RAY DALIO MAKES THE CASE FOR GOLD

Extract of a May 2012 Barrons interview with Ray Dalio

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Ray Dalio still a fan of gold : Barrons Interview:  20th May 2012
 

Are you still a fan of gold?

Longer term, yes. It could temporarily be a bumpy ride because Europeans will have to sell gold in order to raise funds because they are squeezed. Most people should have in the vicinity of 10% of their assets in gold, not only because I think it will be a good investment longer term, but because I think it is a very effective diversifier against the other 90%.

And are you treating it as a proxy for eventual inflation?

I’m treating it as an alternative currency. The big issue is debtor-developed countries, the U.S., Europe, and Japan, all have a lot of debt and will have to print money or they will have credit problems. I don’t want to have all of my money in those currencies.

What is the asset class you expect to perform best in the next year?

It very much depends on the European monetary system. I believe the ECB will print money, and that will most likely alleviate concerns and produce another rally in stock and credit markets. But this is a tougher time to be very confident about that scenario.

It’s amazing to think that four years into it, the world is still deleveraging.

Deleveragings go on for about 15 years. The process of raising debt relative to incomes goes on for 30 or 40 years, typically. There’s a last big surge, which we had in the two years from 2005 to 2007 and from 1927 to 1929, and in Japan from 1988 to 1990, when the pace becomes manic. That’s the classic bubble.

And then it takes about 15 years to adjust.

Posted in Debt, defecits and economics, Gold price, STRATEGY | 1 Comment

GOLDWATCHING & GLOBEWATCHING

GOLDWATCHING & GLOBEWATCHING:

Supply and demand for gold, other currencies and commodities are affected by a wide spectrum of major economic and world events. This has led to more and more comment on this blog addressing world events and to less and less analysis on the gold mining industry, supply demand specifics, gold mining equities and tracking the gold price.

I have done the homework on gold and am well informed. But, with economics and world events I subscribe to reliable sources of information and read analysis, books and commentary from others better informed than I am.

To make more sense of my comments I will in future publish on two websites. The Goldwatcher and a new Globewatcher website.

The Goldwatcher:

The focus will be on investing,  gold prices, equities and the nuts and bolts of gold mining and marketing.

The Globewatcher:

This website will headline news on major developments with links to current articles and publications of interest and, where I have a useful contribution to make, I will comment.

Rearranging the websites will take a few days  (Oops – I should have said a few weeks ! )  . Will tweet when it’s all happened.

John Katz

TheGoldwatcher@icloud.com

 

 

 

 

 

 

 

 

 

 

 

 

 

