Friday, July 29, 2011

Inflation: The Sneeky Tax


Central Banks and Governments of Western economies are encouraging inflation.

When debt is high, the best 'under the radar' method of reducing debt is to let lose the ravages of inflation. You see, under an inflation scenario, that money you borrowed ten years ago has it's value decreased through money printing.

Take for example if you held $12,000 ten years ago and left it under your pillow, at a 3% per year inflation rate, that same $12,000 would be worth $1080. Turn that around to debt and you can see how the value of your debt decreases. Good for borrowers, bad for lenders. No wonder the Chinese, holders of $3 trillion dollars in US debt, are a little upset at the Feds QE1,2 and soon 3.

Just to note, if you had bought $100 worth of gold grams each month for those same ten years, your $12,000 would be worth $24,500 now. This is how gold preserves purchasing power.

But back to our illustrious Governments and inflation.

With this policy of inflation, savings and investment is discouraged. Why save when your money loses purchasing power?

But what to do if you are in a position of high indebtedness with no mathematical way of legitimately paying it back? Well, you default out right or you default in a sneeky way. Take a look at the terms of the Greek bailout. That's a sneeky default right there. The other way, as mentioned above, is to inflate it away.

Debt is insidious and unless you default or restructure you lose. Governments and Central banks don't like to lose, so they  inflate it all away and make us all lose.

Banks really don't care. With personal debt, the banks are still playing their games. Still offering incentives to lend up to 95% of the listed value of your new home. Irresponsibility and madness are two words that spring to mind. When, and not if, houses prices plunge, the borrower loses badly. They end up still paying for a loan with no asset to pay off. Not that houses were ever assets, even in the boom times. But that's another story for another day.

This talk of default in the US is nonsense. The US has sneekily defaulted already. Note how the US dollar has lost considerable pruchasing power since 2000. You would need around $2.60 in 2011 to purchase what you bought for $1.00 in 2000.

The New Zealand rates are harder to find, but they are probably similar. Alan Bollard tried hard not to mention the 'inflation' word yesterday. Perhaps he thought we wouldn't notice. After all, it's good for him and the Government at the moment. Our debt is horrendous and can never be paid back with current dollars.

So guess who gets to pay this extra 'tax'? Yes, you and me savers and investors.


Gold in New Zealand dollars: $1856.11 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.61 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Thursday, July 28, 2011

It's All a Charade. Except Gold


The New Zealand, Australian and Canadian dollar fly off on to the stratosphere while other currencies burn.

The New Zealand dollar is hitting all-time highs every day. Now currently at 0.87 to the US dollar. Our exporters are hurting but our inflation is being kept further in check, and our dollars go rushing to far off lands as people purchase cheaper goods on the internet.

But our Government is playing a dangerous game of chicken. On the one hand it helps keep our unusually high borrowing needs affordable (the Christchurch earthquake has added billions to borrowing) but on the other, it punishes the manufacturing and argricultural heart of our export industry. The Government is once again looking with a view to the general election this year, rather than to what is best for the country long-term.

As the world rushes to safety, the options are getting fewer and fewer. If you live in New Zealand and watch the business news, you would be dumbfounded as to why overseas investors would consider our economy a safe-haven. But most trading algorithms probably only state the word 'commodity economy' in their tripping mechanisms, and, in times of trouble, they think anything with a hard asset backing must be fundamentally worthwhile.

That's OK, it kinda makes us feel proud down-under that we get noticed, even for the wrong reasons. A little back-water country of four million people.

But how can this continue? How much more fearful capital can a small economy absorb? Even Australia and Canada must be asking the same question. Our currencies must be near peek, you would think.

Then again, as the masters of filibustering in the US try to thrash out a debt ceiling deal, any price for our paper is possible. Eventually, like anything that is popular, too much attention will be given it and it will succumb to downward pressure.

The New Zealand dollar price in Gold is around $1860 per ounce, about $100 off it's all-time high of $1955; a good time to buy gold.

The charade continues for fiat currencies and value is the victim. Certainty is getting harder to come by in markets as Governments become market makers and algorithms become market deciders. But gold and silver remain scarce and remain unprintable.

A commodity country we may be, but what are we really worth?


Gold in New Zealand dollars: $1849.15 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $46.25 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, July 27, 2011

House Price Plunge in Australia (and New Zealand?)

This is a worthwhile look at the housing market in Australia. The New Zealand situation probably has many similarities. We are seen as being 'tied to the hip' with Australia in economic terms. There have been warnings of impending doom here in New Zealand, but only from a few commentators.
Aired - Fri 22nd of July 2011 on Channel 7 in Australia.

Gold in New Zealand dollars: $1856.36 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $46.68 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, July 26, 2011

The Inherent Truth in Gold and Silver


Some ideas come and go, but some remain entrenched in our consciousness. Why?

As human beings we have this ability to measure and weigh things and ideas in order to make decisions. Sensible ideas, weights and measures mean sensible decisions. Bad ideas or unjust weights and measures mean our decisions get skewed.

Skewed decisions are being made right now around the world. On this day, Tuesday, 26 July, 2011, the markets are in a holding pattern. They are somewhat confused and somewhat fearful about the next week ahead. Why? The reason the media say is because of the lack of progress on raising the US debt ceiling another $2,000,000,000,000 to around $16,000,000,000,000 (again, no apologies for the zeros). But could the real reason we are here in this muddle, be because of a lack of certainty in our decision making. Uncertainty caused by our current monetary system subject to the whims of the banking and political classes.

If we didn't have the possibility of just 'printing' more money, then the market would need to honour contracts entered into at the value they were created in. Not, as is happening now, attempting to inflate that value away in an underhanded way.

People in the street are becoming more aware of the truth about the current fiat money system. They know, by purchasing decisions, that reported inflation rates are untrue and they know the recompense for their labor is being eroded. But they don't quite know what to do. They are confused. Unjust weights and measures tend to have this effect. All untruth has an aspect of 'light' to it. It is difficult to sift out the dross to the top and dispose of it.

To fix this problem, many have advocated a return to a gold standard.

But it is not so much that any old gold standard would work. There are many variants of ideas on how to implement a gold standard. The question is what sort of gold standard would bring back true measureable value. If it is one that has anything to do with Central Banks and Politicians, then it will become unmeasurable and unweighable over time once again. If it is one that allows people to make free market decisons with their gold and silver as money, then we are likely to see true value and just measures return to commercial transactions.

Gold is as truthful a weight and measure as has been found over the past 6000 years. It is likely to be so again once these shenanigans with the fiat money system die off.

But don't be looking at that to happen too soon. Power is a very difficult idea to give up.

Gold in New Zealand dollars: $1866.30 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $46.72 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, July 25, 2011

KiwiSaver and Retirement Funds in their Sights


The New Zealand Government has a Bill prepared which, amongst other things, could enable it to ‘confiscate’ your retirement assets.

Your Kiwisaver account may be mandated to purchase long term bonds through the LGFA or Local Government Funding Agency. This fund is being created under the pretense of ‘helping’ your country by investing your savings in infrastructure and other local Government funding requirements.

“The plan is for the LGFA to issue bonds to both institutional (professional) and "ma and pa" retail investors and on-lend the money raised to participating councils to help fund their infrastructure and other capital investment costs. The idea is to achieve savings through scale and through a strong credit rating at or near AAA.” (interest.co.nz)

The hope is for Kiwis to keep ownership of assets already earmarked for sale in order to pay off past debt. The pitch but the politicians is the “funding agency will give communities a real stake in local authorities again.”

And they expect us to fall for that line.

New Zealanders, and Kiwisaver Fund Managers, will be encouraged to put their retirement savings into these bonds. In fact, portions of Kiwisaver may even be mandated to do this. A recent debate in parliament on this issue said as much. The legislation even goes so far to ensure that these funds are NOT gauranteed by the Government. Yes, they will not be Too Big Too Fail; but fail they probably will.

Auckland alone will need to borrow $600 million in the next 6 years. Government debt and now local government debt is growing enormously and exponentially. The New Zealand Treasury forecasts that local government borrowings will almost double within the next five years – from $6 billion to around $10 billion. Politicians are looking at more ways to tax and grab than ever to support their drunken debt orgies.

An your Kiwisaver retirement funds are right in their sights to provide a good portion of the capital to buy these bonds.

You may think this is a crazy proposition? After all, the idea of our the Government taking control of 'your' retirement fund would cause you to riot on the streets, would it not? But if memory serves, not rioting, but calm nods of approval greeted the Government when, in the early 1980s, it used the then Super Fund to pay for general Government spending. You see, it is all in the spin.

Jobs, patriotism, safe investments, or your children's future. Whatever the spin required it will be used. Perhaps even denigrating and financially punishing the 'gold bugs' for sending their cash off-shore and not 'helping' their country grow'.

There is risk to every investment. Even with precious metals of course. Maybe the Government of the day, in desperation, could enact draconian laws to halt or discourage funds flowing into this sector. It has happened before in the confiscation of gold in the USA in 1933.

Sure, buying gold, silver and related mining shares etc, is not as easy as the 'pay and forget' retirement funds out there. One has to be more proactive in studying the economy and markets in general to try and get the best value.

But it is your hard earned cash on the line and there can be no doubt it is at risk in the current envirnonment. It is losing value with inflation and it is locked up in funds that you cannot get at.

Now the Government, on their White Horses, are riding into Dodge offering you a brighter future - once they get their hands on your money - again.

Debt has spiralled out of control and Governments look to short term answers for their own political reasons. When they sniff easy cash, look out.

Gold in New Zealand dollars: $1872.08 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $46.87 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, July 22, 2011

Greece Gives Birth

So the Greecian Empire survives another day.

After hearing the news of the latest massive bailout of Greece's economy, my wife suggested it all sounded like giving birth. One minute you are having severe pain followed by a few moments of tranquility. But the end is still the same. Real bad pain.

But in Greece's case, what exactly are they going to give birth too? Will this International Monetary Fund bailout worth €109 billion ($US155 billion), and contributions from Banks and other private investors of €37 billion ($53 billion), be enough to assuage the huge systemic debt problems Greece faces? Will swaps, smaller interest rates and longer maturities be enough smoke and mirrors to fend off the fear.

Because fear has been more than evident lately. Dan Norcini recently commented that the recent action in gold has the smell of fear about it. Small dips in price are being quickly met by buyers eager to jump on board. This is a sign of a real bailout. The bailout from trust in governments, and their shoddy currencies, to safety in gold.

