Gold has been capitalizing on a weaker US dollar, a collapse in bond yields, weakness and volatility on equity markets, and fears of the financial fallout from Britain leaving the European Union. While those fears have receded somewhat, large scale gold futures and options speculators or "managed money" investors, such as hedge funds, continue to position themselves for further gains in the gold price." (
Some great insight into the feelings of the man on the street was captured in a news story in The Week
(17th June 2016): "A retired engineer, known only as Ron, made the news this week for cashing in all his investments to buy £850,000 in gold bars. He's lost faith in the stock markets and has buried the treasure in his back garden for his family to find later. Given the shaky nature of the stock markets and big events on the horizon that could cause more upset, Ron could be forgiven for his Armageddon-like approach to his investments. After all, Gold is traditionally seen as a safe haven asset that historically performs well when the stocks markets falter. The gold price has already risen by 20 per cent this year. So, if you want to add a bit of gold to your portfolio, what’s the best way to do it?
Well, don’t bury it in your back garden. It’s expensive – Ron had to hire a digger and requested the gold was delivered in batches when the weather was good so he could bury it – and it is very risky. There is unlikely to be an insurance company out there prepared to cover Ron’s gold stash."
It would be wiser and easier to call Bleyer! We would chat through, with no obligation, the different products we offer and how you can either:
- Take delivery at home
- Store your bars and coins in a secure vault via Bleyer
- Hold your Gold in a pension fund
- Buy VAT and CGT-free Gold coins as gifts for grandchildren, adult children and other loved ones
But why might Ron be feeling this way about Gold as a safe haven, against the inevitable coming economic shaking in the global economy? Every felt the best way to answer a question was with another question? If so, then the answer is, "Where do we start?"
All across the international economy, the threads are rapidly unravelling. We wrote just a few weeks ago regarding the dire economic situation in Venezuela. (The Sinking Ship: A Brief Global Economic Synopsis
, 1st June 2016) It is now so much worse, if that were possible. This is where the talk about economics becomes real - real people, real families, real children - starving in a 21st country. A report released just 14 hours ago by Nick Casey of The New York Times
states that now, "While the riots and clashes punctuate the country with alarm, it is the hunger that remains the constant source of unease. A staggering 87 percent of Venezuelans say they do not have money to buy enough food, the most recent assessment of living standards by Simón Bolívar University found. About 72 percent of monthly wages are being spent just to buy food, according to the Center for Documentation and Social Analysis, a research group associated with the Venezuelan Teachers Federation. Ask people when they last ate a meal, and many will respond that it was not today.
It was all a new reality for Gabriel Márquez, 24, who grew up in the boom years when Venezuela was rich and empty shelves were unimaginable. He stood in front of the destroyed supermarket where the mob had arrived, an endless expanse of smashed bottles, boxes and scattered shelves. A few people, including a policeman, were searching the wreckage for leftovers to take. “During Carnival, we used to throw eggs at each other just to have some fun,” he said. “Now an egg is like gold.”
Notice his inherent understanding that Gold is the standard by which he values food during a national economic crisis, that we might find hard to imagine. But Germans don't.
But, what does Germany have to do with Venezuela? Last week, I mentioned that German 10 year government bonds went into negative interest for the first time in living memory. But why is this such a monumental flashing sign that is being virtually suppressed in the E.U. media news?
"Think back. Many readers have been trading for 10 or 20 years. A few have been trading for 30 or more years.What was it like the last time German 10-year bond yields went negative? That is sort of a trick question. Most likely you were not alive, no matter how old you are. Yesterday the yield of German bonds entered negative territory. Some will think that all is well and that falls within what could be considered normal, but that there is nothing like taking a look back.
At that time Germany then succumbed to hyperinflation which left without any value to German bonds yields marked not simply because nobody bought them for those two years.
Unless you are at least 94 years old you were not born yet. If you are 100 years old and have a memory of German bond yields at age six, I salute you.
