Monday, March 11, 2013

Gold up, currencies down

Japanese Gold
Gold may appear to be going down in the west, possibly due to suppression of the gold price through short selling, but gold is actually going up while currencies are going down, at least in the east and Central America if not in the west.

In Japan, for example, gold has gone up like a rocket 36 percent.  An ounce of gold in Japan selling for 125,000 yen in July 2013, now sells for 145,000 and even peaked at a highest ever of 155,000 in February.  Japans ‘quantitative easing’, or print money like toilet paper, has reduced the value of the yen plummeting on international exchanges.  So if a Japanese citizen has a yen for gold it is going to take more yen than ever to buy gold.
China is continuing its policy of acquisition of gold and mines.  Recently it purchased another gold mine. China African Precious Metals (CAPM) has just bought assets of the embattled Aurora gold mine in South Africa. In a recent statement, CAPM said “it reached an agreement with provisional liquidators of mine and successfully met their requirements, including the full payment of the acquisition price.”. "The board of directors sees its investment in the mining sector in South Africa as its first imprint in Southern Africa,"

China is evidently not keen on continuing to hold assets in currencies that other countries can devalue with quantitative easing at will so are continuing to  buying more gold than ever, using their quantitative US dollars. Gold bar sales in China, for example, doubled in the Spring Festival this year compared to last. Sales of gold and silver have increased almost 39 percent.  Gold has also reached a highest ever in other countries such a Brazil, Iceland and India for example. And those Argentineans who exchanged their pesos for gold in 2007 are now very happy folk.  In just the past two years, gold in Argentina went up 45 percent and also hit record highs.
So how come gold is going down in the west and up in the east?  Both area practice quantitative easing and the currency is worth less and less as a result.  Checking the Japanese one year chart (above) for example, it is easy to see the difference between the western countries, USA, Europe etc as compared to major eastern such as India and Japan. Perhaps the fact that there is little short selling in India and Japan compared to the US and western countries is a pointer to the effects short selling can have on the price of a commodity.  Of course no one is going to object while they can buy gold for so few dollars.  Or perhaps the big movement of gold from the west to the east is motivated by profit.  Buy gold in the US for a pittance and sell in Japan for a nice tidy profit.  What ever the reason, one can say that the real price of gold is up while the value of currency is down.
Central Banks Buy the Most Gold Since 1964 - 24/7 Wall St.

Sunday, March 10, 2013

Where is the gold?

Where is the Gold?
According to Eric Sprott CEO of Sprott Asset Management recently,, "… on Feb. 19, nearly an entire year's supply of gold traded on the Comex in a single day. The same volume of silver trading happened on the commodities exchange. You and I both know that the people selling that much metal cannot deliver it because it is just not available. Yet somehow they are out there, pounding down these contracts and keeping the price suppressed. "

"I would hypothesize that the central bankers know their policy of printing money is the most irresponsible thing imaginable, and they are suppressing gold and silver prices to hide their irresponsibility. When one is printing that much money, gold and silver prices are the first things you would expect to rise. If we saw gold going to $2,000 per ounce, the price of oil would probably go to a new high and the price of agricultural commodities would go up. Then you would have a huge inflation problem on your hands. "*

This despite having an unlimited Quantative Easing as a way to reduce the countries debt  (The more money is printed the less value it has and therefore the less value the debt has).

As a result, although the price of real gold is being firmly pushed down,  buying gold is still the best way to preserve assets as, apart from it being real money, many other nations fully recognise the true value of gold and continue to buy it at breakneck speed and that adds value to the precious metal also.  We are talking real gold here, not paper gold. What is fostered off onto the general public however is that paper gold is the real gold and real gold is not!

Looking at this from a legal perspective one could say that calling something “paper gold” but selling only paper (backed by nothing) is a form of fraud.  In addition, selling “paper gold”, backed by real bullion, where, to quote, Jeff Nielson of Gold commentary ‘no actual ownership of gold’ forms part of the sale could, in my opinion, also be considered a covert form of fraud.

Banks have not been immune to this viral infection.  Morgan Stanley is a typical example. They sold “paper gold” to some of their clients through ‘bullion accounts’ assuring them their gold was safely tucked away and could be claimed or redeemed anytime. This was not the case however as when some clients attempted to redeem their gold, it did not in fact exist.  It was paper gold, not real gold.  Morgan Stanley got a rap on the knuckles for that deception**, but it does point to the importance of ensuring that gold you buy is in fact gold and not paper gold  and that redemption of the gold is  guaranteed if, at any time, the client wants it.

The lesson here being that when one buys gold, buyer beware! There is no substitute for doing due diligence and actually reading the terms and conditions under which you are parting with your money and buying gold.

For example. This applies very much to the SPDR Gold Trust – more commonly known by its market symbol “GLD”.  If you want to know how banks can “sell paper gold” while not actually selling gold, simply read the GLD prospectus. A good analysis of this is available at Gold Commentary***.

If every client of GLD decided they wanted to close their account and take the proceedings in gold it is extremely unlikely they would all get their gold, partially because there is insufficient gold in the account to allow every client to take their gold but also because, per their terms and conditions, the Custodian has no obligation to deliver gold to the account or unit holders.  This could be considered ‘wilful default’, where the custodian possesses the gold, purely to satisfy legal requirements, but is unwilling to part with it.

The moral of the story is, of course, buy actual real gold not paper gold. Then you will always be able to answer the question.  Where is the gold?