Wednesday, June 22, 2011

Inflation Ahoy!

Sterling trade-weighted index drops to 8-mth low

"Sterling fell to its lowest in eight months against a currency basket on Wednesday, as the UK currency fell broadly after Bank of England minutes showed policymakers were concerned about the growth outlook and some believed more monetary stimulus may be needed". Sterling even fell against the Euro today ...This time next year, Rodney!

Posted by alan @ 06:44 PM (3975 views)
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48 thoughts on “Inflation Ahoy!

  • general congreve says:

    What a shame.

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  • It is wierd I was just looking at this myself. Non technical way.

    Look at the GBP to EUR it is the worst in an year. 1.11
    Look at all the banks they are at there lowest in a year. Barclays is 252. Remember it was over 300 when the Qatar’s sold it.
    RBS is 37.50 Remember it was 52p when BBC was saying we might make some money on this if it reached 60p etc.
    See all banks are at the lowest in a year. http://www.bbc.co.uk/news/business/market_data/shares/3/498/0/default.stm

    With all the issues with Euroland, if it is still rising against the sterling think of the issues hiding under the closet.
    What happens when public sector workers will have to get a job.
    When the Std Variable Rates (40% of total mortgages) start rising.

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  • general congreve says:

    @2 – What happens? Can’t tell you everything, but I’m pretty sure gold will go up some more and sterling down.

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  • @3

    What does your Gold yield?

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  • Gold yield’s security.

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  • @5

    Against what?

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  • @4

    I have been visiting this site for some time, and this is just about the daftest comment I have ever read.

    Whilst I accept that gold ramping is irritating, who needs a yield when you have secure capital appreciation in an (at best) uncertain market.

    The trick will be when to sell ones gold and buy equities. Not quite yet I would strongly suggest.

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  • Lets talk about FOOL’s GOLD and some facts and volumes.
    99% of the gold trading is financial or paper trading.
    1% balance is physical trading which is where you take delivey of gold.
    Of this 1% – 70% is investment gold i.e. Gold bought for investment.
    – 30% for actual use. Jewellery or industrial use.

    So 0.3% of gold traded supports price for 99.7% of trading. This will fall with a thud and people will not get time to get out of it.

    Same with housing, over priced. With low trasactions and still making high prices. Will fall with a thud.

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  • So if traded gold fails (which it will) then the price of physical gold will also fall?

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  • Following on from deepak’s above post, Invesco Perpetual (fund managers) identified that in the last few years roughly 3 barrels of oil in every one hundred was purchased for consumption and the remainder by speculators – they are currently predicting a significant downturn in the price of commodities.

    Anyone who has been loading up at Spink (www.spink.com) will (IMO) be better placed than those with Gold ETF’s etc… assuming we get a Black Swan event sold 2 rent 1 style

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  • @9

    Exactly, jackc. It’s an accident that will happen.

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  • @deepak,
    I put it to you that the Chinese and Indians have growing economies, I think you will agree. They have never featured as big gold buyers, their governments have extremely low gold reserves (from stats).

    Now, if these two up and coming players want other nations looking up to them, they will need to bolster their currencies with gold (and space exploration etc). If they don’t have gold, they must buy it. This will underpin gold prices above manufacturing costs (about $1000+ an ounce in richer mines, $1300 per oz in lower yielding seams). Chinese and Indian middle managers are becoming increasingly well paid and buying gold items like never before.

    @jack c,
    The value of a Charles 1 gold unite in VF is about £1200. The gold value is around £250, the extra bit (£950) is for owning a piece of history (and a beautiful bit at that). Buying from Spink ensures forgeries are quickly detected. I didn’t “load up”, only having the cash to buy one 10 years back. Just for info, Unites are pretty rare, like Angels and Nobles. Well preserved Guineas are now showing a big premium on their gold content. Have a look on ebay at old sovereigns, too.

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  • mark wadsworth says:

    As to sterling, it fell quite spectactularly, by 25% from late 2008 to end 2009, since when it has drifted down another 3% or 4%.

    But currencies always bounce back, the old rule buy at the bottom sell at the top (working on a time scale of one to five years) works perfectly well with currencies, i.e. if you weren’t in sterling anyway, that would be the currency to buy right now.

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  • general congreve says:

    @4 – It yields nothing 🙁 I haven’t been able to eat it either, even with Tommy K is just isn’t palatable 🙁

    If it wasn’t for the fact it has risen 56% since I bought it I don’t know what I’d do?!

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  • general congreve says:

    @7 – Let’s talk about basic economics. I’ll start with SUPPLY AND DEMAND.

    1% of what is sold as gold is GOLD.
    99% of what is sold gold is PAPER CONTRACTS that promise a claim on actual GOLD (if delivery is demanded.)

    Together they make up the entire 100% of the SUPPLY of gold in the market and supply meets BUYER DEMAND at an equilibrium price that is currently about $1550/Oz.

    If DEMAND increases or SUPPLY contracts, then the equilibrium price will rise to reflect this. And vice versa.

    If more PAPER GOLD holders start to get the jitters in our flaky global economy and ask for their PAPER GOLD contract to be honoured with delivery of REAL GOLD, pretty soon the cupboard will be bare and the 99% PAPER GOLD market will be exposed for the ponzi fraud it is and the value of PAPER GOLD will collapse.

    Now, let’s go back to our gold market:

    1% REAL GOLD
    99% NOW WORTHLESS PAPER GOLD

    Homework assignment:

    Remember what we learnt about SUPPLY and DEMAND and then post your answers on which way you think the price equilibrium for gold will move now that 99% of ‘GOLD’, for which there was formerly strong demand, has been exposed as worthless fakery.

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  • general congreve says:

    @13 – Sorry, humble pie time, finger slipped on the calculator, it’s only gone up 50%, not 56%. Oh dear, what to do? If only I had yield.

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  • box thinker says:

    @ Khards 8

    No, the opposite will take place. Physical gold could even go up in price times the percentage it is oversold. The Indians are in a gold buying frenzy with http://www.zerohedge.com/article/indian-gold-and-silver-imports-surge-stunning-500-may

    Paper gold is on it’s way out http://www.zerohedge.com/article/trading-over-counter-gold-and-silver-be-illegal-beginning-july-15

    Draw your own conclusions.

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  • general congreve says:

    @16 – Khards was being sarcastic @8, he knows the score!

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  • brickormortis says:

    Once more unto the breach, dear friends, once more!

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  • How soon?

    GBP 1000 = 1 ounce

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  • @15 GC: Sorry, humble pie time, finger slipped on the calculator, it’s only gone up 50%, not 56%. Oh dear, what to do? If only I had yield.

    No worries, give it another couple of weeks and you’ll get your 56%.

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  • It has been a while since I posted. GC & HP I don’t know why you still waste your time on DUNCES who STILL don’t understand gold.

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  • As a matter of interest I assume you still count bullion vault as holding physical, even though it’s in a vault?

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  • what a depressing read. Having sold my gold in order to buy a house, the entirely predictable situation is annoying me as I am not taking advantage of it.

    Can’t wait for some moron to point out that you cant eat gold.

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  • general congreve says:

    @20 – 6% in two weeks. Not bad. And you’re probably right the way things are going. What is Merv offering again? 😉

    @21 – I’m not trying to educate them, they refuse to be educated. Instead I just enjoy showing them up for the dunces they are and also post for the benefit of the new kids that are unfamiliar with the subject. Don’t want them to leave them at the mercy of the thick kids at the back of the class.

    @22 – I’m fairly confident BV hold the gold on account that they claim. However, an electronic account can be frozen or confiscated with a press of a button and any sale easily tracked and subjected to whatever tax the government may wish to impose. Therefore, while it is the next best thing to physical in your hand, personally it’s not for me. BV is useful if you want to trade with low margins and at the click of a button. But as gold is a buy and hold, why is anyone trading? Trading gold is just like picking up pennies in front of a steam roller in my opinion.

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  • general congreve says:

    @23 – I already did @13. 😉

    You confuse me Inbreda. Did you sell the gold to buy a house, or is that just sarcasm?

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  • GC cheers

    Although it may well go alot higher Gold and Silver are already expensive as are most commodities. I felt the extra risk and cost of holding coins together with illiquidity of coins compared to clicking meant it was right for me.
    I quite fancy a nice pot of Silver coins to touch and feel but am not expecting Armageddon and the need to use them in anger.

    Isn’t hindsight wonderful, tis true Holding Onto Gold without stepping in and out would have been more profitable, not with Silver though.

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  • general congreve says:

    @26 – My main concern with the likes of BV is that we have a sterling crisis (pretty much baked into the cake) and the government comes down with capital controls, just like they did in Iceland when they collapsed. Iceland even stopped listing the Krona as an exchangeable currency on the FX markets because they didn’t want to the world to know the truth!

    In such an environment the government would probably act to discourage gold ownership. In Iceland they said it was only exchangeable at banks at the pre-crash rate, effectively exposing gold holders that sold to the same 69% capital loss (Krona vs. Euro) that holders of Krona experienced in the crash. I doubt anyone sold at those criminal prices, but that’s because they held physical and has the choice not to.