Posted in Uncategorized | 3 Comments

ISRAEL, PALESTINE & THE NEED FOR BALANCED DISSATISFACTION

Presidents Menachem Begin, Jimmy Carter and Anwar El Sadat at the signing of the Camp David accords in 1978.  The Hamas Charter brands Camp David an act of treason.   Notes added after posting filed on 4th August  # 5th August 6a,m  Israel & Hamas agree 3 day cease fire and truce proposed by Egypt without conditions #Link added to BBC analysis on toll of operations in Gaza # 9th August Gaza at war again after militants fire rockets into Israel and the Jewish state responds, killing a ten-year-old Palestinian in Mosque air strike # Note added 14th August : Israel and Palestinians begin tense five day truce #Note added 15th August 2014: Israel braces itself for War Crimes enquiry on Gaza Fire, Ready Aim:  Headlined ‘Fire Ready Aim’ (a phrase coined by New York Times columnist Thomas Friedman) The Goldwatcher Chapter on the Economic Consequences of nine eleven and George W. Bush analyses the consequences of the misguided  invasion of Iraq. A later  2011 Goldwatcher comment on the Libyan campaign aimed at  the overthrow of Gaddafi was headlined ‘Fire, Ready, Aim. Will This Time Be Different?. Outcomes in Libya were not different and were at least as bad as with Iraq. Investors need to consider now if the results of Israel’s campaign in Gaza  will be different to the results of previous campaigns. Indications aren’t promising. Appalling civilian casualties in Gaza have led to accusations of criminal acts by Israel and Hamas and  to universal hostility, including hostility from Israel’s friends and allies.   The case for balanced dissatisfaction: Writing in March this year on the Ukraine crisis former US Foreign Secretary Henry Kissinger comments: ‘Public discussion on Ukraine is all about confrontation. But do we know where we are going?  In my life I have seen four wars begun with great enthusiasm and public support, all of which we did not know how to end and from three of which we withdrew unilaterally. The test of policy is how it ends not how it begins.’ He advises a solution based not on ‘absolute satisfaction’ but on ‘balanced dissatisfaction.’ A similar case for balanced dissatisfaction, without using the same words,  is made  in a July 24th New York Times op-ed where  the Israeli author David Grossman writes  “…even a powerful country like ours cannot simply act as it wishes;” and “in the age we live in there are no unequivocal victories, only an illusory “image of victory” through which we can easily see the truth : that in  a war there are only losers. There is no military solution to the real anguish of the Palestinian people, and as long as the suffocation felt in Gaza is not alleviated, we in Israel will not be able to breathe freely either.” Can Leopards change their spots? It’s not uncommon for political leaders to change their spots. Recent examples include the 1979 Camp David accord between Egypt’s President Sadat and Israel’s President Begin. (Hamas brand it an act of treason) In this context it’s also worth mentioning Gerry Adams in Ireland and recently, outside the political arena, The Europe Central Bank President Mario Draghi challenging stringent  Bundesbank monetary orthodoxy and finding  a way to create trillions of euros to pump into the system. In South Africa the Dutch Reformed Church also changed its spots. The Church  had preached that apartheid was ordained in the Bible. But in the 1980s it changed tack and, by abandoning religious backing for apartheid, paved the way for  South Africa’s apartheid Government to release Nelson Mandela from prison, unban the ANC, include South Africa’s black majority in the democratic process and elect Mandela President. Keep in mind the Church misguidedly supported Apartheid but it didn’t exist for that reason. By contrast Hamas exists to destroy Israel. This Goldwatcher posting on the Hamas charter includes comment and links to the Charter document. Hamas is a quasi religious movement committed to annihilating Israel and killing all Jews everywhere. It obliges all Muslims to engage in the jihad against Israel and the Jews, assures martyrs in the cause an afterlife in heaven and warns of punishment in hell for those who do not support the jihad. For a peace with Israel Hamas’s leaders will have to revoke charter obligations and completely change their spots. Or, put another way, they will have to cease to exist as the organisation they presently are. Civilian Casualties: International laws and conventions that should protect civilians in conflict zones are not working in the Middle East. The civilian death toll from the war in Syria is estimated at 175,000  In the wake of the ISIS campaigns United Nations report civilian deaths in Iraq over the first six months of this year exceeded 5000  Over 13,000,000 Syrian  civilians are in desperate need. In  one day recently there were over 700 civilian deaths in Syria. Israel claims its actions in Gaza are in self defence and  the IDF has developed  comprehensive and sophisticated measures to minimize civilian casualties during attacks against legitimate military installations hidden in civilian areas. Yet,  on current information,  Israel’s campaign in Gaza has caused over two thousand civilian deaths and many more casualties. The United Nations  has warned both Israel and Palestine on war crimes. Israel’s Gaza campaign will probably be over within a few days. But the consequences of the civilian casualties and the disruptions to civilian lives won’t. The risk is chaos: There is a tendency to approach new events as linear sequences of cause and effect. Challenging the linear approach the Scottish philosopher and historian Thomas Carlyle argued “actual events”  were “the offspring not of one, but of all other events, prior or contemporaneous, that combine with all others to give birth to new: it (history)  is an ever-living, ever-working Chaos of Being.’ But the current humanitarian crisis in Gaza and the unresolved coexistence issues between Israel, Hamas, and the Palestinians are still being approached in the context of recent causes and effects. Each side claims it is right. Each blames the other for the  loss of lives, the casualties and the unspeakable plight of Gazan civilians. The blunt warning  is unless leaders on both sides of the dispute accept outcomes based on balanced dissatisfaction, rather than outright victory, the risk  is a further descent into chaos in an already chaotic region of the world. Gold as a contrarian investment: A June 2014 Goldwatcher posting addresses gold as a contrarian investment with menacing geo-political developments cited as a factor that can affect demand for gold.