But the game has been stretched for another wee while to buy time for the European Union and the global financial system. And you cannot blame traders for being irrational about the market by selling gold and increasing risk or buying stocks. They are merely doing what is mandated for them; to make money. They will take the bliss between contractions and use the sentiment to their advantage. But as we have seen often, look out if confidence drops again. And it will.

Now is not the time to be selling your precious metals.

Do not be deceived, the eurozone has not fixed this problem. This new plan merely creates more debt to fix the debt. The balloon keeps inflating.

The golden summer (winter here in New Zealand), and many other forseeable seasons, will continue as long as the fog of confidence masks the common man from seeing the truth. Something will be born, but it may be highly deformed and grow into an unstable, and even violent monster.

Then again, there may be something more beautiful arising. Sensible government and a stable monetary system.

That's the kind of new beginning worth some pain.

Gold in New Zealand dollars: $1842.43 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.56 per oz
Previous all time high: $59.19
per oz

Articles of interest:


Another leaked news story suggesting a deal on the debt ceiling

See article here
traderdannorcini.blogspot.com


David Morgan on Silver Price Manipulation, Delivery Default & Supply Shortage Risks

See article here
chrismartenson.com
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, July 20, 2011

Gold and the Question of Value: Part Two

Here is a great piece that describes well the value of gold using the traditional example of a men's suit to indicate value.

Value is defined as:  An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else; a fair price or return.

It boils down to this fundamental equation. When you have finished your hard-earned labour for the day, you expect recompense that reflects that labour. Once gained, you would like to preserve that value, or wealth, for future use.

Here is the piece from Crawling Road:

Gold is a preserver of wealth that is compact and historically viewed as valuable. It’s not an investment in a traditional sense. If you want growth of your capital you should rely on stock investing and bonds. If you want preservation of capital, then gold can help by protecting you from high inflation or other unexpected events.

Gold in a portfolio is a way to take money off the investment gambling table and putting it away so you can’t lose it easily. Further, a couple attributes of gold that are unique is that it is impervious to political shenanigans which can affect a paper currency and it can be owned in a way so that it is nobody’s paper promise to you.

As one gold dealer said: “Nobody ever went to the poor house buying gold.”

These are distinct features that stocks, bonds and cash do not have and is why it is important to hold some gold as part of any investment portfolio. Gold by itself will not grow your wealth, but it has an uncanny ability to protect what you do have when your other investments aren’t doing well.

In terms of protecting from inflation, gold is hard to beat and has a very long track record of preserving purchasing power. Let’s look at some historic prices to see how this works.

An ounce of gold in 1900 was officially set at about $20 an ounce (actually $20.67). Since gold and the dollar were the same (gold standard) a $20 bill or a $20 gold piece was about one ounce of gold (slightly less than one ounce actually).

We can look at historic prices and see what happens here:

Let’s take for example a suit of clothes. This is the classic example of gold wealth preservation. Some historians have noted that one ounce of gold today would buy you a suit, a belt, a shirt and a pair of shoes. One ounce of gold in 1900 would do the same. One ounce of gold at the founding of the country would do the same. And some have said that going back to Roman times it would have bought the equivalent.

Obviously, the suits here are not the same so there is some price fluctuation. But I think the idea holds that one ounce of gold does preserve purchasing power. The prices for the suits and gold are from October of that year.

1900
Mens suit, worsted, 7.00-16.00/each
One Ounce Gold: $20.67

1940
Mens suit, tweed, 25.00/each
One Ounce Gold: $35

1970
Mens suit, shaped double-breasted, wool, 56.95/each
One Ounce Gold: $35 * (in 1971 we broke the gold standard. This official price was too low. By 1972 the gold price shot to $65 an ounce essentially matching the prices from previous decades in terms of purchasing power.)
– Gold standard broken in 1971 – Gold allowed to float against the dollar and inflation went into the double digits.–

1980
Mens suit, wool worsted, 425.00/each
One Ounce Gold: $661
(Note the price increase since 1971 when we abandoned the gold standard and inflation raged)

1990
Mens suit, Evan Picone, wool, 279.99/each (inflation finally under control)
One Ounce Gold: $380

2000
Mens suit, 375.00-475.00/each
One Ounce Gold: $270

2007
Mens suit, $400-600
One Ounce Gold: (approx) $700

Keeping in mind that we don’t know the suit quality differences, if they included a shirt, how much the shoes would be, etc. I’d have to say that gold did what the advocates stated. It varied up and down through the years a little, but if you had that same one ounce gold coin from 1900 and walked into a store today you could purchase a modern suit with it and have some money left over. Gold in fact preserved purchasing power over this 100 year period.

Again, gold is not an investment in a traditional sense. It pays no interest or dividends. But if you want to have an asset that doesn’t lose value then the empirical data suggests that gold does work.

There are many ways of discovering value. They can even be cultural in nature. For example, marrying an '8 cow woman' in one culture is considered greatly worthy!

Whatever we decide is true value, it must be protected from the immoral machinations of the fiat money system.

Gold in New Zealand dollars: $1857.81 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.62 per oz
Previous all time high: $59.19
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, July 19, 2011

Gold Negativity

Gold engenders such polarized reactions amongst peopel. Some are in the 'gold bug' camp and can think the world would be a utopia with a gold standard, let alone making them rich. Others don't understand it and as a result, deride it's usefulness.

