Tuesday, April 24, 2012

India and China to buy oil with Gold

It seems India and China have agreed to pay Tehran in gold for the oil they buy.

India is importing 14 million tonnes of oil from Iran and has agreed to pay for it with gold. A report issued by the news website DEBKAfile, states that Iran and India are currently negotiating backup alternatives with China and Russia, should the US and EU locate a way to block any gold payment for oil unlikely as that may be.

Although the US and EU have issued unilateral sanctions against Iran complete with a removal from the SWIFT banking payment system, India and China are prepared to fly in the face of the sanctions issued to ban any bank involved in oil trade with Iran from dealing with American and European counterparts.

According to Jim Sinclair, “It is reasonable to assume that China has been threatened with total or at least selective exclusion from the SWIFT system if it pays in any currency for Iranian oil.”

Considering the enormous amount of trade the US and Europe do with both the giant Asian economies that seems somewhat of an empty threat and both China and India know this. The Asia Pacific currently accounts for 13 percent of SWIFT’s financial traffic and 15 percent of its total revenue. Not something to be discounted lightly.

It has also recently been reported:

"China's imports of the metal are already large, and you can guess what additional purchases are going to do to prices. On the last day of 2011, President Obama signed the National Defense Authorization Act for Fiscal Year 2012. The NDAA, as it is called, attempts to reduce Iran's revenue from the sale of petroleum by imposing sanctions on foreign financial institutions conducting transactions with Iranian financial institutions in connection with those sales. This provision, which essentially cuts off sanctioned institutions from the U.S. financial system, takes effect on June 28."

India and China the two major buyers of Iranian oil, accounting for 22 and 13 percent of its total export respectively, have refused to join such sanctions. This means they have to establish a reliable way of paying for crude, independently of the parts of the global financial system controlled by New York and London. This, apparently, is going to be gold. Perhaps this is the first step to gold being used for major trading and the demise of the US dollar as the world’s reserve currency.

As China is building massive reserves of gold both in its own mining activities, major purchases of gold AND even buying up gold mines around the world, it appears it is gearing up for a gold trading based economy in the future.

Sinclair also commented. "Gold has been decided by China as the means of making payment for massive international purchases free of the SWIFT system."

This would cause other nations to view gold as a trading method free from the economic influence of western nations. "As paper money is under the control of the SWIFT system and now being used as a weapon rather than an economically efficient transfer of value system, nations will start to look elsewhere for alternatives and gold being a traditional method will be the first in line for consideration." Said another analyst.

Questions will then rise on the amount of gold available for trading as, "It is reasonable and possible for the supply of physical gold to fall far behind the size of the massive short positions now common to algorithm and hedge fund paper shorts. That will make an effective cover at a reasonable price as compared to a certain day’s close impossible the following day on an exogenous event." As Sinclair points out.

Japan and South Korea, two other major buyers of Iranian crude, are also concerned about the oil embargo and they have plenty of gold too.

The German political analyst Christoph R. Horstel recently stated, “All the present faithful customers to Iran oil are set to continue buying this oil, and they will find a way, rest assured,” he said. “This is the signal I get from Tehran.”

"I was personally present when the deputy economics minister of Iran was talking to a foreign society in Berlin," he added. “And the gentleman said very openly to the shocked audience 'OK. You don’t want to buy our goods. Well, the Chinese do'."

Currently gold is very cheap but is evidently going to become VERY valuable in the coming months as this scenario with Iran plays out and likely India and China set to buy oil with gold is only the beginning.


Thursday, April 19, 2012

Akshaya Tritiya gold buying festival

Akshaya Tritiya is on of the biggest gold buying festivals in India and the Indian Post office intend to take advantage of that and capturing a lot of business by offering a six percent discount on various gold coins.

'Akshaya' means eternal and buying valuable items is considered to bring good fortune, luck or success so gold coins feature at the top of the list as the ultimate in wealth and power.

Not all investors are large so the Post Office also focuses on the smaller investor, a wise move given that there are many smaller investors than large ones. Coins in the half, one and five gram range feature heavily with eight gram coins also on offer for those with just that bit more money to spend.