Posted in MIDDLE EAST CHAOS | Comments Off

THE BRICS DEVELOPMENT BANK & PROSPECTS

 # Note added 24th August 2014 Eichengreen Analysis on NDB

   The shared Development Bank being launched by the BRICS – Brazil, Russia, India, China and South Africa has the potential to jump start infrastructure, economic growth and and employment prospects in member states.  Sub Saharan Africa could  be a substantial beneficiary.

   Jim O’Neil, the author of the following article ‘Is The BRICS Rise Over’ literally invented the BRICS acronym. It’s interesting he excludes South Africa from his economic projections . The reason is, in his opinion,  South Africa’s contribution is so small it doesn’t ‘deserve to be included’ with the others.  Keep in mind, however, South Africa is the industrial power house of sub Saharan Africa with major investments, interests  and influence across the sub continent and is a democracy free of the religious battles afflicting Nigeria in the sub-continent.

   South Africa also has a respected central bank, a legal system that protects investors, a major world Stock Exchange and a competent, innovative and wealthy financial services industry.

   The idea of a BRICS Development Bank has been spoken about for years. It’s likely South Africa’s expertise and resources have been useful in actually making it happen now and will be useful in making it succeed in future.

Follow this link for O’Neil’s article published by Bruegel

Posted in Security and global politics, STRATEGY | Comments Off

HAMAS,THE PROTOCOLS OF ZION & THE GOLDWATCHER

 

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# Note added 22nd July 2014 

Professor Ari Shlain on Hamas’s “Terrible Charter.”

Interviewed on BBC Newsnight last night Oxford Professor Ari Shlaim,  a prominent academic, writer and critic of Israel, claimed “Palestine does not pose any threat to Israel’s basic security.” An amazing statement while a war is being waged following their strategy of firing thousands of rockets into Israel and their refusal  to agree to a cease fire. Since yesterday  rockets from Gaza have landed near Tel Aviv airport and civilian flights are being curtailed.

On overall responsibility for the conflict Shlaim again held Israel responsible contending it was a  result of Israel’s occupation of Palestinian lands and of Israel shunning meaningful negotiations over the years.

Asked what Israel should do in view of Hamas’s Charter commitment to the destruction of  Israel Shlaim said Hamas had a “Terrible Charter” but had a group of political or military leaders –  (he stumbled over this and it’s not clear which leaders he meant to refer to)  moving towards moderation.

It’s unlikely that Hamas  ‘moving to moderation’ will resolve the situation while it subscribes to its ‘Terrible Charter.’ For Israel to have a peace partner Hamas will have to abandon its charter commitment to the destruction of Israel. An unlikely prospect at this stage.

Thankfully Ban Ki-moon, John Kerry  and regional powers are committed to ending the  ghastly toll of civilian casualties.  Hamas will have to become part of the solution instead of the problem for them to really succeed.

THE GOLDWATCHER AND THE HAMAS CHARTER:

When  writing on investing I  follow  Warren Buffett’s advice and use fact based information such as  company financial accounts and regulatory filings. Opinions of others can be useful.  But  getting to grips with the facts before taking a view on opinions must always make sense

Let me explain what Buffett’s sage advice to investors has to do with this article on the Hamas Charter and the Protocols of Zion. In January 2007 I proposed a fact based, objective and unbiased book addressing  the pros and cons of owning gold  to the publishers John Wiley & Son. It was an unusual proposal for a book on a subject usually associated with getting rich quick and with pots of gold at the end of rainbows. I launched The Goldwatcher blog in March 2007. Wiley commissioned the book in April and The Goldwatcher reached bookseller’s shelves  a few months  before the Global Financial Crisis erupted when the investment bank Lehman Brothers collapsed in September 2008.

