Self-evident Economy

Posts tagged gold

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Gold (or lack thereof)

From zerohedge.com, another gold bar has been found filled with tungsten rods. The last gold bar like this was found only two years ago.

The last time a story of Tungsten-filled gold appeared on the scene was just two years ago, and involved a 500  gram bar of gold full of tungsten, at the W.C. Heraeus foundry, the world’s largest metal refiner and fabricator. It also became known that said “gold” bar originated from an unnamed bank. It is now time to rekindle the Tungsten Spirits with a report from ABC Bullion of Australia, which provides photographic evidence of a new gold bar that has been drilled out and filled with tungsten rods, this time not in Germany but in an unnamed city in the UK, where it was intercepted by a scrap metals dealer, and was supplied with its original certificate. The reason the bar attracted attention is that it was 2 grams underweight. Upon cropping it was uncovered that about 30-40% of the bar weight was tungsten. So two documented incidents in two years: isolated? Or indication of the same phenomonenon of precious metal debasement that marked the declining phase of the Roman empire. Only then it was relatively public for anyone who cared to find out on their own. Now, with the bulk of popular physical gold held in top secret, private warehouses around the world, where it allegedly backs the balance sheets of the world’s central banks, yet nobody can confirm its existence, nor audit the actual gold content, it is understandable why increasingly more are wondering: just how much gold is there?

Tungsten-Filled 1 Kilo Gold Bar Found In The UK

Many people “trust” central banks like the Federal Reserve to manage everything about our monetary supply. Luckily for the United States, our government holds the worlds largest reserve of gold. So even if the Federal Reserve prints money like there is no tomorrow, we still have a large sum of gold backing those new dollars. But what if we actually don’t? What if the gold bars that the public and Congress are not allowed to see (yes, not even members of Congress are allowed to audit the amount of gold the U.S. has), are mostly filled with tungsten rods too?

Filed under gold Federal Reserve tungsten

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Is there gold in Ft Knox?

baseballlibertarian:

The season premier of Decoded on the History Channel asked the question. 

I really don’t know if there is or there isn’t any gold left in there.  But if I had to make a bet and pick one I’d side with there being little or no gold there. 

If there was plenty of gold in there it would be extremely easy to prove the doubters wrong.  They could just do another audit, something that hasn’t been done since the 70s. 

(Source: moralanarchism)

Filed under decoded, politics gold ft knox gold standard

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The Fed Will Accept Higher Inflation

This is one of the problems with the Federal Reserve’s double mandate of stable prices and full employment. Apparently the unemployment rate is more important right now than stable prices, so price stability goes out the window - as always (they will allow inflation to increase) in an effort to decrease unemployment. Of course, this line of thinking is based on flawed Keynesian theory, and high inflation will be ruinous for the economy. Thus, my purchase of another 1oz gold coin today.

Filed under fed inflation unemployment gold standard gold

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China “Liquidating” US Treasuries - What This Means

Just ran across this article, China to ‘liquidate’ US Treasuries, not dollars.

A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."

"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.

So what does this mean? Here are my thoughts:

Stealth Default
First, since the government can’t get our debt under control, it appears that China has lost faith we will repay our debt. It might be a bit more accurate to say they are afraid we will repay it by printing more and more money. Paying off debt by printing money is essentially a quiet way of defaulting on debt.

Actually, it says as much in the article (I’m writing this as I read :)…

The Chinese are clearly vexed with Washington, viewing the Fed’s QE as a stealth default on US debt.

Bleak Future for Bonds
It also means that if you are heavily (or otherwise) invested in U.S. Treasury bonds, be prepared to see their value continue to fall and fall. China holds a lot of debt. The more they sell, the less our debt will worth. If other countries start getting rid of their treasury bonds too, look out. A massive exodus from bonds would be very detrimental to anyone holding any kind of debt type asset. It will also mean that the U.S. would have a very difficult time borrowing money.

From the end of the article…

It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.

Inflation
There is also the potential for a great deal of inflation here.

We don’t know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank’s FX arm. The figure is thought to be over $2.2 trillion.

and

So what Li Daokui said is not bad for the dollar as such. He said there is “$10 trillion” waiting to be invested in the US, if America will open its doors.

