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Why is the Federal Reserve Tapering the Gold Market? | Global Research

Why is the Federal Reserve Tapering the Gold Market? | Global Research.

 

On January 17, 2014, we explained “The Hows and Whys of Gold Price Manipulation.”

Naked Gold Shorts: The Inside Story of Gold Price Manipulation By Dr. Paul Craig Roberts and David Kranzler,

In former times, the rise in the gold price was held down by central banks selling gold or leasing gold to bullion dealers who sold the gold. The supply added in this way to the market absorbed some of the demand, thus holding down the rise in the gold price.

As the supply of physical gold on hand diminished, increasingly recourse was taken to selling gold short in the paper futures market. We illustrated a recent episode in our article. Below we illustrate the uncovered short-selling that took the gold price down today (January 30, 2014).

When the Comex trading floor opened January 30 at 8:20AM NY time, the price of gold inexplicably plunged $17 over the next 30 minutes. The price plunge was triggered when sell orders flooded the Comex trading floor. Over the course of the previous 23 hours of trading, an average of 202 gold contracts per minute had traded. But starting at the 8:20AM Comex, there were four 1-minute windows of trading here’s what happened:

8:21AM: 1766 contracts sold
8:22AM: 5172 contracts sold
8:31AM: 3242 contracts sold
8:47AM: 3515 contracts sold

 

image

 

Over those four minutes of trading, an average of 3,424 contracts per minute traded, or 17 times the average per minute volume of the previous 23 hours, including yesterday’s Comex trading session.

The yellow arrow indicates when the Comex floor opened for gold futures trading. There was not any news events or related market events that would have triggered a sell-off like this in gold. If an entity holding many contracts wanted to sell down its position, it would accomplish this by slowly feeding its position to the market over the course of the entire trading day in order to avoid disturbing the price or “telegraphing” its intent to sell to the market.

Instead, today’s selling was designed to flood the Comex trading floor with a high volume of sell orders in rapid succession in order to drive the price of gold as low as possible before buyers stepped in.

The reason for this is two-fold: Driving down the price of gold assists the Fed in its efforts to support the dollar, and the Comex is running out of physical gold available to be delivered to those who decide to take delivery of gold instead of cash settlement.

The February gold contract is subject to delivery starting on January 31st. As of January 29th, 2 days before the delivery period starts, there were 2,223,000 ounces of gold futures open against 375,000 ounces of gold available to be to be delivered. The primary banks who trade Comex gold (JP Morgan, HSBC, Bank Nova Scotia) are the primary entities who are short those Comex contracts.

Typically toward the end of a delivery month, these banks drive the price of gold lower for the purpose of coercing holders of the contracts to sell. This avoids the problem of having a shortage of gold available to deliver to the entities who decide to take delivery. With an enormous amount of physical gold moving from the western bank vaults to the large Asian buyers of gold, the Comex ultimately does not have enough gold to honor delivery obligations should the day arrive when a fifth or a fourth of the contracts are presented for delivery. Prior to a delivery period or due date on the contracts, manipulation is used to drive the Comex price of gold as low as possible in order to induce enough selling to avoid a possible default on gold delivery.

Following the taper announcement on January 29, the gold price rose $14 to $1270, and the Dow Jones Index dropped 100 points, closing down 74 points from its trading level at the time the tapering was announced. These reactions might have surprised the Fed, leading to the stock market support and gold price suppression on January 30.

Manipulation of the gold price is a foregone conclusion. The question is: why is the Fed tapering?

The official reason is that the recovery is now strong enough not to need the stimulus. There are two problems with the official explanation. One is that the purpose of QE has always been to support the prices of the debt-related derivatives on the balance sheets of the banks too big to fail. The other is that the Fed has enough economists and statisticians to know that the recovery is a statistical artifact of deflating GDP with an understated measure of inflation. No other indicator–employment, labor force participation, real median family income, real retail sales, or new construction–indicates economic recovery. Moreover, if in fact the economy has been in recovery since June 2009, after 4.5 years of recovery it is time for a new recession.

One possible explanation for the tapering is that the Fed has created enough new dollars with which to purchase the worst part of the banks’ balance sheet problems and transfer them to the Fed’s balance sheet, while in other ways enhancing the banks’ profits. With the job done, the Fed can slowly back off.

The problem with this explanation is that the liquidity that the Fed has created found its way into the stock and bond markets and into emerging economies. Curtailing the flow of liquidity crashes the markets, bringing on a new financial crisis.

We offer two explanations for the tapering. One is technical, and one is strategic.

First the technical explanation. The Fed’s bond purchases and the banks’ interest rate swap derivatives have made a dent in the supply of Treasuries. With income tax payments starting to flow in, fewer Treasuries are being issued to put pressure on interest rates. This permits the Fed to make a show of doing the right thing and reduce bond purchases. As a weakening economy becomes apparent as the year progresses, calls for the Fed to support the economy will permit the Fed to broaden the array of instruments that it purchases.

A strategic explanation for tapering is that the growth of US debt and money creation is causing the world to turn a jaundiced eye toward the US dollar and toward its role as world reserve currency.

Currently the Russian Duma is discussing legislation that would eliminate the dollar’s use and presence in Russia. Other countries are moving away from the dollar. Recently the Nigerian central bank reduced its dollar reserves and increased its holdings of Chinese yuan. Zimbabwe, which was using the US dollar as its own currency, switched to Chinese yuan. The former chief economist of the World Bank recently called for terminating the use of the dollar as world reserve currency. He said that “the dominance of the greenback is the root cause of global financial and economic crises.” Moreover, the Federal Reserve is very much aware of the flight away from the dollar into gold, because it is this flight that causes the Fed to manipulate the gold price in order to hold it down and in order to be able to free up gold for delivery.

The Fed knows that the ability of the US to pay its bills in its own currency is the reason it can stand its large trade imbalance and is the basis for US power. If the dollar loses the reserve currency role, the US becomes just another country with balance of payments and currency problems and an inability to sell its bonds in order to finance its budget deficits.

In other words, perhaps the Fed understands that a dollar crisis is a bigger crisis than a bank crisis and that its bailout of the banks is undermining the dollar. The question is: will the Fed let the banks go in order to save the dollar?

Paul Craig Roberts is a former Assistant Secretary of the US Treasury for Economic Policy.

Dave Kranzler traded high yield bonds for Bankers Trust for a decade. As a co-founder and principal of Golden Returns Capital LLC, he manages the Precious Metals Opportunity Fund.

India’s Central Bank Governor: “International Monetary Cooperation Has Broken Down” | Zero Hedge

India’s Central Bank Governor: “International Monetary Cooperation Has Broken Down” | Zero Hedge.

India’s recently crowned central bank head (and predecessor of the IMF’s Nostradamal Olivier Blanchard), Raghuram Rajan, has not had it easy since taking over India’s printer: with inflation through the roof, and only so much scapegoating of gold as the root of all of India’s evils, Rajan announced an unexpected 50 bps interest rate hike two days ago in an attempt to preempt the massive EM capital flight that has roundhoused Turkey, South Africa, Hungary, Argentina and most other current account deficit emerging markets. Whether he succeeds in keeping India away from the EM maelstrom will be unveiled in the coming days, although if last summer is any indication, the INR has a long way to fall.

Hinting that the worst is yet to come, was none other than Rajan himself, who yesterday in an interview in Mumbai with Bloomberg TV India, said that “international monetary cooperation has broken down.” Of course, when the Fed was monetizing $85 billion each and every month and stocks could only go up, nobody had a complaint about any cooperation, be it monetary or international. However, a 4% drop in the S&P from its all time high… and everyone begins to panic.

The reason for Rajan’s displeasure is because he believes that the DMs owe the EMs a favor: “Industrial countries have to play a part in restoring that, and they can’t at this point wash their hands off and say we’ll do what we need to and you do the adjustment.”Sorry Raghu – Bernanke hightailed it out of here and as Citi’s Steven Englander pointed out yesterday, left you “to twist in the wind.” Feel free to submit your thoughts on the matter in the overflowing complaint box in the Marriner Eccles lobby.

Instead of doing this, however, Rajan continued complaining to Bloomberg:

“Fortunately the IMF has stopped giving this as its mantra, but you hear from the industrial countries: We’ll do what we have to do, the markets will adjust and you can decide what you want to do,” Rajan said. “We need better cooperation and unfortunately that’s not been forthcoming so far.”

Rajan said yesterday developed countries might not like adjustments emerging markets take to cope with the outflows, without elaborating on specific measures. His surprise Jan. 28 move to raise the benchmark repurchase rate by a quarter point – – adding to increases of 50 basis points since he took over the Reserve Bank of India in September — was to stem consumer-price inflation running at close to 10 percent, he said.

 

“In an environment when there is external turmoil, we have to get our house in order and we can’t postpone that,” Rajan said. “So a collateral benefit of getting inflation down is that you also strengthen the belief in the value of the rupee.”

“When there is huge outside turmoil, even today post the Federal Reserve withdrawing stimulus further, it is extremely important that we both be seen on the same page.”

You know – this is truly wonderful: for once a central banker admits that his peers are on the verge of losing control of the globe – of course not in those words as the result would be sheer panic upon the realization that central bankers are just as clueless as everyone else – because while conducting central planning in one country is somewhat feasible for a period of time, doing so across every country across currencies, and capital markets, is impossible. And the Indian knows this.

He also knows that in a worst case scenario, the Indian Rupee will crash and burn and make last year’s record devaluation of the INR seem like breakfast at Gideon Gono’s. Which means that doing the right thing would mean allowing the people – his people – to preserve their wealth in the only real currency that will withstand whatever Emerging Market collapse may be headed this way. Gold.

Instead, what did the Indian Central Bank do? This.

  • Jan 21 – The government raises the gold import duty by 2% to 6%.
  • Jan 22 – The government more than doubles the duty on raw gold to 5%.
  • Jan 30 – Finance Minister P. Chidambaram says there are no plans for additional taxes or curbs on gold imports.
  • Feb 1 – The Reserve Bank of India (RBI) plans to introduce three or four gold-linked products in the next few months.
  • Feb 6 – The RBI says it would consider imposing value and quantity restrictions on gold imports by banks.
  • Feb 14 – The central bank relaxes rules on gold deposit schemes offered by banks by allowing lenders to offer the products with shorter maturities.
  • Feb 20 – The Trade Ministry recommends suspending cheaper gold jewellery imports from Thailand.
  • Feb 28 – India keeps its gold import duty unchanged in its annual national budget, defying industry expectations.
  • Feb 28 – India proposes a transaction tax of 0.01% on nonagricultural futures contracts, including for precious metals.
  • March 1 – The Finance Minister appeals to people not to buy so much gold.
  • March 18 – The Reserve Bank of India says it is examining banks that sell gold coins and wealth management products to identify “systemic issues”, with a view to closing any legal loopholes.
  • April 2 – The Finance Ministry suggests it is unlikely to raise the import tax on gold further to avoid smuggling and would instead introduce inflation-indexed instruments.
  • May 3 – The RBI restricts the import of gold on a consignment basis by banks.
  • June 3 – The Finance Minister says India cannot afford high levels of gold imports and may review its import policy.
  • June 5 – India hikes the gold import duty by a third, to 8%.
  • June 21 – Reliance Capital halts gold sales and investments in its gold-backed funds.
  • June 24 – India’s biggest jewellers’ association asks members to stop selling gold bars and coins, about 35% of their business.
  • July 10 – India’s jewellers announce they might continue a voluntary ban on sales of gold coins and bars for six months.
  • July 22 – The RBI moves to tighten gold imports again, making them dependent on export volumes, but offers relief to domestic sellers by lifting restrictions on credit deals.
  • July 31 – India hopes to contain gold imports well below the 845 tonnes that were shipped last year, the Finance Minister says.
  • Aug 13 – India hikes the import duty on gold for a third time in 2013, to 10%. Duties for silver and platinum are also increased to 10%. The customs duty on gold ore bars, ore, and concentrate are increased to 8% from 6%.
  • Aug 14 – India turns the screws on gold buying again, banning imports of coins and medallions and making domestic buyers pay cash.
  • Aug 29 –  India considers plan to allow commercial banks to buy gold direct from ordinary citizens
  • Sept 19 – India hikes import duty on gold jewerly to 15%

And so on.

