Home » Posts tagged 'bullion star'

Tag Archives: bullion star

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

What is Money?

What is Money?

What is money? Although it might seem a straight-forward question, ‘what is money’ is a question which will return a wide variety of answers depending on who you ask. For something taken for granted and used by billions of people every day all over the planet, this is perhaps surprising.

Ask a person on the street about money, and they will most likely reply that money is the banknotes and coins in their wallet or pocket. Ask a central banker about money and they will probably mention cash, bank deposits and legal tender, noting that most ‘money’ is held electronically in banks. The central banker, if they are savvy, might also mention that gold is money, but will probably quote this ‘off the record’.

Ask a commercial banker about money, and if they understand the business of fractional-reserve banking, they will say, also ‘off the record‘, that banks create money out of thin air, taking in deposits and then lending these same funds, and more recently lending money into existence that never existed, thereby creating debt.

Ask an economist for their view on the money question, and the answer might revolve around defining the functions of money in an economy (a store of value, a medium of exchange and a unit of account) and a discussion of which forms of money best perform these functions. The economist might also mention the relative merits of different forms of money, such as fiat currency, commodity-backed money (gold and silver), and discuss terms such as hard money, sound money, paper money, and the characteristics of a desirable money.

 …click on the above link to read the rest of the article…

The only gold the US shows – A working vault at West Point

The only gold the US shows – A working vault at West Point

Every so often, US media coverage provides glimpses into the US Treasury’s gold reserves stored with the US Mint. While this coverage never documents any of the claimed “deep storage” gold of the US Treasury, it contains just enough suggestion for the populace to connect the words ‘gold storage’ and ‘US Government’, and then return to their daily routines, assuming that the US has the largest strategic gold reserves in the world.

Notably, these media features, which span mainstream financial media and coin / numismatic news sites alike, are also only ever limited to one single location where the US Mint stores gold, a ‘working vault’ at the US Mint’s facility in West Point, New York. Images of this vault will be familiar to some readers, images which contain various pallets of 400 oz gold bars in front of a US flag and the walls of the storage room strewn with many years of scribbled visitor signatures .

Such a media feature recently appeared on the WNYW network (Fox 5 New York) in April, when the Fox5NY crew took the trip about 2 hours north of Manhattan to the US Mint’s bullion depository at West Point.

Along with its bullion depository in Fort Knox, Kentucky, and its minting facility in Denver, Colorado, the West Point Mint, located adjacent to West Point military Academy, is one of the three claimed Mint storage locations for the US Treasury’s “deep storage” gold reserves, and according to the US Treasury, there are 11 storage compartments at West Point storing 54 million troy ounces, or 1682 tonnes, of United States Government owned gold reserves. Which would be just over 20% of the 8133 tonnes of gold that the US Treasury claims to hold.

 …click on the above link to read the rest of the article…

Bank of England tears up its Gold Custody contract with Venezuela’s central bank

Bank of England tears up its Gold Custody contract with Venezuela’s central bank

In early November 2018, it first came to light that the Bank of England in London was delaying and blocking the withdrawal of 14 tonnes of gold owned by the Venezuelan central bank, Banco Central de Venezuela (BCV). At the time, Reuters and The Times of London both reported that according to unnamed British ‘public officials’, the delays were being caused by the difficulty and cost of obtaining insurance for the gold shipment back to Venezuela, and also due to “standard measures to prevent money-laundering“.

As I explained in a BullionStar article on 15 November titled ‘Bank of England refuses to return 14 tonnes of gold to Venezuela’, the explanations given to Reuters and the Times for the withdrawal delays were completely bogus, and that the real reason for blocking the BCV gold withdrawal was undoubtedly US and UK joint government interventions to stall the withdrawal. As I wrote at the time:

“The reasons put forward by official sources in the Reuters and Times articles for why Venezuela can’t withdraw its gold from the Bank of England are clearly bogus. The more logical and likely explanation is that the US, through the White House, US Treasury and State Department have been liaising with the British Foreign office and HM Treasury to put pressure on the Bank of England to delay and push back on Venezuela’s gold withdrawal request.”

As it turns out, this was an entirely correct prediction, since by 25 January, Bloomberg confirmed in an ‘exclusive report’ (two and a half months later) that:

 …click on the above link to read the rest of the article…

How California stayed with gold when the rest of the U.S. adopted fiat money

How California stayed with gold when the rest of the U.S. adopted fiat money

We are ten years into the age of bitcoin. But people are still using national currencies like yen, dollars, and pounds to buy things. What does history have to say about switches from one type of monetary system to another? In this post I’ll dig for lessons from California’s successful resistance to a fiat standard that was imposed on it in the 1860s by the rest of the U.S.

