Today is Thursday 13th September 2018 and we are asking the question is Gold Money – Part 2
On Sunday we put forward the argument why it is not – an argument normally proffered by the banking community. Today we shall look at the reasons as to why it should be regarded as money.
But first we wish to clear up an issue of what is the difference between money and currency.
There are many definitions, but one which seems to be most widely held, especially among the precious metal community is as follows:
Currency is what most people think money is!
It is a medium of exchange.
A unit of account. (it’s got numbers on it!).
It is portable.
It is durable.
It is divisible. (you can make change from it).
It is fungible (interchangeable).
Currency though is simply paper. This paper money is a tool for trading your time.
And Currency has no intrinsic value!
So, is Gold Money? Well it certainly has value which is why central banks buy it, Governments buy it, Asia buys it in serious quantities and the western world too buys it albeit on a relatively modest scale. It is not regarded as a currency in most places as one rarely can go into a shop and spend it, but it can be converted to one.
So, what’s your opinion? Is gold money? Should gold be money? If so at what percentage should the US dollar be pegged to gold if at all? We would appreciate your thoughts and hope that we have given you some food for thought here.
In an interesting development on Wednesday 12 September, the Shanghai Gold Exchange (SGE) launched trading of a new Chinese Gold Panda Coin contract on the SGE trading platform. With the addition of this listing, the SGE now offers physical trading of these famous Chinese gold bullion coins alongside its extensive range of physical gold bar and ingot trading contracts. As a reminder the Shanghai Gold Exchange is the largest physical gold exchange in the world, and nearly all gold in the Chinese gold market passes through the SGE.
Ji Jiayou from the Chinese central bank at the SGE's Gold Panda contract launch
SGE Trading to facilitate Price Discovery
Launched in 1982, the Chinese Gold Panda used to be produced in troy ounce weight denomination up until 2015 (such as 1 troy ounce and 0.5 troy ounce weights). Then from 2016 onwards, the Gold Panda switched to using metric weights, and is now produced in a 30 gram weights, 15 grams, 8 grams, 3 grams and down to a 1 gram weight. All Gold Panda coins have a gold purity of 99.9%. Chinese Gold Panda coins are produced by China Gold Coin Corporation which is fully-owned by China's central bank, the People's Bank of China. The actual fabrication of the Gold Panda coins takes place in Shenzhen Guobao Mint which is owned by China Gold Coin Corporation. China Gold Coin Corporation also coordinates marketing and distribution of gold panda coins on the international market.
Chinese Gold Panda coins are simultaneously legal tender in China as well as being known as commemorative coins. As the SGE said in its announcement announcing the new Gold Panda contract listing:
"The Chinese Panda Gold Coin is the legal currency of the People's Republic of China issued by the People's Bank of China (PBoC). It has the dual attributes of national authority and product investment."
According to the SGE, trading of this new gold panda contract will expand the overall customer base of the Gold Panda, allow the Gold Panda coin to play a greater role in China's investment gold market, and provide diversification benefits for investors, as well as centralise and improve price discovery for the coin. It will also crucially integrate the gold panda coin market into the wider Chinese gold market through the SGE.
As gold prices cling stubbornly to the lowest levels in a year as US stocks continue their record-breaking tear, two of the world's biggest gold miners are sensing an opportunity. As the Financial Times reports, Canada’s Barrick Gold (the world's largest miner) is preparing to merge with Randgold Resources (its UK-listed rival) in an all-share deal that will create the world's biggest gold miner, with an $18 billion valuation and a dominant mining position in Africa.
Per the Wall Street Journal, Barrick shareholders will own 67% of Randgold, and Randgold investors will own 33% of Barrick. Put another way, Randgold shareholders will own 33.4% of the combined company, with the rest controlled by investors in Toronto-based Barrick. The deal still needs to be approved by shareholders.
More than the mining synergies (Barrick runs massive mines in Nevada and throughout South American while Randgold ha extensive operations in Mali and the Democratic Republic of Congo), WSJ and FT points out that the merger will bring together two outsize personalities in Barrick’s John Thornton, a former Goldman Sachs executive, and Randgold's Mark Bristow. Bristow and Thornton reportedly recently spent a month together hashing out the terms of the deal, though talks began all the way back in 2015. Should the deal close, Thornton will serve as chairman of the combined company while Bristow will take over as CEO.
According to the two companies, the combined firm would have generated revenue of $9.7 billion last year while adjusted EBITDA would have been $4.7 billion.
While Barrick has clung to its No. 1 spot, the company has struggled in recent years as its profitability has lagged behind Newmont Mining Corp., its closest rival by production volume. Barrick's portfolio of mines has also shrunk, with the company owning about one-third of the 30 mines it controlled back in 2013. Here's more from the WSJ:
Barrick’s gold production has also dwindled, falling more than 25% since 2013 to 5.3 million ounces last year. The acquisition of Randgold, whose production is focused on Africa and which produced 1.3 million ounces in 2017, will help make up the loss.
"The combination of Barrick and Randgold will create a new champion for value creation in the gold mining industry," Mr. Thornton said in a statement.
The combined group will own five of the world’s top 10 tier-one gold assets with two potential tier-one gold projects under development or expansion, the companies said. The new group will consider selling noncore assets over time, the companies said.
Toward the bottom of its story, the FT revealed that China-based Shandong Gold was essentially acting as a silent partner in the deal, buying $300 million of shares in Barrick, while Barrick will also buy the equivalent amount of shares in Shandong Mining.
For their part, analysts complained about the absence of a premium for Randgold investors, though they acknowledged that the deal offered important synergies.
"While this does not offer a premium, the production upside of the combined group under the leadership of Mr Bristow (who is likely to be relentless in terms of cost reductions), is likely to create arguably the go-to gold businesses globally," said Michael Stoner, analyst at Berenberg.
"For the London gold space, this is a disappointment, and takes away one of two large-cap, liquid names in the market (the other being Fresnillo)," he added.
Analysts at Numis said: "In our view, Barrick has a number of world-class assets but has acquired the reputation of being a poor steward of those assets, while Randgold has the reputation for delivering strong shareholder value in difficult operating jurisdictions."
Still, as performance in the shares of both companies has lagged behind gold itself, investors will be expecting the combined management to make significant strides in boosting value for shareholders. But given the reputation of each company's chief executive, the potential for a power struggle at the top could prove to be an unfortunate distraction.
Any content within this video or any other video by the Silver Fortune channel is merely one man's opinion, commentary, and analysis, or actual information obtained from elsewhere, and should not be constituted as legal, investment, or financial advice. Make your own financial decisions, or consult a professional if you'd prefer to go that route. The Silver Fortune channel disclaims any liability for legal, financial, or investment decisions made.
LBMA Clearing and Vaulting data reveal the absurdity of the London ‘Gold’ Market
The first day of each month sees the reporting of a number of statistics about the London Gold Market by the bullion bank led London Bullion Market Association (LBMA). These statistics focus on clearing data and vault holdings data and are reported in a 1 month lag basis for clearing activity and a 3 month lag basis for vault holdings data. Therefore the latest clearing data just published is for the month of August, while the latest vault holdings data is for the end of June.
While LBMA clearing data has been published for many years now, publication of vault holdings data by the LBMA is a recent phenomenon and only began at the end of July 2017. As the LBMA press release at the time stated:
“The physical holdings of precious metals held in the London vaults underpin the gross daily trading and net clearing in London. The net clearing is undertaken by the members of the London Precious Metals Clearing Limited (LPMCL).”
Although in both cases the data reported lacks any granularity and are just rolled up numbers, the two sets of statistics are useful in that they highlight the clear contradiction that exists between the huge volumes of fractionally-backed paper trading in the London Gold Market, and the relatively small quantities of underlying physical gold that sit in the gold vaults of the same institutions engaged in this ‘gold’ trading, quantities which are even smaller when Bank of England and ETF gold holdings are excluded.
So this happened: Republic Metals, a gold refiner, filed bankruptcy on November 2. The company had found a discrepancy in its inventory of around $90 million, while preparing its financial statements.
We are not going to point the Finger of Blame at Republic or its management, as we do not know if this was honest error or theft. If it was theft, then we would not expect it to be a simple matter of employees or management walking out the door with the gold. $90 million is about 2.6 tons. Unless it happened very slowly, over many years, that seems like a lot of gold to disappear. And if it occurred over years, why didn’t regular audits and other internal controls catch the discrepancy until now?
We want to make a different point altogether. We define inflation as the counterfeiting of credit. Legitimate credit has four criteria. Most of the focus is on the latter two: the borrower has both the means and intent to repay. Did Republic have the means to repay? They had a good business for 38 years, so we will assume yes. Did they have the intent? Well, unless this was a simple theft and theft by the owners, then we have to answer yes again (with one quibble which we will get to, in a moment).
