Never The Twain
"Oh, East is East, and West is West, and never the twain shall meet,
Till Earth and Sky stand presently at God’s great Judgment Seat;
But there is neither East nor West, Border, nor Breed, nor Birth,
When two strong men stand face to face, tho’ they come from the ends of the earth.”
— Rudyard Kipling, The Ballad of East and West
"Sometimes - not often, but sometimes - the cranks and radicals turn out to be right. Sometimes Everyone is wrong."
— Mathew Scully, Dominion
"And the end of the fight is a tombstone white with the name of the late deceased,
And the epitaph drear: "A Fool lies here who tried to hustle the East."
— Rudyard Kipling, The Naulahka
"The farther west he went, the more he was convinced that the wise men came from the East."
— Horace Russell
Things That Make You Go Hmmm...
The mere mention of the Silk Road evokes a very different time and place, pre-Amazon.com, when trade was conducted face-to-face and merchants travelled on horseback and foot the breadth of continents to find buyers for their merchandise, returning with goods in exchange.
The Silk Road was, according to Wikipedia:
... a historical network of interlinking trade routes across the Afro-Eurasian landmass that connected East, South, and Western Asia with the Mediterranean and European world, as well as parts of North and East Africa. The Silk Road includes routes through Syria, Turkey, Iran, Turkmenistan, Uzbekistan, Kyrgyzstan, Pakistan and China.
Extending some 4,000 miles from Europe to Asia, uniting West and East in trade, it took its name from the Chinese silk which, from the days of the Han Dynasty (206 BC - 220 AD), was bought and sold along its length.
The central Asian sections of the trade routes were expanded around 114 BC by the Han dynasty, largely through the missions and explorations of Zhang Qian, but earlier trade routes across the continents already existed.
Trade on the Silk Road was a significant factor in the development of the civilizations of China, the Indian subcontinent, Persia, Europe and Arabia. Though silk was certainly the major trade item from China, many other goods were traded, and various technologies, religions and philosophies, as well as the bubonic plague (the “Black Death”), also traveled along the Silk Routes.
Silk and technology, good. Bubonic plague, not so good; but that sort of thing can happen when you open trade routes across continents, I guess.
The Silk Road endured through centuries of human expansion as Chinese emperors, Persian kings, and even Alexander the Great traveled the route, looking to open new markets for trade; but it wasn't until the first century BC that a discernible Silk Road (or rather a network of Silk Roads) was established by the Yuezhi and Xiongnu peoples of China, who forged a complex network of trade routes (and an even more complex set of diplomatic relations) with both India and the Western World.
However, it wasn’t until the Romans conquered Egypt in 30 BC that trade and communication among China, India, the Middle East, Africa, and of course Europe exploded in both breadth and depth to levels theretofore unimaginable.
Yes, theretofore. I said it. And yes, it IS a word. No, it’s not 1789; I just like the sound of it.
Despite the inconvenience of frequent wars, the Silk Roads became the axis along which trade between the continents blossomed; and inevitably, as if to prove Mark Twain's assertion that history may not repeat itself but certainly rhymes, it was cheap Chinese-made goods that found the most favour with the wealthy inhabitants of the Roman Empire in the West, and specifically Chinese hand-spun silks, which the early Romans initially believed grew on trees (like money does in 2013) but which they later discovered were woven from thread created by the larvae of moths. Imagine the guy in the fancy toga who made THAT discovery: “Exspecta ... ex QUO?” (or, in English: "Wait ... it comes from WHAT?”)
Now this is where things get interesting.
The Roman Senate tried desperately and, as it turned out, unsuccessfully to prohibit the wearing of silk on — wait for it — both economic and moral grounds.
The real grounds, of course, were economic; but by cloaking its reasons in morality, the Senate wished to appeal to the higher sensibilities of the citizens of Rome in order to persuade them to play ball of their own volition. Of course, appealing on moral grounds to the same group of people who invented the orgy was a strategy flawed in the extreme; but early paparazzi coverage of celebrity lifestyles was patchy at best, and with the invention of the doorstep hundreds of years away, doorstepping was a verb that early Latin students never had to conjugate.
