After a week ago we learned that the central bank of Tunisia had parted with 23% of its gold stash courtesy of now deposed president who fled the country with a 1.5 ton shipment of gold, it appears that Egypt is preparing for a comparable spike in revolutionary activity. Only unlike the now former Tunisian president whose gold sequestering actions were retroactive and thus, quite lucky to succeed, Egypt has taken proactive measures. According to Egypt News, the country's airport has intercepted 59 shipments of gold directed for the Netherlands "worth tens of millions." The gold, as well as an indeterminate amount of foreign currencies, was hidden in pillow cases: uh, cotton may not show up on X-Rays, but gold sure does. We eagerly await to learn how big the decline in the country's official holdings 75.6 tonnes of gold will be after this most recent episode confirming that gold is precisely money. And all this happening despite gold's complete and thorough inedibility.
The Cairo airport authorities announced today the state of emergency to reexamine the expulsion of 59 gold and foreign currencies was on its way to get out of Egypt today by smuggling after the discovery of tearing down some اكياسها before shipment to the Netherlands.
The freight on Dutch plane bound for Amsterdam were surprised by tearing down two bags within 59 a parcel containing large quantities of gold and foreign currencies worth tens of millions have been reported to officials.
It was the formation of a committee headed by an official of one of the Egyptian banks of the parcels were re-examination of parcels and make sure that no shortages and supervision of shipping on the plane.
Bank of America, the biggest US bank, reported Friday a net loss of $1.2 billion for the fourth quarter, citing falling revenue and a hefty writedown on its home-loan business.
The loss was the second consecutive quarterly setback for the government-rescued bank, after a $7.3 billion loss in the third quarter.
For full-year 2010, Bank of America reported a net loss of $2.2 billion. The bank wrote off $12.4 billion in charges.
That amounted to a loss of 37 cents per share, compared to a loss of 29 cents per share in 2009.
In 2009 the bank had profit of $6.3 billion but for shareholders it was a loss of $2.2 billion following payments to the US Treasury stemming from bailout aid......read on
Investment implies moving some part of one's assets from financial safety to a position of acceptable risk with the hope of increasing wealth over time. What qualifies as "acceptable risk" may thus be seen to be the gating question for the investment criteria of a "prudent man". This has come to be known as the Prudent Man Rule to guide persons entrusted with the finances of others.
Although the rule remains a guiding principle in the fund management industry to this day, at least one key element has changed. In 1971, our understanding of ultimate safety was transformed when President Nixon ended the US government's certification that each dollar in circulation was, in effect, worth exactly 1/35th of an ounce of gold.
Since all major currencies had been linked to gold via the US dollar since 1945, when the US held the majority of monetary reserves, the announcement provoked a momentous change in the financial culture. Cash no longer meant gold: the amount of dollars the Federal Reserve could print would not be restricted to some degree by a stored metallic tangible asset with a finite supply. In a great leap of faith, paper dollars and traded US federal liabilities became "risk-free" assets while gold, long regarded as money itself, was disdained as a "commodity", a volatile "risk asset".
This historically radical new notion was validated by the arbiters of money themselves. Central bankers dumped gold, driving prices down sharply during the 1990s. They thereby reinforced the MBA textbook perceptions that the dollar and US Treasury bonds were "risk-free" assets and gold a "barbarous relic," as John Maynard Keynes famously called it.
Even today, as the gold rally has reached the 10-year mark (following a 20-year bear market), the metal represents a mere 0.6 per cent of total global financial assets (stocks, bonds and cash). This is near the all-time low (0.3 per cent) reached in 2001, and significantly below the 3 per cent it accounted for in 1980 and the 4.8 per cent it was in 1968.
However, there are changes afoot. After a lengthy absence, some asset managers and central bankers are readmitting gold back into the group of prudent asset classes. Assessing the devastation of financial industry and government balance sheets, fiduciaries have been reminded that one of the principle reasons to hold gold - that it is the only major financial asset that does not represent someone else's obligation to repay - is not the arcane concept it once appeared.
I believe the renewed appreciation of risk management is in its infancy and that gold, like stocks and bonds, will recover its relatively small, but significant historical position in the world's investment funds. Considering the tiny size of the gold market, the implications of a potential return of gold into the world's largest portfolios are enormous. For, unlike stocks and bonds, whose supply can increase to meet demand, there is not enough gold to go around at today's prices.
According to International Strategy and Investment Group (ISI), if gold ownership rose from 0.6 per cent of total financial assets to only 1.2 per cent, still less than half its 1980s level, this would equate to an additional 26,000 tonnes, or 16 per cent of aggregate gold worldwide. This represents 10 years' worth of current production.
Is such a momentous development likely? I suggest it is more likely than not, as the metal is set up for a "perfect storm" from a supply/demand standpoint. At a time when mining companies can barely find enough gold to replace their reserves and production growth is anaemic, central banks have not only stopped selling their gold but are now aligning with investors to accumulate it.
As it dawns on the wider market that the bull market in gold is real, the impact on gold mining equities will probably be dramatic. Until recently, in spite of their theoretical leverage, miners have lagged behind the metal's performance. This should not be so surprising. As most analysts haven't changed the long-term pricing of their cash flow models to reflect a sustained bull market in gold, the shares have underperformed amid assumptions that are outmoded.
This disconnect is similar to the experience of energy equities in the early 2000s. Even as oil surged, it was not until investors accepted that oil might not stay low forever and started to factor in higher prices that the equities were revalued. With the total market capitalisation of all gold mining companies only fractionally higher than that of Apple, any move by investors to capture the inherent leverage of these equities could drive stock prices substantially higher.
Asset managers and central banks are just beginning to readmit gold back into the select group of prudent asset classes. That this is occurring at a time when what might be seen as the world's safest financial asset classes may also be its scarcest suggests interesting times ahead for those who own gold.
Thomas Kaplan is Chairman of Tigris Financial Group
Inspired this week by the Tunisian President and his wife fleeing with 1,500kg of gold bullion, what else could have this weekend's chill out have been......
Gold is flat and silver marginally lower despite dollar weakness this morning. Some market participants are blaming the precious metal sell off on speculation that China may take more monetary action to curb surging inflation. This is unlikely to be the reason for the sharp sell off, rather it looks like another paper driven sell off in the futures market by leveraged players on Wall Street with various motives.
The fact that silver is again in backwardation at the front end of the curve suggests that tightness in the physical bullion market continues and may even be deepening. Indeed, the massive increase in silver bullion demand from China (confirmed overnight - see below) suggests that silver’s bull market remains very much intact despite becoming overvalued in the short term towards the end of 2010.
Table Courtesy of Mitsui
Surging inflation in China, India, wider Asia and much of the world is of course positive for gold and silver as it will likely lead to an even greater appetite for the precious metals in order to protect against the ravages of inflation and the further depreciation of paper currencies.
China, Gold, Silver and the Western Financial and Monetary System
A theme we have written about for many years is China’s growing importance to global financial markets and the global economy. As the most populous and largest creditor nation in the world, China’s influence and power continues to grow. Chinese power is being seen in currency, bond, commodity and other financial markets.
It is particularly seen in China’s huge appetite for precious metals and this is only being appreciated gradually. Many in western markets and finance continue to not realise the profound changes and long term ramifications of China’s emergence as a global superpower.
The world has changed and we are not reverting to the financial, economic and geopolitical conditions of the late 20th Century.
Silver in US Dollars – 40 Years (Quarterly)
China’s influence and massive appetite for precious metals is important both from a monetary and a geopolitical perspective. We warned of this some years ago – specifically writing about how the Chinese would gradually attempt to position the yuan as the global versus reserve currency, thereby replacing the petrodollar. We also wrote how the Chinese could use precious metals, and gold in particular, as a geopolitical weapon against the US and the west. Recently analysts, including the respected Jim Rikards, have eloquently outlined this real and growing risk.
China’s impact on the gold and silver markets will likely have ramifications for the western monetary and financial system and that is why China’s impact on the silver market is increasingly important. This is something we have wrote about for some time and one of the important factors driving silver’s bull market (see Money Week, August, 2007 article 'Why the Silver Price is Set to Soar'.
Silver’s Supply and Demand in China Importantly and unknown to most analysts and people in the world is the fact that China was a net exporter of silver for many years – indeed China was a major component of global silver supply. This changed in 2007 when China became a net importer of silver.
The demand figures released by the General Administration of Customs in China overnight show the massive turnaround in China from large silver exporter to large silver importer.
China has gross exports of 1,575 tons of silver last year, down 58 percent from a year earlier, said customs. China’s gross imports of silver increased 15 percent to 5,159 tons in 2010, the customs agency said.
A longer term perspective is as ever important as are the net figures.
In 2005, China was a net exporter of nearly 3,000 tonnes (3 million kilos) of silver. Last year, in 2010, China imported more than 3,500 tonnes of silver.
Incredibly, Chinese net imports of silver surged four fold in just one year from 2009 to 2010 (see table above).
Demand for silver in China has risen sharply in recent months and years. Growing middle classes and savers in China, India and other Asian countries have been turning to “poor man’s gold” and using silver as a store of value. Gold has risen above its historical nominal high in local currency terms internationally and silver is seen by many as a cheaper alternative.
Today buyers in China, Asia and internationally can buy some 50 ounces of silver for every one ounce of gold. The gold silver ratio today is 49.3 (gold at $1,342 per ounce divide by silver at $27.20 per ounce) meaning that 49.3 ounces of silver can be bought with every one ounce of gold.
Gold is increasingly unaffordable to the “man in the street” in China and wider Asia and this is leading to increased purchases of silver as a store of value, rather than gold. With the price of gold set to remain high in the coming years, this will continue.
Chinese and most Asians have experienced the decimation of their life savings through currency debasement and hyperinflation and unlike westerners understand the importance of owning gold and silver.
Besides huge demand for silver as a savings vehicle and a store of value in China, there is also very significant industrial demand in China and internationally.
There remain a huge range of industrial applications for silver. While demand from the photography sector has declined, demand from the medical, solar energy, water purification and many other sectors continue to rise significantly.
Today industrial uses account for 44% of worldwide silver consumption and in conjunction with investment and store of value demand, industrial demand continues to grow.
Conclusion Investors and savers in the western world should familiarise themselves with monetary history and why paper currencies always depreciate over the long term and why gold (and also silver) are vital in order to protect and preserve savings and wealth over the long term.
In a fitting tribute to a disgraceful performance by Irish Prime Minister Brian Cowen in which Cowen crammed losses of Irish banks down the throats of taxpayers, his government has at long last collapsed. Six cabinet members (40%) resigned representing justice, health, trade and enterprise, defense and transport. Earlier in the week his foreign minister resigned making the total six.
I have a wide selection of articles to choose from. Here is a representative sample.
Irish Prime Minster Brian Cowen has called an Irish election for March 11th.
Speaking to a packed parliament, Cowen stated that he was reassigning six cabinet portfolios after six of his ministers resigned.
The proceedings in Irish Parliament had been suspended as opposition leaders refused to move forward until Prime Minister Brian Cowen explained the six recent ministerial resignations.
Rumors of an impending collapse of the government and an immediate election were circulating as the Green Party met to decide whether they would withdraw support for the government.
Earlier today parliament was suspended after rowdy scenes. Opposition leader, Fine Gael’s Enda Kenny demanded that proceeding be suspended until Cowen could explain what was going on within the Government.
Kenny said “This is the worst government in history…This would not have happened even in the days of great dictators. It is unprecedented, what you have done.”
He continued “These are the last days of the worst government in the history of the state.”
Minister for Enterprise, Trade and Innovation Batt O’Keefe tendered his resignation this morning. Wednesday saw Mary Harney from Health, Dermot Ahern from Justice, Noel Dempsey from transport and Tony Killeen from defense all resigned. These followed the resignation of Micheal Martin from foreign affairs who resigned after a failed leadership challenge.
Kenny said that the actions of Cowen had been a “cowardly, disgraceful act” and said he was “refusing to come in here today to tell the people of his country what is happening with a Government that has imploded, with a Government that is dysfunctional, that has disintegrated, and that had let our people down”......read on
Everybody is starting to talk about gold prices and how best to buy gold. Very few people talk about silver. The Financial Times left it out of their best investments of 2010 review, although it would have come top.
Now Rich Dad books’ author Robert Kiyosaki is trying to persuade gold bugs to swap their yellow metal for silver. He has actually been plugging away recommending gold and silver since 2005. Then gold was $600 an ounce and silver $10. Today gold is up by 125 per cent and silver prices have tripled........read on
From Zerohedge.com:
