Vietnam goes nuclear on gold

By Jan Skoyles
Vietnam is frequently cited as an example of somewhere which acknowledges gold’s role as money; it is a medium of exchange and is used as such every day. Houses come with two prices in Vietnam; the price in dong and the price in gold – gold is most often the favoured form of payment (Thiers’ law in effect).
Up until last week, three forms of money circulated in Vietnam: the dong, the US dollar and gold. However, in an attempt to ‘stabilize’ the economy, the government and the central bank have announced a decree which will continue their mission to restrict the gold market by banning its use as a medium of exchange and issuing 7 ‘solutions’ in regard to bullion related activities.
The idea behind the 7 solutions, or measures, is for the government and central bank to gain more control over the gold market and reduce ‘goldization’, the practice of replacing the dong with gold in transactions. The 7 measures (outlined below) aim to reduce the impact of gold on monetary policies, prevent market speculation and to (apparently) protect the rights of the institutions and individuals involved in the gold market.

1. The central bank will oversee and set up quota for bullion production for each period.
2. The number of bullion traders in the local market will be reduced and bullion trading activities are to be discouraged.
3. The State Bank of Vietnam (SBV) will closely supervise the import and export of physical gold.
4. The SBV will supervise more closely the production, sale and purchase of jewelry gold.
5. The SBV will closely monitor other gold trading activities, including gold trading on international accounts, gold derivatives trading, etc.
6. In the case of adverse conditions, the central bank will intervene in the local gold market.
7. The Government will regulate the gold market via tax policy.

It appears the SBV will have a monopoly over the majority of all factors in the gold market. This is not a surprising development; in November last year, the Prime Minister announced Saigon Jewellery Co (SJC), the country’s largest gold trader and producer, would be placed under government management. The company currently owns 90% of the gold bar market in the country. Due to tighter regulations this will result in SJC being the only remaining gold producer in the country.
These regulations are not just on a small market; as GATA reports, demand is so strong in the country for gold that 5 banks and jewellery companies “have been asked to expand operations in every district in the country” and alert the government of their plans for organising gold trading networks. Local media are speculating this is an indication of the government choosing the banks as official sales agents for the central bank. Meanwhile, over 2,000 smaller gold shops in Hoi Chi Minh City are facing closure due to tightened regulations which state they must close due to their low levels of registered capital.
The closure of smaller gold traders and producers will no doubt pre-empt an increase in counterfeit gold bars, something which will increase if the rumours of government plans to eventually ban all gold production are to be believed. Black markets allow counterfeit and sub-standard goods to circulate far more easily. Over 10,000 companies are expected to be driven ‘underground’ as a result of these new regulations demonstrating there is still high demand for gold bars in the country.

Resolution 11

These measures are most likely as a result of the ‘successes’ of Resolution 11. The resolution, which has been implemented since February 2011, is an inflation-fighting strategy. At no point in the decree does the words ‘economic growth’ appear. The aim of the resolution is to bring inflation down to a single-digit in a steady manner, whilst reducing public debts to ‘manageable levels’ according to the Ministry of Planning and Investment. The government aim to gain tighter control on money, credit, the budget deficit and the state-owned enterprises.
Private credit is a major problem for the Vietnamese government. Growing from 40% of GDP in 2001 to over 120% of GDP in 2011, it now holds the world-record for debt creation.
The government are also keen to clamp down on the type of deposits received by banks. Many commentators mention with the surprise the ease with which citizens are able to switch between the dong, the dollar and gold. In order to reduce this, the central bank last year lowered the interest received for dollar deposits to 3% and maintained the rate at 14% for dong deposits.
The government’s reasons for preventing the use of gold as a medium of exchange are officially to try and steady the shaky dong. Despite the introduction of Resolution 11, the dong has gained in strength by 0.8%, after a four-year decline of 26%. Meanwhile March’s inflation figures showed levels of 14%, down 9% since August last year. Some expect inflation to head below 10% by the end of this year.
So are Resolution 11’s austerity measures and inflation-reducing drives enough to bring the country’s economy under control and transfer citizens’ faith from the world’s oldest money to the Vietnamese dong?

