Wednesday, August 31, 2011

Silver Fundamentals

There has been a lot of talk about gold recently. Gold holds a special allure amongst the masses. No one really knows why, but it engenders quite an emotional response from even the most conservative of people.

Perhaps it's those old mythical tales of pirate treasure or the riches of ancient civilizations like Egypt. Seeing and wanting the yellow shiny stuff makes people do all sorts of crazy things. Even killing for it.

But gold has a lesser cousin, one that is not mentioned much at all in the media; silver.

There are many savvy investors in the precious metals community who would rather own silver then gold. Or rather be over-weight silver in their portfolios.

So what is it about the 'moon' metal (ancients used to equate gold with the sun and silver with the moon) that is attractive.

For gold, the main reasons for owning it are; protection against monetary stupidity (manipulation of the money supply) and fiscal asininity (governments gone crazy) and as an insurance against financial disaster.

Silver can be held for similar reasons, but has more of a investment feel about it than gold does. Gold isn't really classed as an investment, more of a preserver of value and is pure money.

So what are the fundamentals for owning silver?

1. Silver has amazing qualities as an industrial metal. It is used in electronics because of its conductive qualities. The world is highly dependent on electronics, and increasingly so. Silver has high demand in the health industry as an anti-microbial additive. Food is preserved in thinly lined silver plasics. Silver is used exstensively in hospital equipment. Note, if you have silver plates at home, then actually using them and putting food on them is a great idea. The 19th century elite knew a thing or two.

Moreover, because of these industrial uses, the silver content of the products involved is invariably lost when the products are discarded. Therefore, much of the silver that is mined is lost. The amount of silver above ground, because of these uses and more ahead, is decreasing. Therefore, physical demand is sure to be strong going forward.

Added to this are the costs of mining are rising as silver gets increasingly more difficult to find. Scarcity followed by high demand always bring higher prices.

2. Investment demand is increasing. More people are catching on to the silver story and investing in ETFs (not recommended) and also buying and storing physical metal (the best approach).

3. Manipulation. If you believe in the theory that the silver prices are manipulated by large institutions, then you will also believe that prices are too low because of this. Even if manipulation isn't occurring, the fundamentals still point to higher prices.

As stated above, ancients used to equate gold with the sun and silver with the moon. Prized metals indeed. But there is nothing spiritual or crazy about owning precious metals. It is never an easy decision to place your hard-earned wealth into an asset class. One gets understandably nervous. Those with vested interests will always spruik their products as being the best. It is not easy to trust people.

I have outlined some fundamentals here, but if you go to some of the links on this blog site, you will see other well reasoned experts doing the same.

Gold in New Zealand dollars: $2153.88 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $48.46 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

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

Tuesday, August 30, 2011

Amused to Death

There are not that many people in New Zealand that understand the basics of gold and silver. A bubble this precious metal market is not. The pressure pulling gold prices higher and currencies lower are not understood by the public at large.

In fact, gold spruikers (buyers) are still trying to separate the public from their gold and silver. Go to any Mall in Auckland or Los Angeles and there, in shiny gold allure, are the booths offering you a little over 75% or less of the spot price for the gold and silver content of your jewellery. If the public is still selling, and they are, then how on earth can this be a bubble in gold and silver?

If 20 people on the streets of your city were asked if they owned any pure gold as an investment or a hedge against inflating currencies, how many of them would answer in the positive? A guess; one out of fifty, maybe?

Most people dip their financial toes into the murky golden pond with great trepidation. They often comment to me, "Wow, you would be happy with gold right now?" and promptly justify why it is in a bubble and why they are still invested in housing or financial instruments. No swimming allowed it seems.

Following on from yesterdays blog, one can see why the public is ignorant of the financial spruikers that separate them from their money. The mainstream media (MSM) are not firing their best educational shots in the direction of the public. To the contrary, they go for the most ridiculous headlines, especially when it's to do with gold. Their take on gold is nauseatingly stupid. Anybody buying it is a 'gold bug' which is often said in a derogatory tone. No mention then of the huge amounts of gold being bought by world central banks or other market fundamentals?

Perhaps we by habit watch the news more in hope of better things. Perhaps we should just ditch it and send them a message. Television is amusing us to death. Whether you believe in conspiracy theories or not, it doesn't change what is plainly obvious; the public are not aware of the difficulties facing them in the near future.

Before and after the first world war, nation states welcomed with open arms the charismatic leaders that offered them hope and prosperity; freedom from the shackles of poverty and the ruling classes that controlled their lives. The result of this mania was death and destruction on a massive scale for the next twenty years.

What will the next 'messiah' look like after the next global financial catastrophe? Remember, Europeans are a tribal/racial bunch and old scores are still to be settled flowing back many generations. Massive racial hatred may only be a spark away from igniting once again.

Do we start to ponder our own futures without the amusement of the media, seeing reality for what is is?

Or do we contunue to be amused to death?

Gold in New Zealand dollars: $2111.82 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $48.27 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

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

Monday, August 29, 2011

Dark Clouds on the Horizon

When walking to work this morning, I noticed dark clouds in the east. Darker and more forboding than usual. Angry even, perhaps ready for a bit of vengeance.

Vengeance? Yes, after the media debacle of the so-called 'mad-max' hurricane Irene you wonder if the weather gods might get angry and throw some real bad stuff at us.

But mostly, you wonder why we listen to the main-stream media. Even my kids were saying the reporting on Irene was a beat-up and asking what is really going on Dad that we aren't hearing about.

Anyway, let us shift focus from my weather storm in the east this morning and head west and go over some of the reasons why dark financial clouds brood in that direction with the latest news.

Bailout fatigue, and even hysteria, is setting in 'big-time' in Germany. Angela Merkel faces dissent from her own fragile coalition for ongoing funding of European bailout funds. Furthermore, in a weeks time, Germany's constitutional court rules on whether the €440bn rescue fund (EFSF) breaches Treaty law or undermines German fiscal sovereignty. If Germany doesn't come to the party, the European monetary union could be over.

Finland has said no more bailouts for Greece unless there is collateral. In other words, no more gifts from our taxpayers, we need something of yours in return should you default. Now that's going to make the European air a little colder.

Greece has sought emergency funding for it's banks. The PIIGS virtually can't borrow anymore money from the markets. The risk is too great for lenders. The only winners will be those who have shorted PIIGS debt. (But good luck getting anything from their insurance on this debt).

The ECB is borrowing, through currency swaps, from the Federal Reserve Bank.

In the US, long-term treasury debt is soaring at rates last seen before the GFC in September 2008. Gold back then, decreased in price when this occurred. Now, gold is increasing in value in most currencies.

And further afield, east even, the Russian Central Bank is trying a gold confiscation swifty on it's citizens by setting up a scheme whereby Russians can use their physical gold as collateral and swap it with roubles plus 7% interest. Good luck with ever getting that gold back.

China's economy is definitely in bubble territory. Inflation is rampant and the west isn't buying much stuff anymore.

The financial markets are chaotic. The large up and down swings in stocks and gold are symptomatic of the speed wobbles before a crash. Just look at the markets before the 1929 stock market crash. Furthermore, so much depends on what the Fed says now, markets can't make rational decisions.

There is not a lot of good news in the financial world at present. Real news means hard work, not just sending a junior reporter to the streets on New York, with bit of rain in the background for dramatic effect, to sensationalise a weather event that was never going to happen as predicted.