 Since I started writing The Goldwatcher in 2007 movements in the price of gold have been dramatic. Adverse world events that led to investors and institutions owning gold as insurance against financial market and geopolitical risks boosted demand for gold.  These adverse events included the economic and geopolitical consequences of nine-eleven, the invasions of Afghanistan and Iraq; America’s sub prime mortgage and property busts; losses from duff collateralised debt obligations marketed globally by US investment banks; the Global Financial Crisis; The Euro crisis and now the Ukraine crisis. I have  attempted to get to grips with and to comment on this formidable range of events for over seven years. But  I have not commented on The Israel Palestine conflict already extensively covered by well informed commentators.

However the Middle East is now on the brink of chaos and, while attempting to find facts to help me get a grip on the implications for investors,  I read the Hamas Charter and realised why it’s  impossible for Israel and Hamas to co-exist in harmony.

ISRAEL PALESTINE & HAMAS:

Of course there are usually at least two sides to disputes and I expected this would be the case in  issues between Israel and Palestine.But, with Hamas involved, it isn’t the case.

The Charter Of The Islamic Resistance Movement (HAMAS) OF PALESTINE unambiguously spells out that it exists to destroy the State of Israel. Hamas is the  branch of the Islamic Brotherhood claiming to act as the agent of Allah in securing  the destruction of the Zionest entity. Hamas imposes an obligation on all Muslims to be part of the Jihad against Israel,  promises the reward of eternal life to martyrs in the cause and warns that Hell awaits those who do not.

Some phrases that speak for themselves follow at the end of this posting  on Hamas’s interpretation of their religion and their hatred of the Jews.

THE PROTOCOLS OF THE ELDERS OF ZION:

At the end of their Charter Hamas embellish their anti-semitism with a reference to The Protocols of The Elders of Zion. This forgery was published by anti-semites early in the 20th century to promote hatred and it is now universally known as  a forgery.  Yet Hamas include the Protocols in their Charter as evidence they are not acting only for religious motives.

SELECTED EXTRACTS FROM THE HAMAS CHARTER

 Links to the Hamas Charter or Covenant

Charter of the Islamic Resistance Movement : Hamas of Palestine

The Covenant of the Islamic Resistance Movement

#Note: Both links are  to the same material. The Covenant link is easier to read

The following extracts from the 5000+  word document reveal Hamas’s  beliefs, purpose and plans. The extracts  are not in sequence.

‘This is the charter of Harakat al-Muqawama al-Islamiyya (Hamas)l [the Islamic Resistance Movement] manifesting its form, unveiling its identity, stating its position, clarifying its expectations, discussing its hopes, and calling for aid, support, and members…

The Messenger is its Leader. The Qur’an is its Constitution. Jihad is its methodology, and Death for the sake of Allah is its most coveted desire.

 Israel will be established and will stay established until Islam nullifies it as it nullified what was before…

Our battle with the Jews is long and dangerous, requiring all dedicated efforts. It is a phase which must be followed by succeeding phases, a battalion which must be supported by battalion after battalion of the divided Arab and Islamic world until the enemy is overcome, and the victory of Allah descends…

The Islamic Resistance Movement welcomes all Muslims who adopt its doctrines and ideology, enact its program, guard its secrets, and desire to join its ranks to perform the obligation and receive their reward from Allah…

The Islamic Resistance Movement is a link in [a long] chain of the Jihad against the Zionist occupation…the Prophet of Allah (saas) says: The Last Hour would not come until the Muslims fight against the Jews and the Muslims would kill them, …

Allah is its Goal. The Messenger is its Leader. The Qur’an is its Constitution…

Jihad is its methodology, and Death for the sake of Allah is its most coveted desire…

The Islamic Resistance Movement [firmly] believes that the land of Palestine is an Is-islamic Waqf [Trust] upon all Muslim generations till the day of Resurrection. It is not right to give it up nor any part of it. Neither a single Arab state nor all the Arab states…

…neither a King nor a leader, nor all the kings or leaders, nor any organization-Palestinian or Arab-have such authority because the land of Palestine is an Islamic Trust upon all Muslim generations until the day of Resurrection. …

Fighting the enemy becomes the individual obligation of every Muslim man and woman. The woman is allowed to go fight without the permission of her husband and the slave without the permission of his master.