High gold demand in Vietnam

The Vietnamese are big gold-buyers; the decree comes in light of information that in March the gold price in dong rose faster than the global reference price (dollar/troy ounce). A WGC report stated the Vietnamese gold price had climbed 18%, compared to the global price climb of 11% in the last year.
In the decree, locals may still buy, sell and own gold, but gold may not be used as a means of payment. This may cause issue for the general public and companies as in 2011 gold was more widely used than any other currency in Vietnam. The country owns more gold per capita than either India or China; the amount of privately held gold is expected to total 300-500 tonnes.
Gold seems to feature in every element of the government and SBV’s plans to calm the economy; in a similar move to Turkey, the Vietnamese government are running a national campaign to persuade citizens to move their privately held gold into the custody of the banks. They argue this would help provide the authorities with more leverage to stabilize the economy.
The strength of gold as a medium of exchange does little benefit for the Vietnamese dong as each time a citizen chooses to use gold rather than the Vietnamese dong, more money is drawn away from the national currency and the financial system. However locals do not seem to care much for the strength of their national currency, it hasn’t exactly served them well so far.
Last year the cost of living in Vietnam rose by 18.6%, far above the maximum rate of interest offered by banks earlier this year of 14%. The increase in the cost of living, according to the Economist, is third only to Venezuela and Ethiopia.

Learn to speak Vietnamese

We should all be learning from the Vietnamese. The most quoted reason for gold purchases in Vietnam was as its use as a savings vehicle. We, and other market commentators, have repeatedly reiterated the need for individuals to invest in their own ‘gold reserves’ as a means of protection against all the issues which has placed the Vietnamese dong in such strife. These issues – credit creation, high debt levels, inflation and weak currencies – are something which the majority of Western countries have in abundance.
Whilst it appears Resolution 11 is having a positive impact on the stabilization of the inflation rate, the cost of living is still on the up and bank rates still do not compensate for this. Savings continue to be devalued as they do in Britain, the Eurozone and the US.
The Vietnamese are currently keen to own gold as it offers them a form of security and a guarantee against their economic system. The issues which currently surround economies are not creating environments which are conducive to paper money as a form of exchange. The government needs to be careful that these new gold policies don’t increase the insecurity the public already feels. Currently, it is estimated that 20-60 tonnes of gold is smuggled into the country each year, there is little sign that this will decrease.
Citizens are voting with their money, and that money is gold.

Gold is money?

The actions of the government and the SBV beautifully demonstrate the fear authorities have of the threat of gold over a national currency. But even more so, it shows the power of individuals when they have the right to choose and how much this concerns politicians and central bankers.
In the US, Dr Ron Paul is famous for frequently asking Ben Bernanke to allow US citizens to spend in gold and silver. Unfortunately it is still not allowed, this can only be for the sole reason that it would demonstrate the lack of faith in the US dollar, as seen in Vietnam with the dong.
In the UK, Douglas Carswell MP is campaigning to repeal legal tender laws. At present UK citizens may spend in what they like, but realtors will only accept what the banks can legally accept – British pounds. In Vietnam they are heading down a similar path, in May last year it was announced that within 2 years it will become illegal for banks to accept gold on account. We are now looking at currencies which are no longer backed by confidence but by authority and the law of the land.
The actions of the Vietnamese citizens are evidence enough that gold is money. One does not need a government to tell us so. People are worried that the promises of governments and central bankers to be able to pay is something which they cannot manage; the debt burden is now so great worldwide that they may have to rely on further promises.
In a recent article we quoted a Vietnamese sociologist; “Empires may fall, currencies may change … gold will always survive.” This seems to be relevant once again.

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Gold 'to hit $2,000' on Spain fears

A looming flare-up in the eurozone crisis over Spain will drive the price of gold towards $2,000 (£1,255) an ounce this year, a leading consultancy predicts.

Rising fears about the region’s fourth largest economy will send a fresh flood of investment towards the “safe haven” metal, according to the annual report from Thomson Reuters GFMS.