Gold in New Zealand dollars: $2175.43 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.37 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

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

Friday, August 26, 2011

A Little Gold Goes a Long Way

Today I am borrowing a worthwhile article from Casey Research on the purchasing power of gold.

Firstly though a word from the latterly 'wise' Alan Greenspan:
Gold, unlike all other commodities, is a currency...and the major thrust in the demand for gold is not for jewelry. Its not for anything other than an escape from what is perceived to be a fiat money system, paper money, that seems to be deteriorating. - Alan Greenspan, August 23, 2011

A Little Gold Goes a Long Way

By Dan Steinhart, Junior Analyst at Casey Research

Casey readers of any duration already know how to avoid silent robbery by inflation: own gold.

Since the beginning of 2002, according to the CPI (which famously understates inflation), the dollar has lost over 20% of its purchasing power, a precipitous decline in less than 10 years. During this period, gold owners have not only protected themselves, they’ve most likely profited in both nominal and real terms. But for all of the non-gold bugs just now awakening to the doomed reality of the dollar, how much gold is actually needed to protect yourself from inflation?

Probably less than you think. The graph below charts the purchasing power of a hypothetical portfolio; each line represents a different allocation between dollars and gold, from 100% dollars to 100% gold and everything in between:


Let’s start from the bottom with the dismal dollar: unsurprisingly, if you held no gold, your purchasing power would have dropped in conjunction with the dashed gray line, down to about 78% of its 2002 level. 

But the next data point may surprise you. The dashed red line line represents a cash/gold allocation that would have maintained purchasing power at 2002 levels. How much gold would you have needed to hit this breakeven point? Only 5.75% of your portfolio! Even a gold skeptic could handle that tiny allocation: for every $30,000 in your portfolio, keep one gold eagle coin, and you’re covered against inflation.

Of course, just because that worked for the last 10 years, it doesn’t guarantee it will be enough for the next 10. Inflation will likely ramp up at some point in the near future, and when it does, you’ll want more gold. But the point remains: holding just a little bit of gold does wonders to combat inflationary erosion of your cash.

Now that we know how to break even, let’s step it up a notch. We here at Casey Research recommend a 33% allocation to gold. Under such an allocation, your purchasing power would not only have been preserved, it would have more than doubled in less than 10 years. Not too shabby.

For comparison’s sake, we also included how you would’ve done with allocations of gold all the way up to 100%. While we certainly don’t recommend such extreme positions, any outliers who held the majority of their portfolios in gold can now buy over 400% more “stuff” than in 2002.

The moral of the story? If you don’t own gold, get some. Paper dollars are shrinking before our eyes, so offset (or outpace) your losses with concurrent growth in the value of gold.

Gold in New Zealand dollars: $2126.18 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $49.19 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

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

Thursday, August 25, 2011

Gold, Free Money and Violence

Just pondering if there is a link between the recent riots in London and the recent shenanigans on Wall Street over the last few years.

Is there a link between free money and violence?

It seems a flaw in the human psyche that when you are spoiled with other peoples wealth you have less regard for it. You tend to spend it freely and you may even begin to despise the people who unconditionally gave it to you. If you get 'free' money perhaps you appreciate it's value less.

The story of the 'Lost Son' in the bible is one such episode. Here the younger son demanded, and was given, all his inheritance by his father. He blew it all rather quickly and found himself destitute. Lots of money, no regard for wealth and a lack of discipline.

Could a case be made that big Wall Street bankers are in fact just socialists on steroids? Lots of free money available with no work required thereby creating an indiscipline of use.

Furthermore, could a case be made for this argument regarding the recent riots in London? Easy money, in the form of social welfare payments causing some of the receivers to despise the givers. Even to the point of despising the property and assets that earned the taxes to pay the welfare in the first place.

Is there much difference between some of the so called 'poor and neglected' in society that end up despising wealth, and those bankers at the top of society making millions with free money and despising the general public that loaned them the money in the first place. Even to the point of ripping off retired people and main street savers. Handing out violence to people's wealth and lives.

Easy money equals lack of discipline perhaps?

How can gold and savings help solve this violence?

If for no other reason, if you believe that gold is real money, saving it makes you appreciate the wealth that is stored there. Your hours of labour, when saved in gold, will be preserved better than in any other instrument over history. This form of saving engenders the right attitude to wealth and enables the virtuous habit of saving, because saving is a discipline.

You simply will not be wealthy without saving. So why not save in gold and silver until you see opportunity to use that wealth for the better of yourself, family and society.

Gold in New Zealand dollars: $2114.31 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $47.85 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

Articles of interest:


Kazakh Central Bank Gets ‘Priority Right’ to Buy Gold

See article here
www.bloomberg.com

______________________________________________________________________

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

Wednesday, August 24, 2011

Gold Price Corrects

Just a word on the gold price today. It has corrected down a little ($60) to around $1830 per ounce. This is a good sign. All markets that go up quickly need to settle back to be healthy. Could it go lower? Maybe.

Remember, just six weeks ago, gold was around $1480 per ounce and commentators were saying the same things about corrections being healthy at that price.

Should people wait to buy? For large amounts; perhaps, but the dollar cost average approach is always the most prudent approach. That is, buy gold regularly (say monthly) and you will be able to smooth out the highs and lows and take advantage of the continuing secular (long-term) bull-run in gold and silver.

Fundamentals don't change. The system is straining. Too much sovereign debt, Central Banks buying gold (China, South Korea, India, Philippines, Sri Lanka etc), Eurozone banks in trouble. Gold is money.

Jim Rickards says on the video below, gold is money and if you want money you need gold. J.P. Morgan once said; “Gold and silver are money. Everything else is credit.”

Finally, James G. Rickards talks to James Turk. An excellent video.


Gold in New Zealand dollars: $2201.32 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $50.40 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Tuesday, August 23, 2011

Should You Sell Your Gold Now?

An article today by Dominic Frisby of Money Morning

Gold this morning is at $1,900 an ounce. It began July at $1,480. That’s a move of over $400, or nearly 28%, in barely seven weeks. A number of wiser heads than mine observe that that’s a parabolic move and that parabolic moves barely end well.

Is 25% in two months really ‘parabolic’? Maybe. However you define parabolic, there is a very strong argument to at least take some profit after a move like this.

But what would you do with the money? And what about the risk of missing out on further gains?

What to do, what to do?

How to avoid temptation to sell your gold

When I first bought gold, I deliberately bought some physical gold and stashed it in a remote location for the simple reason that it would be a pain in the backside to sell. If I want to sell, I’ve got to go to said remote location, dig it up, cart it to a bullion dealer, negotiate a price and so on. Selling would not be a decision lightly taken. This was a deliberate step to remove any temptation to trade. I would only sell after a lot of consideration – when I thought the big move was ending.

ETFs, spreadbets and even the online bullion banks, where you can buy or sell at the click of a mouse, make trading too easy. It would be easy to think ‘we’ve had a good run, I’m going to take profits, wait for a pullback and then get back in’. Meanwhile, the financial system collapses, gold goes to $10,000 an ounce and you’ve lost your position.

The more trades you make, the more mistakes you’re likely to make. Goodness knows, I’ve made enough.

Yes, gold has gone ballistic; yes, it’s getting too much media coverage; yes, it’s trading at the top of its range; yes, it could easily pull back to $1,400 and there would be no technical damage to the long-term chart. But the risk is that if you sell, you then fail to get back in. You lose your position.