So thank you for your fake concern Raghuram, but if you really wanted to help your people when the hammer hits, you would lift all capital controls on gold now, and allow your population to preserve their wealth in the only way they have known for the past two thousand years – by converting it into the barabrous relic. And since you won’t, enjoy reaping what you and your demented central-planning peers have sown.

Calm Broken in Markets Amid Concern of Emerging Contagion – Bloomberg

Calm Broken in Markets Amid Concern of Emerging Contagion – Bloomberg.

Declines that erased $1.7 trillion from global stocks as currencies from Turkey to Argentina slid are proving a Wall Street maxim, according to Brian Barish of Cambiar Investors LLC: selling can start anywhere.

“You’re never fully prepared for something like this,” Barish, president of Denver-based Cambiar, which manages $9 billion, said in a phone interview. “You say to yourself, ‘I know the froth is picking up, I know this is starting to get a little out of hand, this is going to get ugly when the hammer comes down.’ You know all of that, but you just don’t know what is going to get sold and why and by who.”

From Thailand and Russia in the late 1990s to Portugal and Greece three years ago and Turkey and Argentina today, crises inemerging markets are as hard to predict as they are to contain. Now they’re threatening a run of gains that has gone virtually uninterrupted in the developed countries for more than a year as investors adjust to a world where neither China nor the U.S. are likely to ride to the rescue.

The MSCI All-Country World Index, which came within 5 percent of an all-time high on New Year’s Eve, has dropped 4 percent since Jan. 22, the worst losses for worldwide equity markets in six months. Turkey’s attempt to stem declines in the lira backfired as a doubling of official interest rates led to even more selling. Stocks tumbled anew yesterday as the Federal Reserve said it would curtail its bond-buying program in the second month of reduced stimulus.

Obscure Causes

“The reasons are always a little bit unexpected,” said Khiem Do, head of Asian multi-asset strategy with Baring Asset Management in Hong Kong. Though the causes are obscure, the outcome was predictable, he said. “The correction is long overdue.”

The Standard & Poor’s 500 Index (SPX) tracking the biggest American companies fell 1 percent yesterday, bringing its decline since the Jan. 15 record to 4 percent. The Turkish currency depreciated as much as 2.4 percent after strengthening about 4 percent during the day. South Africa’s rand sank more than 2 percent even as the central bank unexpectedly raised rates. Gold increased 0.8 percent and copper fell.

Stocks Retreat

S&P 500 futures rose 0.2 percent at 6:03 a.m. in New York today, after the gauge dropped to the lowest level since Nov. 12. The MSCI Asia Pacific Index lost 1.5 percent and the Stoxx Europe 600 Index dropped 0.5 percent. India’s rupee weakened 0.5 percent versus the dollar and Indonesia’s rupiah slid 0.4 percent.

Emerging-market stocks have had the worst start to a year since 2008 as currencies from Turkey to South Korea tumbled. Sentiment toward the markets had started to sour last year after the Fed signaled it would scale back stimulus and as China’s economic growth showed signs of slowing. The MSCI Emerging Markets Index has slipped 11 percent from an October peak. A Bloomberg gauge tracking 20 emerging-market currencies has fallen to the lowest level since April 2009.

“It definitely caught people off guard,” Kevin Chessen, head of international trading and managing director at BTIG-Baypoint Trading LLC, said by telephone. “People came into January quite bullish. Then all of a sudden you started to see a few chinks in the armor, and it caused people to scramble. People also don’t have enough protection on like they’ve had in the past. It may be why the selloff got exacerbated.”

Constant Watch

Turkish central bank Governor Erdem Basci is fighting to arrest a currency run after a corruption scandal that broke last month ensnared several cabinet members. The political fallout coincided with an outflow of money from emerging economies including Brazil.

Argentina allowed the peso to plunge 15 percent after the central bank began scaling back interventions in the foreign-exchange market last week. Global stocks declined 3.3 percent since Jan. 23, when a factory index in China fell short of economist projections.

“The environment is changing so quickly and just to make sense of so many moving parts is extremely challenging,” Benoit Anne, London-based head of emerging-markets strategy at Societe Generale SA, said in a phone interview from New York. Anne said he woke up at 2 a.m. on Jan. 29 for Turkey’s central bank decision and was awake again at 4 a.m. to monitor the market before arriving for work at 7 a.m. for a morning meeting.

“It’s almost around the clock,” he said. “It’s extremely stressful.”

Currencies Fall

All but seven of 24 developing-nation currencies fell yesterday, with Russia’s ruble and Mexico’s peso losing more than 1 percent against the dollar. The South Africa Reserve Bank unexpectedly raised the repurchase rate to 5.5 percent from 5 percent, following Turkey’s decision to boost borrowing costs after a late-night emergency meeting.

“If you look at the things that have kicked off over the last two weeks in terms of currency, they are kind of long overdue,” said Gary Dugan, who helps oversee about $53 billion as the Singapore-based chief investment officer for Asia and the Middle East at Royal Bank of Scotland Group Plc’s wealth management unit. “All of these things are well known, but it reached a crescendo that broke the back of the market.”

Speculation that developed market stocks were due for a retreat has built for months, including forecasts this month from Blackstone Group LP’s Byron Wien and Nuveen Investment Inc.’s Bob Doll Jr., who both called for a 10 percent drop. The S&P 500 hasn’t lost 5 percent since June 2013. For the MSCI All-Country index, the broadest gauge of global equities, the last retreat of 10 percent was in June 2012.

Finding Opportunities

Global stocks had surged since mid-2012, with U.S. equities capping a fifth year in a bull market, as the Fed implemented three rounds of quantitative easing and earnings nearly doubled. Ignoring turmoil in emerging markets, the Fed said yesterday it will trim its monthly bond buying by an additional $10 billion, sticking to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke’s unprecedented easing policy.

The emerging-markets selloff has done little to dent the $10 trillion of stock value that was created worldwide in 2013, when the S&P 500 advanced 30 percent and Japan’s Topix Index (TPX)climbed 51 percent.

“I like days like this,” Carsten Hilck, who oversees about 5 billion euros ($6.8 billion) as senior fund manager at Union Investment Privatfonds GmbH in Frankfurt, said in an interview. “Risk and reward goes together in markets like this. Turbulence makes prices move so I can react.”

1998 Similarities

This year’s drop in global equities is half as large as the worst retreat of 2013, when the MSCI gauge fell 8.8 percent from May 21 through June 24 after Bernanke raised the possibility in Congress of reducing stimulus. It slid 14 percent between March and June 2012 as Europe struggled to extinguish its sovereign debt crisis in Greece and Portugal.

Declines will prove temporary, much as they did in 1998, according to Mark Matthews, the Singapore-based head of Asia research for Bank Julius Baer & Co. Like then, the latest selloff comes after a five-year advance lifted valuations above historical averages. The S&P 500 traded as high as 17.4 times annual profit in December, the most expensive level in almost four years, data compiled by Bloomberg show. In 1998, stocks rebounded from a 19 percent drop that came as currency turmoil in Asia and Russia spread to developed markets.

The most vulnerable emerging markets “have already reached a bottom in terms of their ‘badness,’” Matthews said. “Even if they do continue to see economic slowdown, I cannot believe it would be enough to derail the strong U.S. recovery.”

Market Breadth

The global economy will grow 3.7 percent this year, up from an October estimate of 3.6 percent, the International Monetary Fund said in revisions to its World Economic Outlook released Jan. 21, citing accelerating expansions in the U.S. and U.K. Economies of Japan, Europe and the U.S. are forecast to expand together for the first time since 2010, according to data compiled by Bloomberg.

A total of 460 stocks in the S&P 500 ended higher in 2013, the most since at least 1990, according to data compiled by Bloomberg. While breadth of that nature has been a bullish stock-market indicator in the past, the turmoil in emerging markets this year is leading investors away from equities, according to Jawaid Afsar, a trader at Securequity Ltd. in Sheffield, England.

“Last year, you could’ve picked any stock at any time and you didn’t need protection because the markets kept going higher and higher,” Afsar said by telephone. “Suddenly, emerging markets have tumbled across the board, currencies are getting hit hard, so people are running for cover. It’s come out of the blue.”

Treasury Haven

Stress in emerging markets has made a winner out of two of last year’s least-loved assets. Treasuries rose yesterday, pushing 10-year note yields down to the lowest level in two months. Gold, which posted its worst annual return since 1981 last year, has climbed more than 5 percent in January.

Shifts among asset classes and the global declines in 2014 have led to a surge in volatility. TheChicago Board Options Exchange’s Volatility Index, known as the VIX, reached 18.14 this month, the highest level since October, and average daily moves in the S&P 500 rose to 0.55 percent, compared with 0.44 percent in December, data compiled by Bloomberg show.

“My phone hasn’t stopped ringing in the past few days, and I met with about half of my clients, as some of them have direct exposure to emerging-market currencies,” Lorne Baring, who manages about $500 million as managing director of B Capital in Geneva, said in a telephone interview, adding the firm reduced emerging-market exposure prior to the selloff. “They want to know my views on whether the situation is going to get worse, and I tell them yes, it will.”

To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Weiyi Lim in Singapore atwlim26@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net

Emerging Market Meltdown Resumes | Zero Hedge

Emerging Market Meltdown Resumes | Zero Hedge.

As South Africa hiked rates this morning (whose effect on the Rand was promptly overwhelmed by the Lira collapsing back to weaker than pre-rate-hike) stock markets around the world are rapidly deteriorating and the safety of bonds and bullion is being sought aggressively. S&P futures are -10 from pre-Turkey; Dow -100; Nikkei -30; and EEM swung from up over 2% to down almost 1% in the pre-open. Treasuries are 6bps tighter than post-Turkey and gold (and silver) are rallying smartly back up to $1268 (+$20 from post-Turkey lows). It would seem EM turmoil is un-fixed. Turkish stocks are collapsing and the Hungarian Forint is collapsing.

Dow and Nikkei have given it all back…

as have Emerging Market stocks…

As Turkish stocks collapse…

and the contagion spreads to other currencies…

S&P futures are getting slammed…

Bonds are surging…

and so is gold…

We can’t help but see the irony of this tumult and the possibility of a global financial meltdown occurring on the day of Bernanke’s last FOMC meeting…

Scrambling Gold Mints Around The World Plead: ‘We Can’t Meet The Demand” | Zero Hedge

Scrambling Gold Mints Around The World Plead: ‘We Can’t Meet The Demand” | Zero Hedge.

One of the big disconnects over the past year has been the divergence between the price of paper gold and the seemingly inexhaustible demand for physical gold, from China all the way to the US mint. Today we get a hint on how this divergence has been maintained: it now appears the main culprit is the massive boost in supply by gold mints around the world working literally 24/7, desperate to provide enough supply to meet demand at depressed prices in order to avoid a surge in price as bottlenecked supply finally catches up with unprecedented physical demand.

Bloomberg reports that “global mints are manufacturing as fast as they can after a 28 percent drop in gold prices last year, the biggest slump since 1981, attracted buyers of physical metal. The demand gains helped bullion rally for five straight weeks, the longest streak since September 2012. That won’t be enough to stem the metal’s slump according to Morgan Stanley, while Goldman Sachs Group predicts bullion will “grind lower” over 2014.” Odd – one could make the precisely opposite conclusion – once mints run out of raw product, the supply will slow dramatically forcing prices much higher and finally letting true demand manifest itself in the clearing price.

More from Bloomberg:

“The long-term physical buyers see these price drops as opportunities to accumulate more assets,” said Michael Haynes, the chief executive officer of American Precious Metals Exchange, an online bullion dealer. “We have witnessed some top selling days in the past few weeks.”

The propaganda is well-known: “Prices are likely to drop further as global economic conditions are stabilizing and tapering worries continue,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “There is no doubt that physical demand has improved, but it will not be enough to support prices.” Uhm, yeah. That makes no sense: what happens when global mints are hit by capacity bottlenecks from gold miners for whom it is becoming increasingly more economic to just halt production at sub-cost levels.