The other two criteria are often overlooked. Does the lender know he is extending credit, and does the lender agree to do so?
This is a real problem in the regime of irredeemable currency. People think if they have a Federal Reserve Note (i.e. a dollar bill) that they have money. In fact, they do not. They have extended credit—lent—to the Federal Reserve. The Fed further lends it on to the US government or to the banking system. As an aside, this is a very aggressive kind of not-knowing. People seem to want not to know. Even after one explains it, they still don’t.
And even when people know that the Fed uses their credit to finance the government and banks, they have no way to express their disapproval. And they have no way to opt out. That is the (evil) genius of the design of our monetary system—it disenfranchises the saver.
Anyways, back to Republic. We will skip over the banks who are the secured lenders, they obviously knew they were lending. And will also not address the biggest unsecured creditors, such as a subsidiary of Tiffany & Co. They’re sophisticated and they knew (or should have known).
A surprise jump in investor and central bank gold demand By: Michael J. Kosares
At the recent London Bullion Market Association annual conference, the consensus opinion on the gold price for 2019 among 682 industry delegates was $1532 per ounce. The LBMA offers its opinion annually and it usually falls on the conservative side of the ledger. So its consensus opinion of an average price more than 25% higher than the trading range at the time came as a surprise.
November 2018 – Author: Brandon White of BMG-Group Inc
Monetary policy is largely responsible for the market conditions we have today. Whether we like it or not, central planning in the capital markets will remain with us for the foreseeable future. Capital flows will be as much a function of market fundamentals as they are of policy.
This is very true for gold.
Gold was formally de-monetized in 1978 with the Jamaica Accord. It is now being re-monetized. This paper aims to answer the questions of how and why.
Serious players in the world of finance are acquiring enormous sums of physical gold. In the last quarter alone (Q3 2018), central banks added 148 metric tonnes of physical gold to their reserves.
February 2018 marked a major turning point for gold – monetary gold to be more specific – when the Swiss National Pension Fund switched out of synthetic gold derivatives into physical gold. Monetary gold is defined, in the new Basel III banking capital rules, as “physical gold held in their own vaults or in trust.”
The Swiss decision complied with the new banking standards regarding capital adequacy as it relates to solvency and viability. All Systemically Important Financial Institutions (SIFI) must comply with the new rules for Net Stable Funding Ratio (NSF) and Liquidity by January 2019.
Lessons learned from the last liquidity crisis, when Lehman Brothers nearly caused a global financial meltdown, forced a rethink in how assets held on an institution’s balance sheet are to be valued.
Counter-party risk became extremely important again. In short, when trust between SIFIs fails, liquidity dries up as lending ceases due to solvency fears. The need for liquidity was a key change in the creation of the new standards, and it shone a spotlight on an asset that had largely been ignored for this purpose – physical gold.
The gold market is bigger than all financial markets – exceeded only by bond and money markets.
A point to consider here is that gold is not traded at the commodity desks of large banks. It is traded at the currency desks. And a staggering $250 billion worth of gold changes hands on a daily basis via the London Metals Exchange.
The Basel Committee on Banking Standards (BCBS) scrapped the old Basel II framework and put in place a plan that will be fully realized by all SIFIs by 2019.
And this new system is already in place in Canada, as confirmed by Canada’s top financial regulator, the Office of the Superintendant of Financial Institutions (OSFI). Under the previous rules, gold was rated as a Tier 3 asset (there are now only two Tiers), and had a 50% Risk Weighting Assessment (RWA).
This meant that an institution that held gold reserves on its balance sheet could only apply halfof its market value towards its solvency requirements.
But under Basel III, monetary gold now qualifies as a Tier 1 asset, and is 100% valued for the purposes of banking viability.
Another point to consider is that SIFIs are now required to quadruple their reserves when compared to the previous minimum requirements before the banking crisis.
Essentially, monetary gold is now considered risk free. This significant development remains relatively unknown – for now.
Gold’s role in investment savings and allocation concentrations ebbs and flows with sentiment, market fundamentals and, increasingly, monetary policy.
Alan Greenspan commented in 2015 on a Council on Foreign Relations panel that we must understand that “sometimes gold trades like a commodity and sometimes it trades like a currency.”
During the last gold bull market between 2001 and 2011, it behaved very much like a commodity and was highly correlated to that commodity bull market as it rose from $350/oz to $1,900/oz. . .
