Wednesday, July 18, 2012

The Future of Gold as Money

This is a small move towards a BIG change. Read these two pieces carefully and understand the implications.

Remember Basel III just sent to the Fed Reserve and the FDIC a report promoting gold to be held as a tier 1 asset by financial institutions.

1) MONTREAL -(MarketWatch)- The London Bullion Market Association is supporting the gold sector's push to have bullion included by the Basel Committee on Banking Supervision in its recommendations of high quality liquid assets commercial banks should hold, which, if successful, will be one of the most significant events for the industry in recent years, the LBMA chairman said Monday.

"If the Basel III quest is successful, it could be one of the greatest changes in the modern day gold market," David Gornall, who is also global head of precious metals trading at Natixis, told delegates there.

The World Gold Council submitted evidence to the Basel Committee in December 2009 arguing gold should be included in banks' "Tier 1" assets, such as government bonds and currencies, by European banking regulators.

If this gets approved, it will spur a much wider use of gold by financial institutions, who can borrow gold from central banks at a relatively lower rate to conduct transactions or finance other projects, the WGC says. (Finn: Large banks and insurance companies will simply buy the gold rather than hold cash or borrow gold. Banks know what happens to the value of currencies. The implications of this are also that if you own gold, you can use it as an asset to get loans at a better rate. Perhaps capital to open a business?)

2) ‘Game Changer’ For Gold In UK As New Regulation Favours Gold (From Goldcorp)

Gold as an investment or savings mechanism has been frowned upon by the financial services industry in the UK and internationally for many years.

This was due to the bursting of the gold bubble in 1980 (when Volker increased interest rates to nearly 20%), the poor performance of gold in the 1980’s and 1990’s and the superior performance of cash, bonds and equities in that 20 year period.

It was also due to the fact that gold bullion was not lucrative for financial advisers and financial institutions such as stockbrokers and banks. Gold bullion is bought as a long term investment or store of value and as financial insurance. It is normally bought and kept and owned by the owner for a long time – even passing it onto children.

 This means that financial institutions do not make continuing commissions which is their stock and trade. Gold bullion is also a very low margin business when compared to structured products and the many investment products with non transparent and often very high charges and fees.

 However, the poor performance of the financial services industry with a series of misspelling and other scandals and the abject failure of much of the industry to have the fiduciary interest of their clients at heart means that the UK’s FSA is set to bring in legislation that will protect the retail investment public.

 The Financial Services Authority (FSA) primary role is to make retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal.

In June 2006, the FSA created its Retail Distribution Review (RDR) programme which they are enacting in order to enhance consumer confidence in the retail investment market.

The RDR has a target for full-implementation of 31 December 2012. The RDR is expected to have a significant impact on the way in which financial services are delivered to retail investors in the UK.

The primary delivery mechanism of financial services to retail customers is via approximately 30,000 Independent Financial Advisers (IFAs) who are authorised and regulated by the FSA. They are expected to bear the brunt of the force of the RDR. Gold bullion is set to benefit from the axing of commission for IFAs and the implementation of the RDR “should be regarded as a game changer” for gold as an investment in the UK, according to the World Gold Council.

In its latest report ‘Gold as a strategic asset for UK investors’, the World Gold Council rightly points out that the current commission structure in the UK narrowed the range of products recommended “which has been suboptimal for clients’ risk preferences and diversification prospects”.

The World Gold Council backs the new regulation, arguing that it will lead to a broader range of assets including gold being recommended by advisers. “Re-focusing the advisory community and the clients it serves on the importance of asset allocation decisions, not just product selection, sits at the heart of wealth protection” it correctly says. “Encouraging a broader approach to investing across a wider range of asset classes, based on an understanding of the long-term increase in cross correlations within global investment assets, will be a positive development.” (Finn: This basically means telling people about things that are succeeding rather than failing (gold vs. bonds) because you get a commission for it even though it’s not in your client’s best interest because you’re a scumbag).

Much financial academic literature has shown (Finn: and promptly hidden from the public) how gold can serve as a portfolio diversifier, preserver of wealth and a risk management vehicle. “During most market crises over the last 25 years, gold has consistently increased portfolio gains or reduced its losses,” according to the report.

Managing director of investment Marcus Grubb, says: “These extremely challenging times mean it’s impossible to quantify the risks for UK investors. They are facing an unprecedented combination of threats to their assets including extreme and unexpected market shocks that can trigger widespread value destruction.” (Finn: well printing money does destroy the values of currencies after all doesn’t it? Folks, this whole thing is a CYA move so when the currency tanks they can say, “well we tried to prepare people for this….)

“As UK investors reduce allocations to traditional investments such as equities and bonds and increasingly dash to cash, they face a double whammy, with the potential for stagnation of capital due to the lack of returns from cash and the increased possibility of inflation as a result of ongoing monetary stimulation.”

“In this context, an urgent reappraisal of how to protect and create wealth is required and our latest (lol) research reinforces gold’s credentials as a core portfolio asset which reduces losses and preserves wealth.” (Finn: You don’t create AND preserve wealth when speaking of gold. You create currency by printing it. You cannot preserve it because by its nature you destroy it as you create more of it. Gold’s wealth mechanism is discovered as you pull it out of the ground. It’s always been there. That’s why it’s wealth!!! Again, people are figuring this out and this is all CYA.)

The RDR regulation is another step in gold slowly going from the fringe – with a small minority of people having any allocation to gold – to the mainstream. (Finn: People, be the fringe before fringe becomes mainstream).

The developments in the UK are likely to be seen in other countries with similar financial regulations and will further help position gold as a primary asset – alongside equities, bonds and cash.


So what we have is a top town approach from the UK, the financial heart of the world, of reintroducing gold into the monetary system. If they don't do it they will lose power to the east and may even end up swinging from lamp posts (panic of 1873).

These things take time and it requires patience but once a small (5%) of the western nations populations figure it out you will see a massive super spike of silver and gold, a short sell off followed by recovery and then reduced volatility when people understand it’s staying power as the “New Way” to save. Silver and gold for saving. Currencies for spending. Think about it.

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