Meanwhile, here is a case study of how individual mints are working overtime to plug the unprecedented demand comes from Austria:

Austria’s mint is running 24 hours a day as global mints from the U.S. to Australia report climbing demand for gold coins even while Goldman Sachs Group Inc. says this year’s price rebound will end.

 

Austria’s Muenze Oesterreich AG mint hired extra employees and added a third eight-hour shift to the day in a bid to keep up with demand. Purchases of bullion coins at Australia’s Perth Mint rose 20 percent this year through Jan. 20 from a year earlier. Sales by the U.S. Mint are set for the best month since April, when the metal plunged into a bear market.

It’s not just Austria. Presenting the US Mint:

The U.S. Mint, the world’s largest, sold 89,500 ounces so far this month. The Austrian mint that makes Philharmonic coins, saw sales jump 36 percent last year and expects “good business” for the next couple of months, Andrea Lang, the marketing and sales director of Austria’s Muenze Oesterreich AG, said in an e-mail.

 

“The market is very busy,” Lang said. “We can’t meet the demand, even if we work overtime.”

 

The price for the Austrian mint’s 1-ounce Philharmonic gold coin slumped 27 percent last year, according to data from the Certified Coin Exchange.

 

“It’s been a very bad year for gold,” said Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago. “People who bought coins have lost value, but they are not looking at short-term gains, and hope springs eternal.”

Tell that to China.

That said, keep an eye on GLD ETF holdings – for now the biggest marginal setter of gold price remains the paper ETF, whose “physical” gold holdings have cratered in the past year. Once this resumes going higher, buy.

Is a Major Gold Scandal Going Mainstream? Washington’s Blog

Is a Major Gold Scandal Going Mainstream? Washington’s Blog.

Allegation that Central Banks Have Rehypothecated, Leased or Outright Sold the Gold They Claim to Have Is Gaining Momentum

We noted in 2012 that there are serious questions as to whether the Fed and other central banks really have the gold holdings which they claim.

This story is starting to go mainstream.

The Financial Times writes today (h/t Zero Hedge):

A year ago the Bundesbank announced that it intended to repatriate 700 tons of Germany’s gold from Paris and New York. Although a couple of jumbo jets could have managed the transatlantic removal, it made security sense to ship the load in smaller consignments. Just how small, and over how long, has only just become apparent.

Last month Jens Weidmann, Bundesbank president, admitted that just 37 tons had arrived in Frankfurt. The original timescale, to complete the transfer by 2020, was leisurely enough, but at this rate it would take 20 years for a simple operation. Well, perhaps not so simple. While he awaits delivery, Herr Weidmann is welcome to come and look through the bars in the Federal Reserve’s vaults, but the question is: whose bars are they?

In the “armchair farmer” fraud you are told: “Look, this is your pig, in the sty.” It works until everyone wants physical delivery of their pig, which is why Buba’s move last year caused such a stir. After all nobody knows whether there are really 260m ounces of gold in Fort Knox, because the US government won’t let auditors inside.

The delivery problem for the Fed is a different breed of pig. The gold market is far more than exchanging paper money for precious metal. Indeed the metal seems something of a sideshow. In June last year the average volume of gold cleared in London hit 29m ounces per day. The world’s mines are producing 90m ounces per year. The traded volume was many times the cleared volume.

The paper gold in the London Bullion Market takes the familiar forms that bankers have turned into profit machines: futures, options, leveraged trades, collateralised obligations, ETFs . . . a storm of exotic instruments, each of which is carefully logged, cross-checked and audited.

Or perhaps not. High-flying traders find such backroom work tedious, and prefer to let some drone do it, just as they did with those money-market instruments that fuelled the banking crisis. The drones will have full control of the paper trail, won’t they? There’s surely no chance that the Fed’s little delivery difficulty has anything to do with the cat’s-cradle of pledges based on the gold in its vaults?

John Hathaway suspects there is. He worries about all the paper (and pixels) linked to gold. He runs the Tocqueville gold fund (the clue is in the name) and doesn’t share the near-universal gloom of London’s gold analysts, who a year ago forecast an average $1700 for 2013. It is currently $1,260.

As has been remarked here before, forecasting the price is for mugs and bugs. But one day the ties that bind this pixelated gold may break, with potentially catastrophic results. So if you fancy gold at today’s depressed price, learn from Buba and demand delivery.

And last week, Glenn Beck – hate him or love him, he’s got the 594th most popular website in the world and many viewers on Dish network and various cable providers – did an entire 20-minute episode on the issue:

This story hasn’t yet made it to the New York Times, the Washington Post or network television … but it is gaining momentum.

James Turk: We’re Living Within A Money Bubble of Epic Proportion | Peak Prosperity

James Turk: We’re Living Within A Money Bubble of Epic Proportion | Peak Prosperity.

James Turk believes the time we live in now will be studied by future historians for generations to come. Just as we today marvel at the collective madness that resulted in the South Sea and Dutch Tulip manias, our age will be known as the era when society lost sight of what money really is.

And as result, the wrong kinds of wealth – today, that’s mostly financial assets – are valued and pursued. And just like those bubbles from centuries ago, when the current asset boom goes bust, the value of paper wealth will vaporize.

In contrast, those holding tangible productive assets or real money will fare much better on a relative basis.

James and co-author John Rubino (of DollarCollapse.com) have recently published a new book covering the details of this prediction called The Money Bubble: What to Do Before It Pops. Within it, they delve into the reasons for why the world is destined for what Ludwig von Mises termed a “crack-up boom“:

Wealth comes in two forms.  It comes in financial assets, bonds, and T-Bills, and things of that nature, and it also comes in tangible assets: real estate, oil wells, timberland, farmland, houses and things that are tangible. And when you’re in a financial bust – and we’ve been in a financial bust since the dot-com bubble collapsed back in 2000 – what you want to do is you want to be involved with tangible assets and you want to avoid, as much as possible, your involvement in any financial assets.  So, consequently, what people should still be focusing on, even though we’re 14 years into this bust, is continuing the accumulation of tangible assets.

Because when this bust is over, promises are going to be broken left and right.  And that means financial assets where you have counterparty risk where you own an asset, the value of which is based on someone’s promise – a lot of those financial assets are going to be diminished in value.  Now, there’s a special kind of financial asset called a stock in a company.  It’s almost like a tangible asset in the sense that if you own stock in EXXON, you’re basically owning a tangible asset, because it’s involved in oil and it owns tangible assets all over the world.

But then, there are financial stocks, credit-card companies and banks, that are financial wealth rather than tangible wealth.  So, you don’t want to own stocks in those companies.  So, basically, own tangible assets or stocks in companies that are involved with tangible assets – those stocks, I call near-tangible – I think that’s the thing that everybody should be focusing on.

And when it comes to money and liquidity, the money, of course, would be physical gold or physical silver or a combination thereof because they will re-emerge in the historical and traditional role as money.

Keep in mind, gold’s been money for 5,000 years.  It was made money by the market.  Money comes from the market.  It doesn’t come from the government.  Over the past century, government’s certainly usurped that authority to control money.  And over the last 40 years, they’ve gone even further afield by completely divorcing fiat currency from the gold that used to back money.  And because of the time element that’s involved, we’ve lost sight of what money really is, and that’s what’s created the money bubble, Chris.

And it’s this money bubble where people have to come back to reality as to what money really is.  It’s liquid, tangible assets being used in the economy in exchange for real goods and services.  And it’s ultimately where we’re going.  And I think it’s going to be very, very disruptive because if you look at an individual country like Weimar, Germany or Zimbabwe more recently, or what Venezuela or Argentina are going through now.  You can see the disruption to the economy when the money is no good.

We’re talking here about fiat currencies throughout the world because nobody’s tied to gold anymore.  No country’s currency is tied to gold anymore.  So this is going to be the bubble, I think, that generations from now, hundreds of years from now people are going to be talking about just like we talk today about the South Sea Bubble or the Mississippi Bubble, from those episodes in history a couple hundred years ago.

Click the play button below to listen to Chris’ interview with James Turk (35m:26s):

TRANSCRIPT

Chris Martenson: Welcome to this Peak Prosperity Podcast. I am your host, Chris Martenson, and today we have the distinct privilege of speaking with James Turk, founder of GoldMoney and whose experience in markets and precious metals spans more than four decades. He is also Director of The GoldMoney Foundation, a not-for-profit, educational organization dedicated to providing information on sound money.

James is one of the foremost authorities on precious metals and has long offered market forecast and commentary, including co-authoring The Collapse of the Dollar and How to Profit from It, with our good friend, John Rubino of DollarCollapse.Com.

John and James, they have a new book out called, The Money Bubble, which has some interesting insights, which we’re going to discuss today.

I’m delighted to have you back, James.

James Turk: Thanks, Chris. It’s always great to speak with you.

Chris Martenson: I have a tall stack of questions prepared. Are you ready to dive in?

James Turk: I sure am.

Chris Martenson: All right. Well, great. Let’s start here. It’s been a while since “The Coming Collapse of the Dollar” was written. Obviously, a lot has changed. And some things haven’t changed. The landscape has some familiar features that you wrote about back then. Some of the things you wrote about came to pass.

Obviously, there have been some heroic measures, if we can call them that, on the part of central banks to continue things as they are.

What sort of a grade would you give them?

James Turk: Well, whenever you’re going to intervene in free markets, I always have to give them an “F.” In terms of what they should be doing, they should be allowing individuals to buy out early, interact with one another without all of this intervention and trying to control individual lives by trying to control all economic activity.

But in terms of being able to kick the can down the road, which is I think what you’re getting at, I’d probably give them an A+ because they’ve managed to keep this system together longer than John and I originally suspected when we put “The Coming Collapse of the Dollar” together back in 2004.

In that book, Chris, were a couple of major themes that John and I made. One was that you should be buying gold, and secondly, you should be betting against the housing bubble, and do that in a variety of different ways including shorting financial stocks.

And when 2008 came along, we thought that the final piece of the puzzle would fall at the place where the dollar would collapse. Generally, as currency, gold would soar. And maybe central bankers and central pawners would get the idea that they’re on the wrong road and we have to go back to basics. But what they’ve managed to do is, an unprecedented amount of money printing has just built yet a bigger bubble. And this is the theme of the new book; the bubble itself is now money.

Chris Martenson: Money. And by money, quick definition – what do you mean when you say, “money”?

James Turk: Let me explain it this way. If you’re a shopkeeper, Chris, and I want to buy a loaf of bread from you, I go in and I’ll say, Well, I’ll pay you in a week’s time, but give me the loaf of bread now. You, as a shopkeeper, haven’t been paid. You’ve accepted credit. If I go into your shop and use “fiat” currency, it’s the same thing. You’ve accepted credit, and you’ve got payment risk associated with that. But if I go into your shop and buy a loaf of bread with a silver coin or a gold coin, the assets are exchanged for assets. There’s no lingering payment risk. The exchange is extinguished at that particular moment of time.

And that’s what really money is. Money is the most liquid, tangible asset in the economy, and that happens to be gold and, to a certain extent, silver as well. But we’ve lost sight of that. What we’re using today is not money. We’re using a money substitute in place of money, and that’s what’s created the illusion that that everybody’s acting upon, and it’s this illusion that’s really created the money bubble.

I think we have to go back to basics when this final, biggest bubble finally pops. The basics, of course, are that money is the most tangible asset and the most liquid tangible asset in the economy, which, of course, is gold.

Chris Martenson: I needed to check what you meant by “money” because there’s been this big debate between the deflationists/inflationists, and the proper definition of money has to include certain debt instruments and credit. And as you note in your book, and something that I’ve noted as well – since about 1980, we’ve been expanding our total credit markets by roughly twice the rate of the underlying economies underneath them. And that’s across most of the developed world.

So with this, when you’re borrowing like crazy – it gives you the sense of prosperity, that illusion, the idea is that you have to pay it back at some point. I think the debate, as I understand it right now, is between those who believe that fundamentally that catches up with you. You have to pay it back. You pay it back in the form of defaults or inflation or hyperinflation. But one way or the other, those claims get diminished or destroyed.

