Chicago Gold and Silver Investing Fan Blog

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Gold Fractional Reserve Banking

Financial institutions have an insiduous habit of lending out more money than they actually have. For instanace let's say a bank has one million dollars of physical bank deposits. In an effort to make more money off of interest, they decided to loan 10 million dollars. They do this so they can collect interest off of the $10 miliion.

They do the same thing with gold. They have $1miliion in gold, but they lease the gold at an interest rate then take that interest and buy US Treasuries or other investment vehicle so they can make money. Problems arise when the paper they sell gets turned in and someone wants their gold.

Chris Martenson describes this scheme:

 

Smart Money Moving Out Gold

Last week gold had one of the biggest two day drop in modern history. So what is going on?
The media has you trying to believe that people are losing faith in gold want wanting to stay in paper dollars. The gold bugs are saying it is some kind of conspiracy by those who hold the power in order to supress the price of gold.

While I do not believe the media, I am not 100% into the conspiracy theory. I feel that the following video gives a good insight on what is happening:



There is over 100 times more paper gold than there is physical gold. When something is 100 times bigger than something, that will have a greater affect on the price. Paper gold is 100 times bigger than physical gold, so when something happens to the paper gold market it will have a much bigger affect on gold overall than when something happens in the physical gold market.

So what is happening in the paper market. I feel that after Cyprus, some who hold paper gold have realized something dramatic. They have realized that their paper gold may not be as desireable as it once was. Some paper gold holders fear that their paper gold cannot be actually converted to physical gold. So they are dumping some of their paper gold holdings. The thinking is that they do not trust banks anymore to deliver their gold if they asked for it. Cyprus showed the world that banks are not to be trusted.

Related articles

Paper-Gold Holders Flee To Real Metal

Video - Kyle Bass: "Japanese Retirees Will Lose Up To Half Of Their Life Savings"

Hard Asset Alliance

 

 

I discovered this website called Hard Assets Alliance. It is a place to buy and sell gold and silver. It is worth noting because it appears to be a very cheap and secure source to buy gold and silver. If that is the case, then it is worth taking the time to learn more about it.

I'm going to use this blog post to document what I've learned about it.

Squidoo Post

Here is a direct quote from a Squidoo post on the benefits of HardAssets Alliance:

Hard Assets Alliance is a new precious metals investment program designed for you to buy and store gold, silver, platinum and palladium with these benefits:

• Physical sovereign coins and LBMA bars allocated to you in storage or delivered to you - your choice!
• Lower prices when buying gold, silver, platinum, palladium, higher prices when selling, lower storage fees
• More choices for storing precious metals offshore including Australia and (soon) Singapore
• More account types available, including Living Trusts! Corporate accounts of all types welcome, too.
• More convenient, less expensive ways of funding your account. Forget those expensive, time consuming international bank wire transfers.

 

How to use the Hard Assets Alliance Website Video (Buying and Selling Gold)

Initial Impression

After doing some quick research on the site, I noticed a couple of things. The biggest is that there seems to be a $5,000 minimum purchase requirement. The prices seem rock bottom. However, it seems to only work for the person who has the money to invest at least $5,000.

One option is to open an account for any amount since there is no minimum to open an account. Then add dollars to the account when available. Then, when the balance goes above $5,000 purchase the discounted price gold or silver.

Price comparison for gold

Here is the price of a 1oz, gold American Eagle.

Current spot price = $1591.16
At Hard Asset Alliance it is $1674.69 or $83.53 over spot.

At Morton Grove Coin Store - a local coin shop I recently paid $67.09 over spot for a 1 oz coin or $55 over spot for a 1/2 oz coin.

In short, the coin shop price is actually better for gold. For silver, I still have to evaluate the difference.

Price comparison for silver

Here is the price of a 1oz, silver American Eagle.

Current spot price = $28.91
At Hard Asset Alliance it is $31.92 or $3.01 over spot.

At Morton Grove Coin Store - a local coin shop I recently paid $3.50 over spot for a 1 oz coin

In short, the coin shop price is only $0.49 over spot more than the price at Hard Alliance.

Summary

Hard Asset Alliance has a purpose for someone. However, for someone that is looking for the best price, Hard Asset Alliance may be very competitive- but not necessarily the lowest. Hard Asset Alliance does provide some advantages like competitively low prices and some remote storage options that are worth looking into.

Jim Rickards - Currency War 3 Has Begun

 

Jim Rickards, the expert on currency wars has stated that Currency Wars 3 has begun. To get an insighton what is a currency war see this Ricakrds video taped last year.

Here is a quick summary of parts of the above video:

• A currency war starts with insufficient growth. When there is slow growth there is a temptation to steal growth from your competitors by devaluing your currency.
• The way it starts is look at a company like Boeiing. Indonesia needs airplanes but it doesn't produce airplanes. So it goes shopping. It looks at the world market. Given the same quality of product, it will buy from the place or country that has a cheaper product. Currency devaluation in America makes the Boeing product cheaper to buy by the Indonesians. If Indonesia buys products from the USA it creates jobs, lowers unemployement, and can pay more taxes for the governement to collect. That is how politicians and governement officials look at currency devaluation.
• The problem is that the US imports more than it exports. The imports will go up because other countries have more dollars and thus make export prices rise. Also, there is retaliation. Other countries will retaliate- almost instantaneoulsy by cheapening their currnency (import inflation), do capital controls, and trade wars (excise taxes, etc). This will reduce world trade.
• Other countries cannot beat the US Militarily. So an alternative is financial warfare.
• If the US messes with the dollar, it could push people out of the dollar and use alternative currencies (such as gold).

Kyle Bass on Japan Debt Bomb

Kyle Bass made a lot of money in the economic meltdown of 2008. He feels the next economy to go will be Japan. For more on his take watch his CNBC video above.

Bass says that Japan's debt is 24 times central governement tax revenue. It would be like someone earning $50,000 a year with a debt of 1.2 million. Think about that if a person earned $50,000 a year in annual income, the interest on the debt alone assuming a very low interest rate of 2% would be $24,000 a year or almost half of his annual income. That is just interest payments alone on debt. How will he pay his other obligations?

Bass feel when you get into that type of insolvency, there is nothing you can do to help especially printing more money.

When you think of a crisis 99% of the people get it wrong.

When questioned why Japan's economy has not blown up yet despite him being able to predict it, he said that no one can predict with precision exaclty when the meltdown will occur. All the component are in place for all of sudden this will break. Interest rates will be lowest as soon as it breaks. The clock has started when the belief in this untenable situation.

Japan spends 25% of revenue on interest, 50% of revenue on debt service. Any 1% increase of rates cost them an additional 25% of revenue. He feels the Japanese government (and I feel the US government) has been dishonest with its constituents.

The situation is so bad in Japan in the Yen, that he recommends anyone that holds the Yen to spend it and buy a productive Western asset. As a side note, this is something to watch. When the Japanese flee their own Yen and start buying US dollars, US companies, Western real estate, or other non-Japanese assets then you know the meltdown has begun in Japan. This could also include precious metals like gold and silver. When the Japanese start buying in droves gold and silver, you will see the price rise up dramatically.

The likely scenario in Japan is that the elites, wealthy individuals, and others holding a lot of Yen will realize this is an untenable situation. When that happens, they will flee the Yen and the Yen will collapse.

The problem is that before the bomb detonates, things will seem alright. Interest rates will probably be the lowest, the Yen will be the strongest, and more. Then, one day it will just collapse and the run away from the Yen will appear.

Another issue is the relationship between China and Japan. There is a rise of nationalism in those countries and they really do not like each other. Yet, 20% of Japanese exports go to China. That's 340 Billion dollars. If Chinese and Japanese relationships worsen, that will be terrible economically for Japan.

As for the US, he still invests some of his money in the US. He says he is long on anythingwi th real estate. He feels that this is about the time for housing to turn flat and then turn.

In China, he has no positions and he does not know what to believe. He is concerned about non performing loans and other issues. He feels China has set iteself up for a problem down the road. We are spending 10-11% of central government revenue on interest.

Another Kyle Bass interview

Must Watch Kyle Bass Video

http://youtu.be/JUc8-GUC1hY

Iran - A case model on a country not using the US Dollar

Iran is one of those countries that have lot's of stigmas in the United States (mostly negative or unknown). So why mention it? Well, it is also a country where economic sanctions led by America has greatly affected the country. Inflation in rampant (especially with food). Fruits and vegetables have gone up in price from 50-95%.

While it is true that sanctions are hurting Iran, history shows that sanctions and things like carpet bombing do not work. According to a Cato Institute article:

. Prof. John Mearsheimer, in his masterpiece, The Tragedy of Great Power Politics, provides more than ample evidence to show that naval blockades and strategic bombing (and I would add financial sanctions) rarely produce their desired results. As Prof. Mearsheimer concludes:

"...the populations of modern states can absorb great amounts of pain without rising up against their governments. There is not a single case in the historical record in which either a blockade or a strategic bombing campaign designed to punish an enemy's population caused significant public protests against the target government. If anything, it appears that 'punishment generates more public anger against the attacker than against the target government.'"

Iran is largely isolated from the world community in that it does not use the dollar. Instead it uses it's own currency - the rial. It is also using gold and jewelry.Iran get's a lot of its gold from neigboring Turkey who according to a Reuters article:

"Turkish gold sales to Iran in March soared over 30 times and gold companies said Iranians were turning to gold for savings and possibly trade as Western sanctions tighten."

To find out how a country operates without US Dollars and using gold as money, looking at Iran may be a case model.

For more on Iran check out this National Geographic video: