10 October 2010

Gold Bubbles

UK financial writer Dominic Frisby argues “that both metals [gold and silver] are still in a bull-market phase. Any mania is yet to come.” In support, he notes that in 1980 gold bullion went from $400 to $873 an ounce in only 36 trading days, with silver trading from $16 to $50 in 37 days. The current market is not exhibiting those sort of price moves.

He also proposes looking at the value of the US gold reserves compared to money on issue as an indicator of a bubble - “in 1980 … the market value of the 260 million ounces of gold held by the USA in Fort Knox came in at $221bn, yet only some $160bn of paper money was in issue” so if “the market value of the gold held in Fort Knox once again exceeds the number of US dollars the US authorities have issued, then gold will be in bubble territory once again, in that it will be trading at levels above its intrinsic value”.

Dominic closes his article with his definition of a bubble that I think may explain why a lot of financial commentators are consistently negative on gold: “A bubble is a bull market in which you don't have a position”. However, I doubt we will see many of them change their view and buy gold, because these days the internet means all their previous statements are recorded and easily searchable and I can’t see them admitting they were wrong.

09 October 2010

Perth Mint Blog

Perth Mint has launched an online bullion selling website and to go with it a corporate blog. After 2.5 years of blogging privately I'm finally going to be able to go legit!

The change in role means I will have more time to put into posts and be able to formally draw on our internal data. I'll keep this blog up for posts that aren't suitable for a corporate blog. For the moment I'll be dual posting as it is a soft launch before they go for a proper launch and marketing campaign. What I'm aiming to cover with the corporate blog can be found here and is pretty much the same as what I've tried to do with this blog.

08 October 2010

Prof Keen Compares Bankers To Drug Pushers

Professor Keen presents a dramatic analogy in his recent article on his speech at the American Monetary Institute’s 2010 conference: “banks are effectively debt pushers, and trying to control bank lending at the source is like trying to control the spread of illegal drugs by directly controlling the drug pushers. While ever there are drug users who want the drugs, then there’ll be a profit to be made by selling drugs, and drug pushers will always find ways around direct controls.”

The comments were a response to the American Monetary Institute’s campaign to establish a 100% reserve banking system. While Professor Keen is ambivalent about the proposal, he feels that the issue “is not how money is created, but how it is used. If it’s used to finance productive investment, then generally speaking all will be well; but if it’s used to finance speculation on asset prices, then it will lead to financial crises”.

He therefore feels reforms need to be focused on modifying borrower behaviour rather than trying to regulate lenders. His article is worth a read for his proposed reforms and the civil and mostly intelligent debate of them that follows in the comments section.

07 October 2010

High Court Judge Rules Paper Money “Almost Worthless”

In a recent High Court of Australia judgement on the Goods and Services Tax treatment of foreign currency transactions, I note with amusement Justice Dyson Heydon’s statement that:

“Apart from those rights [as legal tender], the pieces of paper had little value. They might have been used to stop an uneven table wobbling, or to jam shut a loose door, or to amuse small children, or to light a cigar. If the currency included coins, the coins might have been used to turn stiff screws or to lay on railway lines for the purpose of being flattened. But uses of that kind, which are very remote from their real purpose, would not prevent both the pieces of paper and the coins from being almost worthless.”

Before you rush to burn your money or flatten your coins, the judgement notes that “because the tokens are currency, the holder of the tokens can use them as a medium of exchange and as a store of economic value. Currency has value only because of the rights that attach to it.”

So relax, your paper money does have value. However, if you are concerned about what high inflation may do to the value of cash, you may wish to consider storing your surplus “economic value” in the form of legal tender bullion coins - sorry, tokens.

Of course, I can’t guarantee that precious metal prices will not fall, but at least you will always be able to use the coins to turn a stiff screw or two!

02 October 2010

Gold Symposium Bail Out

I've had to pull out of The Gold Symposium as the Mint's Board meeting (which I have to attend) has been moved to a day of the event. Was looking forward to meeting the speakers and attendees so not too happy. In that case the Board better approve my business case for redeveloping our exhibition area :) or I will have missed the event for no good reason.