The Battle of the Ages – Part 2
It’s all Greek to Me Winston Churchill once said, “The farther backwards you can look, the farther forward you are likely to see.” So in the spirit of Churchill, we are going to look back…..way back to the time of the Greeks. Gold and Silver have been the predominant currency for 4,500 years, but they became money in Lydia, in about 680 B.C when they were minted into coins of equal weight to make trade easier and smoother. But when coinage first made its appearance in Athens that it truly flourished. Athens was the world’s first democracy. They had the world’s first free-market system and working tax systems. This made possible those amazing architectural public works like the Parthenon. Indeed, for many years, the Athens star shone brightly. If you’ve studied your history, then you are considered one of the great civilizations of all time. You’ll also know that their civilization fell a long time ago. So what happened? Why did such a great and powerful civilization like Athens fall? The answer lies in the same pattern we can see time and time again throughout history: too much greed leads to too much war. Athens flourished under their new monetary system. Then they became involved in a war that turned out to be much longer and far more costly than they anticipated (sound familiar). After twenty-two years of war, their resource waning and most of their money spent, the Athenians came up with a very clever way to continue funding the war. They began to debase their money in an attempt to soldier on. In a stroke of genius, the Athenians discovered that if you take in 1,000 coins in taxes and mix 50 percent copper in with your gold and silver you can then spend 2,000 coins! Does this sound familiar to you? It should . . . it’s called deficit spending, and our government does it every second of every day. This was the first time in history that gold or silver had a price outside itself. Before the Athenian’s bright idea, everything that you could buy was priced in the weight of gold or silver. Now, for the first time, there was an official government currency that was not gold and silver, but rather a mixture of gold or silver and copper. You could buy gold and silver with it, but the currency supply was no longer gold and silver in any of them. Over the next two years, their beautiful money became nothing more than currency, and as a consequence, it became practically worthless. But obviously, once the public woke up to the debasement, anyone who had held on to the old pure gold & silver coins saw their crowned increase dramatically. Rome is Burning Rome supplanted the Greek empire as the dominant power of its day, and during its centuries of dominance, the Romans had ample time to perfect the art of currency debasement. Just as with every empire in history, Rome never learned from the mistakes of past empires, and therefore they were doomed to repeat them. Over 750 years, various leaders inflated the Roman currency supply by debasing the coinage to pay for the war, which would lead to staggering price inflation. Coins were made smaller, or a small portion of the edge of gold coins would be clipped off as tax when entering a government building. These clippings would then be melted down to make more coins. And of course, just as the Greeks did, they too mixed lesser metals such as copper into their gold and silver. And last but not least, they invented the not-so-subtle art of revaluation meaning they simply minted the same but with a higher face value on them. By the time Diocletian ascended to the throne in A.D.284, the Roman coins were nothing more than tin-plated copper or bronze, and inflation (and the Roman populace) was raging. Deficit spending went into overdrive. When he ran short of funds, Diocletian simply minted vast quantities of new copper and bronze coins and began, once again, debasing the gold and silver coins. This resulted in all currency-based trade coming to a virtual standstill, and the economic system reverted to a batter system. As you will see, debasing the currency to pay for public works, social programs, and war is a pattern that repeats throughout history. It is a pattern that always ends badly. From the book “Guide to Investing in Gold & Silver” by Michael Maloney
The Battle of the Ages – Part 1
Currency A lot of people think currency is money. For instance, when someone gives you some cash, you presumably think of it as money. It is not. Cash is simply currency, a medium of change that you can use to purchase something that has value, what we would call an asset. Currency is derived from the word current. A current must keep moving or else it will die (think electricity). A currency does not store value in and of itself. Rather, I am a medium whereby you can transfer value from one asset to another. Money Money, unlike currency, has value within itself. Money is always a currency, in that it can be used to purchase other items that have value, but as we’ve just learned, currency is not always money because it doesn’t have value in itself. If you are having a hard time grasping this, just think about a hundred-dollar bill. Do you think the paper is worth $100? The answer is, of course, no. That paper simply represents the value that is stored somewhere else – or at least it used to be before our money became currency. Fiat Currency A fiat is an arbitrary decree, order, or pronouncement given by a person, group, or body with the absolute authority to enforce it. A currency that derives its value from declaratory fiat or an authoritative order of the government is by definition a fiat currency. All currencies in use today are fiat currencies. Adventures in Currency Creation Fiat currencies don’t usually start out that way, and those rare cases when they have