Philip Klapwijk, global head of metals analytics at the consultancy, said: “We could easily see last September’s record high [a closing high of $1,900.23 on September 5] being taken out.

“A push on towards $2,000 is definitely on the cards before the year is out, although a clear breach of that mark is arguably a more likely event for the first half of next year.”

Demand for gold often sees a boost when fears about the situation in Europe intensify. The metal can likewise benefit from the prospect of more quantitative easing (QE), as investors seek to protect their wealth from the inflationary effects of central bankers’ actions.

In the shorter term, GFMS thinks the apparent abatement of the eurozone crisis and reduced expectations for a third round of quantitative easing or “QE3” in the US could drive the gold price lower, perhaps below $1,550 in the next couple of months.

However, GFMS expects any softening in the price to prove temporary as “acute” fears over eurozone sovereign debt, focused on Spain, resume.
Meanwhile it will become clear that the faltering US recovery will force the Federal Reserve into extra monetary stimulus, GFMS believes, while the newer economic powerhouses of China, India and Brazil will also become obliged to loosen their monetary policy.
“A corollary of all this monetary largess is fears about resurgent inflation, and that becomes all the more likely if oil prices motor higher, should tensions get any worse between Iran and the US,” said Mr Klapwijk.
Next year could prove the "high water mark" for the gold market, he added, depending on whether a resolution to the European situation and the prospect of a normalisation of monetary policy materialise.
Gold has now been on a bull run for more than a decade.
The report found that total investment in gold actually dipped last year in tonnage terms, as selling in the futures and OTC (over the counter) derivatives markets – due to profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings – outweighed a bumper year for physical investment.
None the less the strength of this buying meant that in value terms, net world investment rose in gold by 15pc to a record level of just over $80bn.
However in volume terms, investment in gold actually fell 10pc to 1,605 tonnes, as implied net investment – covering the demand from institutional investors and exchange-traded funds – collapsed by almost 90pc.
GFMS attributed this to steep sell-offs in the futures markets, driven by profit-taking and liquidity squeezes, which meant people cashed in on their gold holdings.
In contrast, it was a bumper year for physical investment – people buying bars – which leapt by 37pc to a record 1,209 tonnes in 2011. Words to go in here please on two lines to go here
Gold was trading at around $1,660 an ounce in London on Wednesday.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/9197417/Gold-to-hit-2000-on-Spain-fears.html

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IS GOLD A BUBBLE

DAVID TICE: Gold Will Surge To $2,500 And The S&P 500 Will Plunge To 1,000

David Tice, the former chief portfolio strategist for bear markets at Federated Investors, is bearish.
His 18-month target for the S&P 500 is 1,000, and he thinks gold is headed to $2,500 within the next two to three years.
Tice appeared on Fox Business News this afternoon.
"We feel just like we did in 1999 and 2007," said Tice  "[During] both of those periods, people were positive about credit being created, the central banks were easy, everybody was complacent, and we ended up having a big accident."
"Right now the baton has been passed from the private sector leveraging to the public sector leveraging. We broke down the private securitization markets in '08, and now the Fed and the ECB have had to enlarge their balance sheets and they're going to destroy their currencies."
On rising interest rates: "This is starting to pierce the government bond bubble."
Tice didn't stop there.
"You also see emerging market stocks start to underperform.  You see Europe slowing down dramatically.  China is now slowing down.  Oil prices are up.  This is indicative of the slower economy in the U.S."

Read more: http://www.businessinsider.com/david-tice-gold-2500-sp-500-1000-2012-3#ixzz1pnG0oJy1

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GLOBAL FINANCIAL CRISIS - A WORLD IN DEBT

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The World's Biggest Gold Reserves

Who Has the Most Gold?

The price of gold hovered around $1,600 per ounce at the end of of 2011, rising over 15% in 2011, following uncertainty in the equity markets and the global economy as a whole.

The biggest individual holders of gold—central banks, international organizations and governments—are believed to account for approximately 16.5 percent of the world's gold, holding about 30,700 tons.

