Gold to shine on 40th anniversay of Nixon Shock

http://www.telegraph.co.uk/finance/commodities/8687368/Gold-to-shine-on-40th-anniversay-of-Nixon-Shock.html

As we approach the 40th anniversary of the Nixon Shock, which ended the convertibility of the US dollar into gold, the price of the metal continues to hit new highs.

With S&P's downgrade of the US's credit rating on Friday, the long-term outlook for the dollar is pretty shaky – but prospects for gold continue to sparkle.

On August 15 1971, President Richard Nixon ended the convertibility of dollars into gold as he attempted to battle soaring inflation and a deteriorating balance of payments.

The move brought to an end the Bretton Woods system, which was established after the Second World War. This made the US dollar convertible into gold at the rate of $35 an ounce. Other currencies were then pegged to the dollar as a means of stabilising the system.

However, US citizens were already banned from hoarding gold. Executive Order 6102 was signed by Franklyn D Roosevelt in 1933 which effectively criminalised the possession of gold bullion by individuals and organisation. People had to surrender their gold to the Federal Reserve – or face up to ten years in prison.

"Those who handed in their gold got $20.67 an ounce for it, which was the dollar price under the inter-war gold standard. Then the government fixed the price $15 higher," said Ben Traynor, an economist at Bullion Vault, which holds more than $1bn (£610m) of gold for clients.

It was actually Gerald Ford who finally restored US citizens' right to own gold, with Executive Order 11825 issued on the very last day of 1974," Mr Traynor added.
But Nixon's action in 1971 had paved the way for this to happen, since by closing the gold window he scrapped the fixed dollar gold price of $35 an ounce. This eventually allowed it to trade and the price to rise – to its current $1,663.80 an ounce.
The reason President Roosevelt issued Executive Order 6102 was because the big problem in the depression was deflation.
"Roosevelt – on the advice of economist George Warren – sought to introduce monetary inflation. And the way to do this was to lower the value of the dollar relative to the monetary standard, gold," Mr Traynor said. "In other words, raise the dollar gold price.
"The president's advisers would fix the gold price over breakfast, always making it a very specific number to several decimal points so that it looked scientific and accurate – when all they were doing was just pushing it a bit higher each day," he adds.
The London gold market reopened in 1954, following its closure since the Second World War.
Central banks were trying to keep their currencies in line with the exchange rates agreed at Bretton Woods, and gold made itself a bit of a nuisance. "As we know, it didn't work," Mr Traynor says. "Central banks tried for a while to keep the gold price in line with the $35 peg. They set up the London Gold Pool, whereby central banks co-ordinated sales to keep the price down if it looked like getting too high."
Where this became a specifically American problem is that the US had most of the gold, and it was the US that guaranteed convertibility at $35. With central banks piling up the paper currency they'd got for their gold sales, they started to exercise that convertibility – especially when the world became awash with dollars during the Vietnam War. Also, as the global economy became less US-centric, countries would need deutschemarks and yen, so cashed in dollars for gold.
"This exacerbated the gold drain from the US – as did the existence of a two-tier market after the Gold Pool collapsed in 1968 – and culminated eventually with Nixon closing the gold window in 1971," notes Mr Traynor.
The end of Bretton Woods and convertibility into gold resulted in free floating currencies. Many now argue that the dollar as a global reserve currency is doomed because of the level of debt the country is unsustainable.
China's call for a new global reserve currency over the weekend is a sensible proposition – but until then investors world wide will continue to view gold as the ultimate safe haven to escape devaluing paper money.

FOFOA FreeGold

http://fofoa.blogspot.com/2008/09/freegold.html

Some of FOFOA's excellent blog posts regarding freegold theory.
The FOFOA blog is a recommended read.

Sunday, September 21, 2008

FreeGold

Earlier on Randy's blog I said that I would post the only possible solution to this crisis here tonight. Some people might have thought that Karl Denninger's solution was that post. It was not. This is.

My solution is theoretical. It is a theory called FreeGold. It is not my theory and it is not new. It has been around for at least 11 years, probably many more than that. But I believe it is the inevitable end to our current situation. And it will either come by natural forces after America has been brought to her knees, or it will be "allowed" to happen and America will retain some of her former glory.

Please bear with me as it is hard to explain in one post what should take a whole book. I will be jumping from concept to concept with only a cursory explanation. Each of these concepts would take up one or more chapters in the book.