    Now imagine the same thing happening here, but you have your money in BV. What if the government includes BV in capital control gold price legislation, after all they hold physical. You go online to sell post-sterling crash and the price offered is the pre-crash price dictated by the government, not the true market value. What are you going to do? You’ll just have to eat your losses. You may as well have stayed in cash and saved yourself a couple of % on the margin!

    I have no trust in government, neither should you. They are incompetent and criminal. They will take everything they can get their hands on in a crisis to save their own skins.

    As for silver, yes it is much more volatile and therefore can be traded more easily. I could have sold out and taken a healthy profit at $50/Oz and bought back at $35, but what if that week and been the week the wheels finally came off global fiat currency and it had gone exponential and I’d sold at $50. It could be sitting out of reach at $100, $150, $200 or more now and I’d be sat there with nothing but paper. Like I said, pennies in front of a steam roller.

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  • GC, this is why I hold a large portion of my gold outside the UK. There are physical ETF’s that store the gold in Switzerland and you have the world clas Perth Mint.

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  • general congreve says:

    @28 – Aren’t the Americans busy tracking down tax evaders money in Switzerland right now? I’m sure they have some sort of new agreement with the Swiss to snoop on certain individuals assets and bank accounts. Therefore, even if it’s held offshore I wouldn’t be 100% secure that it was fully out of reach of the criminals. International agreements and laws can change too. Something to bear in mind.

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  • general congreve says:

    @29 – A quick search came up with this. A story about how the Swiss may share tax evaders details with India.

    http://taxguru.in/income-tax/swiss-bank-may-share-detail-of-tax-evaders-with-india.html

    It wouldn’t take much for the UK govt. to label all holders of offshore gold tax evaders at some point if it wanted to legislate that way. At least if it’s physical you can hide it off balance sheet. They may have records you bought it, but how are they going to prove you haven’t lost it?

    If it’s in an account somewhere it is easily tracked and traced.

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  • Out of curiostiy GC how do you you buy and sell?
    I have a small amount (£2k) worth of Au with BV simply because it was the easiest way for me to get into it, however I’m aware of it’s limited security. So far It’s not done me bad.
    Thanks

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  • GC, you are confusing two different issues – owning gold and tax evasion. Gold has no income so you are not evading tax by owning and storing it overseas. Americans are allowed to own gold in the Perth Mint and it is not considered tax evasion. It is no different to investing in property abroad as many people do, legally.

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  • general congreve says:

    @31 – How about CGT? What if the government increases the CGT levy on gold to discourage it’ ownership? This would be the easiest way for them to put a form of capital control on gold IMO. So CGT on gold rises to say, 75% or higher. They make also make a agreement with the Swiss that any sales of gold from Swiss accounts by UK citizens are declared to HMRC directly by the institution where the gold is held. You then get a letter demanding a huge chunk of your profits. Possibly so much so, that your gold profits no longer cover the amount you lost through sterling devaluation.

    It isn’t too difficult to see governments coming together to discourage gold ownership in an effort protect their debt-based currencies, so new international reporting requirements for gold accounts could easily come into being IMO.

    Just saying.

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  • general congreve says:

    @32 – I know Euro Pacific Capital are Peter Schiff’s company and I am a fan of the man. I also think if you are going to have an account the Perth Mint are probably a reasonable choice. However:

    That’s right: choose this program’s unallocated bullion option and you can store your metal at the Mint for free indefinitely. This feature is particularly attractive for silver buyers because this metal is so much more bulky than gold.

    I just like to know what’s mine, where it is, that it’s not on the other side of the planet or in an account of some sort that can be tracked. Just personal preference, each to his own. Maybe I’m just over-cautious. Pays to be careful sometimes though.

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  • CGT has no impact until you sell. With the Perth Mint you can take physical delivery whenever you choose. You can even take delivery in Perth if you fear UK customs will confiscate your gold. Taking physical delivery is NOT a CGT event.

    I’m not going to discuss this anymore, I’m sure you know better than a multimillionaire stockbroker who has offices around the world and has been buying gold for over 10 years, and has written numerous books predicting the financial crisis and how to protect yourself and is always a guest on financial channels and has his own financial radio show 😉

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  • GC, if you feel ‘safe’ keeping more than £20K in gold in your house then no problem. I’m more of a ‘not all my eggs in 1 basket’ type.

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  • general congreve says:

    @35 – Not trying to get your back up or be a wise guy, I’m just exploring some of the finer points of not holding the actual physical.

    Yes CGT applies when you sell, but if you have the metal in account for the convenience of buying and selling without taking delivery, any sale can be potentially tracked and liable for CGT. Obviously, in theory, you could avoid this, like you say, by turning up and standing for delivery, thereby taking possession of physical metal itself if need be.