And on the other side, I think we have people who believe that you can just kick this can down the road indefinitely. And is that a fair way to summarize the state of the spectrum of thinking on this right now?

James Turk: Yes. I think that’s really a very good description of it. But clearly, I’m in the former camp that you can only take so much debt on in the economy because debt has to be serviced. You have to generate wealth to pay back the interest expense on the debt that you’re accumulating.

And ultimately that determines how far you can go. And we’re long past the stage where the amount of debt has been put on the – the burden on the economy where the service interest can be properly serviced. And what they’re trying to do is to perpetuate the system by debasing the currency. But as you debase the currency, you’re ultimately destroying capital.

Look at the middle class and savers and generally how badly they’re being hurt by this policy of zero interest rates. You’re basically destroying capital with this policy of zero interest rates. You’re destroying purchasing power. But it’s being done simply to make it appear that the U.S. Government can continue to fulfill all of these promises that it has made and that it can continue to service this debt burden – but it can’t.

Let’s put some numbers on it. There’s $17-trillion of debt now, and that’s just the direct obligations of the U.S. Government. If interest rates were at one percent, that’s $170 billion. That’s about five percent of government revenues. If they went to a more normal level, you’re talking about an additional trillion dollars of expenses. And what that does is it puts you on this vicious downward cycle where the higher the interest expense becomes, the more money has to be printed to keep the system going. But that just leads to higher interest expense and ultimately hyperinflation of the currency.

And my guess is that’s the way we’re headed.

Chris Martenson: Well, let’s take a petri dish sort of an example around this. Japan – and Japan cuts both ways in this story. One, some people hold it out and say, Well, look, obviously you can hold interest rates at one percent pretty much indefinitely. Japan’s got a couple of decades of financial repression under their belt. And so that’s held up as an idea that that can carry on forever.

I just saw a tweet this morning from a Robert Ward, very interesting. In 2010, the population of Japan was 128 million. Best-case trend is that in 2100 they’ll have 65 million. Worst case, they’ll have 38 million people.

The question that was asked on that: Who pays back all the public debt again? So, here’s Japan piling up their public debt faster and faster and faster into a declining population, which I think just lays bare, in a fairly large petri-dish example, just how ridiculous this glide path that they happen to be on really is.

And is that a fair way to look at it? And if it is, is Europe or the United States on any different of a path?

James Turk: No. They’re really not. And ultimately, if you really look at the total level of debt, not just the direct debt but all of the promises that it made, the only rational conclusion that one could come up with is that a lot of promises are going to be broken.

What those broken promises will be, will be determined in the future by politicians. But we’re generally – given the fact that they only have a limited capacity to fulfill all of these promises, you as an individual investor has to basically decide, do you want to participate in any kind of government promise, be it the T-Bill or T-Bond, Social Security payment or whatever, hoping that you’re going to choose correctly and that they’ll continue to make good on the promise that they’ve given you?

Or, do you just want to avoid the sector completely, which is what I recommend, and go to something that’s safe, which is basically tangible assets and avoid debt instruments.

Chris Martenson: Let’s get to the theory of how this all comes to an end. Obviously, interest rates are one form of the Achilles’ heel, but you have in your book a notion of something called the “crack-up boom.” What is a crack-up boom?

James Turk: Yes. The term comes from Ludwig von Mises, the Austrian School of Economics. And basically, it’s just a shorthand way of saying that governments will destroy the currency to relieve the burden of all of the promises that they made when you reach that point in time that you can’t fulfill all of the promises.

So yes, crack-up boom is basically a flight from the currency, because people want to exit the currency, because they know it’s going to continue losing purchasing power, because of government and central bank actions that debase the currency.

Chris Martenson: This is an interesting point, then, because all fiat currencies owe a large portion of their value, as it were, to faith. We have to have faith, particularly on an international setting. Within a border, a government can dictate that your currency has value because a) you have to pay taxes, and b) they can arrest you and do other things in circumstances if you don’t trust their currency appropriately.

But given that trust is a component of this, that’s really what in my mind shifts you from an inflation to a hyperinflation. Hyperinflation is just a state of mind more than an actual mathematical place to be. It’s when people have lost confidence in the paper currency and they want to be in anything else.

So let’s talk about – you talked in your book, again, about distorted signals and lost trust. What are you talking about when you say “lost trust”? Because I’ve lost plenty of trust; I’m wondering how you characterize that?

James Turk: Yes. People don’t trust institutions anymore. They don’t trust the government anymore. The approval rating of Congress is something like 8%. And ultimately, people start to question what’s going on. They realize they’re not being treated fairly by what government is doing. The banking system is favored over individuals. Eighty percent of the American population was against the bailout in 2008, the bailout of the banks. But the banks got bailed out anyway.

And all of these things lead to, ultimately, a breakdown in trust. And the economy depends upon everybody being able to work with everybody else on a level playing field. That’s what governments are supposed to do. They’re supposed to maintain a level playing field by maintaining a standard rule of law that everybody abides by regardless of whether you’re a big bank or a little shopkeeper on Main Street or a husband and wife trying to get by in a very difficult situation.

But the playing field has been tilted now. It’s been tilted by various vested interests to serve themselves, rather than to serve the general public. And that ultimately leads to a major breakdown in trust and a flight from the currency in the Crack-Up Boom.

Chris Martenson: You talked about shrinking trust horizons. You had a list of things that might be indicators of that. This reads like my personal indicator list, by the way, where people might begin buying local food instead of national brands because they no longer trust the institutions that are producing the food. Community banks over money center banks. I have most of my wealth stored in community or local banks. Homeschooling over public schools – started that about eight, 10 years ago, tuning out national politics, etc. and so forth.

There’s a whole list there saying that people have lost a bit of faith. We detect that in the Congressional approval ratings.

There’s another one I’d like to talk about here for a minute, which is sort of my own proxy. And I’m looking at a chart here of CNBC viewership. So, CNBC being one of the primary mouthpieces for Wall Street, Here’s how you invest in the markets. Buy stocks. Here’s how you participate in the equity markets.

And what’s interesting in this chart is that their viewership rose all the way through the 1990s right up through 2000. So, the viewership rose with a rising market. And then it fell again down into a depth at around 2003 or 2004, and then it rose again with the markets up to 2007; fell and has continued falling; there’s been no recovery in their viewership with the so-called return of prosperity as evidenced by all-time new highs in global stock markets in many cases.

Why do you – is this – is it fair? I mean, when I’m looking at this, I’m thinking that the reason their viewership is falling off is the same reason I’m not watching, which is, I don’t think there’s any useful information on that program for a person like me.

James Turk: Yes. I think you’re right. There’s a bigger-picture issue here. You sort of touched on it in what you were just saying, that during periods of rising prosperity, the viewership rose, but during periods of declining prosperity, it didn’t.

So, despite what you hear in the media about the economy supposedly getting better, it’s not. There’s no rising prosperity in pretty much most of the world today, because the economy is getting worse and worse, because fewer and fewer people are working today. There are less people working now in America than there were back in 2005.

And the only way an economy is going to improve is if you have people interacting with one another, and that comes with a greater number of people working.

So, it brings up another point, Chris. Not only is there a decline in trust, but we have to look at the other side of the coin. It’s that the less people trust institutions or governments, the more governments respond by exercising financial repression.

What they do is, they try to maintain the system by imposing more and controls. And it’s these controls that ultimately are the final last-gasp effort by government to maintain a system that is no longer sustainable.

And you’re seeing these controls now being imposed regularly, not only in the United States but in many countries around the world. Increasing government intervention is not the solution to the problems that are faced today. The solution to the problem is less government, less taxes, less burden on working individuals and a sound money so that people can interact regardless where they are in the world, on a level playing field, because these interactions create commerce and it’s commerce which raises everybody’s standards of living.

And that’s ultimately what government should be doing – withdrawing all of this financial repression, withdrawing all the taxes and the overheads and the burdens, and let individuals get on with their lives.

Chris Martenson: Well, James, one man’s repression is another man’s gold mine. The financial repression has certainly been hitting savers of all stripes, people living on fixed incomes, pensions, endowments, you name it. But there have been absolutely enormous beneficiaries of that, not the least of which is seeing the rising wealth gaps that occurs everywhere – which, by the way, is just a mathematical function of what happens when you print money. Those closest to it certainly do very, very well. And those further from it do less well, even negatively well.

And so what I’m seeing in this data is, first of all, it’s fully predictable that when the Fed, et al., meaning all the other central banks, do what they do, there’s going to be a certain class of speculators that are going to reap the majority of those gains.

What do you think – I mean, just to speculate for a second – the Fed’s now got five going on six years of information about how their policies are working by many, many of the statistics that we’ve talked about here: unemployment, the true nature of the unemployment when you dig into the statistics a little between part-time/full-time jobs, the amount of capital expenditure spending by corporations. There’s a lot of things to say the seeds for good, organic growth are simply not there.

They’ve created a speculative arena, which they should have known was what they were going to create, because there’s lots of papers written about that well-known phenomenon. What do you think they’re thinking now going on into the sixth year of this?

James Turk: I don’t know. It’s hard to put myself in the shoes of a central banker. But I mean, if they looked at themselves honestly, here we are supposedly five, six years into an economic recovery, and they’re still printing money hand over fist? I mean, how can that possibly be? If they’re supposedly having good economic activity, why do they continue to print money?

Central bankers only have one solution to everything. They just print money and print money. But what they don’t understand is they’re ultimately destroying the currency and destroying the economy as a consequence.

Yes, Bernanke today could be very much compared to Doctor Havenstein, who ran the Reichsbank in Germany, which was its central bank during the Weimar Republic in the early 1920s. He felt that he had to continue buying government debt and turning it into currency because if he didn’t, that there would be an economic collapse and unemployment would rise.

Well, Bernanke’s turning U.S. government debt into currency for the same thing. It didn’t work out well in Germany. Obviously, central bankers should be reading the history books to see what happens as a consequence of money printing. This is one of the key themes that John and I are putting in this book, that we’re on a path that’s unsustainable, and we have to turn around and basically go back in the right direction. And each individual themselves has to take those steps to make sure that they themselves – they and their family – are protected come what may. And what we do is offer a variety of different ideas as to how to do that. And of course, precious metals are a key element of that strategy.

Chris Martenson: Let’s get to precious metals in a minute. One of the more enduring debates is whether or not precious metals are being manipulated in any way, shape, or form. So, before we talk about the potential for various market participants, I’ll call them, to manipulate the price of gold or silver – let’s review a couple of the other market riggings and overt frauds that we know about.

The LIBOR Scandal, if you followed that, that’s the very definition of a huge, gigantic conspiracy involving lots and lots of players that persisted for years and years. And yet, it was, they are fiddling around with rates that literally impact hundreds of trillions of dollars of derivatives and related investments.

So, when you look at the LIBOR Scandal, what – do you see anything other than big banks behaving badly?

James Turk: Absolutely not. I think that is a good example, and it’s just one of many. I mean, look at the number of things that various banks have become involved with in terms of scandals, and lying to authorities, lying to regulators, lying to customers. Why are precious metals any different from any of the other things that central banks have tried to do?

And it all comes down to the interest rates. Gold is money. It has its own interest rate. The market is basically for interest rates controlled by governments, so they have to control the gold price in order to control gold interest rates. It’s very simple and very straightforward.

But there’s a bigger picture here, Chris. What governments are doing now is no different than what they’ve been doing for over 100 years. It used to be under the classical gold standard, but what governments did is they managed domestic currency in order to maintain the constant purchasing power of gold.

About 100 years ago, they flipped that around. They started managing gold in order to maintain the ever-diminishing purchasing power of the domestic currency, and they do that by trying to control the gold price. I mean, we saw a good example of it in the 1960s, particularly with the collapse of the central Banking Cartel called the London Gold Pool. When eventually they couldn’t sustain the financial depression anymore, the gold pool collapsed and the gold price rose.

We have a similar set of circumstances today. We’re getting, I think, very close to the stage where the managing of the gold price or manipulation or the intervention in the market, however you want to describe it, is approaching its end. And that ultimately means a much higher gold price in the months and years ahead.

Chris Martenson: I just want to tick down this list I’ve got because it’s really instructive. So, my view is this: Anything that banks or central banks can do in order to achieve a profit or a policy aim, they will do. And banks, in particular, have proven extraordinarily aggressive at all manner of frauds, many of them just rather dramatic.

So we mentioned LIBOR. They’ve also been implicated now in Forex and currency manipulations, particularly banging the close on those markets. There’s the gold price fix. Certainly, in London they had an investigation there. I think Germany’s now in on that. Bafin’s checking out Deutsche Bank.

Others, on the CDL markets there were material withholdings from clients. The energy markets in California and other states were heavily manipulated by banks that got tagged in that. Mortgages, obviously, the Platt’s oil prices for global oil prices, those benchmarks had been – it’s been alleged and is under investigation. Active rigging there.

The ISDA fix that sets the benchmark for a $380-trillion stock market also been tagged with banks just quietly backpedaling away, saying, We’re leaving. Don’t investigate us. And obviously, the daily high-frequency trading, quote-stuffing shenanigans, overt price manipulation – this is the world we live in now.

If it turns out that – when I look at that constellation, I say, Oh, you really just can’t trust that the bank’s self-interest and your interest align even remotely. They don’t.

So, what does a person who’s more of an average investor supposed to do when they see that’s the world that we live in and that regulators seem to be rather uninterested in untangling that mess. And what a mess it is. Where do they go? What do they do?

James Turk: Wealth comes in two forms. It comes in financial assets, bonds, and T-Bills, and things of that nature, and it also comes in tangible assets: real estate, oil wells, timberland, farmland, houses and things that are tangible. And when you’re in a financial bust – and we’ve been in a financial bust since the dot-com bubble collapsed back in 2000 – what you want to do is you want to be involved with tangible assets and you want to avoid, as much as possible, your involvement in any financial assets. So, consequently, what people should still be focusing on, even though we’re 14 years into this bust, is continuing the accumulation of tangible assets.

Because when this bust is over, promises are going to be broken left and right. And that means financial assets where you have counterparty risk where you own an asset, the value of which is based on someone’s promise – a lot of those financial assets are going to be diminished in value. Now, there’s a special kind of financial asset called a stock in a company. It’s almost like a tangible asset in the sense that if you own stock in EXXON, you’re basically owning a tangible asset, because it’s involved in oil and it owns tangible assets all over the world.

But then, there are financial stocks, credit-card companies and banks, that are financial wealth rather than tangible wealth. So, you don’t want to own stocks in those companies. So, basically, own tangible assets or stocks in companies that are involved with tangible assets – those stocks, I call near-tangible – I think that’s the thing that everybody should be focusing on.

And when it comes to money and liquidity, the money, of course, would be physical gold or physical silver or a combination thereof because they will re-emerge in the historical and traditional role as money.

Keep in mind, gold’s been money for 5,000 years. It was made money by the market. Money comes from the market. It doesn’t come from the government. Over the past century, government’s certainly usurped that authority to control money. And over the last 40 years, they’ve gone even further afield by completely divorcing fiat currency from the gold that used to back money. And because of the time element that’s involved, we’ve lost sight of what money really is, and that’s what’s created the money bubble, Chris.

And it’s this money bubble where people have to come back to reality as to what money really is. It’s liquid, tangible assets being used in the economy in exchange for real goods and services. And it’s ultimately where we’re going. And I think it’s going to be very, very disruptive because if you look at an individual country like Weimar, Germany or Zimbabwe more recently, or what Venezuela or Argentina are going through now. You can see the disruption to the economy when the money is no good.

We’re talking here about fiat currencies throughout the world because nobody’s tied to gold anymore. No country’s currency is tied to gold anymore. So this is going to be the bubble, I think, that generations from now, hundreds of years from now people are going to be talking about just like we talk today about the South Sea Bubble or the Mississippi Bubble, from those episodes in history a couple hundred years ago.

Chris Martenson: If a country was going to behave more rationally and responsibly, how would we detect that? Looking at, say, Europe to the U.S., some are saying Europe is not printing nearly to the same degree as the United States.

Do you find any merit in that sort of, let’s say, jurisdictional analysis where you’re lumping, all fiat currencies are headed for the same cliff?

James Turk: Yes. All fiat currencies are headed for the same cliff. And the way you’re going to turn away from the cliff is, you have to look at what the central bank has in terms of gold reserves. If the central bank still has a credible amount of gold reserves relative to the amount of promises that the government has issued and the amount of paper that the central bank has issued, they have the ability to go back to some kind of a gold standard.

I mean, if the U.S. Gold Reserves are still there, they could probably do it at a gold price of $10 or $12 thousand an ounce or maybe a little bit higher. And you’d still have a lot of promises be broken, though, by the U.S. Government.

But if the gold’s not there in the central bank, then there’s no hope. And that’s really the worrying thing, because we don’t really know where all of the physical gold is these days. All we do know is that a lot of physical gold is moving from West to East, is being accumulated by people in Asia who understand gold and its historical role as money that is being taken away from people in the West, who view gold as an investment and something to speculate on, rather than something that’s fundamental to economic activity.

Chris Martenson: Well, it’s interesting. I’ve seen several studies that have done this same thing and asked the question, If you wanted to have a permanent portfolio…? meaning it would survive every war and it would perform well on every single up and down cycle as you go forward, the perfect weighting has 20% gold in it and then different weightings in stocks and bonds.

So, it had a role. And the thing that’s interesting to me is that you can, with just simple risk-adjusted returns put gold in a portfolio. Dial it up and down. Ask what’s going on. A very high weighting delivers the best efficient frontier on an idealized portfolio, back-tested through the last 100 years of history, and what I detect in my country from the United States is the slandering of gold at every opportunity in the mainstream press.

Do you see the same thing? And if so, what’s the motivation?

James Turk: Yes. Because it’s a type of financial repression. Propaganda is repression. They can’t let the truth get out that gold really is money, because if they do, then you’re going to have people fleeing fiat currency and going into gold. And that’s the worst fear of central bankers.

So governments and central bankers have this unholy alliance that governments borrow money and central banks facilitate that process by making sure that governments have all the money they want to spend. And the mainstream media basically facilitates it by providing anti-gold propaganda and telling everybody the economy is good, when in fact, all you have to do is talk to some of your neighbors and you’ll find out that the economy is not as good as the media tends to portray.

And we’re on this path where trust in institutions and things is rapidly declining.

Chris Martenson: And maybe for good reason, if you pay attention.

As we get towards the end here, here is a common question I get, and I think this is a tricky one. It’s around the idea of debt. And if you have to break the subject of debt down, that’s fine, because not all debts are created equal.

You have a chapter in here entitled, “Pay Off Debt and Internationalize,” but on the debt side of this, why would you advise getting out of debt at this point in history?

James Turk: Yes. There is this beguiling belief that if you have a lot of debt and the currency gets destroyed, your obligation will get destroyed with it. It may not work out that way. We live in an economy today where governments are heavily influenced by the banking system. If the currency collapses, there’s no reason to believe that the bank’s obligations are going to be minimized. They may impose on the government a rule that the debt has to be repaid in the new currency at fair economic value, not in a depreciated currency.

And I like to use the example of what happened to Thomas Jefferson – other than the Declaration of Independence and third president of the United States – he ended up dying a pauper because he ended up paying the debt on his father-in-law’s estate twice. He paid it once during the War of Independence and put the money with the Virginia Government, but the currency was destroyed by the end of the war. And he was then obligated to repay the debt again in pound sterling, which of course, was on a gold standard. And that basically bankrupted him and he ended up dying a pauper years later.

So, don’t assume that you’re going to benefit from having debt. It could very well be that the debt is going to be re-denominated in the new currency after the fiat currency collapses. The safe way to play it is to own tangible assets without any debt obligations.

Chris Martenson: I agree, and I have one other wrinkle on that, which is, there’s also this enduring idea, maybe a fantasy that as the currency debases, your income will be going up. But if it turns out labor markets have no power and your income stays low in nominal terms and is below the rate of inflation, you get a 3% percent raise but inflation goes to 10%, then you’re going to find that your disposable income is just shrinking and shrinking and shrinking. Your debt payments are fixed, and all of your other non-discretionary payments are fixed, and so things just get tighter and tighter.

Hey, that’s just the ‘70s. It’s stagflation again, in some way, but this time without the rising wages that we had back then. So I think it could be quite damaging to be holding debt.

James Turk: That’s a very good point and one of the things that John and I talk about in the book is that it’s becoming more and more difficult to actually measure wealth. What you really need to do is you need to measure the wealth by determining purchasing power, and we use, in this regard, ounces of gold. That’s a great way to measure whether your wealth is actually increasing or decreasing as an indication measure of purchasing power, rather than using dollars or Swiss francs or euros or any other currency.

But it’s just an indication of how bad things have become with regard to the monetary unit. One of the basic things as to why things are money is because they use them for economic calculation, to measure the prices of goods and services. And it’s becoming extremely difficult when you’re adjusting the size of the measuring stick.

In the book we use the example of what happened if a meter kept changing; how would you measure records at the Olympics from year to year? And that’s what we’re trying to do with this fiat currency that’s in circulation today.

Chris Martenson: So, from a macro perspective, nothing’s really changed. We’re trying to paper over it – the issues. We’re trying to sustain the unsustainable, as it were. We’re trying to pretend as if the next 30 years can resemble the past 30 years, which were extraordinarily unique in financial history with the run-up in debt relative to income.

So, that’s the macro story. And so you’re saying that even though it’s been a rough couple of years for precious metals investors, that they still remain one of the obvious solutions to the story; one of the obvious resolutions will come through precious metals, at least in part, with precious metals as a representative of tangible assets?

James Turk: Yes. Because, the last year, gold was down, but it was up 12 prior years. You can’t look at just the last year in isolation. You have to look at the big swing of things. And we’ve been in a gold boom market, believe it or not, since 100 years ago, since the Federal Reserve was created.

If you had held gold over that period of time instead of owning dollars, because a 1913 dollar has been so debased compared to what we have as dollars today, it takes only a penny of a 1913 dollar to purchase today what a full dollar today purchases.

So, I mean, it’s sort of like the end of currency in the Roman Empire. In over 100 years, it kept getting debased and debased and debased until it finally collapsed. And the same thing is likely to happen with the dollar. And every individual has to take those steps to protect themselves, come what may.

Chris Martenson: Absolutely. I agree.

Well, the book is, The Money Bubble: What to Do Before It Pops. I’m sure it’s going to be a great read if it’s anything like The Coming Collapse of the Dollar.

James, it’s been a pleasure talking with you. Where would people find your book?

James Turk: It’s available on Amazon, of course, and it’s also available through local bookstores.

Chris Martenson: Well, fantastic. You self-published this, didn’t you?

James Turk: Yes. We did. But it’s so easy to self-publish a book now that you can use the same distribution systems that the big publishing company houses use. What John and I wanted to do is, we self-published this because we didn’t want to go through the editing process that’s required when you’re using big publishing houses. What we wanted to say, we actually say without having to worry about what a publishing house might or might not cut out.

Chris Martenson: Oh, yes. That’s a very important consideration.

Well, thank you so much for your time today. I’m going to look forward to reading more of the book, and it’s going to be a very interesting 2014, I hope. Thank you for everything you’ve been doing to help raise awareness around one of the most important topics of our generation.

Thank you very much, Chris, I’m hopeful that The Money Bubble will be – well, it already is well-received, I hope it gets a lot of attention, because I think that I’m hoping that, as “Coming Collapse of the Dollar” did, it helped a lot of people, I think The Money Bubble will provide a lot of educational material that people will find useful as they try to get a handle on the crazy things that are going on today.

Well, James, thanks again and be well.

A Potential Massive Short Squeeze in Physical Gold is Becoming a Possibility | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s

A Potential Massive Short Squeeze in Physical Gold is Becoming a Possibility | Capitalist Exploits – Frontier Markets Investing, Private Equity and IPO’s.