The numbers are taken from the monthly report produced by the World Gold Council, which is the gold industry's key market development body. The holdings presented here are as of WGC's December 2011 report, unless otherwise noted.
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15. Portugal

Value of reserves: $19.7 billion
Holdings total: 421.6 tons

The westernmost nation in mainland Europe is home to the 15th largest gold reserve in the world. At 421.6 tons, Portugal’s holdings are overseen by Banco de Portugal and are valued at roughly $19.7 billion, accounting for 89.2 percent of the country’s foreign reserves.

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14. Taiwan

Value of reserves: $21.7 billion
Holdings total: 465.6 tons

Renowned for its technology industry and robust economic growth, Taiwan also boasts one of the largest gold reserves in the world.

The Central Bank of the Republic of China (Taiwan) manages the island nation’s foreign reserves, which are reported at 465.6 tons. These holdings are worth $21.7 billion at today's prices and comprise approximately 5.9 percent of the country's foreign reserves.

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13. The European Central Bank

Value of reserves: $25.8 billion
Holdings total: 553.4 tons

Established in 1998 by the European Union, the European Central Bank (ECB) is responsible for the monetary policy of the member nations of the euro zone and is headquartered in Frankfurt.

The ECB's 553.3 tons of gold accounts for 35 percent of the bank's foreign reserves and would be worth $25.8 billion in today's market.

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12. India

Value of reserves: $28.69 billion
Holdings total: 614.75 tons

Shooting up in the rankings in the past few years is India. The second most populous nation in the world maintains the 12th largest gold reserves. The size of India's holdings were bolstered in November 2009 by a $6.9 billion purchase of 200 tons of gold from the International Monetary Fund.

The Reserve Bank of India currently oversees the country’s 614.75 tons of gold, which are valued at $28.69 billion, comprising 9.6% of its foreign reserves. India’s current ranking may also continue to move upwards, as the government has asked the Geological Survey of India to mine previously untapped gold reserves in many of its states.

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11. The Netherlands

Value of reserves: $31.5 billion
Holdings total: 675.2 tons

The Netherlands has the 11th largest reserve on the list, with 675.2 tons of gold. De Nederlandsche Bank manages the country’s national finances, including the gold reserves, which amount to approximately $31.5 billion and account for 61.9 percent of the country's foreign reserves.

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10. Japan

Value of reserves: $39.36 billion
Holdings total: 843.5 tons

Although Japan is ninth on the list, its 843.5 tons of gold account for only 3.5 percent of total foreign reserves. On the open market, Japan's gold reserves would be worth around $39.36 billion, and are overseen by the Bank of Japan.
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9. Russia

Value of reserves: $44.8 billion
Holdings total: 960.1 tons

The Central Bank of the Russian Federation is in charge of the country’s 960.1 tons of gold, which are valued at $44.8 billion and comprise 9.2 percent of the country’s foreign reserves.

In 2009, Russia increased its gold production by 21 percent, due in part to the launch of several new mines. In 2010, the country overtook Japan in total holdings, adding more than 140 tons to its stockpile in that year alone. Russia's buying of gold continued in 2011, purchasing 4.9 tons in July, according to the IMF's August report.

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8. Switzerland

Value of reserves: $53.5 billion
Holdings total: 1,146.5 tons

The Swiss National Bank conducts Switzerland's monetary policy and manages the country's 1,146.5 tons of gold.

With the world's eighth largest reserve of the precious metal, Switzerland's supply is worth approximately $53.5 billion in today's gold market. It accounts for 15.8 percent of the country's foreign reserves, though this proportion has dropped in the past year.

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7. China

Value of reserves: $54.22 billion
Holdings total: 1,161.9 tons

At 1,161.9 tons, the world's most populated country has the world's seventh largest gold reserve. Expect it to be higher on the list? Well, bear in mind that China's gold only accounts for 1.8 percent of its foreign reserves. With a population of 1.34 billion, the country holds about $40.46 worth of gold per person, totaling $54.22 billion.

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6. SPDR Gold ETF (GLD)

Value of holdings: $64.53 billion
Holdings total: 1,213.9 tons

Unlike other major gold holdings, this is one that investors can actually buy in to. As the price of gold fluctuates, so does the value of SPDR Gold Trust, also known the GLD. The fund held 38,845,889 ounces, or 1,213.9 tons of gold as of its 10-Q filing on June 30, 2011.

