Political Metals

For the benefit of readers who continue to do their accounting in units of fiat currencies, I’ve summarised the performance of gold and silver in several currencies through the charts below. Hope they help to put things into perspective.

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Gold & silver performance relative to various currencies in 2011

In 2011, gold appreciated by an average of 14.3% against all 75 fiat currencies tracked by goldsilver.com, while silver averaged a corresponding loss of 6.8%. Among the selected currencies of interest charted above, only the Indian Rupee recorded a loss against both gold and silver.

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Gold & silver performance over 12 years

Going back to the beginning of this secular bull market in PMs, both gold and silver charted impressive gains against all tracked currencies. If you’ve been earning or saving in Indian Rupees over the past 12 years, you’d have lost over 500% against both gold and silver. If you think the Indian Rupee had it bad, spare a thought for those who’ve saved in Iranian Rial or Argentinian Peso, which depreciated by 3,368% and 2,240% respectively against gold.

Gold & silver performance before April’s price take downs

Silver’s 2011 performance was extremely volatile peaking in late April.  Silver’s peak and subsequent drop in price mirrored what we witnessed in its 2008 price action when the silver spot price dropped 50% peak to trough intra-year. This chart shows how silver has been leading gold’s performance just before the April price take downs.

Be prepared!

If you’ve been following recent geo-political and macro-economics news, you’d be much better informed than me. Doing a quick review of what transpired during the period I left this blog idle, here’s what I consider noteworthy developments:

• The Fed’s announcement of its zero-rate policy through 2014, requiring it to print more money to buy US Treasuries.
• ECB engaging on its own campaign of printing money hoping to “solve” Euro zone’s deepening debt crisis.
• Start of a countdown to the war with Iran.
• MF Global’s $6.3 billion “repos” saga leading to its collapse and potentially bringing down the Futures/Options (and other derivatives) market along with it.

Bottom line is things are getting worse, not better (as the MSM would have you believe), especially for savers and retirees. 2012 and 2013 are setting themselves up to be potentially disruptive years. Be prepared!

Updates to static pages:

• GoldMoney Review: Discontinued services, Gold & Silver “Client holdings by vaults” charts as at 30 Dec 2011
• BullionVault Review: Gold & Silver  ”Client holdings by vaults” charts as at 30 Dec 2011
• Compare AFE, BullionVault, GoldMoney: Comparative gold & silver holding charts as at 30 Dec 2011 and Alexa comparative traffic rank chart as at 01 Feb 2012.
• Fees Comparison: Highlighting GoldMoney’s zero-spread trading advantage.
• Forecasts: All close ended PMs price action forecasts by industry leaders were off target! New ones are being tracked.

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On the lighter side…

Endemic to the Galápagos Islands, these bright golden land iguanas (Conolophus subcristatus) are incredible friendly and approachable. If not for the 2-meter rule, you could easily reach out to touch them!

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Top 10 currency gainers as at Aug 2011

Two weeks ago, the Swiss Franc was one of the most sought after currencies. Yesterday, a short statement from the Swiss National Bank (SNB) turned the tide.

The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.

The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.

Even at a rate of CHF 1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures

That’s how fragile the so called safe haven currencies are. Their value and potential devaluation is just a few keystrokes away. This was not the first time the SNB intervened to devalue its currency. It quadrupled its foreign currency holdings in the first half of 2010 in a similar effort to manage the CHF resulting in a record $21 billion loss. Going further back, it pegged the Franc to the German Mark at 0.80 in 1978 resulting in soaring inflation.

Yesterday’s intervention resulted in this dramatic move in the price of gold priced in CHF. That’s not surprising considering the fact that it pledged to ” buy foreign currency in unlimited quantities”. Unlike Greece and other Eurozone countries in crisis, the SNB can print unlimited quantities of CHF to honour that pledge.

Gold priced in CHF gained 8% following the SNB statement

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Putting a floor below 1.2 EUR/CHF appears to be worse than the much criticized move by Malaysia to peg the Ringgit at 3.8 to the USD in 1998. Unlike a peg, a floor allows the CHF to weaken but not strengthen against the EUR. One has to wonder, what will happen to this “former safe haven” currency if the Euro collapsed.

