By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
While a lot of attention is focused on European debt problems and the US elections, there are a few developments in the works which bode well for higher gold prices in the future.
These developments have nothing to do with technical trading signals or standard supply and demand curves. Instead they point out that demand for physical gold could be much higher in the future or that supplies could be lower.
First, a brokerage customer purchased four kilogram-size gold bars in 2009. The buyer was given the serial numbers of the bars and was told by the brokerage firm that his bars were held in “allocated storage.” Allocated storage is specific merchandise stored with the customer’s name on it. It is theoretically titled in the name of the owner of the metal and not in the name of the brokerage or the storage company. Therefore, the metal is not an asset subject to outside claims against the brokerage or storage company.
Last fall, this buyer started the process to take physical delivery of these four kilogram gold bars. For a time, he was given the runaround. Eventually he did receive four kilogram gold bars. Unfortunately, none of the serial numbers matched. In fact, upon further checking, it was determined that the bars the owner received had been manufactured in 2011!
Although this particular owner was eventually made whole, the question still exists about what happened to the bars he supposedly held in allocated storage. If brokerages and storage facilities are defrauding customers of their gold in allocated storage, a little publicity could spark soaring demand for delivery of physical metal that that simply does not exist!
Second, when banks are judged on their solvency, different assets held by the bank are classified as different tiers in terms of the “quality” of the asset. Tier 1 assets are calculated as being valued at 100% of the asset value, even if such an asset is Greek sovereign debt. Gold is currently classified as a Tier 3 asset, meaning only 50% of its value can be treated as bank capital.
Well, the times may be a-changing. The Basil Committee for Bank Supervision, an operation of the Bank for International Settlements is studying a proposal to reclassify gold as a Tier 1 asset. This Committee is the highest level of international bank supervision. Its role is to define bank capital requirements.
Bank capital requirements are being increased in 2013. While it is uncertain when or to what degree gold might be allowed as a Tier 1 asset, Ross Norman, an analyst for Sharps Pixley, believes that private bank demand could absorb as much as 1,700 tons (almost 55 million ounces) of gold should this occur. A bonus for the banking industry is that gold is almost certainly of higher safety in terms of capital preservation than some of the debt banks now hold. Should this reclassification of gold occur, there could be a competition among banks to advertise that they hold the higher percentage of their reserves in gold.
Third, Iran recently announced that has in place an international payment system that does not use the US dollar. This alternative would be extremely popular for China and India, which are major importers of Iranian oil, if the US government carries through with its threats to cut off from the SWIFT international transaction payment system of any nations that trade with Iran after the end of June. Russian President Putin’s decision to boycott the Group of 8 meeting in Camp David, Maryland two weeks ago could also be a sign of that nation’s solidarity with Iran, China, and India to further decrease the usage of US dollars for international trade. Such a development would further hurt the value of the US dollar, resulting in higher gold prices.
The prices of precious metals are not all about standard supply and demand factors and technical trading signals. Every once in a while, the market shifts for other reasons. The long-term prospects for gold look extremely positive.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed athttp://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
Patrick, additionally, Japan and China are working on using direct exchange of Yen/Renminbi instead of converting to the Dollar as an intermediary. That would effectively be another strike against the Dollar as the world’s reserve currency. From different sources I’ve located it seems as though they are looking to institute this new trading method sometime this month or in July.
On a parallel note, we see that Bart Chilton of the Commode Futures Trading Collusion says their silver investigation (burp) will end by September and maybe more promptly than that. Did anyone else notice his place of birth is Wilmington Delaware, home base of the Du Pont (silver users/Pilgrims Society members) clan? Who do you know back home, Bart? Do you hold any Du Pont stock, Bart? Bart’s grand pappy worked for Du Pont and has a chemical laboratory named after him! See http://en.wikipedia.org/wiki/Bart_Chilton (Du Pont uses silver in more than 300 catalytic processes!) What was the line from one of “The Mummy” films—oh yeah—it was, “It is better to be at the right hand of the devil than be in his path! As long as I serve him I am immune!” The more recent pix of Bart sure shows a scarecrow looking guy! They say worry can wreck your features! Historical note—Delaware is named after English aristocrats, the Earls of De La Warr—members of The Pilgrims Society London (World Money Power!) The De La Warr clan has ancestry with the Rockefellers, whose Congressional cronies set up the Commode Futures Trading Collusion in 1975.
Do you EVER go back and reread your stuff? Just to see how wild-eyed lunatic it come across? Do yourself a favor. Step outside your own dogma and look at it with a fresh viewpoint that “normal” people bring to finance and economics. Failing that, go back on your Thorazine. Please.
Someone is suspect because he lives in wilmington, DE?!?!?! Oh my freaking God…. Get a grip, dude!
You again, huh? You are an obnoxious boor to attempt to use psychiatry to discredit someone. Understand mister, you are an offensive boor and boundlessly crass! I illustrated Chilton’s links to DuPont a major silver user. That’s enough for most people. We’d all be interested in what organizations you may be a member of or what is the source of your bias. Please use rational argumentation and avoid useless forays into the “there’s something wrong with your mind” crap. Something else—what the hell does “V.” stand for and what are you doing using a letter in place of a name? My info comes across as quite rational to more folks than yourself; you’re almost alone except for the bad boys you seem to feel don’t exist. I suggest you Google my work to see the positive feedback tremendously surpasses the negative. Now ARE you gonna stop trying dirty tricks to make it seem to someone that you’re winning a debate? Forget about psychiatry, people can see it’s the modern counterpart to the Protestant witch hunts and the Roman Catholic Inquisition. And it’s rapidly losing ground in American courtrooms as a ploy to excuse guilt “but judge the disorder made me do it!”
The Delaware / Lenape tribe also used wampum for money, not paper, gold nor silver. Money varies as needs change. Wampum had its era for the needs of its time. Gold had its. Silver had its. Paper’s may be waning as well. The trend is toward digital money. Look around you. Watch everyone buying their latte at Starbucks using a stupid debit card. Money? It’s a “concept”, nothing more. Sorry, that’s what’s out there in the real world. Love it ot hate it; it doesn’t matter. It’s what people are voting for by their deeds and actions.
This is addressed to readers only, as speaking to Mr. Bellman is a degrading experience, considering that he tries to use the “there’s something wrong with your mind” ploy to win an argument! In medieval times he would have denounced me as a heretic or a witch! These pathetic accusations no longer suffice to discredit an adversary’s facts and argumentation, and it’s truly disgraceful on his part that he made such corrupt attempt! Hang your head in shame, V. Kurt! We know about the history of money and what has failed. Precious metals never failed, they were pushed out of the payments system by bankers because they couldn’t create metals. We’ll see how far debit cards & electronic money goes. A powerful trend is in place in which individuals and entities will increasingly prefer payment in precious metals; legal tender laws will be amended to allow competing currencies. This is especially true against the backdrop of some $3 trillion dollars of unfunded state and municipal government pension commitments, which governments are now seeking to trim or outright repudiate! Many State legislators are turning to gold & silver as alternate currencies. The reason is they know the Federal Reserve is not a Deity! Value must be received for value, and synthetic “money” has no basis, and is incapable of being propped up ad infinitum! “The proper material for money is determined by the nature of things, a law higher than any government”—Elizur Wright, the “Father of Life Insurance,” North American Review, May 1877. As for Bart Chilton, it isn’t where he was born/resides that matters nearly as much as the clear suggestions of cronyism in that he’s a futures market regulator, and is probably incapable of impartiality towards silver, given his family connections to Du Pont, and its obsession with holding silver low as a member of the Silver Users Association. Andrew Brimmer was a FED governor who became a COMEX governor and a director of Du Pont, and voted to activate the destruction of the Hunt/Arab silver play in January 1980, because Du Pont wanted silver prices to be crushed! (He was a CFR member, direct subsidiary of The Pilgrims Society), something V. Kurt doesn’t want to touch! Folks, even Ted Butler has just asked Chilton to resign! I’d ask for more than that—who is his main contact in the monolithic financial community? Paul Volcker, a Pilgrims Society V.P. perhaps?