There are reactions to gold (and silver) that are  common to people that don't understand it. Often they repeat statements that they have heard without giving it too much thought.

Here are some of the more common negative misunderstandings:

1. Can't Afford it.

Most probably, the real reason behind this statement is another more pressing failure. That is, these people don't have savings. Most probably, if you do not have a savings mentality, you will not understand gold. After all, if you were saving as a habit, then why wouldn't you place those savings in a vehicle that preserves those savings, rather than mostly in paper that has someone elses obligations attached?

2. Can't Eat it.

This is a common statement. One notable commentator, who has experienced a crash in a currency first hand, simple puts this one to bed by saying; 'Yes, but you can use gold to buy food".

3. Can't Get it.

This underlies a lot of people's investment decisions. It becomes too hard to research something new or want to change your behaviour towards saving in gold and silver. It is far easier to just leave the money in your bank. It is always available (liquid) and no thinking required.

But it isn't that difficult to start a savings regime in precious metals, or to buy bullion. This blog has numerous options in the side columns as good, credible options.

4. Can't Get a Return.

Gold and silver are metals. Hunks of stuff from the earth that don't earn interest. Correct. But consider this. The inflation rate in New Zealand was reported yesterday at 5.3%. This means that money in your bank has lost a minimum of 5% of it's purchasing power in the last 12 months. Gold has maintained it's purchasing power and silver is up over 100% since last July.

5. Can't Store It

This usually means that you think it is too dangerous to store in your house. While it can be useful to have some on hand in small quantitites, it is better to have bullion stored in a vault outside your country of domicile, for example, in Switzerland.

6. Can't Use It.

Don't listen to Ben Bernanke. Gold is money. It is very liquid and will be tradable for what you need at any time.

Mark Faber recently said that he often listens to his Jewish friends about what they are doing with their money. In his opinion, the Jews have been the most successful in history with making and preserving wealth. He states that most of these friends have over 80% of their wealth in gold and silver and related stocks.

They don't think of the word 'cannot', they act on good information and historical precedent.


Gold in New Zealand dollars: $1897.94 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $48.00 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, July 18, 2011

Gold and the Question of Value: Part One

Value is a difficult concept to define in times like these.

Value is based on scarcity. It is an economic law based on supply and demand. The less you have of a good or service that is wanted or needed, then the greater the value of that good or service.

For example, compare a cheap handbag from China for $20.00 to a luxury handbag from Louis Vuitton for $2000.00. The difference in price being the scarcity of the designers available for excellent handbags, the best leather used, and other materials, and the experienced craftsmen that make a great Louis Vuitton handbag.

When the value of goods and services (measured in fiat money) is distorted through massive Central Bank intervention, the market tries to rediscover value through price. And some sections of the market, for example speculators, can take short term advantage of these distortions to make money. Not ideal.

Since 1971, when the gold window was closed, value has been measured in fiat money. Before, that, there was some form of gold standard in which value was based.

An example of value distortions created by Central Banks is the New Zealand dollar. Somehow the market has deemed, temporarily, that the NZ dollar should increase in value against the US dollar. We as New Zealanders can now buy most 'things' cheaper when they are denominated in US dollars. But is the NZ dollar more valuable now than three months ago? Perhaps not, especially when the private/public debt in New Zealand is 132% of GDP or $253,000,000,000 ($253 billion) with no possible likelihood of it ever being repaid.

So this distortion by Central Banks creates uncertain values. Andrew Jackson made this statement in 1837:

"The paper system being founded on public confidence and having of itself no intrinsic value, it is liable to great and sudden fluctuations, thereby rendering property insecure and the wages of labor unsteady and uncertain...if your currency continues as exclusively paper as it now is, it will foster this eager desire to amass wealth without labor".

These distortions can allow a small group of people at the top of the money chain to gain wealth without adding value. The value being literally stolen from those who get the paper money last. This is a product of inflation.

You see, wealth cannot be created from 'thin air'. Someone ends up paying and those people are usually the ones trying to create wealth with their labour.

Fiat currencies have 'value' because we believe that the government in charge will not reneg on its obligations to that 'value'. Some currencies demand higher interest rates because people buying those currencies have less 'faith' in the government, institutions or military power (perhaps) to pay back those 'value' obligations.

The US can charge lower interest rates because of the historical stability of their economy. They have never defaulted on their obligations to pay back fair value.

But that could all change on August 2. What market value would be placed on the paper obligations of the United States then?

If 'faith' in paper fails, and it is failing fast, then gold will provide the best indication of value.

More on that in Part Two.

Gold in New Zealand dollars: $1883.75 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $46.80 per oz
Previous all time high: $59.19
per oz

Articles of interest:


James Turk: Gold Is Our Defense Against the Fiat Currency Graveyard

See article here
ChrisMartenson.com


IMF Makes Room at the Global Currency Table for China

See article here
anglofareast.com
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, July 15, 2011

Gambling on Gold and Silver

With so much money printing over the past 10 years, financiers have had trouble in finding ways to put this free money to good use.

One fancy creation was a derivative called the credit default swap which morphed into a 'naked' credit default swap. "Credit default swaps, where you insure your neighbor's house just to destroy it and make money from it..." said German chancellor Angela Merkel back in March 2010. Quite a good idea if you can make it work and get away with it.

So these little bombs work like this. You 'enter a contract', in a 'naked' sort of way. That is, you don't even have to own the debt instrument. Which, for example, in Greece's case is a Bond. Furthermore, you short the debt market the contract is signed against. Meaning, you get paid out when your derivative goes down in value.

So you are betting that the nominated debt market will crash, thereby giving you a goodly sum of money from the other side of the bet. The other side of the bet being the insurance companies, like AIG.

This is probably why European politicians are a bit concerned by credit default swaps. BullionVault estimates the total CDS insurance cover for Greece's debt is $US600 billion. Quite a big lottery winning don't you think?

If this needed to be squared of with the 'naked' winners then all hell could break loose. Nobody quite knows which Banks in Europe and beyond would be exposed. Perhaps this is why the 'powers that be' are trying to get Greece's default to not look like a default.

But betting isn't all about gambling; in the strict sense of the word. It could be argued that the holders of gold and silver are betting against fiat currencies and economies in general. But that would be a little harsh.

Much betting doesn't take too much 'homework' to figure out which side to place a bet on. Random lottery numbers come to mind. However, doing your homework on the credentials of gold and silver takes a lot of hard work; and sometimes stress in order to come to buying and investing decisions.

For one, you are often alone amongst your peers when appraoching the whole gold verses fiat argument.

Could purchasing bullion be seen as a type of 'short' against economies growing? May be. If you listen to some precious metal commentators, you can get the impression they are 'willing' the economy to disintegrate. This so the value of their precious metal holdings increase in value making them very wealthy indeed.

However, the general view amongst gold and silver investors, is that buying gold and silver gives you the best option of preserving the wealth you already have; and may be, with silver especially, getting a return on that investment.

No gambling required, just common sense.

[NB: At the bottom of this blog site, I have included the six attributes of money]

Gold in New Zealand dollars: $1884.06 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.39 per oz
Previous all time high: $59.19
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Thursday, July 14, 2011

Is Gold Money?

Gold is an element on the periodic table with the symbol Au, from the latin word aurum. It has 79 Protons and electrons and a density of 19.32 g/cm3. It was discovered around 3000BC.

So if it is just one of the elements, what is all the fuss? Gold engenders much debate, often heated. Why is no. 79 treated so?

The argument partly revolves around the question as to whether it is money or not.

Gold is divisible, portable, durable and, in its purist form, consistent no matter where you go. You could conceivably go to market in India and use a .999 pure 1 gram bar to purchase goods as well as using that same bar in New Zealand to purchase goods at a market. It is recognized.

Gold's physical properties have made it a reliable medium of exchange for thousands of years. Its intrinsic qualities make it very useful as money. It cannot be easily counterfeited (almost impossible).

Technically, though it is not money. In the sense that our laws do not recognize it as a medium of exchange. In this environment gold is an asset.

However, just to confuse, it is still possible to be used as money even in this situation. Only not officially. Some people ask the question, "What will you do with your gold, who will you sell it to"? Those who understand gold, or have memories of their monetary history without it, readily see value in the metal as a medium of exchange and as a store of wealth. They are more than happy to exchange paper for gold.

The flight to safety that we are currently experiencing (gold up another $13.00 last night to $1584) doesn't mean that people see it as money. They primarily see it as a great way to shift their devaluing currencies to the best asset around.

Note that Central Banks aren't selling their gold. They definitely see it as the best asset class.

Yesterday, Ben Bernanke hinted that another round of quantitative easing (no. 3) will be necessary if the US economy continues to falter. QE3 is a given. The Federal Reserve has no other option if it wants to maintain rising prices and a modicum of rising employment. Figures suggest another $1,000,000,000,000 ($1 trillion) minimum would be required.. On this news and news of the problems in Europe, gold has increased $100 per ounce in less than two weeks.

Element no. 79 is acting as the asset of choice right now. May be it will be legal tender again.

On both counts, owning it in this environment is the best option.

Gold in New Zealand dollars: $1865.23 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $45.08 per oz
Previous all time high: $48.58
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, July 13, 2011

The Euro Crisis: Gold Sends a News Message

The euro zone crisis is escalating into a serious problem.

If it wasn't already.

But then you may not be hearing this on your local news channel. In New Zealand, we are hearing of the 'great' catastrophe of the UK phone hacking scandal. Why is it these 'stories' are deemed important, yet a currency crisis of major proportions, that may affect us all,  is given next to no coverage.

May be this sort of bad news doesn't engender advertising support for news feeds, or may be there are no real journalists able to disseminate the details.

There are huge forces at work in this euro zone crisis, and the euro zone leaders are battling to contain it. Even the new head of the IMF has let slip that Greece will probably default. The unity shown just last week, is faltering. If it does falter and the people revolt, then watch the quick demise of the European dream. Each country will retreat from the bunch to secure their own nation states.

Gold sees these happenings and reacts accordingly. Gold is a safe-haven asset. It is the reserve currency of last resort and lasting value. It is a safe-haven from the demise of unstable monetary systems.

You see, the European elite have had this need to unify in order to create a power block capable of competing with the USA and Russia. Monetary union was the foundational policy to see this happen ten years ago. But the big mistake was that the rules of monetary union applied to monetary policy only, and did not include fiscal policy and union.