Right now the world has its hopes riding on the United States Treasury. The Fed has spent its balance sheet on bailouts that didn't work. And now the Treasury will supposedly come to the rescue. But the Treasury is misnamed. It should be called the gaping hole of nothingness. Or at least the gaping hole of debt. Where is the so-called Treasure? Oh yeah, we do have the gold.

According to the World Gold Council the United States has 8133.5 metric tonnes of gold, the largest stockpile in the world. (Forget that some of that might be IOU's. I'll explain later why that doesn't matter.)

As I type, the price of gold is going down in the Asian markets. It is probable that Hank Paulson and the Working Group on Financial Markets, also known informally as the PPT, the Plunge Protection Team, had a hand in the Asian markets taking gold down tonight. It is one of the many things they do. They believe that if gold goes down in price, the dollar gains strength. This may sound conspiratorial, but it's really not. It is simply a tactic that they use.

FreeGold is based on the theory that gold has a value much higher than what the markets say. The Central Banks of the world are aware of this value. They trade gold amongst themselves based on this higher value. The purpose of the lower gold price on the exchanges is to gain oil from oil producing nations at a low, dollar denominated price. So the low gold price has a real use, a function, that is maintained by the Central Banks.

If the price of gold in the markets was real, then why don't we see countries that are in trouble financially simply selling all their gold for some cash? It is because gold is really worth more than $50,000 per ounce in today's dollars. I propose to you right now that gold's true value on the world stage is probably $100,000 per ounce in US dollars. And that is based on the dollars in circulation right now. If they print more (which guess what, they are) then the value goes up proportionately.

So now let's jump ahead of ourselves and look at the state of the Treasury with and without FreeGold. Without FreeGold the Treasury is broke. It is insolvent. It is completely reliant on the future taxes to be paid by an economy in trouble. And its biggest asset, gold, is only worth $226 billion. That's hardly a drop in the bucket. But WITH FreeGold valued at $100K per ounce, that same stockpile is worth $26 trillion dollars. Now THAT is enough to be back in business on the world stage. Gold is, and has always been, the United States Treasury's "ace in the hole".

But is this possible? This $100,000 per ounce of gold? How can gold possibly rise that much if it's only at $865 right now? The answer is, it doesn't have to rise. That value is already there. It only has to be set free.

Think about it this way: All the gold in the world is maybe 5 billion ounces. Yet gold is the only "currency" other than the US dollar which is valued EVERYWHERE on this planet. Also, every powerful central bank in the world holds a stockpile of gold as a foreign currency reserve. Here's the list.

So if there's only five billion ounces, EVERYONE values it, ALL central banks consider it a currency, then how on earth is it only $865 per ounce? Well that can be explained.

If you follow this blog then you know about the deal that was supposedly made between the West and Saudi Arabia in either the late 70's or early 80's. The key to that deal was the ability of the West to basically PRINT paper gold and sell it without limit on the world exchanges. The public was taught that paper gold was as good as physical gold. And the ability to print made gold essentially another fiat currency. So that's where we stand today.

If you hold paper gold you are no safer than if you hold paper dollars. There is an imminent default coming on both.

Now I said earlier that the PPT believes that gold must drop in price for the dollar to be strong. This is not true. Even with FreeGold, the dollar can remain the world's most used currency. Not necessarily the RESERVE currency, but the most used. You see in a world of FreeGold, gold will not be traded. It will be held by those that have it, and desired by those that don't. But only a fool would take a printable piece of paper in exchange for something as valuable as gold.

Now you might give up a piece of your gold in exchange for a house, but probably not for a piece of paper.

Therefore, fiat currencies will still be needed for day to day transactions.

Before gold is set free, we will watch as the exchanges that trade gold as a commodity freeze up. They will remain frozen for a period of time and then all the contracts on those exchanges will be settled in Federal Reserve Notes (also known as dollars). That is all the law requires. No contract can require payment in anything but dollars. That is contract law and that is legal tender law.

Then, after that is done, no gold will trade. Period. At least for a while. Then we will hear about gold being shipped to the Middle East as payment for oil shipments to the West. And we will read about countries exchanging piles of gold to settle trade imbalances. And finally, after a year or so, the true value of gold will be known by all.

So if you have some gold right now, bury it deep. If you don't have any, get whatever you can get your hands on while it's still traded as a commodity. Because believe me... gold is no commodity. It is the only store of value in this world that cannot be easily inflated... and the whole world knows it.

The freezing of the exchanges could happen this week. It could happen next month. Or it could happen next year. I do not know. I only know that this is inevitable. And as ANOTHER says, "It need only be [re]-priced once during the experience of life, that will be much more than enough!"

Oh, and I said I would explain why IOU's in Fort Knox don't matter. Well, those IOU's will be called in when this happens. And they WON'T be settled in dollars. Most of those IOU's are held by Bullion Banks who then hold IOU's from gold mines. If those gold mines cannot produce the physical gold at that time then the mine itself will become the property of the US Treasury. If they CAN somehow provide the gold, that will only give them a temporary reprieve. Soon they will be either "taken" or taxed like you won't believe. In a world of FreeGold you can't have private gold mines out there. That would be like giving a private company the printing press for the dollar.

Gold prices slump 3% on stock bounce, margin hike

NEW YORK: Gold recoiled after tapping a new record on Thursday, heading for its largest daily loss in over a year as an equities rebound and higher trading margins fanned profit-taking from the biggest rally since 2008.

Prices slumped nearly 3 per cent and fell over $80 from their overnight peak in one of the biggest daily swings ever. Yet analysts showed no sign of revising their bullish view of gold, up nearly 20 per cent since June as investors seek safer havens amid global debt crises and a darker economic outlook.

Concerns of a deepening European crisis and the possibility of distress among French banks helped propel gold to a record $1,813.79 an ounce in Asian trading. And while equity investors swooped in to scoop up bargain stocks on Thursday, underlying worries are unlikely to disappear soon, analysts said.

Traders said steeper margin requirements also would not stop gold's long-term advance. Late on Wednesday, the CME Group Inc raised margin requirements for 100-ounce gold futures by 22 per cent, the biggest rise in about 1-1/2 years and the first such rise since January.

"Once again, gold's decline is indicative of a sell-off of safe-haven assets, more of a risk-on type trade today," said David Meger, director of metals trading at commodity broker Vision Financial Markets in Chicago. 

[Continued]
http://economictimes.indiatimes.com/markets/commodities/gold-prices-slump-3-on-stock-bounce-margin-hike/articleshow/9573223.cms

Gold Prices at $1,800: You Ain't Seen Nothing Yet...

 http://www.taipanpublishinggroup.com/tpg/smart-investing-daily/smart-investing-081111.html
Smart Investing Daily reader G.T. writes in with a question. Several, really, but all worthy of an answer. He asks:

With the latest drop in the equity market, presumably because of the U.S. debit, why doesn't the Federal Reserve sell off some of its gold reserves? I understand that it has +/- 7,000 tonnes in stock. Could it not also settle its debts with China where the demand for gold is on the rise?

Am I correct in saying that everyone who is reputed to be in gold decided to sell at the same time there is not enough gold in stock to meet all the claims?

Didn't that happen some years ago when a person tried to buy up all the silver in the world?

The International Monetary Fund reports that the United States is the largest holder of gold, with 8,133.5 tonnes. In yesterday's trading, gold prices topped $1,800 an ounce. Even though the price of gold ended a bit lower, let's use this nice round number to calculate the value of all that gold.
In all, the U.S. holds 286.9 million ounces of gold.

At $1,800 an ounce, that values our gold holdings at $516.4 billion. That's less than half of what we owed China as of May 2011.
But the U.S. has no interest in truly paying off its debt, and it's certainly not willing to sell its gold to do it.
As of July 2011, the world held 30,683.3 tonnes of gold, excepting some countries that did not report their holdings to the IMF. More than 1.08 billion ounces of gold are held by central banks.
But traders looking to cash in their gold futures for actual bullion might have a problem. One analyst from ZeroHedge.com predicts that in six to 12 months, gold futures holders will not be able to get their gold due to lack of supply.

One of the reasons why gold supplies are pinched is because of central banks. Central banks have been buying gold like mad. In fact, according to the World Gold Council, buying in the first quarter of 2011 totaled 129 tonnes... That's more than the combined net total of gold purchases during the first three quarters of 2010!

