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Updated: 6 hours 32 min ago

Derivatives and mass financial destruction

Fri, 12/19/2014 - 06:24
Globally systemically important banks (G-SIBs in the language of the Financial Stability Board) are to be bailed-in if they fail, moving the cost from governments to the depositors, bondholders and shareholders.

There are exceptions to this rule, principally, small depositors who are protected by government schemes, and also derivatives, so the bail-in is partial and bail-out in these respects still applies.

With oil prices having halved in the last six months, together with the attendant currency destabilisation, there have been significant transfers of value through derivative positions, so large that financial instability may result. Derivatives are important, because their gross nominal value amounted to $691 trillion at the end of last June, about nine times the global GDP. Furthermore, the vast bulk of them have G-SIBs as counterparties. The concentration of derivative business in the G-SIBs is readily apparent in the US, where the top 25 holding companies (banks and their affiliated businesses) held a notional $305.2 trillion of derivatives, of which just five banks held 95% between them.

In the event of just one of these G-SIBs failing, the dominoes of counterparty risk would probably all topple, wiping out the financial system because of this ownership concentration. To prevent this happening two important amendments have been introduced. Firstly ISDA, the body that standardises over-the-counter (OTC) derivative contracts, recently inserted an amendment so that if a counterparty to an OTC derivative contract fails, a time delay of 48 hours is introduced to enable the regulators to intervene with a solution. And secondly, derivatives, along with insured deposits, are to be classified as "excluded liabilities" by the regulators in the event of a bail-in.

This means a government that is responsible for a G-SIB's banking license has no alternative but to take on the liability through its central bank. If it is only one G-SIB in trouble, for example due to the activities of a rogue trader, one could see the G-SIB being returned to the market in due course, recapitalised but with contractual relationships in the OTC markets intact.

If, on the other hand, there is a wider systemic problem, such as instability in a major commodity market like energy, and if this instability is transmitted to other sectors via currency, credit and stock markets, a number of G-SIBs could be threatened with insolvency, both through their lending business and also through derivative exposure. In this case you can forget bail-ins: there would have to be a coordinated approach between central banks in multiple jurisdictions to contain systemic problems. But either way, governments will have to stand as counterparty of last resort.

The US Government has suddenly become aware of this risk. In the recent omnibus finance bill a clause was hurriedly inserted transferring derivative liabilities to the Government in the event of a bank failure. What is alarming is not that this reality has been accepted by the politicians, but the hurry with which it was enacted.

Instead of a normal consultative procedure allowing the legislators to draft the appropriate clause, the wording was lifted at short notice from a submission by Citibank, which has some $61 trillion-worth of derivatives on its own books, with virtually no alterations. Either the insertion was correcting an oversight at the very last minute or, alternatively, that it has suddenly become an urgent matter for the too-big-to-fail banks. The coincidence of current market volatility and this hurried legislation cannot be lightly dismissed and suggests it is the latter.

Market Report: Relative calm for PMs in wild markets

Fri, 12/19/2014 - 06:15
This week has been extremely volatile for oil, currencies and stock markets. Against this background gold and silver have drifted sideways to slightly lower, which given the dollar's strong performance is almost a positive result.

Along with a collapsing oil price on Monday and Tuesday, the Russian ruble fell from 58 to the USD on Monday to 77 the following day. It was clear that Russian oligarchs were getting out of rubles as fast as they could, hence the steep fall. By yesterday things had calmed down and the ruble was back to the 60.4 this morning. There was a slight frisson of excitement over the release of the FOMC minutes on Wednesday, to be followed by Quadruple Witching today. Stock index futures, stock index options, stock options and single stock options all expire on the third Friday of December. The result is the Dow 30 Index rose by 4.3% between Tuesday's opening and last night's close on an enormous bear squeeze.

Gold and silver couldn't escape all this volatility entirely. For example, on Tuesday when the ruble was collapsing then recovering, gold swung through a $32 range, though it ended up unchanged on the day. Silver, after recent strength, fell heavily between Monday afternoon and Tuesday afternoon UK-time, by $1.30, or 7.7%, underperforming gold for the rest of the week. Open interest on Comex for both metals remained stable after recent falls, as shown in the two charts below.

Short positions have now been reduced significantly, so the possibility of a bear squeeze has also lessened. However, one would not expect a bullish trend to develop from an extreme short position, only a technical bounce. So while there is not enough evidence to say the bear market is over, we can say the conditions for a new bull trend are at least falling into place.

Another good marker for a market that is on the turn is the quality of comment. On Wednesday rumours surfaced that Russia was selling its gold to defend the ruble, and this was even reported by Bloomberg and so repeated by serious analysts without checking the story. So far as I can establish it originated from a Russian news channel, Vesti Finance, which misinterpreted a fall in foreign reserves of $4.3bn as a fall in official gold holdings.

In other news, Johnson Matthey announced the sale of its gold and silver refining business to Asahi Holdings, a Japanese refiner of rare and precious metals. This deal makes sense to Asahi, given the rapid debasement of the yen and the likely demand for gold and silver from Japan in the future, as well as in Asahi's other Asian markets. In Switzerland, the Swiss Central Bank announced negative interest rates of 0.25% on deposits, making it attractive for Swiss investors to switch to gold.

Chinese wholesale demand delivered through the Shanghai Gold Exchange last week was 50.0275 tonnes, making it 1,955 so far this year, with over 2,000 tonnes for the second year in a row likely. Since then, London's gold forward rates have gone into backwardation signalling that global demand is outstripping supply again.

In conclusion, it has been an eventful week. The only caution worth mentioning is the month, quarter and year end is often the occasion banks will want to see lower bullion prices for valuation purposes, so we cannot rule out one last dip in precious metal prices over the next two weeks. Otherwise, desperate hopes the Russians are driven to sell tells us the remaining shorts are grasping at straws.

Next week

Monday

Eurozone - Flash Consumer Sentiment.
US - Existing Home Sales

Tuesday

UK - BBA Mortgage Approvals, Current Account, GDP (3rd est.), Index of Services.
US - Core PCE Price Index (3rd est.), Durable Goods Orders, GDP (3rd est.), FHFA House Price Index, Core PCE Price Index, New Home Sales, Personal Income, Personal Spending.