were very short-lived. Societies usually start with high-value commodity money such as gold and silver. Gradually, the government hoodwinks the population into accepting fiat currency by issuing paper demand notes that are redeemable in precious metals. These demand notes (currency) are just “certificates of deposit,” “receipts,” or “claim checks” on the real money that is in the vault. I would venture to say that many Americans think this is how the U.S dollar works today. Once a government has introduced a paper currency, they expand the currency supply through deficit spending, printing even more of the currency to cover that spending, and through credit creation based on fractional reverse banking (something we’ll cover later on). Then usually due to war or some other national emergency, like foreign governments or the local population trying to redeem notes (bank runs), the government will suspend redemption rights because they don’t have enough gold and silver to cover all the paper they printed, and poof! You have fiat currency. From the book “Guide to Investing in Gold & Silver” by Michael Maloney
Gold Migrating from West to East
As Bloomberg described it, many western investors – particularly at the institutional level – are dumping bullion. Meanwhile, Asian buyers are taking advantage of lower prices to snap up less expensive jewellery, coins, and bars. According to the Bloomberg report, “large volumes of metal are being drawn out of vaults in financial centres like New York and heading east to meet demand in Shanghai’s gold market or Istanbul’s Grand Bazaar.” In fact, Asian suppliers are having a difficult time getting enough bullion into Asian markets. As a result, there has been a significant increase in premiums in many Asian countries. September’s average premium in China reached the highest monthly level for nearly six years. “The incentive to hold gold is a lot lower. It’s going from west to east now,” MKS PAMP SA head of trading Joseph Stefans told Bloomberg. “We are trying to keep up as best we can.” New York and London vaults have reported an exodus of more than 527 tons of gold since the end of April, according to data from the CME Group and the London Bullion Market Association. At the same time, gold imports into China hit a four-year high in August. India, Turkey, Thailand and Saudi Arabia have also reported increased imports of gold. There is also growing demand for silver in Asian markets, particularly India. The premium on silver has tripled in recent months. We also see the Asian appetite for gold in central bank purchases. Central banks globally have been net gold buyers for five straight months and all of the big purchases have been in the East. Turkey has added more gold to its reserves in 2022 to date than any other country. With an 8.9-ton purchase in August, Turkey had increased its gold reserves by 84 tons through the first eight months of the year. Turkey now holds 478 tons of gold between its central bank and treasury holdings, the highest level since Q2 2020. The Reserve Bank of India has also been a big buyer in 2022. Its total gold reserves now stand at 782.7 tons, ranking it as the ninth-largest gold-holding country in the world. Since resuming buying in late 2017, the Reserve Bank of India has purchased over 200 tons of gold. In August 2020, there were reports that the RBI was considering significantly raising its gold reserves. Other big gold buyers in 2022 include Kazakhstan, Uzbekistan, Qatar and Iraq. In the East, many people still use gold as their primary form of savings and wealth preservation. An article published by Seeking Alpha summarizes this dynamic. “For millions of people in Asia gold still is the ‘basic form of saving.’ In contrast to the West, where financialization started decades ago, and gold has slowly been removed from people their day-to-day lives. Until a financial crisis emerges, that is. In the West, people own little or no physical gold when they feel financially confident. People in the East have retained a long-term view concerning gold. Their ancestors saved in gold, and so have they been taught. With the knowledge that ultimately, gold doesn’t lose its purchasing power.” For instance, Indian households own an estimated 25,000 tons of gold and that number may be higher given the large black market in the country. Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey in 2018, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. So, while investors in the West are dumping gold as the price falls, investors in the East are taking advantage of the relatively low prices (even though gold is more expensive in many non-dollar fiat currencies) and gobbling up gold as inflation eats away at the value of their local currencies. Article courtesy of Schiff Gold
The Royal Mint honours the Queen one last time
The Royal Mint has decided on the way forward with regard to the final design of the 2023 British Silver Britannia. For a limited time only, the Royal Mint has decided to launch a limited number of Britannia coins with the effigy of Queen Elizabeth II. The minting and production of this version of the 2023 Britannia will be terminated by mid-November. I suspect that production may be less than 2 million coins. This is based on the assumption that there are no breakdowns, interruptions, and a full supply of silver blanks available thought the 6 weeks. In any case, no doubt, these coins will trade at a premium over previous or possibly even later releases. From mid-November onwards, the Royal Mint will swap over to the effigy of King Charles III for the remainder of 2022-2023 production season. In short, there will be a 2023 Britannia with the Queen’s effigy (limited to volumes that can be manufactured in a 6-week period). Article courtesy of Silver-Sphere