This is precisely how distorted thing are. A currency crisis awaits. What shape it takes and where it strikes is still unknown. When the Fed talks of “uncertainty” this is what they really imply."
It's basic stuff. Many of our teenagers know about German hyperinflation. Here's an extract from the BBC Bitesize website on the current GCSE History syllabus, which many of our teenagers and grandchildren have just taken:
"Prices ran out of control - eg a loaf of bread, which cost 250 marks in January 1923 had risen to 200,000 million marks in November 1923. German's currency became worthless.
- People collected their wages in suitcases.
- One person, who left their suitcase unattended, found that a thief had stolen the suitcase but not the money.
- One boy, who was sent to buy two bread buns, stopped to play football and by the time he got to the shop, the price had gone up, so he could only afford to buy one.
- One father set out for Berlin to buy a pair of shoes. When he got there, he could only afford a cup of coffee and the bus fare home."
The trouble is, behind these "bitesize" facts are starving people. The irony to the word "bitesize." The British Museum recently had a four month exhibition on "Germany: Memories of a Nation"
which only ended in January of this year! So, one would expect a British journalist, or two, might be writing fervently about the historical pattern of what follows negative interest rates in Germany and the disaster of hyperinflation on an economy. But here's the difference, the last time this happened in Germany, Britain wasn't in a political and fiscal union with an economy in hyperinflation! I would never want to be. I find it shocking that the media dictate so much of on what we, the people, are supposed to focus. This is shocking current financial news.
What other monumental international financial developments are being hidden behind the curtain this last week? While most UK papers are quiet on the big C, surprisingly The Guardian
isn't - the big C being China.
"China's debt is now 250% of GDP and "could be fatal", says government expert."
Now, it is worth noting that I don't put a great deal of gravitas on "government experts" right now!
But, if - however - that government expert comes from a communist nation, where speaking the truth is not in one's own interest and therefore is probably motivated by higher goals, it might be worth listening to the courage behind that whistle-blowing. "China’s total debt was more than double its gross domestic product in 2015, a government economist has said, warning that debt linkages between the state and industry could be “fatal” for the world’s second largest economy. The country’s debt has ballooned to almost 250% of GDP thanks to Beijing’s repeated use of cheap credit to stimulate slowing growth, unleashing a massive, debt-fuelled spending binge. While the stimulus may help the country post better growth numbers in the near term, analysts say the rebound might be short-lived." (Thursday 16th June 2016)
Now that does make sense, because it's basic economics. Inflate/print the paper money supply and that money supply will collapse at some point in the future. Its inherent value with move toward zero - unlike Gold, which has inherent value. But, China know this:
"China wants to do what the U.S. has done, which is to remain on a paper currency standard [for now but make that currency important enough in world finance and trade to give China leverage over the behavior of other countries. The best way to do that is to increase its voting power at the IMF and have the yuan included in the IMF basket for determining the value of the special drawing right. Getting those two things requires the approval of the United States because the U.S. has veto power over important changes at the IMF. [Now understand why the IMF and Obama are not two independent voices?] The U.S. can stand in the way of Chinese ambitions.
China accomplished that last November when the IMF agreed to include the yuan in its basket of currencies. The rules of the game also say you need a lot of gold to play, but you don't recognize the gold or discuss it publicly. Above all, you do not treat gold as money [yet], even though gold has always been money. The members of the club keep their gold handy just in case, but otherwise, they publicly disparage it and pretend it has no role in the international monetary system." (Gold is going to explode once China has enough
, Business Insider, 19th June 2016)
So, who are the other members of the club? Russia is one. "Gold serves as political chips on the world's financial stage. It doesn't mean that you automatically have a gold standard, but that the gold you have will give you a voice among major national players sitting at the table. For example, Russia has one-eighth the gold of the United States. It sounds like they're a small gold power - but their economy's only one-eighth as big. So, they have about the right amount of gold for the size of their economy."
And what will happen to the price of Gold in the Next Financial Crisis?
