Dear Reader,

Next week, a quietly historic event will occur. While our children and grandchildren return to school for the Autumn term, where morning’s turn misty and new school shirts are equally crisp, the G20 leader’s summit will be held in Hangzhou on 4th and 5th September. Why is this so historic?  Because it will be the very first time a non-Western major power has hosted the global body of financial, economic and geopolitical countries. And why is the G20 being hosted in China this year? Because it may have stayed quietly off the main sections of the mainstream papers but China is the nation holding this year’s G20 Presidency.  I have found no greater article that sums up why next week’s meeting is so key as the following one, discovered in a Brookings study. The Brookings Institution is “a nonprofit public policy organization based in Washington, DC. Their mission is to conduct in-depth research that leads to new ideas for solving problems facing society at the local, national and global level.” They’re celebrating their centenary, so this isn’t a body of researchers that’s just appeared since the 2008 crash and their tone of writing is broad, international and measured. I say this because the G20 was created after the 2008 crash, precisely to encourage economic recovery, of which we have not seen in any real substance.

Back in April, this Brookings report got right to the key point; “There is little doubt that we are at an important inflection point in international order. For the past 25 years, the international system—with its win-win economic structures—has been relatively stable. But this order is under challenge and threat, and it is eroding. We risk the rise of a lose-lose international system, encompassing a deterioration of the security relations between great powers, and a breakdown of the basic structures of international cooperation. 

That may be the worst-case scenario, but it is a plausible one. Countries must be vigilant about preventing this outcome. Even though the established powers and the so-called emerging powers (clearly China is an emerged power) may not hold the same views about the content of international order, all sides have a stake in pursuing intense negotiations and engaging in debate and dialogue. It is imperative that parties find a middle ground that preserves key elements of the existing order while introducing some degree of adaptation, such that this order does not collapse.”

Words chosen carefully, with I believe a heavy dose of diplomacy – and possibly undue optimism?  Since then we have seen increased terrorist attacks in mainland Europe and the continued fall of the power of the euro as a viable future project. More acutely, we have seen a continued increase in the partnership between Russia and China, increased war in Syria – pulling in East vs. West in a complex powder-keg game of international chess – and all against a weakening dollar and U.S. administration, which in turn has seemed to weaken Western friends and strengthen regimes opposed to the democratic freedoms of the West since 2008.

It has always been clear to me and our readers that Economics never runs independent of geo-politics. So, we can never look at Gold and Silver on their own, as beautiful as some of Bleyer’s are to look at! And indeed, the Brookings Institute re-iterate this view: “Of particular note is where political and security issues fall. Although the G-20 did tackle the Syria crisis at its St. Petersburg meeting in 2013, political and security issues have otherwise not been part of the group’s agenda. But these topics form an important part of the landscape of great power politics and global governance, and they are issues for which we find ourselves in very difficult waters. Tensions between the West—particularly Europe—and Russia are running high, just as disputes are mounting in Northeast Asia. The question of America’s naval role in the Western Pacific and China’s claims of a nine-dash line are serious flash points in the U.S.-China relationship, and we should not pretend that they are not increasingly difficult to manage, because they clearly are.”

On a lighter side note for a moment, a story emerged today of not everyone taking some of the geopolitical tensions in the same vein as world commentors: “Eleven Eton students enjoyed a private audience with Vladimir Putin in Moscow, pipping Theresa May to it. While Mrs May will not meet the Russian leader until an international summit next week, the teenage boys were able to shake his hand and meet him personally at the Kremlin in Moscow.  Snaps of the meeting, which is thought to have been set up by a Russian bishop after he gave a talk at the Berkshire college in March, were posted on Facebook. The boys were photographed sitting around a table with Mr Putin and shaking his hand. A source close to the boys from the £37,000-a-year college told The Sun: “They didn’t tell anyone they were going. I would assume it was so the school didn’t find out because I don’t think they would be happy.” Mr Putin will meet Mrs May for the first time next week for a face-to-face dialogue. The Russian president has previously said he is ready for “constructive dialogue” with Britain’s new Prime Minister.” (The Telegraph, 31st August 2016)

