Our money still isn’t safe

Posted on May 14, 2013 by admin

Pyramid logoby Daniel Fisher

14 May 2013

Over the past month British savers can’t be blamed for feeling a little smug. With very little news regarding UK high street bank bailouts, we were left to read how Cypriot banks were raiding their own clients’ savings to fund a bailout. Sure, our savings return well below inflation but at least our principal amount is safe – isn’t it?

Unfortunately, this temporary respite was shattered last week when top ratings agency Moodys downgraded the Co-Op bank to junk status. Rumours are that the Co-Op will need a bailout due to huge potential losses on property loans. Regardless of the extent of these possible real estate losses, the junk status means it becomes impossible for the Co-Op to riase funds at a reasonable price.

Don’t forget that it was the Co-Op who were suggested as the possible buyers of a portion of Lloyds’ business so the knock on effect is wider spread than merely Co-Op customers. It will put the brakes on other high street banks looking to rebuild after the devastation of recent years.

What it tells me is that customers simply aren’t compensated for the risk they now take by depositing cash in a bank. Investments and savings should reflect a simple equation, the more risk you have, the higher the reward. That being the case, I’m not sure that a 1% savings return is fair to leave your money with a ‘junk rated’ institution.

It always makes sense to leave some money as an emergency fund in cash. However, diversifying into physical gold means that you don’t have any counterparty risk. This means it doesn’t matter if the banks go under, the Pound is destroyed or even if the UK itself is downgraded, you own the tangible metal so you’re protected. Gold has returned more than inflation over the years and if bought in the form of UK coins, is also tax free.

It’s always tempting to hope that the economy is out of the woods if you don’t hear any bad news for a few weeks. However, common sense tells us that there is still pain to come, perhaps with further bank closures or even the UK banks raiding our savings to bail themselves out! Therefore gold remains a decent hedge in these turbulent times.

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Is it the right time to buy gold?

Posted on May 1, 2013 by admin

IMG_0075by Dan Fisher

Over the past 2 weeks we’ve seen a huge spike in buying demand as the gold price presents a fantastic buying opportunity.

Many clients felt the price was a little directionless for a number of months and have been waiting for a reason to invest in gold. The recent price fall has provided much needed impetus to gold. The fact that it has been oversold (due to panic selling) means that the price is even lower – providing the opportunity to get a lot more gold for your money now than a year or so ago. So clients who have been waiting on the sidelines have now bought as they realise the price offers good value, the environment for gold is still strong and the fact there are few decent alternatives to put your cash.

In particular, we’ve recorded

  • Approx. 50% increase in enquiries
  • Approx. 35% increase in sales
  • Our most popular enquiry during this frenzy being Tax free coins

We’ve also seen many existing buyers returning to the market who bought at previously higher levels. This price fall gives them the opportunity to lower their cost price average.

We are now starting to experience physical gold shortages. In particular there are waiting times on some gold bars of up to a month, a real difficulty in obtaining mixed year Sovereigns and I anticipate waiting times to develop on the new 2013 tax free Britannias and Sovereigns – perhaps to around 203 weeks. However, clients are willing to transact now and wait for delivery as they want to secure the current price as they feel it will only go higher over the next few weeks. I would expect premiums on these coins to be unstable as possible increases reflect a lack of supply.

Clients who started pension gold paperwork a few weeks ago (before the price fall) are now able to buy the same amount of gold for their pension at a14% lower price than when they started the process!

Clearly, the gold price adjustment demonstrates its volatility so it certainly isn’t for the short term investor. However, for those looking for medium to long term security, buying in the dips makes perfect sense in attaining the best possible value.

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What’s gold’s problem?

Posted on April 17, 2013 by admin

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By Josh Saul

Gold’s 14% drop in price over the last few days has stunned the market into a panicked selling frenzy! Gold wasn’t alone in its descent and in fact all commodities have lost considerable value.  With less people trusting the banks after what happened in Cyprus and now Portugal – people are now starting to ask – “what shall I do?”

The answer is straightforward but before we go down that road – I want to make it clear how we got here:

It wasn’t long ago that the vast majority of market participants and analysts were predicting $2,500 an ounce for gold – some even by the end of next year. These predictions were made in the face of weakening global economic circumstances. Europe is technically bankrupt and can’t afford to repay monies borrowed. Cyprus has just set a dangerous precedent of helping themselves to people’s bank accounts in order to raise money. People are of the opinion that this could happen in Portugal and wider Europe and consequentially – people are being turned off using banks. Confidence has dragged European stocks down and wealth is dissipating into thin air.

Have all of these problems disappeared? I very much doubt it! In fact to the contrary – it’s got even worse.

  • Cyprus is still short of considerable cash and announced last week that they will have to sell 400m Euros of gold to raise money. Such of move would of course push the price of gold down. The institutional investors, hedge funds and traders saw this as a huge opportunity to take their profits and sell before Cyprus does. The intention was of course to manipulate the price and create a downward spiral so that the institutions could buy back into the market circa 7/8% cheaper!
  •  Simultaneously – the U.S decided to jump on the band wagon and re-iterate its commitment to no further money printing. Something they always do months before they hit the button on the money machines.  This strengthened the greenback and further depressed the gold price.
  • Traders around the world had lost considerable money on sinking European stocks and as such needed to cover losses and margin recalls by selling gold; this further depressed the price
  • All of the above created a knee-jerk selling frenzy which continued the downward spiral and again triggered automatic sell orders for the traders.

I forgot to mention that the hedge funds and larger institutions are now taking advantage of the 14% discount and buying back into the market. Cyprus never sold in the end nor did Portugal. It’s now clear to see who benefited from the fall!

The end result is that gold is now 14% cheaper than it was 10 days ago. This coupled with the fact that the world’s problems are still more a concern today than they ever were surely means that gold now represents a stronger buying opportunity.

The light at the end of the tunnel for gold and silver market bulls, as far away as it may now seem, is that “blood in the street” is usually a value-buying opportunity that occurs only a few times in a decade, if that much.

 

 

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Should we be hiding our money from the Government?

Posted on March 18, 2013 by admin

IMG_007518 March 2013

by Daniel Fisher

In the past few days the Cypriot Government has announced the incredible news that it will be raiding its residents’ savings to help pay for its banking crisis – including 60,000 Brits. Bank accounts on the island will be hit with a levy of up to 12.5% in a bid to satisfy Euro bigwigs that Cyprus are playing their part in dealing with its debts and therefore deserve another bailout.

So what does this incredible move, engineered by Germany, actually mean?

Firstly, the fact that Cyprus needs an £8.7Billion bailout from the IMF and Brussels shows that the Euro crisis has not gone away. The headlines of the past month or so have focussed on the UK ratings downgrade and the increasing chances of a triple dip recession. I guess no news on the Euro front was deemed ‘good news’. It’s natural to hope that the Euro crisis has improved as we haven’t heard of any catastrophes lately. Unfortunately this latest requirement for funding demonstrates that the crisis has not gone away. In fact, while we hear of high street brands going bust here in the UK and people continuing to lose their jobs, you can bet that there are even more companies going under and massive job losses in the likes of Greece and Spain. We just haven’t heard about it recently.

Even more worrying is the fact that the bailouts now seem to have strings attached.  Germany have basically said that to earn this bailout, Cyprus needs to raise £5 billion themselves by stealing from its residents’ savings accounts. This illustrates how the richer Euro countries are becoming fed up of  throwing good money after bad. They want to see the poorer countries demonstrating that they will take charge of the own finances and not just seek bailout money. Who knows what future bailout strings will demand, or if this clause shows that bailouts are coming to an end – possibly pushing the weaker countries out of the single currency.

We also need to be concerned about the consequences of such a savings raid. While in the short term it may pay the latest loans for the Cypriot banks who have accumulated huge losses to Greek banks, in the medium term it could seal their fate. It is likely to cause a panicked public to withdraw as much money from ATMs as possible. For others, they may choose to leave the country to attempt to protect their wealth. For sure, it will diminish private wealth and therefore reduce any spending or hopes of recovery on the island.

Apart from the impact a collapsing Euro will have on the UK, perhaps we should also be worried about our own savings. It is highly unlikely that the UK treasury will copy such a move here but the Cypriot actions further undermine traditional values that your money is safe in the bank. With interest rates on savings accounts well below inflation, there seems little incentive to take the chance. It absolutely makes sense to move some of your money around to hedge your bets.