One of my closest trader friends, whom I hold in highest regard – a doctor, a Yale graduate and a member of MENSA – bought into gold at $250 an ounce at the very beginning of this bull market. He saw the light long before I did. He bought what are now billion dollar mining companies almost for pennies. He made a fortune between 2001 and 2007. But since 2009 he’s been overly bearish and missed the whole rally. He failed to get back in. I’m sure there are many more like him.

Gold still has a long way to go

I can draw a million and one charts showing why you should sell gold now. But the fact is we still have a long way to go before we reach the end game. Heaven knows, The Times, who – mysteriously – have been steadfastly, resolutely silent on gold for several years now, despite numerous offers from me, finally mentioned gold in their Saturday editorial. They declared that ‘demand for gold depends on factors such as dentistry’ and that Gordon Brown ‘was right to get out of gold’.

The mind boggles. While such breathtaking, eye-popping ignorance remains in the mainstream, you know that gold still has much further to go. These are all people yet to come into the market. In fact, I might add a positive article in The Times to my list of long-term end-game targets – up there with the British government buying.

House prices still have further to fall relative to gold. Stock markets have further to fall relative to gold. We still have negative real rates. Governments are still spending money they don’t have, then debasing their currencies to cover the deficit. The financial system is coming under a force of pressure it will not be able to withstand. I can go on, but you know by now what the drivers are and I don’t want to end up in Rantsville.

If you must trade, there’s a strong case to be made for selling gold and buying silver here, as the latter has lagged. There’s even more of a case to be made for selling gold and buying gold equities, which have also underperformed. In fact, this week gold equities of all kinds actually held up quite well while stock markets resumed their assault on hell. That makes me rather bullish.

But the short of it is this. Be right and sit tight. Stay on the train – maybe rollercoaster is a better metaphor – and enjoy the ride. The bull will try and shake you off in all sorts of different ways. Don’t let him.

We could easily fall to $1,400 or $1,500 and there would be no damage done to the trend. So there’s a case to take some profit (a case I would ignore by the way, if you haven’t yet got the thrust of today’s argument).

For the first five years of its bull market gold traded in a clear upward channel. At the end of 2005 it broke above that channel and the bull market accelerated.

Since 2006 another clear channel emerged, a slightly more vertical channel. After five years gold has now broken out above that channel. Perhaps we are now entering a third accelerating phase of this bull market and we’ll enjoy an even more vertical channel for the next five years. And perhaps the upper black line of the 2006-2011 channel will mark support for future corrections. That would be nice. In that case we have support above $1,600.

Cynics may scoff at this absurdly bullish scenario. Let them. I don’t say this will happen. I say it’s possible.

I’m just a bod from south west London. What do I know? But take a look back at this bull market and it’s the cynics, the scoffers and the bears who have been consistently wrong.

In 2001 Professor Niall Ferguson, who went on to write and produce an entire TV series on the history of money – said, ‘Gold has a future, of course, but mainly as jewellery’.

‘The man who predicted the financial crisis’, Nouriel Roubini, in October 2009 said, ‘All the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense’.

All I can say is, LOL. (Or, for those of you unfamiliar with text messaging abbreviations, “laugh out loud”).

Got a comment on this article? Leave a comment on the MoneyWeek website, here.

Dominic Frisby

Gold in New Zealand dollars: $2319.29 per oz
Previous all time high: $2316.23 per oz (22 Aug, 2011)

Silver in New Zealand dollars: $53.52 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Monday, August 22, 2011

Gold, European Banks and You

The last two weeks have been extremely volatile on the financial markets.

It all feels like the speed wobbles. You remember as a kid on your bike, going too fast then feeling the wheels wobble violently before all went chaotic and you were left wondering how you ended up in such an uncompromising position gazing at the sun.

At the heart of this latest story line in the saga of our broken financial system, are the European banks. But all these stories are just the latest iteration of the fundamental problem. Debt.

In Europe it is all about trust. Just as it was after the Lehman's collapse in 2008, so it is now. Banks in Europe do not want to lend to each other as they do not trust each others capital positions. Not only has a lot of money been pulled out of the banking system over the last month (and into US Treasuries and gold), but European banks do not know who has what exposure to the sovereign debt market in Europe. Loans between these banks are drying up and interest rates rising on this risk. Even US money markets are extremely cautious to lend to European banks.

This is shining a light on the true positions of European bank balance sheets. The assets they thought they had (or deceived us in having) are near worthless.

You see when these banks purchased bonds from sovereign governments like Greece, Spain and Ireland, they treated them like gold. Yes, silly isn't it? They treated these bonds as completely risk free assets. They did not even set aside funds to back them up in case they went bad. However, these bonds are proving to not be worth the paper promises they were purchased for.

The consequences are huge. After all, whose money did they buy these bonds with? Yep, your money. That money in KiwiSaver or some world class investment fund. It may not be there now...gone.

The fear and uncertainty this is causing is reflected in the gold price soaring to all-time highs. Silver is now finally catching up. There will probably be a correction to the gold price soon. It is never 'different this time', big run-ups always correct. But that is healthy. Where will the price correct to? Maybe $1720 an ounce? Who knows. People like Dan Norcini are good at those sort of chart analysis.

Is gold too expensive? Have you left it too late to buy? Look at the fundamentals, don't look at the fear and don't be emotional about gold and silver. Do your homework (see the links on the right hand column on this page). Talk to people from both sides of the fence.

You already know what this blogger would say.

Gold in New Zealand dollars: $2290.08 per oz
Previous all time high: $2269.30 per oz (19 Aug, 2011)

Silver in New Zealand dollars: $53.67 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Friday, August 19, 2011

Hoarders, Gold and Negativity


Here is a sequel to the discussion on inflation from yesterday.

One of the many negative effects of inflation is it can cause an increase in the velocity of money. The velocity of money is the rate at which money flows around the economic system. If the velocity of money gets to a critical point it can cause hyperinflation.

This is how it goes. The consumer or investor notices prices going up steadily. The reaction to this is to buy goods and services now before the prices go up again. Hoarding eventuates as people buy 'things' that they need and store them instead of putting money in the bank or other investments. This can draw massive amounts of money out of the banking system and set in motion a snowball effect of increasing money supply.

The cycle can take on a life of its own. Prices go up, we buy more now, demand increases and supply decreases, we buy more now urgently, prices go up and so on until hyperinflation occurs.

Hyperinflation then is not only a total loss of confidence in money and those Governments behind it, but a self-sustaining exponential increase in money supply.

Could hyperinflation occur again like it did in Weimar Germany after WW1? More than possibly.

Inflation can also affect the psychology of people and Governments; negatively. If you are prudent and get in soon enough, you can store up 'things' before anyone else, as you perceive there to be shortages in the future as supply becomes tight.

There may be a couple of unfortunate scenarios for the prudent early-birds though. If people who desperately need resources know you have some, then it could lead to conflict. For countries, it could lead to war. One other scenario is Goverments could confiscate your wealth. This was tried by the Roosevelt administration in the 1930s when they tried to confiscate all the gold in private hands in the USA. It has been used by many other Goverments in history as well. Mostly ending badly for both parties.

The other negative to hoarding, because of rising prices, is that it ties up capital. Capital that would be available for investment is now tied up in gold and commodities. No doubt this will be reported on in the media in a negative way. For example:

"Those 'hoarders' are not keeping up their end of the capitalist bargain. We must regulate them to release their capital, or even confiscate it so that it can be put to work for the good of all."

This has already been mentioned in a recent business article in the largest daily newspaper here in New Zealand. Hmm.

