This last week has seen an unprecedented level of assaults on our Western freedoms. On one particular day, I actually reached a moment that was sobering – I confused two similar terror attacks because the headlines just kept coming so fast. There was barely time to react to the first before the second. That changed things. I can remember mourning, feeling shaken to my core and discussing 9/11 with friends for weeks. Nowadays, we barely have time to acknowledge one attack before the next occurs. Within that framework one of the productive activities I can do is continue to research the headlines that are there but out of focus, to prepare and inform as many as are listening as to our financial and economic precarity, as we are surely aware of our democratic precarity.
Precarity is defined as, “a condition of existence without predictability or security, affecting material or psychological welfare.” I cannot help with the second but I can help with the first.
So, here’s some interesting figures, and quite sobering and motivating:
Last month, Russia added 19 tonnes of Gold to its reserves. That’s 600,000 ounces! The month before, in May, Russia added “just” a sixth of that, adding 100,000 physical ounces to their reserves. What do they know?
Last month, some of you added more physical Gold ounces to your growing investment and “safe haven” pot. A move in keeping with not just Russia but China also:
“The Central Bank of Russia added a record 208 tons of gold to reserves in 2015. Last year Russia suffered financially as international sanctions and plummeting oil prices took their toll on the rouble and the inflation rate reached double digits. According to the World Bank, oil is by far Russia’s largest export and represents about 15-20% of Russia’s GDP and the majority of government revenues. 2016 has started off better for Russia. The price of oil and gold have increased significantly in 2016 and have helped Russia improve its financial situation and reserves.
The pace of Russia’s gold purchases has remained relatively steady over the past two years. In May, Russia added ‘just’ 100,000 ounces (approximately 3 tons) to her reserves, the lowest amount that Russia had added since May 2015. Despite the weakness in the Russian economy, the Russian Central Bank has bolstered its foreign reserves from about $350 billion a year ago to over $390 billion at the end of June 2016. The Russian Central Bank has a stated goal of increasing reserves to about $500 billion in the coming years.As of June 30 2016, gold constituted about 13% of the Central Bank of Russia’s $392 billion reserves with her gold hoard valued at approximately $51 billion.” (Russia Adds 19 Tons of Gold to Reserves in June, 26th July 2016)
The question which therefore came to my mind was this: If the Russian economy has suffered so much with the low oil price, how has she raised the funds to buy this much gold? And the answer is, she has sold something. Between January 2014 and April 2015 Russian sold almost exactly 50% of all her U.S. Treasury holdings!
But it’s not just Russia. As readers of this blog will know, Russia acts in tandem with another Eastern power-house, China. So, here are China’s figures for last month also:
“Earlier this month, the People’s Bank of China announced that it had added 480,000 ounces (approximately 15 tons) of gold to her reserves in June.” And here’s a very interesting comparison in percentage terms between the two Eastern nations:
“Russia’s pace of adding gold to reserves is the fastest in the world, surpassing China whose gold reserve additions over the past year are the second highest. From August to June 2016 China added 145 tons of gold to its reserves, while Russia added 212 tons, or 46% more. As a result of Russia’s gold buying binge, Russia has vaulted into the top ten gold holding nations and is now the sixth largest.” (Townhall, 26th July 2016)
We couldn’t be seeing a more clear flag that the currency war is in full swing and that economic power is moving from West to East. There is much we can do to protect ourselves.
I came across a refreshing short video from a CEO of a South African Gold plant. I enjoy listening to this subject spoken of from around the world, because it reminds me regularly that this isn’t just a British thing; the view that Gold is “real money” spans history, hemispheres and East to West! Here’s an extract from the video for our readers to enjoy:
“Confidence in the world order and the ability of governments to manipulate the value of fiat currency, that confidence is diminishing. The extent to which governments are being considered as credible sources of capital, that confidence is diminishing. And we do what we’ve been doing for hundreds of years (I would add thousands of years); we fall back on the only real currency, the only real way of preserving buying power, preserving capital; that is we buy Gold. And we’ve been kicking around gold and playing around with gold so recklessly in the global markets with the creation of “paper gold” as opposed to holding physical gold in a vault somewhere that I think we might be heading towards a deficit in so far as physical gold is concerned.”
In a follow-up interview with Mining.com he goes further to state; “I think there’s going to be a fairly significant shortfall,” DRDGold CEO Niël Pretorius told Mining Weekly Online during a media visit to the company’s strongly producing gold-from-tailings plant at Ergo on the East Rand, South Africa.
I personally believe this “falling back on the only real currency” we know will increase and therefore the price will increase, when the concept of negative interest rates becomes real to many people in this country and around the world. Why? Because negative interest rates are passed onto Business Customers first, before personal bank accounts are affected. Personal bank account will, yes, often be hit with the equivalent “wealth grab” via account charges and no interest. But here’s how it works:
“The idea of paying to have money in the bank seems unfair, and frankly just plain weird. It is indeed a strange idea for strange economic times. Let me take a moment to explain why anyone would want to do this. Banks have bank accounts of their own with the central bank. In the UK’s case – that is the Bank of England. For countries that use the euro it’s the European Central Bank (ECB). The central bank pays their banks interest for any spare money they have got on deposit with it. By lowering interest rates, the central bank makes it less attractive to park that money on deposit and encourages the banks to do something more profitable with it – like lend it to individuals and businesses to spend – thus boosting the economy.