    For these reasons, and like I said maybe I’m just over-cautious, I would also go physical, but that’s me.

    @36 – I own physical, it is mine, not in an account at a custodial vault. But I assure you it is kept at a secure facility and not in my house. I also have other assets, so not exactly an ‘eggs all in one basket’ case either, even in the event of a Brink’s-MAT event on my metals 😉

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  • general congreve says:

    @37 – ‘always go physical’ – not also go physical!

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  • general congreve says:

    @35 – You got me thinking. Like I said, I have a lot of respect for Schiff, have read his books and broadly agree with everything he has to say, but can I be more right than a multi-millionaire like him?

    I don’t have all the figures, all I know is that Schiff’s Euro Pacific Fund holders lost 40%-70% of their money in 2008, because Schiff called the dollar collapse too early. Unfortunately he got his timing wrong on that one.

    As for me, with my own investing since 2002 – Property, then high-yielding Icelandic bank account, then gold/silver – I have yielded an average annual return of 13.1%.

    Perhaps that is better than Schiff, I don’t know? If anyone has the complete Euro-Pacific Capital figures for 2002-2011 I’d be grateful, so I can do a full comparison.

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  • 11. @alan said…
    I can assure you that India and China are not what they are made to be. Do you know the inflation in India ovr the past five years has been 150%. So everything you could get for 100 Rupee now you have to pay 250 Rupees. And food inflation is even higher. If you think you has a property bubble with 3x increase in 10 years, India has 15-20 times and China is around 25 times increase in house prices.

    14. @general congreve said…
    As a person who works with in these markets. If physical delivery was required they will never be delivered.
    There is a MCX index in India where you only bet on the price of Gold with no delivery.
    And buying financial is not actual demand. This demand will neve be fulfilled.

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  • general congreve says:

    @41 – Yup, they have rampant inflation in India, that’s why Indian Joe Public is going nuts for gold to protect themselves from it:

    http://www.zerohedge.com/article/indian-gold-and-silver-imports-surge-stunning-500-may

    Your reference to @14 – DOH! That’s what I’m saying, it won’t be delivered,because it doesn’t exist. The demand for 99% of gold is currently fulfilled with empty promises, this suppresses the price of the real stuff. When people do ask for delivery the currently have to scratch around and find it from somewhere to stop the ponzi collapsing.

    It has been documented that the largest shipment of gold from the IMF, via the BIS, to parties in America took place in 2010 with no fanfare. It was only discovered when a diligent reporter spotted it in a BIS report as a footnote – A FOOTNOTE! The biggest movement of gold from the IMF ever! The international fraudulent debt-money banking community were covering their @rses. There are similar instances that have come to light involving the likes of Deustche Bank too and the case of man who was forced to wait 10 weeks to get his tonne of gold from a Swiss Bank that had stored it for him for 20 years. 10 weeks? They had loaned it out into the gold market to suppress the price, that’s why it took them 10 weeks to scrape enough gold from a tight market to fulfil his order.

    One day, when enough people stand for delivery at once the scam will be up, it has come perilously close recently. When 99% of ‘gold’ is exposed as nothing more than bits of paper and numbers on a screen, what do you think that will do to demand, and therefore the price, with the real 1% that’s left? Seriously?!

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  • general congreve says:

    @41 – Or to think of it in an HPC way, imagine 99% of the houses in the country were destroyed all at once in a natural disaster, available mortgage finance or not, what do you think that will do for the value of the remaining 1%?

    And yes, I know some investors are only speculating on the price and are not interested in taking physical delivery, but they are still assuming that their paper is backed by real gold somewhere with real value, so it is the same as real demand. I mean are they seriously knowingly paying over $1500/Oz for a bit of worthless paper? I think not.

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  • general congreve says:

    @39 – Just for the record I forgot to include silver in my calculations. Average annual return on my investment ‘portfolio’ is 14.6%

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  • general congreve says:

    @44 – Calculation error, only 13.8%!

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  • general congreve says:

    @47 – Final in correction with workings in case any one is still reading this and pulls me up on this later:

    Annual average return on investments:

    2002-2007 – 11% House (55% 0ver 5 years)
    2007-2008 – 6% Icesave (6% over 1 year)
    2008-2011 – 25% gold/silver (50% over 2 years)

    Average annual return over last 8 years = (55%+6%+50%) ÷ 8

    = 111 ÷ 8

    = 13.875%

    So rounded up (you should always round up – that’s what the taught me at school!) we’ll call that a 13.9% return on average over the last 8 years.

    So, can anyone tell me if Schiff has done better?

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