Not long after the war American Civil War broke out in 1861, a run on New York banks forced most of the country’s banks to stop redeeming their banknotes with gold. A few months later Abraham Lincoln’s Union government began to issue inconvertible paper money in order to finance the war. These notes were popularly known as Greenbacks.

$1 legal tender note, or greenback

Thus the 19 states in the Union shifted from a commodity monetary standard onto a fiat monetary standard. But Californians, who had been using gold as a payments medium for the previous decade-and-a-half, chose not to cooperate and continued to keep accounts in terms of gold. As a result, California stayed on a gold standard while the rest of the Union grappled with fiat money.

This had very different repercussions for prices in each region. As the Union issued ever more greenbacks to finance the war, the perceived quality of these IOUs deteriorated. Through much of 1863 and 1864, their price fell relative to gold. Because prices in the Union were set in terms of greenbacks, consumer and wholesale prices rose rapidly.

…click on the above link to read the rest of the article…

Separating truth from fiction in China’s golden game of Poker

Separating truth from fiction in China’s golden game of Poker

This month the Chinese central bank reported that in December 2018, its gold reserve holdings increased by 10 tonnes, the first claimed increase in Chinese monetary gold holdings since October 2016.

Based on previous patterns reporting patterns, a two year hiatus in reporting gold holdings is not unprecedented for the Chinese central bank and its reporting agency SAFE. What is strange, however, is that after an extended absence of reporting, the Chinese are coming back to the table with not a lot to show for it.

It is extremely difficult to believe that the Chinese central bank has not been accumulating gold throughout the last two years. Having said that, the claimed 10 tonne gold addition in December is worthy of analysis in regards to its timing and what it may signal. However, it is also important to keep in mind that there is huge and justified skepticism about the true size of the Chinese State’s monetary gold holdings held through the People’s Bank of China (PBoC), and to this we can probably now add skepticism about the real accumulation pattern of PBoC gold.

A 10 tonne teaser

News of December’s central bank gold purchase was initially published on the web site of China’s State Administration of Foreign Exchange (SAFE) in it’s December 2018 ‘Official Reserve Assets’ report. Note that SAFE reserve asset updates don’t actually state the quantity of gold the PBoC holds but instead report a US dollar figure valued at the corresponding month-end US dollar gold price.

So for example, the PBoC’s gold holdings were valued at US$ 72.122 billion at the end of November, which at a month-end November gold price of US$ 1217.55 was 1842.5 tonnes, while the stated gold valuation at the end of December was US$ 76.331 billion, which at an end of December LBMA gold price of US$ 1281.65 was 1852.5 tonnes, i.e. a 10 tonne increase.

…click on the above link to read the rest of the article…

Bank of England refuses to return 14 tonnes of gold to Venezuela

Bank of England refuses to return 14 tonnes of gold to Venezuela 

The Bank of England claims to be one of the largest physical gold custodians in the world, holding gold bars in vault storage on behalf of more than 70 central banks and a number of commercial (bullion) banks.

As a long-standing and well-known gold custodian, it should therefore be a simple matter operationally and logistically for any central bank customer from around the world to withdraw gold bars from the Bank of England and to have those gold bars sent overseas. These types of shipments have been happening at the Bank of England for hundreds of years.

Such an event would normally not generate any media interest nor even be known about in the public domain such is the secrecy and opacity of central bank gold transactions. For these reasons, the current case involving the Bank of England’s refusal to deliver Venezuela’s gold stored in London, and the way its been publicized, raises some questions and deserves comment.

HM Treasury and Fleet Street

So what exactly is the issue? On 5 November, the London headquartered Reuters news agency reported that the Venezuelan state, fearing sanctions, is attempting to repatriate 14 tonnes of gold from the Bank of England in London, but that this gold withdrawal and transport operation has not yet been actioned despite the withdrawal request being made by Venezuela nearly two months ago.

According to Reuters’ sources which were two unnamed “public officials with direct knowledge of the operation“, Venezuela’s gold bar withdrawal delay is being caused by the difficulty and cost in obtaining insurance for the gold shipment, and also because the Bank of England wants to know what Venezuela plans to do with its gold once it receives it.

…click on the above link to read the rest of the article…

 

LBMA Clearing and Vaulting data reveal the absurdity of the London ‘Gold’ Market

LBMA Clearing and Vaulting data reveal the absurdity of the London ‘Gold’ Market

The first day of each month sees the reporting of a number of statistics about the London Gold Market by the bullion bank led London Bullion Market Association (LBMA). These statistics focus on clearing data and vault holdings data and are reported in a 1 month lag basis for clearing activity and a 3 month lag basis for vault holdings data. Therefore the latest clearing data just published is for the month of August, while the latest vault holdings data is for the end of June.

