The World Gold Council reported:
- 2013 saw the largest volume increase in gold jewelry demand for 16 years.
- Demand for gold bars and coins surged to an all-time high of 1,654.1 t (metric tonnes).
- Annual demand for gold used in technology stabilized at 404.8t, from 407.5t in 2012.
- Net purchases by central banks increased global official gold reserves by 368.6t., the fourth consecutive year of positive demand.
Jewelry is the largest single category of global demand for gold, accounting for 59 percent. The largest market is China, with India in second place, followed by the U.S. Jewelry demand in 2013 in China increased to 669t from 519t in 2012, and in India to 613t from 552t.
The WGC reports:
“Consumers remain key drivers in the demand for gold...Across the
world there were large increases for gold in both emerging and
developed markets.” Demand for bars and coins in Turkey was up
113%, Thailand up 75%, China up 38%, Indonesia up 36%, and the U.S.
up 26%. (The China Gold Association reported consumer demand
increased 41%, not 38%.) According to Thomson Reuters GFMS, a
precious-metals consulting firm, Chinese exchanges accounted for 22%
of gold traded on exchanges in 2013, more than double the 10% of
2012.
Due to the popularity of
gold in Asia, the following banks—most of them very large—opened
gold vaults in Singapore or Shanghai in 2013: Deutsche Bank AG, UBS
AG, Barclays PLC, and Australia & New Zealand Banking Group
Ltd., Also, Metalor Technologies SA opened its first gold refinery in
Singapore in 2013.
Technology represents only
about seven percent of world gold demand, but this actually accounted
for more gold in 2013 than purchases by all the world's central banks
(404.8t compared to 368.6t). Moreover, this field could grow very
rapidly. Historically the principal industrial use for gold was in
dentistry, but this has been surpassed by use in the fast-growing
electronics industry because of the metal's excellent conductivity
and resistance to corrosion. Those characteristics also makes it the
metal of choice for high-technology components in complex and
challenging environments, such as the space industry and fuel cells.
Gold's catalytic properties are also beginning to create demand in
the automotive sector, in the chemical industry, and in medicine
because of the metal's excellent bio-compatibility.
Platinum, palladium and
rhodium are commonly used in catalytic converters in automobiles.
Now a stable, effective and commercially viable catalyst can be
obtained by combining gold, palladium and platinum. I don't think
anyone expects the automobile industry to decline or reduce its use
of catalytic converters.
The whole field of
nanotechnology is just opening up. A growing number of patents
relating to gold nanotechnology suggests many new catalytic
applications for medicine and the environment will be developed in
coming years.
Gold can be used for
precise delivery of drugs to targets within the human body and to
create conducting plastics and specialized pigments. Gold enables
certain tests to reliably detect malaria and many other diseases.
These tests can be used in developing countries without expensive
equipment or supply chains. In Rapid Diagnostic Tests (RDTs), gold
nanoparticles drive a color change on a test strip containing a
single drop of blood, indicating whether a disease is present.
According to the World Health Organization, hundreds of millions of
RDTs have already been distributed globally.
Gold nanotechnology
research is developing more efficient and accurate ways of delivering
cancer treatments. Chemotherapy now widely used in treating cancer
can damage healthy cells. Gold nanoparticles can target and destroy
cancer cells while leaving healthy tissues largely unaffected. It's
hard to believe this use of gold will not grow significantly in the
future.
Gold's catalytic
properties can be used effectively to reduce hazardous emissions to
the air as well as remove pollutants from groundwater. A gold and
palladium catalyst removes chlorinated compounds.
All the new uses for gold
will not diminish the role of gold as a monetary metal, merely add to
its value and demand. Gold's monetary importance will continue to be
determined fundamentally by national and international economic
factors. Of utmost significance in this regard is the misguided
continuation of the U.S. policies of government spending that
balloons the national debt and taxation that stymies economic growth.
The promises that Barrack
Obama made to get himself elected have proven false, are counter to
logic and the lessons of history, and have left this country with a
bleak future. It is obvious that the U.S. can never pay all its
obligations. Social Security, Medicaid and Medicare are going
bankrupt, but Obama hasn't even tried to do anything about them.
Instead he proposes more spending—which, together with past
obligations to spend more in the future—caused the problem in the
first place. He simply made it worse—much worse—and now proposes
to do more of the same. The feds spent $2.98 trillion in 2008, but
Obama now proposes to spend almost a trillion dollars more ($3.9
trillion) in his budget for the fiscal year beginning October 1.
Spending would rise by another $1 trillion by 2020, much of it fueled
by the exploding costs of Obamacare, and would reach an astonishing
$6 trillion by 2024. That won't happen. A complete financial
collapse will occur long before then.
It was claimed Obama's
economic recovery program of 2009 would produce 4.2% average growth,
based on recoveries from previous recessions. But the problem was,
“the Obama program did not promote growth, it impeded it,”
according to Gramm and Solon. Recovery averaged just 2.2%, less than
half the norm for postwar recoveries. Worse, the Congressional
Budget Office now says our long-term growth has been permanently
weakened, thereby reducing our growth rate to 2.2% for the next
decade! Thus, despite all the hoopla about the economy finally
turning around and improving, the CBO predicts the next decade will
have the same growth rate, 2.2%, as the unimpressive period
2011-2013.
Another recent CBO report
shows how slower growth is bleeding the federal government of
trillions in revenue. CBO's 10-year projection shows $4.9 trillion
have already been lost due to slower growth since the recession
began, and the losses are accelerating.
Obama has proposed about
$1 trillion in new taxes over the next ten years, almost all from
higher earners. He
has learned nothing from the tax cuts by presidents Ronald Reagan and
John Kennedy. In both cases, reductions in tax rates resulted in
increased tax
revenue for the government. When Reagan became president, he reduced
the top marginal income tax rate to 28%, from 70%, but when he left
office, tax revenues had almost doubled. During this same period,
the inflation rate fell to 4% from 13%, unemployment dropped to 5.3%
from 7.5%, 17 million new jobs were created, and the longest
peacetime boon in our history was underway. When Reagan took office
in 1981, the top one percent of income earners paid 17.58% of all
federal income taxes. Twenty-five years later, in 2005, that one
percent paid 39.38% of all income taxes despite the much lower rate.
In the 1960s President Kennedy cut the highest income tax rate to 70%
from 91% with a similar result. Obama's tax ideas are an ideological
fantasy out of touch with historical evidence.
Presidents
Harding and Coolidge cut federal income taxes several times
throughout the 1920s, sharply lowering the top rate in steps to 25%
from 73%. As the top tax rates were cut, tax revenues soared, as did
the share paid by the rich. Those earning over $100,000 paid 29.9%
of the total in 1920, 48.8% in 1925, and 62.2% in 1929. The share of
overall taxes paid by top one percent rose from about one-third in
the early 1920s to two-thirds in 1928. All this means nothing to
Obama because in his view Marxist
ideology trumps reality.
Pursuing
Karl Marx's ideology, Obama seeks economic equality through
redistribution of wealth. He has declared economic inequality is the
“defining challenge of our time...That’s why I ran for president....It drives everything I do
in this office.”
That's why he pitches his soak-the-rich tax proposals in the Marxist
terms of class warfare and the rich as enemies of the people,
impediments to achieving his dream of socialism's equality.
The
U.S. economy is in far worse shape than is generally acknowledged.
Now in Obama's fifth year as president, the labor participation rate
is the lowest in 35 years. His expensive economic stimulus and jobs
programs have failed.
Fifty-seven months after the official end of the Great Recession, fewer Americans have jobs than in December 2007. Furthermore, the so-called recovery has been characterized by downward mobility. During the recession, 60% of job losses were in the middle pay range, 21% were lower. In the recovery, only 22% of new jobs were in the middle range while 58% were in the low end of the scale.
Home
sales fell again in February, to the lowest level since July. They
declined in six of the last seven months.
Job
creation rose in February, which was expected after the poor number
in January due to extreme winter weather in parts of the U.S. Even
so, the February number of 175,000 new jobs was below the prior
12-month average of 189,000. Furthermore, the average work week (now
34.2 hours) has been declining, resulting in the equivalent net loss
of 100,000 jobs since September. This cannot be explained by harsh
winter weather because parts of the West, Midwest and South
experienced milder than normal weather, and the numbers were already
seasonally adjusted. Besides, the work week decline began before
winter set in, with declines in hours in September and October.
The
unemployment rate is actually about 13%, roughly twice the reported
rate, if you include people “marginally attached” to the
workforce. At the end of 2013 there were 27.3 million part-time
jobs, 18% of the workforce. The reported unemployment rate is
deceptive in that it omits those who are not employed but have
stopped looking for work.
Government
spending has not made Americans richer. The median net worth of
American adults in now one of the lowest among developed nations
according to Credit Suisse Global Wealth Databook. The U.S. figure of
$45,000 is less than Australia's $220,000, France's $142,000m—and
even Greece's
$54,000. The net worth of almost a third of American adults is less
than $10,000.
The
Federal Reserve has been accommodative of Obama's spending by
providing whatever money is needed by simply creating more of it.
