WHY Gold ?
Posted: December 8, 2013 Filed under: AMP Books and Seminars, Central Banks, Gold, Inflation | Tags: Currency, Gold, gold sovereign, Inflation, intrinsic value 3 CommentsWhat makes a good currency?
First off, it doesn’t have to have any intrinsic value. A currency only has value because we, as a society, decide that it does.
That’s the other secret of gold’s success as a currency – gold is unbelievably beautiful”
As we’ve seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare – you might be surprised just how little gold there is in the world.
If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it’s guesstimated that you’d be left with just one 20-metre cube, or thereabouts.
But scarcity and stability aren’t the whole story. Gold has one other quality that makes it the stand-out contender for currency in the periodic table. Gold is… golden.
All the other metals in the periodic table are silvery-coloured except for copper – and as we’ve already seen, copper corrodes, turning green when exposed to moist air. That makes gold very distinctive.
“That’s the other secret of gold’s success as a currency,” says Sella. “Gold is unbelievably beautiful.”
But how come no-one actually uses gold as a currency any more?
The seminal moment came in 1973, when Richard Nixon decided to sever the US dollar’s tie to gold.
Since then, every major currency has been backed by no more than legal “fiat” – the law of the land says you must accept it as payment.
Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.
Find out more
In Elementary Business, BBC World Service’s Business Daily goes back to basics and examines key chemical elements – and asks what they mean for businesses and the global economy.
And here lies the problem with gold. Its supply bear no relation to the needs of the economy. The supply of gold depends on what can be mined.
In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold – and therefore an enormous increase in the price of everything else.
Since then, the problem has typically been the opposite – the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.
The demand for gold can vary wildly – and with a fixed supply, that can lead to equally wild swings in its price.
Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently.
That is hardly the behavior of a stable store of value.
So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.
Apart from all the others.
Learn more with The Gold Investor’s Handbook for Amazon.com
Eric Sprott Says World Gold Council To Blame
Posted: October 23, 2013 Filed under: AMP Books and Seminars, China, Eric Sprott, World Gold Council | Tags: Erci Sprott, Eric Sprott, Gold, Gold Prices, Sprott, World Gold Council Leave a comment- In an open letter to the World Gold Council, precious metals investor Eric Sprott (PHYS, PSLV) excoriates the group for abetting the decline in gold prices with faulty statistics, mostly as it relates to Asia.
- The WGC pegs gold production at a robust 2.8K tons this year, but this includes gold mined in China and Russia which is used solely for domestic demand, says Sprott. Adjusting for this, Sprott sees total mine supply this year of 2.14K tons. Making adjustments to better represent consumption from emerging markets, Sprott sees annual demand of 5.2K tons, and thus supply being about 3K tons in shortfall.
- “I urge the leaders of the WGC, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment.”
Open Letter to the World Gold Council
Dear World Gold Council Executives;
As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.
In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading. It is not the first time that GFMS (and World Gold Council) statistics have come under pressure from the investment community. In his now celebrated “The 1998 Gold Book Annual”, Frank Veneroso demonstrated the inconsistencies in GFMS gold demand data and proceeded to show how they grossly underestimated demand. The tremendous increase in the price of gold over the following years vindicated his conclusions.
For very different reasons, we are now at a similar pivotal point for gold. Over the past few years, we have seen incredible incremental demand from emerging markets. Indeed, so much so that the People’s Bank of China has announced that it is planning to increase the number of firms allowed to import and export gold and ease restrictions on individual buyers.1 In India, the government has been fighting a losing battle against gold imports by imposing import taxes and restrictions.2 Moreover, Non-Western Central Banks from around the world are replacing their U.S. dollar reserves by increasing their holdings of gold.3
But, demand statistics reported by the World Gold Council (WGC) consistently misrepresent reality, mostly with regard to demand from Asia.
To illustrate my point, Table 1 below contrasts mine production with demand from some of the world’s largest gold consumers. According to WGC/GFMS data, the world will mine, on an annualized basis, about 2,800 tonnes of gold for 2013.
But, I adjusted these figures to reflect mine production from China and Russia, which never leaves the country and is used solely to satisfy domestic demand. After adjustments, we have a total world mine supply of about 2,140 tonnes. On the demand side, I make some in-house adjustments to better represent demand from emerging markets. To proxy for gold consumption in China, Hong Kong, India, Thailand and Turkey, I use net imports of gold, as reported by their various governmental agencies. While imports might in general be an imperfect proxy for demand, those countries see very little re-export of what they import and keep most of it for themselves, so it is not unreasonable to assume that what they import they “consume”, on top of their domestic production. To this I add the demand, as estimated by the GFMS, from other countries and that of central banks. I annualized the year-to-date figures and found that for this year, annualized total demand is approximately 5,200 tonnes. On that basis, “core” annualized demand is approximately 3,000 tonnes more than mine supply.
TABLE 1: WORLD GOLD SUPPLY AND DEMAND 2013, IN TONNES
Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1 & Q2. Chinese mine supply comes from the China Gold Association and is up to August 2013, the annualized number is a Sprott estimate.5 Russian mine supply comes from the WBMS (Bloomberg ticker WBMGOPRU Index) and is for 2012, 2013 statistics are still unavailable. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Aug. 2013 and is annualized to account for the 4 missing months to the year. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1 & Q2 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1 & Q2. ETFs data comes from Bloomberg’s ETFGTOTL Index.
However, these figures also exclude what the GFMS dubs “OTC investment and stock flows”, which is a name for a simple plug because no one really knows what is traded in the OTC market. Also, to remain conservative and avoid possible double counting, I exclude the category “technology” from my demand estimate, which the WGC/GFMS estimates to be about 400 tonnes a year.6 Certainly, some of this demand is captured by the demand numbers for China, Turkey, India or Thailand, but it is near impossible to disentangle them. Nonetheless, it should be kept in mind that my demand estimate is conservative and probably understated by a few hundred tonnes.
Of course, another important source of supply is gold recycling, which the GFMS estimates at about 1,300 tonnes for the year. However, this number is questionable at best as gold recycling is hard to estimate. But, most importantly, a large share of it is probably done in India and China, which as mentioned before do not re-export their gold. In the context of my analysis, recycling from those countries should therefore be excluded from the total supply number.
The real incremental source of supply this year has been the flows out of ETFs. According to data compiled by Bloomberg, and as shown at the bottom of Table 1, ETFs have seen outflows of approximately 724 tonnes year-to-date. On an annualized basis, this represents an additional supply of 917 tonnes. But, this incremental supply is only temporary. As shown in Figure 1 below, ETF holdings of gold seem to have stabilized at around 1,900 tonnes after a rapid decline in the first few months of 2013.
The evidence presented here is clear, demand for physical gold is extremely strong and, in reality, without the massive outflows from ETFs (half of world mine supply), it is hard to imagine how this demand would have been met. Since ETFs have a finite size (about 1,900 tonnes left), these outflows cannot continue for much longer (see our article on the topic).7 All these observations point to a considerable imbalance between supply and demand (unless Western Central Banks decide to fill this void with what is left of their reserves). If recycling was reduced by one half (China, India and Russia) and the temporary sales from ETFs were excluded, demand could be as high as 5,185 tonnes versus supply of 2,140 tonnes. The supply-demand imbalance is obvious to all.
FIGURE 1:TONNES OF GOLD IN ETFS
Source: Bloomberg
As was the case when Frank Veneroso first published his book in 1998, the GFMS methodology understates demand and the World Gold Council, by using data from the GFMS, misleads the market place.
To conclude, I urge the leaders of the World Gold Council, for the benefit of their own members, to improve the quality of their data and find alternative sources than the GFMS, which paints a misleading picture of the real demand for gold. This lack of quality information has certainly been one of the driving factors behind the lack of investors’ confidence towards gold as an investment. Gold has been one of the best performing asset classes since 2000, and the World Gold Council should be promoting it accordingly.
Regards,
Eric Sprott
The Gift That Keeps On Giving $$$
Posted: August 9, 2013 Filed under: AMP Books and Seminars, Gold | Tags: Amazon Prime, Amazon.com, Christmas, Credit card, Kindle, Loreto, Peru, Shipping 1 Comment
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Gold Is The Only Real Money
Posted: May 24, 2013 Filed under: AMP Books and Seminars 4 Comments– wear it on your sleeves proudly
” Only Gold Is Real Money “
Here’s the shirt:
The Gold Investor’s Handbook “ by Jack A. Bass, B.A. LL.B.
( available from Amazon)
1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)
1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)
Why Invest in Gold and Gold Stocks – and Why Now ?
Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. In the past year, the climb in the price of gold above $1600 per ounce is due to many factors, one being that the dollar is steadily losing value.
- The dollar is weak and getting weaker due to national economic policies like quantitative easing , which don’t appear to have an end.
- Gold price appreciation makes up for lost interest, especially in a bull market.
- The last ten years are a major bull move similar to the 70′s when gold moved from $38 to over $800.
- Central banks in several countries have been increasing their gold holdings as part of their foreign reserves, instead of selling.
- All gold funds are in a long term uptrend with bullion get ready for an new gold bull market surge in 2013.
- The trend of commodity prices ( such as food stuffs ) to increase is relative to gold price increases.
- Worldwide gold production is not matching consumption. The price will go up further with demand.
- Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth.
- U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and an uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold.
Investment Alternatives :
- Gold bullion. – Refiners produce gold bars from one gram to 400 ozs.
- Gold coins. – The most popular are one oz coins such as the American Eagle, Canadian Maple Leaf, the South African Krugerrand, and the Austrian Vienna Philharmonic. They are easy to keep and transport and closely match the price of gold with a small premium.
- Numismatic coins. – Older coins which fit the description of collectibles have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal.
- Gold Mining stocks. – Stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It’s price movement is almost always more than the movement of gold itself. Market Vectors Gold Miners ETF (GDX) is one way to invest in stocks.
- Jewelry. – Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies.
- Exchange Traded Funds (ETF)– Perhaps the safest method of buying and owning gold by buying shares in a fund based solely on the existing market price of gold. No leverage or storage problems. GLD, GDX, and SLV.
- Gold Mutual funds. – A relatively safe method of buying and owning gold stocks allows the owner to diversify among many stocks and allows the investing decisions to be made by a professional. Investment methods vary among funds and provide many different styles of portfolio management for an investor to choose from. Prices move faster and further in both directions than the price of gold.
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Available at http://www.amazon.com
Stock Market Magic: Building Your
Apprentice Millionaire Portfolio 2012:
Apprentice Millionaire Program Gifts – T-Shirts, coffee Mugs
Posted: May 11, 2013 Filed under: AMP Books and Seminars | Tags: Business, Ceramic art, Coffee, Italy, London, Mug, Shopping, United States Leave a commentThis is Zazzle Canada’s unique coll
Sometimes Opportunity Is Obvious
Posted: May 1, 2013 Filed under: AMP Books and Seminars 2 CommentsLearn to uncover opportunities ,navigate risks and move your portfolio forward
The Gift Of 30 % Portfolio Profits – from Amazon.com
Travel Time / Meeting With Clients
Posted: April 15, 2013 Filed under: AMP Books and Seminars | Tags: Amazon, AMP Book, Associates, Business development, Chilliwack British Columbia, Coaching, Management consulting, Sheffield Leave a commentApril 16th
NOTICE
I am travelling to meet with clients. To be included in the next round of meetings please email your request to info@jackbassteam.com
I will return – and post new entries April 26
In the meantime take a look at our AMP Books available on Amazon:
The Apprentice Millionaire Portfolio and
The Gold Investor’s Handbook
Thank you,
Jack Bass
About Jack A. Bass Business Development Services
Jack A. Bass and Associates
Jack A. Bass and Associates
92 – 6887 Sheffield Way, Chilliwack, BC V2R 5V5
(604) 858-3202
www.jackbassteam.com/
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Gold Investor Confidence Shaken
Posted: April 14, 2013 Filed under: AMP Books and Seminars, Forecasts, Gold | Tags: Commodity market, Friday, Friday Night Videos, Gold as an investment, London, Market trend, New York City, September 2011 Leave a commentBy Alf Field
Late Friday afternoon in New York (April 12, 2013) gold plunged through the critical support level around $1525 level that has held resolutely since the start of this 19 month correction from $1900 in September 2011. In the process of this sudden drop, confidence in gold by long term investors has been badly shaken.
The sad thing is that this late afternoon selloff was an orchestrated event by people wishing to see the gold price lower so that they could cover short positions in the paper gold markets. Proof of this is that London PM fixing on Friday was $1535. Once the London physical market closed, the orchestrated selling in the paper markets gathered momentum. By the close of the Comex paper gold market, gold had dropped $60 in just the last couple of hours on very high volume.
This is not something new. Observers of the gold market have been aware of many other occasions where similar events on a smaller scale have taken place on Friday afternoons. There is little point getting one’s knickers in a knot about this because every short sale in the paper market has to be covered by a corresponding purchase in due course. Thus if people who bought into the selling spree simply hold onto their positions, a short squeeze will eventually develop as the short sellers try to cover their positions, causing the gold price to rise.
Often the physical markets come to the rescue as the lower prices generated by the Friday selloff sparks increased buying in the physical markets, helping to spur the recovery. The result is that the price of gold recovers fairly quickly after a Friday afternoon selloff. The coming week will show whether this happens again this time.