It is in those economic grounds for trying to stop the inflow of silk into Rome that we may find lessons, as historical parallels once again demonstrate the benefits of studying the past.
In his "Declarations" Seneca the Younger laid out the establishment's moralistic case against silk:
I can see clothes of silk, if materials that do not hide the body, nor even one’s decency, can be called clothes.... Wretched flocks of maids labour so that the adulteress may be visible through her thin dress, so that her husband has no more acquaintance than any outsider or foreigner with his wife’s body.
Nice try, establishment. The real reason? Gold. Of course.
The insatiable lust for silk amongst Roman high society sent huge outflows of gold to Chinese coffers, and that was something the authorities simply couldn’t allow to continue. Why? Because gold was money. Gold was wealth. Gold was power.
The merchants of the East knew it and coveted gold for all of those reasons. The ruling class in the West knew it and tried to stop the transfer of gold from their own vaults into those of the Indian and Chinese merchant classes. But the citizens of the Roman Empire, growing ever more decadent by the day, were happy to swap their gold for the luxuriant fabric.
Money for "bling".
Attitudes toward gold persisted through the centuries as citizens of the East grew accustomed to wealth confiscation, regular defaults by their rulers, inflation, hyperinflation, and the need to have their wealth held outside the banking system in a form that was durable, portable, divisible, convenient, consistent, limited in its availability, and widely accepted through history. Wealth was something to be accumulated and passed on to future generations to provide security — not something to squander on holiday villas, speed canoes to waterski behind, and souped-up chariots.
It was once that way in the West, too; but like the Romans two thousand years ago, the modern inhabitants of the Western World grew decadent and preferred to spend their wealth on trophy purchases or use it as collateral in order to engage in speculative leverage.
Growth was converted to wealth, wealth was exchanged for goods, and when wealth expansion subsided, there was always credit, which masqueraded quite nicely as growth in the eyes of people only too willing to confuse one for the other in order that the party continue.
When Nixon ended the gold standard in August 1971, he sounded the all-clear to really get the credit party started, and as you can see from the chart below (which will be familiar to regular readers, as I have shoved it under your noses several times already), the credit providers in the USA found a public willing to indulge itself with Borgia-like ferocity:
The differing attitudes to gold, Western vs Eastern, have been ingrained through centuries of human development; and they have been making themselves abundantly clear in recent times as physical gold moves inexorably from West to East.
I won’t go into the recent disconnect between "the Gold Price" and "the Price of Gold” again, as I’ve written and spoken about it extensively in recent months; but the insatiable demand for physical gold amidst a dramatic sell-off in paper has, I suspect, paved the way for some real problems in the coming weeks and months; and those problems have begun to manifest themselves, bizarrely enough, in the very country that in recent months has topped the buying charts for physical gold.
In the all-important Q2/2013, the two biggest buyers of gold in the world were two of the countries at the Eastern extremities of the old Silk Roads — China and India — and it is through journeying to India that we can now learn lessons about the future from the study of the past.
Indian demand for physical gold swamped even Chinese demand in Q2 2013, as Indians stocked up on the monetary metal not only in the form of jewelry ahead of the traditional wedding season but also in investment form: coins and bars. All the while, their national currency, the rupee, was disintegrating before their eyes.
In the absence of monetary mettle, Indians demanded monetary metal.
Between May 1st and August 20th, the rupee fell 20% against the US dollar, and whilst that move may not have resonated with most Westerners, it certainly did with India’s richest man:
(UK Guardian): India’s richest man is down to his last $i7.5bn (£ii.2bn), after the plunging value of the rupee wiped out a quarter of his fortune, in dollar terms.
Mukesh Ambani, the chairman of Reliance Industries, which operates the world’s largest oil refineries, has lost $5.6bn of his personal wealth since 1 May, according to the Bloomberg Billionaires index.
His fortune took a further hit on Thursday, as India’s currency hit fresh lows, adding to the sense of panic in emerging markets. Developing economies, excluding China, have seen an outflow of$8ibn in emergency reserves since early May, as central banks try to prop up their currencies.
That’s a very real hit, but Indians are used to moves like these in their currency, though the trend over the last 40 years has been largely a one-way ticket to a weaker rupee:
However, that chart tells only half the story.
To really understand why Indians covet gold so much, let's take a look at another chart, this time showing the recent performance of the rupee AND gold:
Et voila! Since April, gold has strengthened 20% in rupees whilst the currency has depreciated by a similar amount vs the US dollar.
Purchasing power protection in action, folks. Just one of the beauties of owning gold.
Naturally, the Indian government is concerned that its citizens — conditioned over the centuries to understand exactly why owning gold is important — are exchanging their rupees for gold in droves, because their activity is exacerbating the slide in the rupee. So, cue capital controls:
(The Times of India, Aug 14 2013): India has banned imports of gold coins and medallions as part of steps to curb its current account deficit, Arvind Mayaram, economic affairs secretary, said on Wednesday, after total gold imports picked up again in July.
The federal government will take more steps to stabilize the rupee as and when required, he said, adding the current measures were not permanent in nature ...
As drastic as the government's action may seem, it is just the latest in a long line of (futile) attempts to curb Indian citizens' ability to own gold:
(Reuters): Following are the measures taken by the central bank and the government in 2013:
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.
Get the feeling that in the middle of the world's largest democracy, a small group of people doesn't want a large group of people owning something?
Now, naturally, Indian citizens, seeing their government's desire to restrict their ownership of gold, simply stepped up their pursuit of gold dramatically:
(Mineweb): Even as gold retailers reel under new RBI curbs, gold smugglers appear to be gaining ground in India. The seizure of smuggled gold has surged 365% in the April to June quarter of this financial year, thanks to the incessant restrictions on the precious metal. Margins for smuggled gold have also jumped, beating other smuggled items like sandal wood and ketamine drugs....
Revenue authorities had said smuggling could rise to over 150% over last year. However, the increase in import duty in June, from 6% to 8% as well, as the Reserve Bank of India’s (RBI’s) recent measures to curb gold imports have precipitated smuggling.
The Wall Street Journal shed some light on just how big the gold smuggling business is in India — and just how little of it gets detected:
(WSJ): The number of people arrested by the department for gold smuggling rose to 32 in the quarter that ended in June from four during the same period a year earlier, according to the Revenue Intelligence official.
The value of the gold seized during the quarter was 270 million rupees, more than 10 times the 25 million rupees of precious metal retrieved from smugglers during the same period in 2012, said the official.
The total number of cases of smuggled gold during the same period shot up to 205 from 21 a year earlier, said an official at the Antismuggling Department, part of the Central Board of Excise and Customs.
But this is only a fraction of the gold being smuggled into the country, Revenue Intelligence officials say. "I think we are able to detect only about 5% to 10% of the gold smuggling in the country," said a second Revenue Intelligence official.
As I said previously, people in the East fundamentally understand the value of owning gold — and not being able to get it just makes them want it more.
Fortunately (for inhabitants of the subcontinent, at least), as the fervor to own gold in India increased, it happened to coincide with the paper-driven sell-off in the West, as traders and weak hands were taken in by the pummeling of COMEX futures and liquidated positions in ETFs.
Richard Dyson laid it out perfectly:
(UK Daily Telegraph): Gold market commentators say that, while ETFs account for just 6pc of the overall demand for the precious metal, ETF investors' ability to buy and sell with ease has a dramatic impact on price. The supply chain for gold bars, coins and jewellery, on the other hand, is long and more complex, the argument goes, so that even though these markets generate greater total demand — something like 70pc — it takes longer to filter through.
So western investors in effect presented consumers in India, China and other smaller, Asian countries with a buying opportunity unseen for years.
Bingo! That is exactly what has happened.
