Dan Popescu https://goldbroker.com/author/dan-popescu I just finished reading Kenneth Rogoff’s book, The Curse of Cash, when the rupee notes crisis erupted in India. Rogoff’s book is a defense of banning cash (paper/plastic and coins). On November 8, also the day of the U.S. election, Narendra Modi, Prime Minister of India, made a surprise announcement that had been kept secret, even from many in the Indian government, that 500 and 1000 rupee notes would no longer be legal tender within 24 hours. The Prime Minister cited the need to fight corruption as justification for the removal of the 500 and 1000 rupee notes. The removal of the 500 and 1000 rupee notes in effect demonetized 86% of India’s existing cash. Half of India’s citizens do not have a bank account and around 25% do not even have an ID card. 97% of the Indian economy is cash-based. This decision made 88% of all outstanding currency no longer usable. Prime Minister Modi attempted to downplay the shocking ban of existing 500 and 1000 rupee notes by telling I... Thu, 01 Dec 2016 06:26:03 +0000 https://goldbroker.com/news/india-war-on-cash-and-gold-1047 Since the start of this gold correction in 2013, the most bearish argument I hear is that there is no risk of hyperinflation or even high inflation, but rather a risk of deflation (or a negative inflation rate, not to be confused with a lower rate of inflation increase, or disinflation). What to make of it? First, let us define what we mean by inflation. In general, inflation is defined as an increase in the price of most goods and services. But what causes this increase? Is it a change in supply and demand of the goods and services or just an increase or decrease in quantity of money in circulation? If the price increase occurs, as an after-effect, because of an increase in the amount of money in circulation, we have inflation. And this happens when a central bank issues more money than is necessary for the transactions of goods and services to create an illusion of wealth increase. Instead, what happens in that case is rather a loss of value of the currency (doll... Tue, 25 Oct 2016 05:15:03 +0000 https://goldbroker.com/news/gold-and-deflation-1023 In recent months we saw a major offensive by China in support for the SDRs while, at the same time, we saw a slowdown, but not a stop, in gold buying for its international reserves. What can we make of it? Is this a change in China’s strategy in favour of fiat SDRs and away from hard gold? There were several IMF staff notes published in the last six months about the SDRs. China also announced its intention to diversify its international reserves from the US dollar to SDR and is supposed to have already acquired in secret billions of SDRs on the secondary markets through the IMF. Already in 2009, right after the financial crisis, in an article, the president of the People’s Bank of China (PBoC), Dr. Zhou Xiaochuan, proposed that the US dollars be replaced by SDRs. Recent statements and actions indicate a preference by China for the SDRs. However, in a recent article, I argued that China understands very well the risks and weaknesses of the SDR and it is preparing i... Wed, 05 Oct 2016 05:15:56 +0000 https://goldbroker.com/news/the-yuan-sdr-and-gold-1014 Economist John Maynard Keynes described the effects of inflation citing Vladimir Ilyich Lenin this way: “Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery. Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is... Tue, 30 Aug 2016 05:51:31 +0000 https://goldbroker.com/news/the-debauchment-of-the-currency-1000 We can’t compare gold and silver without first looking at the chart below of above-ground stock of gold versus the visible gold market. Remember also that almost all of this gold above ground is in the purest form and ready at very low cost to come to market. This stock of gold is called reservation demand. Reservation demand is a demand that is expressed by holding onto something that you own. People who hold gold are demanding it by holding it off the market. Gold, unlike many other commodities, is not consumed, and therefore the traditional models and theories of supply and demand simply do not apply. Of all the gold extracted from the relatively small number of mines, only a tiny fraction is ever “consumed” in the true sense (about 9%), with the overwhelming production added to the ever growing stockpiles of governments, corporations and private investors, along with small amounts of recycled scrap. For gold there is always a large stockpile and it never gets an... Mon, 01 Aug 2016 05:29:38 +0000 https://goldbroker.com/news/gold-and-silver-correlation-988 According to Mises, money’s function as a medium of exchange is thus the central one, while its store of value and unit of account functions are merely subordinate functions. I would say store of value and unit of account is what makes the medium of exchange marketable. The medium of exchange has to be