As well as the Post office many jewelery houses across India are also promoting heavily in order to attract more buyers. For example, stepping up to gain a slice of the gold pie, Tanishq, India's largest jewellery brand, is going to offer a free gold coin with every jewellery purchase. And when a customer buys diamond jewellery worth $3,882 and above, customers can get a flat 10% discount. Commenting on the season special, Sandeep Kulhalli, vice president, Tanishq said,.''Purchasing gold for Akshaya Tritiya is believed to bring about success and wealth. In sync with this joyous occasion, we have attractive discount offers that provide an opportunity to our customers to own exclusive Tanishq jewellery at better rates.'

This year, the festival starts on April 24 and the Post Office will be offering a rebate on a range of gold coins from 0.5 gram up to 50 gram of 24 carat with 99.99% purity.

Jewellers say that a 25 percent increase is expected in this years Akshaya Tritiya gold buying festival ''The consumer mood is upbeat despite the ruling high price. We expect sales to be 25% higher,'' said the All India Gems and Jewellery Trade Federation chairman Bachhraj Bamalwa.

He added that "though jewellers add new stocks during the Akshaya Tritiya festival, this year we are not building any new inventory till the government takes some positive steps and rolls back the hike in excise duty and customs duty proposed in the budget."

Tuesday, April 17, 2012

A Gold Standard

Six Reasons for a Gold Standard
"The gold standard would keep you from printing money and destroying the middle class. Every country where you have runaway inflation, there's no middle class. Mexico, there's no middle class, you have a huge poor class, and a lot of wealthy people. Today we have a growing poor class, and we have more billionaires than ever before. So we're moving into third world status..."
Ron Paul

There are six very important reasons for a gold standard, not the least if which is the current economic situation around the world.

Europe and the US have accumulated so much debt that its paper money is virtually worthless, unless you have hugh amounts of it. Something only one percent of the population has. The US debt, for example, is greater than all the other countries debt put together, including Europe and incurring around 200 Billion dollars a year in interest payments alone. And that is at the current low rate of interest. With an increase in the interest rate to a reasonable 6 percent, the US would have to borrow 77 percent of the money the government spends each year instead of the current 40 percent just to pay the interest bill.

The only thing that has been bolstering up the US dollar is the government's ability to simply print more money to pay its debts. And the ONLY reason they can do that is because the US dollar currently has the luxury of being the world’s reserve currency.

Now, because many countries are seeking a way out of this, countries such as India, Iran, Russia and even China are looking to trade around the world in other currencies and even gold rather than the US Dollar.

And of course we are all aware of the issues in Europe whose currency, the Euro, is faring no better.

Interest rates on savings are minimal if at all. Treasury Bonds are almost at the point of going into 'negative return' which means that one would have to pay interest to buy treasury bonds. Who is going to do that I wonder? Not only that, recommendations coming out of the Federal Reserve indicate that the US economy should have an inflation of 33 percent over the coming years.

Property prices in the US are in the doldrums and unlikely to recover any time soon. They took a massive dive after the Freddie Mac & Fannie Mae fiasco in 2008. The US government responded to that by guaranteeing their debt and bailing them out with, you guessed it, more printed money.

And just recently the US government has printed hundreds of billions of dollars to buy their own government bonds.

Quantative easing is like having a credit card and continually increasing the limit while spending UP TO the limit at the same time. The amount owed on the credit card not only increases but the interest payments do to.

Some companies, those that are cashed up and do not have to invest more in capital in order to earn can make good earnings on their shares and so can seem like a good investment. Coca Cola, McDonalds, Apple etc are some examples. But even these depend on future sales and if the economy takes a dive through massive inflation, who then is going to be able to buy their products?

Throughout the ages this scenario has played out. Rome in its hey day, Russia, German. Even the UK. By devaluing its currency the pound by 14 percent, in one fell swoop in one day in 1967 the British government caused inflation to skyrocket 26.9 percent over the coming ten years.

In hindsight of course it is obvious that pegging the US dollar to gold or even NOT removing the gold standard would have prevented that and would have prevented the wild undisciplined printing of monopoly money that has resulted in such massive debt. That was a fatal mistake for the US economically as debt has risen disproportionately since and the value of the dollar has fallen to 3 percent of its prior value.

How would it be then if the Gold Standard had NOT been removed? Well we can only speculate but the following seems fairly obvious.

1. The economy would have remained stable. There would have been no inflation or deflation. The fact that the dollar was pegged to gold and each dollar would have simply represented a amount of gold held in trust would mean that the value of the dollar would not rise or fall on speculation or trade of the dollar.