Since this is the case, the liberation of Palestine is obligatory for every Muslim, no matter where he is; it is on this basis that the problem should be viewed, and every Muslim must know this.

Jihad for the Liberation of Palestine is Obligatory

To guard Muslims from infidels in Allah’s cause for one day is better than the world and whatever is on its surface, and a place in paradise as small as that occupied by the whip of one of you is better than the world By Him in whose Hand is Muhammad’s life, I love to be killed in the way of Allah then to be revived to life again, then to be killed and then to be revived …Jihad must be raised. That requires that Islamic education be passed to the masses locally, in the Arab [world and in the Islamic [world], and that the spirit of Jihad-fighting and joining the ranks-must be broadcast among the Ummah (Muslim community)

Resistance Movement went forth to perform its role Mujahida (struggling) for the sake of it’s Lord. The Movement placed its hands with the hands of all the Mujahidin who strive to free Palestine. The souls of its Mujahidin gather with all the souls of the Mujahidin who strove with their souls on the land of Palestine for all time since it was conquered by the companions of the Messenger of Allah (saas) until today.

The Islamic Resistance Movement is an outstanding type of Palestinian movement. It gives its loyalty to Allah, adopts Islam as a system of life, and works toward raising the banner of Allah on every inch of Palestine. Therefore, in the shadow of Islam, it is possible for all followers of different religions to live in peace and with security over their person, property, and rights. In the absence of Islam, discord takes form, oppression and destruction are rampant, and wars and battles take place.

The Islamic Resistance Movement is a link in [a long] chain of the Jihad against the Zionist occupation, which is connected and tied with the initiation [of the Jihad of the Martyr 'Izz al-Din al-Qassam and his Mujahid brothers in 1936. And the chain continues on to connect and tie another episode to add to the jihad of the Palestinians and the jihad of the Muslim Brotherhood in the war of 1948 and the Jihad operation of the Muslim Brotherhood in 1968 and thereafter. Even though the episodes were few and far between, and were not continuous in Jihad due to the obstacles placed by those in the sphere of [influence of] the Zionist entity in the face of the Mujahidin. Even though the Islamic Resistance Movement looks forward to fulfill the promise of Allah no matter how long it takes because the Prophet of Allah (saas) says: The Last Hour would not come until the Muslims fight against the Jews and the Muslims would kill them, and until the Jews would hide themselves behind a stone or a tree and a stone or a tree

…for an international conference to look into solving the problem. … the Islamic Resistance Movement does not perceive that the conferences are able to deliver the demands, provide the rights, nor do justice to the oppressed. Those conferences are nothing but a form of enforcing the rule of the un-believers in the land of Muslims. And when have the unbelievers justly treated the believers?

There is no solution to the Palestinian Problem except by Jihad. The initiatives, options, and international conferences are a waste of time and a kind of child’s play.  

The problem of liberating Palestine is related to three spheres: the Palestinian sphere, the Arab sphere, and the Islamic sphere. Every one of them has a role to play in the struggle against Zionism. …because Palestine is an Islamic land accommodating the first Qibla,4 the third Holy Sanctuary,5 the [place where the] ascent of the Messenger (saas) took place.

… what are called “Peaceful Solutions” and “International Conferences” to solve the Palestinian problem. As far as the ideology of the Islamic Resistance Movement is concerned, giving up any part of Palestine is like giving up part of its religion. The nationalism of the Islamic Resistance Movement is part of its religion, in that it educates its members, and they perform Jihad to raise the banner of Allah over their nation. …

“Now the Crusades are over,” and General Gurud stood by Salah al- Din’s (Saladin’s) grave saying, “Here we have returned 0 Saladin.” Imperialism has helped and is still helping the Ideological Invasion to establish its roots firmly. And all that was preparation for the loss of Palestine. We must instill in the minds of the Muslim generation that the Palestinian cause is a religious cause. It must be solved on this basis because it contains Islamic sanctuaries where Masjid al-Aqsa is tied firmly to asjid al-Haram (in Mecca) never to be released, as long as the heavens and the earth last, by way of the night journey (‘Isra) of Rasulallah (Saas) and ascension (Mi’raj) to the heavens … and a  place in paradise as small as that occupied by the whip of one of you is better than the world …

The enemy planned long ago and perfected their plan so that they can achieve what they want to achieve,..They are behind the French Revolution, the Communist Revolution, and most of the revolutions here and there which we have heard of and are hearing of. With wealth they formed secret organizations throughout the world to destroy societies and promote the Zionist cause; these organizations include the freemasons, the Rotary and Lions clubs, and others. These are all destructive intelligence-gathering organizations…

They are behind the First World War in which they destroyed the Islamic Calipha and gained material profit, monopolized raw wealth, and got the Balfour Declaration. They created the League of Nations so they could control the world through that organization. They are behind the Second World War where they grossed huge profits from their trade of war materials, and set down the foundations to establish their nation by forming the United Nations and Security Council, instead of the League of Nations, in order to rule the world through that organization. There is not a war that goes on here or there in which their fingers are not playing behind it…

…the Zionist plan has no bounds, and after Palestine they wish to expand from the Nile River to the Euphrates. When they totally occupy it they will look towards another, and such is their plan in the “Protocols of the Learned Elders of Zion.” Their present is the best witness on what is said. Withdrawal from the circle of struggle is high treason and a curse on the doer. If any do turn his back to them on such a day- unless it be in a stratagem of war, or to retreat to a troop (of his own)-he draws on himself the wrath of Allah, and his abode is Hell-an evil refuge 

 

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WHEN BUBBLES BURST

MARKET EXUBERANCE

Key  questions on market exuberance  concerning us all are highighted in this Streettalkalive  Investor  Psychology Cycle Chart

Chart included with permission from STREETTALK LIVE 

It’s seven years since The Global Financial Crisis (GFC) erupted. A rerun of the Great Depression was averted by monetary reflation,  policy makers imposing artificially low interest rates (financial repression) and printing money  (including quantitative easing) all on  unprecedented scales.  Equity markets have soared. Investors have been well rewarded.

But what will happen when  interest rates normalise and  money printing is reigned in. Or when other events are catalysts for a market sell off?

And what if,  as investors,  we discover too late we have been  bluffing ourselves and we have been behaving like amateur gamblers and we find ourselves running for the exit at the same time as everyone else and dealing with the consequences of a market crash.

 STREETTALK LIVE An Information Treasure Chest:

 Lance Roberts’s out of the box Streettalklive.com analysis is a treasure chest of useful information –  starting with his comment introducing  the Investor Psychology Chart:

“The more the markets rise in the face of negative news, the more ’confident’ that individual investors become in their own abilities. The lure of becoming ’rich’ overwhelms logical thinking creating a ’willful blindness’ to rising investment risks ….“No warning can save people determined to grow suddenly rich.”

‘Geopolitical unrest in Iraq/Ukraine? Buy stocks.

‘Unemployment drops to 6.1%? Buy stocks.

‘Loss of 500,000 full-time jobs? Buy stocks.

‘GDP falls by much more than expected? Buy stocks.

‘Q2 economic rebound much weaker than originally estimated? Buy stocks

‘Rising/falling oil prices? Buy stocks

THE EVERYTHING BOOM

In  “Five Things to Ponder : The Everything Boom”  Roberts poses the question ‘is the “everything boom” a realization of economic nirvana, or is it the next financial “bubble” quietly waiting to be ignored so that it can “pop?.” His conclusion:  ‘the psychological cycle of investors over time explains why ‘individuals always wind up ‘buying high and selling low.’

