Dear Reader,
Some mornings, the headlines are just a little crazy and it takes a while for the real news to sink through. This morning, on one side of the pond there is the real possibility that a celebrity money-man could become the next President of the western world!
“Donald Trump, the billionaire real-estate developer who has upended the rules of modern campaigning, became the presumptive Republican presidential nominee on Tuesday after driving his top challenger, Texas Senator Ted Cruz, from the race with a crushing Indiana primary win. The victory sets up a likely all-New Yorker presidential general election between Trump and Hillary Clinton, who remained on pace to secure the Democratic nomination even after a surprising loss to Senator Bernie Sanders in Indiana. ” (Bloomberg Politics, 4th May 2016) That is really an impossible Sophie’s choice situation in American Politics! But, America fell for celebrity status some time ago, so it’s hardly surprising that their “politics” looks like X-Factor to us. That could never happen here.
Or could it? Because in good old Blighty, we somehow have the Labour candidate for the next London Mayor saying things like this on record: “Sadiq Khan was accused of being unfit to become London’s next mayor after footage emerged of him describing moderate Muslims of being “Uncle Toms”. Labour is under fresh pressure over its handling of racism and anti-Semitism in the party amid revelations its London mayoral candidate used a racial slur.” (The Telegraph, 4th May 2016) How is that even possible for a person who speaks like that to be in British politics? I shake my head sometimes.
Even trying to ignore the shocking nature on a personal level and looking at this from a purely business perspective – if that’s possible – the regeneration of London as a commercial centre excelled under Boris Johnson. As a figure who will affect the standing of the entire U.K. in both our repudiation and business acumen, its a shame that only those in London get to vote, as the capital’s choice affects us all. Both Caroline Peers, our C.E.O., and myself both lived in the city for a number of years, before moving to Devon and we still both have family and friends there.
All these points show that it is impossible to separate economics from the human factor. And when people try it is usually a half-vision that doesn’t take into account the whole picture. Economics is a discipline that is very human. For example, in last week’s blog, I looked at the reality of the Transatlantic Trade and Investment Partnership deal being pushed through by the U.S. administration with the E.U. and the very secretive nature of that deal. So, I was pleasantly surprised to see the following story in The Guardian this morning:
“Doubts about the controversial EU-US trade pact are mounting after the French president threatened to block the deal. François Hollande said on Tuesday he would reject the Transatlantic Trade and Investment Partnership “at this stage” because France was opposed to unregulated free trade. Earlier, France’s lead trade negotiator had warned that a halt in TTIP talks “is the most probable option”. Matthias Fekl, the minister responsible for representing France in TTIP talks, blamed Washington for the impasse. He said Europe had offered a lot but had received little in return. He added: “There cannot be an agreement without France and much less against France.” All 28 EU member states and the European parliament will have to ratify TTIP before it comes into force. But that day seems further away than ever, with talks bogged down after 13 rounds of negotiations spread over nearly three years.”
Once again, doing business while ignoring people isn’t good business.
So, there is so much going on in the world at the moment, it is hard to know exactly where to focus, in regard to what may next affect the price of Physical Gold and Silver. The economic crash of 2008 started in the States; actually it started the year before in 2007 behind the scenes. And once again, the signs are slipping out from behind the facade that the U.S. economy is in dire, dire trouble. I believe it is wise, even with all the noise on Europe, to keep an eye on both the economies of the States and China. For example, a beautiful example of an almost hilarious understatement was released this week by the Federal Reserve. At the beginning of April I wrote that the Fed would be making an announcement on 27th April and that turned out to be that they would keep interest rates unchanged:
“Amid a moribund economy and reduced levels of consumer spending, the Fed on Wednesday again opted not to raise interest rates. “Economic activity appears to have slowed,” the Federal Open Market Committee said in a statement released after its two-day meeting this week.” (CNBC, 27th April 2016)
“Economic activity appears to have slowed.” This made me chuckle. Where have they been over the last seven years? And sure enough, within 48 hours of this announcement, the price of Gold hit a seven week high: “By 12.30pm UK time, spot gold was at $1,277.61, up nine per cent on its last close, while US gold futures for June delivery were up $13.60 at $1,280.00. For the week, gold is up 3.5 per cent, its best performance since early February. Silver, meanwhile, went from strength to strength, reaching its highest price since January 2015 this morning. Investors are flocking to the precious metal because of a much weaker dollar and the poor performance of stock markets. Gold is priced in dollars, so a weak dollar makes it a more attractive investment to non-US buyers. It is also seen as a ‘safe haven’ investment when stock markets are volatile.” (The Week, 29th April 2016)
But the Fed’s statement is further evidence of what we have long been writing about – that deflation precedes hyperinflation. We are clearly, as a global economy, in a short period of harsh deflation. I have watched the Silver price, particularly, this week being pushed down tiny percentages of points over and over, as it tries to break out from the £12 an ounce barrier. It just never deflates, it just keeps getting up and rising again. And so the tsunami of consolidation behind the current price just keeps building in pressure. I first wrote a Guide on Gold and Silver as a Hedge against Deflation back in October 2014, as it was clear Deflation was coming in the markets. In that piece I outlined that:
“Gold has a history as a hedge against inflation, or more precisely, inflationary expectations, but what is not often considered is its role in a deflationary environment. Since the United States Treasury closed the gold window in August 1971, the world’s major economies have been almost continuously in an inflationary environment. Now, however, recent figures from the U.S. and China, plus persistent problems in Europe and commercial banks’ reluctance to lend, have rekindled fears of an imminent period of deflation. There has been little hard evidence of gathering deflationary forces. However, the stresses in the banking sector and gold’s historical performance during deflationary phases add weight to the argument that any deflationary fears should underpin gold prices”. HISTORY FAVOURS GOLD AND SILVER IN NERVOUS TIMES. Although it may seem counter-intuitive, gold and silver can be as effective a hedge against deflation as against inflation; in fact gold’s purchasing power is more likely to increase in deflationary periods than during inflationary eras. Historical precedents suggest that gold’s worth is powerful during deflationary periods.” Michael J. Kosares of The Market Oracle agrees and gives a very well known historical example: “The Great Depression of the 1930s serves as a workable example of the degree to which gold protects its owners under deflationary circumstances.” (Gold and Silver as a Deflation Hedge, October 2014, Bleyer Blogs)
In the week of writing that piece back in 2014, Gold was £760 an ounce and Silver was £10.80. Gold is currently now at £881 and Silver is at £11.87 an ounce. This rise has occurred precisely because the economies of the E.U. and the States, as well as China, then entered the economic cycle we now face – deflation.
And when I opened this piece saying that some mornings the headlines can be a little crazy, I really mean it: Did you know that deflation has reached such sharp rapid levels in one European country that the banks actually pay their customers to have a mortgage?!
“Up is down, black is white. Or at least that’s what it feels like in Europe, where at least one bank is paying some customers who borrow from it because interest rates have turned negative. The European Central Bank has slashed official rates to record lows, and is pumping billions of euros into the economy to boost growth and inflation. That has forced rates on some mortgage products far enough below zero to create a big headache for the banks: Do they now owe their borrowers? “We are in uncharted waters,” said Luca Bertalot, secretary general of the European Mortgage Federation. “Monetary policy is changing the funding landscape in Europe completely.” Here’s how it works. Mortgage interest in Europe is often pegged to interbank lending rates known as Libor or Euribor. Short-term rates on a Swiss franc version of Libor are now approaching minus 1.0%. Spain’s Bankinter, which sold mortgages pegged to Swiss Libor, told CNN it couldn’t pay interest on a loan (go figure!) so instead reduced the principal for some of its customers.” (The crazy world of negative rates: Banks pay your mortgage for you? CNN Money)
As wonderful as that sounds, it also sounds so upside down that to ignore it is like ignoring the extended exposed sands before the tsunami races in. Something is very wrong when the normal rules of economics are turned back to front. Mortgage means “Death Grip” in French so this may be great in the short term but something is coming in to bite. Unlike Inflation, which can sit as the predominant force in an economy for decades, historical deflationary periods tend to be short and sharp, before hyper-inflation hits. What seems like a holiday now will rapidly turn into a nightmare.
All of which give signs that to hold Gold and Silver as an off-set the assets which will lose their value makes historical sense. And to return where we started, to the E.U. Referendum, I for one am not going to be fooled by the inaccurate reports that the Referendum is to blame:
“For the next couple of months – and probably longer – George Osborne has a ready-made excuse if the economic numbers look a bit grim: blame it on the uncertainty caused by the EU referendum. The weakest report on manufacturing from purchasing managers for three years? That would be the result of Brexit fears. A downgrade of the UK’s growth forecast for 2016 from the European commission? Investment plans are being mothballed until businesses see the way Britain has voted on 23 June. But hang on a minute. The outlook for manufacturing has also softened in the US, which the last time anybody looked was not a member of the EU. Likewise, it is hard to see what Brexit has to do with the continuing travails of China’s industrial sector. The reality is that manufacturing has been suffering around the world as part of a broad economic slowdown that has been going on for at least a year. It certainly predates the moment in late February when David Cameron announced the referendum date. It would be wrong to think that speculation about Brexit will have no impact, but the impact needs to be put into perspective. Consumer confidence is reasonably strong by historical standards despite last month’s fall, which helps explain why sales of new cars remain strong. The housing market weakened a bit in April, but that had more to do with higher stamp duty for buy-to-let than it did the referendum. Let’s see how the economy fares when the referendum is over. Assuming the opinion polls are right and the Remain side wins, the upshot should be a revitalised Britain where the trade deficit narrows from a record 7% of GDP, a decade-long hiatus in productivity growth comes to an end, and there is the long-promised rebalancing of growth towards investment and exports. Dream on. These are chronic problems, not ones that have suddenly flared up since late February.” (The Guardian, 4th May 2016)
If the paper currencies around the globe are facing “chronic problems” then owning Physical Gold and Silver bars and coins is the historical safety net, to ensure wealth is protected and one’s “savings” increase in line with hyper-inflation.
Take a browse and call one of the team on 01769 618618 to find out how you can invest in a variety of Gold and Silver 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, we 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 African, Canadian 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.