Wednesday

US - Initial Claims

Thursday (Christmas Day)

Japan - Construction Orders, Housing Starts, CPI Core, Real Household Spending, Unemployment, Industrial production, Retail Sales.

Friday

No material announcements.

Dealing Desk: Volatile week for gold while silver shows weak prices

Thu, 12/18/2014 - 13:00
It's been a volatile week for the yellow metal in quiet trading as global data and economic news have caused prices to pull in various directions.

Dealing Manager at GoldMoney, the online precious metals trader, Kelly-Ann Kearsey said, 'The week started with weaker than expected Chinese factory data pushing oil prices down further, forcing Brent Crude to below $60 a barrel. This had the effect of decreasing gold prices as deflationary, rather than inflationary pressures took the helm.

Markets were waiting for news from the US Federal Reserve bank to see when they might raise interest rates. The dovish stance that was announced supported gold and hit the dollar, but that was a short-lived reprieve as the US Consumer Confidence data gave further support to the American economy and gold once more headed south.

However, while the US economy still appears to be going in the right direction, others aren't. The Russian Government's intervention to support the Ruble, raising interest rates to 17%, has encouraged some safe haven buying, but generally GoldMoney customers have been selling the yellow metal in seasonally quiet trading.

The focus of GoldMoney buyers has been on the white metals, we've seen the usual trend of selling out of the UK and Switzerland, but the buying of silver has been heading into our Singapore vaults along with increased interest in platinum and palladium.

With the gold/silver ratio standing at 74, silver is definitely looking like a good option and our customers are taking advantage with some bargain buying.

We aren't expecting a lot of customer activity from now until year end, although the quadruple witching* on Friday will likely add some further volatility to an unpredictable gold market.

It's interesting to note that this time last year gold prices weren't far off what they are now, our last market report before Christmas recorded gold at $1202.81, just above its support level and around the numbers we've been seeing this week. However silver is down on last year's $19.41 which is why we're seeing interest from our customers in what looks to be a well-priced opportunity.

With little activity expected from our customers during the seasonal holiday our market report will return on January 8th. In the meantime, we wish you all a happy Christmas and prosperous New Year.'

*An event that occurs when the contracts for stock index futures, stock index options and stock options and single stock futures all expire on the same day.

Week on Week performance: 18/12/14 16:00. Gold fell 2.2% to $1,195.01, Silver dropped 6.6% to $15.93, Platinum slipped 3.4% to $1,196.95 and Palladium decreased 3.5% to $789.40.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

Christmas Exclusive Offer

Thu, 12/18/2014 - 12:12

Thank you for your loyal support in 2014.

As a token of our appreciation, we would like to offer you a 10% reduction on our lowest published GoldMoney buy fees when you make any gold purchase for storage in the London vault. How it works

Follow the steps below to take advantage of our special promotion

  1. Choose the amount of gold that you want to buy in either USD, EUR or GBP
  2. Write down the relevant promotional code from the list below, you will need this later
  3. Login to your Holding or sign up to open a Holding for free
  4. Click "Buy & Sell Exchanges" and then "Buy Metal". Please ensure you have funded your Holding
  5. Enter your Promotional Code on the first page and click 'Apply'. Continue through the buy process
Hurry, offer ends 15th January 2015.  Your discount code For US Dollar orders, please use XMASUSD For Euro orders, please use XMASEUR For Great British Pound orders, please use XMASGBP

 

  Terms of the offer

This offer is available from 2:01pm UK time on 19 December 2014 and expires at 11:59pm UK time on 15 January 2015.

This promotion code is applicable for purchases of gold for storage in Via-Mat London, in either USD, Euros, or pounds sterling only.

This offer cannot be used in conjunction with any other offer or discount.

This offer is open only to residents of countries in which GoldMoney accepts customers, as set out in GoldMoney’s Customer Acceptance Policy. GoldMoney does not accept customers from certain countries, including, but not limited to, the Netherlands or from countries subject to any economic or trade sanctions.

Employees of GoldMoney or their immediate family members shall not be permitted to take part in this promotion.

Any disputes arising in relation to this promotion will be governed by the laws of the Island of Jersey and the parties agree that the Courts of Jersey shall have non-exclusive jurisdiction.

Use of the promotional code is deemed acceptance of the terms of the promotion and of GoldMoney’s Customer Agreement.

GoldMoney reserves the right to amend, vary, extend, or discontinue a promotion at any stage, for any reason, without notice.

GoldMoney takes no responsibility for any inability to enter, complete, continue, or conclude the promotion due to equipment or technical malfunction, busy lines, inadvertent disconnection, force majeure, or otherwise.

GoldMoney is the trading name of Net Transactions Limited, a company incorporated in Jersey, with its registered office at 32 Commercial Street, St Helier, JE2 3RU, Jersey.

Christmas Exclusive Offer

Thu, 12/18/2014 - 12:12

Thank you for your loyal support in 2014.

As a token of our appreciation, we would like to offer you a 10% reduction on our lowest published GoldMoney buy fees when you make any gold purchase for storage in the London vault. How it works

Follow the steps below to take advantage of our special promotion

  1. Choose the amount of gold that you want to buy in either USD, EUR or GBP
  2. Write down the relevant promotional code from the list below  – you will need this later
  3. Login to your Holding or sign up to open a Holding for free
  4. Click "Buy & Sell Exchanges" and then "Buy Metal" - please ensure you have funded your Holding
  5. Enter your Promotional Code and continue through the buy process
Hurry, offer ends 15th January 2015.  Your discount code For US Dollar orders, please use XMASUSD For Euro orders, please use XMASEUR For British Pound orders, please use XMASGBP

 

  Terms of the offer

This offer is available from 2:01pm UK time on 19 December 2014 and expires at 11:59pm UK time on 15 January 2015.

This promotion code is applicable for purchases of gold for storage in Via-Mat London, in either USD, Euros, or pounds sterling only.

This offer cannot be used in conjunction with any other offer or discount.