The 1970s saw horrific inflation, peaking at 14%, before Paul Volcker – then chairman of the Federal Reserve – finally put the brakes on it by raising interest rates to shocking levels. Gold behaved very much like a currency then and reacted to the inflation as gold tends to do.
It was monetary policy that allowed gold to float from $35/oz in 1971 to its remarkable highs above $800/oz before settling down to the $350/oz range.
But the most glaring change in the gold price, as a direct result of monetary policy, was the 70% reduction in the purchasing power of the US dollar against gold – set in 1934.
In a startling move, gold was re-priced overnight from $20.67 to $35.00. This was an outrageous policy decision demonstrating gold’s historic role as a currency benchmark.
A notable change in the investment landscape is the incredible capital flows into a relatively new financial instrument: the exchange-traded fund (ETF). The potential for a liquidity event in ETFs is ominously being disregarded. The risk with these instruments lies in the fact that they have not been tested in a systemic event.
The ETF market cap was tiny when the last crisis hit. But this is no longer the case.
The Securities and Exchange Commission (SEC), the International Monetary Fund (IMF) and even the Bank for International Settlements (BIS) have warned of the risks associated with these complex derivatives.
And other than an ETF’s Authorized Participants (AP), and a curious few, almost no one seems to grasp how the Market Makers and the Secondary Market own or trade the underlying asset(s). Few are clear on how ETF shareholders or APs will fare in a liquidity event. The average money manager and investor seem to think ETFs are just a less expensive mutual fund with better liquidity. Nothing could be further from the truth when examined with an eye on counter-party risk.
Had the market considered the counter-party risk in mortgage-backed securities (CDOs), there may never have been a crisis. . .
Gold derivatives are not monetary gold, and cannot serve the role prescribed by the Basel III framework.
Central banks and large institutions will increasingly turn to monetary gold in the coming months and years (as we’ve seen post-2008). They will seek to add the quality that only monetary gold provides.
Capital flows into monetary gold will reflect the need for an asset that is liquid, tested and trusted. Gold’s re-monetization is now officially a matter of global monetary policy.
Investors And Analysts Know Nothing About Gold By: Avi Gilburt
There were several developments in the gold market last week. First, we heard of another trader who has pleaded guilty to “manipulating” the metals market. And, everyone is up in arms again about how gold was manipulated to drop from $1,921 to $1,040 during 2011-2015.
I stumbled on some strange gold discs earlier this year. They’re pictured below:
1947 Saudi gold disc minted by the US Mint
As you can see, the front of the gold disc has been stamped with the emblem of the U.S. Mint, specifically that of the Philadelphia mint. On the reverse side, contains details about weight and purity. But while they are shaped like a typical coin, the discs are curiously anonymous. Unlike a typical coin they have no date, denomination, issuing country, or the face of some dead President or royal. What are these odd discs and why were they produced?
My curiosity about these coins took me through on a fascinating tour of monetary history. Along the way I also learnt some troubling details about the coin collecting industry. The value of any coin is driven in part by its mythology, but this mythology is not always factual. In this post I’ll share what I learnt with you.
The ARAMCO Connection
A quick Google search reveals all sorts of websites that sell the gold discs. APMEX, one of the world’s largest online precious metals dealers, describes them thusly:
“This Gold disk was made by the U.S. Mint in Philadelphia for ARAMCO (Arabian American Oil Company). ARAMCO needed them to pay royalties to Saudi Arabia for the right to start drilling for the vast oil reserves known to be there, and to help alleviate the shortage caused by the record consumption during World War II.”
The reference to ARAMCO immediately jumps out. This is one of the most provocative and persistent details of the discs’ mythology: that they were produced for the Arabian American Oil Company, or ARAMCO, in the 1940s so that it could pay the Saudi government for oil. Comprised of a consortium of U.S. oil companies that included Standard Oil of California, Texaco, Exxon, and Mobil, ARAMCO explored and developed oilfields in Saudi Arabia.
Early ARAMCO Logo
The association of these disks with ARAMCO pops up everywhere on the internet. Heritage Auctions, the world’s largest collectible auctioneer, declares the discs to be “Aramco gold.” The Deutsche Bundesbank, Germany’s central bank, recently added the discs to its 90,000 coin collection. It describes them as being struck by the U.S. Mint on “behalf of the Arabian American Oil Company.”
Boosel’s pet theory
The linkage of the discs to ARAMCO was first proposed in 1959 by numismatist Harry X. Boosel. Boosel’s curiosity was originally sparked when he bought one of the discs in 1954. He compiled a list of questions about the disc’s origins and diligently sent out letters to the U.S. Mint, the Saudi Arabian embassy, the State Department, and more. After he received several responses, Boosel penned a detailed article on the discs’ origins that was published in 1959 in The Numismatist, a publication by the American Numismatic Association.
Boosel learnt that the Philadelphia Mint had produced two types of discs. A larger one in 1945 contained 0.942 oz of gold, while the smaller 1947 version contained a quarter of that, 0.2354 ounces. The Mint had produced 91,210 of the original 1945 issue and 121,364 in the second batch.
Boosel’s article, from the July 1959 issue of the Numismatist
The letters that Boosel received in response to his inquiries further indicated that the order had been filled by the U.S. Mint on behalf of the Saudi government. The gold had been purchased by the Saudis from the U.S. Treasury by converting U.S. dollars into gold at the statutory $35 rate. This was back when the U.S. was still on a gold standard and the gold window was still open. The gold in their possession, the Saudis had then asked the U.S. Mint to turn it into discs. This wasn’t the first order that the Mint had completed for Saudi Arabia, one of Boosel’s correspondents pointed out. It had previously produced silver riyal coins as well as copper “girshs”.
But Boosel was annoyed. Although he had managed to fill in much of the detail surrounding the mysterious Saudi gold discs, he still didn’t know why they had been commissioned. His frustration was such that he concluded the paper by supplying his own pet theory, that the U.S. Mint had produced the discs for ARAMCO. Boosel tells us that gold was in short supply during and after the war, so it traded at a large–almost double!–premium to its official price of $35. Which is true. ARAMCO didn’t want to pay such a high price for gold, he claims, and thus went to Uncle Sam to get discs. Boosel provided no documents to back his contention.
Boosel’s shot-in-the dark ARAMCO theory has since gone on to become part of the accepted canon surrounding the discs. A 1991 New York Time article about the discs, for instance, notes that:
“Aramco sought help from the United States Government. Faced with the prospect of either a cutoff of substantial amounts of Middle Eastern oil or a huge increase in the price of Saudi crude, the Government minted 91,120 large gold disks adorned with the American eagle and the words “U.S. Mint — Philadelphia.” Aramco paid for the minting and the bullion. The coins were shipped off to Saudi Arabia.”
By the 2000s, coin retailing websites were eagerly repeating Boosel’s ARAMCO theory. Can you blame them? A tie-in with the oil industry spices up the discs’ history. And a provocative mythology can boost their market price. Although a 1945 disc contains just under an ounce of gold, it sells for US$2,749 on APMEX. A regular gold coin that contains one ounce of gold, say an American Eagle, currently retails for around US$1250. The market evidently attaches a very large premium to the rarity and unique history of the Saudi gold discs.
New documents surface
The ARAMCO story is certainly plausible, but I don’t think it is factual. The Federal Reserve Archival System for Economic Research, or FRASER, a relatively new archive, houses several documents that shed light on the discs, including a number of classified discussions between officials from the Federal Reserve and the U.S. Treasury about the gold market between the end of the war up till 1950. This information would not have been available to Boosel when he was doing his research.
Boosel is certainly correct that ARAMCO needed gold to pay for oil. When the Saudi monarch Ibn Saud and ARAMCO inked their deal in 1933, the terms of the deal stipulated that for each ton of oil produced, ARAMCO owed the Saudi government a royalty of four gold shillings. This amount was payable in gold sovereigns, a British coin that circulated widely in the Middle East at the time. Each sovereign contained 0.2354 ounces of gold.
1893 British Gold Sovereign
The sovereign, however, had been discontinued. For the most part, the Brits had stopped minting these coins by 1917, and so their supply was limited. The FRASER documents provide us with several snapshots of ARAMCO desperately negotiating for old gold sovereigns. In 1948, it approached the Central Bank of Argentina with an offer to buy up its inventory of sovereigns1 while 1950 finds it knocking on the doors of the South African government to do the same.2
It seems logical, therefore, that in light of the rarity of sovereigns, ARAMCO might have contracted with the U.S. Treasury for gold discs. That the discs were stand-ins for sovereigns is underlined by the fact that the Philadelphia Mint had produced the 1947 issue with the exact same specifications as a British sovereign.3 Both sovereigns and discs contained 0.2354 ounces of gold and were of a fineness or purity of 0.9167.
Despite the attractiveness of Boosel’s ARAMCO theory, the FRASER documents do not bear it out. In each instance where discussions about the discs occur, they specify that the discs were made for the Saudi government, not ARAMCO.
Boosel’s ARAMCO theory is even more unlikely given that the transaction would have been illegal. Under the rules governing the gold standard of the day, the Treasury was prohibited from selling gold to private companies. When the U.S. had gone back on the gold standard in 1934 after a hiatus beginning in 1933, the terms of redemption had been altered. Whereas everyone had historically had the right to convert U.S. dollars into gold, after 1934 only foreign governments were permitted to convert dollars into the yellow metal. Additionally, all U.S. gold coins were demonetized and private ownership of gold declared illegal.
So ARAMCO didn’t have the right to purchase gold from the Treasury. Not only that, but it would have been illegal for ARAMCO to store the discs on U.S. territory once received. One of the FRASER documents goes to great pains to point this out, noting that:
“It is the policy of the Treasury Department to sell monetary gold only to foreign governments and central banks and international monetary institutions. Accordingly… the Treasury did not sell gold to the Arabian American Oil Company or to any other unofficial purchaser.”4
This isn’t to say that there was no connection at all between the Treasury and ARAMCO. The FRASER documents mention several instances of cooperation between the two. For instance, in 1948 the Treasury helped to facilitate $82 million in ARAMCO sovereign purchases by connecting it with foreign governments that held coin inventories (including the Argentinean deal mentioned above).5 But the Treasury only pointed ARAMCO in the right direction, it didn’t actually participate in the deal itself.
Walter Spahr and the Gold Standard League
Even when it was acting as a liaison for ARAMCO, the Treasury was reticent of the role it was playing. There was ongoing agitation to bring the U.S. back onto a full gold standard, one in which gold coins circulated once again and everyone–including American citizens–could convert paper money into gold. The movement was led by the feisty Walter Spahr, a New York-based economist who was the guiding light behind the Gold Standard League and its associated organization the Economists’ National Committee for Monetary Policy.
1933 billboard requiring Americans to give up their gold
The Treasury, which had banned gold coins from circulation only eleven years before, feared Spahr and his ideas.6 By minting coins for foreign governments and helping companies purchase sovereigns, the Treasury risked drawing Spahr’s anger, providing him with the sort of fuel that he required to spark a public debate on the issue of gold coinage. Luckily for the Treasury, neither the Aramco sovereigns nor the coins sold directly to Saudi Arabia attracted Spahr’s attention or generated public complaints. “Skillful handling of reporters no doubt helped head off the chance of embarrassment,” wrote one official.7
To sum up, it is doubtful that the discs were made for ARAMCO – if they had, the Treasury would have been breaking the law. The idea that the U.S. might have chosen to illegally issue the discs is even more unlikely given that government officials were sensitive to any sort of criticism in light of public agitation for a return to a pre-1934 gold standard.
A nation reliant on discontinued foreign gold coins
There is a much easier answer to Boosel’s frustrated plea for “the Why” behind the discs. Like most nations in the Middle East, Saudi Arabia didn’t have its own banknotes. Its monetary system was entirely reliant on precious metals coins. But it didn’t produce its own coinage. For smaller transactions, Saudis relied primarily on foreign silver coins including the ubiquitous Maria Theresa dollar, a coin minted in Austria. The Indian rupee, which circulated widely in the Middle East, was equally important. For larger exchanges, Saudis used British gold sovereigns.
It therefore made perfect sense for the Saudi government to call upon the U.S. Treasury for help. As I pointed out earlier, the Brits no longer made sovereigns. Given the inevitable shortage this must have caused, Saudi officials would have been desperate to supply the nation with a workable gold substitute for circulation within national borders. Turning to the U.S. made sense. The U.S. Treasury was the largest owner of gold in the world, and the U.S. Mint could turn this gold into coins. Unfortunately for the Saudis, British officials had refused to release the original dies for making sovereigns to the U.S. Mint.8 The unadorned discs that the Mint offered to produce in their place were thus a decent second-best option for the Saudi government. Apart from their markings, the discs were exactly similar to sovereigns.