Physical gold has been sucked into the East and into very strong hands — the kinds of hands that don't let go of it easily. Certainly not as easily as those in the West who were scared out by a 20% correction.
But the level of the frantic desire to accumulate physical gold here in Asia and especially in India has surprised even me (almost); and this week a whole new level of light was shed on just how frantic that desire has been by a data point involving, of all places, the UK and Switzerland:
(FT): UK gold exports to Switzerland, the hub of the gold refining industry, leapt to 798 tonnes in the first six months of the year, up from just 83 tonnes in the first half of 2012, according to data from Eurostat, the European Union’s statistics office.
Now, at this point I can hear you asking, "What the heck does this have to do with Asian gold demand?” Well, allow me (or rather, the FT) to continue:
(FT): Large-scale selling by investors triggered a 26 per cent slide in gold prices from the start of the year to a near three-year low of $1,180 a troy ounce in June.
The price fall has stimulated a huge increase in demand in Asia, particularly China, whose gold association reported a 54 per cent increase in demand in the first half of the year.
Matthew Turner, precious metals analyst at Macquarie, said the rise in gold exports had closely tracked outflows of the metal from exchange-traded funds, a popular investment product which helped to popularize gold when they were launched a decade ago.
“If investors don’t want the gold it has to go somewhere else,” said Mr Turner of Macquarie. “The Chinese are simply willing to pay more for it.”
The large-scale shift of gold out of western trading hubs towards Asia has led to a spike in business for traders and refiners.
The London Bullion Market Association said that the daily cleared trading volume on the London market by its members hit a 12-year high of 900 tonnes — worth $39bn — in June on the back of “strong physical demand, particularly from China and India”.
At the same time Swiss gold refiners, such as Metalor, Pamp, Valcambi and Argor-Heraeus, have enjoyed a boom, melting down large 400oz bars from London vaults and reprocessing them into smaller products that are preferred by Asian buyers.
“The Swiss are running three or four shifts to keep the refineries going non-stop. They’re throwing bodies at it,”said one senior gold trader.
The story is the same in Dubai, where refiners have 90-day backlogs in producing the small bars and coins so craved by Asian buyers, while here in Singapore there has been an absolutely extraordinary explosion in gold demand as the Freeport storage facility is deluged with not only Eastern investors but also savvy Westerners looking to move their gold to a jurisdiction they feel won't come under the kind of pressure being exerted in India.
Dennis Gartman published a fascinating chart this week that demonstrates just how crazy demand for gold has been here in Singapore in 2013:
Even Indonesia — not known as a huge destination for gold — is getting in on the act:
(Bloomberg): Gold jewelry demand in Indonesia is set to expand to a four-year high as consumers in Southeast Asia’s biggest buyer join India and China in increasing purchases as prices slump and the middle class expands.
Consumption of necklaces, bracelets and rings will probably climb to 40 metric tons this year, according to Iskandar Husin, secretary-general of the Indonesian Goldsmiths and Jewelers Association.
That’s a 30 percent increase from 30.8 tons in 2012, and the most since 41 tons in 2009, data from the London-based World Gold Council show.
Gold fell into a bear market in April as haven demand waned and sales from exchange-traded products reached a record, spurring increased buying from India to China, the world’s two biggest consumers. President Susilo Bambang Yudhoyono forecast a jump in per capita incomes this month even as stocks dropped and the rupiah tumbled. Southeast Asia’s largest economy has more than quadrupled in the past 10 years to $878 billion.
“Gold jewelry is all about lifestyle and saving,” Husin said in an interview in Jakarta. “It’s a market driven by the increase in GDP and modern Indonesian women, who are following the trends in fashion and design.”
Lower prices boosted Indonesia’s total gold demand, including for investment, 55 percent to 16.4 tons in the second quarter compared with a year earlier, increasing first-half consumption 11 percent to 33.4 tons, according to data from the producer-funded council. Jewelry accounted for 57 percent of demand in the first six months, with the rest in bars and coins. In China, gold purchases advanced 45 percent to 571.2 tons in the first half, and 48 percent to 567.5 tons in India.
Indonesia, with 240 million inhabitants, is the world's 4th-most populous nation, and as the Bloomberg article points out, things are happening there that make Indonesia yet another rapacious buyer of gold:
(Bloomberg): Most of Southeast Asia’s 650 million people will be middle class by 2020 and that will boost consumer demand, according to Bain & Co. By 2030, Indonesia will have added 90 million people to its so-called consuming class, more than any other country except China and India, McKinsey & Co. estimates.
“Some Indonesian women like to wear Tiffany’s jewelry,” said Husin at the jewelers association, referring to the New York-based company that reported a gain in first-quarter profit led by demand in Asia. “But the main market is the variety of cultural designs, from Aceh to batik to asmat totem in Papua”....
Jewelry consumption will remain the biggest market in Indonesia as an instrument for storing wealth, as well as an accessory, said Albert Cheng, Far East managing director at the World Gold Council. The country’s rising middle class is very important and will contribute to the growth of sales, he said.
“Middle- to upper-class people like 18-carat gold because of its design but the lower class prefer 24 carats for the high resale value,” said Poppy Dharsono, a fashion designer turned politician. “Jewelry is a complement to fashion, but the metal can also influence people, who wear it to feel powerful.”
Uh-oh! You do NOT want to bet against a tide like this — not in a commodity with a very fixed existing supply and a very consistent, but small, annual supply increase of around 2,500 tons.
Trust me. You just don't.
Five of the ten most populous nations on earth are hungry buyers of gold, and each of them has a burgeoning middle class that has, over the years, embedded in its cultural psyche the idea that owning gold is just what you do when you can afford to.
What? Pakistan and Russia? Oh ... OK:
(Pakistan Express Tribune): In an attempt to address steep devaluation of the rupee against the dollar, Pakistan on Tuesday temporarily banned import of gold to save the precious foreign currency reserves.
The Economic Coordination Committee of the Cabinet, headed by Finance Minister Ishaq Dar, took the decision to ban the import of the yellow metal for one month with immediate effect.
The heavy surge in gold imports into Pakistan (+102% YoY) were undoubtedly linked to the Indian smuggling, but India and Pakistan share no love (except for gold, of course), so Pakistan's actions are in no way designed to protect its neighbours. Good ole-fashioned self-interest in all its glory!
As for Russia, well, the Russian Central Bank very kindly publish their activity in gold markets every month on their website; and my pal Nick Laird at Sharelynx takes all the hard work out of following it by charting it at his excellent site, www.sharelynx.com. (Again, if you want just about any precious metals-related chart, Nick's fantastic site is where you'll find it.)
This past week the Russians announced yet another increase, taking their holdings to 32.2mn ozs.
Hopefully, the point is made, so let's get back to India.
As panic set in, first came the crazy ideas, including one from Jamal Mecklai that involved borrowing gold from one of India's most famous temples:
(Moneycontrol): At a time when all steps by government and Reserve Bank of India's to stem the rupee fall seems to be failing, Jamal Mecklai, CEO of Mecklai Financial Services sarcastically suggested the Finance Minister and RBI governor ... visit Tirupati temple and liquidate its gold assets to save [the] sinking rupee....
"I have told everybody what they have to do. Finance Minister and governor have to go to Tirupati. A) They have to pray, and B) they have to talk to the trustees to deposit some part of their gold in State Bank of India. It is the only solution. The truth is, why are we in this mess? Because everybody believes India doesn’t have enough money. We spend more than we earn, our fiscal deficit is very high, so too the current account deficit (CAD) is very high.
Now the truth is we happened to have 30,000-35,000 tonnes gold, which valued at today’s prices is about USD 1.5 trillion; now those are assets; that is money that we own — not like our foreign currency reserves; those are also foreign currency assets.
So actually if you do the balance, Mr. Chidambaram says we are USD 20 billion short. We have got hundreds of times that, but of course that is locked up. So very good, over the years many times the government has tried to get it unwound, and they haven’t been able to.
Now Tirupati, by reports — and I don’t have this actual numbers — has well over a 1,000 tonnes of gold, which is sitting there. Now if they were to put 500 tonnes of gold on deposit in [the] State Bank of India, let us say they get two percent interest, that is Rs 3,000 crore* a year. Which trustee can pass that up?
(* A crore is a measuring unit widely used in the subcontinent, which is equal to ten million.)
But as if that weren't enough, the Reserve Bank of India were rumored to be thinking of a scheme all their own which, in many ways, would be even crazier than Mecklai's:
(Hindu Business Line via ZeroHedge): In what appears at first glance a throwback to 1991, India will consider leasing out the 200 tonnes of gold it bought from the International Monetary Fund (IMF) in 2009.
The gold will be leased in the international market for dollars so as to shore up the sagging rupee, which plunged below Rs 64 against the US dollar in Tuesday’s trade.
A final decision may be taken next month, Finance Ministry sources said.
The move can fetch around $23 billion, David Gornall, Chairman of the London Bullion Market Association, has estimated.
Leasing some of the country's gold reserves out to earn some income? We know a song about that, don't we, boys and girls?
But here's where things get even more fascinating, as the RBI confirm that the 200 tonnes of gold they bought in 2009 was simply a paper transfer and not an exchange of physical metal:
This marks a tidy increase in the Reserve Bank of India’s investment. In November 2009, the RBI purchased 200 tonnes of gold from the IMF, under the Fund’s limited gold sales programme, for $6.7 billion, cash.
According to RBI sources, this gold was never brought into the country. It was just a book transfer.
Speaking at the India International Gold Convention in Jaipur last week, Gornall had said the RBI can organise a gold-dollar swap without divesting its holding or incurring any further interest charges.
“By swapping gold for a payable currency, you can benefit by having access to dollars for a period of your choice, while remaining a long-term holder of the gold, as the swap is a transfer of asset for a limited period.
"You will have bullion bank counter-party risk but this is successfully managed at the RBI, which has the strictest lending criteria of any central bank in the world,” Gornall had argued.
Finance Ministry officials agree.
Talking about the leasing arrangement, a Ministry official said that since gold was the most liquid of assets, it can be readily leased, and returned by the lessee to the lessor any time.
Further, a lease transaction means the RBI’s gold holding will not come down even as it unlocks the asset’s value.
Folks, this is exactly how these people think, so pay very careful attention.
The RBI swaps its gold for dollars, which will leave them ”... with bullion bank risk but this is successfully managed at the RBI".
The gold ”... can be readily leased, and returned by the lessee to the lessor any time."
It's all OK, because ”... a lease transaction means the RBI’s gold holding will not come down even as it unlocks the asset’s value."
OK. So first of all, about that "bullion bank risk”?
As I discussed in my recent piece "What If?”, since the day the German central bank demanded ITS gold back, physical metal has been disappearing from just about every vault in the system in almost unimaginable quantities. And as for that bullion bank risk...
According to Zerohedge, the bullion banks are being forced to borrow from each other simply in order to make deliveries:
(Zerohedge): And like the last time JPM plundered 20K ounces of Scotia gold on August 8 ... JPM took directly from Scotia’s registered gold inventory. We wonder how regular, non-TBTF customers of Scotia would feel if they learned that their registered gold was now in the "possession" of JPMorgan.
Would YOU be comfortable that your gold would be ”... readily returned by the lessee to the lessor at any time” under such circumstances? I sure as hell wouldn't. And as for your gold holdings not coming down in value when you enter into a lease agreement, well that isn't always strictly true now, is it?
Devaluation of your currency is a constant threat in Asia, as is the other peril that gold provides such good protection against: inflation. And this week the Wall Street Journal offered an insight into just how terrified Asians are of inflation, when it examined the cost of dying:
(WSJ): Deep in China's spirit world, an inflation crisis is brewing that would give central bankers the chills.
For hundreds of years, Chinese have burned stacks of so-called "ghost money" for their ancestors to help ensure their comfort in the afterlife. The fake bills resemble a gaudier version of Monopoly money, emblazoned with the beatific-looking image of the Emperor of the Underworld.
Traditionally, paper money burned in China came in small denominations of fives or tens. But more recent generations of money printers have grown less restrained. The value of the biggest bills has risen in the past few decades from the millions and, more recently, the billions.
The reason: Even Hong Kong’s dead try to keep up with the Joneses, and their living relatives believe that they need more and more fake bucks to pay for high-cost indulgences like condos and iPads.
This year, on the narrow Hong Kong streets that are filled with shops that specialize in offerings for the dead, there appeared a foot-long, rainbow-colored $1 trillion bill. "What we have right now is hyperinflation," says University of Hong Kong economist Timothy Hau. "It’s like operating in Zimbabwe."
"Inflation is everywhere, so of course it happens in the underworld too," says Li Yin-kwan, 42. The $1 trillion bill is the most popular note in her shop, she says, "because it allows the ghosts to buy many things, such as a fancy car and a big house."
Still, she said that there is also a place for burning smaller-value bills. "The ghosts need spare change to buy daily necessities, too," she says, such as clothes and food. On a recent Friday, all the trillion-dollar bills in her shop and the shops next door were sold out. "I'm sorry," Ms. Li said to one customer. "There are still some $100 billion notes left."
OK ... you can read the entire article on page 23 here, and I'm belabouring the point now. However, it is SO important to understand it properly.
Here in the East, there is a desire to own gold that utterly transcends anything commonly understood in the West. It is hard-coded into the DNA of several billion people, who, acting together, will provide a strengthening bid for gold for decades to come. Those people are getting wealthier, and with their increased wealth comes both an increased need to protect it and an increased desire to hold it in a form they have come to trust. And THAT, dear reader, is gold.
The exodus of gold from the UK to Asia via Switzerland is no accident and no one-off. The surge in imports of gold into China through Hong Kong is, likewise, not a flash in the pan. Indians' desire to own bullion, jewelry, coins — anything golden — is not going away. Trust me.
It is time to put aside Western attitudes to gold and gain an understanding of how it is viewed by the real buyers — those in the East. Those who buy physical metal to hold and to bequeath — not those who sit at home in front of their computers, buying and selling paper claims on a metal most of them have never seen up close — are going to determine the future path of the metal.
In the late 1970s, Asia was a poor continent, and though its appetite for gold was undiminished, its ability to purchase it was restricted.
Through the 1980s and 1990s, central banks were continuous sellers of gold (chart above), which helped keep a lid on the price, but now ... NOW, we have the makings of a perfect storm:
- The East has become far wealthier, and that wealth is increasing steadily.
- The large pool of available (and eager) buyers in the East is growing every day.
- Central banks — once the biggest sellers of gold — have not only become buyers but have begun to seek the return of their gold held overseas in a quest to perfect their assets.
- The central bank leasing scheme is unraveling before our eyes.
- Available physical supplies of gold have plummeted.
All these factors will undoubtedly conspire to make the next six months (and beyond) a lot less painful for holders of gold than the last six were — a shift that has already begun to take shape
As Roger Waters once wrote:
Who is the strongest?
Who is the best?
Who holds the aces?
Or the West?
Those 'aces', in the form of physical gold, are moving inexorably East, and with them go prosperity, influence, strength and, eventually, power.
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20 December 2013
- Daily Nifty Outlook Technical Report
20 December 2013
- stock idea or calls for intraday trading in NSE today 13 December
20 December 2013
- Indian Share market down on global sentiments
19 December 2013
- Market Sure Profit Intraday calls
16 December 2013
- Altima (ARH.V) Places Chambers, Alberta 15-35-41-11 W5M Well On-Stream and Updates 14
13 December 2013
- IntelGenx (IGX.V) Reports Second Quarter 2012 Results and Highlights Recent Developme
12 December 2013