Not one to let a sleeping dog lie, today we’ve encountered a new explanation for the mysterious Bank of International Settlements’ 380 tonnes in gold swap operations. Before this week, James Turk, co-author of The Collapse of the Dollar, had yet to voice a theory on the swap. However, after learning Portugal is taking an unusual step (as a sovereign borrower) — of setting aside assets as collateral against derivative transactions in order to bring down its funding costs — Turk couldn’t resist sharing his hunch.
From the Kitco Commentator’s Corner:
“It has long been recognized that Portugal is active in the gold market. It had loaned gold to Drexel Burnham in the 1980s [...] So it is not farfetched to assume that Portugal had loaned its remaining gold to a commercial bank, which meant that Portugal was exposed to the credit risk of this bank.
“Now consider for a moment, what if that gold loan had been made by Portugal to Citibank or some other zombie bank? It wouldn’t look very good on Portugal’s balance sheet to be owed 380 tonnes of gold by a near-bankrupt institution. Given that Portugal is taking steps to ‘to reduce its funding costs’ as the FT reports, it would be logical for it to get rid of that gold loan.
“The best choice of course would be to demand repayment of the loan and put the 380 tonnes of gold back in its vault. That action though would drive the gold price sky-high, given the dearth of sellers of physical metal at current prices. Sky-high prices would blow-up the gold cartel and its efforts to continue capping the gold price as it operates its staged retreat, letting gold rise every year but not too much so as to not draw everyone’s attention to it and the resulting consequences of ever-depreciating fiat currencies. So enter the BIS.
“It swaps currency for the gold loan at the commercial bank. In other words, the 380 tonnes of gold is now owed to Portugal by the BIS, improving considerably the quality of Portugal’s balance sheet. After all, who would you rather have owing gold to you? Some commercial bank like Citibank or central banks’ own central bank, the BIS? Clearly, being owed gold by the BIS instead of a zombie bank would be one way for Portugal to ‘reduce its funding costs’ by improving the quality of its balance sheet.”
At this point, there are now more than a few BIS theories to go around. If you’re interested in another, one from Gordon Long is available from Safehaven, here. It offers a longer and more detailed account of why the gold swap likely took place with Portugal, and ultimately the explanation includes a theory that gold market manipulation is making it more possible for SDRs to replace dollars as the world’s reserve currency… if that sort of conjecture is your cup of tea. It’s at least an interesting read.
This latest theory came to our attention via a Kitco Commentator’s Corner post on deciphering the BIS gold swap.
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originally appeared in the . The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
John Stepek at MoneyWeek.com, talking about the “European bank stress tests” that were “a whitewash, of course” said that it kind of reminded him of “one of Gordon Brown’s budgets.”
My immediate reaction, of course, and speaking as a true American, is to ask, “Huh? Gordon who?” as a clever way of reminding these British guys that real Americans, like me, don’t know about anything, or care about anything, that is not about America and/or Americans and how it affects us, as Americans, but mostly me, personally, as an American.
And this goes Freaking Mogambo Double (FMD) for some dirtbag, lying piece of worthless has-been British ex-prime minister named Gordon Brown, which rhymes with “clown,” which could explain how he is infamous for having sold all of Britain’s sovereign gold at the exact low price for gold, which makes you laugh at him – hahahaha! – even though the record-low price is more probably explained by the fact that he sold all of the gold, glutting the market and driving the price down.
Usually, I would just dismissively say, with a condescending sniff, “Bah! More euro-trash acting badly!” and let it go at that. I soon realized that if I had, then it would certainly have been my loss, as his next sentence is pure gold as regards the economic state of the world.
He wrote, to my delight, “You know the sort of thing – a glossy sheen of half-truths and not-quite-outright-lies disguising the true horror of the underlying economic situation.” Bravo! Wonderful!
He goes on, although almost anti-climactically, “A roll-call of good news to distract the attention, while all the bad stuff and caveats are buried in the small print or left to the imagination.”
Such a perfectly and precisely-correct pearl of prose is completely wasted on the aforementioned “euro-trash” of course, even though he is being more-than-kind to not even mention that we corrupt Americans have again surpassed our British friends, in that we also include bald-faced lies and “hedonic adjustments” to the data in our “official reports”! Hahaha!
Of course, he did not mention the fact that there is no good news, anywhere, and there never will be, because there is No Freaking Way Out (NFWO) of the economic mess caused by the creation of too much money for too long (in this case the foul Federal Reserve doing exactly that), except through massive bankruptcy and losses, and misery and suffering, and then some more misery and suffering until the government gets us into a distracting, devastating war, whereupon everything gets worse.
