Tag Archives: gold

Between Gold & a Hard Place.

2011 will be remembered as the year when the gold price really took off. It will also be remembered as the year of the PIIGS.

That’s Portugal, Italy, Ireland, Greece, Spain.

So what would happen if we combined the two? What would happen if the PIIGS decided to sell their gold in order to clear their debt? (As recently suggested by Germany’s Vice Chancellor).

And while we’re at it,  let’s get away from expressing sovereign debt in percentages of GDP. No-one understands that anyway.

Let’s be different and look at it all in cash terms:

The total gold holding of the PIIGS is about 3250 tonnes. At current prices that’s worth about 132 billion euros. That’s 132,000,000,000 euros.

Unfortunately their combined outstanding sovereign debt is about 3,300 billion euros. That’s 3,300,000,000,000 euros

For instance, Portugal has about 390 tonnes of gold, currently worth about 15 billion euros.  That is about 20% of its latest bailout package.

The biggest Eurozone gold hoarder is Italy. It is also the world’s fourth-largest owner of the metal . Italy’s  2,450 tonnes is worth about 95 billion euros at today’s prices. That’s 95,000,000,000 euros.

Italy’s government has $2.45 trillion dollars in debt. That’s 2,450,000,000,000 euros.

It is estimated that as a result of inevitable defaults, banks will LOSE £200 billion euros. That’s 200,000,000,000.

Hence all that nervousness around bank shares.

It’s all theoretical anyway because gold is not the property of the PIIGS’ governments to sell. Gold is part of a country’s Foreign Exchange Reserves which are managed by central banks and cannot be used to finance the public sector – except apparently, in certain Middle Eastern states.

What a mess!

Finally, in case you’re still wondering why the politicians have not actually put into place a plan to sort-out the debt-related issues, it is because they don’t really know what to do. Plus, they are playing the NOMW game.

NOMW? Not On My Watch.

President Sarkozy has an election to fight in 2012 and Bundeskanzlerin Merkel has one in 2013.

Can they possibly keep it all going until then?

No.

Go for Gold!

Eighteen months ago, I predicted that during 2011, gold would hit $2000 per ounce. So far, it has I topped-out at just over $1900 and then pulled back to about $1750

There was a 10% price drop in three days! That appears to have frightened some but has also done a lot of good because gold has been hugely overbought in the last few months and was due  a correction.

This correction is likely to continue to well below $1500. I am therefore no longer predicting $2000 per ounce.

It will rise to above $4000!

Within a few months, Ben Bernanke’s “do nothing , wait and see” policy will no longer be viable and the American economy will begin to crumble, closely followed by a mega-slide in Euro stocks.

At that point, those who do not become jammed in the exits will once again rush for gold – at the point when Bernanke and other Finance Ministers begin to oil the money-printing presses for more empty Mickey Mouse “quantitative easing” money!

Although we  are already in a Bear Market, there will still be unexplained rallies, falls and adjustments but thanks to politicians who have lost the art of decision-making, gold is still the way to go.

p.s. this is a fitting time to once again pay tribute to our former Prime Minister, Gordon Brown.

THIS is what he did!

Morton’s Fork lives!

Libya

Post-Saddam-type chaos in Libya will NOT be avoided. That’s nigh-on impossible.

One of the overlooked plans of the Iraq campaign was the Exit Strategy. Well, bugger me, the West has done it again in Libya.

The next major initiative will be the customary “Humanitarian Assistance” which is as good an excuse as any to maintain a military presence to ensure that the fuzzy-wuzzies keep in line.

THAT is going to be the most impossible task. The average Libyan’s loyalties are like this: 1. Family 2. Tribe  3. State Flag…….. In that order.

NOTHING but a totalitarian state can keep tribal factions in line. Government by Brutality appears to be the only way to stop tribes from killing each other. Saddam demonstrated that in Iraq and every other  state in the Middle East continues to suppress its people – but for very valid reasons.

Democracy is an anathema to tribal people. It is an alien concept.

In Libya’s case, the theory is that a fiefdom which has controlled many tribes through the medium of suppression can be turned into a democracy. Politicians may not have yet noticed that such a thing has never been done. It’s been tried on many occasions but so far, without success.

The most likely outcome in Libya is either the emergence of another authoritarian leader or the breakup of a country which was a western construct in the first place. It is a politically barren place with no political parties or constitution.

Meanwhile, the rebels are heading for Gaddafi City – SIRTE. One hopes that they all remember that the Tahoura Research Centre near Tripoli houses (or housed) the remnants of Libya’s nuclear programme. There are stocks of nuclear material which could easily be turned into a “dirty” bomb.

There has already been a half-hearted attempt to launch a Scud missile so hopefully, the rebels do not, once again find themselves on the receiving end, should Gaddafi supporters decide to surprise them.

Luckily, the BBC’s John Simpson has finally arrived in Libya – so all should be well. We don’t yet know whether he travelled across the desert with the Tuaregs or whether he is wearing the customary tea-towel on his head but after hearing of his exploits in Afghanistan, it’s possible. He’ll know what to do.

Meanwhile the next battle that  into which new Libyan Prime Minister Mahmoud Jibril will have to lead his people will be the rather unedifying soon-to-be-fought campaign for Libyan reconstruction.

The cue for the Western  invasion is the phrase “Humanitarian Catastrophe”. Look out for that one.

p.s. The politicians appear to be surprised by the fact that, in spite of the announcement that the war in Libya  had been won, the fighting appears to be continuing. Just like Iraq.

Guru

There appear to be more and more self-appointed “GURUS”  on the Internet:  Finance Guru, Lifestyle Guru, Management Guru….the list is endless.

I used to be one of those but luckily managed to extract my head from my ass before it was too late.

Please don’t do it.

I now prefer the more modest “Messiah”.

BBC

Yesterday, I was listening to the BBC World Service when I was surprised to hear  a presenter use the word “Asyla” as a plural of Asylum. WTF? People who do that are nothing but pretentious scrota.

World Finance

Tomorrow, if Ben Bernanke announces that the Fed is going to print yet more “empty” dollars, he will be introducing yet more inflation into the US economy. Markets will recommence their downward slide and investors will all rush-off  in the direction of the  Bullion Markets.

If however,  there is no further printing of dollars and QE3 does not happen, the likelihood is that the American economy will collapse as investors all rush off in the direction of the Bullion Markets.

Either way, gold is the safest bet.

Meanwhile in Germany, Chancellor Angela Merkel is also between a rock and a hard place. If she agrees to fully support lame-duck Euro economies through the issue of the Euro Bond – so that countries such as Greece are able to enjoy unlimited credit at reasonable rates, she risks a rebellion back home from the Christian Democratic Party as well as from an electorate which does not wish to donate any more to broken Euro economies.

However, if there is no mechanism to support poorer Euro states, the Euro could collapse, together with the German economy.

By the way, it is time to start worrying about the world’s Stock Markets. Starting tomorrow.

Liberal Party

Today, Liberals are UP(!) 4% in the latest opinion poll. Does that mean that there may be a change of plan in Nick Clegg being handed a sexy European Parliament  job as a consolation prize after the 2015 General Election?

In response to emails concerning my dog…

I am sick and tired of receiving questions about my dog who mauled an illegal immigrant, two rappers, a hoodie-looter with hanging-past-the-crack tracksuit bottoms , three Sub-continent customer service clerks speaking broken English, one Member of Parliament, two policemen, three flag burners and a  taxi driver.

FOR THE LAST TIME…THE DOG IS NOT FOR SALE !

Those Swiss!

Press release from HM Treasury: http://bit.ly/oIgJbo

GCSE Results

Record results! Congratulations kids – another record year. You must have worked SOOO hard.

Here’s something for the cleverer ones to colour-in:

Fools Gold?

A couple of days ago, the FTSE 100 index rose by about 2% and gold reached a new high. In addition, the economy shrank by only 0.3%, compared to the experts’ predictions of 0.4% and the banks had a Supreme Court judgement in their favour. So why the continuing uneasy feeling?

Next year, interest rates are going to rise and that means that borrowers, both corporate and personal will begin to have difficulty in repaying their loans. This means another wave  of write-downs for the banking sector and they could be as huge as last year’s write-downs. Plus it could mean a huge wave of foreclosures on borrowers who can’t afford the new, higher monthly repayments.

The Gross Domestic Product may well rise in the short-term but the ability for business and taxpayers to service a debt does not depend on a rising GDP figure. It depends on income. That’s why the high  unemployment rate is very bad news for the housing market and for the banks — again.

It’s still too early for the mortgage reset problem to derail the banking system and stop the economic rebound in its tracks, so there will be more days like today when the FTSE has a healthy “Bounce” and all appears well and on the up.

Nevertheless, the looming debt problem does explain the Treasury’s and the Bank of England’s apparent reluctance to return to a more normal monetary policy.  In addition, the Treasury and the Bank of England have completely abandoned any semblance of fiscal discipline. Consequently, the United Kingdom is running an ever-larger budget deficit.

As interest rates rise, absolute debt levels will climb ever-higher and spiral upwards. In plain English, we’re going to be dedicating a larger and larger share of the United Kingdom’s budget or income to pay interest on debt. That applies to both the government and the taxpayer. That will inevitably result in higher taxation and a watering-down of public services.

As a nation, we are in hock as never before and currently it looks as if the government has no intention of changing that fact. Their “wait and see” policies are extremely dangerous because  both the actual and hidden costs of our debt are rising every day. 

It looks as if the Bank of England and the government are expecting another major “dip” in the economy because they know that their current economic policies make another dip almost inevitable. That is why there is the occasional mention of a “double dip” recession. We’ve had the first one and now we’re awaiting the next one.

So why is the price of gold currently going through the roof? It’s because gold  has always been THE insurance against  the follies of government, especially against inflation. Gold speculators are expecting inflation. Hence the mad scramble for gold.

In the past, the majority of monetary regimes were based on money backed by gold and silver. Silver is no longer a precious metal and gold is only backing the currency of a few countries. 

If central banks around the world fail to remove the emergency stimuli before their current  measures translate into inflation, ALL currencies will fall in value relative to hard, tangible assets like gold.  That is when we will have global inflation.

Big  spikes in inflation have always had one major characteristic –  a strongly rising budget deficit mainly financed by monetising government debt. That characreristic is present today, and not just in the United Kingdom but globally. Monetising debt means turning something into money. In our case, the government “issues”  debt in order to finance its spending – for instance on buying worthless bank assets. The Bank of England then buys that debt by printing money.

Most of the the world is using money based solely on promises and faith. Hence the constant repetition of the word “confidence” – it is not confidence based on assets or REAL money but on hope.

When the financial crisis hit in 2007/08, governments all over the world reacted the same way: They started a debt binge accompanied by an extremely lax monetary policy. Central banks such as the Bank of England monetised government debt. That was the birth of modern “quantitative easing.”

These are the very same policies (debt and printing ever-increasing amounts of money) that were present during every large jump in inflation in history and these policies are the fundamental drivers behind the advance in the price of gold.

As long as there is no major fiscal and monetary policy change, inflation will heat up and gold’s bull market will continue. 

Hence the uneasiness whilst enjoying the sunshine of what looks like a mini-boom.