This offer is open only to residents of countries in which GoldMoney accepts customers, as set out in GoldMoney’s Customer Acceptance Policy. GoldMoney does not accept customers from certain countries, including, but not limited to, the Netherlands or from countries subject to any economic or trade sanctions.

Employees of GoldMoney or their immediate family members shall not be permitted to take part in this promotion.

Any disputes arising in relation to this promotion will be governed by the laws of the Island of Jersey and the parties agree that the Courts of Jersey shall have non-exclusive jurisdiction.

Use of the promotional code is deemed acceptance of the terms of the promotion and of GoldMoney’s Customer Agreement.

GoldMoney reserves the right to amend, vary, extend, or discontinue a promotion at any stage, for any reason, without notice.

GoldMoney takes no responsibility for any inability to enter, complete, continue, or conclude the promotion due to equipment or technical malfunction, busy lines, inadvertent disconnection, force majeure, or otherwise.

GoldMoney is the trading name of Net Transactions Limited, a company incorporated in Jersey, with its registered office at 32 Commercial Street, St Helier, JE2 3RU, Jersey.

GoldMoney strengthens senior team

Thu, 12/18/2014 - 10:18
GoldMoney has expanded its senior team with the appointment of Meryl Le Feuvre as Marketing Manager and Paul Woodland, Head of Customer Relations.

GoldMoney Chief Executive Officer, Geoff Turk said that, 'We are a well established global company with over 22,000 customers, but it's important to continually develop the business. The appointments of Meryl and Paul will support our future marketing and customer acquisition strategy.'

Meryl joins GoldMoney from RBS International in Jersey where she had been PR Manager. Prior to this she worked in a number of marketing management roles within the UK after graduating from the University of Manchester.

Geoff commented: 'Meryl will have oversight for the marketing and business development team and will help drive our continued expansion. Her experience in the finance and professional services industry will compliment our innovative online proposition.'

Meryl added, 'I'm very excited by the growth possibilities at GoldMoney. We have a pioneering e-commerce solution dealing in the world's oldest form of currency, gold. I look forward to enabling individuals and institutions globally to preserve their wealth through diversification into precious metals. The recent inclusion of gold bullion in the UK's Self Investment Personal Pension Schemes is just one example of how its investment qualities are being recognised.'

Meryl has an MPhil in Business Administration and a BSc (Hons) in International Management with French.

Geoff Turk said Paul's role reflects the importance they places on ensuring their customers are satisfied, 'He is a results driven, energetic and enthusiastic manager and the relationship management team are looking forward to working with him.'

Paul comes to GoldMoney from Sovereign Trust in Guernsey where he was Business Development Manager. Prior to this he worked for Barclays heading up their Local Markets function and was responsible for Premier, Personal and Branch banking. He has also been an Area Manager for RBS Private Bank in the UK where he led a highly experienced team of private bankers whose main responsibility was to acquire new business and build effective relationships with internal and external stakeholders.

Paul is looking forward to heading up GoldMoney's Relationship Management team, 'Customer care is the core of any business. It's not just about bringing in new customers, but about ensuring your existing clients aren't just content with the service they are receiving, but feel they are being listened to. I shall be utilizing my previous experience in customer facing roles to help drive GoldMoney's relationships internally and externally.'

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney stores around $1.4billion of precious metals worldwide for over 22,000 customers.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

Historically gold has been an excellent way to preserve purchasing power over long periods of time. For example, today it takes almost the same amount of gold to buy a barrel of crude oil as it did 60 years ago which is in stark contrast to the price of oil in terms of national currencies such as the US dollar.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

Going for Gold

Wed, 12/17/2014 - 08:56

Featured in October's Connect magazine, GoldMoney's Chief Financial Officer Peter Wright looks at why some are clamouring for the west to take notice of the gold that is slipping through our fingers to the east.

Read the full article here.

Buy and store precious metals with GoldMoney

Tue, 12/16/2014 - 11:14

 

Buy and store precious metals with GoldMoney GoldMoney allows people to buy gold, silver, platinum and palladium online, and store their metal in secure vaults in Canada, Hong Kong, Singapore, Switzerland and the UK. GoldMoney also allows people to take physical delivery of gold and silver bars.

 

Spare dollars

Fri, 12/12/2014 - 08:50
Last week I wrote that contrary to the prevailing mood US dollar strength could reverse at any time. This week I look at another aspect of the dollar, which almost certainly will become a significant source of supply: a global shift out of it by foreign holders.

As well as multinational corporations that account in dollars, there are non-US entities that use dollars purely for trade. And so long as governments intervene in currency markets, governments end up with those trade dollars in their foreign reserves. Some of these governments are now pushing hard to replace the dollar, having seen its debasement, which is beyond their control. This has upset nations like China, and that is before we speculate about any geopolitical angle.

The consequence of China's currency management has been a massive accumulation of dollars which China cannot easily sell. All she can do is stop accumulating them and not reinvest the proceeds from maturing Treasuries, and this has broadly been her policy for at least the last year. So this problem has been in the works for some time and doubtless contributed to China's determination to reduce her dependency on the dollar. Furthermore, it is why thirteen months ago George Osborne was summoned (that is the only word for it) to Beijing to discuss a move to urgently develop offshore renminbi capital markets, utilising the historic links between Hong Kong and London. Since then, it is reported that last month over 22% of China's external trade was settled in its own currency.

Given the short time involved, it is clear that there is a major change happening in cross-border trade hardly noticed by financial commentators. But this is not all: sanctions against Russia have turned her urgently against the dollar as well, and together with China these two nations dominate and carry with them the bulk of Asia, representing nearly four billion rapidly industrialising souls. To this we should add the Middle East, most of whose oil is now exported to China, India and South-East Asia, making the petro-dollar potentially redundant as well.

In a dollar-centric currency system, China is restricted in what she can do, because with nearly $4 trillion in total foreign exchange reserves she cannot sell enough dollars to make a difference without driving the renminbi substantially higher. In the past she has reduced her dollar balances by selling them for other currencies, such as the euro, but she cannot rely on the other major central banks to neutralise the market effect of her dollar sales on her behalf. Partly for this reason China now intends to redeploy her reserves into international investment to develop her export markets for capital goods, as well as into major infrastructure projects, such as the $40bn Silk Road scheme.