Although gold is off it’s all time highs, during the week of August 22, 2011, the SPDR Gold Trust surpassed the heavily-traded S&P 500 SPDR (SPY) for the first time. Like many investors, the ETF has indicated they have increased their holdings of gold since their most recent filing. 

 

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5. France

Value of reserves: $125.28 billion
Holdings total: 2,684.6 tons

The French National Bank, Banque De France, is home to the country's gold holdings, which comprise 71.8 percent of its foreign reserves. With 2,684.6 tons of gold in reserve, France's holdings are worth approximately $125.28 billion.

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4. Italy

Value of reserves: $126.12 billion
Holdings total: 2,702.6 tons

The Banca D'Italia manages Italy's foreign reserves, which have been reported at 2,702.6 tons by the World Gold Council and comprise the fourth largest gold reserve in the world.

These holdings are worth $126.12 billion in the open market and account for 73.4 percent of the country's foreign reserves.

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3. The International Monetary Fund

Value of reserves: $144.76 billion
Holdings total: 3,101 tons

The International Monetary Fund (IMF) oversees international economic operations of 185 member countries. Its gold policies have changed in the last 25 years, but the reserves remain to stabilize international markets and aid national economies.

In one such instance, the IMF sold a portion of its reserves in December 1999 to aid the Heavily Indebted Poor Countries Initiative. The 3,101 tons of IMF Gold would fetch roughly $144.76 billion in the open market.

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2. Germany

Value of reserves: $174.7 billion
Holdings total: 3,743.7 tons

The Deutsche Bundesbank, Germany's central bank, has 3,743.7 tons of gold reserves, which are valued at about $174.7 billion. According to the World Gold Council, Germany’s gold coffers account for 73.7 percent of total foreign reserves.

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1. United States

Value of reserves: $418.39 billion
Holdings total: 8,965.6 tons

The United States Bullion Depository in Kentucky—otherwise known as Fort Knox—is the most famous gold stockpile in the world. It holds the majority of the nation’s gold reserves, the remainder of which is held at the Philadelphia Mint, the Denver Mint, the West Point Bullion Depository and the San Francisco Assay Office.

Altogether, the total gold reserves of the U.S. equal 8,965.6 tons and would be valued at approximately $418.39 billion in today's market.
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http://www.cnbc.com/id/33242464/The_World_s_Biggest_Gold_Reserves

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Venezuela Receives Last Shipment of Repatriated Gold Bars

Venezuela today received the last shipment of gold bars in an operation that repatriated 160 tons of the South American country’s reserves of the metal held abroad, said Nelson Merentes, president of the country’s central bank.
Fourteen tons of gold arrived at the Caracas airport today on a flight from Europe, Merentes said. The gold bars were transported in a caravan, broadcast on state television, to vaults at the central bank where street banners proclaimed “Mission Complete.”
“In two months, we’ve brought 160 tons of gold valued at around $9 billion back to Venezuela,” Merentes said on state television from the Caracas airport. “Today marks the last day of the mission.”
President Hugo Chavez in August ordered the central bank to repatriate the country’s gold reserves as a safeguard against instability in financial markets. The South American country, which has the 15th-largest holdings in the world, according to the World Gold Council, held 211 tons of its 365 tons of gold reserves in U.S., European and Canadian banks as of August.
Venezuela will leave about 15 percent of its reserves, or around 50 tons, outside of Venezuela for financial transactions, Merentes said today. He said on Jan. 3 that the country would leave 15 tons of gold in banks outside the country.
A central bank report released in August showed that Venezuela held gold reserves with the Bank of England, JPMorgan Chase & Co., Barclays Plc and Standard Chartered Plc among other banks.
“This was the largest type of operation to transport this type of metal in the last fifteen years,” said Merentes. “The repatriation of our gold was an act of financial prudence and sovereignty.”

 http://www.bloomberg.com/news/2012-01-31/venezuela-receives-last-shipment-of-repatriated-gold-bars-1-.html

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