By: Chris Tell

I recall a long time ago when I was easily excited by the unqualified love of young inebriated women, hedonistic experiences, fast cars, guns and seemingly unusual setups in financial markets, which promised fortunes if traded correctly. 

I now find that I just enjoy a day with my kids and later a decent glass of red. Ah, simpler times! I’ve also realised that “unusual” setups in financial markets typically turn into nothing more than a loss of my capital. Betting on outcomes which seem “so damned obvious” isn’t as easy as one would think. Probabilities, as I discussed last week, are a key factor, as is risk/reward.

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This is of course as it should be. The markets are there to extract money from inexperienced, gullible “traders”. OK, some are experienced and just careless, but many are newly minted dreamers, set out into the world by some seminar “guru” who convinced them they could day trade their life savings into a small fortune. You know what they say about small fortunes, right? Financial Darwinism!

Given this backdrop, I had a recent phone conversation with our friend Tres Knippa. For those that don’t know him, Tres is a broker and trader on the floor of the Chicago Mercantile Exchange (CME). Clearly not a Johnny-come-lately. Tres shared with me some numbers.

By the way, paying attention to “numbers” and trading them intelligently is far superior to chasing unqualified love from long-legged women. Traded intelligently has been known to pay for supercars and penthouses, which will inevitably attract said long-legged women, so fear not!

The numbers Tres shared with me were:

  • -89,756.78 – This number represents the overnight movement of registered gold OUT of inventory at Brink’s, and INTO Eligible Inventory at J.P. Morgan.
  • 370,137 – This is the number of ounces of Registered Gold for delivery.
  • 300,000 – This is the number of ounces, represented in gold contracts, that any one entity can own (3,000 contracts).
  • 81% – The percentage of supply at the Comex which would be exhausted should just ONE entity put on a “Limit Long” position, AND demand delivery.

These should be very scary numbers for the folks running the Comex, but even scarier numbers for anyone not holding physical gold and trading paper!

Tres also shared the chart below with me. This is a graphical representation of the amount of paper gold versus the Registered Gold available for delivery:

Comex Gold Leverage Ratio
Zerohedge recently posted an excerpt from a video Tres did here. Now, for those who are paying attention, the similarities between this little setup and an extended game of Jenga cannot be dismissed out of hand!

Zerohedge also posted a neat little story about the German’s only having recovered a paltry 5 Tons of gold from the US, after a year! You can read all about it here. In short they have repatriated just 37 tons of the 674 tons they have promised to repatriate. At least the Comex may get forewarning of any demand for delivery from the NSA, who is likely still monitoring Sausage Lady’s iPhone. Regardless, it’s unclear to me what they would do about it should that demand for delivery actually come down the wire.

Over 2 years ago when we put together our Japan report I mentioned to Tres that I preferred to go long Gold, short Yen. At that time his preferred trade was centered around the JGB options market, and to be long the USD short the Yen. Looking back he was right and I was wrong. The USD has indeed performed better, and likely will continue to outperform in 2014. Although up to this point it’s been more a factor of a breather in the gold bull market than USD strength.

I’m a gold bull, not a gold bug. I do believe that the long term trend for gold is bullish. This current setup clearly has the potential for some fireworks. Maybe nothing happens (doubtful), but the risk/reward setup is rather favourable from where I sit. Heads I win, tails I win.

Whatever you choose to do with the above information, I encourage readers to never ever confuse “trading for profit” with investing. I’m happy to trade futures contracts, buy gold in the FX spot markets – essentially trade paper in one form or another, but I would NEVER let that obfuscate the fact that I need to hold PHYSICAL GOLD as protection. Timing a profitable trade is like passing gas, it is largely a matter of knowing when it is inappropriate, and acting accordingly!

Grant Williams, the prolific editor of Things That Make You Go Hmmm… said it perfectly in his latest missive:

“Gold is a manipulated market. Period.
“2013 was the year that manipulation finally began to unravel.
“2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz.
Count on it.”

Think about this as a parting thought. Would the Comex, if under pressure for delivery, ever void your positions in order to “stabilise” the market? Or, would that just not be palatable in the Land of the Free? As Grant said above, “Count on it.”

For the traders out there, Tres shared with me another anomaly in the gold markets which he’s been trading successfully for the last couple of months. I’m in the process of translating this from “trader speak” into English, and it will be sent out to members of our currently complimentary Trade Alert service shortly. You can get access to this and more by dropping your email here.

– Chris

“I firmly believe that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel.
“That day, the day the Bundesbank blinked and demanded its bullion, will be shown to be the beginning of the end of the gold price suppression scheme by the world’s central banks; and then gold will go on to trade much, much higher.” – Grant Williams

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”

Fed’s Dirty Little Secret: “The Gold Isn’t There… Exists as Paper IOU’s”.

The assumption by global depositors who have entrusted their national savings with the Federal Reserve and US Government has always been that when they request to repatriate their holdings the Fed would simply open the vault, access said assets and ship them back to where they belong.

That’s exactly what Germany expected would happen last year when the country requested that the Federal Reserve return about one-fifth of their gold reserves. But that’s when things got really dicey. The Fed announced that Germany’s gold would be returned… but it would take seven years to get back home.

The response to Germany’s request turned heads all over the world and raised concerns that the Federal Reserve had squandered its gold holdings. But this isn’t the only red flag that was raised. Public pressure reached such levels that the Fed was forced to take steps to maintain confidence in its operations, so it started shipping gold to Germany. Except it turns out that the gold being sent back to the Bundesbank wasn’t actually German gold. It contained none of the original serial numbers, had no hallmarks, and was reportedly just recently melted.

The implications are earth shattering and hit the very core of the problems facing America today. The whole system as it exists is just one big paper IOU.

In this must-watch interview with Future Money TrendsJefferson Financial CEO Brien Lunden weighs in on Germany’s gold, what is happening at the Fed and what other central banks are doing right now. Brien also shares his thoughts on where the gold market is today, what to expect in coming years as gold supplies tighten up, how mining companies like Brazil Resources are taking advantage of the current environment, and how to profit from gold in coming years.


(Full transcript and interview)

For the reply to be that it would take seven years for this Gold to be sent back to you, your Gold to be sent back to you, was an obvious admission that the Gold just isn’t there.

Yes, it’s an admission that the German reserves were not still sitting there in the vault in the same form that they were sent there after WWII. They were not the original Central Bank Gold bars, same serial numbers etc. It’s an admission that at some point since then, that Gold has been used for other purposes.

So the dirty little secret here, is that a significant portion of central bank Gold reserves, including the U.S., don’t exist now in their original bar form. In fact, they exist as IOU’s, paper IOU’s, from the very banks that were bailed out in 2008 by the Federal Reserve.

So the Gold isn’t there, and the secret that they’re hiding is that it’s been replaced by IOU’s, and importantly those IOU’s are for Gold that was borrowed at much lower prices.

The Fed, through their recent actions, has essentially admitted that the gold stored in their vaults isn’t really there. Just as our government refuses to be openly transparent to with the American people, the Fed has resisted all calls to open their books (and vaults) to impartial third-party accountants for review.

The whole system, it seems, is now operating on IOU’s. Be it consumers, banks, the Fed or even the US government, all of the US dollars being exchanged are nothing but worthless pieces of paper, because given the lack of transparency at the Fed, we have to assume that the physical assets supposedly backing all this currency have already been spent.

Are we wrong in making this assumption?

If you were to store some emergency funds with a friend who promised to get them back to you whenever you asked, and then you ask and are told it’ll be a few years before he’ll get you the cash, what assumption would you make?  That your friend has the money on him right now, or that he’s used it for other purposes and doesn’t really know exactly when he’ll have it available for repayment?

Our entire consumer economy, as well as the credit worthiness of our nation, is built upon confidence. It’s took decades to get America in a position where our country’s monetary issues and services would be trusted by the international community. It’s taken just a few years for that confidence to be lost.

It’s now only a matter of time before our creditors and global investors pull the plug on the whole thing.

A New Way to Hold Gold: The Aurum | Peak Prosperity

A New Way to Hold Gold: The Aurum | Peak Prosperity.

What if you could carry and exchange gold in the exact same manner as you do with the dollar bills in your wallet?

I’ve recently been introduced to a technology that’s making this possible.

In today’s podcast, I speak with Adam Trexler, President of Valaurum, about this technology and the gold-infused notes it creates. Valaurum’s mission is to democratize ownership of gold by converting it into a form affordable to anyone.

Democratizing Gold

In short, a fractional gram’s worth of gold is affixed to layers of polyester, creating a note – called an “Aurum” similar in dimension and thickness to a U.S. dollar bill. This gold (usually 1/10th or 1/20th of a gram) is commercially recoverable. So an Aurum offers similar potential as a coin or bar, in terms of providing a vehicle for storing and exchanging known, dependable increments of precious metals – just in much smaller (and more affordable) amounts than commercially available to date.

The big idea here? In a world where a 1oz coin of gold costs over $1,200, an Aurum will let you hold a few dollars’ worth of gold in a single note. If you’ve got pocket change, you can be a precious metals owner.

And you don’t have to change your behavior. You can store and transport an Aurum in your billfold along with your dollars.

Understanding the Aurum

As the saying goes, a picture’s worth a thousand words. Here’s a picture of an Aurum designed for Peak Prosperity that the Valaurum team produced for us:

(click here to purchase – PP.com will NOT receive a fee if you do)

You’ll see that with even just 1/20th of a gram of gold involved, it’s enough to make the Aurum appear to be “made of” gold. The characteristic luster, color, and shine of the 24-karat gold used is immediately apparent.

The Aurum is designed to be handled in the same manner as we do with our “paper” money. And, despite having a more ‘plastic’ feel to it (resulting from the polyester backing), it’s as flexible, lightweight, and familiar-feeling as paper currency.

The big difference, of course, is that instead of being a claim on something else, it simply is what it is: a fractional gram of gold. It can be stored, traded, or melted down – just like a coin or bar.

Here’s a brief video that gives an overview of the production process:

Implications

Being able to hold gold in this form is significant for several reasons.

First, it makes gold ownership available to all budgets. Many of the world’s households have been priced out of gold to date. This changes that completely.

Second, it enables the potential for everyday transactions should we ever return to a precious metal-backed monetary standard. It answers the challenge: How will you pay for your groceries with gold? With an Aurum, it’s now easy.

Whether Valaurum’s product emerges as the winning horse or not, the world definitely needs this type of solution (i.e., convenient fractional physical metal) to go mainstream.

I’m very excited by this new innovation in the bullion industry, and I explore the matter in depth in this podcast. If you’re similarly intrigued, it’s worth the listen.

And for those of you interested in owning an Aurum of your own, you can learn how to purchase the Peak Prosperity Aurum pictured above by clicking here (Peak Prosperity does NOT receive a fee on these sales).

Click the play button below to listen to my interview with Adam Trexler (36m:59s):

TRANSCRIPT

Adam Taggart: Hello, and welcome to the Resilient Life podcast. Resilient Life is part of PeakProperity.com, and it is where we focus on practical and actionable knowledge for building a better future. I am your host, Adam Taggart, and today’s guest is Adam Trexler. Adam Trexler is the president of Valaurum, which is a very interesting company that Chris and I have come across.

One of the very common criticisms, I guess you could say, that we will oftentimes encounter with people when we talk about the wisdom of owning precious metals, particularly in physical form, is, Well, hey, if you are ever at a point where we are using precious metals to actually make real purchases in the world, you are not going to bring down your one-ounce gold coin to buy a loaf of bread. How practical actually is returning to some sort of metals-backed standard really going to be?

Well, this company, Valaurum, that Adam has helped found and is running, has built a product that could potentially be an excellent solution for that use-case. What Valaurum does is it has a proprietary technology that applies a certain amount of precious metals – I think right now their majority product is a gold-backed one or a gold-based one – and it injects that gold directly onto a surface; they can put it pretty much on any surface, but right now it is doing it in note form. So it is a product that looks very much, in terms of dimensions, like the dollar bills that you would put in your wallet, but it actually has a certain percentage of a gram of gold actually injected into the product. And it is enough gold that you can actually very clearly see that this product has gold on it or in it. So it is your opportunity and ability to basically transact or share fractional grams of gold with other people.