Gold is an obvious place to move some of your bank savings into. Returns have far exceeded those in savings accounts and the yellow metal has proved just as liquid as cash – especially in its physical form of coins or bars. Moreover, the economic environment we find ourselves in paves the way for gold to continue its rise in value. With UK gold coins being completely tax free, they provide a compelling reason to be proactive with your savings before the headlines return closer to home.

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Why are people put off by a bargain?

Posted on March 6, 2013 by admin

Pyramid logo6 March 2013

by Josh Saul

The relevance of this question is prevalent in the recent fall in value that gold has endured over the last 5 weeks.

“The resurgence of risk appetite over the past month has seen investors sell gold, and position themselves for ‘the worst is over’ scenarios.” This approach may prove to be a little short sighted.
However the smart money should be the only trend to follow. Gold’s lower buying price has prompted a buying frenzy in China, Brazil and India. The recent fall in the gold price has attracted Central Banks around the world to use its current value as a buying opportunity, prompting a gradual rebound in gold positions.

So why on earth aren’t everyone and anyone previously interested in gold using the current price as a bargain buy? The answer is a psychological one. It might seem strange but the cohorts of the market who are new to this area tend to buy when the market is at its highest. In August 2011 – gold was at an all-time high and this prompted a surge in demand from 1st time buyers and less demand from institutions and central banks. In 2013 – the price has come down and the trend has reversed itself.

The factors that countries are taking into account when deciding to take additional protection and to use gold’s price as a buying opportunity:

•    The UK has just been stripped of its AAA credit rating
•    High and rising inflation leaves the UK market with less purchasing power
•    PWC has indicated more businesses like HMV, Jessops and Blockbuster to fall into difficulties
•    The US economy unexpectedly took its biggest plunge in more than three years last quarter, indicating a new level of vulnerability for the economy
•    The US is committing more money to the money supply through increased stimulus measures
•    The Bank of England is being pressured to follow suit and kick start a fresh QE programme

Commentators have referred to the recent stock market rise as nothing more than a “W shaped recovery” with strong expectations that a correction is looming. If they are right and if the financial Status-Quo continues – market participants that don’t snap up this buying opportunity may well regret not acting sooner.

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What’s the calmest and coolest way to say, “Give me back my gold!” ?

Posted on February 18, 2013 by admin

Pyramid logo6 February 2013

Germany’s Bundesbank has officially demanded a repatriation of 50% of its total gold reserves back from the United States Federal Reserve.  Is this a cause for concern? Does it reflect Germany’s inside knowledge of the severity of the Euro crisis? Should the holders or owners of gold ETF’s follow suit? And what does this mean for the rest of the world?

Are we really shocked that Germany is starting to wake up to the reality that the dollar is no longer the world’s safe-haven asset and the U.S government is no longer a trustworthy banker for foreign nations?

In a word – no.

Germany’s request for its gold does not bode well for the future of the dollar. In fact, the Bundesbank’s official statements are all you need to confirm the Germans’ waning faith in the U.S. The Fed has already refused to submit an audit of its holding on Germany’s behalf and one cannot help but wonder if there is enough gold available to satisfy Germany’s request.

The Germans have given the U.S seven years in order to complete the transfer. Most would deem this time line as excessive and unnecessary but people in the know understand that this allows the Fed to save face and to prevent other depositors claiming their gold reserves in order to avoid a run on the Fed.

Other commentators are saying that If the US don’t have all the gold necessary to satisfy Germany’s request they will have enough time to print more dollars to buy more gold on the open market. However such a move could substantially increase the gold price whilst depressing the dollar. The U.S seems to be in a slight quandary…

With fiscal cliff talks looming and discussions over the debt ceiling, this request could not have come at a worse time. To make this all worse – The Netherlands and Azerbaijan are also discussing repatriating their foreign gold holdings. How long before the rest of the international community follow suit?

It’s not completely accurate to say that we’re in unchartered territory. Germany’s repatriation mirrors what happened in the 60’s under Nixon rule. The fear back then was that the U.S was not doing enough to maintain the integrity of its dollar and as a result Germany, France and Switzerland redeemed their gold reserves. This repatriation was coined the “Nixon shock” which propelled chronic inflation throughout the 70’s and a contemporaneous rally in gold.

Are we repeating history? Ironically only time will tell…

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Fiscal Cliff put in a much better perspective:

Posted on February 11, 2013 by admin

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By Josh Saul

Perhaps I’m on my own in saying that the amount of money the U.S government have, owe or print is completely confusing. The Fed’s recent budget cut looks more like a phone number than it does a hair cut off its current debt ceiling.  Some of us look at that number ($38,500,000,000) and  think that if the U.S can cut spending by that amount then surely things have to start looking better. But – what do we know? How does one empathise or resonate with the running of a country?

Fiscal Cliff put in a much better perspective:

  • U.S Tax Revenue: $2,170,000,000,000
  • Fed Budget: $3,820,000,000,000
  • New Debt:  $1,650,000,000,000
  • National Debt: $14,271,000,000,000
  • Recent budget cuts: $38,500,000,000

Let’s now remove 8 zeroes and pretend it’s a household budget:

  • Annual Family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $142,710
  • Total budget cuts so far: $38.50

It’s clear that these budgets cuts do little more than confuse us! It’s obvious spending cuts do more harm than good whilst we all know that the inevitability of printing more money shrinks the purchasing power of the annual family income…

 

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UK Gold Investors to benefit if UK downgraded

Posted on January 7, 2013 by admin

IMG_0075Pyramid logo7 January 2013

by Daniel Fisher

The New Year has heralded new warnings to Chancellor George Osborne. He already had to admit recently in his Autumn Speech that his austerity measures hadn’t quite hit the mark. This meant they would remain in place for a further two years than planned for the UK to successfully control its debts. The spending cuts and sluggish economy would now remain (at best) until 2018 rather than 2016.

The problem with such plans is that their timeframe is predicated based on everything going to plan. If tax revenues fall, unemployment rises and benefit claims increase, then the plans start to veer off course and our repayment takes longer.

So the last thing Osborne wanted to hear as a New Year warning from leading economists was that the UK was now set to lose its much coveted AAA rating.  This warning itself is partly caused by the Treasury admitting that controlling the national debt will now take longer. The problem is that such a downgrade would have severe implications to Osborne’s plans and indeed to the investment market.

Standard & Poor’s, Moody’s and Fitch – the world’s three largest agencies – have all put the AAA rating on ‘negative outlook’ with a downgrade expected soon.

The major consequence would be to drive up the UK’s borrowing costs meaning it would take far longer to repay debts. This would be passed onto businesses and households, further slowing any chances of recovery. The less transparent effect could be a loss of confidence and sentiment towards the UK – leading to less investment and slower growth.

While this is undoubtedly negative news for those in the UK and a majority of investors hoping markets would pick up soon, it could provide a huge opportunity for gold investors. Firstly, as the world’s safe haven asset, such a downgrade in itself would see the underlying gold price rise, as the UK is a major global trading partner. The natural reaction by the investment world would be to seek a safe haven away from traditional currencies and gold provides this. It would also likely see central and commercial banks shift more money out of Sterling and into gold to protect themselves from depreciation.

When the US was downgraded in August 2011 we saw the gold price spike up to record levels.  The additional bonus for UK investors would be that a UK downgrade would likely see Sterling fall against the Dollar – meaning further gains in the value of their gold if they bought it in the UK currency. That’s because the value of gold in the UK rises as Sterling falls against the Greenback.

All in all, it makes sense for those in the UK looking to start the New Year with stability and certainty to buy gold if they don’t already own any.

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Are we all headed for the cliff?

Posted on December 12, 2012 by admin

 

 

 

By Josh Saul

“Fiscal cliff” is the widespread term used to describe the paradox that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

The U.S will face tax hikes and a series of spending cuts which will have a dramatic effect on the economy. A combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion but the policies set to create this saving would cut GDP by 4 percentage points in 2013 which could send the economy into a spiral of negative growth.

Estimates predict that unemployment would rise by 1% with the loss of two million jobs.

What strikes me as particular unusual is that the market anticipates the Fed to announce a $45 billion monthly Treasury buying scheme that would push the central bank’s balance sheet to almost $4 trillion.

