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Thread: As Central Banks Dim, Gold Brightens

  1. #1
    Unobtanium mick silver's Avatar
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    As Central Banks Dim, Gold Brightens

    As Central Banks Dim, Gold Brightens Why Buying Gold Won't Save You from the Zombie Apocalypse ... Despite any advice you might have heard to the contrary, gold bullion is far from a good investment, even if the world is coming to an end. The idea of having a hedge against the end of the world and the collapse of our financial institutions might be alluring. But actually, buying and storing significant amounts of gold bullion won't do you any good in that unlikely event, despite any advice you might have heard to the contrary. –
    Of course the above excerpt is brought to us by the Motley Fool, one of the bigger mainstream investment web destinations. The description is entirely predictable and could have found a home at Bloomberg, CNN or even CNBC. Gold is always to be portrayed as a Keynesian "barbaric relic."
    In fact, we learn later in the description that there are specific assets you should own "in the event of an apocalypse." Gold is not one of them.
    The featured expert, John Maxfield, has a thing or two to say about gold.
    "Here's how I think about gold, and this is how I would recommend that investors think about gold, or anyone who's thinking about buying gold for any type of investing purposes. As a general rule, investing in gold is a bad idea, and here's why.
    "When you invest, your biggest ally is compound returns, because that grows the size of your returns without you doing anything on an annual basis, and pretty soon, your small returns of 1% or 2% a year turn into 50%, 60% a year on your original basis. But in order to tap into compound returns, you've got to be invested into an income-earning asset. And the problem with gold is it doesn't own any assets."
    Maxfield does grant that gold is a "hedge against anarchy" but says if society is really collapsing, you probably want to stock up on medicine and antibiotics rather than gold.
    Ironically, another anti-gold epicenter – Reuters – provides us with a rebuttal to the Fool. In a post just today entitled, "Central banks and Chinese buyers helping to spur gold demand," Reuters is uncharacteristically upbeat about the yellow metal's prospects going forward.
    Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said ...
    China remained the world's biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual "Gold Demand Trends" report. The WGC's members include the world's leading gold mining companies. Chinese demand for gold coins surged 25 percent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency.
    It's not just physical gold. Miners are up and silver is up, too. Oddly enough, it is central banks that have been leading the charge toward gold.
    Reuters: "Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013."
    Turmoil in the markets, falling oil prices and a potential global recession have all contributed to a positive precious metals outlook, according to WGC.
    Well ...
    We agree about gold – we can see and sense the resurgence of the price against the dollar – but we disagree that the world is going back into a recession.
    In fact, we think the world is in a kind of greater depression and that the golden bull goes all the way back to the early 2000s after the dotcom bust.
    But let's go back even farther.
    Central bank business cycles are manufactured ones and if you really want to make sense of where we are today, you have to start after World War II when the global economy was "reset."
    The paraphernalia of the modern world was created after World War II, including the IMF, the World Bank and the United Nations. The Bank for International Settlements was rejiggered as well.
    The later 1940s were a time of gathering energy and then the '50s and the '60s were explosively "prosperous" in the US and even the West. There were many books written about the "miracle" of the US economy and the superior model of US capitalism itself.
    We've called this period in the US – and the West – "dreamtime."
    That's because a good deal of the prosperity was due to money printing and other kinds of financial manipulation. In 1971, when France attempted to take delivery of the gold it was owed, the US promptly went off the gold standard and Nixon created the petrodollar.
    The 1970s reverberated with the monetary sins of the previous decade. Keynesians discovered "stagflation," which wasn't supposed to exist. And as price inflation rose, so did middle-class anxiety.
    Enter Paul Volcker, David Rockefeller's right-hand man. Early in the 1980s, Volcker did what most thought was impossible. He raised rates near 20 percent and froze the dollar in its tracks. Banks foundered and another Great Depression loomed. But instead, the economy recovered.
    Post-Volcker, the next great Paper Bull arose. Wall Street shone and securitization boomed. For another 20 years, through 2000, the Paper Bull roared. But that was the end of it.
    The dotcom crash definitively crumpled the Paper Bull. Gold began an unstoppable rise that culminated at the end of the decade near US$2,000.
    Of course, most believed we were in "another" recession by then, post-2008. But really it was just a continuation of what was begun in 2001.
    Everything else is just a manipulation.
    Bernanke screwed rates down to a point where he created a faux recovery in the mid-2000s. But it didn't last because it couldn't.
    The great gold plunge was likely a manipulated one, further confusing people's perceptions of what was really going on.
    Today, people speak confusedly about a "recession" and the "recovery" of gold.
    In truth, the "recession" began in the early-2000s and is more of a "greater depression."
    The "recovery" of gold well may be simply the reassertion of reality.
    Gold will return to where it should be against the dollar – at US$2,000 or more. Some say the dollar should be trading against gold at US$5,000.
    From our perspective, this makes what's going on now a good deal clearer – along with the inevitable results.
    There have been two great Paper Bull runs in the 20th century. And now in the 21st, the Golden Bull dominates.
    In fact, this is the reason for so much unease in the financial community. The Golden Bull is rampant and they know it.
    Conclusion: The Golden Bull probably will not be turned aside again. Make your plans accordingly.
    - See more at:
    “Now remember, when things look bad and it looks like you’re not gonna make it, then you gotta get mean, mad-dog mean. ‘Cause if you lose your head and you give up then you neither live nor win. That’s just the way it is.” ~ Outlaw Josey Wales…


  2. #2
    Unobtanium gunDriller's Avatar
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    Re: As Central Banks Dim, Gold Brightens

    the incident at the Long Beach port in 2007/8/9 - where a shipping company refused to unload a boat because they no longer accepted the Letter of Credit (from a bank) that was normally used to show that a vendor was "good for payment".

    that does create kind of a work stoppage.

    up till 1964, that wouldn't have happened. Someone could have gone to the dock with a briefcase full of silver dimes & quarters & halves. No bank paper needed.
    Retired Director Morris Waxler says the FDA did not do their job for 15 years - and is not now.

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    Re: As Central Banks Dim, Gold Brightens

    luxberg fingered

    One third of all cash in circulation in the eurozone is now in the form of €500 notes. Suspicions have been raised over Luxembourg, which prints double its GDP in banknotes each year. EurActiv France reports.

    High denomination banknotes have long been seen as a problem, but it took a solid security argument – the financing of terrorism – to galvanise the EU into action.

    At a time when the United States, Canada and the United Kingdom have all taken their biggest banknotes out of circulation to help combat organised crime, the continued existence of the €200 and €500 notes is something of a throwback.

    The president of the European Central Bank (ECB) told members of the European Parliament on 1 February that his institution would consider the issue. “We are determined not to make seigniorage (the printing of money) a comfort for criminals,” Mario Draghi said.

    But this is precisely what happens at the moment.

    “Why are there so many €500 notes in circulation when more than half of EU citizens have never even seen one? This has to be an anomaly.” For Igor Angelini, the head of Europol’s Financial Intelligence Group, large denominations are inherently suspicious.

    Since the creation of the euro, the number of €500 notes has multiplied by six, while the number of €10 and €20 notes, highly called-for in day-to-day business, has remained stable.

    Of the €1,000 billion of cash in circulation, €307 billion, or one third, was in the form of €500 notes by the end of 2015. But little is known about these notes, beside the fact that they are generally refused by shop-keepers and that citizens are hardly aware that they exist.

    Piles of cash in Luxembourg

    The origin of these notes, a surprising number of which come from Luxembourg, can give a clue as to how they are used.

    This small country prints mountains of banknotes every year to respond to the needs of its large banking sector. While most countries print about 10% of their national wealth in banknotes each year, Luxembourg printed double the value of its GDP in cash in 2014 alone.

    The country may have an outsized financial sector, “but this mostly handles business finance and asset management, not street markets… there is no good reason why they need so much cash,” a French expert said.

    “What is surprising is that Luxembourg is a net producer of notes, but that we then lose track of the flow,” said Angelini, whose organisation wants to deepen its investigations on the subject in collaboration with the ECB. Unlike in France or Germany, the declaration of cash sums over €10,000 entering or leaving Luxembourg is not compulsory, but is done “by request”. According to a Commission inquiry, the country had carried out only 15 checks over a period of two years.

    Cash and terrorism

    The 2001 terrorist attacks in the United States changed the EU’s approach to controlling the flow of cash. Fears over the financing of terrorism were the main motivation behind the adoption of the 2005 directive, which re-imposed the obligation to declare sums of over €10,000 at the EU’s borders. This directive is not binding for Luxembourg.

    Since declarations at the Luxembourgish border are so rare, and have remained stable at the French border, we must logically conclude that almost all the cash printed in Luxembourg stays in Luxembourg – or leaves the country discretely. This situation is all the more surprising as the Luxembourgers are not big users of cash. According to a study by the ECB, they, like the French and the Dutch, prefer bank cards to banknotes.

    “Luxembourg is a country that hosts many cross-border workers,” the Luxembourgish Minister of Finance Pierre Gramegna told EurActiv. He added that Luxembourg had a very small black economy, and that there was no proven link between the printing of banknotes and the illicit use of cash.

    €1 million weighs 2kg

    But for the police there is little doubt, knowing the extent to which €500 notes simplify the lives of organised criminals and money launderers: €1 million in €500 notes weighs only two kilos, compared to 22 kilos for $1 million.

    “There are many links between organised crime and cash. Even with credit card fraud, criminals need to use cash at some point to cut the chain that could lead back to them,” Angelini explained.

    This is also one of the avenues of inquiry being pursued in Jean-Claude Juncker’s homeland. Cash may be used as a circuit-breaker in Luxembourg: being withdrawn from a bank account, then reinjected into another. This question has piqued the interest of Europe’s money laundering experts.

    In France, where customs officers arrest 1,400 people in possession of undeclared sums of cash each year, there is little doubt over its suspicious nature.

    “Cash is a mine of cases. Three quarters of the sums we intercept are linked to cases of tax evasion, and the files are transferred to the tax authorities. But in a quarter of the other cases, we stumble upon organised crime rings: drug traffickers, VAT fraudsters, traffickers of tobacco and counterfeit goods or financiers of terrorism,” said a source from the French customs office.

    Euros are also big travellers, and Europol has identified some rather unexpected cash flows, including towards China.

    Varied cash payment limits

    Cash is not only a problem for Europol and customs. The French ministry of finance has recently banned all cash payments over €1,000. But Belgium has simultaneously done exactly the opposite. Here the cash payment limit has been raised to €7,500 on the pretext that the automobile sector was disadvantaged against competition from Germany, which, like Luxembourg, has no cash payment limit.

    Some business sectors, like the recycling industry, are even campaigning for cash to be abolished altogether.

    Despite the broadly-shared concerns over the legitimacy of cash and the European Commission’s proposal, as part of its response to terrorism financing, to establish an EU-wide limit for cash payments, any action in this area may take a long time to materialise. If only because the Germans are opposed to it.

    “We choose to suffer in silence,” the German Minister of Finance Wolfgang Schäuble said at the French-German Economic and Financial Council on Tuesday (9 February).

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