This simply amounts to dispersing China's dollars into diverse hands to conceal their disposal. Meanwhile currency markets have charged off in the opposite direction, with the dollar's strength undermining commodity prices, most noticeably oil, very much to China's benefit. And while the talking-heads are debating the effect on Russia and America's shale, they are oblivious to the potential tsunami of dollars just waiting for the opportunity to return to the good old US of A.

 

Market Report: Gold was the safe-haven this week

Fri, 12/12/2014 - 08:42
This week, precious metals continued their recovery, with gold up $35 at $1220 and silver up about $1 at $17 this morning, thus building on the improved trend since gold bottomed nearly $90 lower at $1132 on 7 November.

Gold seems to be finding support at the 50-day moving average (MA), which currently stands at $1198 and now rising. The 200-day MA is at $1246, which suggests supply at this level could cap the rise for the moment: these levels matter to technical traders. On Comex there is evidence of some buying of gold futures, as opposed to bear closing, which is reflected in the rise in net contracts for the Managed Money category shown in the chart below.

This net long position at 2 December is still on the low side, compared with an average of 115,000 contracts net long over the last eight years, telling us that despite a rise of $90 in five weeks, there are still buyers out there yet to buy. Silver tells a similar story.

Market attention was not so much on precious metals this week, but on volatile markets nearly everywhere else: oil, currencies, stocks and bonds. Oil is a disaster, Brent having fallen over 9% on the week. In currencies, the Japanese yen weakened to just under ¥122 to the US dollar, close to the ¥123 level some major traders think the yen's collapse could become unstoppable. Instead, probably with official intervention it strengthened on Wednesday and Thursday by over 3.5%, a big move for a major currency.

China decided to rein in interbank lending to stop banks circumventing credit controls, which hit Chinese equity markets hard, with the Shanghai Composite Index falling 8% on Monday and Tuesday before recovering somewhat. And the Athens stock market suffered its biggest fall since 1987, falling 20% after a snap presidential election was called that could threaten EU unity. Volatility in other equity markets has been high as well, with big falls from Monday to Wednesday being partially retraced subsequently.

It is worth mentioning these moves, because until recently capital markets would have marked gold and silver down on the pretext that bonds are the preferred safe haven. Gold is now performing well at a time of exceptional dollar strength, which is the opposite of how the relationship has worked for some considerable time and bodes well for a rally into the New Year, so long as it doesn't get knocked for year-end valuations.

In other news, Chinese wholesale demand last week was 38.36 tonnes, down from 53 tonnes the week before. This may have been due to the tightness of supply in London when gold forward rates were negative.

Next week

Monday

UK: CBI Industrial Trends.
US: Empire State Survey, Capacity Utilisation, Industrial Production, NAHB Builders Survey, Net Long-Term TICS flows.

Tuesday

Eurozone: Flash Composite PMI, Flash Manufacturing PMI, Trade Balance, ZEW Economic Sentiment.
UK: CPI, Input Prices, ONS House Prices, Output Prices.
US: Building Permits

Wednesday

UK: Average Earnings, BoE MPC Minutes, Claimant Count Change, ILO Unemployment Rate.
Eurozone: HICP, Labour Cost Index.
US: CPI, Current Account, FOMC Fed Funds Rate

Thursday

UK: Retail Sales.
US: Initial Claims, Leading Indicator, Philadelphia Fed Survey.

Friday

Japan: All Industry Activity Index, Leading Indicator (Final).
Eurozone: Current Account.
UK: Public Sector Borrowing, CBI Distributive Trades.

Dealing Desk: Gold volatile but still in festive mode

Thu, 12/11/2014 - 13:05
Gold has had a volatile few days thanks to a variety of factors, in a week that's seen more window dressing of GoldMoney client investment portfolios than serious directional decisions.

Head of Dealing and Settlements, Roland Khounlivong said, 'The better than expected economic figures out of the US were all good news for the dollar but not so positive for the gold price. Then the downward spiral of oil prices increased deflationary pressure on the global economy which again put a negative spin on gold which is traditionally seen as a hedge against inflation.

'Tuesday's big sell off in global equities, led by the Chinese, sent some investors hunting for a safe haven and that helped gold to break back through the US$1200 mark. For GoldMoney customers it provided an opportunity to sell the yellow metal in a rising market and so we've ended with net selling of gold for the week.

'Overall, however we've seen as many buyers as sellers across all the precious metals with silver benefitting from bargain hunting. This is usual for this time of year with the market traditionally quiet ahead of the festive period. Although volumes were 50% up on last week, we're a long way away from the kind of activity we saw in early November. It's going to take a much bigger catalyst to trigger any significant buying or selling this side of the new year, although the triple witching* at the end of next week might inject some further volatility.'

*An event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December.

16:00 11/12/14: Week on week performance: Gold rose just 1.1% to $1,222.40; Silver gained 3.1% to $17.06; Platinum slipped 0.2% to $1,238.65 while Palladium put on 1.9% to $817.97.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

Why gold is a safe haven

Mon, 12/08/2014 - 08:29
The gold price may be off its highs, but it doesn’t change the reasons why an increasing number of high-net worth individuals include precious metals in their portfolios and pensions.

Read the full article in the Business Reporter here.

Commodities and the dollar

Fri, 12/05/2014 - 06:39
Each commodity market has its own story to tell: oil prices are falling because OPEC can't agree production cuts, steel faces a glut from overcapacity, and even the price of maize has fallen, presumably because of good harvests.

In local currencies this is not so much the case. Of course, the difference between prices in local currencies and prices in US dollars is reflected in the weakness of most currencies against the dollar in the foreign exchange markets. This tells us that whatever is happening in each individual commodity and in each individual currency the common factor is the US dollar.