After filling the 1945 and 1947 orders for gold discs, in October 1947 the U.S. Mint received a third order from the Saudi government. But the Saudis ended up cancelling this order in light of a superior proposal. That December, U.S. officials indicated to the Saudis that the Treasury would be willing to auction off old British sovereigns that it held in its official reserves.9 For the Saudis, this offer of actual sovereigns was too good to pass up, so they nixed the third issue of discs and took delivery of sovereigns instead.10
The ARAMCO gold disc story is apocryphal, a bit of idle speculation first dreamt up fifty years ago and recounted often enough to be accepted as gospel. If anything, I hope that my account convinces gold coin buyers to do their homework. Anyone who is planning on purchasing a gold coin at a large premium to its commodity value needs to be sure they know exactly why they’re paying such a high price. Otherwise, best to stick to regular gold bullion coins.
The story of the Saudi gold discs also illustrates the bewildering variety of monetary arrangements that have existed across the globe, even within the same era. How strange is it that the U.S., which itself had banned gold coins only a few years before, found itself in the position of minting gold coins for a nation that was still wholly dependent on precious metals? Monetary systems are often full of surprises like this.
This blog post is a guest post on BullionStar’s Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourages a healthy debate.
Malawi Farmers Rush to Gold Amid Poor Harvests VOA News
Published on Nov 28, 2018
Farmers in Malawi have rushed to small-scale gold mining to make up for lost income from poor harvests. Villagers are digging up and sifting soil in search of the precious metal to sell to buyers in neighboring countries. But authorities are cracking down on the unlicensed mining, as Lameck Masina reports from Lilongwe.
Originally published at - https://www.voanews.com/a/4677594.html
Questions are asked to get answers, but refusals to answer may be enough to permit conclusions to be drawn and thus in effect constitute answers as well.
With all these recent refusals to answer, who really cannot believe that governments and central banks long have been manipulating the gold market so they might control the currency markets and thereby defeat all markets?
Consider the following.
* * *
By letter on July 27 this year U.S. Rep. Alex X. Mooney, R-West Virginia, put many critical questions to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell:
-- Given the recent tight correlation between the gold price and the value of the Chinese yuan, has China been rigging a market purportedly protected by antitrust law in the United States?
-- What is U.S. government policy toward gold? Does it remain, as U.S. government archives show it to have been at least since the 1970s, to drive gold out of the world financial system?
-- Is the U.S. government trading in gold or gold derivatives through the Treasury Department's Exchange Stabilization Fund, other government agencies, or other intermediaries?
-- How does the Federal Reserve reconcile the written statement of Fed Governor Kevin M. Warsh in 2009 that the Fed has secret gold swap arrangements with foreign banks with the assertion by Fed Chairman Powell in July this year that the Fed has had no involvement with gold swaps?
-- Has any audit sought to identify any encumbrances on monetary metals owned by the U.S. government?
Four months have passed and Mooney's letter has gone unanswered and even unacknowledged by the Fed and Treasury.
* * *
By letter in July GATA asked the U.S. Commodity Futures Trading Commission to examine the recent correlation of the gold price and the valuation of the Chinese yuan:
-- How does the CFTC allow a foreign government or entity to control the price of this important commodity and currency by trading in U.S. markets?
-- Is market manipulation by a foreign power happening with the authorization of the U.S. government?
Four months have passed and the commission has not answered or even acknowledged the letter.
* * *
By letter in September GATA asked the CFTC if the commission has jurisdiction over market rigging by the U.S. government itself or whether such market rigging is authorized by federal law, such as the Gold Reserve Act of 1934, which established the Exchange Stabilization Fund:
Two months have passed without an acknowledgment from the commission.
* * *
On July 2 your secretary/treasurer e-mailed the public relations department at JPMorganChase & Co. about the bank's involvement in the monetary metals markets, which occasionally has been controversial. The message read:
"In April 2012 Blythe Masters, then chief of the bank's commodities desk, told CNBC that the bank had no position of its own in the monetary metals markets and was trading only for clients:
"Can you tell me if this remains the case and if the bank's clients in trading the monetary metals markets include governments and central banks?"
Five months have passed without an acknowledgment from JPMorganChase.
* * *
A year ago GATA e-mailed the press office of the Bank for International Settlements in Basel, Switzerland, the gold broker for most central banks, asking for an explanation of what the bank does in the gold market, for whom the bank does it, and for what purposes:
The bank promptly replied but did not answer the question. The bank wrote: "We do not comment on specific accounts / holdings of central banks or of the BIS. Please see our latest annual report for details on gold. Further information can be gleaned from central banks directly."
But GATA did not ask the BIS to "comment on specific accounts / holdings of central banks or the BIS itself." We asked the BIS for an explanation of what the bank does in the gold market generally and why. Further, there is precious little information about gold in the BIS' annual report and most of the bank's members conceal their trading of gold and gold derivatives.