So maybe I was particularly attuned to references to “a glossy sheen of half-truths and not-quite-outright-lies disguising the true horror of the underlying economic situation” because of an article by Laurence Kotlikoff, referred to only as a “professor of economics at Boston University,” by The Financial Times, who writes, “during the past half-century, the US has sold tens of trillions of unofficial IOUs, leaving it with liabilities to pay Social Security, Medicare and Medicaid benefits that total 40 times official debt.”
I could feel my heart literally shudder at the thought of how much money we are talking about at “40 times official debt” but although nobody “does the math,” it doesn’t take a rocket scientist to intuit that multiplying 40 times $13.3 trillion is a lot of money to owe, especially when the entire GDP of the Whole Freaking Country (WFC) for an entire year is little more than $14 trillion! If that!
Yikes! My hands visibly shake to realize that we’re on the hook to pay 40 times what we make as an entire nation, but people can’t get a loan on a house costing 6 times income, although we are already paying, collectively, 50% of GDP in federal, state and local taxes, which is not to mention all the layers and layers of government and agencies that are spending more than half of all the spending done in the Whole Freaking Country (WFC)! Yikes!
Yikes, indeed! Look at my hands shake! Listen to my heart going thumpa-thumpa-thumpa in fear! Wow!
Mr. Kotlikoff makes no mention of my shaking hands or veins pulsating ominously in my forehead, perhaps because it is obvious that these infirmities are the least of my many, many problems, one of which is that I am Completely Freaked Out (CFO) because, as he says coincidentally, “The US is one foot away from a deep and permanent economic grave.”
Anyway, maybe the realization that “We’re freaking doomed!” is why he concludes his piece with the gloomy last sentence “It is far past time to do meaningful long-term fiscal planning, level with the public, and implement radical reforms that permanently put America’s fiscal house in order.”
Now, that is scary! “Far past time!” Just like I have been screaming all this time!
In fact, if I was writing the piece, I would have at least concluded with a hopeful, uplifting sentence like “So, buy gold, silver and oil with a frantic abandon in preparation for a final, ruinous cataclysm and almost certainly a huge, deadly war, which is the lesson one learns from what has happened all the other times in history when moronic governments borrowed too much money and/or when the greedy banks created too much money, and especially what happened in all the other times of history when the money was made of mere paper and other easy-to-produce yet completely worthless numeraires like computer bits and bytes, which can’t even be seen, for crying out loud!”
As a literary note, I would have closed the article with, “Whee! This investing stuff is easy!” but I was advised that The Financial Times is a little too classy a place to parade my embarrassingly childish glee at the happy, happy fact.
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originally appeared in the . The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”
A nearly 2,500-year old silver coin of Rhegion, an ancient Greek city located in would become Italy, is expected to bring upwards of $25,000 at the Heritage Signature® Auction of Ancient and World Coins at the ANA World’s Fair of Money in Boston, Thursday, Aug. 12
Japan’s money economy began earlier than textbooks have described when archaeologists unveiled 33 bronze coins from the late seventh century unearthed in the village of Asuka, Nara Prefecture in 1998.
Mark Borckardt gives some thoughts on The Most Important Coin I’ve Ever Handled : “During 30 years as a full time professional numismatist, I have had the opportunity to examine and handle many of the most important rarities in the American series….1907 Wire Rim Indian eagle with a plain edge”
Previously Unknown Specimen of 1855 $50 Kellogg & Co. Fifty Dollar available at Heritage Boston ANA Coin Auction. “In the words of B. Max Mehl, the Kellogg & Co. fifty dollar gold pieces are “the most beautiful of all Pioneer gold coins and one of the rarest.”
On August 23 an extremely rare gold coin,Tibet’s first gold coin, graded AU with an estimated price range US $30,000 – 60,000, will be one put on the block at Champion’s Auction 11 at the Hyatt Regency Hotel , Hong Kong.
The Professional Numismatists Guild (PNG) has created a definition of coin “doctoring” and now officially included it as one of the prohibitions in the organization’s By-Laws.
Doug Winter US Gold Coin Profiles: Revisiting The 1841 Quarter Eagle. “A few years ago, I wrote a blog about 1841 quarter eagles that basically stated that the currently-accepted belief that all of the known examples were Proofs was wrong.”
Greg Reynolds Coin Rarities & Related Topics: This week includes Proof 1804 Eagle, Kellogg $50 gold coin, Half Unions, and an 1854-S Quarter Eagle.
Mixed economic news around the world, concerns over a double dip recession and significant fiat currency weakness meant gold retained its lustre as a protector of wealth during the second quarter 2010, according to the World Gold Council’s (WGC) latest Gold Investment Digest (GID).