This is obvious perhaps, but the fall in commodity prices and the rise in the US dollar have to be seen in context. We should note that for most of the global population, the concern that we are facing global deflation (by which is commonly meant falling prices) is not yet true. Nor is a conclusion that the fall in the oil price indicates a sudden collapse in demand for energy. When the dollar price of oil began to slide, so did the exchange rates for all the other major currencies, confirming a significant part of oil's price move came from dollar strength, which would have also been true of commodity prices generally.

All we can say is that on average there has been a shift of preferences towards holding dollars and away from holding commodities. Looked at in this light we can see that a trend of destocking can develop solely for financial rather than business reasons, because businesses which account in dollars face financial losses on excess inventory. It is the function of speculators to anticipate these decisions, which is what we have seen in recent months.

Macro-economists, who are Keynesian or monetarist by definition, are beginning to interpret falling commodity prices and a rising dollar as evidence of insufficient aggregate demand, which left unchecked will lead to deflation, increasing unemployment, bankruptcies, falling asset prices, and bank insolvencies. It is, they say, an outcome to be avoided at all costs by ensuring that aggregate demand is stimulated so that none of this happens.

Whether or not they are right in this assessment is not the point. They neglect to allow that some of the move in commodity prices is due to the currency itself as the numéraire of all prices.

For evidence of this we need look no further than the attitude of the Fed and every other central bank that targets price inflation as part of their monetary policy. In forming monetary policy there is no allowance for the possibility, nay likelihood, that in future there will be a change in preferences against the dollar, or any other currency for that matter, and in favour of anything else. The tragedy of this lack of market comprehension is that it's a fair bet that monetary policy will not only succeed in limiting the rise of the dollar as it is designed to do, but end up undermining it when preferences shift the other way.

The moral of the story is that the Fed may be able to fool some of the people all of the time and all of the people some of the time, but worst of all they are fooling themselves. And we should bear in mind that dollar strength is only a trend which can easily reverse at any time.

 

Market report: Post referendum bounce

Fri, 12/05/2014 - 06:25
It turns out the Swiss referendum last weekend which sought to force the Swiss National Bank to maintain 20% gold reserves was a red herring so far as precious metal markets are concerned.

It was fairly obvious before the referendum that no sensible trader would had bought gold in the expectation it would go through, so there would be few short-term sellers afterwards. Equally, it was so obvious to traders the referendum would fail that there may have been some short-sellers, or perhaps deferred buying waiting for the event to pass.

In early Far East trade on Monday the big players took the opportunity to test this by knocking the price to as low as $1142 immediately after the result was declared. This should have taken out all the stops on the way down. Instead it set up precious metals for the sharpest rally seen in years. Gold rose as much as $80 or 7% from that low during Monday’s trading, and silver a remarkable $2.57, or 18%.

The extreme level of short positions held by money managers (mostly hedge funds) on Comex had already reduced slightly, according to the Commitment of Traders Report for the previous Tuesday (25th November). Furthermore, as well as swaps the spectacular reduction in open interest reflects contracts exchanged for physical[i] (EFP). In this context EFP includes deals for forward settlement and no physical needs to be involved, so EFP represents contracts that have simply moved from the regulated Comex[ii] market into the unregulated hinterland.

The following charts for gold and silver respectively show how dramatic the decline in open interest has been.

As gold recovers, the backwardation in London, represented by the GOFO[iii] rate, has ameliorated to minus 0.17% yesterday, having been minus 0.5825% on Monday, and this is shown in the next chart from the LBMA[iv].

This does not necessarily mean the shortage of physical bullion has been resolved, only that at over $1200, buyers of physical are not chasing prices so hard. This is confirmed by market action with the $1200 level initially acting as a level of supply until Wednesday morning UK time, after which it has become support with the price holding above it. It is also worth noting that the turmoil in markets was a wider phenomenon with the oil price recovering sharply on Monday as Brent rallied from $68 to$73, before drifting off back to $69 yesterday.

In other news, according to a report from Bloomberg, China is considering allowing entities other than licensed banks to import gold, to eliminate the premium in Shanghai over the London spot price. It is more likely that this move would be intended to gain a greater share of global gold flows to satisfy domestic demand. And last week the SGE[v] delivered a further 53.56 tonnes into public hands, a rate which has been constant for the last ten weeks and is more than global mine production ex-China.

Next week

Monday.

Japan: Economy Watchers Survey, M2 Money Supply.
Eurozone: Sentix Indicator.
UK: CBI Industrial Trends.

Tuesday.

UK: Industrial Production, Manufacturing Production.
US: IBD Consumer Optimism

Wednesday.

Japan: Consumer Confidence.
UK: Trade Balance.
US: Budget Deficit.

Thursday.

Japan: Key Machinery Orders.
US: Import Prices, Initial Claims, Retail Sales, Business Inventories

Friday.

Japan: Capacity Utilisation, Industrial Production.
UK: Construction Output.
Eurozone: Industrial Production.
US: PPI, University of Michigan Sentiment.


[i]In Finance, an Exchange of Futures for Physicals (EFP) is a transaction between two parties in which a Futures contract on a commodity is exchanged for the actual physical good. This transaction involves a privately negotiated exchange of a futures position for a corresponding position in the underlying physical.

[ii]Comex US futures market for trading futures and options on futures in a wide range of commodities, currencies and stock indicies including gold, silver, platinum and palladium.

[iii]The gold forward rate (GOFO)

[iv]The London Bullion Market Association

[v]The Shanghai Gold Exchange

Dealing Desk: GoldMoney sees silver in demand

Thu, 12/04/2014 - 13:14
Dealing Manager at the online bullion dealer, Kelly-Ann Kearsey said, 'The last seven days have seen net selling of gold and net buying of silver, continuing the trends that we saw last week.

Overall, we have seen buying and selling equaling each other out, and the long-term trend of selling out of the UK and Switzerland vaults whilst more purchasing in Singapore and Canada can be seen.

'Our volumes are up from last week, and silver has been the favourite over gold.'

Over the past seven days the pointers indicate more positive news across the Atlantic, with a strong dollar prevailing against other major currencies and strong indications from US manufacturing figures.

Last week's Swiss referendum ended with a vote against adding to the country's gold reserves, but the result had been forecast in pre-polling, and there was no major impact from the vote.

