Dear Reader,
There is a line in Animal Farm, the famous novel by George Orwell, that says: ” “All animals are equal, but some animals are more equal than others.”
A big thank you to one of our readers and clients for bringing to our attention some very interesting facts re: Muslim finance. I was aware that Lloyds Bank offer an Islamic bank account in the U.K.: “There’s no credit or debit interest, no Planned Overdraft, no minimum balance required and no charges for everyday transactions.”
How wonderful. No bank charges.
But what our astute reader pointed out was the new change in Islamic gold investing. “By the end of 2016, 1.6 billion people will likely have a new gold investment standard for the first time in modern history. These 1.6 billion people are the Muslims of the world who constitute nearly 25% of the 6.9 billion people on the planet. This new ‘gold standard’ is the Sharia gold standard developed as part of a three-party collaboration between AAOIFI, the World Gold Council (WGC) and Amanie Advisors.
The new Sharia or Islamic gold standard, ‘will provide guidance from a Sharia perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,’ the WGC states on its website as we reported back in May . ‘The Standard also aims to increase transparency and harmonisation regarding the use of gold in various market practices.’” (Zerohedge, November 2016)
These changes in financial Islamic advice will be announced this coming week. Many believe this will greatly impact the price of Gold. I’m not so sure it will be as dramatic as a 25% increase and the reasoning is that these changes only impact the gold and silver paper investing. Physical investing in Gold and Silver is as much a part of Middle Eastern financial psyche as oil. In fact, and rather ironically, that has always been the Islamic reasoning for not investing in paper gold and silver, in that it’s not backed up by physical. Islamic nations have always understood that Physical Gold and Silver are real money. Libya knew it, way before the civil war spread to Syria in 2011/2012:
“It remains unclear exactly why or how the Gadhafi regime went from “a model” and an “important ally” to the next target for regime change in a period of just a few years. But after claims of “genocide” as the justification for NATO intervention were disputed by experts, several other theories have been floated.
Oil, of course, has been mentioned frequently — Libya is Africa‘s largest oil producer. But one possible reason in particular for Gadhafi’s fall from grace has gained significant traction among analysts and segments of the non-Western media: central banking and the global monetary system.
According to more than a few observers, Gadhafi’s plan to quit selling Libyan oil in U.S. dollars – demanding payment instead in gold-backed “dinars” (a single African currency made from gold) – was the real cause. The regime, sitting on massive amounts of gold, estimated at close to 150 tons, was also pushing other African and Middle Eastern governments to follow suit.
And it literally had the potential to bring down the dollar and the world monetary system by extension, according to analysts. French President Nicolas Sarkozy reportedly went so far as to call Libya a “threat” to the financial security of the world. The “Insiders” were apparently panicking over Gadhafi’s plan.
“Any move such as that would certainly not be welcomed by the power elite today, who are responsible for controlling the world’s central banks,” noted financial analyst Anthony Wile, editor of the free market-oriented Daily Bell, in an interview with RT.” (The New American, 2011)
But, although the centrality of Physical Gold and Silver has long been understood in the Middle East, more so than in the West, these changes to Islamic investment advice may indeed affect the paper price of Gold and Silver from next week. And as many of our readers know, the price of Physical is (currently) based upon that paper price:
“The new Sharia Gold Standard is set to be announced on the 6th December at the World Islamic Banking Conference. “Shariah Standard on Gold” will provide “guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” according to Natalie Dempster of the World Gold Council.
It is believed that it will state that gold investments must be backed by physical gold. In truth, whilst there have been some draft rounds of the Standard and quite a bit of publicity, no one knows what is set to be revealed in the ‘guidance’.
The final point above, to achieve a ‘Greater role for the Islamic finance industry in global gold price discovery’ is one that is playing on current gold market participants’ minds.
There are estimated to be around 1.6 billion Muslims around the world. Given the extent to which the gold market looks to Chinese and Indian demand in terms of demand, supply and price changes this move will likely come to have a very significant impact on the dynamics of the gold market.
The role of price discovery has been, up until recently, shared between the London Gold Market and the LBMA and the COMEX. However there has been a new dawn and the new policies from China regarding all aspects of the gold market have put the wheels in motion. Earlier this year the Shanghai Gold Benchmark was launched by the Shanghai Gold Exchange, seen as China’s step to “increase its weight in the global pricing of gold,” according to the People’s Daily.
When the benchmark was announced Marwan Shakarchi, chairman of Swiss-based refining group MKS (a Shanghai gold Exchange member) was quoted as saying that China is “a market of 1.2 billion people and simply cannot be neglected.” This step was seen as the first of many toward internationalisation of the Chinese Gold market.