NGC Collectors Society has unveiled its newest website feature today – a comprehensive Collection Manager. This new tool allows collectors to organize and track their entire coin collections online in a secure password-protected environment.
The Official Currency Auction of the 2010 ANA World’s Fair of Money in Boston, MA will be conducted by Heritage Auctions Aug. 11-16. The auction includes 2800+ Lots from three floor sessions and one online session.
The Story of the Two Greatest Gold Shipments In The History of the United States Mints By Dr. Thomas F. Fitzgerald. “Twice within a span of almost twenty-five years, all of the gold from the vaults of the 2nd San Francisco Mint, sometimes called the “Granite Lady,” was sent to the United States Mint in Denver, Colorado. Yet the story of these two operations could not have been more different.”
One of the three known proof 1804 Eagles made on behalf of President Andrew Jackson and a rare 1804 Eagle silver pattern have been acquired by Legend Numismatics of Lincroft, New Jersey and sold Texas collector Bob R. Simpson .
Two hundred limited-edition copies of Paper Money of the United States, 19th Edition, numbered and signed by co-authors Arthur L. Friedberg and Ira S. Friedberg, will be available for purchase at the American Numismatic Association’s World’s Fair of Money in Boston.
Legend Market Report – The PCGS Invitational: This was by far the BEST one we have EVER attended since they began about 5 years ago. No, its not because our Jose sat down and in a few spins won a 4800 quarter jackpot, no activity on the bourse was strong.
The only known Plain Edge 1907 ten dollar coin with Wire Rim, designed by Augustus Saint-Gaudens – and likely the only example of his coinage that he ever saw – is among the most historically important pieces in Heritage’s upcoming U.S. Coin auction. It will be offered on Aug. 11
NEW & UPDATED – Our coverage of rare coin and currency news has expanded with Tim Shuck taking over as Editor of Coin News Daily. This is a special section of CoinLink where we scour the web for items of interest related to numismatics and post a short excerpt and link to these “off site” resources.
We have also made changes to The Bullion Report with daily news and article updates, and a monthly analysis of the “Premiums Over Spot” for Gold and Silver Bullion products.
ETFs are cheap, but that doesn’t mean they’re not getting cheaper. One gold fund provider is engaging in a good old-fashioned price war to entice gold traders to its side of the camp, and it appears to be working.
On July 1, BlackRock lowered the annual expenses on its gold ETF the iShares Comex Gold Trust ETF (IAU) to 0.25% from 0.40%, writes William Baldwin for Forbes. Market leader in gold ETFs, State Street-managed SPDR Gold Shares ETF (GLD) is maintaining its 0.40% expense ratio.
July 30 (Bloomberg) — Gold rose for a third day on
speculation that the biggest monthly drop since December will
encourage investors to stock up on the precious metal as a
haven.
The 5 percent price drop in July is the first monthly
decline since March, and gold has fallen 6.5 percent from its
June 21 record of $1,266.50 an ounce. Holdings in the SPDR Gold
Trust, the biggest exchange-traded fund backed by bullion, have
declined 1.5 percent this week, heading for the biggest weekly
drop since April 2009.
“Gold is beginning to catch some traction,” said Adam Klopfenstein, a senior market strategist at Lind-Waldock in
Chicago. “The correction may have run its course and for
longer-term holders, this may be a buying opportunity.”
Gold futures for December delivery rose $12.70, or 1.1
percent, to settle at $1,183.90 as of 1:47 p.m. on the Comex in
New York, the biggest gain since July 13. The most-active
contract ended the week down 0.3 percent.
The euro headed for the first monthly gain against the
dollar since November. Gold also reached records last month in
euros, British pounds and Swiss francs as investors sought a
haven during Europe’s sovereign-debt crisis.
“We view the latest decline in the gold price as
temporary,” analysts at Deutsche Bank AG said today in a
report. “This weakness has been driven more by liquidation in
net length among the investor community than a structural change
in fundamentals.”
Concern for Deflation
Gold may be one of the best assets to own in a deflationary
environment, said Leonard Kaplan, the president of Prospector
Asset Management in Evanston, Illinois.
Federal Reserve Bank of St. Louis President James Bullard
said yesterday that the U.S. economy may be headed into a
deflationary period similar to the one that gripped Japan.
“It’s looking like deflation is more of a risk now than
inflation,” Kaplan said. “In a deflationary period, gold will
go down the least.”
The Fed has kept the benchmark interest rate between zero
and 0.25 percent since December 2008 to spur growth, which
fueled speculation that the economy will face rampant inflation
as it emerges from the recession.
“Gold won’t fall out of bed under any scenario in the
future,” Klopfenstein of Lind-Waldock said. “There are a lot
of macro headwinds. Low rates will spark inflation down the
line, once we get past deflation.”
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Gluskin Sheff Chief Economist and Strategist David Rosenberg says the Dow could go to 5,000.
Rosenberg’s reasons: Even if an economic double dip is avoided, the
market is not priced for slower growth, and the intense volatility in
the major averages over the past three months is consistent with the
onset of a bear phase.
“Bob Farrell believes a test of the March 2009 lows is likely,” Rosenberg points out.
“I don’t think anyone is in a position to debate five decades of
experience, not to mention his track record. Louise Yamada, a legend in
her own right, not to mention the likes of Bob Prechter and Richard
Russell, are on this same page.”
“Notice how none of them work at a Wall Street bank.”
Assuming inflation averages 2 percent annually and that 2016 marks the
end of a secular bear episode that began in 2000, then the historical
pattern would suggest a test of 5,000 on the Dow as the ultimate trough,
Rosenberg notes.
“At that point, gold will likely be 5,000 too,” Rosenberg says.
Rosenberg says this forecast does not preclude cyclical rallies along
the way, but these will be bear-market rallies, such as happened between
March, 2009 and April, 2010.
“Investors should not be tempted into any other strategy than to rent these rallies and not own them,” Rosenberg cautions.
CPA Tim W. Wood maintains the upward market swing since is a bear market rally.
“All the while, the politicians think that their printing spree, bailout
plans and stimulus packages have put a bottom in the economy,” Wood
writes at howestreet.com.
“According to my analysis, we have entered a global debt crisis.”
WASHINGTON (MarketWatch) — The U.S. economy lost momentum in the second
quarter of the year, according to figures released Friday, which may
raise concerns of an extended soft patch if not an outright contraction.
Real gross domestic product — the inflation-adjusted, seasonally
adjusted value of all goods and services produced in the United States
– rose at a 2.4% annualized rate in the second quarter, well below the
average 4.4% increase over the last six months.
The 2.4% increase in GDP was close to the 2.5% expansion expected by
economists surveyed by MarketWatch. However, the rate of expansion in
the first quarter was revised up to a 3.7% rise compared with the prior
estimate of a 2.7% increase. Read full government release.
Economists believe that the growth was fairly strong in April and May
but hit a rough patch in June. So the economy is going into the second
half of the year with little momentum.
“The post-recession rebound is history,” said Bart van Ark, chief economist at the Conference Board.
“We don’t foresee a double dip,” he continued, “but we do expect growth
to slow even more markedly” — to what he pegged as a 1.6% annualized
rate for the second half of the year.
Investors initially reacted negatively to the report, with losses
deepening in futures on the Dow Jones Industrial Average after the data
were released.
Bond investors, confident the coast remains clear as far as inflation
goes, bought U.S. Treasurys as two-year note yields sank to record lows.
Annual revisions released at the same time as the first estimate for
second-quarter GDP show that the Great Recession was deeper than
previously thought.
During the recession, real GDP decreased at a 2.8% average rate, down from the prior estimate of a 2.5% rate.
At the same time, the recovery, already one of the slowest, has been a
bit slower. From the third quarter of 2009 to the first quarter, the
economy grew at a 3.4% annual average rate, just below previous estimate
of a 3.5% increase.
Although the increase in GDP in the quarter was not as strong as the
first quarter, many of the details of the report were positive. Much of
the deceleration was due to the trade sector. Consumer spending was only
slightly weaker than the first quarter.
Now that the revisions have been released, the National Bureau of
Economic Research may move to make a formal call on the end of the
recession. Most economists think the recession ended in June 2009.
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Silver erased slight losses seen in Asia and London and rose to as high as $17.966 in early New York trade before it fell back to $17.727 by a little before 10AM EST, but it then rose to a new session high of $18.099 by early afternoon and ended with a gain of 1.87%.
A nearly 2,500-year old silver coin of Rhegion, an ancient Greek city located in would become Italy, is expected to bring upwards of $25,000 at the Heritage Signature® Auction of Ancient and World Coins at the ANA World’s Fair of Money in Boston, Thursday, Aug. 12
Doug Winter US Gold Coin Profiles: Revisiting The 1841 Quarter Eagle. “A few years ago, I wrote a blog about 1841 quarter eagles that basically stated that the currently-accepted belief that all of the known examples were Proofs was wrong.”
One of the three known proof 1804 Eagles made on behalf of President Andrew Jackson and a rare 1804 Eagle silver pattern have been acquired by Legend Numismatics of Lincroft, New Jersey and sold Texas collector Bob R. Simpson .