It seems that Peter is being robbed to pay for Paul’s future anticipated mistakes. People will have to endure tax hikes, spending cuts, unemployment and negative growth for the Federal Reserve to turn around and create a loss far bigger than any saving they are trying to create!

Unfortunately, the fiscal cliff isn’t the only problem facing the United States right now. At some point in the first quarter, the country will again hit the “debt ceiling” – the same issue that roiled the markets in the summer of 2011 and prompted the automatic spending cuts that make up a portion of the fiscal cliff. The summer of 2011 for Gold bugs may be a slightly nostalgic season for 2011 when the market saw more than 25% growth in 8 weeks.

“Everyone is expecting the Fed to print more money and keep buying securities,” Michael Smith, the president of T&K Futures & Options in Port St. Lucie, Florida, said in a telephone interview. “The best hedge against a decline in the value of the dollar, in most people’s minds, is gold and silver.”

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Could changes to bank collateral send the gold price into the stratosphere?

Posted on November 30, 2012 by admin

 

 

IMG_007530 November 2012

by Daniel Fisher

We all know that gold is set to continue soaring in value over the medium term. All the commodity analysts around the world have revised their expectation upwards now that ‘big spender’ Obama has been re-elected.

It doesn’t take a genius to realise that the weak Dollar, a crumbling Euro and further tensions in the Middle East will all contribute to physical gold rising in value as the natural safe haven asset. But there’s also an unexpected source of fuel to this brightly burning fire. Our old friend – the banks.

You see, while the banks have been blamed as the cause for your equities and bonds crashing in value, the very same institutions could be set to provide a huge catalyst to your gold holdings.  The credit crunch and subsequent global crash have rocked the very foundation of the global economy and how money is leant and borrowed. It’s universally agreed that changes have to be made to ensure this doesn’t ever happen again. The obvious revision is to the way banks themselves lend and just as importantly the prudence they take with collateral for bad debts.

When a bank lends out money, it has to put a percentage away as a reserve to cover any losses from bad debts. This in theory protects the bank and other lenders/borrowers from suffering losses should a debtor fail to repay debt. The Basel accord is a set of laws set by influential central bankers to determine how much capital banks should hold and in which form this capital can be.

The types of assets financial institutions need to hold are split into three classifications or ranks. Tier 1 assets are cash and Government bonds. Mortgages qualify as Tier 2 assets, while the bottom rung is made up of assets such as gold. The higher proportion of the ‘safer’ Tier 1 capital a bank holds, the more it can leverage its balance sheet. So over the past 5 years as the spotlight has fallen on the banks and they’ve desperately tried to shore up their balance sheets – we’ve seen them selling assets like gold and increasing holdings in Government bonds or cash.

However, the financial world we live in has changed beyond all recognition, and the powers who set the capital ratios for banks realise this. So the latest version of these rules, known imaginatively as Basel III, looks set to address this. These rules for 2013 address two areas. Firstly, it increases the overall ratio that banks will need to hold in capital. Secondly it’s set to change some of the asset classifications with the most significant change coming to gold! Gold is set to become a Tier 1 asset alongside cash.

This is the first step towards a gold standard with institutions such as the Bank for International Settlements (BIS) recognising gold’s value alongside cash itself.

As BIS notes in its progress report on Basel III implementation:

“At national discretion, gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities can be treated as cash and therefore risk-weighted at 0%.”

Now, we’ve witnessed a steady shift in the holdings of Central banks from holding reserves in Dollars towards a heavier gold holding. They realise that a fast depreciating Dollar does nothing for their reserve levels and only gold can provide a reliable store of wealth. I’m sure banks have also been tempted to shift their reliance on holding paper currency as capital but the traditional tiering ratio has prevented this. Now they have a compelling reason to re-address this balance. With gold set to become the same as cash we will no doubt experience aggressive bullion buying from all the commercial banks in a bid to diversify their capital.

So rather than dwelling on how the banks have destroyed the value of your paper portfolios, recognise the opportunity the banking crisis now offers you.

Buy gold today and watch its value rise, not only from the obvious economic and political instability we’re experiencing, but also from the helping hand the banks are about to offer.

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