This means that each nation that joined the union could still decide their own fiscal policies, thereby creating a single currency with no cohesion politically. Ireland was the first to show this folly by being allowed to guarantee the deposits of their banks during the 2008 crisis and beyond.

So now it is Italy's turn in the spotlight. The tried and tested (and failed) policies that led to a week of confidence after the Greek crisis, will not be sufficient to allay the fears of Italy's bondholders. You can smell the fear of the credit default swap holders from New Zealand. A $1.4 trillion debt is not easily dealt with. And the market is sensing the end game. Gold is up $85 in 10 days.

Italy is even more problematic than Greece. Ever been to Rome and tried to make sense of the chaotic roads? Well, there just seems to be this Roman chaotic thing going on in Italian politics as well. In the 1980s, it seemed Italy had a new governmnet every week. Now with Prime Minister Silvio Berlusconi's one man bunga-bunga mess, Italy appears doomed to default. They have recently put through a $40 billion austerity plan, but try killing an elephant with a wet bus ticket. Ain't gonna work.

Moreover, when Banks are leveraged 1:20 (for every $1 deposited, $20 has been lent out) worldwide and these same Banks have not dealt with their 'vacant' balance sheets from 2007 and beyond, then a contagion is at hand. France, for example, is owed $511 billion of Italy's debt. And the tentacles of debt will not stop in the Riviera, they will reach right into a Bank near you; and may be your money.

Now that would be a hacking scandal to make the news.

Gold in New Zealand dollars: $1909.05 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $54.08 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, July 12, 2011

Italy's Debt Woes Cause Gold to Increase


Sometimes you just cannot get a break.

This must be how the Eurocrats are feeling. After sorting out the long-winded affair of Ireland's debt, then Greece's debt last week, they are being hit on the proverbial head by a 4 x 2 once again.

Italy, though, is even worse, and could cause a huge drop in confidence in the euro. Already we have seen the price of gold rise US$65.00 per ounce since 1 July.

In fact it appears that gold is separating itself from silver a little as gold's safe-haven ability comes more into focus because of the continuing Euro crisis.

Here is an article from RT.com describing Italy's situation including its massive debt problem of 1.88 trillion euros.

Trouble is brewing for Italy, as it edges closer to becoming the fourth European country to need a bailout. The country’s debt totals 1.88 trillion euros and is continuing to rise. 
Italy’s debt is surging past earnings, raising fears over whether Italian banks can pass EU stress tests, and that is forcing up borrowing costs. 
Senior EU officials gathered on Monday in Brussels to discuss a new anti-crisis program and debate how to prevent the debt crisis spreading to Italy. But since Italy is one of the bigger players, saving it will not come cheap...more 

Gold in New Zealand dollars: $1891.82 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $43.55 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, July 11, 2011

The Gold Swiss Franc and Greshams Law

Here's a follow up from my previous blog on Friday.

It appears Switzerland is moving to introduce a Swiss Franc in gold. This could be a classic example of Greshams Law in action if this goes ahead. You will see 'bad money driving out good money'. Practically speaking (if this goes ahead), when people do transactions in Swiss Francs, and hold both the paper francs and the gold backed francs, they will more than likely use the paper francs first and hoard the gold francs.

"ZURICH (MarketWatch) — The Swiss Parliament is expected later this year to discuss the creation of a gold franc — a parallel currency to the official Swiss franc, with the fringe initiative likely triggering a broader debate about the role of the precious metal in the Alpine nation.

The initiative is part of “Healthy Currency,” a campaign sponsored by politicians from the right-wing Swiss People’s Party (SVP) — the country’s biggest — that is seeking to capitalize on popular fears about global financial turmoil and inflation to reverse the government’s current policy on gold...more

Gold in New Zealand dollars: $1849.92 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $43.86 per oz
Previous all time high: $48.58
per oz

Articles of interest:


Frank Rich Blasts Obama For Letting Wall Street Off the Hook

See article here
Rolling Stone


Gold Chart update and comments 

See article here
traderdannorcini.blogspot.com
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, July 8, 2011

Paper and Gold: Bad Money Drives Out Good Money


Gresham's Law is a dictum widely used in the gold and silver community.

Gresham's law states that any circulating currency consisting of both "good" and "bad" money (both forms required to be accepted at equal value under legal tender law) quickly becomes dominated by the "bad" money.

So when you have currencies used as legal tender in a system, these will consist of 'bad' and 'good' mediums of exchange. So that in daily transactions, people will naturally hand over the bad money first, rather then the good money, because they want to keep the good money for themselves. Hoard it in other words.

How does this relate to gold and silver?

Pretend you had a one ounce gold coin worth $1500 and a bunch of paper notes with the nominal value of $1500 (say 15 x $100 notes). If you were given the choice to exchange the coin or notes for an asset, right now, in this economic climate, what would you do? If you understood the monetary value of gold and the basis behind faith-based fiat money systems, then you would probably use the notes. If you didn't understand the laws of fiat money, you may be ambivalent and just think, "Now is my chance to get rid of this pesky gold coin", and use it.

You see 'bad' money drives out 'good' money. The gold is hoarded because it is 'good' or 'best'.

We are seeing massive amounts of hoarding worldwide. With the latest European crisis, the euro is now at an all time high against gold. The British pound the same. The USD will not be far behind. The New Zealand dollar, well, that is an interesting case. For now it is seen as a 'safe haven' currency, however a case can be made that it is about eight cents to the USD too high at present.

People in Europe, and elsewhere, are hoarding gold because, historically, it is the soundest money available. The owner of gold does not have to have 'faith' in the government that mints it. The 'heads' depicted on the notes, whether Washington or Hillary are associated with a system whereby 'confidence ' is foundational to its ability to survive.

A loss of confidence in the system will not be pretty. Historically, this causes an increase in the velocity of money flows, as people hold onto bad money for less time. Hyperinflation occurs and the hoarding of gold increases. When gold is used as payment, you do not need any 'faith' in its value (except to know it's purity, which can easily be verified).

Consider how Central Banks are using gold now as the reserve currency of choice. They are now net buyers of gold. They are more than happy to hoard gold and swap their paper notes for it. If we are seeing this sort of activity from top bankers, then what does this suggest about their 'faith' in governments and their paper promises? Individuals too, who see the writing on the wall for their currencies, like the Central Bankers, are hoarding gold outside the jurisdiction of their countries.

Bad money is driving out good money.

With Gresham’s Law, gold is hoarded, or leaves the country. It ceases to be used as money in circulation.

People lose faith in paper and the governments who print more and devalue it. More people lock in their wealth with gold, and wait.


Gold in New Zealand dollars: $1839.62 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $43.77 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Thursday, July 7, 2011

New Erste Group Bank Report on Gold


This is a release from GATA which highlights a report from the Erste Group. It is worthwhile reading. For those of you who are still forming your opinions on 'why gold' then this will be helpful.

GATA : The Erste Group Bank's new report on gold as an investment and currency, written by Ronald-Peter Stoeferle and published today, may be the most comprehensive and profound of its type. Its major conclusions include:

-- Negative real interest rates are the main driver of the gold price and will continue to be powerfully supportive.

-- The arguments supporting a return to some form of gold standard are strengthening.

-- Government debt burdens could be sustantially eased by a higher gold price.

-- There is no "bubble" in gold, as the public is hardly invested in it and has little interest in it.

-- Increasing dependence on government transfer payments for the public's income works against restoring solvency to government.

-- Many paper pledges of gold cannot be fulfilled by real metal, a point credited to GATA.

The report concludes, in part:

"Given that the majority of debt has neither been written off nor paid off but simply transferred, the problem of excessive debt is still waiting to be resolved. There has been no deleveraging, only an adjustment of booking entries from the private to the public sector. The quantitative easing has left monetary stability short on credibility, and it will be very difficult to remedy this situation. In this fragile environment gold will continue to thrive."

The Erste Group Bank report has been posted at GATA's Internet site here:


Gold in New Zealand dollars: $1849.11 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $43.40 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Wednesday, July 6, 2011

Running Out of Other People's Money

"Socialist governments traditionally do make a financial mess. They always run out of other people's money." - Margaret Thatcher (1976).

The more you are given for free, the more you expect. It is human nature. If you work hard for what you have, you appreciate it more.

The notion that Government will supply all your needs has been with us since governments came into being. Politicians cannot help but promise things they cannot legitimately produce in order to stay in power. The people believe them, ask no questions, take the goodies and vote them back in.

But democracy has its limits. Here are a useful couple of quotes about the downward progression of democratic government.
A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. 
Great nations rise and fall. The people go from bondage to spiritual truth, to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency, from complacency to apathy, from apathy to dependence, from dependence back again to bondage (sources unknown).
Most western countries may be in this spiral from democracy and freedom to bondage. A scary thought. But it is a pattern with historical precedent. Debt will cause bondage. To be in debt means that someone else owns your possessions and may even own 'you'. There is a tipping point where we suddenly lose freedom.

As Margaret Thatcher said, this will occur when we run out of other people's money. Moreover, we will run out of true value money if we keep printing it.

The US debt is now 46% of the total budget. A debt nearing $2 trillion. Studies have stated that when 41% is reached, hyperinflation has always occurred. It is only a matter of time now.

The more government intervention we have the more our financial problems seem to escalate. If 'to big to fails' had been allowed to fail, we may well be on the way to recovery after 5 years of pain. But government chose to print more debt to cover the bad debt. The debt in the system still needs to be flushed out. Now it is worse.

Yes, there were enormous flows of cash coming out of the banks in September 2008, something like $5 trillion in a few hours, but where would we be now if those TBTFs had been allowed to mark down their balance sheets to true value and start afresh. Learning from their mistakes. Banning credit default swaps for example?

Intervention is expected; 53% of Americans, the land of liberty and freedom, expect the government to provide help for those in mortgage difficulty. Another 16% said the government should be doing less overall. The figures aren't in for New Zealand, but they could be similar. The expectation of cradle to grave social welfare is alive here.

But the West is borrowing to pay for social welfare and other entitlements. There is no production now or in the future that will cover this debt. It is too large.

We have already run out of other people's money.

Gold in New Zealand dollars: $1830.69 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $42.76 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Tuesday, July 5, 2011

Insidious Inflation


The CPI (consumer price index), measures inflation from the viewpoint of the consumer. It is made up of a basket of goods and services which are weighted according to certain buying habits.  It is supposed to ‘iron’ out vagaries so that it measures a similar basket of goods each year for comparison.