The ‘problem Roberts explains ‘is that a period of “irrational exuberance” can last much longer than “logic” would dictate…because “exuberance” denotes a level of “illogic” as participants come to “complete acceptance” that the current bullish trend is infinitely sustainable…(and) ‘bubbles can exist even at times when valuations and fundamentals might argue otherwise…’

SURVIVING THE LONG TERM INVESTOR GAME:’

Here again Roberts has useful out of the box advice:

‘The one overriding positive of the “always bullish” financial media is that they live in a “bubble” of never being wrong. When asset prices are rising they continue the “sirens song” of the bullish mantras of long term investing, buy and hold, and beating some random benchmark index. However, when it inevitably goes horribly wrong and costs individuals a major chunk of their life savings, the excuse is simply “well, no one could have seen that coming.”

‘To survive the long term investing game, it is crucially important to use a logic-based approached to your investing. Fundamentals, valuations, economics and politics are all extremely lousy…This is why stock market bubbles are “never” seen in advance, but only in hindsight. This is also why it is extremely important to focus on price. At the beginning of the “reversion to the mean,” when it occurs, it is only a change in the trend of prices that will warn individuals that something has changed. Fundamentals, valuations and economic data move far too slowly to be of any value in protecting investor capital.

 

SELECTED GOLDWATCHER POSTINGS ON BUBBLES:

This link is to  an April 2007 Goldwatcher posting  outlining Jeremy Grantham’s insights. The Lehman Brothers collapse and the onset of the Global Financial crisis followed the next year. Grantham’s 2007 analysis is +++ pertinent to current conditions

This link is to a November 2013  Goldwatcher posting on Helicopter Ben & Janet Yellin’s money printing  & Nouriel Roubini’s recent comment  on The Mother of all Asset Bubbles

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DEMYSTIFYING THE LONDON GOLD FIX

 CHART COURTESY KITCO

To update this chart press the refresh button and  alt keys

Live 24 hours gold chart [Kitco Inc.]

 

# The following comment by Ross Norman was published  yesterday on the Sharps Pixley website and is cross posted with permission

Ross Norman, Managing Director of Sharps Pixley:

Surely never before have so many lines been written by journalists on a subject that they palpably know so little about and have made little attempt to understand… as the London gold fix.

‘Yesterday we were questioned by the BBC in a live TV interview which demonstrated the problem ; their belief was clearly that a group of bankers met in secret and arbitrarily decided what the price should be without reference to actual trades and that was the price for that day – they clearly were unaware that gold also has a spot price outside the fix and that almost all commodities have a benchmark or reference price. The lack of research ahead of the interview was shameful – but that did not prevent them for recycling hackneyed stereotypes about secretive banksters. They are not alone.

‘More laughably some authors suggest the gold price might rise if we dispensed with the fix – presumably on the notion that the banks have been artificially holding the price down… well who do you suppose creates the spot price that is your alternative – the same banks that are in the fixing room ! In fact, you would be more likely see less participation in gold amongst institutional investors and possibly central banks if you removed those moments of deep liquidity that the fix provides. To boot, London will have lost one of its most prized institutions which is a massive contributor to the UK economy and the envy of centres such as Dubai, Shanghai, Mumbai and Singapore. British experts in the sector are global leaders in many fields from trade finance, structured deals, vaulting, refining assaying and we stand to lose primacy in the global bullion market simply because a bunch of tired and rather lazy hacks cannot be bothered to work it out.

‘The central question is we see it is how can a fixing member usefully use the information of a possible trade in the fix to their advantage given that it can be changed right up until the precise moment the fix is settled – rather like a hammer coming down at an auction – the simple answer is he cannot. Go say to a traditional art auction or even bid on ebay and you will not have the right to revoke your trade. You do however get that flexibility with the gold fix.  A fixing participant – or indeed someone getting a live commentary might be tempted to trade the gold futures markets in parallel during the p.m. fix but, given that the client fixing order bears no commitment to actually trade you would be crazy to do so.

‘Even the Treasury Select Committee into the gold fix missed the three key issues. Firstly client orders for the fixing are invariably given by clients to a fixing member during the process, secondly the client has the option of getting a fixing commentary so he has visibility on the likely fix price and thirdly he can change his order at any point during the process if he wants to change his mind – in short, the information to the fixing member is almost worthless if they have malice aforethought. As such it could be said to provide more transparency than most benchmarks and indeed in looking after the clients interests.

‘Frankly, if you wanted to stitch a client up there are many far, far easier ways. For example – reading him – if he is a gold producer you know with a high level of certainty which side of the spread he is likely to hit you on. Risks exist in all traded markets – voice or electronic and actually the London fix affords you more protection than most.

‘The question as we see it is the fix fit for purpose ? In the main the answer has to be an overwhelming “yes”. This was seen earlier this week during the meeting held by the WGC at which a wide range of members from the bullion market (although not the LBMA and no fixing members were present – in fact only one bank). In the final session we were invited to offer creative ideas to improve the fixing mechanism…  not a single person could reply and consequently the meeting was wrapped up half an hour early.

‘Now the gold market does not stand above scrutiny and to some extent blame for getting to this pretty place does also lie with the fixing community. Firstly it has failed to provide a spokesman who can explain the mechanisms of the fix and to answer legitimate questions from the media. And secondly it should have separated the administration of the process from participation – that would have ensured self-scrutiny would have been observed.

Speaking as a user of the fix (not a fixing member) we remain satisfied that the process is fit for purpose and it is with some disappointment we see the dismantling of an institution not because it is outmoded or anachronistic, but because the right questions have not been asked.’

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PLATINUM & PALLADIUM

#Note added 2nd July:

Platinum  27th June $1479 (date blog posted)

Platinum  2nd July : $1512

2014 Platinum prices data courtesy Kitco

Link for historic charts 

Press the “Refresh” button on your browser while holding down the <ctrl> key to refresh the charts below

Platinum and palladium 24 hour spot courtesy Kitco

Live 24 hours platinum chart [Kitco Inc.]

Live 24 hours palladium chart [Kitco Inc.]

The Following item from Kitco quotes Societe Generali research headlining the strong demand driven case for platinum and palladium:

Societe Generale Sees Longer-Term Recovery In Platinum

Thursday June 26, 2014 1:38 PM

“Societe Generale lists three reasons for a longer-term recovery in platinum despite potential for short-term weakness after resolution of a five-month-long strike in the South African mining sector.

“First, just because the workers gradually return does not mean that refined output will jump back,” the bank says. “Instead, the lingering effects of the strikes, including the lead times for ore to become refined metal, but also due to mine changes, requirements for worker training etc. means that it will probably be over three months before production at the mine gate has returned to, say, 90% of former levels, presupposing all affected shafts reopen. And in our view output will probably never recover to its previous peaks as was the case after the strikes in 2012.”

“Second, platinum prices below $1,400 per ounce are likely to encourage jewelry demand for the metal, especially in China, the bank continues. Third, investors may jump in ahead of anticipated tightness. “In particular, investors are aware that swathes of the South African operations will be loss-making at the lower price level and hence cuts to operations will, eventually, be necessary, even if to some extent this arises from a lack of sustaining capital expenditure,” Societe Generale says.

“In addition, even assuming the recovery in mine output, palladium will stay in a structural deficit even if the mines do manage to return to former levels.”

By Allen Sykora of Kitco News: asykora@kitco.com

Goldwatcher comment:

Supply and demand fundamentals underpin firm platinum and palladium prices. Global auto production is surging. At this stage, except rhodium in limited applications, the only clean exhaust catalysts are platinum and palladium.

80% of platinum mined is from the South African mines. Palladium is also mined in Russia but, as with most info from Russia, reliability is suspect.

 

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