Over the next seven days we will be looking forward to the Consumer Price Index figures from China and also the US Retail sales which may give further indication to the strength of the US economy.'

16:00 04/12/14: Week on week performance: Gold rose 1.5% to $1,209.01; Silver gained 2% to $16.55; Platinum added 2.0% to $1,241.00 while Palladium dropped 0.3% to $802.53.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

The case for silver

Tue, 12/02/2014 - 11:46
Supply and demand

Silver is commonly accepted as a monetary metal, but nowadays its principal use is industrial. According to The Silver Institute, supply of mine and scrap recycling totals 980 million ounces, while physical demand is 1,080 million ounces, of which about 246 million is bars and coins. Silver's characteristics are hard to substitute by using other metals, so the silver price can increase somewhat without reducing industrial demand.

Valuing silver

Isaac Newton set the monetary relationship between gold and silver at 15.5 times when he was Master of the Royal Mint nearly 300 years ago. When silver and gold were in circulation as monetary metals the relationship generally held between 14-16 times. Today the ratio is about 73 times.

If the gold price rises to reflect growing uncertainty about the purchasing power of government currencies, it stands to reason that silver will also rise towards Newton's monetary relationship. However, this would require lost industrial demand at far higher prices to be absorbed by sales of coins and bars.

Silver's price volatility relative to gold is about two times, so in a rising market a good way to get price leverage on gold is to buy silver. This should interest buyers who feel they have missed the bottom of the gold market and want to catch up on the implied loss. Of course, if the price of gold falls, the losses in silver can be expected to be correspondingly greater.

Following the end of the gold standard and its replacement with government currencies, there have been many occasions when gold ownership has been banned. Today this may seem unlikely, but confiscation may become increasingly possible if monetary conditions deteriorate in the future. As silver is predominantly an industrial metal, it should offer protection against this possibility.

Market Report: Waiting for Godot

Fri, 11/28/2014 - 07:29
Alternatively, watching paint dry. That's how it has felt this week with gold's volatility slowing to a crawl ahead of Thanksgiving yesterday and the Swiss gold referendum on Monday.

However, Open Interest1 on Comex2 , has suddenly collapsed for both gold and silver, indicating something interesting is going on.

At the same time, the gold forward rate in London (GOFO) has gone sharply negative to -0.4% as shown in the next chart, from the LBMA.

The chart covers the year so far, and it can be seen how the rate has fallen deep into negative territory over the last six weeks. It is now in the largest backwardation3 seen since 9th March 2001 when a sudden bullion shortage appeared to be rapidly resolved, presumably from the Bank of England's vaults (Britain was reducing her gold stock at that time). Before that in September 1999 GOFO had hit record negative territory, after which gold shot up by 20% in a week. In both these previous cases GOFO rates spiked deep into backwardation which was quickly reversed. Today there does not appear to be the liquidity from central banks or anywhere else to resolve the bullion shortage, so goodness knows how it will be resolved this time.

So how does this tie in with the collapse in open interest on Comex? We will have a better idea when we see the Commitment of Traders (COT)report later tonight, but subject to what the COT report reveals, it is most likely to be spread positions being closed, which could have become loss-making due to the unexpected surge in backwardation in the physical market. On 18th November, total spread contracts in gold were 104,445 contracts and in silver 40,580 contracts, which would fit this explanation. Furthermore, the effect on the market has been broadly neutral, which would not have been the case had naked bull or bear positions been liquidated.

Backwardations have been a feature of the physical gold market from time to time this year as the GOFO chart shows, but they have not been as persistent or extreme as they are today. If central banks have withdrawn as liquidity providers, we could be seeing early warning signs of more serious problems developing in the market which would be more difficult to resolve than in the past.

Meanwhile prices traded most of the week around the $1190-1200 level ahead of next Monday's Swiss referendum on gold, though the gold price dipped below this level yesterday afternoon and overnight on a sharp fall in oil prices in the wake of an OPEC meeting.

In other news Holland repatriated 122.5 tonnes of her gold from New York in a move that seems likely to upset Germany, which had booked its position at the head of the queue for gold from the Federal Reserve Bank of New York. And China's public took a further 52.48 tonnes last week, so no wonder GOFO rates are in such serious backwardation.

Next week

Monday.

Japan: Vehicle Sales.
UK: Halifax House Price Index, BoE Mortgage Approvals, Secured Lending, Markit Manufacturing PMI, M4 Money Supply.
Eurozone: Manufacturing PMI.
US: Manufacturing PMI, ISM Manufacturing

Tuesday.

Eurozone: PPI.
US: Construction Spending, Vehicle Sales.

Wednesday.

Eurozone: Composite PMI, Services PMI, GDP (2nd Est.), Retail Trade.
US: ADP Employment Survey, Non-Farm Productivity, Unit Labour Costs, ISM Non-Manufacturing Index.

Thursday.

UK: BoE MPC Base Rate,
Eurozone: ECB Deposit Rate.
US: Initial Claims.

Friday.

Japan: Leading Indicator.
US: Non-Farm Payrolls, Trade Balance, Unemployment, Factory Orders, Consumer Credit.

1 Open interest (also known as open contracts or open commitments) refers to the total number of derivative contracts, like futures and options, that have not been settled in the immediately previous time period for a specific underlying security. A large open interest indicates more activity and liquidity for the contract.[1]

2 Comex US futures market for trading futures and options on futures in a wide range of commodities, currencies and stock indicies including gold, silver, platinum and palladium.

3 Normal backwardation, also sometimes called backwardation, is the market condition wherein the price of a forward or futures contract is trading below the expected spot price at contract maturity.[1]

Russia’s monetary solution

Fri, 11/28/2014 - 07:17
The hypothesis that follows, if carried through, is certain to have a significant effect on gold and the relationship between gold and all government-issued currencies.

The successful remonetisation of gold by a major power such as Russia would draw attention to the fault-lines between fiat currencies issued by governments unable or unwilling to do the same and those that can follow in due course. It would be a schism in the world's dollar-based monetary order.

Russia has made plain her overriding monetary objective: to do away with the US dollar for all her trade, an ambition she shares with China and their Asian partners. Furthermore, in the short-term the rouble's weakness is undermining the Russian economy by forcing the Central Bank of Russia (CBR) to impose high interest rates to defend the currency and by increasing the burden of foreign currency debt. There is little doubt that one objective of NATO's economic sanctions is to harm the Russian economy by undermining the currency, and this policy is working with the rouble having fallen 30% against the US dollar this year so far with the prospect of further falls to come.

Russia faces the reality that pricing the rouble in US dollars through the foreign exchanges leaves her a certain loser in a currency war against America and her NATO allies. There is a solution which was suggested in a recent paper by John Butler of Atom Capital, and that is for Russia to link the rouble to gold, or more correctly put it on a gold exchange standard*. The proposal at first sight is so left-field that it takes a lateral thinker such as Butler to think of it. Separately, Professor Steve Hanke of John Hopkins University has alternatively proposed that Russia sets up a currency board to stabilise the rouble. Professor Hanke points out that Northern Russia tied the rouble to the British pound with great success in 1918 after the Bolshevik revolution when Britain and other allied nations invaded and briefly controlled the region. What he didn't say is that sterling would most likely have been accepted as a gold substitute in the region at that time, so running a currency board was the equivalent of putting the rouble in Russia's occupied lands onto a gold exchange standard.

Professor Hanke has successfully advised several governments to introduce currency boards over the years, but we can probably rule it out as an option for Russia because of her desire to ditch US dollar relationships. However, on further examination Butler's idea of fixing the rouble to gold is certainly feasible. Russia's public sector external debt is the equivalent of only $378bn in a $2 trillion economy, her foreign exchange reserves total $429bn of which over $45bn is in physical gold, and the budget deficit this year is likely to be roughly $10bn, considerably less than 1% of GDP. These relationships suggest that a rouble to gold exchange standard could work so long as fiscal discipline is maintained and credit expansion moderated.

Once a rate is set, the Russians would not be restricted to just buying and selling gold to maintain the rate of gold exchange. The CBR has the power to manage rouble liquidity as well, and as John Butler points out, it can issue coupon-bearing bonds to the public which would be attractive compared with holding cash roubles. By issuing these bonds, the public is in effect offered a yield linked to gold, but higher than gold's interest rate indicated by the gold lease rates in the London market. Therefore, as the sound-money environment becomes established the public will adjust its financial affairs around a considerably lower interest rate than the current 9.5%-10% level, but in the context of sound money it must always be repaid. Obviously the CBR would have to monitor bank credit expansion to ensure that lower interest rates do not result in a dangerous increase in bank lending and jeopardise the arrangement.

In short, the central bank could easily counter any tendency for roubles to be cashed in for gold by withdrawing roubles from circulation and by restricting credit. Consideration would also have to be given to roubles in foreign ownership, but the current situation for foreign-owned roubles is favourable as well. Speculators in foreign exchange markets are likely to have sold the rouble against dollars and euros, because of the Ukrainian situation and as a play on lower oil prices. The announcement of a gold exchange standard can therefore be expected to lead to foreign demand for the rouble from foreign exchange markets because these positions would almost certainly be closed. Since there is currently a low appetite for physical gold in western capital markets, longer-term foreign holders of roubles are unlikely to swap them for gold, preferring to sell them for other fiat currencies. So now could be a good time to introduce a gold-exchange standard.

The greatest threat to a rouble-gold parity would probably arise from bullion banks in London and New York buying roubles to submit to the CBR in return for bullion to cover their short positions in the gold market. This would be eliminated by regulations restricting gold for rouble exchanges to legitimate import-export business, but also permitting the issue of roubles against bullion for non-trade related deals and not the other way round.

So we can see that the management of a gold-exchange standard is certainly possible. That being the case, the rate of exchange could be set at close to current prices, say 60,000 roubles per ounce. Instead of intervention in currency markets, the CBR should use its foreign currency reserves to build and maintain sufficient gold to comfortably manage the rouble-gold exchange rate.

As the rate becomes established, it is likely that the gold price itself will stabilise against other currencies, and probably rise as it becomes remonetised. After all, Russia has some $380bn in foreign currency reserves, the bulk of which can be deployed by buying gold. This equates to almost 10,000 tonnes of gold at current prices, to which can be added future foreign exchange revenues from energy exports. And if other countries begin to follow Russia by setting up their own gold exchange standards they likewise will be sellers of dollars for gold.

The rate of increase in the cost of living for the Russian population should begin to drop as the rouble stabilises, particularly for life's essentials. This has powerfully positive political implications compared with the current pain of food price inflation of 11.5%. Over time domestic savings would grow, spurred on by low welfare provision by the state, long-term monetary stability and low taxes. This is the ideal environment for developing a strong manufacturing base, as Germany's post-war experience clearly demonstrated, but without her high welfare costs and associated taxation.

Western economists schooled in demand management will think it madness for the central bank to impose a gold exchange standard and to give up the facility to expand the quantity of fiat currency at will, but they are ignoring the empirical evidence of a highly successful Britain which similarly imposed a gold standard in 1844. They simply don't understand that monetary inflation creates uncertainty for capital investment, and destroys the genuine savings necessary to fund it. Instead they have bought into the fallacy that economic progress can be managed by debauching the currency and ignoring the destruction of savings.

They commonly assume that Russia needs to devalue her costs to make energy and mineral extraction profitable. Again, this is a fallacy exposed by the experience of the 1800s, when all British overseas interests, which supplied the Empire's raw materials, operated under a gold-based sterling regime. Instead, by not being burdened with unmanageable debt and welfare costs, by maintaining lightly-regulated and flexible labour markets, and by running a balanced budget, Russia can easily lay the foundation for a lasting Eurasian empire by embracing a gold exchange standard, because like Britain after the Napoleonic Wars Russia's future is about new opportunities and not preserving legacy industries and institutions.

That in a nutshell is the domestic case for Russia to consider such a step; but if Russia takes this window of opportunity to establish a gold exchange standard there will be ramifications for her economic relationships with the rest of the world, as well as geopolitical considerations to take into account.