The term 'inflation' is often used to describe rising prices, for example, the inflation rate is 4% this year. But the term 'inflation' means the increase in money supply that translates into higher prices. Think of this equation: Money divided by goods and services = price. So the higher the money base, the higher the price of goods and services.

Then there are the methods of measuring inflation, or in this case, the rise in prices. Since the 1980s, the method has changed considerably, so much so that we cannot now compare the way they measured it then with the measurement now.

Once again, though, Politicians have their sticky hands in the statistical pot. In the USA, unfunded liabilities (money the US Government owes that doesn’t exist), is a cool $60 trillion dollars, or thereabouts. This includes retirement payments to public service workers and those oldies on social security. A perfect way of  reducing the amount that is paid out from this ‘fund’ and what is paid into it, is to fiddle with the way the CPI is calculated.

You see, the retirement benefits are tied to the CPI (as they are here in New Zealand) and any way that the CPI can be reduced means less money paid in and less money paid out. As usual, this is pitched to the fool populous as necessary and given a fancy-pants phrase to describe it, but in any book, it is a broken promise and theft.

Here is such an announcement from the UK Government just last year.
The UK Government has announced that it intends to change the measure of inflation used for working out statutory minimum increases to pensions from defined benefit occupational pension schemes. Instead of basing these increases on the Retail Prices Index (RPI), in future it will use the Consumer Prices Index (CPI). The change will apply to revaluation in deferment as well as increases to pensions in payment. In practice, the CPI has tended to show a lower inflation rate than the RPI…
Hmm.

Inflation is also a stealthy way of defaulting on debt. How? Well, if your debt is, say $1000 and the inflation (the increase in money supply) is around 4% then your debt will lose value. The US is currently on this path. The Federal Reserve has created over $2 trillion dollars out of thin air since the first global crisis in 2008. The Federal Reserve's balance sheet is now $2.89 trillion. Note how the US dollar is losing value against other currencies and how commodities and gold, have increased in price to match the printing.

Poor Greece, they can't inflate their way out of debt, they are tied into the euro. Message to Greeks: leave the European Union and bring back the drachma. Be like Iceland.

Excessive inflation is bad. It is caused by Central Banks intervening in markets, trying to stimulate economies and keep the illusion of growth going. But inflation is a tax by stealth. The Banks print it and prices go up and you pay for it out of your savings.

It is that simple, it is that insidious.

Gold in New Zealand dollars: $1803.60 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $40.91 per oz
Previous all time high: $48.58
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Monday, July 4, 2011

To Big To Fail: The Backlash Is Gathering Pace

It is time for a beef about 'To Big To Fail'.

People around the world are waking up to the ponzi scheme of debt financing. They are beginning to cotton on that they are the ones being asked to pay for the losses incurred by the greed of the large banks, institutions and individuals. The 'TBTF' (too big to fail) organizations that used easy money from the credit bubble good times from 2000 to 2006.

And what is more, the politicians are in on the game. Their world would crumble if they didn't conform to the ways of the large money organizations that fund their insatiable need for power.

The slow awakening is here, and could pick up pace rapidly. We live in a media rich world and it takes days, not months or years for movements to form and gather momentum. In the markets, it takes milliseconds for prices to make irrational high and low swings. From Tunisia to Greece and the UK, the natives are restless and calling for heads to roll.

Yes, even the dour public service in the UK is now out on the streets. Spain, Italy, Portugal, France, Ireland, the USA are all next. Wealth by stealth is being exposed and people are getting angry. They have listened long enough to the fear talk of bankers and politicians about 'the end of the world' coming if you don't let us bail out the TBTFs.

How is it that normal, hard-working middle-class people are now saddled with the debt that TBTF banks foistered upon them in their greed to make quick profits. Are these people not right in saying the TBTFs should take the losses and go out of business? After all, they took the risk, why don't they take the hit?

We hear the Greek people on the streets telling us that the banks should suffer for their losses and not them. Maybe we think of those Greek workers as lazy and expecting too much from a broken system. But they may be right. Many people are realizing that they were fools in the good times. Binging on debt. Spending their future now. So now they hunker down and begin to pay off this debt. The right thing to do. But lo and behold, they find they are responsible for not only their own debt, but the debt of the people that put them into debt.

And we wonder why they are angry.

No organization is TBTF. Don't believe it. If you do, your kids and their kids may be destined to debt slavery for many years hence. If they aren't already.

World leaders need to get together soon and thrash out a monetary system based on sound stable money values. A true gold standard can work. They should put self-interest aside, otherwise the tumult may only get worse.

The World is too big to fail.

Gold in New Zealand dollars: $1796.59 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $40.91 per oz
Previous all time high: $48.58
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________

Friday, July 1, 2011

Economic Armageddon and You

This is a great little video about our current economic system. It is worth seeing and pondering on. The term 'Armageddon' may be a bit scary and over the top, but the substance of the video is worthwhile noting. Let me know your thoughts.


Gold in New Zealand dollars: $1814.43 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $41.96 per oz
Previous all time high: $48.58
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Bullion Custodian
Your reference: an-001
______________________________________________________________________