"The point is that is that there is so much instability in the system with derivatives and leverage that we're not going.... to have a happy ending. The system's going to collapse before we get from here to there. At that point, it's going to be a mad scramble to get gold. Gold is still the safest asset, and every investor should have some in their portfolio. The price of gold will go significantly higher in the years ahead. It will go higher when all central banks, China's and the U.S.' included, confront the next global liquidity crisis, worse than the one in 2008, and individual citizens stampede into gold to preserve wealth in a world that has lost confidence in all central banks. When that happens, physical gold may not be available at all. The time to build your personal gold reserve is now." (China's Hidden Plan to Accumulate Gold
, 15th June 2016)
Finally, would it be remiss of me to ignore the football? Well, I don't follow football (more tennis, happily worked at Wimbledon throughout my student years with a free pass to the tennis), but here's a related view.
Today David Beckham posted on social media that he will be voting remain, stating, "We live in a vibrant and connected world where together as a people we are strong." I think David Beckham comes across a great bloke and an advocate for Britain but he's not an economist and, with genuine respect, doesn't seem to understand what membership of the EU actual is. I think he is confusing a great human trait that is possible to show any day in any country, with the un-democracy of a political commission.
Tonight, (Tuesday 21st) it has just been reported that the Queen asked recent dinner guests, "Give me three good reasons why Britain should be part of Europe." Her Majesty's biographer, Robert Lacey, reported the Queen's comments and suggested they may mean the Queen favours withdrawal from the European Union. Buckingham Palace would neither confirm nor deny that the Queen had been debating the merits of Brexit in private, but royal sources pointed out that the words attributed to the Queen were "a question not a statement". (The Telegraph
, 21st June 2016) A jolly good statement Ma'am.
I'll conclude with an extract from a vibrantly expressed piece in The Market Oracle
entitled, "Insanity is World Norm: Keep Stacking!" published this afternoon, as it sums up the importance of taking a large step back and looking at the big picture:
"There are far better reasons to be buying and personally holding gold and silver, and price is the last consideration. More importantly, for now, is availability. Get either, or both, while you still can. This window of opportunity will close without warning. How, when, or even under what circumstances no one knows.
The West formula of burying nations, and their people, in debt that can never be repaid, remains in deep trouble. Debt for which interest is perpetually owed to the globalists, the moneychangers, is the source of all problems. [Follow The Money!] A fact that few people ever consider, for all of the endless fiat paper being created [digitalized, these days, physical paper is on its way out], none of the created money can ever cover the interest charged. Not a single cent, shilling, shekel, dinar, real, euro, whatever, can pay for the perpetually increasing interest.
Assume the universe for all money in existence is $1 million, printed into existence by the world central banks and distributed to all the people, at 10% interest per annum. At the end of the year, there is interest in the amount of $100,000 due to the central banks. That interest is now in addition to the $1 million that exists.
The central banks say that, at the end of the year, everyone must return their portion of the $1 million in existence, plus pay the agreed upon 10% interest. The question is, from where does the “money” come to pay the interest? It does not exist, but the bankers are demanding that it be paid. The bankers will create and loan out another $100,000 so all can repay the interest due and owing, but now, everyone is borrowing money that cannot be used for any other purpose than to repay the bankers.
Greece is experiencing this without understanding the futility of it all. Italy, Ireland, Spain, Ukraine, Venezuela, Brazil, et al, actually the entire Western world is a financial house of fiat currency debt where the inability to pay interest keeps mounting, and in order to stay alive, financial speaking, just to pay the interest, every country is being forced into insolvency, giving up individual sovereignty, having to sell national assets for pennies on the dollar to the elite’s corporate squids devouring every country along the way."
Next week, Great Britain's economics could be entering a new beginning. Whatever happens, I hope this nation of ours remembers how great we can really be and that we will offer grace and equity to each other through being great, whatever the outcome.
*Due to a family commitment, this week's blog is written a day earlier than usual. As the headlines can change daily please forgive any possible lack of inclusion of last minute developments. Back to a normal mid-week Wednesday blog next week.