While LBMA clearing data has been published for many years now, publication of vault holdings data by the LBMA is a recent phenomenon and only began at the end of July 2017. As the LBMA press release at the time stated:

“The physical holdings of precious metals held in the London vaults underpin the gross daily trading and net clearing in London. The net clearing is undertaken by the members of the London Precious Metals Clearing Limited (LPMCL).”

Although in both cases the data reported lacks any granularity and are just rolled up numbers, the two sets of statistics are useful in that they highlight the clear contradiction that exists between the huge volumes of fractionally-backed paper trading in the London Gold Market, and the relatively small quantities of underlying physical gold that sit in the gold vaults of the same institutions engaged in this ‘gold’ trading, quantities which are even smaller when Bank of England and ETF gold holdings are excluded.

LBMA gold vaulting data report for end of June 2018: Published 1st October

Vault Holdings – Underpinning ‘Gold’ trading

…click on the above link to read the rest of the article…

As Emerging Market Currencies Collapse, Gold is being Mobilized

As Emerging Market Currencies Collapse, Gold is being Mobilized

In recent weeks, global financial markets have been increasingly spooked by an intensifying crisis in emerging market currencies including those of Turkey and Argentina. Add to this the ongoing currency crisis in Venezuela and the currency problems of Iran. While all of these countries have economy specific reasons that explain at least some of their currency weakness, there are some common themes such as a stronger US dollar, high domestic inflation rates, economic mismanagement, reliance on foreign borrowing, and in some cases economic sanctions imposed by the US.

As one currency plummets, this intensifies emerging market risk across the entire asset class, and it’s not unreasonable at this time to at least speculate whether the contagion could spread. The Brazilian Real and South African Rand have come under pressure and in Asia, the Indonesian Rupiah and Indian Rupee are also now weakening against the US Dollar.

It is against this backdrop that physical gold is being increasingly mentioned within these emerging economies, with gold coming to the fore as it always does in times of crisis. It is for this reason that its interesting to take a look at a number of these currencies and examine how gold is playing the role of safe haven for these countries’ citizens as well as creating a challenge for these nations’ leaders and central banks.

Buying up Gold as the Turkish Lira Plunges

With ongoing currency and external debt problems, Turkey, with a population of 90 million, has played a central role in the current currency crisis and remains a catalyst for potential risk contagion across other troubled emerging market currencies.

Turkey’s currency woes come against a backdrop of a stronger US dollar, domestic inflation of 15%, increasing default risk, market skepticism about the independence of Turkey’s monetary policy, and a series of US sanctions against the Turkey economy.

…click on the above link to read the rest of the article…

Gold and the Monetary Blockade on Iran

Gold and the Monetary Blockade on Iran

This blog post is a guest post on BullionStar’s Blog by the renowned blogger JP Koning who will be writing about monetary economics, central banking and gold. BullionStar does not endorse or oppose the opinions presented but encourage a healthy debate.

With Donald Trump close to re-instituting economic sanctions on Iran, it’s worth remembering that gold served as a tool for skirting the the last round of Iranian sanctions. If a blockade were to be re-imposed on Iran, might this role be resuscitated?

The 2010-2015 Monetary Blockade

The set of sanctions that the U.S. began placing on Iran back in 2010 can be best thought of as a monetary blockade. It relied on deputizing U.S. banks to act as snitches. Any U.S. bank that was caught providing correspondent accounts to a foreign bank that itself helped Iran engage in sanctioned activities would be fined. To avoid being penalized, U.S. banks threatened their foreign bank customers to stop enabling Iranian payments or lose their accounts. And of course the foreign banks (mostly) complied. Being cut off from the U.S. payment system would have meant losing a big chunk of business, whereas losing Iranian businesses was small fry.

One of the sanctioned activities was helping Iran to sell oil. By proving that they had significantly reduced their Iranian oil imports, large importers like Japan, Korea, Turkey, India, and China managed to secure for their banks a temporary exemption from U.S. banking sanctions. So banks could keep facilitating oil-related payments for Iran without being cut off from the dollar-based payments system. The result was that Iran’s oil exports fell, but never ground to a halt. This was a fairly balanced approach. While the U.S. wanted to deprive Iran of oil revenue – which might be used to build nuclear weapons – it didn’t want to force allies to do entirely without necessary crude oil.

…click on the above link to read the rest of the article…

Money as a Measuring Stick

Money as a Measuring Stick

Imagine if the world’s metre sticks all grew or shrunk a bit each year. That would make for a confusing system of weights and measures, wouldn’t it? Well, that is exactly what happens with money.

We have been measuring the world around us for thousands of years. Units like feet and cubits have been used for distances, pounds and kilograms to measure weight, and dollars and yen to measure economic value. Measuring value, however, is by far the most complicated of the measurements that must be taken. This is because – unlike the other units – the various items that have been used to represent dollars and yen are constantly fluctuating in value.

The British Pound, or lb

Monetary units have always been closely tied up with units of weight. For instance, the word “pound” has been used to describe both the British monetary unit (£) and the weight (lb). The pound weight was originally based on wheat. In 1266, King Henry III decreed that the British unit referred to as the grain should be defined as the weight of a corn of wheat “well dried, and gathered out of the middle of the ear.” Thirty-two grains were to be equal to a pennyweight, twenty pennyweights equal to an ounce, and twelve ounces added up to a pound. So the early English pound, otherwise known as the Tower pound, was comprised of 7,680 “well-dried” grains from the middle of an ear of wheat.

Grains of wheat

The Tower pound wasn’t the only pound weight used in England. The Troy pound, used for gold and silver, contained 5,760 grains, while the Merchant pound was made up of 6,750 grains. To add to the confusion, the avoirdupois pound would contain 7,000 grains.

The Exchequer Standard

Although the grain unit served as the basis for weights, people didn’t go about their regular business of measuring the weights of things by counterbalancing them against tiny grains of wheat. Imagine how awkward it would be to go to the local market to ask for an ounce of meat! The butcher would have had to count out 640 grains and then counterbalance them on a scale against the hunk of meat, an arduous process that would have brought the gears of trade to a near halt. Buyers would have been constantly accusing sellers of not using appropriately dry grains, adding to the confusion.

…click on the above link to read the rest of the article…

 

Why QE didn’t send gold up to $20,000

Why QE didn’t send gold up to $20,000

Why didn’t quantitative easing, which created trillions of dollars of new money, lead to a massive spike in the gold price?

The Quantity Theory of Money

The intuition that an increase in the money supply should lead to a rise in prices, including the price of gold, comes from a very old theory of money—the quantity theory of money—going back to at least the philosopher David Hume. Hume asked his readers to imagine a situation in which everyone in Great Britain suddenly had “five pounds slipt into his pocket in one night.” Hume reasoned that this sudden increase in the money supply would “only serve to increase the prices of every thing, without any farther consequence.”

Another way to think about the quantity theory is by reference to the famous equation of exchange, or

  • MV = PY
  • money supply x velocity of money over a period of time = price level x goods & services produced over that period

A traditional quantity theorist usually assumes that velocity, the average frequency that a banknote or deposit changes hands, is quite stable. So when M—the money supply— increases, a hot potato effect emerges. Anxious to rid themselves of their extra money balances M, people race to the stores to buy Y, goods and services, that they otherwise couldn’t have afforded, quickly emptying the shelves. Retailers take these hot potatoes and in turn spend them at their wholesalers in order to restock. But as time passes, business people adjust by ratcheting up their prices so that the final outcome is a permanent increase in P.

…click on the above link to read the rest of the article…

Russia, China and BRICS: A New Gold Trading Network

Russia, China and BRICS: A New Gold Trading Network

One of the most notable events in Russia’s precious metals market calendar is the annual “Russian Bullion Market” conference. Formerly known as the Russian Bullion Awards, this conference, now in its 10th year, took place this year on Friday 24 November in Moscow. Among the speakers lined up, the most notable inclusion was probably Sergey Shvetsov, First Deputy Chairman of Russia’s central bank, the Bank of Russia.

In his speech, Shvetsov provided an update on an important development involving the Russian central bank in the worldwide gold market, and gave further insight into the continued importance of physical gold to the long term economic and strategic interests of the Russian Federation.

Firstly, in his speech Shvetsov confirmed that the BRICS group of countries are now in discussions to establish their own gold trading system. As a reminder, the 5 BRICS countries comprise the Russian Federation, China, India, South Africa and Brazil.

Four of these nations are among the world’s major gold producers, namely, China, Russia, South Africa and Brazil. Furthermore, two of these nations are the world’s two largest importers and consumers of physical gold, namely, China and Russia. So what these economies have in common is that they all major players in the global physical gold market.

Shvetsov envisages the new gold trading system evolving via bilateral connections between the BRICS member countries, and as a first step Shvetsov reaffirmed that the Bank of Russia has now signed a Memorandum of Understanding with China (see below) on developing a joint trading system for gold, and that the first implementation steps in this project will begin in 2018.

Interestingly, the Bank of Russia first deputy chairman also discounted the traditional dominance of London and Switzerland in the gold market, saying that London and the Swiss trading operations are becoming less relevant in today’s world. He also alluded to new gold pricing benchmarks arising out of this BRICS gold trading cooperation.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase