The triumph of politics

On August 15, 1971, President Richard Nixon declared that the United States would no longer honour its promise to exchange US dollars held by foreign central banks for gold at a fixed price of $35 an ounce. The innocuous term ‘Nixon closed the gold window’ that is now widely used to describe this act does not quite convey its significance. (Was something to be stopped from going out or from coming in through the window? Can the window be reopened again?)

What Nixon did was cut the last remaining official link between the world’s leading reserve currency and gold and thus remove the last constraint on fiat money creation.

Was this a big deal? – It was very big deal. In fact, we are only now beginning to realize the full consequences of it. In fact, the present crisis is nothing but the endgame of this system, or non-system, of this, mankind’s latest and so far most ambitious, experiment with unrestricted fiat money. The first truly global paper standard.

Nixon knew that it was big. On TV that day he felt compelled to reassure the American public that this was only temporary and that the purchasing power of the dollar was secure. Forty-one years later we are still on the same system (or non-system), and the dollar has lost eighty percent of its purchasing power.

But, the mainstream economists, who weren’t even involved in designing this system (or non-system), as nobody designed it, it was simply the result of political opportunism — these economists today tell us that this system is great, it is to our advantage. We should be grateful for it.

Because the eighty percent drop in purchasing power quoted above, isn’t the whole story, that is only CPI, the consumer price index. For the past thirty years, a lot of the newly created money was channeled predominantly not into the markets for consumer goods but into the stock market, the bond market, the real estate market, and again the bond market. This created illusions of wealth. It also created a lot of debt, overstretched banks, a gigantic financial industry, various bubbles, and yet more debt. It did so around the world. And whenever this house of cards looks like it could come crashing down on us – we print more money!

Simple. What can go wrong?

Of course, there was also real economic progress over those forty-one years. Entrepreneurship, trade, innovation, saving, and all that old fashioned stuff that modern, enlightened economists don’t talk about any more. But on top of that real prosperity an ever thicker layer of make-believe prosperity accumulated. And our economists have adapted to this new reality – a reality created not by them, or their theories, but simply borne out of cynical political expediency – and become experts in the various techniques of governments to create illusionary prosperity and short-term growth spurts. Stimulus. Growth through low interest rates. Growth through more debt. Growth through currency debasement. Growth through fiscal policy. Growth through monetary policy.

Modern economists don’t know capitalism. They certainly don’t care about it. If the economy grows it is because of good policy, which means low interest rates and stimulus. If the economy doesn’t grow, it is because of bad policy, which means interest rates are too high (even if they are zero) or the central bank does not print enough money. Since Nixon ‘closed the gold window’, we have progressively replaced savings with cheap credit, the market with policy, and entrepreneurs and innovation with the FOMC and the G20.

Since 1971, the number and intensity of banking crises around the world has gone up markedly, according to Carmen Reinhart and Kenneth Rogoff, hardly anti-establishment economists. Debt levels exploded. The ten years up to the start of this crisis in July 2007 have seen house prices in the US rise ten times faster than over the previous one hundred years.

Look around the world today. Is it a coincidence that all major central banks are at zero interest rates to support bankrupt banks and bankrupt governments the world over?

Bizarrely, it is today the advocates of sound and hard money who are made to explain their atavistic ideas. — Gold standard? To establishment figures like Lord Skidelsky, the advocates of a gold anchor are like druids who dress in strange clothes and worship ancient gods – rather than, as befits the enlightened modern economist, worship at the altar of Keynes, the IMF, and big government. And ex-central banker DeAnne Julius simply knows that it would be foolish to return to a gold standard. All power to the bureaucracy!

What I find fascinating is how many intelligent people are willing, even feel urged, to provide intellectual support for a system that is not the result of intellectual discourse but came about – rather non-intellectually – through sheer power politics, opportunism and hubris, and that is evidently failing. Our financial system (or non-system) offers a great example of Nietzsche’s dictum that investigating the true origin and the true motivation behind things most often leads to surprising results. The purpose and the clever design that most people later believe to be behind various institutions are often only projected onto them with hindsight.

Even more bizarre is the willingness to absolve the political class of their responsibility for the disaster they have inflicted on us, and to even look to the political class to now save us from this ever-growing mess. There is something disturbing and sickening about the pathetic reverence of commentators, analysts and economists for the policy bureaucracy, the central bankers, the G20, the finance ministers; how every word they say is scrutinized for any hint of another clever scheme, another policy initiative that could make all our past mistakes go away and that could make the status quo operable again. “The weak labour market could force the Fed into action,” as if the Fed had the key to the solution in some drawer, as if all that was needed now was another round of QE, another rate cut, another twisty price manipulation.

I wonder if forty years of paper money have made the politicians bolder and the economists dumber. But maybe at this stage they are both simply getting more desperate.

And nothing is more dangerous to your personal and material wellbeing, and your liberty, than desperate politicians. Desperate politicians think that the end justifies the means. No constraints on their ad hoc decision-making can be tolerated. Laws must be changed if they stand in the way.

On October 27, 2010, Chancellor Angela Merkel promised the German parliament that the bailout fund EFSF (European Financial Stability Facility – you couldn’t make this stuff up!) was a temporary thing. As temporary as Nixon’s closed window, one assumes. In February of 2010, Greece had already been bailed out the first time – in contravention of the no-bailout clause in European treaties. Now a bailout fund was needed. But not to worry. This is only temporary. And we know what we are doing.

Of course, as more bailouts were needed, the EFSF grew bigger. It will now be replaced with the ESM – the European Stability Mechanism, no sniggering please. And this thing is, of course, permanent. (The German Constitutional Court will rubber-stamp it soon. Not to worry.)

What do our commentators and mainstream economists have to say about it? – Great! We need a big bazooka! Merkel should do more!

EVERY law, regulation and restriction that was part of the original set-up of EMU has now been broken.

The limits on budget deficits and overall public debt limits (Maastricht Criteria)? –Ignored.

The no-bail out provision? – Ignored.

The ban on ECB buying sovereign bonds to support fiscal policy? – Circumvented with the flimsiest of excuses.

Let’s face it. There is no master plan here. The political class is losing control. There is not even a conspiracy. There is a lack of control, of direction and of design. One quick-fix after another, and every one brings us a step closer to a very nasty endgame.

For the final option is always the same, not only in the Euro Zone, where new ‘hope’ just arrived in the form of Mario Draghi’s apparent willingness to buy more government debt, but also in the US, the UK, Japan, and China: print more money.

If you have no (or little) debt, if you are a productive citizen and if you have saved a bit, you are already in the crosshairs of the policy bureaucracy. Either your property will get taxed away or inflated away. Probably both.

The biggest threat to your property and to your individual liberty does not come from markets and not even from the bankers. It comes from politics.

http://papermoneycollapse.com/2012/07/the-triumph-of-politics/

Hong Kong’s Largest Bullion Vault Signals Rising Asia Wealth

 

Hong Kong’s largest gold-storage facility, which can hold about 22 percent of the bullion now in Fort Knox, will open in September to meet rising demand from banks and the wealthy, according to owner Malca-Amit Global Ltd. (3271)

 The facility, located on the ground floor of a building within the international airport compound, has capacity for 1,000 metric tons, said Joshua Rotbart, general manager for the Hong Kong-based company’s Malca-Amit Precious Metals unit. Two of the vaults may hold assets, including gold, for banks and financial institutions, and others will be used for diamonds, jewelry, fine art and precious metals, said Rotbart.

The move in Hong Kong reflects increased demand for gold in Asia even as the commodity struggles to sustain its rally into a 12th year. Gold-demand growth in China, the world’s second- largest user after India last year, is slowing, according to the World Gold Council. Vault charges will depend on each customer’s operations, according to Rotbart, who declined to give a figure for the venture’s cost beyond millions of dollars.

“Hong Kong is a very important center for gold, especially because it acts as a doorway to China,” said Sunil Kashyap, head of Asia-Pacific foreign exchange and precious metals at Scotiabank. “Current international hubs are in New York, Zurich and London. There’s still a need to set up an Asian hub for physical gold. The trend is for more people to look at storage and trading in Asia, when it comes to physical metal.”

11-Year Rally

Immediate-delivery gold rallied from 2001 to 2011 as investors sought protection from weaker currencies and the risk of inflation, and central banks boosted holdings. The metal traded at $1,618.75 an ounce at 7:42 p.m. in Hong Kong today, 3.5 percent higher this year. It rose 10 percent in 2011. Gold held in exchange-traded funds reached a record 2,413.61 tons on July 5, according to data tracked by Bloomberg.

The U.S. Bullion Depository Fort Knox in Kentucky, held as an asset of the nation at book value of $42.22 an ounce, holds 147.3 million ounces (4,582 tons) at present, according to data on the U.S. Mint website. In total, U.S. holdings of gold amount to 8,133.5 tons, according to World Gold Council data.

“The general trend is for moving the assets from the West to the East,” said Rotbart, who also oversees business development and marketing of the company’s vault in the Singapore FreePort. “Proximity to China is very important.”

China’s gross domestic product expanded 7.6 percent in the second quarter, the least in three years, a report showed on July 13. Gold demand in the country may increase 13 percent to 870 tons this year, according to a revised forecast this month from the WGC, which abandoned a target for usage to gain as much as 30 percent to 1,000 tons. Last year, demand in the world’s second-largest economy grew 20 percent to 769.8 tons.

