There is an important sense, therefore, in which prices as such are never stable except on the transfer of the asset at the eventually agreed price. This is one of  the senses in which Hayek refers to prices as information.

Rickards goes on to point out, in the context of gold, that the massive gains in stocks and gold in both 1933 and 2010 (85% in the latter year) were just “the flip side of trashing the dollar. The assets weren’t worth more intrinsically – it just took more dollars to buy them because the dollar had been devalued.” That is, consider the price of gold not as a price but as information indicating the present worth of the currency; not what gold is worth but what gold is telling us about the price of the dollar.

His book is an examination of the ways in which governments wage currency wars in order, they think, to increase domestic prosperity, by deliberately devaluing their own currencies. Short-term gains, if any, are rapidly exhausted, and the ill effects for the long term soon emerge. And yet, politicians and central bankers remain oblivious to these effects – and the recent quantitative easing is, once again, the result of that purblindness.

The German Inflation

At the time of the German depression, when the Reichsbank engaged in the biggest currency devaluation in history to date by attacking the value of the Reichsmark, the German people saw prices going up but did not equate that with the realisation that the currency was collapsing; similarly, we see prices increasing without realising that the paper money we hold in our hands is depreciating in value all the time: we moan about “capitalist exploitation”, “wicked bankers” and “supermarket greed”, or we talk knowingly about “inflation” as if the latter was like the weather. Seldom or never do we stop to consider that what is actually happening is that our governments are of set purpose devaluing the currency: the mutilation of our money is hidden from us (see here, here and here).

The Gold Price

One result of currency depreciation is capital flight, and the recent drop in the price of gold could be looked at in this light. Just as paper money is suddenly recognised as worthless, causing the flight of capital, so the sudden flight from ETFs in gold, another form of ultimately worthless paper, is in the same order of events. In fact, the gold price can be seen as operating both ways: the purchases of gold which pushed the price up over the last two years were a capital flight caused by quantitative easing as that devalued the pound and the dollar. And now, the plunge in the price of gold is also a capital flight because, whatever else may be going on, it is a flight from the ETF paper gold (the source in more ways than one of the market manipulation that may have been the immediate cause of the price drop) into physical gold, in this instance into gold coins.

Thus, one way of looking at the price of gold in a volatile paper money system is as an indicator of the current levels of volatility and a measure of what at any given moment should be done about.

As noted at the beginning of this article, prices are never stable and in terms of market transactions and international trade are in need of an anchor to make it easier for bidders and offerers to discover the prices at which they are willing to settle. The classical gold standard was just such an anchor. In the absence of a return to that standard, gold nevertheless still performs as a bellwether.

NOTE: “volatile paper money” is of course a tautology!

For the raison d’être of these articles on read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES


Friday, April 19th, 2013

By Mark Rogers

The recent drop in the price of gold has had commentators mocking those who hold gold to be a safe haven: the collapse in the price to something like it was over two years ago, it is held, shows that gold is no safer than other types of investment. There have also been digs that this sort of price instability, if that is what this recent fall actually amounts to, also makes a mockery of those of us who call for a return to the gold standard.

And some are pointing at people like John Paulson, who reputedly has lost just under one billion on his gold investments. This, though, would only be true if he actually sold his gold. As it is, he started investing in gold in 2009, when gold was at around $950 an ounce. In other words the reputed “loss” is being measured at a notional value in terms of recent prices. As the story linked to goes on to report: “Sources at Paulson said that the hedge fund group had started investing in gold four years ago when the gold was around $950 an ounce, so the funds are still in profit.”

Dirty Work at Comex and in Cyprus

But what has caused such a large drop in the price? There are several possibilities, but one of the most obvious ought to be noted immediately: there is a great deal of confusion in pricing gold because of the admixture of paper gold, the exchange-traded funds (ETFs) that are not actually physical gold and whose relationship to the precious metal is tenuous to say the least. One of the problematical effects of paper gold has been to suppress the price of gold: without the paper clogging the market, the price of gold, physical gold, ought to have been much higher. And it is the paper gold that has been dumped, thus pulling the price of all gold down, true gold and paper gold. Indeed, it is reported that “investors have fled gold exchange-traded funds. Holdings of major global gold ETFs are at their lowest since late 2011.”