Of late, currency devaluation, capital controls and aggressive central bank interventions have become acceptable, if not respectable, as seen in Brazil, Japan, Switzerland, Iceland, Vietnam & the once almighty US, just to name a few.

When will the paper currency you’re holding be the next victim of this global currency war?

Related Articles:

• Gold is the only safe-haven asset that will not do QE, put in capital controls, or complain
• As Swiss devalue their franc, gold may be last currency standing
• 20 Quotes From European Leaders That Prove That They Know That The Financial System In Europe Is Doomed

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In recent times, major institutions are running to the EXIT. The most famous of which was how The University of Texas Investment Management Company took delivery of almost $1 billion in gold bullion, and that’s because

“Central banks are printing more money than they ever have, so what’s the value of money in terms of purchases of goods and services,” Bass said today in a telephone interview. “I look at gold as just another currency that they can’t print any more of”.

Groups of nations are running to the EXIT. I highlighted one of the more significant runs in this post Another new writing on the wall - BRICS dump the USD.

Brazil, Russia, India, China and South Africa – the BRICS group of fastest growing economies – Thursday signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other.

Yesterday, it was reported that Mexico saw smoke coming from her northern neighbour and headed for the exit, big time! Considering how many other nations (China, Russia, Thailand, Belarus, Bangladesh, Venezuela, Tajikistan, Ukraine, Jordan, Philippines, South Africa, Sri Lanka, Germany, Kazakhstan, Mexico, Greece, Pakistan, Belgium, Czech Republic, Mauritius and Malta) have been running towards the exit since 2009, Mexico’s Central Bank wasted no time to catch up, as illustrated by this very pretty chart.

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MEXICO CITY, May 4 (Reuters) - Mexico massively ramped up its gold reserves in the first quarter of this year, buying over $4 billion of bullion as emerging economies move away from the ailing U.S. dollar, which has dipped to 2-1/2-year lows.

The third biggest one-off purchase of gold by any country over the past decade took Mexico’s reserves to 100.15 tonnes - or 3.22 million ounces - by the end of March from just 6.84 tonnes at the end of January, according to the International Monetary Fund and Mexico’s central bank.

…… Credit Suisse precious metals analyst Tom Kendall said it was worthy of note that Mexico, whose economy is very closely tied to the United States, had taken this step.

“The size (of the purchase) is certainly pretty chunky to have been accomplished in that space of time. So it certainly gives another sizable layer of support to gold’s position in the international reserves system,” he added.

George Milling-Stanley, managing director of government affairs at the World Gold Council industry group, said Mexico was following a recent trend among central banks to restore a “prior balance between gold and currency reserves.”

“This is further supported by the fact that the May IMF numbers show continued buying by Russia and Thailand of 18.8 tonnes and 9.3 tonnes respectively,” he added.

Mexico’s reserves rank it 33rd among the top official holders of gold. The United States is the largest official holder of gold, with 8,133 tonnes, which account for 73.8 percent of its total international reserves.

China is the sixth largest holder of gold, with 1,054.1 tonnes, or just 1.6 percent of total reserves, while eighth-ranked Russia now has some 811 tonnes of gold, up from 788.78 in January, according to the IMF data.

Silver, which hit a record price earlier this year, may also have been on Mexico’s buying list, said Martin at HSBC.

Premier Wen Jiabao shakes hands with his Russian counterpart Vladimir Putin

Going back to November last year, recall how China Daily reported that

“China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.”

Well, just as Mexico was reported playing catching up yesterday, Japan and South Korea did not want to be left behind in the multi-lateral Dump USD game either. WSJ reported:

May 3, HANOI—Finance ministers from China, Japan and South Korea said in a joint statement Wednesday they have agreed to start studying the use of their own currencies in trade settlement, the latest sign of Asian efforts to reduce dependence on the U.S. dollar.

The ministers from the three big Asian economies also said they are “mindful of” challenges such as growing inflationary pressures in Asia, rising global commodity prices and increasingly volatile capital flows into the region.