Increasing Wealth

Asia-Pacific millionaires outnumbered those in North America for the first time last year, according to Capgemini SA and Royal Bank of Canada’s wealth-management unit. The number of individuals in the region with at least $1 million in investable assets rose 1.6 percent to 3.37 million, helped by increases in China and Indonesia, according to the firms’ World Wealth Report, released last month. So-called high-net-worth individuals in North America dropped 1.1 percent to 3.35 million.

The new storage facility will compete with services offered by the Airport Authority Hong Kong, which began storage operations at a 340 square meter site in 2009 for government institutions, commodity exchanges, bullion banks, refiners, wealthy individuals and exchange-traded funds. Capacity is reviewed on a regular basis to ensure there is adequate storage over the medium term, the authority said in a statement.

Singapore’s Push

Singapore is also among economies in Asia vying for a greater share of the bullion trade. In February, the government announced a plan to exempt investment-grade gold, silver and platinum from a goods and services tax, starting from October. The aim is to raise the city-state’s share of the global gold trade to as much as 15 percent in five to 10 years from about 2 percent, according to IE Singapore, the external trade agency.

Malca-Amit plans another storage facility in Shanghai as the firm targets 10 or more sites around the world over the next two to three years, from six at present, said Rotbart. The logistics company, founded in Tel Aviv in 1963 and handling more than 50 percent of the world’s diamond transportation, started its precious-metals storage business after the 2008 global financial crisis reduced demand for gemstones, he said. 

http://www.bloomberg.com/news/2012-07-25/hong-kong-s-largest-bullion-vault-signals-region-s-rising-wealth.html

The world gold production 2012

The world gold production 2012

http://www.dani2989.com/gold/goldprod2012gb.html

"Oil And Gold Seasonals Suggest BTFD"

Brent Crude's two major bullish seasonals...

and Gold's three periods of bullish seasonality...

Quote & images : Zerohedge

Gold margins getting tight, says Gold Fields chief

The wave of rationalisation that is starting to emerge among the major diversified miners will soon spread to the gold sector, as soaring costs and labour shortages begin to squeeze margins.
That warning from Nick Holland, the head of South African miner Gold Fields Limited, came this afternoon as the world's fourth biggest gold company addressed the Melbourne Mining Club.
Mr Holland criticised fellow gold producers for failing to include corporate and capital costs when publicising their profit margins, saying they were only fooling themselves and governments, who would duly seek to tap the industry for more taxes.
Mr Holland said rising energy, labour and production costs would virtually double costs in the next five years, and a gold price of close to $US2000 per ounce would be needed to keep pace

If costs remain close to $US1600 where they have been in recent weeks, much of the industry would be "killed", he said, and many companies would have to pull back on projects.
"It may be that we have are going to have to see the sector rationalise before people believe us," he said.
Mr Holland said gold companies would have to start favouring dividends and returns to shareholders over marginal production if it is to win back investors, who have fled to gold-focused exchange traded funds in recent years.
Gold Fields is based in Johannesburg but operates the St Ives mine in Western Australia, and Mr Holland said he was looking for another mine in Australia.
Mr Holland said margins at St Ives were "tight" and the company would have to work hard to sustain that mine.

http://www.smh.com.au/business/mining-and-resources/gold-margins-getting-tight-says-gold-fields-chief-20120731-23cal.html

For similar articles :

WWW.PRECIOUS-METAL-INVESTMENT.BLOGSPOT.CO.UK

Revealed: why Gordon Brown sold Britain's gold at a knock-down price

A great deal of Gordon Brown’s economic strategy would strike a sane man as troubling. Not a great deal was mysterious. The orgy of consumption spending, frequent extensions of the cycle over which he would “borrow to invest”, proclamations of the “end of boom and bust”: these are part of the armoury of modern politicians, of all political hues.
One decision stands out as downright bizarre, however: the sale of the majority of Britain’s gold reserves for prices between $256 and $296 an ounce, only to watch it soar so far as $1,615 per ounce today.
When Brown decided to dispose of almost 400 tonnes of gold between 1999 and 2002, he did two distinctly odd things.
First, he broke with convention and announced the sale well in advance, giving the market notice that it was shortly to be flooded and forcing down the spot price. This was apparently done in the interests of “open government”, but had the effect of sending the spot price of gold to a 20-year low, as implied by basic supply and demand theory.
Second, the Treasury elected to sell its gold via auction. Again, this broke with the standard model. The price of gold was usually determined at a morning and afternoon "fix" between representatives of big banks whose network of smaller bank clients and private orders allowed them to determine the exact price at which demand met with supply.
The auction system again frequently achieved a lower price than the equivalent fix price. The first auction saw an auction price of $10c less per ounce than was achieved at the morning fix. It also acted to depress the price of the afternoon fix which fell by nearly $4.
It seemed almost as if the Treasury was trying to achieve the lowest price possible for the public’s gold. It was.
One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade.
In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.
Once control of the gold had been passed over, the bank would then immediately sell it for its full market value. The proceeds would be invested in an alternative product which was predicted to generate a better return over the period than gold which was enduring a spell of relative price stability, even decline.
At the end of the allotted period, the bank would sell its investment and use the proceeds to buy back the amount of gold it had originally borrowed. This gold would be returned to the lender. The borrowing bank would trouser the difference between the two prices.
This plan worked brilliantly when gold fell and the other asset – for the bank at the heart of this case, yen-backed securities – rose. When the prices moved the other way, the banks were in trouble.
This is what had happened on an enormous scale by early 1999. One globally significant US bank in particular is understood to have been heavily short on two tonnes of gold, enough to call into question its solvency if redemption occurred at the prevailing price.
Goldman Sachs, which is not understood to have been significantly short on gold itself, is rumoured to have approached the Treasury to explain the situation through its then head of commodities Gavyn Davies, later chairman of the BBC and married to Sue Nye who ran Brown’s private office.
Faced with the prospect of a global collapse in the banking system, the Chancellor took the decision to bail out the banks by dumping Britain’s gold, forcing the price down and allowing the banks to buy back gold at a profit, thus meeting their borrowing obligations.
I spoke with Peter Hambro, chairman of Petroplavosk and a leading figure in the London gold market, late last year and asked him about the rumours above.
“I think that Mr Brown found himself in a terrible position,” he said.
“He was facing a problem that was a world scale problem where a number of financial institutions had become voluntarily short of gold to the extent that it was threatening the stability of the financial system and it was obvious that something had to be done.”
While the market manipulation which occurred when the gold reserves were sold was not illegal as the abuse at Barclays may have been, the moral atmosphere in which it took place was identical.
The crash which began in 2007 and endures still was the result of an abdication of responsibility across the financial sector. This abdication ranged from the consumer whose thirst for goods pushed him beyond into grave debt to a government whose lust for popularity encouraged it to do the same.
Responsibility is evaded by all bar those on whose shoulders it ought to rest. The gold panic of 1999 was expensively paid for by the British public. The one thing politicians ought to have bought with that money was a lesson in the structural restraints which needed to be placed on banks now that the principle that they were ultimately public liabilities had been established.
It was a lesson which could have acted to restrain all players in the credit market boom of the 2000s. It was a lesson which nobody learnt.

http://blogs.telegraph.co.uk/finance/thomaspascoe/100018367/revealed-why-gordon-brown-sold-britains-gold-at-a-knock-down-price/#disqus_thread

Chart of the week: China, India & gold

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://blogs.ft.com/beyond-brics/2012/05/21/chart-of-the-week-china-india-gold/#ixzz1vlQzAFeL

There comes a time in the life cycle of most commodities when China takes over in terms of demand. For gold, long the preserve of India, that moment is nearly upon us.
Data from the World Gold Council and compiled by beyondbrics show that Chinese demand for gold, both in terms of jewellery and investment, has overtaken India on a quarterly basis. On a rolling four-quarters, China is just – just – behind India. The chart below shows the rolling total, and the pattern is clear.

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://blogs.ft.com/beyond-brics/2012/05/21/chart-of-the-week-china-india-gold/#ixzz1vlR2m7pW

In 2011 China’s gold purchases totalled 769.8 tonnes, compared to India’s 933.4 tonnes. But the reduction in demand from India may see a drop under 900 tonnes for 2012, and China surge to over 900 tonnes.
Overall, gold demand is down – around 5 per cent from 1,150.7 tonnes in Q1 2011 to 1,097.6 tonnes in the same 2012 period. China and India together make 42 per cent of the world total.
The World Gold Council had this on India:

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://blogs.ft.com/beyond-brics/2012/05/21/chart-of-the-week-china-india-gold/#ixzz1vlR5vbLP

Gold demand in India was affected in Q1 2012 by a number of factors; a new tax on gold jewellery, two increases in the import duty for gold and weakness and volatility in the rupee. Jewellery demand fell 19% to 152.0t from Q1 2011. Investment demand was down 46% from the previous year at 55.6t. In May, the government withdrew the new tax on jewellery and the market is already responding positively.

But China is set to take the lead:

High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://blogs.ft.com/beyond-brics/2012/05/21/chart-of-the-week-china-india-gold/#ixzz1vlRPHjZk

China and India have seen continuing economic growth and whilst China’s economy is expected to slow, it will nonetheless surpass the rates of growth in the West. As we previously forecast it is likely China will become the largest source of demand for gold in 2012.

http://blogs.ft.com/beyond-brics/2012/05/21/chart-of-the-week-china-india-gold/#axzz1vlQUiUUQ