Reports here and here of how the price of gold was forced down in an artificial manner. And rumours of the possibility of Cyprus selling off all or part of its reserves to patch up its banking crisis cannot be discounted as causing the price drop: the situation in Cyprus is serious, and dumping its gold into the market, as Gordon Brown did with British reserves, is an entirely plausible escape route for the Cypriots. Gold is, amongst other things, a commodity, and would respond to an expansion of its availability in the same way any other commodity would.

Gold Not Just a Commodity

Of course, gold is not just a commodity like any other: it is also a store and backer of value such as no other commodity is or can be. And one of the consequences of the recent collapse in the price has been a surge in the purchase of physical gold – and in particular gold coins:

“Buying took off on Monday when 35,500 ounces of coins were sold – that’s more than 10 times the daily average at 3,250 ounces in the first three months of 2013 – and accelerated on Tuesday with 42,000 ounces sold. If the pace of buying continues, April’s sales are likely to beat January’s total of 150,000 ounces, which was the highest in three years. Collectors typically snap up the newest mint in the first month of the year, but dealers also said lower prices had attracted buyers earlier this year. American Eagle silver coin sales was at 503,000 ounces on Monday, nearly three times higher than the daily average in the first quarter.” (This is from the report linked to above which describes the flight from gold exchange-traded funds.)

The Gold Standard and the Price of Gold

Some of the silliest comments referred to the dashing of the hopes of those who champion the return to the gold standard. For they forget that, in the strictest sense, a gold standard has nothing to do with the price of gold. The purpose of the gold standard is to facilitate international trade and hold governments to account in keeping currency stable. Whatever the current price of gold, it will always have those functions as a standard.

James Turk, who always has sensible things to say about gold as a safe haven, is particularly illuminating on this function of value as distinct from price: read his article “What’s next for gold?” here.

For the raison d’être of these articles on read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

Debt will drown Britain

Tuesday, April 9th, 2013

We here at have expressed the opinion that debt will drown economies as indeed it has been so in the cases of Portugal, Ireland, Spain, Italy and Cyprus. The banks have yet to fully acknowledge their off balance sheet losses that they are too scared to mention as the magnitude could certainly lead to several high st bank collapses.

Sovereign debt is also an issue as countries continue to increase their spending partly due to the crippling interets repayments they are already making.

Imagine when we can no longer repay the interest or the debt. Imagine when the country being spoken of is no longer a distant one on the news but the place where you live, work and raise your children.

Well be ready as that country will soon be the UK on Spanish Tvs, Portuguese TVs etc.

Here is an extract from an excellent analysis done by the MoneyWeek team and there is a full and coherent expalanation as well as some home truths about where we are heading and how we got there. Please do click the link and read the full text (or watch the video) – it will wake you up to the facts and maybe action.

In Britain, interest rates on government borrowing now stand at record lows. If we’re not at rock bottom, then we’re incredibly close.

That means the most important trend of the next twenty years is almost certainly rising interest rates.

Debt has been getting cheaper for thirty years. Now it’s about to start getting much more expensive.

We’re now facing an unprecedented crisis.  As interest rates rise, our record debts will become impossible to bear.

No one can say how quickly things will escalate. Interest rates could rise overnight. Or they could slowly and inevitably push higher, taking years to slowly strangle the economy, the housing market, the stock market… stripping us all of our wealth one day at a time.

What we can say with certainty is that sooner or later interest rates WILL rise. We’re approaching the day when foreign investors realise the scale of our problems, and demand higher interest rates… or stop lending to us altogether.

When that day arrives, we are certain things will get nasty”  ………… read more here

Remember that the effects of debt and crisis ultimately brings inflation/deflation and even hyperinflation very quickly. Your cash currency can lose value in hours such that it becomes worthless paper.

Now you know that the economic storm is coming back with a vengeance what have you done to protect your wealth against the effects of crisis? Nothing? Because your investment is inflation- proof?

You have shares that cannot lose value in volatility or a crash? Hardly as by their nature shares will suffer during recession and crisis.

Whenever there is a bank run or collapse of a currency people immediately rush for anything tangible they can buy in order to rid themself of the paper fiat currency with something of inherent value that may be useful to trade for survival.

We have covered the exact effects on real people in our article on Belarus

“The chaos of a currency collapse”

Basic human nature is very hard to change especially when survival is at stake and as more of us understand the lies and deceit of our upstanding pillars of society and the lengths to which they will go to make more money, the more likely that it will be real people who start the next revolution and not some obese deranged egotistical psycho in the north of Korea.

Crisis insurance is gold – buy some now before it’s too late for the insurance.




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"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."