Wednesday, October 23, 2013

Gold As Instrument Of International Settlement

Peter Schiff posted a recent article called 'A Green Light for Gold?' where he explored whether we might be nearing the end of the US Dollar as world reserve currency (and explained this should benefit the price of precious metals):
The reality is that Washington has now committed itself to a policy of permanent debt increase and QE infinity that can only possibly end in one way: a currency crisis. While the dollar's status as reserve currency, and America's position as both the world's largest economy and its largest debtor, will create a difficult and unpredictable path towards that destination, the ultimate arrival can't be doubted.
He started and ended the article referring to a road map:
It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.
Sometimes maps can be very easy to read. If the dollar is doomed, gold should rise.
The article implies that the free markets will take the price of Gold higher. However an interesting find in the WikiLeaks cables by Frank Knopers and shared by Koos Jansen on his blog points to a (1974) road map for a post USD (as reserve currency) world where Gold could be used for international settlement. Is this map still relevant (at the time it was just a discussion rather than proposal)? Could we see Gold used in this fashion and at what price would Gold need to be in order to facilitate international settlement?

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FOLLOWING IS TEXT OF STATEMENT MADE TO C-20 DEPUTIES' MEETING ON MAY 7 BY DUTCH TREASURER-GENERAL OORT RE ZEIST MEETING OF EC FINANCE MINISTERS APRIL 22 AND 23 ON GOLD:

I HAVE BEEN ASKED TO REPORT ON AN INFORMAL DIS- CUSSION - AND I EMPHASIZE THE WORD INFORMAL, REPEAT INFORMAL DISCUSSION - WHICH THE MINISTERS OF FINANCE OF THE EEC HAVE HELD ON APRIL 22 AND 23 AT ZEIST ON THE SUBJECT OF GOLD.

BEFORE I REPORT TO YOU ON THE OUTCOME OF THE DISCUSSION I WOULD LIKE TO MAKE CLEAR THAT IT HAS RESULTED NEITHER IN A FORMAL DECISION ON THE PART OF THE EEC COUNTRIES NOR EVEN IN A FIRM PROPOSAL.

MADE IN A WIDER INTERNATIONAL CONTEXT, WHAT CAME OUT OF ZEIST WAS A CONSENSUS ON CERTAIN SUBSTANTIVE PROPOSITIONS THAT ARE TO BE FURTHER EXPLORED BEFORE THEY ARE SUBMITTED TO A NEXT MEETING OF THE COUNCIL OF MINISTERS OF THE EEC. IF AT A LATER STAGE THE COUNCIL REACHES AGREEMENT ON A CERTAIN POSITION, THE FURTHER PROCEDURE COULD BE THAT THE EUROPEAN COMMUNITY FORMULATES A FORMAL PROPOSAL ON HOW TO DEAL WITH THE PROBLEM OF GOLD IN THE PERIOD BEFORE THE REFORM OF THE INTERNATIONAL MONETARY SYSTEM.

IN ZEIST, MINISTERS HAVE AGREED ON TWO GENERAL PROPOSITIONS. FIRST, THEY HAVE RE-ASSERTED THAT THE SDR SHOULD BECOME THE PRINCIPAL RESERVE ASSET IN THE FUTURE SYSTEM, AND THAT ARRANGEMENTS FOR GOLD IN THE INTERIM PERIOD SHOULD NOT BE INCONSISTENT WITH THAT GOAL. SECOND, THEY HAVE AGREED THAT SUCH INTERIM ARRANGEMENTS SHOULD ENABLE MONETARY AUTHORITIES TO EFFECTIVELY UTILIZE THE MONETARY GOLD STOCKS AS INSTRUMENTS OF INTERNATIONAL SETTLEMENT.

THERE WAS A CONSENSUS AMONG MINISTERS THAT AN INCREASE OF THE OFFICIAL GOLD PRICE, ALTHOUGH IT MIGHT SERVE THE SECOND OBJECTIVE, WOULD BE INCONSISTENT WITH THE FIRST. IN ORDER TO MOBILIZE MONETARY GOLD AS AN INTERNATIONAL RESERVE ASSET, THEY HAVE AGREED THAT:

1. MONETARY AUTHORITIES SHOULD BE PERMITTED TO BUY AND TO SELL GOLD BOTH AMONG THEMSELVES, AT A MARKED-RELATED PRICE, AND ON THE FREE MARKET. THE MONETARY AUTHORITIES WOULD HAVE COMPLETE FREEDOM TO BUY OR TO SELL GOLD, AND WOULD HAVE NO OBLIGATION WHATEVER TO ENTER INTO ANY PARTICULAR TRANSACTION.

2. CERTAIN DELEGATIONS ARE OF THE OPINION THAT GOLD TRANSACTIONS WITH THE FREE MARKET SHOULD NOT, OVER A CERTAIN PERIOD OF TIME, LEAD TO A NET INCREASE OF THE COMBINED OFFICIAL GOLD STOCKS.