We will have some images of what Valaurum’s product, it is called the Aurum, looks like, that will accompany this podcast, so you see visually what we are talking about. But I wanted to talk with Adam about the product, about the mission behind the company, why he has decided to create this technology, what his vision for the future is. And how people that are interested in potentially owning some physical precious metal in this format, where they can go to learn more about it, and if they want to actually buy some for themselves, how they can do that as well.

So I would like to welcome Adam to the program. Adam, thank you so much for joining me today.

Adam Trexler: Thanks for having me, Adam.

Adam Taggart: You are very welcome. I know we are going to get a little confusing, I think, with the Adams here, but hopefully our audience can follow along.

Well, first, Adam, I want to give thanks to a mutual friend of ours, a Peak Prosperity reader, who brought Valaurum to our attention. I believe he might be on your board of advisors, and I am sure this person is listening and knows who he is. But I had not been familiar with your product until he made the recommendation. And since you and I have been talking and I have actually gotten the opportunity to hold some Aurums in my hot little hands, I have really become a big fan of the product. And then you and I met when you were out here in Northern California a few months ago, meeting with your production team. We got to talk a little bit more in detail about the company, and I have really found it very intriguing, so I wanted to bring this to the attention of the Peak Prosperity audience.

And I think probably the easiest way to start here is just at the beginning. What is the mission behind the company? Why was it created?

Adam Trexler: Well, Aurum was actually invented, I should say, by a husband-and-wife team, Paul and Laurie, and all credit to them for having the vision that you could have a gold instrument of this size, of a sub-gram size. I came across the technology and thought it was just the most fascinating thing that you could have $2, $4, $6 worth of gold embedded in a form that was far easier to use. And what I saw pretty quickly, when I began to think about this, was that this made gold investment available to all people, and also made gold easier to hold in the physical form than anything else on the market.

And I thought this was a product that people in the U.S. would want, people in the developed world would want, but also where the gold market has been going is in Asia in the developing markets. That is where we see the largest demand for gold. And as gold has gone up from $300 – there was a high there a couple years back, but still, at $1200, $1300 an ounce, people just cannot afford to own gold, and cannot afford to own gold in the increments that are available. And this product makes that possible.

So I believe in gold ownership. I believe in precious metals. I believe in physical assets and an investment relationship to the real world. And I saw that this was something that was truly novel and had the opportunity to be huge, and I wanted to serve that vision.

Adam Taggart: Great. So it really sounds like the democratization of the ownership of precious metals, particularly gold, was a driving force here. And we will get into the Aurum itself in just a moment, but the samples that I have held, one had a 10th of a gram of gold in it and one had a 20th of a gram of gold.

Adam Trexler: Right.

Adam Taggart: And I am not going to embarrass myself by doing the math on the fly here at current prices. But basically, to your point, it is a couple of dollars’ worth of gold that is applied there to the note. So you are taking an option that is probably not affordable for most people, if they are considering buying an ounce of gold, and you are giving them the ability with fractional grams to really take pocket change and actually convert that into precious metals, should they want to.

Adam Trexler: That is right. And one thing that really hooked me when I was first researching this project was, I was traveling in Costa Rica looking at some artisanal gold mines. I got very interested in where gold comes from. And I talked to a gentleman who had had a gold production facility. He made rings, and he had a wonderful business, where all men in Costa Rica had to have gold rings. And it was a way for them to hold tradable, physical wealth.

And what happened is, the rings just became too expensive. Nobody could afford them anymore, and they moved to a more consumerist model of holding wealth. People wanted cheap cars, and suddenly nobody had gold anymore. And there was a transfer away from that, which I think is really significant. And this idea of democratizing gold ownership as gold goes up, as the world recognizes that we need these kinds of hard assets, to me seems really important, a critical issue for our time.

Adam Taggart: Yeah, and one of the things I love about what the technology enables – and I do not know if this is the vision of the company, so do not make me ascribe a motive here to you – but as I have reflected on the product, now that I have actually held samples of it, is, were we ever to move back to a precious metal backing to a currency or our currency, you can have what we had back in the early 1900s, where you have a paper note that is a claim on a certain amount of precious metal, and that you can take your paper note down to the central bank and exchange it for some amount of actual, physical metal. What I love about Valaurum’s technology is, you remove a step there. You actually inject the metal in the note itself, so the note does not need to be brought anywhere to be exchanged. It actually is the amount of precious metals that it says it is. It is one of the things I love about with the promise of the technology here. I do not know if your plans are as grandiose as to have it be used for a national currency somewhere, but I suppose the technology or one like it could do that. Is that correct?

Adam Trexler: That is correct. And it is worth saying that we have anti-counterfeiting features built into it. If a government was ever to adopt it as tender, that would be very interesting. My interest in the technology is that it really puts the gold into the hands of people, and there is not that counterparty risk. So when you see gold held in a vault, promises of gold, these kinds of things, that is wonderful. And it makes a lot of sense for certain kinds of transactions. But I think that people should also seriously consider that they might want to actually, physically hold their metal, and this is a means to do that.

Adam Taggart: And as Peak Prosperity listeners know, Chris and I have been longtime advocates of the precious metals. We have also been longtime advocates of holding a material portion of that, at least, physically. This is just yet another way to do that.

So let us use this to segue into a description of what exactly an Aurum is. And again, just not to lose people here, we have talked about the company itself, which is called Valaurum, and the product they have, which is the note with precious metal actually injected into it, that is called an Aurum. On your website, Adam, for the product, you list a couple of benefits here. I am just going to quickly read them, and then I am going to give you floor to talk about the product in any way you think is meaningful for listeners to know about it.

Adam Trexler: Sure.

Adam Taggart: You describe these precious-metal-injected notes as safe, easier to verify, and harder to counterfeit than conventional gold coins, bars, or foil. They are convenient. They are thin, lightweight. They easily fit in a wallet or purse, so you do not need to change your behavior at all in terms of how you carry this around.

Adam Trexler: Right.

Adam Taggart: They are divisible. They can be in much smaller quantity than traditional coins or bars – and that is very true; we have been talking about fractional grams here versus ounces. They are durable, protected between layers of strong and transparent polyester film. I will let you talk more about that when you talk about the creation process. You have here “beautiful.” That is a design element here, where just like coins can be works of art, the Valaurum notes have designs on them. And to be honest, I think the design options are probably – you have a substantially greater number of options with Valaurum, because basically if you can design it, you can apply that to the surface here, just like you could with any note.

Adam Trexler: That is right.

Adam Taggart: And you experiment with colors and all sort of different things, and I will let you talk about that. I will also give a little preview that we will be previewing what some of these Valaurum look like in the post along with this podcast.

And lastly, they are affordable. We have talked a bit about this, but you can have them in all sorts of increments. But in particular, very small increments, at least relative to other types of precious metals, so you could literally be holding a couple of dollars of gold in your hand, which is actually pretty hard to do with coins and bars.

So those are the benefits that the company itself has been touting. Let me hand the mic over, here, to you, and tell people, what is an Aurum?

Adam Trexler: Well, it is a funny thing, Adam. It is the sort of thing, and I think you can vouch for this, that the Aurum makes much more sense when you see it in a hand. It is something that does not describe well, but as soon as you see it, you get it. It looks just like a dollar bill or a note from another country. It is plastic on the outside, which is what gives it its strength. There is a polyester layer, and laminated within it is 24-karat pure gold. We are able to print on the polyester layer, in quite high-resolution with color, which means that we can put anything we want on it; there is a customizable element. And in fact, we have begun designing a Peak Prosperity Aurum that has some of your stuff on it. We really like Peak Prosperity.

And basically, you can carry it, hold it, just like you would a dollar bill. You can carry it in your wallet. It is really quite durable, and you can do the same sorts of things with it. It moves well. It travels well. For five hundred years, we have had bars and coins, and not much has changed in that; certainly for several thousand years we have had gold coins. The need for the Aurum really emerges when you start to see gold at $1300 an ounce for long periods of time, $1200 an ounce, certainly over $1000 an ounce.

I actually have a one-gram bar. It is almost impossible to hold on to. The only way they sell it is laminated into a credit card. When you start talking about a 10th of gram, a 20th of a gram, it is very, very difficult, almost impossible to keep track of that sort of thing. Similarly, as I am sure many of your readers do, I have one-ounce silver rounds. They are just not very friendly in the pocket. It is not a handy thing to carry around. You can carry the same worth of gold in your wallet quite easily with an Aurum, and I think that’s the convenience – and, frankly, the beauty. We have had some great designers work on them. We hope to continue in that vein, and we are still learning more about the artistic capacities of this. We actually had Aurum in an art show at one of MoMA’s galleries in New York City. We can print in very high resolution, and because of the way that the gold is layered, it actually creates a unique image on the back which is kind of a negative image. It looks almost like the gold is engraved. And that creates quite a striking effect, as well.

Adam Taggart: I will agree with that. And you mentioned a few minutes ago that we have actually created an Aurum for Peak Prosperity. I really like how it looks. And we will have a picture of that, as I mentioned earlier, on the post accompanying this podcast, so people can see it for themselves.

One of the things that is striking about the Aurum is that it makes me think when you go and visit some of these churches and domed structures around the world where they have gold leaf on the dome, and you find out that it takes actually a surprisingly small amount of gold to be hammered into that incredibly thin gold leaf that then gets applied to these structures. But even in that incredibly thin leafing, it is still very bright and very obvious that it is gold. Even though we have a fractional gram on these Aurum notes here, it is certainly enough to coat the entire surface of the bill here such that the whole thing looks like it is made out of gold. So it is very bright; it is very striking to the eye. And I have shown it to a number of people, and I have shown it to a number of people in the gold and silver space. I mean, a lot of the people who, I think a lot of folks listening to this podcast actually read their work or purchase bullion from their dealerships. I have had the pleasure of being the first person to hand them an Aurum and see their eyes light up and them hold it up to the light and have a delighted reaction to it.

So anyways, like you said earlier, it is much better seeing the product than actually hearing someone explain it. And like I said, we will have some pictures on the site, so in this case, I am sure the pictures will be worth thousands of our words here.

Adam Trexler: I would like to pick up, Adam, on something you said comparing it to gold leaf. One of the fascinating things about gold is that it is one of the most malleable materials that we have. It can be drawn into very, very long wire, and it can be hammered into gold leaf. And when people see this, one common thing for people to think is, Oh, well, what is so different about this? There has been gold leaf for, again,thousands of years.

Well, the way that gold leaf is made is that basically people – largely in India, often families, it is kind of a cottage industry – will take a piece of gold, and with a leather mallet, hammer it repeatedly until it gets thinner and thinner and thinner. And there are two problems with that. The first, for our purposes, it works wonderful for art, but it is very delicate, for obvious reasons. And more importantly, at an atomic level, it is not regular at all. It is really wavy, as you would expect if you just hammered something. It is thin but not precise.

And what one of the main benefits of the Aurum and the technology underpinning the Aurum – and really the genius of the inventor; I cannot take any credit for it at all – is that we can get within one percent and never below this precise amount of gold and this small increment of gold. So, using an electron microscope, when you look at an Aurum, the atoms are completely flat, whereas it would look like mountains and valleys with gold leaf. And that precision is what makes this a value instrument that is unprecedented for these increments in precious metals.

Adam Taggart: Right; meaning, you can have confidence that it has exactly what it says it has in there, because the control is so fine.

Adam Trexler: Exactly. And developing that control was no small engineering feat, I can tell you. The other thing I would say, and you mentioned this earlier about verifiability, is that the Aurum has a real benefit in terms of, the gold atoms are spread out very thin. So whereas, with bars, we have heard about scandals with tungsten in the middle of them. With coins, of course, people have been counterfeiting this for centuries by gold-plating other metals. It is much more difficult to do this with an Aurum; the fact that the gold is on such a small surface, the fact that the equipment to make it is far more expensive and very difficult to develop. Anti-counterfeiting features, we have it built in. And for the thinner Aurum, you can actually see through the gold with a strong light. And gold, unlike most other metals, has a precise turquoise/aqua/blue-green color when you look through it. Even most gold experts do not know this, but if you look through a 1/20th gram Aurum, you will see this blue-green color, and it is actually the color of gold as the light passes through it. And that is another anti-counterfeiting feature.