However, all these negatives shouldn't freeze us out from making the right decisions for ourselves and our loved ones. After all, in the future, there is no need to be selfish with the resources you may own, only wise.


Gold in New Zealand dollars: $2224.89 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $49.49 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Thursday, August 18, 2011

Inflation, Gold and You


Inflation 101.

Inflation is not a rise in prices. It is an increase in money supply that causes a rise in prices. Deflation is the opposite. Stagflation is a rise in the money supply (and higher prices) with low economic growth.

With inflation, the more money chasing the same amount of goods and services equals higher prices. Things are finite (like gold in the picture below; also energy and food etc) while paper promises are infinite. Something happens when you match paper money up with things. You get a price.

The value of the dollar began its decline after Richard Nixon divorced it from the last remnant of the gold standard in 1971. At this time, America was printing money to finance wars and other deficit spending. As a result, gold was being called in by France, and other countries, who could see the dollar devaluing. One ounce of gold, that was backed by $35 in paper promises at the time of the post-war Bretton Woods conference, was now taking more dollars to redeem. France wanted gold for dollars as golds purchasing power and wealth preservation qualities remained the same.

Currently, it now takes 1800 of these dollars to buy the same amount of gold as in 1971. Or 1 dollar buys 1/1800th of an ounce of gold.



What changed? Where did the extra dollars come from?

Gold didn’t change. Sure, there has been more gold mined since 1971, so the physical amount should take more dollars to buy, if the supply of dollars was the same.

But where did the extra 1765 dollars come from to take the price from $35 to $1800? You guessed it, created out of thin air. Brought into being by strokes of the pen and latterly by computer keystrokes.

This process is continuing and the same principles apply today with your hard earned dollars. This is why you go to the supermarket this week and find that it takes more dollars to buy the same stuff as it did last week or last year. Or in 1971 by far.

Because gold has been accepted as money for over 5000 years (see at the bottom of this blog as to why)  people are purchasing it in greater quantities now. It is finite and has always been the true reserve currency to preserve wealth and purchasing power. The dollar is declining in value and will continue unabated with this current debt crisis.

Many commentators still denigrate gold (and silver), but history and math tell us that to rest easy in these volatile times, the best way is to own gold.


Gold in New Zealand dollars: $2138.92 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $48.21 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Wednesday, August 17, 2011

The Sequel: How 2011 Is A Repeat of 2008

As I am feeling a bit 'under the weather' today, I am posting a heavily edited (by yours truly) article submitted by Gonzalo Lira on Zero Hedge recently. It's a long but worthwhile read as to the similarities, yet larger consequences of the 2008 crisis versus what is coming.

Article:
The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011.

The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.

In both 2008 and now 2011, you had unpayable debts at the center of a fragile financial system. In 2008, it was mortgage backed securities and collateralized debt obligations—the so-called “toxic assets”.

In 2011, we have European sovereign debt. And just like the toxic assets of 2008, the Euro-bonds might have been rated AAA.

In the lead up to 2008, the MBS’s and CDO’s gave the American homeowner a sense that their house was their personal private ATM sitting on their quarter-acre suburban lot. They also were a profit spigot for the financial sector, which bouyed the U.S. GDP growth, leading to a false sense of national prosperity, even as there were signs that the non-financial sector of the economy was diving.

In the lead up to 2011, on the other hand, the sovereign debt of the eurozone countries gave the European citizens a sense that they could afford to buy all the imported goods they could ever want, as well as the sense that their government could afford to pay for all the social welfare programs they were all promised—without having to pay for any of this by way of higher taxes.

In both 2008 and 2011, you have banks exposed to these bad debts both directly and indirectly—and this exposure in 2011 threatens to topple the entire financial structure, just as it almost did in 2008.

In 2008, the financial institutions with direct exposure to the toxic assets—that is, the institutions that actually owned these crap bonds that would never be paid in full—were mostly American banks. Their capitalization depended on how pristine these toxic assets were. As it became increasingly clear that the toxic assets were exactly that—toxic—the banks holding this crap found themselves not only without the capitalization to pass regulatory muster, but in fact found themselves functionally insolvent—hence the suspension of FASB 157, coupled with the injection of $150 billion worth of capital by way of TARP.

In 2011, the financial institutions with direct exposure to toxic assets—in this case, the European sovereign bonds, especially from the PIIGS—are once again banks, this time around mostly European banks: UniCredit, Société Générale, Dexia.

Like 2008, these assets might be rated triple-A, but they threaten these banks with insolvency, if any of them default. A bankruptcy of any of the aforementioned European banks would have massive consequences for the rest of the global financial construct—it would not be a Europe-only problem, just as the bankruptcy of Lehman was most definitely not an America-only catastrophe.

And that’s just the direct exposure to the 2011 version of toxic assets.

The real danger in 2011 is the indirect exposure—that is, the liabilities that are triggered in the case of a debt default: Just like 2008.

In 2008, it was AIG and other assorted credit default swap sellers that got hit bad, when the toxic assets began to default—we all remember how the very ground we trod rocked as AIG stumbled and everybody had a collective nuclear-meltdown freak-out.

In 2011—you guessed it—it’s worse: We have Bank of America for sure has massive exposure to derivatives on European sovereign and debt, as well as . . . who Knows who else.

Just like in 2008, the derivatives market is so opaque—not to say hermetic—that we are not going to know who’s going to go bust until it actually happens. In 2008, Hank Paulson and the Treasury Department didn’t find out about the AIG hole until the weekend before the company would go bust. Today, in 2011—even with the experience of how potentially deadly ignorance of the derivatives markets can be—there are no mechanisms in place to swiftly and accurately tally who has derivatives exposure to any particular bond or asset.

In other words, Tim Geithner and Ben Bernanke never implemented the one lesson learned from 2008: Make the markets transparent, so that you can see where the crisis is coming from before it falls on top of your head.

Thus they—and we collectively—are flying blind insofar as derivatives written on the European sovereign debt. We only know about BofA’s massive CDS exposure indirectly, through Timothy Geithner’s demand in December 2010 that Ireland not default, because of the massive losses an Irish sovereign default on BofA.

2011 is a lot bigger than 2008: The total sovereign debt of the PIIGS is about €3.1 trillion. That’s 20% of the eurozone’s GDP—just the PIIGS, just those five, forget about France, Belgium and the UK, which if added up easily doubles that €3.1 trillion figure.

Compare that to 2008, when the total toxic assets the Federal Reserve wound up having to buy amounted to about $1.5 trillion—about 11.5% of the U.S.’s 2008 GDP.

In other words, the current situation is over twice what 2008 was—and might wind up being four times the 2008 price tag. And that’s just the nominal value of the toxic debt at the core of the current situation. We have no idea what the total value of the indirect exposure via derivatives is going to add up to.

We have furthermore seen that—like all good sequels—2011 is going to have a bigger bang: We currently have more debts on deck than in 2008, at least twice as much, as a matter of fact.

What we’ve seen over the last couple of weeks is not the crisis—or not the crisis, at any rate. We’ve seen Italian and Spanish debt drop, their yields spiking—we’ve seen gold run up to $1,820—we’ve seen the biggest drops in the US equities markets since 2008—

These last couple of weeks of market gyrations have been the forewarnings—the pre-tremors. Anyone who’s lived in earthquake country knows about them: The little tremors and hiccoughs that precede The Big One.

The Sequel will actually get going once we have our Lehman-like event.