simple to understand, not only by educated people but also the most uneducated. It has to be easily accessed, not only in ideal circumstances but also in difficult ones. Many things have been tried and have worked in specific regions, for short periods of time, and only in ideal circumstances. Jim Grant says, “Gold is instantly and optically recognizable as money. You don’t have to explain it.” It is the simple nature, divisibility and durability of gold that has made it become universal money. Gold became money because of its physical characteristics (scarcity but still in sufficient quantity, malleability, inertness, durability and uniformity). Many crypto-currency... Wed, 22 Jun 2016 16:17:28 +0000 https://goldbroker.com/news/the-gold-standard-970 Gold is becoming more and more acceptable in the investment community and especially since interest rates have approached zero and in some countries even gone negative. Until recently no portfolio manager would have mentioned gold and even less recommended it. Since the beginning of the year, soon after some called gold just a useless and worthless rock going down to at least $400, a list of hedge fund managers came out with bullish calls for gold and indicated they have been buying. After years of denigrating gold, the investment profession is starting to discover the liquidity trap and acknowledge the value of cash and, more specifically, gold and its place in a diversified portfolio. It remains that gold, as a percentage of global financial assets in 2015, represented only 0.58% vs 2.74% in the ‘80s and 5.00% in the ‘60s. World central banks are much better positioned in 2015 with 14.09% of international reserves, with the U.S. and the Euro Area well above a... Thu, 26 May 2016 06:15:55 +0000 https://goldbroker.com/news/be-your-own-central-bank-and-buy-gold-958 We hear more and more talk about moving into negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks the question as to what tools the Fed has left to support the economy and discusses in this article the use of negative rates. We have to first define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest from the nominal rate we have to subtract inflation. That’s what we call the illusion of inflation. Real interest rates have been negative fairly often, including for most of the period since 2009. The problem then comes in choosing the appropriate measure of inflation. Since the calculation of inflation is highly subjective and easy to manipulate I came to adjust nominal prices to gold to get the real interest rates. In the chart below you can see nominal U.S. 10-year Treasury rates versus gold... Wed, 27 Apr 2016 05:30:42 +0000 https://goldbroker.com/news/gold-and-negative-interest-rates-946 In a speech in 2011 to the Empire Club of Canada and the Canadian Club of Toronto, Mark Carney, then governor of the Bank of Canada and present governor of the Bank of England, speaking of the international monetary system, said that the Minsky moment had arrived. A Minsky moment is a sudden major collapse of asset values, which is part of the credit cycle or business cycle. Such moments occur because long periods of prosperity and increasing value of investments lead to increasing speculation using borrowed money. Governor Carney said, “Debt tolerance has decisively turned. The initially well-founded optimism that launched the decades-long credit boom has given way to a belated pessimism that seeks to reverse it.” He also added, “As a result of deleveraging, the global economy risks entering a prolonged period of deficient demand. If mishandled, it could lead to debt deflation and disorderly defaults, potentially triggering large transfers of wealth and social unre... Mon, 21 Mar 2016 06:30:37 +0000 https://goldbroker.com/news/gold-and-the-minsky-moment-924 Here are the key points raised in this interview with Nomi Prins: International codependency of countries Have central banks reached their limit? Are central banks in panic mode? Too big to fail banks Gold and the potential ban of cash Gold vs the US dollar Nomi Prins is an investigative journalist, successful author, seasoned banker and prominent public intellectual. She has a unique combination of skills including Ph.D. level training in statistics and hands-on work as an investment banker. She is the author of All the Presidents' Bankers: The Hidden Alliances that Drive American Power. (http://www.nomiprins.com) AUDIO PODCAST > Click here to download this interview and listen to it at your leisure Fri, 05 Feb 2016 08:46:27 +0000 https://goldbroker.com/news/nomi-prins-interview-entering-into-global-bear-market-910 Where there is wealth and geopolitical instability gold shines. So what effect could, if any, have the recent Saudi-Iran conflict on the price of gold? We know that both Dubai and Turkey are in the middle of the gold trade in the Middle East but we know less about Iran and Saudi Arabia. The recent decision