Blocks of Nations, individual nations, institutions, and individuals are all heading to the EXIT sign or have already exited the world reserve [paper] currency. They are doing so because the writing is already on the wall. The “Waterfall Decline” event that James Turk, founder of GoldMoney predicts seems to be approaching fast. They exit because they’ve lost confidence in the once almighty USD.

But, if the exit is into monetary metals gold and silver, why are we witnessing the sudden “Waterfall Decline” in the monetary metals instead of the USD? The only sane way to look at this insane price action is to understand that they are Political Metals whose prices are being manipulated by political powers through their Gold and Banking Cartels. The best way to exit your paper currency is to hold gold and silver, not invest in them. View them as owning another currency rather than buying them as an investment.

Related Reads:

• Silver might crash?
• COMEX and London Bullion Market Exchange are at heightened risk of default
• Fluctuations and Trends In the Comex Silver Inventory
• Gold Manipulation
• Silver Manipulation
• and many other articles throughout this site and blog

When the magnitude 9.0 earthquake hit Japan on March 11, it triggered an automatic shut down of reactors in the Fukushima nuclear plant. The quake also damaged and cut off external power from the national electricity grid. There was no power left to run the essential water pumps for the cooling system. As designed, the generators automatically kicked in to provide backup supply, but they were soon damaged by the Tsunami. Finally, the backup batteries kicked in to keep the pumps running, but after several hours, it ran out of power. The nuclear reactor core temperature rose, pressure built up, explosions followed, and finally the dreaded meltdown.

While the engineers and physicists are figuring out how best to contain the situation to prevent a potentially disastrous planet-wide contamination of air and water from a radioactive fallout, a meltdown of another kind is brewing….

Not unlike the nuclear fission chain reactions taking place at the core of a nuclear reactor, the world’s governments, central banks, and mega banks have been creating their own nuclear reactions (Governments issuing exponentially- accelerating piles of debt, central banks increasing money supply along the same exponential curve to match and mega banks creating financial derivatives in the quadrillions of dollars). Just as the continuously circulating water keeps the nuclear reactor’s core from overheating, so does the constant flow of these funny money keep the financial reactors under control.

But this flow is about to be disrupted again. The first disruption began in 2008, when the subprime mortgage crisis broke out. The financial power plant tripped, just as Fukushima did. Liquidity vaporised. The global financial system was at the brink of meltdown.

As “designed”, the printing presses at the Fed and ECB kicked in, just like the generators did. QE1 started to pump freshly created funny money into the system to prevent a meltdown. And it worked, temporarily.  You can see this effect by looking at an inverted chart of the Dow taken from this earlier post. As fresh liquidity from QE1 was flowing through, the Dow rose, causing the financial core temperature (inverse of Dow) to drop.

When the generators quit around March 2010, the core temperature started to rise. As designed, the backup batteries automatically kicked in, and the QE2 new money flow brought the temperature down again.

Now, note this. When the battery runs out, there are no more power sources left to keep the pumps running this time around. The QE2 backup battery power was designed to last till June, but we’re beginning to see signs of the battery wearing down (oval area). Here’s why.

Japan is the second largest foreign holder of US treasury debt, after China. Faced with the worst crisis since World War 2 and massive reconstruction cost ahead, Japan is not expected to be buying any more US treasury debt. They will instead be selling. China has already been reducing their holdings.  The US budget deficit is rising and the Fed is now not only the largest holder of treasury debt (above China & Japan), it will be the only major buyer left.

The U.S. debt situation is at a “tipping point,” Dallas Federal Reserve Bank President Richard Fisher said on Tuesday, and urged the U.S. central bank to refrain from any further stimulus measures. Source [Reuters]

If the Fed stops “further stimulus” (nice way of saying printing money), with China and Japan off the table and Europe on the verge of raising interest rates, the US Treasury market goes into meltdown and the dollar is history. On the other hand……

“If we continue down on the path on which the fiscal authorities put us, we will become insolvent. The question is when,” Fisher said in a speech at the University of Frankfurt (emphasis mine). Source [Reuters]

Either way, the dollar is dead, but they still have a choice over how it will die.

While you still have time, consider exchanging your paper money for some hard assets.

Incidently, silver hit a new 31-year nominal high today.

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