Did the G-8 push us closer to Gold Confiscation?

The global economic recovery is not looking good.  The G-8 meeting this weekend saw divisions that could lead [as the I.M.F. put it] to losses of trillions of dollars and millions of jobs.  Now it is reported that Mr. Bernanke and his close allies at the board in Washington are worried by signs that the U.S. recovery is running out of steam.   The E.C.R.I. leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century.

Such a reading typically portends contraction within three months or so.  Add to this the evidence that money velocity is slowing [M3 has contracted at an annual rate of 7.6% over the last three months] and we may well face a huge bout of money printing again?   If that is the case, confidence in currencies [not just the $] will lurch lower again. Mr Levine of HSBC, in a recent gold conference pointed out that some top U.S. Asset Managers were fearful of the possibility of government confiscation of gold.  Has the G-8 taken steps towards the day when governments would their citizen’s gold in their vaults again?

Where and why do top U.S. Asset Managers want gold for?

First, why gold, you may ask?   Bottom line, Gold still represents the ultimate form of payment, it is always accepted.    In a world drowning in debt, gold’s debt-free nature appeals even more strongly and will particularly to governments whose currencies are failing to retain confidence.

Second, Mr. Levine explained, that on being told that the bank’s U.S. vaults had sufficient space available for their gold he was informed that they did not want their gold stored in the U.S.A. but preferably in Europe because they feared that at some stage the U.S. Administration might follow the path set by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as part of the country’s strategy in dealing with the nation’s economic problems.   Are their fears well grounded?

Surely this view is a bit extreme?   The job of Asset Managers is to manage asset for the greatest return and with prudence.   They have to see what may lie ahead and guard against dangers that may threaten the assets under their wings.

Who are these Asset Managers?

You may feel that they may be going too far?  Who are these men?   For a start, they are highly qualified capable men who understand the ins and outs of investment management.   They were carefully chosen for their capabilities and good investment management sense.   They have built up a body of knowledge that places them on top of the investment world.   Such knowledge usually encompasses monetary matters of the sort that would include gold.   As such we would suggest their opinions do have value.   We should treat these opinions with respect?

Surely the U.S. is in less danger financially than Europe?

It was recently reported that forty-eight U.S. states will be in deficit this year and the combined shortfall will probably exceed $300 billion.    That puts Greece’s expected 2010 budget shortfall of around $28 billion into perspective.    Greece’s shortfall is put at around 13.6% of G.D.P., whereas there are a good number of U.S. states anticipating deficits of more than 20% this year, including some, like California, New York, Florida and Illinois, with far bigger economies than Greece.    There are around a dozen U.S. states with bigger economies than Greece and most of these anticipate 2010 deficits at this kind of level!  And look what news of the Greek deficit, once it was generally publicized, did to the markets!    Fears of currency inflation and falling confidence in the U.S. $ are very real when seen in this context.

Central Banks have stopped selling and some are now buying.

Often, gold market observers focus only on the buying of gold by central banks.   But of equal importance is the visible fact that the signatories of the European Central Bank Gold Agreement [exclude the I.M.F. from this for this purpose] are no longer selling gold anymore.   They want to keep their gold.   The times that now lie ahead will bring to the fore why central banks hold gold in the first place.

Central Bank buyers of gold are those that have far too low a percentage of gold in their reserves and are doing what they can to buy more [China is now contracting with foreign mining companies directly for their gold ore].   This silently shouts that gold is wanted by central banks across the world.   Extend that one step further and the only gold easily available to a government is that of their own citizens.

G-8

The meeting this weekend of the G-8 did not convince observers that governments are going to resolve the global economic crisis, nor send it firmly on the road to recovery.   Yes, deficits will be reduced, but growth will suffer badly.   Europe will affect the U.S. economy.   With the velocity of money slowing and the M3 money supply shrinking, we are now alarmed at the probable crises that are on the horizon, because of this incomplete performance of politicians.   It may well be that we have taken a step towards confiscation of gold.   How many more steps are there before this happens?   Will they too, be taken?

When could this happen?

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