When banks are really reluctant to lend, a bigger stick is required. And so in Europe, the ECB has introduced negative rates – which doesn’t just encourage lending but punishes the banks if they don’t. If there isn’t anyone who wants to borrow that money, the banks end up paying the penalty – and that cost could get passed on to customers.
That is what RBS and NatWest are saying could happen here if the Bank of England cuts rates from the current 0.5% to below zero.
That’s quite a lot of caveats and why it is very unlikely to happen anytime soon. Bank of England governor Mark Carney has gone on the record saying he doesn’t believe negative interest rates work, precisely because they punish banks, making them weaker and can pass on additional costs to customers, which in turn makes the economy weaker.
The real story in RBS and NatWest’s message is the rise in the cost of business banking by an average of £8 per month. RBS and NatWest have around 1.3 million business customers, as they have traditionally offered cheaper business banking than some of their rivals. In a world where they can’t make any money on those deposits themselves, they are having to find income elsewhere. The business of banking is pretty simple. You pay interest on deposits at one rate and you lend it out at a higher rate. When interest rates are this low, the difference between those two rates gets squashed and so do the banks. This move by RBS and NatWest is the sound of the banking pips squeaking.” (BBC, 26th July 2016)
The Telegraph expand this economic unpleasantry further this week by writing, quite logically, that: “It seems that while business customers may be hit with negative rates, when it comes to personal banking banks are far more likely to charge account fees to cover their costs to avoid putting off customers. This has effectively been the case for years with some current accounts here in Britain. For instance, First Direct charges £10 a month to use its hugely popular current account, which does not pay any interest. Additionally, rates can only go so low before savers will take money out in hard cash to store at home or elsewhere.” (The Telegraph, 26th July 2016)
Gold and Silver are the historical “elsewhere.”
Ian Dunbar is a 75 year old Gold investor and has been since 2001, when he came into a “small legacy.” Here’s his view of Gold and it’s a joy to read:
“Gold is often viewed as the investment of choice for ultra-cautious savers, pessimists, or downright fanatics. Some ‘goldbugs’, as these investors are called, have been written off as doom-mongers and mavericks. Others have been celebrated as visionaries whose mistrust of financial systems has proved frighteningly accurate.
Ian Dunbar, 75, has stored the majority of his wealth in gold since 2001. ‘I learnt about gold 50 years ago from a novel called The Razor’s Edge by Somerset Maugham,’ he says. ‘It is about wealthy Americans at the time of the Wall Street crash. Some of them got wiped out but one did not and continued living the high life on the French Riviera.
‘When asked how he managed it, he said he saw the crash coming, sold up and bought gold. It was a lesson I never forgot.’
Dunbar, a doctor, has for much of his life believed that Western nations such as Britain ‘live in a dream world’. He says: ‘A frenzy of debt and consumerism, in which everyone believed they could own and do what they wanted, was bound to come unstuck.
‘I came into a small legacy in 2001, but by then I had been nervous for some time. Everyone is so sure they are right in our society. There is so much arrogance.
‘The crisis that we have had since 2007 has not changed that. If anything, the authorities seem to remain in arrogant denial, believing they can save their financial systems.
‘I don’t think anyone has the foggiest idea of what will happen, including me, though I believe the worst is yet to come.’
Ian reckons gold represents the best store of wealth where uncertainty prevails. ‘Paper currencies used to be linked to stores of gold held by the central banks, which enforced some financial discipline,’ he says. ‘But today paper currency systems appear worthless. Gold on the other hand is immutable. It is the ultimate currency, as it has been for 6,000 years.’” (“Is Gold Still a Winner and Can It Protect Your Wealth”, This Is Money)
He wrote this back in 2012! How right he now appears.
So, how close are we to a global economic crash? Remember we explored the definition of precarity as “a condition of existence without predictability or security, affecting material or psychological welfare?” Well, this week I wondered whether the economic crash (material) will hit us out of left-field because we’re all reeling from the almost constant attacks on our collective security? And yet, tragically, sadly, and almost predictably the two are connected. War and economic collapse historically come together, with war preceding financial depressions.
But I’m only one voice. What do others say? “The City of London’s most vocal “bear” has warned that the world is heading for a financial crisis as severe as the crash of 2008-09 that could prompt the collapse of the eurozone. Albert Edwards, strategist at the bank Société Générale, said the west was about to be hit by a wave of deflation from emerging market economies and that central banks were unaware of the disaster about to hit them. His comments came as analysts at Royal Bank of Scotland urged investors to “sell everything” ahead of an imminent stock market crash. Developments in the global economy will push the US back into recession,” Edwards told an investment conference in London. “The financial crisis will reawaken. It will be every bit as bad as in 2008-09 and it will turn very ugly indeed.” This was written back in January of this year. (The Guardian, 12th January 2016)
The author might feel a little silly if the crash doesn’t come in 2016. But whether the date is correct or not, it doesn’t negate the fact that an economic crash is inevitable.
