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Donnerstag, 30. August 2012

Paul Krugman’s Mis-Characterization Of The Gold Standard

Guest Post: Paul Krugman’s Mis-Characterization Of The Gold Standard

Tyler Durden's picture




Submitted by James E. Miller of the Ludwig von Mises Institute of Canada,
With a price hovering around $1,600 an ounce and the prospect of “additional monetary accommodation” hinted to in the latest meeting of the Federal Reserve’s Federal Open Market Committee, gold is once again becoming a hot topic of discussion.
George Soros made news recently when a filing with the Securities and Exchange Commission revealed that he had liquidated his position with major financial firms and had loaded up on gold; approximately 884,000 shares worth.  Jim Cramer, the CNBC personality in constant search of growing business trends, recommends putting at least 20% of one’s assets in gold.  Following the Republican National Convention, the party platform now proposes the establishment of a commission to study “the feasibility of a metallic basis for U.S. currency.”
Like the gold commission before it, this new interest in gold has brought out the critics who regard the precious metal as nothing short of, to borrow the infamous term coined by John M. Keynes, a “barbarous relic.”  Wesleyan University economist Richard Grossman writes in the Los Angeles Times that the idea of a gold commission is a “waste of time and money” because the standard hasn’t “worked for 100 years.”  In The Atlantic, fiat currency enthusiast Matthew O’Brien calls the gold standard a “terrible idea” and presents a few charts demonstrating that linking the dollar to gold failed to keep prices stable.  Economist and New York Times columnist Paul Krugman has praised O’Brien’s article on his blog and makes sure to point out that the price of gold has been highly volatile since 1968 by showing the following chart:


There is a remarkably widespread view that at least gold has had stable purchasing power. But nothing could be further from the truth.
Krugman points out that when interest rates are low the price of gold typically rises.  He claims that as interest rates tend to fall during recessions, gold’s rise in price would lead to “a fall in the general price level.”  Lastly, Krugman ridicules the notion that a true gold standard would prevent asset bubbles and subsequent busts from occurring by calling attention to the fact that America suffered from financial panics “in 1873, 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933.”
These criticisms, while containing empirical data, are grossly deceptive.  The information provided doesn’t support Krugman’s assertions whatsoever.  Instead of utilizing sound economic theory as an interpreter of the data, Krugman and his Keynesian colleagues use it to prove their claims.  Their methodological positivism has lead them to fallacious conclusions which just so happen to support their favored policies of state domination over money.  The reality is that not only has gold held its value over time, those panics which Krugman refers to occurred because of government intervention; not the gold standard.
Right off the bat, the Nobel Laureate makes the amateur mistake of conflating two different gold standards.  There was not one set standard throughout the 19th century up to the Great Depression.  Until the first World War, the United States and much of the West was under the classical gold standard.  This meant that the dollar was just a name for a set amount of gold; generally 1/20 of an ounce.  Following the massive inflation used to pay for World War I and the Genoa Conference of 1922, the gold exchange standard was adopted by many Western countries including Britain.  Though the United States remained under an imperfect classical gold standard, other Western countries stopped redeeming gold coins for national currencies.  Instead, they redeemed their currencies for dollars or pounds which allowed for expanded fiscal policies because the constraint of gold was not so prominent.  At the same time, President of the New York Federal Reserve, Benjamin Strong, conspired with the head of the Bank of England, Montague Norman, to keep gold from flowing out of Britain by having the Fed adopt “easy money conditions in the United States” and “increase bank liquidity a great deal” according to economic historian Robert Higgs.  This backroom deal was carried out as England readopted the gold standard in 1926 at the pre-World War 1 parity despite the pound being devalued during the war.  Because trade unions and unemployment insurance made wage rates less flexible downwards, the ensuing deflation was detrimental and combated through further inflation aided and abetted by the Fed.
This new international agreement between central bankers may have appeared to be a maintaining of the classical gold standard but it was nothing of the sort.  The inflationary boom in the later half of the 1920s was a product of the monetary scheming of the Fed and Bank of England.  The final result was the stock market crash of 1929 which ushered in the Great Depression.  Contrary to popular belief, the Depression was not caused by the classical gold standard but because of its rejection.
As for the other panics Krugman mentions, neither were caused by the gold standard but by government intervention in the money market.  As economist Joseph Salerno explains, the pervasiveness of fractional reserve banking, or the expansion of credit unbacked by gold reserves, played a key role in creating financial instability.  The panics were caused primarily by
..the establishment of a quasi-central banking cartel among seven privileged New York banks resulting in the almost complete centralization of U.S. gold reserves in their vaults by the National Bank acts of 1863-1864.  This New York City banking cartel was able to expand willy nilly the monetary base and the overall money supply by expanding their own notes and deposits on top of gold reserves.   Their notes and deposits were then used as reserves by lower tier banks (Reserve City Banks and Country Banks) on which to  pyramid their own notes and deposits.
Moreover, banks, especially the larger ones, were encouraged in their inflationary credit creation by the firmly entrenched expectation that they would be freed from fulfilling their contractual obligations in times of difficulty by the legal suspensions of cash payments to their depositors and note-holders that recurred during panics throughout the 19th century.
In sum, an adherence to a real gold standard was not the main cause of all the financial panics Paul Krugman lists.  It was his favorite institution, the state, and the incessant fiddling around with the economy by the political class that created an unstable monetary system.  It is also worth pointing out that the late 19th century was a period of incredible economic growth for both the United States and the rest of the world in spite of the flawed gold standard.  Though it is often alluded to as a time of robber barons, worker starvation, and terrible deflation, the U.S. economy experienced its highest rate of growth ever recorded as the 1800s drew to a close.  As Murray Rothbard documents in The History of Money and Banking in the United States: The Colonial Era to World War II:
The record of 1879–1896 was very similar to the first stage of the alleged great depression from 1873 to 1879. Once again, we had a phenomenal expansion of American industry, production, and real output per head. Real reproducible, tangible wealth per capita rose at the decadal peak in American history in the 1880s, at 3.8 percent per annum. Real net national product rose at the rate of 3.7 percent per year from 1879 to 1897, while per-capita net national product increased by 1.5 percent per year…
Both consumer prices and nominal wages fell by about 30 percent during the last decade of greenbacks. But from 1879–1889, while prices kept falling, wages rose 23 percent.  So real wages, after taking inflation—or the lack of it—into effect, soared.
No decade before or since produced such a sustainable rise in real wages.
From 1869 to 1879 the total number of business establishments barely rose, but the next decade saw a 39.4-percent increase. Nor surprisingly, a decade of falling prices, rising real income, and lucrative interest returns made for tremendous capital investment, ensuring future gains in productivity.
When the United States maintained a gold standard to a fairly significant degree, the economy blossomed.  The relative absence of inflation ensured that the dollar acted as a store of value in addition to facilitating transactions.  Without the threat of looming price increases, the public was more willing to put off consumption and add to the supply of capital availability by saving.  The prudent technique of producing more than you consume allowed for a greater number of entrepreneurs to put capital to work.  This set the foundation for mass production and giving consumers access to an abundance of goods never thought possible just a century before.
To the Keynesians’ befuddlement, the economic renaissance of the late 19th century occurred at a time where prices weren’t rising or stable but actually falling.  The fall in the general price level occurred as the production capacity expanded at a faster rate than the money supply.  Today, economists of the Keynesian and monetarist school remain convinced that a stable price level is good thing when common sense dictates otherwise.  Falling prices are a godsend for consumers; not a catastrophe.  As long as entrepreneurs are able to utilize the inherent feedback mechanism of an undistorted pricing system to forecast input costs, falling prices are only a minor problem.  The focus on price stability is why many economists missed the Depression and the Fed-engineered boom of the 1920s.  In a free market, the tendency is for prices to fall as production increases.
Krugman denies not only that sound money leads to economic stability and growth, he does so while attempting to show that gold has been incredibly volatile since Richard Nixon cuts the dollar’s tie to the precious metal in 1971.  But Krugman puts the proverbial cart before the horse with his example as it hasn’t been the price of gold that has fluctuated to a high degree but rather the dollar’s value.  As Forbes editor John Tamny pointed out in August of 2011
as Brookes calculated in his essential book The Economy In Mind, “In 1970 an ounce of gold ($35) would buy 15 barrels of OPEC oil ($2.30/bbl). In May 1981 an ounce of gold ($480) still bought 15 barrels of Saudi oil ($32/bbl).” Fast forward to the present, and an ounce of gold ($1750) buys roughly 20 barrels of oil ($85)
Krugman also asserts that when interest rates fall, the price of gold increases [ZH - we discussed the various regime changes between interest rates and gold here in great detail].  But again he makes the same mistake of not recognizing the role dollar manipulation plays in both measures.  Interest rates haven’t been formed by market forces since the Federal Reserve was established.  In a free market, interest rates are determined by the public’s collective time preference or the discounting of future goods against present goods.  When more people are saving, and therefore putting off consumption, there is a higher supply of loanable funds.  This higher supply translates to lower interest rates as the price of present capital lowers.  Under a fiat regime like the Fed which oversees a system of fractional reserve banking, interests rates are manipulated by a few central bankers instead of the market.  These central planners increase the supply of money in an effort to push down interest rates and induce consumers into borrowing. This also has the effect of pushing up the price of gold as investors lose confidence in the dollar’s value.
In his crusade to keep Keynesianism as a legitimate school of thought, Krugman has yet again attempted to mischaracterize gold and blame it for crises caused solely by government intervention.  What Keynesianism amounts to is a theory of state worship and the virtue of hedonism.  Its leading proponents declare there is such thing as a free lunch and that it is served directly by the printing of money.  In other words, it is based on backwards logic and remains distant from reality.
The Keynesians admit there was a housing bubble then fret over an “output gap.”  They blame market exuberance for recessions but then prescribe the exact same policies that lead to exuberance to begin with.  This irrationality was best displayed with a remarkable quote by former Treasury Secretary and former director of President Obama’s National Economic Council Lawrence Summers who wrote in an editorial for the Washington Post:
The central irony of a financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it can be resolved only with more confidence, borrowing and lending, and spending.
Keynesians have no pure economic theory; they are totally ad hoc in their approach.  Any data point which fits their view is trumpeted.  Any theory that presents a challenge to the idea that the economy can be finely tuned like a child’s trinket is dismissed as right-wing propaganda.  Keynesians ultimately reject the golden rule of economics: savings represents deferred consumption and producing more than is consumed.  Real savings in the form of capital goods (factories, equipment, machinery, etc.) are the backbone of any economy.  Government only squanders these scarce resources through its constant pillaging of wealth.
Keynes himself was contemptuous of the middle class throughout his professional career.  This is perhaps why he held such disdain for gold.  Gold is the market’s choice for money; not the statist ruling class dependent on spending virtually unlimited sums of tax dollars.  Because a true gold standard prevents runaway inflation and budget deficits from occurring in perpetuity, Keynesians will do all they can to discredit gold as a workable form of currency.  Their allegiance lies with the state and paper money; not the natural choices of the common man.