An important advantage of adopting a gold exchange standard is that it will be difficult for western nations to accuse Russia of a desire to undermine the dollar-based global monetary system. After all, President Putin was more or less told at the Brisbane G20 meeting, from which he departed early, that Russia was not welcome as a participant in international affairs, and the official Fed line is that gold no longer plays a role in monetary policy.

However, by adopting a gold exchange standard Russia is almost certain to raise fundamental questions about the other G20 nations' approach to gold, and to set back western central banks' long-standing attempts to demonetise it. It could mark the beginning of the end of the dollar-based international monetary system by driving currencies into two camps: those that can follow Russia onto a gold standard and those that cannot or will not. The likely determinant would be the level of government spending and long-term welfare liabilities, because governments that leech too much wealth from their populations and face escalating welfare costs will be unable to meet the conditions required to anchor their currencies to gold. Into this category we can put nearly all the advanced nations, whose currencies are predominantly the dollar, yen, euro and pound. Other nations without these burdens and enjoying low tax rates have the flexibility to set their own gold exchange standards should they wish to insulate themselves from a future fiat currency crisis.

It is beyond the scope of this article to examine the case for other countries, but likely candidates would include China, which is working towards a similar objective. Of course, Russia might not be actively contemplating a gold standard, but Vladimir Putin is showing every sign of rapidly consolidating Russia's political and economic control over the Eurasian region, while turning away from America and Western Europe. The fast-track establishment of the Eurasian Economic Union, domination of Asia in partnership with China through the Shanghai Cooperation Organisation, and plans to set up an alternative to the SWIFT banking payments network are all testaments to this. It would therefore be negligent to rule out the one step that would put a stop to foreign attempts to undermine the rouble and the Russian economy: by moving the currency war away from the foreign exchanges and into the physical gold market were Russia and China hold all the aces.

*Technically a gold standard is a commodity money standard in which the commodity is gold, deposits and notes are fully backed by gold and gold coins circulate. A gold exchange standard permits other metals to be used in coins and for currency and credit to be issued without the full backing of gold, so long as they can be redeemed for gold from the central bank on demand.

Dealing Desk: Goldmoney customers back in the buying mood – but not for gold

Thu, 11/27/2014 - 12:38
GoldMoney customers have been back in the buying mood this week, but the yellow metal hasn't featured highly on their shopping list.

Dealing Manager at the online bullion dealer, Kelly-Ann Kearsey said, 'Customer activity has certainly been more positive this week. We've not seen large orders, but there have been a lot of smaller buys mostly for silver, but also for platinum and palladium. Any selling we've seen has come out of the UK and Swiss vaults with Via Mat Hong Kong this week's favoured destination. Gold activity has been relatively neutral, with around the same amount of buyers to sellers.'

'Gold's neutral activity might be a reflection of the market's focus on the weekend's Swiss Referendum, as well as the continued strengthening of the dollar. If there is a yes vote and the Swiss central bank has to buy back 1,500 tons of gold, then this will undoubtedly have an impact on the market. At present a "no" vote has been factored into the market and if confirmed would lead to a non-event.'

'Obviously today has been quiet due to the Thanksgiving holiday in the USA and generally at this time of year, as we head towards Christmas, the markets are quieter. However there are many who think that silver and gold are a good buy at present, with gold in particular failing to break through the resistance level at $1200, so measured buying as opposed to panic safe haven accumulation is likely to be the norm for the rest of this year.'

16:00 27/11/14: Week on week performance: Gold rose just 0.3% to $1,191.29; Silver gained 0.6% to $16.23; Platinum added 1.4% to $1,216.20 while Palladium put on 4.9% to $804.65.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

That G20 meeting

Fri, 11/21/2014 - 07:10
G20 gatherings of world leaders on the surface are all the same: they conclude with a meaningless anodyne statement that everyone can agree with. But these meetings do serve a purpose: they allow the world leaders to meet informally and exchange views.

Since the last G20 in St Petersburg in 2013 when there was a high degree of conviction that economic growth would return, the global economic outlook has instead deteriorated significantly. Instead of last time's mutual bonhomie over the prospect of their collective success, the world's leaders this time are almost certainly worried. They would have learned about the failure of monetary policy everywhere. They would have had this first-hand from Japan's delegation, which is on its way to financial and currency destruction. The despair in the European delegations would have been obvious as well.

The problem is that post-war monetary theories have failed to deliver. Lower interest rates and increased quantities of money in order to promote economic growth no longer work. The abandonment of the laws of the markets in favour of stimulating consumer demand by monetary means has turned out to be a blind alley. Time will tell, but if the global economy is heading for a slump, the banking system will become overburdened with defaulting borrowers, and government deficits will rise uncontrollably, especially in the welfare nations. This cannot be permitted to happen under any circumstances. It is therefore quite likely that the alternative to monetary-driven policy, accelerated government deficit spending as a pre-emptive measure, will be tried instead. And in this respect the relative success of the British and American economies will be attributed to their large budget deficits, while the misery of austerity is identified with the problems in France and the southern Eurozone.

These are bad and confused arguments, but they will be emotionally attractive to the political class, while the central bankers probably feel it is time the politicians took responsibility for economic management. Furthermore, it is surely becoming obvious that monetary solutions only enrich the bankers. And the most effective way of countering deflation, economists will argue, will be for demand-led price rises for consumer products, which have a better chance of coming about through increased government spending. And do not be surprised if economists argue that governments need to take over the debt-creation process to kick-start the business cycle.

We might look back on Brisbane as a milestone in global economic policy, when governments and central banks changed the emphasis of economic management from monetary stimulation through the financial system towards a greater emphasis on direct government intervention. In the process two things are likely to happen: currencies will begin to lose their purchasing power with respect to everyday goods, and government bond yields are likely to rise, undermining financial asset valuations.

This will certainly puff up GDP, because government spending is a significant part of it. But the idea that controlled price inflation can be engineered flies in the face of all experience. If the emphasis does shift from monetary solutions towards more aggressive government spending the risk will also shift towards an uncontrollable decline in purchasing power for currencies. It will be very good for inflation hedges like gold.

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