China has been a huge buyer. As of July, China held 1,054.1 tonnes of gold. That's only 1.6% of the country's total "cash" reserves. Rumors around the water cooler say that China wants to make gold 10% of its reserve portfolio.
It's a massive, massive increase that the gold markets might not be able to handle.
In other words, if you think $1,800 is high, you ain't seen nothing yet...
The demand coming from central banks is nothing new. But the scary thing would be if the government tried to "FDR" regular gold investors. On April 5, 1933, President Roosevelt signed an executive order that made gold hoarding illegal.
"Hoarding" meant anything over $100 worth of gold coin or bullion. That's $1,677 worth in 2010 dollars, and the order exempted jewelers, dentists and other artists.
People had less than a month to turn in their gold, or they could be fined $10,000 and be imprisoned for up to 10 years!
And this wasn't just for individuals. The order extended to partnerships, associations and corporations.
Could you imagine if an order like this was signed in today's market? It would be total chaos... But it's not that farfetched to have the government intervene in some way.
Back in the 1970s and 1980s, the Hunt brothers, William and Nelson, tried to corner the silver market. At the height of their success, these brothers held the rights to more than half of the world's deliverable silver. That sent prices into the stratosphere: silver climbed from $11 an ounce to $50 an ounce in just four months!
And that $50 level is still the price to beat... we're just getting around to topping it in the past few months, and prices have fallen back below that level.
And what happened to the Hunt brothers? The government jumped in and made some key changes to the exchange rules regarding the purchase of commodities on margin. Sound familiar? The CFTC just did something similar.
Silver prices collapsed back down below $11 an ounce in just two months, and the Hunt brothers lost over a billion dollars!
And remember Jared's article about Goldman Sachs buying up warehouses to hold precious and base metals? He told you Goldman could influence metals supplies, artificially keeping prices high. How long before the government steps in there, I wonder?
The long and short of it all is this: precious metals are in hot demand. Central banks are scared witless about the value of their currencies in the event of another global downturn. These kinds of fears are like a pressure cooker, and prices for gold and silver are at full steam.
You can further protect yourself and your precious metals investments by holding them overseas. It's an interesting idea, and one that helped a lot of gold investors keep their wealth when FDR came calling. Many of them shifted their gold to accounts in Switzerland.
You can do this today, and there are companies that can help you. This opens up worlds of wealth security.
And none too soon...
Starting Jan. 1, 2012, gold dealers are required to fill out tax forms for gold coin and bullion purchases over $600. That means gold dealers are going to have to ask for your personal information.
That would make it pretty easy for the government to come collecting gold if there's ever another executive order like the one Franklin Delano Roosevelt signed 78 years ago.
Holding gold offshore is looking better and better.

Mexico ups gold reserves by over 90 tonnes in two months

http://cnbusinessnews.com/mexico-ups-gold-reserves-by-over-90-tonnes-in-two-months/


Mexico massively ramped up its gold reserves in the first quarter of this year, buying over $4 billion of bullion as emerging economies move away from the ailing U.S. dollar, which has dipped to 2-1/2-year lows.
The third biggest one-off purchase of gold by any country over the past decade took Mexico’s reserves to 100.15 tonnes — or 3.22 million ounces — by the end of March from just 6.84 tonnes at the end of January, according to the International Monetary Fund and Mexico’s central bank.

Gold has gained 11 percent this year, driven by concern over euro zone debt and the violence in the Arab world, as well as by the U.S. dollar’s 7.6 percent decline against a basket of currencies .DXY.
Sergio Martin, chief economist for HSBC in Mexico, said the government probably saw gold as a highly liquid asset that would reduce exposure to the falling greenback.

“They’re probably thinking that getting out of dollars and into gold makes sense because we know that the dollar has some trend to depreciate in the near future at least,” said Martin. “I don’t think they’re going to lose money with this.”
Mexico’s foreign currency and asset reserves hit a record $128 billion in April, making the gold purchased mostly in February and March worth nearly 4 percent of that total. Mexican central bank data on gold holdings only exists through March.
The central bank did not respond to a request for comment.
According to the International Monetary Fund, Latin America’s No. 2 economy now owns $4.93 billion worth of gold XAU=, which hit a record $1,575.79 an ounce on Monday.
Other emerging economies such as China, Russia and India have also beefed up bullion reserves over the past few years.
SILVER LINING?
Credit Suisse precious metals analyst Tom Kendall said it was worthy of note that Mexico, whose economy is very closely tied to the United States, had taken this step.
“The size (of the purchase) is certainly pretty chunky to have been accomplished in that space of time. So it certainly gives another sizable layer of support to gold’s position in the international reserves system,” he added.
George Milling-Stanley, managing director of government affairs at the World Gold Council industry group, said Mexico was following a recent trend among central banks to restore a “prior balance between gold and currency reserves.”
“This is further supported by the fact that the May IMF numbers show continued buying by Russia and Thailand of 18.8 tonnes and 9.3 tonnes respectively,” he added.
Mexico’s reserves rank it 33rd among the top official holders of gold. The United States is the largest official holder of gold, with 8,133 tonnes, which account for 73.8 percent of its total international reserves.
China is the sixth largest holder of gold, with 1,054.1 tonnes, or just 1.6 percent of total reserves, while eighth-ranked Russia now has some 811 tonnes of gold, up from 788.78 in January, according to the IMF data.
Silver, which hit a record price earlier this year, may also have been on Mexico’s buying list, said Martin at HSBC.
“I think Mexico has moved from second to first place in the list of global silver producers, so they may have been buying silver to help the price,” he added.