Dienstag, 28. August 2012

The Top 3 Rules to Understand About Gold & Silver Price Behavior

The Top 3 Rules to Understand About Gold & Silver Price Behavior

smartknowledgeu's picture




Over the past 10+ years of this gold and silver bull, I’ve seen gold and silver "newbies" repeatedly make the same mistakes. So I’ve decided to write this short article to help people more clearly understand gold and silver price behavior. There are 3 solid rules to follow and understand when buying gold and silver bullion and or mining stocks. Because of the lack of understanding of these rules, many investors unfortunately unload gold and silver assets at the exact wrong time, at the bottom of long corrections and right at the beginning of huge new legs higher. Back in mid-May, when I wrote that it was a very low-risk, high-reward point to buy gold and silver assets, virtually no one outside of the very small circle of seasoned gold and silver investors were interested. Now that gold and silver have risen considerably since that point and time, there is more interest than just a few weeks ago, but again, some newbies will make the mistake of buying into gold and silver now, and on any slight pull back, listen to the doubts disseminated by the mainstream media, and panic sell again.

I previously stated on August 16, 2012, the following: “The one thing I can guarantee, however, is that when gold and silver finally make new highs, and they will, some of the ferocious moves higher are absolutely going to stun a lot of people.” And I still stand by this statement. In retrospect, I don’t consider the recent moves in gold and silver to be part of the “ferocious moves higher”. That hasn’t happened yet and we're still a bit away from the manifestation of the scenario that will trigger these moves. Still, some of the moves higher in gold and silver that will happen over the next 1-2 years will be so rapid and shocking that to most people, they will seem impossible given the psychological damage done by the past 18-month gold & silver correction and consolidation period. And to those that pay too much attention to the mainstream financial press and not enough to the realities of the physical, not paper, gold and silver markets, these violent moves higher will be likewise shocking.

Because gold and silver have been so suppressed for an extended period of time the consequent defensive actions of exiting PM mining stocks and re-purchasing them at solid re-entry points has left many gold and silver investors weary and with a negative outlook ahead. Though patience is a virtue when holding and stacking gold and silver assets, this virtue is much more easily vowed than practiced, especially during volatile periods of price behavior upward and downward during an extended consolidation phase. However, those that are able to see through the volatility games of banksters will see something entirely different – a solid base for gold and silver’s next move higher to escape the banking cartel’s price suppression schemes. Thus, even though it is likely for gold and silver assets to take a breather this week and for a pull back in prices to happen before the upward trek continues, whether gold and silver are rising or falling, every gold and silver investor needs to understand the top 3 rules when holding gold and silver assets. So here they are:

(1) Volatility Does Not Equal Risk.
Far from it. In fact most volatility in gold and silver is deliberately manufactured by the banking cartel, and is manufactured in fake paper derivative markets in which prices are set with absolutely zero regard for the actual physical supply and physical demand determinants of these two precious metals. Furthermore, since banker cartel manipulation of paper gold and silver derivatives plays such a big role in price volatility, moves in gold and silver are often just as violent to the upside as they are to the downside after long periods of consolidation, as violent moves higher are often caused by short-covering of panicked hedge funds and banking cartel members that are forced to unwind shorts when the momentum to the upside becomes too great for them to suppress. Furthermore, after brief periods of very quick rises, another short-term correction triggered by day traders taking profits and/or desperate banking cartel members actions in paper markets does not mean the uptrend has reversed back downward again…which bring us to Rule #2.

(2) Lack of Patience is the Greatest Enemy to Buyers of Gold, Silver and PM Mining Shares.
With physical gold and physical silver, bankers deliberately create massive volatility in paper prices at times to discourage the uninitiated from buying physical and to try to goad those already in to mistakenly sell. With PM mining shares, the greatest mistake investors make with this asset class is to let the bankster created artificial volatility in mining shares discourage them into selling out of all of their shares right before the next great leg higher. While it is true that the vast majority of gold and silver mining shares in the junior resource sector are junk and inflated pipe dreams, even cashed-up, solid junior mining companies will be taken down in price during bankster raids on paper gold and paper silver and thus, patience with junior mining companies is essential to coming out on top.
One of the top performing gold stocks lost more than 50% of its value a few years before the onset of the Great Depression before going on a spectacular +1,258% run higher that ended in1939. Those that were impatient because they were unable to see the big picture of the importance of gold during periods of severe economic instability sold out when this stock corrected sharply, locked in losses, and received none of the spectacular gains. Many today will repeat this same exact mistake.

(3) Ignore the White Noise and Disinformation Anti-Gold/Anti-Silver Campaigns of the Commercial Banking Industry.
Clients that allocate money to physical gold and physical silver purchases or PM mining share purchases translates into lost revenues for fee-based managed money commercial banking and brokerage firms because this normally translates into money that leaves these firms and never comes back. Thus, the vast majority of commercial banking/brokerage firm employees have great incentive to prevent their clients from purchasing any gold and silver assets of any nature, including even robust PM mining stocks.
Thus, when the most robust PM mining shares are at super undervalued valuations and represent a low-risk, high-reward set-up, commercial banking/brokerage firm employees are likely to tell you there is ZERO opportunity in PM mining shares. However, when great runs higher in gold and silver assets occur, uninformed commercial banking employees are likely to inform you of this situation and goad you into purchases right before the next steep correction, as was the case when silver hit $50 an ounce last year. A sharp, rapid and significant correction in the first month of buying gold and silver is a lesson likely to keep many "newbies" from ever returning to the gold and silver markets in the future.

For those interested in a further discussion of the above 3 rules, please refer to the articles below:

With Gold & Silver, Why Does the General Population Consistently Get the “Buy Low, Sell High” Mantra Backwards?
In Gold, Silver, Diamonds, & Stock Markets, Controlling Perception is the Banker Weapon Du Jour
The One Personality Trait that All Gold & Silver Investors Need to be Profitable
Fear & Panic are the Banking Cartel’s Weapons V. the Gold & Silver Bull. Patience and Logic are the Best Defense.

We have the banking cartel on the ropes now and gold and silver will eventually break out to new highs. To prevent the banking cartel from executing the rope-a-dope on us as they have so many times in the past, now is the time for every citizen to stand up for his or her beliefs, to buy an ounce of physical silver and an ounce of physical gold, and to begin to impose our collective will upon the banking cartel for a return to sound money and free markets.

About the author: JS Kim is the Managing Director of SmartKnowledgeU, a fiercely independent investment research & consulting firm that focuses on gold and silver asset accumulation as a wealth protection strategy against the currency devaluation campaigns of all Central Banks around the world.

Freitag, 24. August 2012

Gold And Silver Win The Week As Dow Sees First Weekly Loss In Seven

Gold And Silver Win The Week As Dow Sees First Weekly Loss In Seven

Tyler Durden's picture




Volume was dismal - aside from a massive surge in S&P 500 e-mini volumes as the combo Bernanke bluff and ECB bond-band-rumor hit the tape and exploded stocks up from two-week lows. A late-day attempt to close the S&P green for the week failed and the Dow ended with its first down week in seven weeks - and largest loss in nine weeks - despite a magnificent centrally-planned triple-digit gain today (+100.1pts!) Stocks were 'aided' by new cycle highs in HYG as it saw its best performance in a month - amid massive fund inflows and heavy issuance (notably outperforming credit spreads in CDS land). The shift in HYG does look like some convergence trading with SPY though  - after a month of flat-lining. Gold (and even more so Silver) were the week's big performers (up 3.35% and 9.25% respectively) even as the USD only lost 1.1%. Treasuries ended the week better by 9 to 14bps (considerably different from stocks relative performance). The week was characterized simply as stocks bouncing between QE-off (Treasury strength) and QE-on (USD weakness and Gold strength) - on de minimus volumes.
S&P 500 e-mini futures tested to two-week low support and ripped back up to the 'low volume' node in the distribution of prices of the last two weeks - in other words, they needed to auction up here to see if anyone was a willing buyer/seller - and as is clear - that is where they stalled for now... (heavier volume came in at the close/after-hours)


and today's equity rip once again disconnected it from risk-assets after following them lower (and catching down to them yesterday)...


The Dow saw its first loss on the week after six weeks of gains and had its largest loss in nine weeks...

HYG rallied extraordinarily to new cycle highs - though was playing catch up to SPY it seemed - as it had also traded 'cheap' to intrinsics for a couple of days - supported by heavy fund inflows once again...


Yesterday's disconnect 'lower' in stocks to catch back down to Treasuries - was rapidly disconnected back up to USD and Gold QE-on today it seemed...


Buty we can't help but see flows into Gold and Silver...


and Treasuries...


as indicative of considerably more risk-aversion than QE-on fever.

Today's 'confused' market saw Treasuries selling off as stocks rallied
on QE-hope but gold treading water along with USD strength (hardly QE-on-like)...
enjoy the weekend...

Charts: Bloomberg and Capital Context

Bonus Chart: Medium-term S&P 500 e-mini - tested down to trend support - bounced but saw heavy professional selling (h/t @eminiwatch) into this 'bounce' to next resistance...


Bonus Bonus Chart: S&P 500 Sectors Post Tuesday morning's S&P 500 highs... hardly signals belief in the current rally with HealthCare unch (best) and Materials ugly...

Mittwoch, 22. August 2012

Anlegertipp "made in USA"Kaufen Sie Öl: Israel wird Iran bombardieren!

Anlegertipp "made in USA"Kaufen Sie Öl: Israel wird Iran bombardieren!

Investoren wittern überall das große Geld. Aktien, Anleihen, nicht zuletzt Rohstoffe. Eine der ganz heißen Wetten der vergangenen Wochen war der Ölpreis. Geht es nach einem US-Investor, wird sie sogar noch viel heißer.
Ölpumpe auf einem Ölfeld bei Ponca City, Oklahoma. Quelle: dpa
Ölpumpe auf einem Ölfeld bei Ponca City, Oklahoma. Quelle: dpa
New YorkAuf den deutlichen Rückgang des Ölpreises im Juni folgte zuletzt ein kräftiger Anstieg. Im Tagesverlauf hielt er sich heute zumindest in der Nähe seines Dreimonatshochs. In den USA, dem weltweit größten Abnehmer für den Energierohstoff, sind die Ölvorräte so stark gesunken wie seit drei Wochen nicht mehr.
Der Oktober-Kontrakt für Rohöl der Marke West Texas Intermediate notierte bei 96,86 Dollar je Barrel in etwa auf Vortagesniveau. Für das Barrel der Nordseesorte Brent wurden am Terminmarkt 114,61 Dollar gezahlt und damit ebenfalls ungefähr so viel wie am Vortag.
 

LCH.Clearnet Accepts ‘Loco London’ Gold As Collateral Next Tuesday

LCH.Clearnet Accepts ‘Loco London’ Gold As Collateral Next Tuesday

Tyler Durden's picture




From GoldCore
LCH.Clearnet Accepts ‘Loco London’ Gold As Collateral Next Tuesday
Today's AM fix was USD 1,640.50, EUR 1,315.87, and GBP 1,038.49 per ounce.
Yesterday’s AM fix was USD 1,624.00, EUR 1,308.94and GBP 1,030.26 per ounce.
Silver is trading at $29.44/oz, €23.74/oz and £18.72/oz. Platinum is trading at $1,524.75/oz, palladium at $628.60/oz and rhodium at $1,025/oz.
Gold climbed $16.60 or 1.02% in New York yesterday and closed at $1,637.60. Silver surged to hit a high of $29.501 and finished with a gain of 1.6%.

Gold in USD – 50, 100, 200 Day Moving Average  (Bloomberg)
Gold briefly popped above the 200 day moving average at $1,643/oz this morning and remains near the 3 ½ month high set in the prior session. A break above the 200 day moving average, after similar breaks of the 50 and 100 day moving averages, will be bullish technically (see chart).
Market watchers are still optimistic that the ECB’s Mario Draghi will bring out the bazooka and unleash more euro paper in the form of the SMP program which would be the icing on the cake for what is an already very bullish gold scenario.
Recent news that the ECB has been creating alternatives to limit Spanish and Italian borrowing costs may have sent gold higher yesterday, increasing its inflation hedge appeal.
Later today the FOMC releases the minutes from its latest meeting and investors will search for clues on when QE3 will occur.
Gold’s remonetisation in the international financial and monetary system continues.
LCH.Clearnet, the world's leading independent clearing house, said yesterday that it will accept gold as collateral for margin cover purposes starting in just one week - next Tuesday August 28th.
LCH.Clearnet is a clearing house for major international exchanges and platforms, as well as a range of OTC markets. As recently as 9 months ago, figures showed that they clear approximately 50% of the $348 trillion global interest rate swap market and are the second largest clearer of bonds and repos in the world. In addition, they clear a broad range of asset classes including commodities, securities, exchange traded derivatives, CDS, energy and freight.
The development follows the same significant policy change from CME Clearing Europe, the London-based clearinghouse of CME Group Inc. (CME), announced last Friday that it planned to accept gold bullion as collateral for margin requirements on over-the-counter commodities derivatives.
It is interesting that both CME and now LCH.Clearnet Group have both decided to allow use of gold as collateral next Tuesday - August 28th. It suggests that there were high level discussions between the world’s leading clearing houses and they both decided to enact the measures next Tuesday.
It is likely that they are concerned about ‘event’ risk, systemic and monetary risk and about a Lehman Brothers style crisis enveloping the massive, opaque and unregulated shadow banking system.
Overnight, Citigroup CEO Vikram Pandit warned in Singapore that risks are set to increase as non-bank financial systems expand, adding that it’s impossible for a regulatory body to “see everything.”