In January this year I published an article indicating that there seemed to be a reasonable chance that the long gold correction was over. That article indicated that if gold dropped below $1636, that the analysis was incorrect and that something else was happening. Gold did drop below $1636 and has continued to decline, proving that the January analysis was faulty.
At that time last January I had assumed that the rise from $1540 to $1790 in 2012 was the first upleg of the new bull market and that the correction to $1636 was the first minor correction of the new bull market. These were incorrect assumptions. The big correction from $1900 in September 2011 was still under way. The low had still to be reached.
In my Keynote speech to the Sydney Gold Symposium in 2011 I had a target of $1480 for the low of the expected correction. Despite several plunges into the low $1500’s, the price never achieved that $1480 target. The low price for Comex was $1523 and the lowest PM fixing was $1531 in late December 2011.
It bothered me from time to time that gold had not achieved my target. Now the late Friday selloff last week has driven the gold price to a closing level of $1477, finally reaching the target of $1480 set 19 months ago. What remains to be seen is whether this target holds and that the bull market resumes. The coming weeks should indicate what is happening.
What we need to look for is a swift recovery to above $1500 and an ongoing strong up-move in a truly impulsive manner. The fundamentals for holding gold are as strong as ever. Gold is an insurance against a range of financial disasters that we don’t need to go into now. You do not cancel your fire insurance when you can see fires burning all around you.
Certainly confidence in gold has been shaken and sentiment indicators are at record lows in some cases. This is exactly what one would expect at a major low in the market after a brutal 19 month correction. The conclusion is that factors are now in place which could support a major low in the gold price.
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Bass on Japan QE: The Widowmaker”
Posted: April 10, 2013 Filed under: AMP Books and Seminars, Central Banks, Japan, Quantitative Easing | Tags: Bank of Japan, Bloomberg Television, Erik Schatzker, Government of Japan, Gross domestic product, Japan, Kyle Bass, Monetary policy Leave a commentKYLE BASS: On Friday, The Market Gave Us The First Glimpse Of The Japan Blowup
Kyle Bass, the hedge fund manager who has become the most prominent voice in the market betting on a collapse of Japan’s sovereign bond market, was on Bloomberg TV this morning discussing the trade.
It’s known as the “widowmaker” because Japan’s outsized stock of government debt – the largest in the world as a percentage of GDP – leaves only one conclusion for many traders.
The market has to blow up eventually, right? Except it never does.
Bass has been vocal about his call since 2010. Now, against the backdrop of the monetary policy revolution at the Bank of Japan, which just announced a massive bond buying program, the “widowmaker” trade is back in the spotlight.
Bloomberg TV anchors Erik Schatzker and Stephanie Ruhle pressed Bass to put a timeframe on his call. When exactly does he think the Japanese government bond market is going to blow up?
Bass replied that he wasn’t naïve enough to think he could guess when it would happen – but he said that on Friday, we saw the first signs that such an event could be coming.
(On Thursday, the Bank of Japan announced its massive new stimulus program. On Friday, there was a big sell-off in short-dated Japanese government bonds, causing yields to spike. The chart below shows the move.)
Bass told Bloomberg TV:
I think it’s important to talk about the BoJ’s “shock and awe” campaign, where they are going to double the monetary base by the end of next year, which is unprecedented. They’re going to buy roughly 60 trillion yen per year of bonds in the next two years, which is 11 percent of GDP, or their whole fiscal deficit.
This is what I find fascinating in the whole situation. [The Bank of Japan] came out and told you: “The new sheriff is in town, and we’ve got you.” Right? “We’re going to buy everything we can buy. Don’t worry.”
And what happened on Friday? Investors in JGBs panicked. Which is, again, it’s really the first diversion from the 20-year norm of their ability to just swallow the numbers and not worry. They actually worried.
According to Bass, this episode illustrates that other market participants are finally coming around to his view on Japanese government bonds.
Bass said in the interview:
You have to think about – you have to get into the heads of the participants, because they all have a collective sense of fatalism.
When you do the quantitative analysis here, you know they are insolvent. Everyone that owns the bonds knows they are insolvent.
It’s a question of how long they can hang on. And what changes their views are a multitude of variables…
You never know what sparks the qualitative perceptions of investors to change, but what I saw Friday was it began to change.
I’m not saying it’s over today. I’m saying, this is the first deviation of the sanctity of that marketplace. And it was a complete panic on Friday.
The Gift Of 30 % Portfolio Profits – from Amazon.com
Related articles
- Kyle Bass Is “Perplexed” At Gold’s Low Price (financialsurvivalnetwork.com)
- Bass Says Japan Bondholders’ Reaction to Stimulus Telling – Bloomberg (bloomberg.com)