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Gold: The Established International Currency

Gold: The Established International Currency

Dear Reader,

To be fair, it is hard not to see the American Election campaign as a pantomime.  I'm sure we could find sections of British politics across the spectrum that seem questionable.  But I don't ever remember an election campaign - which has such potential global impact - looking so disingenuous.  Politics is hard to trust at the best of times.

But, one headline of one very small voice involved did catch my eye this week, as it relates directly to the future of Gold.  "Dr. Judy Shelton, [is] one of two economists recently named to Trump's Economic Advisory Team, and the only woman to hold that title." Now, I know we have readers and clients from all political backgrounds. But, regardless of what we think of Trump, both good, not so good, or just plain perplexing, Dr Shelton's words hold their own due to her economic experience and views on Gold:

"Shelton is a senior fellow and co-director of the Atlas Sound Money Project, whose mission is to promote the principles of sound money and raise awareness of what they see as the inherent problems of our current monetary system. Dr. Shelton first rose to prominence when she predicted the economic collapse of the Soviet Union in 1989, two years before it transpired."

She's less of a Trump supporter and more of a Republican-values supportive, having previously advised Marco Rubio, Ted Cruz and Ben Carson.

Here's what she said this last week in an interview with Fortune: "In terms of gold being involved, [in a future U.S. monetary policy] some people may think of that as a throwback, but I see it as a sophisticated, forward-looking approach because gold is neutral and it’s universal. It’s a well-accepted monetary surrogate that transcends borders and time. If you look at the foreign reserves of the most important countries, they keep them mostly in gold. I don’t want to read too much into it, but it proves that gold is not some barbarous relic."

That sounds measured, empirically-based and sensible.

Dr Shelton interestingly talks about this new Gold Backed Monetary system being introduced first gently via a Gold Backed Bond and immediately recognises that China would be the country most keen to concurrently pursue this.  For why this is so, please see several of my previous articles on China and Gold entitled including:

China and Alan Greenspan - "Something Big is Coming" (8th April 2015)

In the above article from 2015 I wrote that; "When asked does Greenspan see a rally in the Gold price therefore in 2015, he strongly summed up his position by stating very sensibly that there is "no need to time it that closely. There are bargains out there that should be bought right now and held onto with a two to three year time horizon, with great confidence that the downsize risk is minimal and your upside return is really quite extra-ordinary."

Shelton reiterates this view:  "A gold-backed bond was first proposed in 1981 by Alan Greenspan. I think the U.S. should issue them as an experimental pilot program, similar to the TIPS bond, that compensates people who are concerned about the future value of the dollar. For those who are concerned about a big financial meltdown, these bonds would give them some insurance, as gold tends to rise in price during periods of financial stress.

The Chinese would welcome this development, because it would likely be a stabilizing force for the value of the dollar and protect their dollar holdings. I also think they are the most likely country to provide a parallel instrument. If China were to offer a similar instrument where five years from now you can get back x amount in yuan or an ounce of gold, five years from now both the U.S.-issued instrument and the China-issued instrument are worth the same thing, an ounce of gold. So now you start getting projections of a stable exchange rate determined by market forces. If this practice starts to spread to even more countries, you would start to see the semblance of a future stable exchange rate system with those exchange rates being determined by what market forces believe about the future value of those currencies."

Gentleman stacking up Chinese Banknotes

This makes complete sense. China, as we have repeatedly seen, has been attempting to amass Physical Gold and Silver in preparation for the increasingly likely creation of a Gold and/or Silver backed world currency.  That has been clear for at least the last six years, since their government announcement to their populace. In 2009, China spent large sums of money advertising to its people to buy Physical Gold and Silver, having relaxed its government rules for precious metal purchasing for its citizens. "Given that the Chinese people (like most of Asia) already had a greater appetite for gold and silver than people in most Western nations, the explicit urging by the government itself for people to load up on bullion clearly implies the expectation of a strong future for precious metals." (Jeff Nielson, 2009)

Now, I'm sure that a Sports commentator from The Telegraph didn't mean to be so prescient in his headline last week but it caught my attention:

So, to recap on Physical Gold's price rises this year, the price per ounce of Gold has risen £162.02 or 19.01% in the last six months, while Physical Silver has risen a massive 34.57%; hardly noticed by the mainstream media.

Now, understandably, those price rises are just cooling a little, while the herd of the market which panicked over Brexit realises the world didn't fall in. And wealthy Harrods clients are taking advantage of this slight pause in the upwards bull market. Once again, the word "China" happened to get into the picture in this brief write-up in The Telegraph last month: Harrods "is currently displaying a 12.5kg gold bar, worth around £400,000, in the window of its Knightsbridge store. The price of the precious metal has risen approximately 30pc this year, with demand from some of the biggest markets, such as China, growing fast." 

It is logical to assume that once the effects become apparent of both more Quantitative Easing in the U.K. and the U.S. plus a few international political events and uncertainties play out, the price of Physical Gold and Silver as a safe haven will probably continue its march upward again. That is, however, a personal hunch, not investment advice. I encourage Bleyer's readers to enjoy copious amounts of their own research and, where appropriate, seek the advice of an I.F.A. Many of Bleyer's clients are highly researched individuals from all walks of life and it's a joy to talk with you and receive emails from you.

On the political horizon we have Russia (and China) to watch; particularly Russia. North Korea is also one to watch. In addition, Turkey is always been an anomaly in the E.U./Middle East equation. It sits at the boundary of both and historically seems to oscillate between the two. As we have recently seen, Turkey's human rights record is shocking. And yet I expect not many of us realise that "Turkey is the world’s fourth largest consumer of gold accounting for around 6% of global consumer demand, and we estimate that Turkish households have accumulated at least 3,500t of gold “under-the-pillow”. (World Gold Council) The WGC report continues with some really eye-opening insights to our Western ear: 

"Turkey has a long tradition of gold demand; we expect this to continue. Turkey's relationship with gold is underpinned by a deep culture heritage. In the jewellery fabrication industry it is a medium of exchange and a unit of account; the Grand Bazaar - the heart of Turkey's gold market - rents are priced in gold. There is a strong economic incentive to own gold too. Generations of Turkish savers have turned to gold as an effective hedge against the ravages of inflation and currency weakness." It's noteworthy to add that when a government take the following action after a failed coup, it is of no surprise that the populace of such a country hide their wealth in physical Gold:

"Nearly 70,000 others were suspended or sacked from their jobs in media, health care, education, military and the judiciary. Mr Erdogan's decree is the third issued during the three-month state of emergency declared following the event, which left more than 200 people dead. It gives the prime minister and president the authority to issue direct orders to the commander of the army, air force and navy." (Sky News, 31 July 2016)

I have always felt that Turkey’s ruling parties historically attempt to play West but are intrinsically East in their ideological stance. This bore out again this week with the latest developments from a tumultuous state: "The unexpectedly sharp antagonism between Turkey and the West accelerated today, and one day after NATO preemptively reminded Turkey that it is still a NATO alliance member and advising Ankara that "Turkey’s NATO membership is not in question", Turkey had some more choice words for its military allies. Cited by Reuters, Turkey foreign minister Mevlut Cavusoglu told Turkish's NTV television on Thursday that the country "may seek other options outside NATO for defense industry cooperation, although its first option is always cooperation with its NATO allies." Translation: if Russia (and/or China) gives us a better "defensive" offer, we just may take it." (Zerohedge, 11th August 2016)

And what does this have to do with Gold?  "Perhaps the most notable development was reported today by Turkey's Gunes newspaper, which said that as part of the discussion between Putin and Erdogan on Tuesday, the Turkish president suggested to abandon the US dollar in bilateral trade between Turkey and Russia, and instead to transact directly in lira and rubles. This would "benefit both Russia and Turkey", Erdogan allegedly said in his August 9 meeting in St Petersburg, adding that this would relieve the lira from the USD's upward pressure.

Needless to say, such a bilateral agreement would further infuriate Turkey's European "friends", permanently halting Turkish accession into the customs union, in accordance with Austria's recent demands, and would in turn lead to a dissolution of the refugee agreement that is still keeping millions in refugees away from Europe in general and Germany, and Merkel's plunging popularity ratings, in particular. Which, incidentally, means that not only Erdogan, but now also Putin, holds key leverage over the career of Europe's most important politician." (Zerohedge, 11th August 2016)

I've highlighted that last line because it's so key.  The root behind so many of the political headlines is actually not politics, but Gold. And the root behind Turkey is Russia and the root behind Russia is China. Or is it the other way around? The true puppet-master of the Chinese-Russia relationship may only be truly apparent in time.

Moving on from the political uncertainties to natural ones, this last fortnight there have been some truly heartbreaking natural disasters also. The floods in Louisiana barely touched our mainstream media for the first week of it occurring but the floods were historic. Today we wake to news of a massive earthquake in central Italy. Our thoughts are with anyone with family and friends affected.

We live in uncertain times. I think most people with whom I spend my time, both personally and professionally, instinctively understand this. And this does have financial implications. Time and time again, I read accounts of people from so many different countries and cultures, viewing Physical Gold and Silver as safe havens in times of turmoil; overcoming borders, languages and political leanings. For example, this week Dan, a fellow member of the team at Bleyer emailed me these figures

"Gold Demand: Record H1 investment demand of 1,063.9t was 16% higher than the previous H1 high from 2009. Investment was the largest component of gold demand for two consecutive quarters (Q1 and Q2) – the first time this has ever happened."

And we all know where the world stood economically back in 2009.

So what can you do about it?  Bleyer believe strongly in taking personal responsibility for one's wealth increase and protection. We ourselves hold and follow traditional business ethics, taking time to build trust with you, our clients, giving bespoke customer care and researching the factors that affect or manipulate the free market in precious metals.

We would love to see many more members of the British public just like you owning and holding your own Physical Gold and Silver, in preparation for a time when international fiat currencies  - in their highly interlinked fashion - will be going through a very bumpy ride.  As previously discussed in our Blogs and News, Gold and Silver do well in inflation, deflation and hyper-inflation. We believe we're currently in the deflationary stage of the current cycle, which is what we call a 'buying opportunity' in Physical Metals.

If you would like to know more about the many different Gold and Silver products we offer, plus information on home or away from home storage, holding Gold in a pension or even buying home Gun Cabinets, please feel free to email [email protected] or browse our website, submit an enquiry and sign up for our weekly newsletter. One of the team will contact you to chat through your options.  We can help you make your own individual choice about your wealth protection, look together at how you can save both VAT and Capital Gains Tax in owning Physical Gold and Silver and which products will work best for you. Accumulating Physical Gold and Silver is quick, straight-forward and rewarding.   

We look forward to doing business with you.

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