Source: Reuters

South Africa's gold miners begin strike over pay

http://www.bbc.co.uk/news/world-africa-14324063

Almost 100,000 gold miners have begun an indefinite strike in South Africa calling for a 14% salary increase.

The stoppage could cost the gold mining sector $25m (£15m) a day in lost output, economists say.
The National Union of Mineworkers (NUM) told the BBC it would affect all the top gold producers who are only offering between 7% and 9% pay rises.
The coal and petrol sectors have also been hit by strikes leading to fuel shortages in the last three weeks.
The BBC's Pumza Fihlani in the commercial capital, Johannesburg, says this time of the year is known as South Africa's "strike season".
Most unions are demanding salary increases twice that of inflation - which currently stands at 5%.

Continue reading the main story

“Start Quote

Our members work under dangerous conditions... yet they have nothing to show for it”

End Quote Lesiba Seshoka NUM spokesperson

They argue that any reasonable increase in wages needs to be 11% to counteract price hikes in food, water, electricity and petrol over the past year.

NUM spokesperson Lesiba Seshoka said workers would down tools indefintely from the start of the night shift on Thursday at 18:00 local time (16:00 GMT) in all gold mines, including AngloGold Ashanti, Gold Fields and Harmony Gold.
"Our members work under dangerous conditions in the mines daily and yet they have nothing to show for it," Mr Seshoka told the BBC.
The average mine worker earns 3,800 South African rand ($570; £346) each month, according to NUM.
For decades gold mining was the backbone of South Africa's economy, but gold output has decreased in recent years.
Until 2007 the country was the world's largest gold producer, now it is fourth.
The decline has been attributed partly to an increase in labour costs.
According to the most recent World Economic Forum report on Global Competitiveness, South Africa had the eighth-highest level of industrial conflict of out of 139 countries.
A public sector strike over pay paralysed schools and hospitals for more than a month last year.

Griffiths goes for gold - again

Mike Foster

21 Jul 2011

Back in mid-May, the price of gold, at $1.490 an ounce, was looking soggy. But poor sentiment didn’t put Robin Griffiths of Cazenove Capital off the yellow metal. On the contrary, he decided the traditional summer lull would come to an end early – by June 29, to be precise.

Following a 0.68% rise to $1.510 that day, we waited three weeks to see whether Griffiths had got it right. And the subsequent rise in the price of gold to $1,600 saw him pass the test with flying colours.

Griffiths is renowned as a technical analyst, extrapolating probable futures from charts of price trends, while taking account of seasonal factors and key fundamentals. He now thinks gold will track higher during the summer towards $1,650 or $1,700.

In the autumn, things will get interesting. He said: “It is my belief that gold will go ballistic at that point. You get that time and again, when you get a breakout.”

According to a chart published by advisory firm Institutional Investors, attached, it wouldn’t be hard to get the price to $2,155 in short order. Griffiths wouldn’t be surprised to see it hit $3,000, or $5,000 in inflation adjusted terms, by 2015.

But Griffiths goes further – as he often does. He takes the view the market will become increasingly nervous of the debasing of currencies being pushed through by governments desperate to restore sentiment to the debt market.

He believes the consumer price index is beloved by politicians because it understates inflation: “A fall in the price of the latest iPad was deemed worthy of inclusion in the index, helping to offset a rise in food prices. But, as far as I am aware, you can’t eat an iPad.” He believes that investors in India and China are increasingly likely to hedge their bets with gold.

To underline the case for the safe haven, Griffiths argues the technical position for Western markets is deteriorating fast. The French CAC 40 index is leading the way down with short term sentiment, indicated by the 50-day moving average, deteriorating faster than the 200-day average. Griffiths warns the UK, US and German indices are likely to follow in short order.

It's being so happy that keeps him going.

http://www.efinancialnews.com/story/2011-07-21/robin-griffiths-is-a-gold-bull-and-equity-bear