I totally disagree with the “not bad for the dollar” comment. If they try to liquidate $2.2 trillion in debt and start to invest $10 trillion that have until now been sitting on the sidelines, the price of just about everything will go up. Conversely, the dollar will drastically lose its value. The fact that they want to “buy stakes in Boeing, Intel, and Apple” tells me that if it’s not nailed down, China is looking to buy it. Imagine trying to compete with $10 trillion to buy anything (land, commodities, stock, you name it). Prices will skyrocket. In reality, this is the only way to fight inflation - buy as many hard assets as you can.

Unfortunately, the only way for our government to pay for its out of control spending habits will be to print more money, which will compound and speed up the process. QE II was all about the Fed buying US Treasuries, there is nothing to stop them from continuing to do so.

What To Do
A lot of people have been saying this is coming and that it is inevitable. I agree, although it scares the crap out of me. I have enough money to buy another 1oz gold coin, I’ll probably be doing so soon. Gold is another commodity they’ll be buying with that $10 trillion. Likewise, anyone with debt with a fixed interest rate (a home) will essentially see that debt erased - provided they can hold on to their jobs.

Filed under china gold inflation U.S. Treasury Bonds bond market politics economics debt

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Gold over $1900/oz

This article has it mostly right in regards to the reason gold prices continue to climb.

He explained that a fresh stimulus package would mean that the US would have to print more money to boost liquidity in the markets, which in turn could see the US currency weaken further.

"The underlying driver of gold prices is the depreciating US dollar value," he said, "so the more money they print, the stronger gold gets."

My only quip is the statement, “so the more money they print, the stronger gold gets.” They had it right in the above paragraph. The value of gold is more or less a constant. As currency is diluted, it takes more paper to purchase the same amount of gold. Gold doesn’t get stronger necessarily, currencies just get weaker.

Filed under gold

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Gold Bubble? Really?

A Wells Fargo analyst is warning that there is a bubble in gold prices and it is ready to burst. Gold Market Is a ‘Bubble Poised to Burst,’ Wells Fargo Says

Gold futures have advanced 26 percent this year, following 10 straight annual gains. The price reached a record $1,817.60 an ounce on Aug. 11 on demand for an investment haven as European and U.S. sovereign-debt woes escalated.

“There could be substantial risk to gold once the fear that the world is coming to an end subsides,” Junkans said in a telephone interview from Minneapolis. “We are worried about the downward risk.”

Wait. What? The world isn’t coming to an end?

I’ll be the first to admit that I’m no financial wiz, but I think bankers live in a different world then the rest of us. I don’t think gold prices are based solely on fear and uncertainty, although that does play a part. I think the price of gold is based on monetary inflation. If gold costs $1000 an ounce and you double the amount of dollars in circulation, the price of gold (and everything else) will also double. Fear and uncertainty come into play in the form of, “will governments continue to devalue their currency?”

If you look at the value of the dollar over the last year, you’ll see that it has lost about 30% of its value to the Aussie dollar, the Canadian dollar and the Swiss franc. It’s lost value to the euro, the yen, the peso, the Brazilian real - pick a currency. We compete with these countries, and all other countries, to buy gold. So a 26% increase over the last year to me seems perfectly reasonable. 

Let’s go one step further though. Consider the Swiss franc. They have been devaluing their currency since the beginning of 2009 and have continued to do so until as recently as two weeks ago. In fact, today gold set a new record high vs the Swiss franc at 1440.16. Monetary inflation of the Swiss franc is causing the price of gold to rise against the franc as well. Put these two pieces together, and a 26% increase in dollar terms actually seems a little low.

I think there are actually a lot of traders out there buying gold who don’t understand this relationship, and for them, a gold bubble may seem probable. These traders are generally the first to panic sell which is what can cause dips - sometimes big dips - in gold prices. The fact that gold quickly gains back it’s loses however, says to me that there are people and governments who do understand this relationship. They buy on the dips from the bankers and traders who believe the Fed and other central banks are magical fairies that can fix all the worlds financial problems.

My opinion, simply looking at the relationship between various foreign currencies and the value of gold in those currencies is that gold is at least fairly valued and may actually be under valued.

But hey, I’m just some random libertarian programmer on the internet. What do I know?

Filed under gold currency libertarian gold bubble dollar franc