Indeed, a secret March 1999 report by the staff of the International Monetary Fund, obtained by GATA, says central banks conceal their gold loans and swaps precisely to facilitate their surreptitious interventions in the gold and currency markets:
But Bullion Star's gold market analyst Ronan Manly, whose research through the years has exposed much about the LBMA, didn't believe that the association had "come clean" about anything. Manly found the LBMA's data report suspicious in part because it seemed to omit trading by central banks through LBMA members:
So your secretary/treasurer e-mailed the LBMA press office and LBMA Chief Executive Ruth Crowell, calling Manly's analysis to their attention and putting a question to them: "In the interest of the transparency the LBMA says it is pursuing, please tell me whether central bank trading data has been removed or omitted from the information you have just reported."
The LBMA has not responded.
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Quite without any help from governments and central banks, GATA has extensively documented what is actually their longstanding policy to suppress and control the gold price to defend their control of the world and prevent free and transparent markets from developing. Various admissions and confirmations are summarized here --
GATA invites skeptics to dispute these admissions and confirmations specifically, rather than to dismiss them generally. GATA invites skeptics to try putting their own questions along these lines to governments, central banks, and their agents like the LBMA and to report any answers and refusals to answer.
Of course mainstream financial news organizations could settle this issue quickly and easily by examining the documentation, pressing a few questions of their own, and reporting what they found. Indeed, the refusal of those news organizations to attempt critical journalism in regard to central banking is central banking's greatest power, power greater even than their power to create and allocate infinite money in secret. For central banking operates so much in secret precisely because its policies work mainly by deception, and exposure would defeat them.
GATA long has been delivering its documentation to many financial news organizations around the world, with little result. But our friends can help by sharing our work, particularly with financial journalists who report about manipulated markets without addressing manipulation, and by sharing our work with elected officials and asking them to investigate as Representative Mooney is doing.
GATA aims to keep at it but fighting all the money and power in the world on behalf of free and transparent markets, limited and accountable government, and equality among the nations is no picnic. Don't think you can't do anything here. You can, and GATA needs the help.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc. CPowell@GATA.org
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As I was shuffling papers in some old files, I came across a slip of paper on which I had written down the price I had paid for a Mexican $50 gold peso coin: $717 Mexican pesos.
Judging from the price, I figure that the purchase was made sometime in 1972, when the price of a Troy ounce of gold was $46 dollars. The Mexican $50 gold peso coin contains 37.5 grams of pure gold, and 37.5/31.1 grams per Troy ounce, is 1.206: so there is 1.206 times more gold in a Mexican $50 gold peso piece, that in a Troy ounce of gold.
Thus, $46 dollars per ounce x 1.206 = $55.48 dollars as the value of the gold in the $50 gold peso coin, in 1972.
The rate of exchange Dollar/Peso in 1972 was $12.50 Mexican pesos per dollar, so $55.48 US x $12.50 = $693.50 pesos. I paid $717 pesos, because gold coins are always sold for a small percentage more than the price of bullion gold; in this case, the surcharge was for 3.4%.
The international price of an ounce of gold, as of last Friday, November 30, closed at $1,222.10 dollars. The rate of exchange was at $20.40 Mexican pesos per dollar. So today's price of the Mexican $50 gold peso coin should be close to $1,222.10 x $20.40 x 1.206 = $30,067 pesos. The quote this morning is: $30,890 pesos.
So my investment of $717 pesos, made 46 years ago, has turned into an investment worth $30,890 pesos today. Looks like a good investment.
But there's a lot more! Because back in 1993, our President Salinas de Gortari chopped three zeroes off the rate of exchange. So actually, the $717 pesos I invested turned into - $30,890,000 of the old pesos!
Mexico has a brand-new President. Nobody has any idea what the peso/dollar rate of exchange will be, when his term is over in 2024. I really don't care, for I don't expect to live another six years. But for the time being, I am not selling my $50 gold peso coin.
You know, that's nothing special actually. Gold is simple and easy to make, or so I heard. Just pick any two decent neutron stars and smash them against each other. Whoa you get plenty of gold. Compare that to Bitcoin, how complicated it is to produce a new Bitcoin. A computer calculates very long numbers long time, consumes power, and finally farts out a Bitcoin. Put that shiny new Bitcoin in your wallet and buy a car for example. Now, what is valuable, hmmm?