Adam Taggart: Great, and so, to say this in other words, one of the ways in which you can assay or at least quickly check to see if an Aurum, indeed, is gold or not, is, you can shine a light through it.

Adam Trexler: Correct. With the 1/20th. The 1/10th starts to get thick enough that it is difficult to do that, and we have other anti-counterfeiting features. But that word “assay” is very important to us. We assay every batch.

The gold is actually quite easy to recover from an Aurum. If you melt off the plastic and pull out the impurities related from the plastic, you get a very small gold pellet. And we assay every single batch to make sure – we have other checks, but – to make sure that every Aurum that is sent out is a precise amount of gold for our customers. We live and die on that.

Adam Taggart: Great, and that is where I wanted to go next, which is, I think, one of the first questions that arises when somebody has this is in their hand is, How do I know this is real gold? And if I ever want to recover the gold, how is that done? So speak just a little bit more about the process of, let’s just say somebody is holding on to a bunch of Aurums, whether it is an individual, but maybe let us think about the gold dealer. Let’s just say you have decided to actually start accepting Aurums, and at some point, you have got a big stack of them. And you want to recover the gold itself. How would you go about doing that?

Adam Trexler: Well, it is a very simple process. We use a fire assay in our lab, really for every batch. And what we do is we put it into a crucible; we use some borax to pull out the material from the plastic that is residual, and then you have a weighable pellet. It is very common in the gold industry to recover gold from substrates of various kinds; we can provide a list of that.

But there is something else to emphasize, which is that people say, Can I melt this down? Yes, you absolutely can. The gold is absolutely recoverable. It is not lost in any way. We have to do this ourselves. We have to recover the gold because we have overspray when we manufacture these, so we do this quite regularly. But what is important to emphasize as well is that gold in this form is more valuable than a lump of gold. And this is the same as coins and bars. A U.S. tenth of an ounce coin is much more valuable per increment than a kilo bar would be. So you actually lose money by melting them down. And there is a clear economic argument for that. Gold in this form is more useable, it is more precise, it is more easily tradable than gold in a huge lump. So we think there is real value in maintaining the Aurum in this form, and we would want to encourage dealers and individuals to trade for it on that basis.

Adam Taggart: Great, so let us talk about that, then. I had never heard about the Aurum before we were introduced, and of course, I think it is really innovative and interesting. And it or a product like it should be in the solution set of ways to hold physical gold. What type of traction are you seeing right now among the important opinion leaders, participants that are going to help determine whether or not this product – or, again, a product like it – will potentially go mainstream? Are you seeing bullion dealers react positively to it? Are consumers able to find it and start buying? Just where are we in the adoption cycle here?

Adam Trexler: Sure. It is a very exciting time for Valaurum. We are really starting to get huge traction with bullion dealers throughout North America. We are talking to one currently about having the U.S. exclusive distribution rights for a year or two. I cannot announce that as of today yet, but that is looking very exciting. We are setting up Canadian dealers, and it is just a very exciting time.

Sorry, Adam; there was another piece to your question. I want to make sure I answer it.

Adam Taggart: I really just wanted to know what type of reception are you getting so far in introducing it into the ecosystem. Are you getting positive reactions? Sounds like you are, from some of the initial dealers that you have talked to. And what do you see as the key milestones for getting this from something we are telling people about for the first time to something that is hopefully a little bit more mainstream?

Adam Trexler: Sure. I think that it will become mainstream, and it is just a process. The dealers that we see are very, very excited about this. They see that it makes gold available. I have shown it to a dozen industry gold leaders – people who comment on gold, people that your readers would be very familiar with – and I would say that two-thirds of them see it, and their jaw drops, and they say, Oh, my gosh, this makes gold usable in a way that it just has not been. And they are thrilled about it. The other third – and I am willing to admit this – the other third doesn’t get it, and the reason they do not get it is because they say, Hey, what is the problem? All my readers can buy kilo bars. I say to them, I believe that this is the personal computer of gold. There was a time when people thought, Oh, nobody will really need a computer. We have mainframe. Big businesses will need them, but why would you need a computer in the home? I think this is very similar. This makes gold available to all people. And we will see a widespread push to own gold in this form, and we will also see, at some point, a push in terms of the demand for gold as a result as well. That is my real vision for this company.

Adam Taggart: Okay, great. And let us flash forward five, ten years. Hopefully you have hit your strategic objectives for this product. If one of our listeners were to go buy an Aurum in the future, is your hope that this would be something that, they would walk into their typical coin dealer and it would just be there amongst the options right next to the coins and the bars?

Adam Trexler: I think that is right, and one of the reasons we’ve wanted to grow a dealer network is precisely so there is a buy-and-sell market, and that is the first objective. But I think in the longer term, if the Aurum is accessible enough, you will start to see it in other spaces. I would love to see it in financial exchanges. So when you go to the airport, and you are going to England, and you would say, I would like some British pounds or euros, that you would also be able to change that into gold. And I think that could happen at banks as well.

So in the longer term, I think that this will become a means by which you can buy and sell gold just as easily as you buy and sell the paper currency of other countries.

Adam Taggart: Interesting, great. Well, it would be interesting to see if India lets you in, in that scenario. They still have their gold controls in place; hopefully they won’t. So it is also worth noting as with gold coins and bars, that, as you said earlier, the smaller the increment, the higher its economic value, because it is more tradable, etc., but there is also more work involved to breaking a kilo bar up into a bunch of 1/10th of an ounce gold coins. So the premiums per smaller unit are higher in the precious metal space. And I am assuming, too, the technology is still relatively new. And the scale is not where you will be, hopefully, in five or ten years, at least given your goals. So we should probably be very clear about – if people are buying an Aurum – that there is a premium involved in it, and it is going to be a higher premium than you would have if you bought a one-ounce coin, and that is because it is a much smaller fragment.

Do you want to just elaborate a little bit on the percentage of the premium in the current product, where you think that is going to go, just so people have an eyes-wide-open understanding of, when they are buying a Valaurum, what the economics are?

Adam Trexler: Sure. This is a little bit tricky to answer because we generally do not sell direct to the public, so it’s really up to dealers to price this product. And we do not have a set RRP; we let dealers make their decision about what they think the market will bear. Typically what we are seeing is roughly in the double spot area. If you draw an economic curve of what gold should cost as different increments, this seems roughly in line with the curve that you see from kilo bars down to ounce coins, down to sub-ounce coins, and then down to the Aurum. It is very simple – and our readers and your readers, I am sure, are familiar with this – it is not special to precious metals. It is the same reason you can go to Costco and buy a case of detergent much cheaper than if you go to 7- Eleven and buy a one-use set of tabs. My argument would be that you might want the convenience of the Aurum in addition to holding the majority of your gold in ounces or bars.

Adam Taggart: Right, right. Yeah, and I think right now, because you are so early in the adoption curve, most uses I have seen of the Aurum have been almost more sort of, it is more of a collectible, it is more of a fun way for a company to brand itself and whatnot. But as a consumer who actually is looking at this and saying, I am actually willing to pay a premium to have precious metals in this format at this point in time, just for the insurance factor if we ever got to a point where I needed to give somebody a little slice of gold to do something for me, this is a fantastic medium for that. And as you said, there is an economic curve at which the smaller you go, the higher the premium will go anyways. And as I mentioned earlier – if you can comment on this, it would be great – I am sure you have got a cost of production right now that is also going into that premium that will decrease over time if your business grows and you get greater economies of scale. Is that true?

Adam Trexler: That is absolutely true. This is a high-tech nanotechnology, and doing a couple thousand for Peak Prosperity is not the cheap way to manufacture this. But as we grow, we have clear projections and a pretty clear schedule that shows that the price goes radically down.

Adam Taggart: Great, well, hopefully those dealership relationships that you mentioned you have been getting traction with, as those begin to grown and order volumes begin to increase, you begin to hit those economies of scale. So let us transition quickly to talking about the Peak Prosperity Aurum, because we do have one designed. I think it is very pretty; of course, I am an incredibly biased source. But we will have an image of it here, and people can take a look for themselves.

If you are listening to this and looking at the Peak Prosperity Aurum and thinking that might be a fun thing to own, we are going to have a link there, Adam, that is going to plug into Valaurum’s commerce system, and people will actually be able to buy these. Is that correct?

Adam Trexler: That is correct, yes. And you can go ahead and order them from our site, and we will deliver.

Adam Taggart: All right. Well, fantastic. And I assume over time, if Valaurum gains the traction that it hopes it will, and I hope you guys do, they will start seeing other designs with other providers out there in the world as more people decide that having an Aurum of their own makes strategic sense for them – or is just good art and pleasing to the eye.

Adam Trexler: That is right, and I think it is both those things. I think that your readers will hopefully think,Oh, I would like to see one of those and just see what this is about. And then may think, as I do, that If I am going to hold several ounces of gold, I might want to have an ounce worth in an Aurum, or two ounces worth or some percentage of their precious metal ownership.

Adam Taggart: Yep, that is definitely the approach I am taking. So let us see here, Adam, as we begin to wrap up here, you just happen to live and breathe the precious metal space, given this product, so I would be remiss not to ask you if you are seeing any trends or if you have any market intelligence that our readers who are reading other precious metal sites right now may not have already gotten exposure to in terms of your insider viewpoint, your perspective, or whatnot. Basically this is the Where do you see precious metals going from here? question.

Adam Trexler: Sure. I think that the underlying drivers of precious metals are only going up. I think that there will continue to be global risk. I think there will continue to be global debt problems, and we have seen why people want to own that. But I think the larger trends is the growth of wealth in Asia and other developing countries, where people have historically, for hundreds and hundreds of years, owned gold as a way to hedge their wealth. And the demand trends are very clear. The demand for physical gold has continued to grow even as the price has gone down.

And one thing that I look at that most other commentators may not is I look very, very carefully at the demands numbers for jewelry because there is a sector that is buying coins and bars, and you see that quite often in the United States – people who want to invest, invest in coins and bars. In other countries – I mentioned that ring manufacturer. The way that people invest in other countries is they buy jewelry. And it is typically a lower-increment investment, and that is the overlap with the Aurum. And what you see is that as the price of gold has fallen, that number has surged, both in the U.S. and abroad. And what it says to me is that as gold becomes more affordable, more people jump in and want it. And what I think that represents is a huge pent-up demand for gold, and people not being able to afford the increments that have been on the market.

So I think that the future of gold is very bright. I think that we have an increasing population, a limited supply of gold in the entire world. I don’t see that going anywhere except up over the medium term. And I think as more people have access to gold, have access to incremental wealth that lets them want to stick a bit of money away in this form, it can only go up.

Adam Taggart: All right. Well, I cannot say any of that disagrees with my perspective or that of Chris, so I think we do see the world very similarly to you. And as we see and embrace that trend of more people wanting to own gold more widely, which means having it be available to people at price-entry points that they can afford, it is really wonderful to see innovation and new products like the Aurum on the marketplace. So we wish you all the best.

And, Adam, I know I am going to get a ton of questions after this podcast about the actual process for manufacturing and Aurum and the technology that is involved. And I had intended to get into that, but we just did not have the time for it. I know we have a short video clip that you created that I’ll post along with this write up on the site. But I can definitely see myself inviting you back in the not-too-distant future to talk maybe a little bit more nuts-and-bolts about how the product is actually made.

Adam Trexler: Oh, that would be great, Adam. I have really enjoyed my time, and thanks for having me on.

Adam Taggart: Oh, really, my pleasure. Well, great talking with you, Adam, and best of luck with all your goals for world dominance with the Aurum here.

Adam Trexler: Well, it is really about dominance of the world and recognizing that the physical wealth that we can all have a part in, we should all have access to, and the Aurum is just a piece of that.

Adam Taggart: Very well said. All right, look forward to talking to you again soon, Adam.

Adam Trexler: Thank you.

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