The Islamic world is obviously different to the Chinese and Indian gold markets – dispersed geographical location, different exchanges, different nationalities, regulations and customs. However, it is worth remembering that the majority of Muslims reside in countries where there is still a strong view that gold is money and a strong store of value. In countries such as Pakistan with tricky geopolitical status, or Malaysia and Indonesia with a fluctuating currencies, one can expect to see an increase in demand for Sharia compliant gold products. And, therefore, a change in dynamic in the gold market. The places to watch are Bahrain, Qatar, Indonesia, Saudi Arabia, Malaysia, United Arab Emirates, Turkey, Kuwait, Oman and Pakistan which currently represent 93% of Islamic financial assets within their financial institutions.” (Zerohedge, November 2016)
I have visited two of these countries, not through personal vacation choice but because I wanted to visit a close relative who was working there for a few years. I visited twice, to spend time with someone I missed greatly and to catch up on sun, sleep and snorkeling. However, during one trip, my relative (in his professional capacity) was invited to a large local wedding. And I mean “large”. The guest list numbered well over 1000 with tables set out in banquet-style on the lawns at night. It was held in the grounds of an opulent hotel with – to British eyes – too many ridiculous over-the-top demonstrations of wealth. Gold walls, fish tanks in the marble floors, vast swaths of jacquard fabric etc. Fireworks, the beach and the Al Burj Hotel formed the night backdrop. Men and women were separated by a large divide (imagine a screen eight foot high and the width of a football field). But due to my relative’s professional position, thankfully I was allowed to dine with him. I was the only woman however in an area of about 500 male guests. I stuck very close to my relative.
Out of traditional respect, we had brought a gift for the bride. During the entire event, she was not allowed to talk with her friends, family or guests but instead traditionally sat on an chair on a small stage on her own, while guests climbed the short stairs to the stage to put gold necklaces and bracelets on her. I have never seen so much gold jewellery on one person. Sitting up must have been unpleasant. I’d visited the gold market place (shuk) earlier that week. I had to ask my relative if the gold was fake, as it looked a different colour to the gold bullion I’m used to seeing. Bright, gaudy rows of huge gold necklaces in flamboyant designs hung in the windows. I suspect it was heavily alloyed. This obviously wealthy family knew the most valuable commodity to gift to their daughter and bride was physical Gold. So, investing in Gold and Silver is by no means a new concept to the Islamic market. But it is worth watching how this may change their investment approach to paper Gold and Silver, which in turn would – in a free market – drive up the price.
And speaking of a free market, all free markets eventually go back to the ancient store of value that is Gold and Silver. Paper currencies devalue back to their original value, which is only the value of the paper on which they are printed. But Gold and Silver are inherently valuable and hold that value throughout history. President-Elect Donald Trump is first and foremost a business man. So, it was not a surprise this week to read of a piece forwarded to me by a great colleage at Bleyer, Dan. You guys have been excellent researchers this week, thank you!
“As President-elect’s Donald Trump’s transition rolls on, more and more attention is being paid to possible selections for a variety of high-ranking positions and meetings that might help decide these appointments. On Monday, Trump will meet with John Allison, the former CEO of the bank BB&T and of the libertarian think tank the Cato Institute.” (Business Insider, 28th November 2016)
If Democrat equals Big Government (increased benefits, socialism, government dependence for votes etc) and Republican equals Small Government (free market, capitalism, encouraging people back into work to increase tax revenue/standard of living) then Libertarian equals Even Smaller Government and an even freer and vibrant market with even less interference from the “government.”
“Trump has on the campaign trail questioned the future of the Federal Reserve’s political independence, but John Allison takes that rhetoric a step further. While running the the Cato Institute, Allison wrote a paper in support of abolishing the Fed:
“I would get rid of the Federal Reserve because the volatility in the economy is primarily caused by the Fed,” Allison wrote in 2014 for the Cato Journal, a publication of the institute. Allison said that simply allowing the market to regulate itself would be preferable to the Fed harming the stability of the financial system. “When the Fed is radically changing the money supply, distorting interest rates, and over-regulating the financial sector, it makes rational economic calculation difficult,” Allison wrote. “Markets do form bubbles, but the Fed makes them worse.”
Allison also suggested that the government’s practice of insuring bank deposits up to $250,000 should be abolished and the US should go back to a banking system backed by “a market standard such as gold.” (Business Insider, 28th November 2016) Now, isn’t that what our readers and clients have been saying for years?!
Us Brits haven’t always understood the inherent value of Gold. Watch this short video of the first Gold Bar Cash Machine being installed in a shopping centre in 2011. Most of the people interviewed didn’t get the investment concept. But, a year earlier in 2010 the same machine was installed in a lobby in a United Arab Emirates hotel with a very different reception for locals:
“Through a computer system, the ATM gold machine updates the gold price every 10 minutes to match international markets. Users feed dirham notes, the local currency, into the machine but it may be possible to use credit cards in the future.
The machine is the brainchild of Thomas Geissler, a German businessman who said Abu Dhabi was best placed to launch of the invention because of the region’s high demand for gold. “On the first night we had a lot of demand,” he said. “One customer even bought one item of every product we have.” (The Telegraph, May 2010)
And as it was announced today that the Royal Bank of Scotland and Barclays failed their annual “stress tests”, it is always worth researching and remembering that Physical Gold and Silver were money long before the promissory bank note came along.
Do browse the Bleyer Bullion website, call one of the team on 01769 618618 or email sales@bleyer.co.uk to own your own Gold and Silver bars and coins now.
