Fiscal Cliff failure, Depression and a Gold bull on steroids

Last Updated : 18 December 2012 at 13:20 IST
I do hope that President Obama and Republican Speaker John Boehner really know what they are doing. They are playing with fire and the whole world is feeling the heat; it is questionable if they are feeling the same. What a pity!

Unless the fiscal cliff talks arrive at a tangible solution before December 31, chances are more that US dollar would have a cardiac arrest, I mean a hyperinflation on a global scale and a rally so huge in gold and silver that every $5000/oz-gold-analyst would be put to shame as their estimates get dwarfed by the new rally. 

Let me go back to1914 when Germany just like many other countries went off the gold standard to finance the World War. Going off the gold standard gave Germany the necessary blank cheque to print unlimited currency. The process went on until 1922 when something triggered a hyperinflation for Germans.

“The ultimate trigger was the loss of trust in the government’s policy and debt. As foreign capital refused to buy Germany’s debt anymore, the exchange rate depreciated (i.e. currency debasement) and the rate of inflation accelerated considerably. While it was a certainty that inflation would hit, the timing was determined by the loss of confidence.”: an article in trader said.

The quantity of Germany’s monetary base expansion is presented in the chart below in dotted lines. The chart shows as well the rate of inflation. [Monetary base is the total amount of money—including currency notes and coins—in the system along with reserves held by central banks.]

The chart below shows the Adjusted Monetray Base of US. The steep rise is attributed to QE initiatives now-a-days tethered to a mirage: job creation.

The recently announced QE4 unlike Operation Twist can significantly add to US monetary base.

So, it can be safely assumed that if US fiscal cliff talks fail and markets, including debt markets, get spooked, there would be a sudden rush to safe haven assets like silver and gold and a complete and absolute abandonment of US Dollar sparking hyper-inflation and a depression on a global basis. The issue would thus snowball into a crisis of confidence on unprecedented scale.

This has not happened before in the history of the planet and if it happens, then it will be a depression to end all depressions! Mind you Obama and Boehner!

And to conclude: after reading this, may no gold bull be carrying out a sinful prayer of no resolution of fiscal cliff issue! 

As published in: http://www.commodityonline.com/news/fiscal-cliff-failure-depression-and-a-gold-bull-on-steroids-51853-3-51854.html 

Shifting riches portending a Depression?

Last Updated : 08 November 2012 at 19:45 IST

Finally, what the West once did—looting the East-- has been paid back although in a different coin and note. See this excerpt from China Post which says that the riches—bars of precious metals like gold and silver, to start with--held by Westerners and Asians are being moved to East.

“We have a lot of enquiries from European banks, not because they want to move the assets necessarily to Asia, but because their clients are asking them to,” said Joshua Rotbart, general manager of Malca-Amit Precious Metals Ltd. [The firm specialises in storing and moving of precious metals and operates from multiple locations.]

“The clients don't want gold held in the U.S. or Switzerland. They want to move it here.”

The clients of Malca Amit includes rich Asians as well who may prefer their gold to be in vaults closer to home.

Now let's go back in time and see a Rooseveltian Presidential order dated April 5, 1933 that punished individuals who hoarded gold in US:

“I, Franklin D. Roosevelt, President of the United States of America, do declare that said national emergency still continues to exist and pursuant to said section to do hereby prohibit the hoarding gold coin, gold bullion, and gold certificates within the continental United States by individuals, partnerships, associations and corporations...” see the word continental?

Coming back to the present, only High Net-worth Individuals (HNIs) would hoard gold in such a huge quantity so as to fear its confiscation. Not that the gold is being changed from one vault to another. It is being changed from one nation to another. One area of sovereignty to another.

So, what is so creepy about the west that is prompting these HNIs to move gold. Are they fearing a recession to recur or even worse, a depression? One should assume so.

The HNIs get quality insider information and advice from various sources on economy and economic situations and they will not do something as vital as moving their gold across oceans without having some valid reason.

One may note that their preferred destination is Singapore: well-governed city-state known for its stable economy which on many counts would be more depression-proof and thus devoid of a threat of confiscation.

“Gold coin and bullion earmarked or held in trust for a recognized foreign government or foreign central bank or the Bank for International Settlements” had been exempted by Roosevelt from his order. If this be taken as a precedent, then it can be safely assumed that even if Singapore, or any other Asian country for that matter, comes up with another legislation to confiscate gold, the gold would arguably still be safe.

Singapore, for example, would not want to incur the wrath of Americans or any other country for confiscating the wealth of its citizens; especially in times of depression, would they?

As published in: http://www.commodityonline.com/news/shifting-riches-portending-a-depression-51270-3-51271.html