But in all seriousness, look at what the Russian ambassador to China believes regarding the G20 meeting this week; “Denisov thinks the partnership between Russia and China is key to the G20’s cooperative action, saying the important roles played by Russia and China in international affairs will establish a prerequisite for the establishment of a reasonable global economic governance framework.” Denisov continues by expressing how much China and Russia are now working together; “Russia and China have carried out a large number of joint work to bring promising initiatives to the platform of the G20, proposing suggestions on solving international community problems according to our own experience.” (ECNS – Chinese News, 31st August 2016)

Meanwhile, Jim Rickards – whom many of you know well – brought all these threads together last week in a piece published in Sprott’s Thoughts publication. So, once again, you won’t find these articles or periodicals in the mainstream papers. James G. Rickards is the best-selling author of “Currency Wars, The Death of Money and The New Case for Gold” and advisor to the U.S. Department of Defense and Intelligence Communities.

When Rickards is asked how he has observed changes in geopolitics and world markets and what is the narrative in your mind? he cuts right through the dross to the key factors: “Well, some things are changing quite a bit. Some things haven’t changed. Some of the fundamental forces are the same. Superficially, we’ve had a lot of news. We’ve had the Brexit. We’ve had the unexpected rise of Donald Trump. We’ve had the Turkish coup. We’ve seen Venezuela implode. So there have been a lot of very important, very significant political and geopolitical developments and they can all impact gold or commodities one way or another. But certain things haven’t changed and I think these are important to focus on because they really drive the price of all commodities and the number one thing, is the struggle between deflation and inflation and this is something I talked about in my first book Currency Wars in 2011.” 

Notice how he relegates Brexit to the pile of “what a lot of noise over nothing” pile but focuses right in where we are in the inflation-deflation cycle. I have covered this repeatedly in Bleyer’s blogs, if you fancy a browse later in the week, just click here and choose a title which refers to “Deflation” or “Inflation” etc.

Rickards continues; “So debt deleveraging, demographics and technology are causing deflation now, and I would call that the natural state of the world. However, central banks cannot have deflation. They cannot allow it. I’ve had this debate with our friends Harry Dent and Gary Shilling and others because they do the deflation analysis. I agree with them, that their analysis is correct.

But there’s a countervailing force which is central bank policy. Governments cannot have deflation either because it increases the real value of their debts.

Governments are over-indebted as it is. The Japanese debt to GDP ratio is over 250%. Chinese Corporate, Individual and Government debt to GDP ratio is over 300%. These are huge numbers. People pick on Greece but the rest of the world looks a lot like Greece, or is getting there fast. Deflation increases the real value of debt. If you’re over-indebted to begin with, the last thing you want is deflation. There are other reasons why governments don’t want deflation, and they’re determined to stop it.

So you’ve got these two tectonic plates. There’s the natural tectonic plate, the deflation, and then there’s the policy plate of inflation—which is money printing, currency wars, QE, operation twist, negative interest rates, and zero interest rates. They’re pushing against each other. It looks stable from the outside but it’s dynamically unstable. It’s going to snap. The question is which way it will go.

Central banks could throw up their hands and it could go deeply into deflation. Or, central banks could pull a few more rabbits out of a hat and it could go into inflation. That kind of monetary instability is part of the new case for gold as I call it in my book.”

And why is this the case for Gold (and Silver), and particularly physical Gold and physical Silver? Because both precious metals perform very well in deflationary and inflationary cycles, especially hyper-inflationary. This is logical. When paper assets become unstable, the funds rush into a safe haven asset, something of inherent historical value and that in turn pushes up these precious metals further.

Rickards also gave a keynote speech last week at the Sprott Natural Resource Symposium called “Gold: The Once and Future Money.” He gives the following synopsis of that speech; “Everyone knows that gold used to be money but most people don’t think of it as money today. I do personally and that’s how I analyze it, but that’s not widespread. Most people don’t think gold is money. They think it’s a commodity. I disagree. I think its money. So gold used to be money. It’s not really money today except to a few people like me. I think it will be money again in the future. So what is going to get us there? What is going to change that mindset?”

What a key question!