This week, as I was driving to work, I was struck again by the image of a tsunami. The sucking out of the tide is the negative interest rate. The normal sea level is normal inflation levels. And the tsunami is the heightened, enlarged mega-inflation that always races in after the tide has been pulled out (deflation).
In geographical terms, we understand that the tide pulling out is the signal to run fast in the opposite direction. In monetary terms, deflation is the signal to clear your debts, as fast as possible. There are several ways to do this.
One way, involving Gold and Silver, is to buy low and sell high, using the increase to reinvest and/or clear debts. With interest rates so low on the high street, it is impossible to make a profit on savings in order to clear debt. This is apparent if I use the following example:
Imagine a small mortgage of £20,000 at a pretty average rate of 2.0% above base rate, no charges, no ERC (early repayment charge) and no admin fee below repayment if under 10 years to run. So let’s imagine that mortgage has 9 years to run.
The daily interest taken from the customer would be roughly £1.50 a day. So, that’s the very real equivalent of £1.50 falling out of your wallet every single morning! Or £10 a week.
If the same customer had £20,000 sitting in a bank he or she would be losing money every single day. Why? Because there isn’t a bank account anywhere that would pay the same £1.50 back in interest every day, so the bank customer not even breaking even, because when it comes to using banks, the bank always wins.
On the other hand, if that same person had taken that savings of £20,000 and invested it in Gold just a year ago, they would have made an increase of 43.3%! That’s £8,660 profit. So, they could take the profit, throw it against the mortgage and re-invest the capital back into gold and silver. “Live. Invest. Repeat” to slightly alter a well-known movie line! Do that three times and you’ve paid off that £20,000 debt using Gold, before the tide rushes back in again and mega-inflation hits us through any debt we still hold. Using Silver would have been almost identical, even accounting for V.A.T. That is because Silver increased by 60.9% over 12 months, less 20% maximum loss on V.A.T. reducing that profit to a minimum of 40.9%.
Bleyer offers low V.A.T. Silver and V.A.T. Paid Silver. Call one of the Bleyer Team on 01769 618618 to find out how to invest in your own Physical Silver this way.
I’ve spent some time this week searching for accurate figures as to how much Gold and Silver physical ounces are currently being bought by British investors and the figure is impossible to find in its truest sense. What I did find was a quote from The Royal Mint, which specialises in commemorative and highly expensive proof gold and silver coins. These are not the best way to invest in pure bullion bars and coins. But none the less give an idea that even if these numbers are up, then the numbers for those investing more wisely in bullion coins, rather than collectibles, is likely to be even higher.
And the Royal Mint has “Profits on commemorative coins surged 51 per cent from £7.3million to £11million in the 2015-16 financial year, its latest results show. As a result, the Mint described the results as ‘the most profitable year in [its] 1,100-year history.’ (Daily Mail, 26th July 2016)
If you have half an hour to spare one evening or lunch break, and you enjoy looking at economics from an historical and global perspective, I highly recommend the following video published in Money Week this week. You can access it here without being a member of their subscription scheme. A quick synopsis would be: “Merryn Somerset Webb of Money Week talks to economist and author Professor Steve Keen about:
- Brexit and a brief history of the pros and cons of past British ministerial economic decisions
- what is GDP
- the misguided belief in Q.E and People’s QE
- how the eurozone was doomed to fail from Maastrict onwards
- international GDP to debt ratios
- what causes deflation
- what responsible banking in a capitalist society should look like
- And amazingly, Professor Keen also talks at the 29 minute mark of a debt-jubilee; an ancient historic economic system which used to occur on a seven year cycle.
All in a very easy to listen to conversation with a lovely backdrop view of London out the window! In the first half of the interview, he particularly addresses the history of England’s economic history and future. And he concludes that we cannot avoid another economic collapse. “15 countries that manage to avoid the financial crisis [of 2008] by continuing to borrow. So I expect a financial crisis to affect all of those. The rest of the countries, including England and America and Europe, I call them ‘the walking dead of debt’!”
Webb of Money Week then concludes; “OK [laughs] we’re going to have to end it there on that miserable point. We’ve had some positives;
- Brexit is going to be fine,
- U.K. economy is in trouble anyway,
- We can’t avoid another financial crisis.”
In conclusion, we hope these thoughts inspire our readers to take action and call Bleyer today to discuss buying Gold and Silver bars and coins. We have a friendly team who will answer your questions, not just process your order, which can be done either online, over the phone or – if you’re in the South West – via local appointment.
Call 01769 618618 or order online at www.bleyerbullion.co.uk
We hope you have a safe and good week.