Wednesday, August 22, 2012

Murmurings of Change

Change to complex systems, like the global financial system, usually begins with small, almost insignificant, murmurings. Situations can arise where the parts that form the foundations of the system begin to stress and crack.

There is and old adage that when international financial systems stress, the first scramble for resources and political positioning begins with trade wars, followed by currency wars, then, heaven forbid, hot wars.

In 2008, our financial system, built on confidence and trust in fiat money, began to crumble. So far, the game has been kept going for four years with ever increasing bailouts moving further up the layers of the financial food chain. Firstly, to  large corporations, like Goldman Sachs, then to small sovereign nations, like Greece, to now large sovereign nations like Spain and Italy.

So where are we at in the positioning game? Who's doing what to safeguard their assets and to take advantage of whatever phoenix may arise from the ashes.

Last week, Lord Rothschild made a £130m bet against the euro. That is, he bet that the euro will go down in value and even disintegrate. The Rothschilds have been savy bankers for hundreds of years. Is this action something we should take note of?

Comentators like Franklin Sanders, have been warning folks to get out of stocks for years now. Although even he has been surpirised by the longevity of the US stock market, murmurings of change are about. The New Amercican reports, "(George) Soros’ most recent 13F filing with the SEC showed that during the last quarter, his American fund sold more than a million shares of the big financial companies with a value of almost $50 million. During that period, Soros Fund Management also more than doubled its position in the SPDR Gold Trust to nearly 900,000 shares.

There are indicators of inflation creeping into the system. A sudden recent rise in the 10 year US Bond interest rates. Commodities, especially oil and grains showing steep increases.

Then there are the changes in outlook for gold. Gold is increasingly being talked about as money. The BIS is discussing making gold a tier one asset for collateral purposes, equal to cash. The CME the same. JP Morgan already treats it so.

There is also more talk about the possible manipulation of the gold and silver prices on the paper COMEX market. A number of main stream media outlets have interviewed people like Ned Naylor-Leyland of Cheviot Asset Management (CNN) about this. Jim Rickards as well.

Then there are the recent scandals involving LIBOR and MF Global. Each new case of fraudulent activity striking at the heart of the financial system. LIBOR, because it sets interest rates and therefore the price of money worldwide  And MF Global which brought into question the safety of segregated client funds held in banking institutions. Furthermore, these sorts of scandals are causing those who have unallocated gold and silver accounts with institutions to question the safety of their investments.

Include that Central Banks are net purchases of gold. It is reported by the World Gold Council that gold purchases by Central Banks of various countries have hit a record high of 158 tonnes in the June, 2012 quarter. This is the highest since the second quarter of 2009 and double the 66 tonnes purchased in the same quarter last year.

There are many more examples of significant 'insignificant' (to Joe Sixpack anyway) murmurings that are cause to ponder where you are putting your hard earned wealth. Is the best place safety for now or do you just carry on and hope it will all blow over?

Not easy decisions to make, but unfortunately, having read this current blog post, you now have to make those decisions.

Gold in New Zealand dollars: $2026.84 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $36.24 per oz
Previous all-time high: $59.19 per oz (30 Apr, 2011)
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