3. IN ORDER TO APPLY THESE PRINCIPLES, VARIOUS PRACTICAL SOLUTIONS CAN BE ENVISAGED. TWO WERE MENTIONED IN PARTICULAR. ONE IS THAT MONETARY AUTHORITIES PERIODICALLY FIX A MINIMUM AND A MAXIMUM PRICE BELOW OR ABOVE WHICH THEY WOULD NOT SELL OR BUY ON THE MARKET. THE OTHER CONSISTS IN CREATING A BUFFER STOCK TO BE MANAGED BY AN AGENT WHO WOULD BE CHARGED BY THE MONETARY AUTHORITIES TO INTERVENE ON THE MARKET SUCH AS TO ENSURE ORDERLY CONDITIONS ON THE FREE MARKET FOR GOLD.

4. THESE ARRANGEMENTS WOULD BE ADOPTED PROVISIONALLY AND WOULD BE REVIEWED IN THE LIGHT OF EXPERIENCE.

IN CONCLUDING, MR. CHAIRMAN, I WOULD LIKE TO EMPHASIZE ONCE MORE THAT WHAT I HAVE JUST SAID IS NOT REPEAT NOT A PROPOSAL BY THE EEC, BUT A REPORT ON AN INTERIM-STAGE IN THE DISCUSSIONS. MINISTERS HAVE PER- MITTED US TO MAKE THIS REPORT IN ORDER TO INFORM YOU AS EARLY AS POSSIBLE OF THE DIRECTION IN WHICH A CONSENSUS AMONG THE EEC COUNTRIES IS EMERGING. THEY EXPECT DEPUTIES TO INTERPRET THE STATUS OF THE INFORMATION IN THE LIGHT OF WHAT I HAVE JUST SAID.

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8 comments:

  1. “I warn any people involved in this matter that the Taskforce plans to
    follow the money trail and actively target any proceeds of crime that
    have been acquired as a result of associated criminal activity.”


    Sounds like the raids might have been a fishing expedition and the real crooks are somewhere down the line - there's no mention of any charges being laid at this time, just tax bills.

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  2. Which begs the question, are they only holding back on information until completing their investigation, at which point they will lay criminal charges? Or are will they hold off on the charges, putting the customer base of these companies at risk in an effort to take back some of the money owed? Definitely more to this story and I hope it comes out soon.

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  3. I would note that the AFP classifying it as a proceeds of crime means that they know the money is no longer in the company. If they can get it off the individual involved then all will be fine. If they can't then the business involved is bankrupt. Given the amount of money involved I'm not sure the ATO would want to run/supervise a gold business for the years and years it will take to get the money back, although the Kitco case has been going for 5 years now. In that case people dealing with such firms run the risk of getting caught up in the bankruptcy.
    The issue is as soon as it is public which businesses are involved it may well be over for them as everyone will want to deal cash only with them and few bullion business have the funding to operate that way.

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  4. I have a six figure sum of allocated gold and silver for my DIY superannuation with "a bullion company" that also advertises they buy "second hand jewellery" - is this what is meant by scrap? How do I find out if the company is one of the ones affected? I'm worried that as a trustee I will be held liable if I have my gold stored at a gold dealer that goes under because they couldn't pay $130 million and the story was in the news and I did not act to take my money out of them. Would they sell customers gold to pay the bill? Think I will need to go in and get it to be safe.

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  5. Yes, jewellery is considered dealing with scrap. There is no way to confirm identity of the companies, it appears ABC News & The West were unable to retrieve the information from the AFP. I don't know how you could be held liable if the name is not public information. Technically allocated gold is the property of the investor and not at risk in the event of solvency issues (of the company storing it), but I would be checking the fine print of any agreement you have signed. Personally I self store in a bank safe deposit box. All storage options have their risks, just a matter of finding the one you feel safest with. Personally I would not feel safe with allocated gold with a company owing $130 million even if technically it is my gold. If the company owners are prepared to defraud the ATO of tens of millions, what happens if they just physically take client metal from the vaults and try to disappear?? Unfortunately I don't have all the answers, you will have to do some due diligence and work out what you think the safest option is. But this is exactly why I would like to see the companies outed publicly...

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  6. So Bron is it fair to say that you think the companies will be disclosed once the investigation is complete and they are ready to start laying charges / trying to recover the funds from those down the line who have received the proceeds?

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  7. At this time I imagine that the AFP cannot reveal names as they are not 100% sure. They would visit dealers not directly involved seeking further evidence. The AFP may not know who is part of the conspiracy and who was innocently sold metal from the operation.

    So going around saying we have visited XYZ when you're not sure would put the AFP at risk of being sued should the business go under if no one wants to deal with them when they had done nothing wrong.

    However, I am 100% sure that when the AFP are ready to lay charges they will announce it because it is a large amount of money and is good PR for the police and ATO.

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  8. Nice information. It’s shocking to know that Gold Bullion Company is hiding such big amount of liability. ATO did a great
    job and I appreciate it. Thanks for sharing,

    ReplyDelete