by Saudi Arabia to execute a Saudi Shia opponent escalated a long conflict between Iran and Saudi Arabia. The conflict goes at least to the Iranian revolution in 1979. Iran is mostly Shia and Saudi Arabia is mostly Sunni and both tried to extend their influence in the Middle East and the Muslim world and are still trying. In 2007, 10% of Iran’s reserves were held in gold, 20% in US dollars (down from 40% in 2006), the rest mostly in Euro and other major currencies (yen, British pound and Swiss franc). In 2009, Iran's President Mahmoud Ahmadinejad ordered the replacement of the US dollar by the euro in the country's foreign exchange accounts because &quo... Tue, 02 Feb 2016 06:25:03 +0000 https://goldbroker.com/news/iran-saudi-arabia-and-gold-906 The 2008 financial crisis marks the return of gold into the international monetary system. It is also the beginning of currency wars. 2008 is also the year central banks stopped selling gold reserves and instead started buying. In this currency wars that will lead to a reset of the international monetary system, five countries will play a major role but each in a different way. The two largest players on opposite side are the United States and China. The US is the only anti gold player and China the largest pro gold player. However, Russia also has made gold a major weapon against the US and especially since the West, under US leadership, imposed financial and economic sanctions on Russia. The two other major players, because of large ownership of gold and a much more pro gold attitude, are the European Union/Euro Area and India (private ownership in India is a lot larger than official gold reserves). Symbolism and images play a very important role in geopo... Wed, 20 Jan 2016 00:02:42 +0000 https://goldbroker.com/news/russia-and-gold-904 The main reason to buy gold and silver any time is as insurance against extreme negative events. I have always recommended having approximately 5-10% of one’s portfolio in physical gold outside the financial system. Gold is money in extremis. It has been passed down in my family from generation to generation to have 5-10% in gold and pray God it will never be needed. Diversification of financial assets when the financial system collapses is meaningless. Ask those who were “statistically” well diversified with a CDS basket in the 2008 financial crisis. With a looming systemic crisis you can even allocate higher than 10% of gold. The main reason for buying gold in 2016 remains the risk of an international monetary system collapse. It hasn’t happened yet but events in 2015 make my case of a collapse not weaker, but stronger. When you hear people like the past chairman of the U.S. Fed (Ben Bernanke) saying, “the system is incoherent”, and the former governor of the Ban... Mon, 11 Jan 2016 17:03:57 +0000 https://goldbroker.com/news/why-buy-gold-in-2016-899 To answer the question of which of the SDRs or gold will replace the US dollar we need first to know what each is. For gold it’s very simple. One gram of gold is just a yellow metal that weights one gram. Its physical characteristics make it quite easy to identify and measure and they never change. I would like to show you the SDRs but they’re virtual, so you will have to imagine it. Contrary to gold, I will have to explain it. The IMF created the Special Drawing Rights (SDRs) in 1969. Originally, the value of an SDR was defined as equivalent to 0.888671 gram of fine gold which, then, was also equivalent to 1 US dollar (1oz of gold = 35 SDRs = US$35). Very simple, isn’t it? After the gold exchange standard (Bretton Woods Accords) collapsed in 1973, the SDR was redefined as a basket of currencies. From 1974 to 1980 the SDR was composed of 16 currencies in different proportions. In 1978 the Danish krona and the South African rand were remove... Mon, 04 Jan 2016 05:12:46 +0000 https://goldbroker.com/news/what-will-replace-the-us-dollar-sdrs-or-gold-892 Alan Greenspan, the venerable former Federal Reserve chairman, speaking to the U.S. Congress in 1999, said, "Gold still represents the ultimate form of payment in the world. Fiat money, in extremis, is accepted by nobody. Gold is always accepted." In 2002, in a speech given before the Economic Club of New York, Mr. Greenspan also said, “As recently as a decade ago central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess.” He confirmed what Aristotle stated 2,500 years ago when he said, “In effect, there is nothing inherently wrong with fiat money, provided we get perfect authority and god-like intelligence for kings.” Rick Santelli, from CNBC, said, "I can't remember the exact quote, but when I used to trade and Mr. Volcker was Fed chairman, he said something like 'gold is my enemy; I'm always watching what gold is doing.' We need to... Mon, 14 Dec 2015 09:53:02 +0000 https://goldbroker.com/news/gold-the-canary-of-the-currency-markets-890 Dan Popescu's exclusive interview with Gordon T Long on: Financial repression and interest rates Deflation, inflation or hyperinflation The currency wars and the dollar: up or down? Gold and Silver: an insurance policy Banning cash and the cashless society China gold, yuan and the SDR Gordon T Long has 40 Year career in technology, senior management and investment finance. He was Senior group executive with IBM and Motorola for over 20 years, Spearheaded International Subsidiary and Distributor Start-up Operations for high profile technology firm, Founded LCM Groupe in Paris, in 1995 to specialize in rapidly emerging Internet Venture, Capital and Private Equity Industry, Financial writer and commentator since 2010 – www.gordontlong.com AUDIO PODCAST > Click here to download this interview and listen to it at your leisure. Thu, 26 Nov 2015 07:48:21 +0000 https://goldbroker.com/news/gordon-t-long-financial-repression-gold-dollar-cashless-society-881 Is there an alternative to the dollar? I heard that question several times in the last few months. First, let me tell you that as much as you like it or not there is always an alternative to almost anything. It doesn’t have to be better or worse, but there is one. It is arrogant and shows a lack of understanding of history and nature to pretend there is no alternative to the dollar. The world existed before the British pound and before the US dollar, and it has survived the British pound and will survive also the US dollar when it collapses. To pretend that the world will collapse or disappear without the dollar is simply American egocentrism. I’ve always heard this sentence, “there is no alternative to …” every time at the top of some bubble. My first recollection is gold and oil in the ‘70s, the Japanese stock market in the ‘80s, the U.S. stock market in the ‘90s, etc. The only question is how and when it will collapse. I think sooner than later. Since paper curr... Mon, 16 Nov 2015 06:53:51 +0000 https://goldbroker.com/news/gold-is-dollar-achilles-heel-872 Dan Popescu's exclusive interview with Bill Holter on: - The Fed and interest rates; will we have negative rates or an increase in rates and impact on gold - Gold price manipulation. Bloomberg article yesterday said Fed could push gold down - The US dollar bull market - Can we have a run on the dollar as we had in the 70s (August 71)? - China gold strategy, the SDR and the yuan - COMEX gold. Can COMEX default? - Gold & silver coin demand and premium in the US and worldwide Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration (www.jsmineset.com). Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He is a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries since 2007. AUDIO PODCAST > Click here to download this interview and listen to it... Mon, 26 Oct 2015 17:04:49 +0000 https://goldbroker.com/news/bill-holter-fed-dollar-china-gold-868 Thanks to a set of excellent charts on gold imports vs exports by Nick Laird (www.sharelynx.com), I would like to give you a brief outlook of where is gold going. We heard for some time that gold is moving to the Far East but is it really only moving there? Well if we start with the US, it certainly is going out. In the first chart, we can observe that at least since 1996 gold has been leaving the US without exception. Even at the top of the gold market when the price crossed briefly $1,900 gold exports exceeded gold imports for the US. However, according to Nick Laird, for the US if you add up their gold mine production it puts them in a net neutral position. So their imports plus production equals their exports; this over the last 18 years. Chart #1: US Gold Imports minus Exports Is this the same case for Europe? Contrary to what you might think gold is moving from West to East but some is not going all the way to India and China but rather stops in Euro... Tue, 20 Oct 2015 06:00:20 +0000 https://goldbroker.com/news/what-destination-all-gold-862 In this article I want to approach the idea of a gold standard from a more “regular people” perspective rather than from a “high academic” economic/finance and, sometimes, legalistic perspective. I constantly read books and articles full of mathematics written by the economic academia, trying to show why a gold standard is a relic of Antiquity, undignified of the modern world. As a physicist, still, I would like to remind economists that they would not be able to write their papers on a PC, communicate with an iPhone, drive a car or fly on a plane, if it weren’t for two relics of Antiquity essential to scientists and more than 3,000 years old that barely changed since then: algebra and geometry. When I was a child, my father, an engineer, used to tell me over and over again, “If you can’t explain it in simple words, it’s because it makes no sense or you don’t understand it yourself”, and “keep it simple”. Recently, while researching for an article on the gold sta... Mon, 21 Sep 2015 06:30:54 +0000 https://goldbroker.com/news/why-a-gold-standard-852