2. It would not be possible top spend more than the amount of gold held by the nation and so debt to the nightmarish levels we now see would not be possible. In short we would not be spending more that we are making.

3. Being backed by gold, money would not be an idea backed by confidence where such confidence can be eroded (as we speak) despite current frantic attempts to bolster it.

4. People would own something other than a piece of paper, the value of which deteriorates yearly so it is worth less and less and more is needed to buy the same goods and services.

5. Prices would not continually rise to compensate for the decreasing value of the dollar because, of course, pegged to gold the dollar would not decrease in value but remain the same. The demand for salary increases would not be so prevalent since prices are not rising and more money would not be needed to buy the same goods and services.

6. Companies would not have to seek cheaper labor and so more industry would remain in the country. This would boost production and the balance of payments.

There is in short, a lot to be said for the discipline of a gold standard

How to Return to a Gold Standard
"It (the gold standard) maintains a stable currency and a stable value. If the Fed concentrated more on stable money rather than stable prices... They push up new money in stocks and in commodities and in houses, and then they have to come in to rescue the situation. They create the bubbles, then they come in and rescue it, and they do nothing more than try to do price fixing. Capitalism depends, and capital comes from savings, but there's no savings in this country, so this is all artificial. It creates the misdirection and the malinvestment and all the excessive debt, and it always has to have a correction. Since the Fed has been in existence, the dollar has lost about 97% of its value. You're supposed to encourage savings, but if something loses its value, why save dollars? There's no encouragement whatsoever…"
Ron Paul

A return to the gold standard is very much the flavour of the month not just with gold bugs but with some US states and even countries it seems.

Whereas once upon a time the idea would have been pooh poohed, desperate times call for desperate measures and to many the return to a safe and stable gold standard now seems like a wonderful dream.

But, given the turmoil, heavy debts, vested interest etc, how would one go about instituting a gold standard? In fact, it might not be so much a how as a 'who'. Who is the most likely to benefit from and so desire a gold standard? Perhaps not an international gold standard, but maybe a national gold standard for a country who does not want to be a party to the existing ever increasing debt crisis?

As well as the economic issues there are also political issues to take into account so, why not have more gold standards? Many countries could each have their own currency pegged to their own gold standard.

Agreements on trade would be very simple as would be expressed in ounces of gold. E.g. Australia might say 2000 dollars buys one ounce of gold. The US might say the same about their currency (I would expect it to be more but this is for the sake of demonstration) The UK might state that 1500 pounds buys one ounce of gold and you might need 160,000 Japanese yen to buy an ounce.

Each country could peg their own currency against gold and so achieve economic stability for that country. Trade could thus be successfully conducted between nations as all would then be operating on the same page or platform if you will.

This then would likely be easier to manage than setting one currency pegged to gold and then trying to adjust and or peg other currencies to that currency.

It would immediately stop further debt from being incurred for that country as currency would not be printed unless it is back by gold. Governments would be keen therefore to buy gold in order to increase their currency. This will be only good news for gold mines and miners around the world keen to sell their gold. A stable price also will provide more predictability for miners and ensure a more stable operating basis for production.

But as a stable currency, there would be no inflation and no deterioration of the currency as it would be backed by gold. In effect the currency would represent an amount of gold and it is the gold that has the value. The currency would simply be the receipt of ownership to the bearer that they own, while they have the transferable currency that established quantity of pure gold, the currency represents. The question then becomes, What about the existing debt? Well first no further debt is being incurred so there is a stop on the interest rates. The debt would be effectively frozen at that point. No more credit on the credit card.

Such activities as economizing on spending would assist to reduce the existing debt. As there is no inflation there is no incentive for companies to raise prices, no requirement for wages to rise, and production would increase. Increase a countries production and you increase their income. Increased income means more opportunity to repay the capital on debt and so reduce the interest and so leave more room in the spending to reduce the capital. Just as the debt was built on false money (paper money with no value) so it can be reduced with real money, i.e. gold back currency.

Of course it would take some time. But the direction of a nation's economy and debt would have, at that point, been reversed and would start to stabilise out.

It would not be easy and there would be a multitude of problems. A considerable amount of confusion and a lot of work on the detail but moving through that in a disciplined way would ensure that a country could restore balance to its economy. It could be done.

A gold standard provides stability to a nation and, indeed, would provide stability to the entire planet, when put into place.

It will only take one county to start it and this is very likely to be China or one of the prominent Asian nations. China is now the world’s biggest producer of gold and is also importing as much as India and on track to be the biggest owner of gold on the planet. They seem determined to reduce their foreign debt, which is mostly in eroding US dollars, and increase their asset wealth through gold. It is probably only a matter of time until they decide to stabilise their currency and we may well see the first nation with a gold standard taking first place in the economic world.

The US, losing its place as leader in the economic world and losing the US dollar as the reserve currency of the world will in all likelihood have to follow suit to keep the value of their dollar from eroding further and losing the strategic trade value of their dollar.

Other countries are looking at it and some, trading with gold and other currencies, are obviously preparing to drop the US dollar as the world’s reserve currency. The door will then be open for a new gold standard.

Sunday, April 08, 2012

China still buying gold mines

China is still buying gold mines as part of its policy to preserve and maintain its gold interests. China is evidently very interested in buying gold direct from source, you might say, rather than pay the gold spot price.
Last year they came to an agreement to buy or hold a controlling interest in a Fijian gold mine and also looking to buy one in Canada.

Now the Zijin mining group are launching a 299 million dollar bid for Norton Gold Fields who operate the Paddington gold mine not far from Kalgoorlie in Western Australia.

The Laverton area gold miner, A1 Minerals, renamed Stone Resources is now the child of a Hong Kong company with mainland China interests.

And it was Chinese interests that forked out 80 million dollars to buy the controlling stake in the Australian owned Zara gold project in Eritrea.

Even as far back as 2010 China was interested in buying gold mines rather than on the market from the IMF and other gold sources.

From the China Daily in February 2010.
'Contrary to much speculation China may not buy the International Monetary Fund's (IMF) remaining 191.3 tons of gold which is up for sale as it does not want to upset the market, a top industry official told China Daily Tuesday. "It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility," said the official from the China Gold Association, on condition of anonymity. He said China would continue to shore up its gold reserves by acquiring gold mines abroad rather than purchases on the international market.'

Sovereign Gold has signed up Jiangsu Geology & Engineering as a partner to pay $4 million to buy 30 per cent of two tenements.

Of course China is paying for these with part of the 1.2 or so trillion dollars of US debt it has before the value of that debt deteriorates in lost value.

What better way of spending it than buying gold and buying gold mines.

Saturday, April 07, 2012

Gold, the real Turkish delight

Gold is the real Turkish delight in Turkey with the Turkish Government doubling the amount of gold lenders can hold in reserves compared to paper money. The shift from ten to twenty percent from On March 27 2012, means that Turkish banks are now able to use gold as a money reserve against foreign currency deposits.

This change of policy followed turkey's banks receiving approval to hold some of their reserves as gold.

Turkey, as has India and Vietnam before them, is turning to gold as a safe method to address their balance of payments problem.

A 70-year-old housewife once said, "In an emergency, I can convert [gold] to cash and I don't have to wait for the bank to say the asset has matured." And it seems this is the growing attitude in Turkey, Another country now recognising the value of gold as money.

As well as some US States now, Venezuela, Mexico, India and China are not the only countries recognising the value of using gold to back their assets.

The traditional form of saving in Turkey has been gold and the government now wants to draw down on that asset in an effort to reduce the ten percent finance gap of GDP. The fact that it is using gold to do this is significant and indicates the growing dissatisfaction in paper money in the form of the Turkish Lira.

As the ZeroHedge.com pointed out recently, “It would seem the rise in the value of Gold (in Turkish Lira) has been a 'good' store of value for the Turkish people over the past two decades...”

If you want some of that ‘Turkish delight’ then the best way is to buy gold while it is still hovering in the lows.

Thursday, April 05, 2012

You can’t eat gold

In defence of paper money it has often been said to me, 'you can't eat gold or silver.' Of course you can counter with the fact that one cannot eat money either but the truth is that such people really have no understanding of what gold and silver really are.

The idea is that during an economy breakdown where food is scarce and costs are sky high it is useless to have gold or silver as you can’t eat it (in fact silver has very high ant-bacterial properties and so can be used to store water and milk for months at a time), and so will starve.

Every currency, however, that has existed without any backing has collapsed. Paper has no value and paper currency unbacked has no value as evidenced by the continued deterioration in value. 98 percent of all currencies only exist as digital currencies residing in banks.

Historically when there is a economic breakdown or collapse the value of the paper currency deteriorates down to near zero. Wheel barrels to cart paper money to by bread and potatoes or rice become the norm. This is something that those people who cry ‘you can’t eat gold or silver' have yet to understand.

And tracking back on that cycle, how much will you have to earn in order to buy that loaf of bred or handful of rice? The short answer is a lot! It is often mentioned that in Germany during WW11 that people were carting around millions of Deutsche Marks and, only recently in Zimbabwe, billions of Zimbabwean dollars exchanged hands for basic staples such as rice and the like until the Zimbabwean dollar was effectively abandoned on 12 April 2009. Now in Zimbabwe only foreign currencies are used as a result of the Reserve Bank of Zimbabwe legalizing the use of foreign currencies for transactions in January 2009. That currency just went down the gurgler.

No you can't eat gold or silver and you cannot eat paper money either. Incidently, it would not be advisable as paper money carries heaps of bacterial and one is very likely to get sick just from the contaminants quite apart from the ink, plastic etc contained within paper money. Gold on the other hand is used in surgery and medical procedures and silver is a known ant-bacterial agent.

When it comes to a choice between the two, gold and silver is the money to use. Something more and more states and institutions as well as private investors are beginning to realise. Paper, as we know loses value and would be effectively worthless in an economic collapse. Gold on the other hand retains its value and a single ounce of gold will buy today exactly what it bought in the 1930s or anytime before or after that date.

So when someone tells you, you can't eat gold or silver, simply point out to them that if and when the time comes, with gold and silver you will be able to actually BUY something to eat with it and right now is the time to buy gold and silver while it is still cheap

Tuesday, April 03, 2012

Gold as World Currency Reserve

Gold as world currency reserve may seem, at this point, to be a bit far fetched but in fact it is closer than you think.

Over the past few decades the US dollar has somehow been positioned as the world reserve currency despite the fact that no one in the world voted on it being so. And if they had, would they have favoured the US dollar over any other currency. Right now no currency looks at all stable enough to be considered a world reserve currency least of all the US dollar.

This is beginning to be recognized by other countries now attempting to seek other methods of trade. The US government does not take too kindly having a replacement. Take Iraq for example. Back in 2000 Saddam Hussein stated he wanted to trade Iraq’s oil for Euros* and bypass the USD as a medium of exchange and we all know what happened a few short years later.

History is repeating itself now with Iran. Having been locked out of using the reserve currency by the denial of the Swift banking system**, Iran is now negotiating to trade with other currencies and, significantly, with gold. The US is now threatening other countries keen to do business with Iran. Bloomberg has reported that the US Obama administration is also threatening China, India and 10 other countries to cut down on their oil trades with Iran or face similar sanctions.***

If the SWIFT system is shut down to other countries then alternatives will be sought as no country is going to allow their trade to be stifled.

As currencies are so easy to manipulate it is very likely more and more countries will turn to gold as an exchange medium resulting in an effective gold as world currency reserve scenario emerging. This is evidenced by the fact that many countries are stockpiling gold and ordering the return of their gold from overseas storage. Asian countries, such as China, India, Korea and so forth, always having a traditional appreciation of gold, are actively accumulating gold at an increasing rate.

Take China for example. China is becoming increasingly anxious to divest itself of the billions of US dollars it has unwittingly accumulated and what better way to do that than with gold.

But it is not only in Asia that the writing is on the wall. In the US the big players are also buying gold. Buffett is pooh poohing gold, perhaps because he is so heavily invested in stocks, but George Soros, John Paulson and other heavyweights are buying up gold at express train speed.****

According to the Daily Reckoning, "The gold price has increased for 11 consecutive years — a time frame during which, coincidentally, it has trounced the investment return of Berkshire Hathaway. Why? Because a new era of monetary destruction is unfolding throughout the Western world. That’s why a growing number of investors are devoting a growing percentage of their investment portfolios to gold and other hard assets."

So the world is slowly moving to remove the US dollar. It is likely to be replaced by somethign that all countries can agree on and that is gold. Gold cannot be manipulated or printed. It retains its value even as currency does not. Faith and confidence in currency is eroding fast and the more currency that gets printed the bigger the debts become and the less value it retains.

Gold is money in the true sense of the world and those that buy gold will have value long after currency has done its dash and worth zero.
Gold will then be truly the world currency reserve.