Geopolitics Around Gold Investment

History Of Gold Standard

How Singapore Created Its Own Gold Reserve, Following A Scenario Worthy Of A James Bond Movie

Not all central banks are transparent about their gold purchases. Among them is Singapore’s central bank, called the Monetary Authority of Singapore (MAS). It was founded in 1971, just before Richard Nixon abandoned the gold standard.

However, the country, anticipating that the price of gold would begin to rise, organized the purchase of gold even before the establishment of its central bank. It all happened like a James Bond scenario and remains to this day one of the most secretive gold acquisition operations in history.

After the 2 purchases, the country’s total reserves stand at 153.2 tonnes and have increased by 20% from this transaction alone, which is Singapore’s first in at least 2 decades. Thus, the country climbed one position in the top of the world’s largest gold holders, reaching 29th place, ahead of Brazil (129 tons), but behind the Philippines (157 tons).

Singapore increased its gold stockpile by 26.35 tonnes earlier this year, the data show. The transaction was carried out in 2 installments, in May and June. The Monetary Authority of Singapore described this in its July and August reports, and the data on purchases was only recently reported by the International Monetary Fund , so it was not reported by the World Gold Council and went largely unnoticed by the markets .

With this purchase, Singapore joins many other countries that have significantly increased their gold reserves in 2021. These include Thailand, Japan, Serbia, Hungary and Poland. Russia has also increased its gold purchases, mainly through its sovereign wealth fund, which has no interest in dollar assets.

Gold is the ultimate currency

It is not clear when the previous gold purchase from Singapore took place or if it was purchased immediately. However, from the data we can conclude that between 1968 and 2000, MAS bought another 27.4 tons of gold. This is known because before this date the country had 100 tons of gold, which it acquired as an action scenario.

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Singapore's Gold Reserve - A Creation In The Spirit Of "James Bond"

The London Gold Pool was an organization established in the 1960s by 8 major central banks to sell gold when its price rose on international markets with the goal of maintaining parity at $35 per ounce. If the price of gold is allowed to rise, the Federal Reserve, which has less and less precious metal to back the dollar, could face insolvency because it will not have enough gold to pay its obligations to the other banks power plants to which it is obliged to sell gold against dollars.

Sometimes all that glitters really is gold

By the late 1960s, it was clear that the London gold fund was about to collapse. Has France started selling gold heavily? to the Federal Reserve in exchange for gold? and spectacularly left the agreement. Singapore’s finance minister (who was not part of the gold fund), Dr Goh KengSwee, commissioned a report on the future of the gold standard. It was prepared by the administration’s chief consultant, Nguyang Tong Daw, and according to the document, the gold standard was to be abolished.

The Secret Operation To Acquire Gold

However, there was a problem – South Africa was under embargo at the time, and Singapore could not officially buy gold from that country. Thus, Sui secretly met in his Washington hotel room with South African Finance Minister Nicholas Diederichts while the two were at a World Bank conference. The conversation was also attended by Dow, who, 5 decades later, described what happened in his book, ” A Mandarin and the Making of Public Policy “:

The finance minister of South Africa came and said: Before we talk, we have to turn on the TV very, very loudly.” Right in the heart of Washington!”. I agreed and turned up the volume as loud as I could.

The purpose was for the device to muffle the conversation in case the camera was eavesdropped. During the meeting, the finance ministers agreed that Singapore would buy 100 tons of gold at a price of $40 per ounce. The deal carried a 14 percent premium over the spot price of $35 an ounce at the time, but Sui agreed to it to hedge against a possible shock rally in the precious metal.

The Price Of Gold Once Again Crossed The Psychological Barrier Of $1,800

The last day of the week evolves successfully for precious metals. Gold rose 0.66% to just over $1,814 an ounce (at press time). This is the highest price for gold in the last 2 1/2 weeks, with gold breaking the psychological threshold of $1,800 per ounce. In the case of silver, the increase was briefly even higher, by 0.75%, reaching $22.66 per troy ounce. Over the weekend, it felt just below $1800 an ounce, and at the beginning of the trading week the price of gold is stable.

Thus, the precious metals continue their rally that started after the meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve, which took place on Wednesday this week. After it ended, gold rose by 2.7% and silver by 4.7%.

The central bank’s latest meeting also sent the main stock indexes down. Since its high on Dec. 15, the Nasdaq has fallen 2.72%, the S&P 500 has lost 2.48% and the Dow Jones is down 2.1%.

Bitcoin has fallen by as much since Wednesday afternoon, although it had initially risen 5%. At the time of writing, bitcoin is trading at $45.8k. Ethereum, however, rose slightly over the same period, up 0.9% to $3.7 thousand.

The US central bank kept its key interest rate range between 0% and 0.25% and announced that it will reduce its quantitative easing program from early next year. The new horizon for its termination is March 2022, instead of June as originally announced.

In addition, Federal Reserve Chairman Jerome Powell has stated that he expects full employment next year. If that happens, he expects 3 interest rate hikes.

First, the condition set by the central bank is serious. In his statement we read that:

Given inflation, which has already been above 2% for some time, the Committee expects that it will be appropriate to keep the target interest rate unchanged until labor market conditions reach levels that the Committee considers compatible with full employment for work.

It is not yet clear whether we will see a continued decline in unemployment given the emergence of new variants of the coronavirus.

Second, there is a huge difference between rising interest rates and rising inflation. Yes, the central bank could raise interest rates by 0.25 percentage points, reaching 0.75-1% by the end of 2022. Thus, it will claim that it is “fighting inflation” and that it is following the previously announced plan.

But this will fail to stem inflation, as yields on many assets will remain in negative territory. To moderate today’s price hike and dollar collapse (in absolute terms, not relative to other currencies, which are depreciating even faster), the central bank will need to raise rates significantly more. In the 1980s, Paul Volcker raised the base rate to an unprecedented value of more than 20% to control an annual increase in the consumer price index of 12%.

But such a thing is quite impossible nowadays. If we go back just 3 years, we will see that raising the base rate to 1.5%, which is an extremely low level from a historical point of view, led to a stagnation in the stock markets. This is why the Federal Reserve had to cut it again in 2019, that is, before the pandemic.

If the central bank raises interest rates, the US economy, which has a record level of debt, will implode. Therefore, even if there is an increase, it will be negligible and will not represent a real confrontation with inflation .

The Federal Reserve Is Losing The Battle Against Inflation In Advance

The central bank knows this. That’s probably why they’re not facing the problem now, even though the consumer price index rose in November at the fastest pace in nearly 4 decades. There is nothing to suggest that we won’t see similar increases in December or in 2022.

It is clear from all comments by the Federal Reserve that they will face inflation, but sometime in the future. He always leaves a lot of loopholes to avoid facing the situation. The current state of the labor market is uncertain because there is no concrete definition of “full employment”. So the central bank can always claim that market conditions have not met the criteria for a rate hike.

The inability of the establishment led by Jerome Powell to address this issue is highlighted by its evasion and refusal to address the issue itself. If someone’s house is on fire, they don’t go to the grocery store first and wait for the stars to align favorably.

The fire must be extinguished immediately. Abdicating this shows that the Federal Reserve knows it cannot deal with the monster it has created. This will continue to erode the purchasing power of those who hold US dollars or any other currency as the phenomenon is felt globally.

The appreciation of gold, despite “intentions” to raise the base rate (the price of gold is generally inversely proportional to interest), perhaps shows that the markets are also gradually realizing the inability of the central bank to solve the problem.…

Gold – The Savior Of Purchasing Power In Crisis Situations

Crises are situations in which many people begin to look for tools that allow them to preserve their purchasing power in the long term. For decades, central banks have reacted to recessions by printing money, which erodes the purchasing power of the population.

At the height of the pandemic, unprecedented peacetime currency inflation was reached . The effects of this situation, in particular the dramatic increase in the prices of consumer goods and production goods, began to be felt already at the beginning of 2021. By the end of the year, price increases in many regions recorded the highest rates in recent years decades. Especially in the euro area, growth was the highest ever recorded .