Cross Currency Table – (Bloomberg)
LCH.Clearnet Group Ltd.  said it will accept loco London gold as collateral for margin-cover requirements on OTC precious-metals forward contracts and on Hong Kong Mercantile Exchange precious-metals contracts starting Aug. 28. Loco London gold are London Good Delivery Bars (roughly 400-ounce or 12.5 kilograms gold bar) held with LBMA members within the London bullion clearing system.
The clearing house has already been using gold bullion as collateral since 2011 but now will accept loco London gold as collateral.
The push to use gold as collateral follows similar steps from a growing number of exchanges and banks to increase the use of gold as an acceptable deposit and collateral reinforcing gold's renewed status as a safe haven currency.
Intercontinental Exchange Inc. (ICE) also has allowed the use of gold as collateral.
LCH.Clearnet limited the amount of gold that could be used as collateral to no more than 40% of the total margin cover requirement for a member across all products and at a maximum of $200 million, or roughly 130,000 troy ounces, per member group.
The move follows the initiative of the World Gold Council, who last year submitted evidence to the Basel Committee for gold to be included in banks’ ‘Tier 1’ assets by European banking regulators, recognising gold’s growing relevance as a high quality liquid asset.
David Farrar, Director, LCH.Clearnet said at the time that “market participants want greater choice when it comes to assets that can be used as collateral.  Gold is ideal; as an asset it typically performs well in times of financial stress, remains liquid and has a well established pricing mechanism.”

Gold Prices/Fixes/Rates/Vols – (Bloomberg)
We pointed out the importance of this development last year but it was ignored by most of the media and even much of the blogosphere.
The CME and LCH.Clearnet both allowing gold bullion as collateral is extremely bullish for the gold market.
With counterparty and sovereign risk remaining elevated, gold is no longer being seen simply as a commodity. Rather, it is increasingly viewed by market participants as an important asset and a currency with no counterparty risk.
We are gradually seeing the remonetisation and indeed the ’financialisation’ of gold, as gold is gradually being reincorporated into the modern financial and monetary system.
This should result in the coming months and years in markedly higher prices than those of today.
Keynes’s ‘barbaric relic’ is becoming less barbaric by the day. However, the man on the street remains completely unaware of this trend and continues to sell gold (jewellery) rather than buy gold (bullion) as clearly seen in the international phenomenon that is 'cash for gold'.
Huge developments in the gold market such as this continue to be ignored by non specialist financial media and its implications not realized by many so called experts. The "experts" and public consensus is that gold is a risky volatile commodity and may even be a “bubble".”
The truth, which is being seen more clearly by the day, is that gold is actually a finite currency and the safest form of money in the world.
For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWSWIRE
(Bloomberg) -- CME Clearing Europe to Clear London Silver Forwards from Aug. 28
CME Clearing Europe will start clearing London silver forwards from Aug. 28, it said in an e- mailed statement today.
The product will be physically-settled, it said.
(Bloomberg) -- Lonmin Says Marikana Worker Attendance Falls to 22% From 33%
Lonmin Plc said about 22 percent of the 28,000 workers at its Marikana mine in South Africa reported for duty today compared with 33 percent yesterday.
There probably won’t be any significant production restart this week, Susan Vey, a spokeswoman for the company said by phone from the mine today. The mine will be shut for a memorial service tomorrow, she said. “We’re hoping for a complete change” on Aug. 27, she said.
(Bloomberg) -- Peru’s June Gold Output Fell 5.9% to 13,094 Kg, Ministry Says
Peru’s gold production fell 5.9 percent to 13,094 kilograms in June from a year earlier on declines at Cia. de Minas Buenaventura’s La Zanja mine and Barrick Gold Corp’s Misquichilca mine.
(Bloomberg) – Platinum May Rise With Gold For Six Months
Platinum may rise with gold over the next two quarters, Daniel Brebner, an analyst at Deutsche Bank AG said.
Copper “continues to have problems on the supply side,” Brebner said.  Copper is probably going to a have a shortage this year, not a surplus as expected earlier in the year, he said.
(Bloomberg) -- Pandit Says Shadow Banking Is a Major Concern
Citigroup CEO Vikram Pandit says risks to increase as non-bank financial systems expand, adding that it’s impossible for a regulatory body to “see everything.” He spoke at a speech in Singapore.
? Pandit says investors see opportunity in light regulation in shadow banking
? “Every piece of regulation we are talking about today has but one goal; to enhance the safety and soundness of the financial system. But this goal will not be achieved if all that we accomplish is to impose more requirements on the formal banking sector while leaving the non-bank financial sector relatively untouched.”
(Bloomberg) -- Commodities Enter Bull Market - Gaining 21% 
Commodities entered a bull market, gaining 21 percent from a June low, as grain prices surged after the most severe U.S. drought in half a century and as crude oil rallied amid increased tension in the Middle East.
The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 0.9 percent to end at 675.55 yesterday in New York. The gauge has jumped from this year’s lowest close of 559 on June 21. A gain of more than 20 percent is the common definition of a bull market. Crude accounts for more than 50 percent of index.