I’d like to highlight a further connected theme he touched on in the speech, which is this; “If I have confidence in what you’re giving me, and I think I can spend it elsewhere or someone else will take it from me, then its money. So it doesn’t really matter what form it takes. What does matter is that you have confidence in it. The point I make is that confidence is based on trust. It’s very fragile and you can’t take it for granted. When confidence or trust is lost, it can be lost very quickly and it’s very difficult to regain. So money is a much more fragile construct than people realize, because confidence is psychological. It really doesn’t have so much to do with how much of it you print (which is an important economic concept), but rather the real fundamental basis of any form of money is people’s confidence in it. One of my concerns is that central bankers take confidence for granted. They think they can print as much as they want for whatever reason. I think their theories about money printing are obsolete. But they don’t agree with that. They think there’s some benefit in money printing but I make the point that they’re ignoring confidence, and taking it for granted.”

Isn’t that true of how our readers feel today? More than ever, it is easy to find articles in more and more mainstream sources that cite the average British public’s loss of confidence in the elite, whether that be political, or financial and banking.

For a few years in my thirties, out of the blue, I became fearful of flying. It puzzled me, as I’d be fine for decades.  It took a while of introspection but I realised the fear wasn’t a fear of flying but the thought that someone else was driving! I’d just been through an event when greater self-reliance had become an essential necessity and I’d transposed this onto the experience of flying. I preferred driving to the airport, even in thick traffic, to sitting back and letting someone else “take the wheel”! Once I realised it was a symptom of confidence in learning again to let someone else take over, I returned to being not only fine but really enjoying the few hours off a flight gave me. The final breakthrough came when I realised that if I had to choose between me and the pilot flying the plane, there was no contest – especially the smooth sounding pilots that come over the speaker introducing themselves in plummy, relaxed and in-control tones.  (I think they go to Pilot Voice School for that by the way and change all their names to “Michael, Tom or James”.)

But, here’s the serious crunch. This fear-evaporating logic only works if the person in the driving seat has proven by their track record that they can fly.  Evidence builds confidence. By contrast, over the last eight years, have financial investors and governments proven that they cannot fly our money better than we can, if we try our best to do our research well and thoroughly? And this is why, no matter what we are told, many don’t feel that “confidence” in the “system” anymore. And this is why so many people after their own research are buying their own physical Gold and Silver as a method of wealth protection from the coming economic and political storms.

An example of this in our everyday real life is Pensions. Recently highlighted on 28th August in an article from The Telegraph’s money section entitled “Why Britain’s pension crisis will wreck your investments”, the author concluded that “The pension deficit dilemma opens yet another front in the spreading inter-generational conflict. Over-generous promises made to previous generations are now having to be met by today’s shareholders, who must make do with lower profits and dividends, and today’s workers, who suffer greater downward pressure on their wages.

What’s more, younger people who must rely on stock market-invested defined contribution pensions to fund their retirement will see these grow less quickly as defined benefit promises are met.”

It is probably advantageous to begin some research into therefore holding one’s pension in a pot at least in part outside of stocks and Gold Pensions are available  alongside owning Physical Gold and/or Silver.

The price of Gold and Silver has performed a slight correction this week, so some might say a buying opportunity for those waiting for a pull-back from the record-breaking rises of recent months. Bleyer don’t just sell Gold and Silver bars but a wide variety of coins. Here are some of the Gold coins Bleyer offer. Take a browse and call one of the team on 01769 618618 to find out how you can invest in a variety of Gold bullion coins today.  Their advantages range from high portability to considerable Capital Gains Tax advantages, such as the Gold 1oz Britannia and all Gold sovereigns.  In addition, Bleyer hold a wide variety of coins from many nations, for the clients among you who enjoy investing in beautiful designs. Take a look at the stunning Austrian Philharmonics or the extremely popular American Eagle and Buffalo.  We’ve noticed an increase in interest in Chinese coins, and Bleyer now offer a variety of denominations of the Chinese Panda in 1/10, 1/4 and 1/2 ounces.  These make ideal gifts or as an incentive to start accumulating Gold for a family member or grandchild. Browse our extensive range of additional South AfricanCanadian and Australian Gold coins, for a bullion investment that – like all our bullion investment coins – are recognisable and tradeable the world over. For a selection of our many different size Gold and Silver Bars, please browse our website or call the team now on 01769 618618 or email sales@bleyer.co.uk to find out more. We are here to help.