Historically, gold has always represented insurance against loss of purchasing power. Our times are no exception. In this case, we will analyze how gold behaves in crisis situations and compare it with the most common assets in Romania.

Currency (Fiat Money)

Keeping money – either in a bank deposit or in cash – is one of the most common forms of saving. Data from the National Bank of Romania show that household deposits amounted to just over 247.4 billion lei at the end of September 2020, up 15.4% on an annual basis. The amounts of money kept “under the mattress” can be speculated and are probably not small at all. The situation is no different in the rest of the Balkan peninsula.

Saving fiat money in cash has a huge downside – its purchasing power erodes due to inflation (which is an increase in the money supply). The lei savings made in the mid-1990s and earlier are now completely wiped out by hyperinflation. Making a calculation based on World Bank data,it becomes clear that if a Romanian had saved 10,000 lei on January 1, 2001, today he could buy goods and services with a real value of only 1,900 lei.

The dynamics in Serbia and Bulgaria are similar. In reality, inflation is much higher because the consumer price index does not include the prices of all types of goods in the economy. This phenomenon, albeit on a smaller scale, is observed throughout the world.

With inflation chronically eroding purchasing power, fiat money is not a suitable vehicle for long-term savings. The only thing they are guaranteed to bring in the future is impoverishment.

Another favorite form of “saving” in Europe and especially in the Balkan Peninsula is real estate. As a physical asset, they have an undeniable utility. The property can also be used to generate additional rental income. Many people are under the impression that the price of a home never goes down, even in times of crisis. Let’s see if this is really the case.

When interest rates are artificially low, real estate booms disproportionately more than other sectors. In its latest financial stability report, the European Central Bank also warned of explosive inflation in this sector.

Credit-driven booms in the housing market could lead to huge risks to financial stability. Industry booms and busts are associated with deep recessions and financial crises, especially when growth is driven by debt. The housing bubble in the US that preceded the global financial crisis is the most eloquent example of this. During a boom period, rising property prices and credit can lead to a correction in overvalued housing, impacting the economy and financial system through multiple channels.

Any rise in interest rates, as expected, at least nominally, in the US, for example, could be the cause of a new housing bubble. As the infographic shows, in some regions of the world, including the US and Europe, the sector is more inflated today than it was in 2008. Therefore, its collapse will be even more spectacular. As can be seen from the data, real estate prices could remain low for a long period of time as a result of such a bubble.

Crashing prices aren’t the only downside to property. Most mortgages have a variable rate. An increase in interest rates means that the cost of administering them will also increase. Thus, property can quickly become a nightmare “investment” (even if chronic maintenance and depreciation costs are not taken into account) – its value will collapse when the bubble bursts, and the amounts that buyers will have to pay will grow.

So, real estate is an asset that is significantly affected in times of crisis. Data for the US also shows that their price rose before each of the recessions of 1974, 1980, 1990, 2007 and 2020 and always collapsed at the peak. It was only during the dotcom bubble that property values ​​didn’t fall because then dollar inflation was mostly directed to the stock markets.

Stock Market

The volumes traded on the stock exchanges re negligible compared to the size of deposits, as well as to that of regulated markets in developed economies. It can be said that almost no Romanian invests his funds in the stock market.

Since 1990, the stock market in the United States has increased 5 to 7 times. The Dow Jones Industrial Average rose from 5,772 points before the 1990 crisis to 35,927 points in mid-December 2021. The S&P 500 rose from 727 to 4,709 points over the same period. This seems like a pretty good value preservation option.

But, just like the real estate sector, stock markets are also affected by any crisis. Placing money in stocks or indices may seem very tempting when markets are rising, but in frequent crashes, if they do not understand the fundamentals, investors usually sell the assets en masse and experience losses because they are extremely sensitive to the psychological impact. This is especially true if they traded with leverage, i.e. on credit.

So the “bare” numbers don’t say much about why the exchanges are doing well. In the last crisis of 2020, they outperformed gold but lost to silver. The reason is of course the central bank’s injection of a historically record amount of newly printed money into regulated markets.

This means there is only one way for stock markets if central banks stop printing money and raise interest rates: down.…

Government State Titles For Gold Bonds

Government bonds are increasingly divided into 2 camps: bonds with zero or negative yields and bonds with too high yields. Developed economies, without exception, fall into the first group. This means that the investor is guaranteed to lose purchasing power when the bonds mature. Investors in Romanian government securities are also in such a situation, even though they have an interest rate of 5.2%.

In the second group are countries like Turkey, whose interest rates have fluctuated between 6 and 21% since 2010. However, its financial system is in a state of rampant inflation, which means that in this case , investors will be guaranteed a contraction in their purchasing power when the instruments mature.

In other words, government bonds do not necessarily perform well in times of crisis. Furthermore, because of the massive money printing by central banks around the world, it is very difficult for them to bring in profits that exceed the erosion of purchasing power by inflation.

Despite the crises – or rather because of them – the price of gold rose from $364.5 per troy ounce in May 1990 to $1,788 per troy ounce by mid-December 2021. This is a 5-fold increase, which precedes the rise of some top stocks and the collapse of the purchasing power of money. In the last 5 decades, its growth has been even more impressive – 30 times.

However, it is not enough to say that gold is getting more expensive to define it as a good guardian of value. The precious metal depreciated during the Western world crises of the second half of the 1980s and early 1990s, although it has risen in all other recessions since it was delinked from the dollar in 1971. This dynamic needs to be explained.

As with other assets, the price of gold is highly dependent on the actions of central banks. In the 1970s, the US was in a state of runaway inflation that drove the price of gold above all other types of assets. To stop this phenomenon, the chairman of the Federal Reserve, Paul Volcker, sharply increased the benchmark interest rate to more than 20%. This worked and the rate of loss of purchasing power decreased. But the rate hike leads to a collapse of the country’s deposit system and a crash in stock markets.

The last time US interest rates were relatively high was in 1990, when there was also a global recession. Since then, they have fallen steadily, chronically inflating bubbles in the economy, which have burst one by one: the tech bubble (2001 dotcom bubble), the real estate bubble (2008), the Treasury stock bubble, and the yo-yo bubble (2021).

With few exceptions, the country’s base interest rate has been 0.25% since 2009 and is 0% currently, a record low. At the same time, beginning in 1981, the Federal Reserve dramatically increased the amount of dollars it printed, which accelerated the rate of erosion of purchasing power.

The European Central Bank took the same measure after 2008, with the difference that it didn’t even try to stop euro inflation or raise the interest rate. It is a negative quantity. This was also the case in Japan, where the base rate has been 0% since 1999 (with very short breaks).

As can be seen, the actions of central banks around the world, which are almost identical, lead to the same effect – the devaluation of the currency relative to gold. In fact, all of the world’s major currencies, not just the US dollar, have an undervalued purchasing power relative to gold.

Typically in our lifetime we witness 2 or 3 major financial crises that bring with them huge transfers of wealth from one part of the population to another.

The truth is that financial markets are complex and unpredictable, even for professional investors. Each asset has its own risk profile and different performance in times of economic crisis and prosperity.

History eloquently shows that gold has unique characteristics that make it a suitable asset for long-term value preservation, especially in the context of the rampant central bank inflation we are currently witnessing.…

Why Is Gold A Yellow Metal?

Like any individual chemical element, gold has unique characteristics that make it a bright yellow metal. Thanks to these, it is also very difficult to counterfeit. Gold has a specific gravity of 19.3 grams per cubic centimeter, a property not possessed by any other metal.

This property was discovered by Archimedes in Antiquity. Although it is unlikely that the great mathematician discovered its exact density, he nevertheless proved to the ruler of Syracuse by his experiments that his crown was not made of pure gold.

In today’s article, however, we will consider other properties of gold – the reason for its luster and yellow color. They are what make gold visually appealing. This, combined with its difficulty in being mined and forged, made gold a desired metal for making jewelry and eventually money.

Moreover, the precious metal has not changed its status as a sought-after product since the dawn of human history. Mankind has been interested in gold for millennia, and the excitement it generates doesn’t seem to be waning. It’s also interesting that it seems that the older the gold, the more sought after it is.

In metals, loosely bound negatively charged electrons revolve around a positively charged nucleus. When metals are formed, the accumulation of the many electrons surrounding atomic nuclei (consisting of positive protons and negative neutrons) creates what is scientifically called an ” electron sea “. Within it, electrons are not directly bound to any atom.

The atoms that make up the metal can move relative to other atoms without breaking the bond between them. The metal is thus not destroyed by their movement. The bond is not molecular, and most metals have similar characteristics. These include high electrical conductivity, high melting point, hardness and malleability.

Light is an electromagnetic wave. When it collides with the surface of a metal, its electromagnetic field creates a “ripple effect” in the sea of ​​electrons. They absorb the energy of the wave, which is normally in the ultraviolet light spectrum, and begin to vibrate.

As they vibrate, the negatively charged electrons in the “sea” interact with each other. Thus an electric field is created. But this is not the only phenomenon that occurs. If that were the case, every time the light hit a metal and a person touched it, they would get a slight electric shock.

The electrons actually create a second wave of light, having 2 effects. First, the total electric field of the metal remains 0. Therefore, metals do not cause electric shocks. Second, this wave is visible. This creates the metallic luster we know and defines the “color” of the metal.

The second wave created by the wave of electrons is actually a combination of waves with very different wavelengths in the visible spectrum. They are not equal in proportion, but since they include the entire spectrum, most metals have a gray-white appearance.

The periodic number of gold (Au) in Mendeleev’s table is 79, respectively in the nucleus of a gold atom there are 79 neutrons and 79 protons. For this reason, it is a relatively dense (as mentioned at the beginning) and heavy yellow metal. This also means that the electrons have to work hard to avoid hitting the nucleus, attracted by the electrostatic field.

According to Niels Bohr’s atomic model, electrons orbit around the nucleus. They retain a certain amount of kinetic energy to avoid being attracted to the nucleus. Imagine what would happen if you tied a rock to a string and started spinning it. The stone would maintain a certain distance from the center as it revolved around the stick in an orbit. When you stopped the rotation, the stone would fall in a spiral motion.

The “hard work” in question means that the electrons have to move very fast. In fact, the electrons in the gold atom orbit the nucleus at about half the speed of light. As we know from Einstein’s Special Theory of Relativity (E=mc2), the closer a particle’s speed is to the speed of light, the heavier it becomes. Because of this, the mass of the electrons orbiting around the gold atomic nucleus is increased. Calculations show that their speed causes the weight to increase by about a fifth.

But since they are already heavier, the radius along which they move around the nucleus decreases. In physics, this is called the Bohr ray. Due to its reduction and as a result of the increased electron mass, gold has a characteristic yellow glow.

However, the logic presented is not enough. If the only reason gold was a uniquely yellow metal was its periodic number, shouldn’t lead, which has 82 protons and 82 neutrons in its nucleus, be even more yellow?

This is where quantum physics comes in, according to which electrons have the nature of quanta and waves and circulate in a probabilistic cloud. This behavior is described by the atomic orbital . Depending on the layer in which the electrons are located, depending on the orbital, they have a different shape. The spherical S orbitals located in the outermost electron shell are the ones that feel the strongest attraction from the positively charged protons in the atomic nucleus.

When they have a stronger attraction to the atomic nucleus, the force with which the electrons in the other layers are attracted to the nucleus decreases. Therefore, the distance between the last (that of the s orbitals) and the penultimate (that of the d orbitals) electron shell decreases.

Let’s go back to the description above. Light falls on gold and is absorbed. But since the distance between the orbitals of the different layers is smaller because of the different forces they exert on the nucleus, it takes less energy for it to jump from the d orbitals to the s orbitals.

This makes gold unique compared to most metals and therefore does not have the typical grey-white sheen. Because of the lower energy that gold absorbs, it is no longer in the ultraviolet spectrum, but in the blue-violet spectrum. Therefore, the second wave of light that gold emits that we see contains all the colors in the visible spectrum except blue and violet.

In other words, the waves we see are in the red-green spectrum. As we know from art class, the combination of red and green results in yellow. This is why gold is a yellow metal.