NEWS
Gold near 3-1/2 month high on ECB hopes - Reuters

Gold To Rally As Central Banks, Investors Buy, Coutts Says - Bloomberg
Shares slip after Japan exports fall, euro steady - Reuters
Gold Flat in Asia; FOMC Minutes in Focus – Wall Street Journal

COMMENTARY

Why a collapse of the Eurozone must be avoided – Hyperinflation - Vox
What 40 Years Of Gold Confiscation By The US Government Looks Like – Zero Hedge
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Suicidal Skullduggery in the City & Unusually Small Heads on the Street – Max Keiser

Dienstag, 21. August 2012

What 40 Years Of Gold Confiscation By The US Government Looks Like

What 40 Years Of Gold Confiscation By The US Government Looks Like

Tyler Durden's picture




The chart below, which is a time series showing the total "Gold Held by the US Treasury and the Federal Reserve" (which for all intents and purposes are interchangeable), demonstrates vividly the moment when the US government enacted Executive Order 6102, aka the "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates within the continental United States" order which criminalized the possession of monetary gold "by any individual, partnership, association or corporation." But not the government of course. Spot the moment after which gold confiscation by the US government (also known as a 40% USD devaluation) from its citizens was legalized.

The actual April 5, 1933 order, which in the coming years will make a repeat appearance with absolute certainty, is below.

What was the point of Executive Order 6102? It was two fold.
  • First, in order to make the confiscation legitimate, the US government required the delivery of all gold coin, bullion, and certificates to be concluded by May 1, 1933 in exchange for $20.67/ounce. Several months later, the new, official gold exchange price (which however was merely the government's bid as nobody could actually buy gold at this price) became $35.00, which remained until 1971 when the last trace of the dollar's pseudo convertibility into gold was wiped out by Nixon. In effect, what FDR did was to devalue the USD by 40% overnight.
  • Second, not only did the government remove the incentive for ordinary citizens to hold gold by establishing price and criminal controls over possession, it also changed the rules in the middle of the game allowing it to build up a massive gold hoard of over 8000 tons today which is maintained at Fort Knox, and is, to the best of our knowledge, unauditable by any mere mortal. Critically, it made the US government the sole source and monopoly agent of gold purchases, using reserve fiat currency it could print with impunity, beginning in 1933 and continuing through 1974 when the limitation on gold ownership was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93-373, which went into effect December 31, 1974. In summary, the US government, which is now the largest official holder of physical gold in the world, had 40 years of uncontested zero cost gold accumulation in which it could build a gold inventory that was second to none.
As for the process the government had in place to deal with those who refused to voluntarily hand over their gold quietly, curiously there was only one case of prosecution, which however should make it very clear that holding gold in "authorized" bank safes is about the dumbest thing one can do the next time the US government decides to devalue the dollar, and change the rules.
The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold. Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, and Campbell's gold was confiscated.
The fact that the custodial bank of the 5000 ounces of gold is the bank that would subsequently become JPMorgan is not lost on us.
Finally, to those who have some gold ETF certificates in a brokerage account, which by law are the possession by DTCC's Cede & Co. - a bank owned institution - we wish the best of luck to anyone hoping to preserve of even recover any of the invested wealth in such instruments.
And remember: when in doubt, recall Bernanke's immortal words: "gold is not money."