In 2008, the bankruptcy of Lehman Brothers triggered the crash—but it was not the cause of the Global Financial Crisis of 2008: The structural weaknesses were already baked into the situation—the Lehman bankruptcy was just the shove the global financial system needed to fall off the proverbial cliff.

Today, we are waiting for the Lehman-like event. My personal guess is Dexia will be the first to go under, the Lehman-like event that will trigger The Sequel—but that’s just a guess. More likely than not, the Lehman-like event of 2011 will catch us all by surprise—but just like the Lehman bankruptcy, it won’t matter intrinsically: It’ll only matter insofar as it triggers the cascade of panic-default-bankruptcies, etc.

The one issue I will discuss here is the notion of a safe haven:

In 2008, when all the stock markets were going south, and all the name-brand banks were teetering, where did everyone park their money? What was the safe haven?

Treasury bonds. In fact, the flight to safety was so massive that Treasuries reached negative yields, when you factored for inflation.

Treasuries are the traditional American safe haven. But what with the recent spate of, er, questionable events (Debt celing conniption fit, anyone?), Treasuries aren’t looking as safe as they used to, nevermind the (cosmetic) S&P downgrade of their Treasuries rating.

But this isn’t an American crisis—this is a European crisis that will have catastrophic consequences in America—but the epicenter will be Europe.

What’s the safe haven in Europe? Gold.


Gold in New Zealand dollars: $2140.75 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $47.81 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Tuesday, August 16, 2011

40 Years of Nothing


Yesterday was the 40th anniversary of the closing of the gold window by President Richard Nixon.

I missed it, but then, probably so did 99% of the financial community. Let alone the general public.

But why the title today? Surely the last 40 years has been one of the most prosperous in history? Surely not having to be pegged to that 'barborous relic' gold has meant we could grow economies without restraint and look to a bright future with no want or need.

Post-war, the Bretton Woods agreement between the victorious allies, revealed a new and ominous system of doing business worldwide. The USA had come out of the war as the pre-eminant empire and was able to lobby for agreement that enabled the US dollar to be the world reserve currency, backed by gold at a price of US$35.00 per ounce. All foreign exchange transactions would be settled in US dollars and could be redeemed in gold bullion if required.

Then came  the Vietnam war and the era of large deficit spending. The US began printing money to finance this war, and Western countries began to see where this would lead.

France and General De Gaulle, were the ones to bring the charade to light. They could see the value of their exports decreasing as the US flooded the world system with dollars. So they called the US bluff and demanded gold for settlement. Gold began to rush out of Fort Knox at an intolerable rate. President Nixon couldn't let this happen. He announced on August 15, 1971 that gold would not now be swapped for US dollars.

The world had begun the great experiment of being on a totally fiat money supply system. Fiat money is money that has value only because of government regulation or law. There is nothing backing it. There is nothing maintaining it but confidence.

A link to a Youtube video of President Nixon' announcement is below. Notice the usual statements coming from him to justify the US position. 'Protecting the position of the US dollar as the pillar of monetary stability'. He talks up the crises in monetary policy around the world and uses jobs and investment as excuses. The real reason; too much expenditure by a rampant Government. It probably had nothing to do with foreign fiscal policy at all.



We hear the same reasons today used to justify money printing. To increase jobs for the common man and bring stability to the markets. How about, reducing the wealth of the common man through rampant inflation and sending jobs East?

What was unleashed on August 15, 1971, will end badly. Throughout history, all fiat currencies have sunk to their true values; zero. The debt bombs now ticking away in Western economies will explode and cause great disruption. All because of the promise of wealth and jobs in 1971 and because of lack of restraint in Government and public spending.

If you base something on nothing, you may end up having nothing.

Gold in New Zealand dollars: $2117.68 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $47.64 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Monday, August 15, 2011

1929 v 2011: Are the Happy Days Finally Over?


This weekend I watched a documentary called, "The Crash of 1929". The similarities to the current economic malaise is worth noting.

The buildup to the stock market crash in 1929, was fueled by the increase of debt. A new way of buying goods and services had been invented in the early 1920s called 'buy now, pay later'. Before this, if you bought something, you needed savings to do it.

Therefore, many 'mum and dad' investors took the opportunity to invest in a stock market they saw had made huge sums of money for the rich and famous. People like Bert Seligman, arguably the greatest trader in history.

Stocks (shares) were always going up. All you needed to do was to put a percentage down on a stock purchase, put the rest on margin, and wait for the price to go up. Seemingly, every Barber, Shopkeeper and their dog tried their hand at it. Passenger liners even had ticker tapes on board for those wanting to keep abreast of their stock prices and to purchase more.

However, behind the scenes, an unregulated stock market allowed insiders to become devious and greedy. They formed little groups that would use their combined financial muscle to manipulate stock prices. One method was to pay-off journalists, in popular daily tabloids, to write positive stories about the companies these groups wanted to foist onto an unwary and financially ignorant public.

The rest is history. In the weeks before the crash in October 1929, the market volatility was immense. Up and down days that made the public very nervous. The establishment tried their best to dampen the increasing lack of confidence in the market (sound like last week?), until there was a tipping and the sell orders came through in massive quantities. Many in the middle-class lost everything. The Great Depression began.

Now to today, the time is more sophisticated and the financial products more complex, but the similarities to 1929 are significant.

We have too many assets being purchased with debt. The largest category is property. Property in New Zealand and the rest of the world is still too bloated in price. Properties cannot be purchased unless an overly large amount of debt is raised. Even though the market is in trouble and creaking at the seams, the property spruikers are still talking in their honey-coated language when they know something is up.

If people get sucked into this, they are liable to find themselves in extreme hardship in the near future. As it was with stocks 80 years ago, so it was with housing during the naughties (2000 - 2007). Always going up and always purchased with debt. Instead of ticker tapes on passenger liners we had, what seemed like, ten TV programs a week, selling the benefits of property investment.

Is the middle-class about to lose everything, and is the Greater Depression about to begin?

Stock markets world-wide are volatile. The ongoing European debt crisis is getting worse. France is now in the spotlight. Their banks are exposed to PIGS debt at a dangerous level. The ECB is about to go on a money printing spree that would make a 1930s counterfeiter blush. The USA requires 40% of it's budget to be raised with debt. China is relying on the West to increase consumption in order to pull itself out of a coming apocolypse. Growth, the required cog for this current system, is negative in a majority of economies.

We are about to enter a period of incredible disruption. Politicians are not giving us the correct information. Remember, they want power, they want to get re-elected. The spoils of political life are far too good to give up for a moment of truth.

Power is still in your hands to protect yourself as much as possible from the coming Greater Depression.


Gold in New Zealand dollars: $2083.49 per oz
Previous all time high: $2243.75per oz

Silver in New Zealand dollars: $46.50 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Friday, August 12, 2011

Rest Easy Amidst Volatility

The guy behind us at a rugby game in New Zealand last week was volatile. A bit of booze mixed with a touch of excitement and anticipation meant his voice went higher and his language lower.

So it is with the game going on in the markets this week. The market is looking like a drunken rugby fan. How anyone can trade in this sort of volatility is amazing. The Dow Jones has had its wildest week since 2008. On Monday, down 634, Tuesday, up 429, Wednesday, down 519 and Thursday, up 423. A combined loss this week so far of 301 points. Ever been on a roller coaster?

It seems that any bit of good news or bad news is acted upon with unreasonable gusto. On Monday the market dropped on news of the S&P downgrade of US debt. During the week, drops and rises have been caused by European debt woes. Capital ratios in French banks have been questioned (ie not enough money to pay depositors back) based on their exposure to Italian debt. Banks across the globe started to feel the heat as well. Societe Generale shares plunged 15%, Bank of America's shares also sank to dangerous lows. This a bank that is one of the largest in the world.

Today we get news of a better than expected job numbers in the US. Up goes the Dow Jones in a totally irrational way.

In gold, the Comex raised margins on futures contracts. This primarily affects speculators who will need to put down more money on their contracts, hopefully discouraging high margin speculation (buying contracts with debt). As a result, gold prices have decreased as much as $40 an ounce today. Good to see a pullback, it was getting a bit parabolic. Never a good sign in a previously healthy and steady uptrend.

Gold is going higher because of the monetary easing that is now under way. All the talk of QE3 coming is a red herring. Printing by the forest-load (or bits and bytes load) is already here. The ECB (European Central Bank) bought Italian and Spanish bonds and stated it will “significantly” increase the supply of liquidity to banks. The Federal Reserve will come out with a similar plan soon. Although they won't call it QE3, but some other fancy name. Anyway, they are already giving out free money as interest rates they charge banks will be zero forever it seems.

Where does this money come from? You guessed it; thin air. Who pays it back? Well, you may get upset if this information was released. You might peacefully riot; legitimately.

With all this continuing volatility the last word on gold must come from Alex Stanczyk of The Anglo Far-East Company:
“By every nominal metric that can be applied, gold is not in a bubble, bonds and paper money are. A recent interview with a "financial professional" on one of the top networks has the interviewer asking the question "you have been saying gold is in a bubble for several years now, do you think it’s time to admit you were wrong and that is still going to go up?" The answer was a very telling "No, at some point this call will be correct" - but more importantly what he said next tells me that mainstream financial professionals still do not get it. He went on to say "there is nothing you can measure gold against that provides any justification as to why its rising like this". This gentleman has obviously never bothered to look at the size of western nation debt, nor the growth of monetary supply.

Fear not if you hold gold, and do not be frightened into selling."
Have a good weekend and rest easy.

Gold in New Zealand dollars: $2132.72 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $46.62 per oz
Previous all time high: $59.19
per oz

______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Thursday, August 11, 2011

Aurophobia: The Fear of Gold

Part of Speech: noun
Definition: a fear of gold
Etymology: Latin aurum 'gold'


On New Zealand television this morning, a curious case of aurophobia broke out.

Instead of championing the merits of buying gold, the TV breakfast host derided those who have invested in it. His comments suggested that all the gold bugs and dooms-dayers will now be happy with the price of gold going up. Gives them something to crow about, he said. This host was even a former business editor on New Zealand TV. Could he not then have provided decent analysis of the reasons for gold's rise, rather than derogatory and reasonably inflammatory words?

What is it about gold that engenders such a polarized response among people? Just this week members of a family of a lady we know, who is interested in purchasing gold, intimated that she was foolish for doing so. No reasons, just 'poofed' the idea.

With gold (as this is being written) now up NZ$420 an ounce in ten days, surely a little intelligent questioning rather than throwaway lines are required?

It may just show though, how little gold is understood still. In fact, if the reaction of the masses, including the media, is still derogatory towards gold, then a NZ$420 rise in ten days will look like a picnic if sentiment ever turns to positive towards gold.

Gold is likely to settle back soon, probably around the low $1700. Perhaps. But with all the fear around and the world's reserve currency being debased, gold is now the reserve currency of choice for large institutions. It started with Central Banks being net buyers (and continues; note South Korea's purchase of 25 tonnes last week) and now appears to be flowing through to large holders of funds from Asia, the USA and Europe. By the time the local media and 'Mum and Dad' investors get wind of what is happening, aurophobia will be instantly cured.

The wonder drug of intelligent analysis will sweep through the population. But will they be too late? Probably.

Gold in New Zealand dollars: $2225.64 per oz
Previous all time high: $2243.75 per oz

Silver in New Zealand dollars: $48.56 per oz
Previous all time high: $59.19
per oz

Articles of interest:


Jim Sinclair interviewed by James Turk

See video here
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Wednesday, August 10, 2011

London Calling: How Did it Come to This?


Gerald Celente, of Trends Research often says, "When people lose everything, and have nothing else to lose, they lose it", or "When the money stops flowing to the people, the blood starts flowing in the streets".

London is a nightmare slowly unfolding. The world is a different place after September 2008. Too much debt has meant we have lived beyond our means for too long. Consequences will always flow from this. One of them is the disenfranchisement of the middle-class and the disadvantaged.

Social capital that is built up over many years, can be stripped away very quickly when people get desperate. Remember how neighbours would turn on their Jewish 'friends' during World War Two when push came to shove. Our societies have a thin veneer of civilized behaviour. Niall Ferguson states that empires do not ordinarily decline slowly, there is a tipping point where decline is rapid. Could we be entering that time? Or is this a warning only?

The anglo-sphere has ruled the world for a few centuries. The traditions and social capital built up over that time have been beneficial for the way we organize our Government and institutions. It has allowed us to create a world based on contract and law and not custom and kinship. We have fought wars to maintain this lifestyle. However, can we survive as a culture when the next war is an internal fight amongst ourselves for resources to survive? Will it come to this?

Yes there are mobs that take the chance to loot for personal gain and hate. The causes of such unrest are complex. It is not even an issue that capitalism has failed. Capitalism has never really been allowed to function correctly when big Government gets in the way. Socialism isn't the answer either. Simply taking from the rich and giving to the poor causes misallocation of capital.

What will happen here in New Zealand? When, and not if, the money stops flowing to those on long-term unemployment or who are very dependent on welfare? Will we see unrest the likes not seen since the Springbok Tour of 1981?

It may be a good time to reflect on how we can prepare for the coming storm. Do we go so far as to store food and fuel and have cash available? Do we have somewhere to go out of our city in worst case scenarios?

Hopefully we will not repeat the words of King Theoden in "The Lord of the Rings: The Two Towers" when the hoards of orcs were beseiging Helms Deep, and all looked lost for their civilisation: He stated, "How did it come to this?"


Gold in New Zealand dollars: $2072.15 per oz
Previous all time high: $2187.70 per oz

Silver in New Zealand dollars: $45.19 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Tuesday, August 9, 2011

Gold and Your Economic Decisions


Gold in New Zealand dollars continues to make new highs this week. Currently it is at NZ$2094 per ounce. Just over a week ago it was around NZ$1820. Why the volatility in price?

The debt downgrade of the US dollar by Standard and Poors was the latest trigger for a 'devaluation' of the US dollar. As much as the US Government tried to 'shoot the Messenger', the downgrade from AAA to AA+ was completely justified. The debt mountain is too big and the market sees clearly that a US dollar devaluation through money printing is coming. Remember, the dollar has lost around 25% of it's purchasing power over the last ten years. No amount of putting ones money in a deposit account could have accounted for that loss over that time period.

But this isn't over for the dollar. When you feel it in every day purchases, that's when you will begin to ask questions about what to do.

When you go to the store and notice prices rising day by day, and notice you are earning the same amount, a light may go on. You may come to realise that what you could buy last week with one dollar isn't the same this week.

Yo are being robbed of your purchasing power.

Panic may even set in. The decisions may even seem too large to make. Decisions that may sound like: Should I sell the house and get out of debt and protect my wealth now? How much of my savings should I put into gold? If my income remains static, or I lose my job, how will I fend for my family?

The NZ dollar may be correcting back to the level it needs to be which is below 80 cents. With the gold price, if you take out market volatility, it is difficult to know what the true 'price' of gold in any currency. What we do know, is that over the past ten years (and more so in the last week) it is showing how it preserves purchasing power.

Here's a prediction. Gold will be US$2000 an ounce sooner than you think. The gold market still has a tiny participation when measured against the huge money volumes in markets today. Gold accounts for lower than 2% of all investment portfolios. An increase of a few percentage points will take it higher and very quickly. US$2000 could be conservative.

Is it too late to buy gold? To preserve some of what you have? The market is only beginning to adjust to the new normal of massive amounts of debt that need to be squared away. When the game of financial repression (low interest rates, high inflation) is sprung, gold (and silver) as a safe haven will see impressive buying. There are many other reasons to buy gold right now but the main one; to maintain purchasing power. (Note, gold has even increased purchasing power over the last ten years).

Do you think that those who own gold are wealthy? That gold is out of your reach financially? Maybe buying small amounts each month with your savings is the best option. You don't need to buy an ounce at a time. Dollar cost averaging is a good way to accumulate. Note, this is not a sales pitch for any company. In fact, there are many gold savings schemes out there. Just be careful.

The world is creaking at the seams. Time may be running out on the financial system as we know it. Gold has survived 5000 years of currencies coming and going. It still buys the same amount of things as it did in Roman times? Sound sensible?


Gold in New Zealand dollars: $2093.59 per oz
Previous all time high: $2094.14 per oz

Silver in New Zealand dollars: $47.56 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Monday, August 8, 2011

In Good Shape


Listening to the Prime Minister of New Zealand, one could be forgiven to thinking he was grasping at straws.

This morning he reiterated the old lines of 'our debt is only 30% of GDP' and 'our banks have better capital ratios now as compared to the last global financial crises' and, last but not least, 'we have borrowed more than we need in order to take advantage of lower interest rates and the higher dollar'.

While this last point is correct, in that borrowing in an era when our dollar is higher against the US dollar makes our borrowing cheaper, it really is like saying the gun is to our head, but it's only got two bullets now, when it use to have one. We still have a decent chance of survival.

But borrowing more than we need? Are not these the leaders of our country? Imagine if you wanted to buy a car and needed to put the house up for collateral. You need $10K for the car and you borrow $12K. Why on earth would you do this when you would be paying back more than you need to 'just in case' you need cheap money later?

Where, even, would you park this extra cash? In a bank? No, if you are a large holder of cash, like a Government, banks don't want your money. The would charge you to have it sitting there. You see, they can't use it, no one wants to borrow. So the only alternative for large tranches of cash is...wait for it...US Treasuries. Where do we sign!

New Zealand is not in good shape, despite the confidence spruiking from our leaders. Add in private sector debt and our debt to GDP ratio goes up to nearly 90%.

They know, without a doubt, that the extra money they are borrowing will only buy us time when this current financial system goes pear-shaped.

Perhaps the extra borrowing will enable social welfare spending to keep going a little longer. Important to keep the people happy and to stop potential unrest in the streets. Lord help us if the people get wind that there is no money left. It would make Upper Tottenham Road look like a picnic scene from a van Gogh painting.

On another note, how will the markets fare today, and tonight, after the US debt downgrade? Will precious metals go higher as risk trades go off the table? Will the US dollar rise, as equity markets tank? The only sure thing is that markets this week could bring new meaning to the word 'volatile'.


Gold in New Zealand dollars: $1980.243 per oz
Previous all time high: $1994.70 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 Gold and Silver Bullion Custodiann
Your reference: an-001
______________________________________________________________________

Friday, August 5, 2011

Patterns Leading to War?


Gold is at an all time high in New Zealand dollars (by my figures anyway) at $1974.37 per ounce. The New Zealand dollar has lost 5 cents against the US dollar in two days. Mainly on the back of the Japanese Central Bank intervening in their currency market.

Today, we see the latest round of asset selling worldwide. Gold is holding it's own, down US$20.00 per ounce so far, but paper markets are tanking.

The debt situation in Europe and the US is to blame. Over the last few weeks, a cadre of self-important Euro Leaders leant their precious cudos in an attempt to rally European money markets. But no one was listening. Mr Market saw through all the bravado and has now thumbed it's collective nose.

The Dow down over 500 points today. Ouch. The Nasdaq down 5%, S&P 4.8%, FTSE 3.5% and the DAX 4%. You can smell the fear and panic. Not pretty. It reminds one of the huge downward spiral in 2009. People are cashing up and sitting on it (and even buying US Teasury notes would you believe), waiting for the market to settle and give them direction.

Where is this leading? GDP is falling in most developed countries. Growth is slowing and hence tax income decreasing also. A bad cycle indeed. Japan and Switzerland have overtly stating they are intervening in their currency markets to decrease the value of their currencies.

Russia and China are calling the United States a leech as the US continues to throw dollars around the world, causing inflation and sucking up the wealth of other nations.

This scenario may not be dissimilar from situations in recent historical periods when the end result was war.

Not an easy thing to say and not highly positive. May be an over-reaction. But looking at the 1930s when currency wars took place and growth was stagnant, nations came down to not competing for scarce resources with debt dollars, but competing with guns and bullets. We all need 'stuff' to survive and it is limited.

If big states, like Italy and Spain default outright, do you think Germany and France, and even China now, will let them keep the assets they have ownership of? May be there will be huge civil unreast first as people blame their own Governments, then larger conflicts as sovereign nations get involved.

The scenario doesn't look good. Perhaps we can all live a little simpler and reduce our resource footprint. Our standard of living is unsustainable. Are we prepared to fight for our current way of life or are we prepared to let some of it go for the sake of ourselves and our children?


Gold in New Zealand dollars: $1974.37 per oz
Previous all time high: $1974.37 per oz

Silver in New Zealand dollars: $46.56 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, August 4, 2011

The Eye of Sauron

Swiss Gold Global - Build Your Wealth - Gain private access to our programs for saving, buying and storing precious metals.
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With the way the recent debt ceiling debacle played out in the US over the last few weeks, you would forgiven if you thought there was nothing else significant happening.

In the "Lord of the Rings: The Return of the King", the leaders hatch a plan whereby they conspire to create a distraction to enable Frodo and Sam to escape the searching eye of Sauron in Mordor. This will enable Frodo and Sam to get to Mt Doom unhindered and destroy the one ring.

The plan works, Sauron and his army are distracted and the ring destroyed.

Barad-dur
It is never easy to prove conspiracy theories. The media has long been the subject of 'big brother' manipulative stories on the internet. Whether media even has the power to control stories enough to distract the hoards of the rest of us is moot.

But forgive me for not wondering.

The last two weeks may have been one of the largest distractions in history. The US debt debate was a farce. The US was never going to default. They always had the power to pay their interest and maturing bonds. The President could have stepped in at any time and invoked a section of the constitution to fix the impass. The Federal Reserve could just print the necessary money with a computer keyboard.

So what was the real story? This revolves around the meta-narrative of debt. Debt has been growing exponentially since the world monetary system went off the the Bretton Woods gold standard. The other side of this equation is that resources do not grow exponentially, they are scarce. We are in a debt bubble. Much of this scarcity revolves around energy and peek oil. Oil and energy, the life-blood of our global financial system, is not keeping up with the growth narrative of debt. You see, debt is piling up and resources, including the capacity of our labour, are shrinking, making it seemingly impossible to pay back the debt mountain with the resources of the future.

Then there was the lesser narrative last week revolving around Italy and Spain; plus the lack of confidence engendered by eurozone leaders in the Greek situation. What would cause the Spanish Prime Minister to cut short his holiday (and Europeans sure love their holidays!) and the Italian leadership to be in closed door meetings with the ECB and their Central Bank? Dire winds are coming.

Global stock markest are signalling a change in sentiment. The Dow Jones index has gone down 9 days in a row. The largest continual decline since the 1970s. Gold is at record highs (closing in on the record in NZ dollars also). The FTSE in London have lost $100 Billion in four days. Fears of recession are being felt.

The lastest eurozone bailout plan created a facility of €440 billion, while most commentators suggest €2.5 trillion was the minimum required. But even this may not be to cover Italy and Spain's banks from collapsing as funds are depleted rapidly by fleeing depositors. A good ol' fashion bank run.

The eurozone is the big news, not debt ceilings or phone hackings. The market has not gained confidence from the new eurozone measures. People are voting with their euros and going to gold. Banks are seizing up again, just like before the Lehman collapse.

Soon the eye of Sauron will be fixed once again on Europe, if it isn't already. Then we may see a collapse of the euro dream very quickly.

Swiss Gold Global - Build Your Wealth - Gain private access to our programs for saving, buying and storing precious metals.
_____________________________________________________________________

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

Wednesday, August 3, 2011

The Gold Price: Hold Onto Your Hats!


Gold is up around $40.00 an ounce today.

Jim Sinclair suggested a few years ago that volatility in the gold market will increase damatically as the market becomes more chaotic. He suggested that $100 up and down days are likely to be common. At the time this didn't seem possible. Gold moved a couple of dollars a day at most. Houses were still going up, we felt rich and we believed John Keynes definition of gold as being a 'barbarous relic'.

But maybe Jim is correct and we are now entering a period of great disruption and volatility.

The system is seriously broken and the market is clearly fearful of where it will end. US Treasurys can now only be seen as an unsure investment at best. The latest debt ceiling drama in the US, combined with Euro zone woes, may have sucked the last vestige of confidence out of the bond market.

Bonds used to be seen as the best, most liquid way of parking huge amounts of money. Where now will these capital flows go? This will be the factor that drives gold and silver going forward. The period between now and the end of this year may be marked by fear and volatility. All aspects of trading in financial paper assets may be about to change forever.

This graph that is floating around the internet is quite telling of how the gold price closely correlates with the US debt ceiling.

Courtesy www.sharelynx.com

According to this we are likely to see the gold price move up again. The main reason; to cover this new US debt, money simply has to be printed. This time though, they won't call it 'Quantitative Easing'. They will probably do it surreptitiously or give it a legitimate sounding unintelligible name like, "The Employment and Manufacturing Stabilization Facility".

The Chinese are angry and are selling US treasurys, the Europeans will have to print money to buy them and everyone else is too small to make an impact on the $2,000,000,000,000 required.

Look for volatility and fear in the next six months. Hold onto your hats. The Greater Depression is beginning.


Gold in New Zealand dollars: $1921.41 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $47.28 per oz
Previous all time high: $59.19
per oz

Articles of interest:


Uptrending Channel is beginning to steepen for Gold

See article here
traderdannorcini.blogspot.com


______________________________________________________________________

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

Tuesday, August 2, 2011

Financial Repression


The latest buzz phrase to describe stealing is 'financial repression'.

As stated before in this blog, there are a few ways of defaulting on debt that don't require an announcement of outright default. The above term describes one such method. It refers to a managed debasement of the currency to enable debt to be revalued downwards. It also requires that interest rates be manipulated downwards at the same time.

Financial Repression also requires another insidious little detail. The perpetrators hope that most of the people it affects will not cotton on to what is happening. If they do, then it won't work.

You may think this is a little conspiratorial. But it plainly isn't. The Federal Reserve is comfortable with inflation as it is and is keeping interest rates low on short term and long term US Government Treasurys. They have this policy, it is real and it is stated publicly.

They even go so far as to change the way they report inflation. Constantly changing it in order to mask it's increasing size. The New Zealand Reserve Bank are also enjoying high inflation and low interest rates. It makes their job of managing the risk associated with our high debt manageable.

With interest rates being kept artificially low through direct market intervention and inflation high, the value of your savings and investments becomes less over time. What you worked hard for last year will not buy the same amount of goods and services this year.

When people realise that their wealth is being eroded, they take measures to protect that wealth. This is not good for the system as a whole. Just imagine if even 30% of the middle-class caught wind of this and started to put at least 10% of their savings and retirement investments into gold and silver. The powers that be would be loathe to let it happen. The game would be up. The system would crash as there wouldn't be enough of your money in the bank for them to erode and steal.

The movement against this financial reperession is growing as more people become aware of what is occuring. This repressive scenario is emerging as the method of choice to rid ourselves of debt that cannot be repaid with future earnings.

What are you going to do?


Gold in New Zealand dollars: $1847.13 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.80 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, August 1, 2011

The Debt Ceiling Drama

A ceiling is a roof. The top of something that gives it an ending and acts as a shelter.

It is a limit. If one raises a ceiling then one has to ensure the walls go up with it and the foundations are also strengthened to cope with the extra height and weight.

So how are the foundations for the US economy looking then? Employment increasing? No. GDP increasing to match the extra production caused by the 'good debt' at work? Not significantly. GDP for the first quarter in the US was revised down for 1.8% to 0.4%. Perhaps manufacturing and housing starts are showing signs of life? No, still headed downwards.

The foundations are weak and the walls are too thin to support the weight of debt. Each dollar of debt added is now producing less and less GDP growth. When the Government is the main driver of GDP growth, you know you are in trouble. The Government then acts like a huge leech, sucking all the capital out of the system leaving little for small business and growth.The house of cards will fall, its just a matter of when and how.

There are many triggers to the house giving way. One view is, the trigger may be in the politics of the moment. Jim Rickards presents the argument that Tim Geithner has made a huge political miscalculation as regards to the debt ceiling fiasco. His arbitrary date of August 2nd is causing the markets unnecessary panic and dislocation. Tim Geithner, instead of projecting calm and statemanship, has instead projected instability and fear. Markets do not like instability. In Rickards mind this situation did not need to happen Poor leadership is the culprit.

You see, the stimulus package in October 2008, was pushed through using arguments based on fear. The lawmakers were told of complete financial armageddon if the $700 billion dollars wasn't approved. We now know what happened to that money. It went to strange projects around America mostly for the benefit of local poiticians and to liquefy the worlds banks and instituions. TIm Geithner is using the fear card once again.

The debt ceiling will be lifted and the US will not default on it's interest payments. It will probably never happen, at last in the way that people expect. No such statement will come from Tim Geithner saying, "We can no longer pay the interest due on your bonds, therefore we default". No the more likely scenario, as mentioned before in this blog, is a 'sneeky' default through inflationary money printing.

But Tim is playing with fire. What if the drama unfolds in a negative way for him? Life isn't always that predictable. Confidence has been centuries in the making but can be destroyed in days.

Let's hope the market gives Tim another chance.

Gold in New Zealand dollars: $1831.25 per oz
Previous all time high: $1955.10 per oz

Silver in New Zealand dollars: $44.97 per oz
Previous all time high: $59.19
per oz
______________________________________________________________________

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