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Jun202012

Gold Becomes a Tier 1 Asset Class for Banks

Misdirection by MSM as Gold Moves Towards The Banking System

Despite what the Main Stream Media (MSM) or “Financial Pundits” tell you, the gold bull market is far from over.  In fact, it is just starting, in our opinion.  While the misdirected financial world tell you that gold is in a bubble and it has burst, the central bankers and government organizations all know it is far from over.  In fact, gold is moving towards the banking system and not away from it.  We all know that many central banks are now net buyers of gold and their holdings are increasing as their need to diversify away from risky assets and foreign bonds only grows.

Central banks around the world are continuing to stock up on gold.  We can now add Kazakhstan’s central bank to the grow list of bankers wanting to hold gold as a part of their currency reserve.  The Kazakh central bank intends to have 20% of reserves in gold, this is up from the current 14-15% currently held.  They plan to purchase 20 tonnes of gold this year, mostly from local producers.  They also mentioned a few weeks ago that they would cut their Euro holding to 25 % from 30%.  We can also add Kazakhstan to the growing number of central bankers which are building up gold holdings including China, Russia, Mexico, Colombia and South Korea.

The price of gold is now hitting all time highs in India, one of the biggest buyers of gold around the world.  Prices have reached an all-time high of $544.74 US (Rs 30420) per 10 grams.  With a slowing economy and low demand for the Indian rupee, it has been losing value lately and still remains weak.   However, gold demand is still robust even at these elevated prices as investors in India still consider gold a safe haven as it counters the effects of inflation and exchange rate fluctuations.

Over the past five years, gold has provided Indian investors with a 27.19% annualized return versus a pathetic 2.67% in the equity market.  This trend and move to gold has only grown in the last year.  Gold assets under management by funds have increased almost 100% $1.83 billion by April 2012, last year the value was $981 million.  In 2011, the gold ETFs in India saw a net inflow of $725 million.  For thousands of years the Indian culture has had an affinity for gold, and that will never change, and neither will their demand for physical at elevated prices.  Why?  Indians understand that gold is money and a true form of saving.  It’s the only way to protect assets and wealth from government theft, something the West is still learning.

Even the good ol' USSA is starting to recognize gold as a tier one asset class. The Federal Deposit Insurance Corporation (FDIC) just issued a notice regarding a new policy proposal on how banks should revise the measurement of risk-weighted assets by implementing changes made by the Basel Committee on Banking Supervision (BCBS) to international regulatory capital standards and by implementing aspects of the Dodd-Frank Act.  Under the proposal the following assets would carry a zero percent risk weighting, notice how gold bullion is listed as the second item:

A. Zero Percent Risk-Weighted Items

The following exposures would receive a zero percent risk weight under the proposal:

  • Cash;
  • Gold bullion
  • Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations
  • Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).

So regardless of what the MSM says, we continue to see more central bankers buying and hoarding gold.  New proposals by government banking agencies are being introduced into the system and gold is included as a tier one asset to hold with ZERO RISK.  All the signs are in place and what the MSM hasn’t been told yet is that gold is coming back into the banking system. 

We are in a world where currency wars are being fought daily, and as the system continues to collapse under its own weight of paper printing, gold will be the go to asset and possibly the last man standing.  Don’t be fooled by what the MSM says, they rarely know what they are talking about and are paid to misdirect the puppets. Gold is here to stay.

European Capital Controls and a Flight to Safety

The Greek Elections are over and the pro-bailout New Democracy party won with approximately 29.7% of the vote.  By winning the popular vote, they were given a 50-seat bonus.  This combined with the support of the Pasok Socialist (who took 12.3% of the vote), will have 162 seats in the 300 seat parliament.  Combined, they have the ability to pass government policy with a majority vote, so they can now rig policy for keeping with the Euro.

The Euro experiment may have been saved from breaking up for now, but the bailouts will continue for the foreseeable future.  Since the socialists are realizing that austerity is not working, a new movement and calls for a policy of growth are afoot.  We can expect lots more money printing coming out of Europe now and in the foreseeable future.   While in a normal world that would hurt the Euro, the markets relief that the Euro will not collapse immediately should stop the downward pressure on the Euro. In fact, we could see a slight bounce off the recent lows from this news, but I suspect that will be short lived.  None of the problems have been addressed and printing money to fund the bailout will still be the cure central bankers will prescribe to the Euro financial system mess.

Capital controls are already in place within Euroland and this trend is growing quickly as the hot days of summer go on.  Recently, major Italian banks have given notice that customer's accounts would be frozen for one month because of financial difficulties.  This caught many bank customers off guard and completely unaware that they would not have access to their funds.  This should not be startling news for TDV subscribers as we have been warning for months that capital controls are coming and Europe is fast out of the gates in implementation.  For weeks, Europe has been planning bank withdrawal restriction to deal with Greece exit, the only one that hasn’t told you about it is the MSM.

Recently, a businessman was stopped at the Swiss border with £1.6m worth of gold in his car only to have it confiscated by the authorities and was subsequently charged with smuggling.  Italians know very well that the trend of confiscation by the “Mafia” government has only grown recently.  They have been exporting gold to Switzerland and this trend has grown 35% year over year in February 2012.  About 120 tonnes of gold have left Italian boarder in 2011, that is up 65% from 2010.  The Italian Prime Minister Mario Monti has been promising a crackdown on tax evasion as he continues to fight the trend of people wanting to avoid paying extortion fees (taxes).  It was estimated that more than £96 billion [€119.6bn] in taxes were dodged in Italy during 2009.

As much as we like gold as an investment and store of wealth, you must take the necessary precaution of protecting your gold from confiscation.  As desperate European governments continue to steal your wealth via inflation and outright theft, you must create a plan of protecting your gold.  Keeping it close at hand where only you have access to it is the first step. 

Secondly, you should consider diversifying your precious metals holding internationally, which seems to be more difficult as capital controls in Euroland become stricter.  At TDV, we saw this trend coming a long time ago and have been warning subscribers to plan ahead.  Earlier this year, we published a 100 page report on how to diversify and internationalize your precious metals holding called Getting Your Gold Out Of Dodge (GYGOOD).  If you live in Europe and are interested in protecting your precious metals, this report is something you should consider getting right away; your time to act may be limited by your own government.

Gold Update

The price of gold is still consolidating.   The price needs to stay above support at the 50 dma of $1615.  If this support holds, then it could move toward resistance at $1675 and the 200 dma.  A break below $1610 could trigger selling and the price could still see one more wave of selling to test support at $1530 or slightly lower again.   If we do get one more wave of selling, I suggest you consider backing up the truck as this could be that last time we see prices this low, possibly forever.

If you enjoyed reading this article and are interested in protecting your wealth with precious metals, you can receive our free blog by visiting TDV Golden Trader

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Reader Comments (11)

Amen, brother. Your commentary is certainly, exactly, right on.
I tried for a few years, seemed like 30, to inform folks to their own self-defense.
I'm much delighted that others have followed through.
Gives an old man peace-of-mind. There's hope yet.
Respectful: Edward Ulysses Cate:

June 22, 2012 | Unregistered CommenterEdward Cate

On the gold chart I see the price forming a descending triangle, which is a bearish formation. If the price falls below 1550-1500 (which is very likely, since triple bottoms rarely hold) the implied downside target is around 1200.

Still no capital controls in Europe, BTW - they are just considering it, in case of a Grexit. Money keeps leaving Greece, Spain and Italy (usually for Switzerland and Germany) in droves. And, BTW, I learned about the measures considered in case Greece leaves the Eurozone precisely from the MSM.

June 23, 2012 | Unregistered CommenterVess

We all have premises about the FED. If you reverse engineer, all their actions, the FED has supported a process that takes gold as money (with fixed value) where more liquidity requires more gold and brought it full circle to the point that gold has been/is/will be remonetized, but in real-time. The only way to create the reasonably smooth transition is by way of the market. Gold cannot be remonetized and brought into the market by way of a top-down process. It must be organic for the sake of reasonable rate-of-change. It's an ongoing process like an elephant in the room that nobody sees. The ultimate purpose of the USD is that of a real-time measure, a servant to real-time gold-as-money. The dollar's role since 1971, as a currency, has been nothing but a stop-gap measure until such time that the market would evolve the system back to one based on gold-as-money in REAL-TIME. REAL-TIME is key to all of this. Some evils are necessary in "the script" and the bankers have filled those staged positions extremely well. It's a tough job as they say. For the record, I'm a strong advocate of gold as money, but realize that its liquidity has historically sucked because of fixed values placed upon it. Now that gold floats, Gresham's Law is actually reversing. GL was predicated on fixed values on gold. The fixed peg has been the historical problem..... not the bullion. The "fullness of time" has offered much. You cannot pour new wine into old wineskins .... so true.

June 23, 2012 | Unregistered Commentertherooster

A return to the type of money where one does not have to guess about is value from day to day is to denominate it by weight, not nominal value.
With currency, the so-called "security thread" could actually render the money secure by being gold, silver, or its alloy, or an imprinted leaf seal.
Central bankers are a clubby lot, but how does CB A really know how much CB B is printing? I have traveled in Germany where they looked askance at foreign euros, even though by law they trade at par- the entire EU was based on the completely un-monitored, unenforced idea that no member should run more than a 3% deficit !
Left to the housewives of the world, an honest hard money system would have evolved, but the bankers are the greediest of the greedy- they want the gold for themselves, and not to have it in the hands of the housewives

June 23, 2012 | Unregistered CommenterGarimpiero

'Garimpiero .... A well thought out post. The observation of weight is a keen one, That poses a theoretical problem on how gold is valued, however. If the weighted trade value is fixed as it was before the end of Bretton Woods, then gold-as-money would be doomed to fail from the standpoint of providing sufficient liquidity for economic support, given the limited resources of bullion that are above ground. We produce more steel , globally, on a daily basis than all the gold in recorded history.

It's for the above reason that gold's trade value had to be set free in order to rise on the basis of a growing demand (liquidity). Only then could bullion be re-monetized. REAL-TIME valuation is key !!! We can thank the formation and closing of Bretton woods for this as severing the FIXED peg was essential for gold to operate as a responsible and liquid currency. From the days that bullion floated against dollars, the next step was to find a convenient and simple "weight splitter" in order to distribute enhanced store of value in a user friendly fashion. That took place in the mid-1990's with the advent of gold backed digital currency (weight) in the form of e-gold.

In actual fact, it's the financial elite who have guided the whole process from fixed gold to free floating gold where the floating USD's role (post 71) has been nothing but a stop-gap measure in monetary history. The dollar's ultimate role is not that of a currency but that of a real-time measure for bullion based REAL TIME money. There had/has to be a "bridge of transition" from the debt currency paradigm to the asset based monetary paradigm in practcial terms, especially since we price most things in currency. The dollar is that bridge on the way to a new gold based monetary system.... bottom-up and market driven. It's happening everyday.

FACT : The USD (as intellectual property) is utilized in any and all bullion based payment processors in existence because most users will measure out the bullion weight they wish to use to make
payment with by way of using a fiat based measure. The fiat currency is almost always the measure they use (in a drop down menu) because the product or service they're buying is almost always priced in a fiat currency. In this manner, the user can make exact weighted payment in REAL-TIME, whether it be for a car or a stick of gum. Store of value has now married with instant global liquidity in real-time..... debt-free. Real-time is key. We don't have a monetary crisis. We have a marketing challenge.

June 23, 2012 | Unregistered Commentertherooster

Re: Indians understand that gold is money and a true form of saving.

Over the last four decades, the Indian Rupee has lost 99.5% of its purchasing power. Back In 1970, one lakh (100,000) rupees could be the net worth of a very rich man. Today it is one month's rent for an upscale apartment in New Delhi. During the same period, gold's purchasing power has increased by 25%.

Is it any wonder that the Indian public prefers gold over fiat money?

June 24, 2012 | Unregistered CommenterUlysses

While i generally agree with this article the title is premature. The rule change is a proposal not a fait accomplait.

June 24, 2012 | Unregistered Commenterme

The chart looks pretty bad though. With China slowing down and all parties fully hoarded up on gold, I can also see a lot of selling potential. I am not so sure anymore. There is so much credit out there that can be destroyed before money printing overwhelms it. A bit of deleveraging in the banking system still means more money is being destroyed than is created through QE. Certainly now the central wankers seem to play chicken with the markets.

July 2, 2012 | Unregistered CommenterOpperdienaar

I thought the value of gold was at an all time slump, well I guess I was wrong.

June 17, 2013 | Unregistered CommenterBill Diamonds

My friend always used to go on about investing in gold, I guess it's looking more and more like a good idea as time goes by.

June 17, 2013 | Unregistered CommenterUche Okoye

Gold is a viable investment avenue I see. Despite the fluctuations, it's still worth getting into.

April 10, 2014 | Unregistered CommenterBafta

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