There is no limit on the amount it can create because that money is
backed by nothing; it is fiat
money, paper not backed by gold or any material value. As a result
of the Bretton Woods conference in 1944, the U.S. dollar became the
world's reserve currency. Only the dollar was directly pegged to
gold, and other countries were required to maintain fixed exchange
rates of their currencies to the dollar. The U.S. agreed to maintain
dollar-gold convertibility for foreign central banks. President
Nixon ended that convertibility in 1971, after which there has been
no limit on the amount of money the Fed can create.
As
a result, the U.S. began producing enormous trade deficits. Other
countries would send us TV sets, washing machines, refrigerators,
cameras, tools and compact fluorescent light bulbs, and we would send
them more paper dollars. They would send us clothes, iphones,
computers, shoes, toasters, tires and just about everything else, and
we would pay for them with fiat dollars created by the Federal
Reserve. Those dollars would be recycled back to the U.S. by foreign
governments using their accumulating dollars to buy U.S. treasury
securities—in effect, the U.S. was borrowing back the dollars,
which were then used for more spending and increasing the federal
debt.
Economy
didn't matter any more. The system facilitated any amount of
uneconomic expenditures by passing the cost to future generations by
simply adding it to their tab: a growing national debt. It became
the ultimate way for politicians to redistribute wealth: steal it
from future generations who have no vote in the matter, and
distribute it now to voters who will put you in office or keep you
there.
The system can not
continue indefinitely.
Nobody
can ever get out of debt by borrowing successively larger sums to
cover successively larger debts. Neither can governments.
Eventually debts are repaid or the borrower goes bankrupt. According
to the International Monetary Fund, meeting America's obligations
will require an immediate and permanent 35% increase in all taxes and
a 35% cut in all government benefits. That's not going to happen. It
can't happen. Instead America will undergo a financial collapse. By 2025, entitlement
spending and debt payments are projected to consume all federal
revenue. And having the Fed print vastly more money to pay our
obligations will not solve the problem; it will merely bring
inflation that destroys the value of the dollar.
For
five years the Fed has been engaging in “quantitative
easing”—printing money—at rates as high has $85 billion per
month—over $1 trillion per year. Recently that has been reduced to
$65 billion per month. The Fed is not the only central bank engaging
in quantitative easing. Central banks all over the world have been
doing so to try to stimulate their economies and placate voters that
they are “doing something.” The Fed, the European Central bank
and the central banks of Japan, Switzerland and China have printed
well over $10 trillion since 2007, more than tripling the size of
their combined balance sheets.
Japan
was the latest of the major central banks to reach its “Havenstein
moment,” a moment already reached by the other central banks just
mentioned. It is the moment when the person in charge of the money
supply decides that massive printing of money is better than the
alternative, that it is preferable to deflation. Rudolf Havenstein
was the head of German Central Bank (Reichsbank) from 1908 to 1923
and presided over the great hyperinflation in Germany. The newly
elected government in Japan stated in May 2013 that it aimed to
improve the economy with 2 percent inflation by doubling the money
supply. It said it will engage in “unlimited” or “open ended”
printing of money to achieve that goal.
With
all the fiat money being printed by central banks all over the world,
it should be no surprise that people all over the world have been
exchanging it for gold. They see it as more likely to retain value
than paper currencies, which they fear could result in either
uncontrollable inflation or a bursting of the monetary credit/debt
bubble and catastrophic collapse.
The
latter is what happened in 1929, following the credit expansion of
the money supply in the 1920s. The excess credit found an outlet in
the stock market. A similar expansion of credit in the
mortgage/housing industry created a bubble that burst bringing on the
Great Recession of recent years. Will the huge amount of money the
Fed has been creating since 2007 find a similar outlet in those
industries? The stock market has been making all-time highs, and the
Fed's policy of near zero interest rates has driven money from safer
investments into stocks in search of higher returns. And while the
Fed was buying $85 billion per month in bonds, $40 billion of that
was in mortgage backed securities in an effort to goose home buying
and employment in home building. So the stock market and the housing
industry may be “bubble” candidates.
There
are, or course, other possibilities which could upset the precarious
financial position the United States has created for itself with its
spending and debt problems. The most intriguing relates to the
increasing demand of gold buyers to take physical delivery of gold.
As
we noted, the amount of gold eligible for delivery on Comex futures
contracts was drawn down 80 percent in 2013. The Comex handles 82% of
all gold futures trading, but only a very tiny percentage take
delivery; it is a basically an exchange for paper trading. Physical
deliveries of gold on the London Bullion Market are about nine time
greater than on the Comex, but here, too, paper trading predominates.
The
Shanghai Gold Exchange is the one for physical delivery. Its
physical deliveries have been almost equal to world gold production.
