23 Jan 2013

Who Wants their Gold Back – Zee Germans?

There is often economic debate about Gold? Is Gold a bubble? Will it crash? Will it keep going up? 2012 was the 12th straight year that gold has gone up in price, leading many economists to call it ‘a bubble’. Yet last week, the German Bundesbank made headlines when it was reported that they are looking to repatriate home the gold they own, much of which has been sitting in French, English and American vaults since the end of Second World War. Would they go to all that effort if they thought the price was going to fall? 

In the movie Snatch, the main character Turkish is surprised when his offsider, Tommy, procures a gun from a Russian villain called Boris the Blade. When Tommy says he bought the gun for protection, Turkish condescendingly asks him, ‘from who? – Zee Germans’
The irony here is that when it comes to Germany and their gold, after the Second World War, it was the Germans themselves who were looking for protection from Boris’s Russian comrades. Fearing a Soviet invasion one day, the Germans moved a large portion of their gold stockpile to France, the UK and the USA.
Some 60 years later, the Germans want their gold back, as, in their own words ‘gold is important’ and it will allow them ‘to build trust and confidence domestically’.
As a result, the Germans have decided to move all of the gold they currently hold in France back to Frankfurt, as well as a large portion of the gold they currently hold in the United States.
It’s not only the Germans either. There are reports the Dutch may do similar, and over the last few years, the central banks of China, Russia and Brazil (amongst many others) have been adding to their gold stockpiles at a rapid rate. These are decisions made with multi-decade timeframes in mind. The Chinese have effectively banned exports of gold from the country. Clearly, some very well connected and influential financial institutions are getting their hands on as much bullion as possible.
It also leads to an interesting question. When you consider the costs involved, the risks of theft, and the logistical nightmare of moving thousands of tonnes of gold halfway across the world, would the Germans go to all this effort if they thought gold was going to become less valuable in the future? And would other nations be buying it up?
The prices of gold and silver have been going up on average 14% per annum for nearly 10 years. Over the same period, superannuation funds (which do not invest in physical precious metals) are not even keeping up with inflation.
The economists managing our large super funds have long called the gold price a ‘bubble’, arguing it is not a productive asset, and the price is driven purely by speculation. At the same time, these were the same people who said by the end of 2008 the equity market would be around 8000 points (5 years later it is still nearly 40% lower).
We believe these economists continue to misdiagnose what gold really is. Gold is an alternate form of money to the dollars we keep in our bank accounts. Those dollars earn interest (which we pay tax on), but are also eroded by inflation over time. Gold on the other hand pays no interest, but over time it’s the one asset which maintains purchasing power with inflation. As long as interest rates remain low and governments keep printing money, we see gold as a core asset in any genuinely well diversified investment portfolio
People who are looking to protect and grow their wealth these last few years have moved out of traditional superfunds and many have used a portion of their assets to buy bullion. It’s a strategy that has worked well in recent years, and is likely to continue working while the world economy continues to struggle with the global debt crisis.

Billionaires and legendary investors like George Soros, John Paulson, Ray Dalio and Kyle Bass, are all buying Gold or already own large holdings of it. Several have provided compelling research to suggest the price of Gold will continue to go higher. It often pays to follow in the footsteps of the wealthy and well connected

Source- Anonymous

21 Jan 2013

The Return of Silver Eagle Rationing

Late yesterday, the United States Mint informed authorized purchasers that the 2013 American Silver Eagle bullion coins had temporarily sold out. This comes only ten days after the coins were initially made available for ordering and following a three week period of unavailability due to the early sell out of the 2012-dated coins.
Sales of the 2013 Silver Eagle bullion coins will remain suspended until the Mint can build up an inventory of the coins. The Mint expects that sales will resume on or about the week of January 28, 2013 under the allocation process. The “allocation process” refers to a system of rationing the available silver bullion coins amongst authorized purchasers during times when demand exceeds the supply.
As long time readers will remember, Silver Eagle sales suspensions and rationing had occurred somewhat regularly during the years of 2008 to 2010, when a surge in demand for silver bullion exceeded the US Mint’s ability to produce the coins. Besides the implications to precious metals investors of higher premiums and delivery delays, there were also implications for collectors.
The 2008 Proof Silver Eagle became “unavailable” in August and never resumed sales. It was later revealed that the US Mint had been diverting all incoming silver blanks to the production of bullion coins rather than collector coins which were not legally required. In 2009, all proof and uncirculated Gold and Silver Eagles were canceled as the problems fulfilling demand for bullion coins persisted. For much of 2010, the status of collector coins remained in doubt as the US Mint continued to ration bullion coins. The rationing was finally lifted on September 2, which cleared the way for a very late release of 2010 Proof Gold and Silver Eagles.
Although rationing was imposed for the initial release of the 2011-dated Silver Eagle bullion coins, it was soon lifted and became a thing of the past. Numismatic offerings, for the most part, returned to their normal schedules and availability throughout 2011 and 2012.
Silver Eagle Rationing in 2013
The allocation or rationing of Silver Eagle bullion coins in 2013 will have some different aspects than the rationing of the past.
At this point we do not know the specific bottleneck or issues which have caused two sales suspensions and the return of the allocation program. However, this time around the US Mint might have a more difficult time resolving the disparity between production and demand. Last time, the US Mint took numerous steps over the course of several years to bolster production to the level necessary to meet full demand. This included process improvements at the West Point Mint, expanding the number of precious metals blanks suppliers, and adding supplemental production at the San Francisco Mint. What additional steps can the US Mint take at this point to bolster production even more, and how long would they take to implement?
This time the US Mint may not be under as much pressure to resolve the shortage. Almost immediately after the initial suspensions of 2008 and the adoption of the allocation program, many bullion investors called attention to the fact that the US Mint was legally required to mint and issue American Gold and Silver Eagle bullion coins in “quantities sufficient to meet public demand.” This legal requirement added some pressure and probably unwanted attention to the situation. Eventually, the Mint would have the operations of its bullion program scrutinized at a Congressional hearing.
Now, the production requirements for bullion coins have been quietly changed with the passage of the Coin Modernization, Oversight, and Continuity Act of 2010. The requirement was modified to the more ambiguous “quantities and qualities that the Secretary determines are sufficient to meet public demand.” This leaves the door open to the Treasury Secretary to make an independent determination of the quantity of bullion coins sufficient to meet public demand, regardless of the actualquantity necessary to meet demand.
Finally, on a more positive note, this round of rationing is less likely to have implications for collector versions of the American Gold and Silver Eagles. The same Act that obfuscated the production requirement also added greater discretion for the Secretary of the Treasury to mint and issue collector versions of the coins. As such, the US Mint will be able to offer proof and uncirculated quality Gold and Silver Eagles to collectors irrespective of the bullion situation.
At the time of this post, the US Mint’s website shows month to date Silver Eagle bullion coins sales at 6,007,000. This figure, which accounts for only ten days of ordering, has nearly reached the full month total from the year ago period of 6,107,000.
Month to date sales of Gold Eagle bullion coins are also progressing at a faster rate with 121,500 ounces sold so far. In the year ago period, the full month total was 127,000.