In 2013 SGE delivered 2,197 tons of gold, up 92.9% from 1,139 tonnes
in 2012. In January 2014, it delivered a record 247 tons, 43%
greater than the monthly record set in 2013, and greater than monthly
global production of gold in the entire world.
In
a previous posting we noted that Germany has had difficulty since
October 2012 obtaining return of gold it owns that is stored at the
New York Federal Reserve Bank. That same posting noted Alan
Greenspan's testimony before the House Banking Committee, “Central
banks stand ready to lease gold in increasing quantities, should the
price of gold rise.” The question immediately arises whether, in
fact, the Fed has leased, hypothecated or perhaps even sold gold at
the Fed stored for Germany and other countries. The Fed agreed to
return 300 of the 1500 tons of gold it stores for Germany but said this would require 7
years. Why so long? If the Fed does not have all the gold, it would
have to buy it, at market prices, to cover shortages in its accounts;
if it has the gold but has leased it or encumbered it in some other
way, it would need time to unwind those commitments or let them
expire. Further suspicion is aroused by the fact that in the entire
year of 2013 the Fed sent a mere 5 tons of gold back to Germany.
With
the growing demand from consumers worldwide for physical possession
of gold, and with Shanghai deliveries consuming effectively all of
mine production, the market is very tight. Suspicions have arisen
that increased demand for physical delivery for futures contracts at
the Comex in particular (and perhaps in London) will exceed the
exchange warehouse supplies of deliverable gold.
Paul
Craig Roberts, a former assistant secretary of the U.S. treasury,
says, “One
day the Chinese will buy 100 tons of gold, and we won’t be able to
make delivery. That would crash the system. It would just
pop.”
In
that case the exchange would be forced to settle the futures
contracts for cash, which it is legally allowed to do. But the
consequences to the dollar will be enormous. There will be a
decoupling between paper gold and the physical metal. I
believe metal will win. This means the gold price will be determined
by trading in the metal itself, not in paper transactions that are
subject to manipulation as explained by Alan Greenspan in order to
give false value to a fiat currency by driving down the gold price.
There
will be a tremendous loss of confidence in the dollar. The workings
of the Fed will be exposed, and more confidence will be lost, not
just in the Fed and the dollar as a currency—but in its role as the
world's reserve currency.
As
I explained in my latest book, The
Impending Monetary Revolution, the Dollar and Gold,
events have been chipping away at the dollar's reserve status for
some time. In 2011 China and Russia agreed to trade with each other
in rubles and yuan, rather than dollars. China has bilateral
currency swap agreements with at least 13 other countries. China has
trade and investment agreements with Singapore and Korea as well as
faraway countries such as Belarus and Iceland. Japan agreed to hold
some of its foreign currency reserves in yuan and to issue
yuan-denominated bonds in mainland China. Indonesia did the same
thing. I even speculated that we may see petro-yuan replace
petrodollars in the oil market.
Recently
the BRIC nations (Brazil, Russia, India and China) have agreed that
trade among them will no longer be in dollars. These are all large
countries with sizable populations and all, except possibly Russia,
have growing economies.
Now
let's look at possible effects of the Ukrainian situation. Russia
supplies gas not only to Ukraine but to many countries in the
European Union via pipelines through Ukraine. It supplies 30% of
Europe's natural gas. For several countries, it is their sole source
of supply, and alternative sources of supply are not available. The
government in Ukraine is on the verge of bankruptcy and will need
international financial aid to survive. The IMF and various nations
are trying to arrange this. But most of the money Ukraine owes it
owes to Russia, and if those bills aren't paid, Russia can shut of
the country's imports of gas. (It has done so in the past.) Any
funds that are given to Ukraine will quickly end up going to Russia
for past debts.
As
a result of promises made between the U.S. and Saudi Arabia back in
the 1970s, the Saudis agreed that all energy contracts would be
settled in dollars. The petrodollar has been a major factor in maintaining the role of the U.S. dollar as the world's reserve currency. Europeans pay for their gas from Russia with
dollars.
U.S.
and various other nations have imposed economic sanctions on Russia
over Crimea and may impose more. Will sanctions prevent European
nations from buying oil and gas from Russia? Of course not. It is in
everyone's interest to keep Russian gas flowing through the
pipelines.
It
is unlikely sanctions will alter Putin's behavior, but if they become
too onerous, they invite a devastating retaliation from him. What if
he tells those gas-buying countries, “OK, you can pay for Russian
gas in any currency other than dollars”? That would be the end of
the dollar as the world's reserve currency. The exchange rate of the
dollar would plummet, the price of gold would skyrocket, and the Fed
would be powerless to defend the dollar against it as Greenspan
envisioned. The effect in the U.S. would be catastrophic,
particularly on the New York stock exchange.
