Gold: Back to Money World

There is a sign the world financial system is facing drastic changes, while numerous events related to gold are becoming part of contemporary life. There is a fundamental tendency taking shape against the diverse picture of events – gold gradually returns the status of currency metal

Gold as private money

The process of gold leaving the world of commodities to join the world of money is just starting; it’s barely distinguishable against the background of global events and the US dollar being deprived of any back up. Talking about the micro level of events, the main occurrence is the creation of monetary systems called «electronic gold»: (e-gold). It has the following key elements: a) the real material metal deposited in special organizations making up the foundation of electronic money; b) not real metal but electronic documents are used for settlements; c) the number of e-gold users is limited, though the money could be used for operations outside the country. Some entrepreneurs switch over to settlements in gold using coins, ingots and other acceptable diversifications.

It has been reported that the billionaire Donald Trump decided to receive the payments from equity holders in gold, not dollars. Gold payments are a dark segment of market relations, especially in the countries preserving taxes for gold and other precious metals operations. That’s why the fight for complete abrogation of such taxes has been waged since a long time. To great extent the value added tax has become a thing of the past in Western Europe when it comes to gold settlements.

Some private companies offer the «gold products» of their own. No matter gold is often called the «money of last resort»; many potential investors complain it’s too expensive. At the moment the cost is 1700 dollars per ounce, it’s not a vital instrument for exchange in case food supplies or ordinary retail trade stop. Absence of gold coin weighing an ounce (31.1 grams), or even one tenth of ounce, makes less expensive silver more acceptable in case one wants to buy a few loans of bread, medicine or clothes in emergency.

All these factors pushed Valcambi, a Swiss company, to introduce a 50 grams 999 fine gold «golden card» called Combibar Gold Card, which can easily be broken into one gram pieces to be used for minor everyday life payments. The value of a gram is approximately equal to an ounce of silver, or 34 dollars, making it a comfortable means of retail payment. According to Valcambi, the Combibar Gold Card will be launched on market in 2013.

Plans to legalize gold money at state level

Many statesmen do understand that the days, or perhaps, years, of the dollar based world financial system existence are counted. Once all national monetary systems are interconnectedwith the US currency, the time is ripe to prepare for future changes. For instance, different schemes of internal money circulation, based on gold standard, are being studied. In recent years, we constantly hear about the plans to establish a gold dinar (Muslim states), gold yuan (China), and gold frank (Switzerland). Some states leaders start to talk about returning gold into internal circulation. For instance, the idea has been supported in Sweden, Norway, South Africa, South Korea, Iran, Taiwan, Zimbabwe and some Latin American countries.

Switzerland is the country, which has approached closer than others the stage of gold money practical introduction. It was the last country in the world to break the interconnection between paper money and gold. It took place only in 2000, when the Swiss franc was declared not to be tied to gold anymore and became no different from other currencies, like the US dollar, British pound sterling, German marc, Japanese yen and others. Now the discussions are focused only on introduction of franc as a «parallel» currency to go around along with ordinary paper francs on the territories of Switzerland and Lichtenstein. At that, there will be an exchange rate between the gold and paper francs. According to the authors of the project, the gold franc will cost five current Swiss francs or 5.3 US dollars.

The gold currency will be issued by private banks under strict control exercised by government and national Central Bank. The licensed financial bodies will be authorized to print coins with franc’s formal logotype on one side and the recognizable Swiss gold franc logotype on the other. There will be no value added tax, or any other taxes related to the new franc’s circulation. The gold franc is not vintage money, and it’s not an ordinary investment commodity. The idea was put forward by Ulrich Schlüer, the member of the Swiss National Council (the lower chamber of parliament) representing the Swiss People’s Party. It’s part of «sound currency» of«healthy currency» campaign.

The gold price is around 45 thousand francs per kilogram. According to Schlüer, the introduction of gold franc will enhance the chances of the Swiss to protect them from currency devaluation. The price of one 0.1 gram gold franc may be just 4.5 francs, making the value of a one gram gold coin rise to around 45 francs. «I want Swiss people to have the freedom to choose a completely different currency», said Thomas Jacob, the man behind the gold franc concept. «Today’s monetary system is all backed by debt — all backed by nothing — and I want people to realize this», he adds. According to him, 

«The time is right; the issue simple. We are talking about freedom of choice in monetary matters, something that cannot be opposed in good faith. It is not primarily about attacking today’s monetary system, but giving people the freedom of choice. If today’s monetary system remains as good as today’s authorities claim it is, they shouldn’t worry – if it isn’t, we, the people, shouldn’t be forced to use it».

At the time the Swiss People’s Party is applying efforts to make the parliament ban the country’s Central Bank from selling away any of its gold reserves. The proposal, dubbed “Save our Swiss Gold”, would prohibit the Swiss National Bank (SNB) from offloading its gold reserves as well as force it to hold at least 20 percent of its assets in gold. Many Swiss politicians are trying to make precise how the country has lost a significant part of its gold reserves in recent years. When the franc’s connection to gold was cancelled, the Central Bank started to sell away the yellow metal reserves under the pretext that it became a useless asset. In 2000-2005 1300 tons of gold were sold at damping prices. The opponents of the measure say the total loss was 60 billion dollars. (True, the studies say the gold never left the country to be stored by national private banks). The substance of the proposal is building a rather strong customs and economic wall around the Swiss Confederacy, something contradicting the principles of European integration. The introduction of gold franc will require changes in the Swiss Constitution. If the amendments are not accepted, then the issue will be decided by popular vote (referendum).

Gold yuan is also a favorite son of media today. It does not exist yet. But there are multiple signs testifying to the fact that China is on the way to introduce it.

USA: 13 states vote for gold currency

There are no plans to issue gold currency at the federal level. There are separate calls for going back to gold standard, which had existed till Franklin Delano Roosevelt took office. For instance, Representative Ron Paul, the well-known critic of the Federal Reserve System, has come out in support of the idea a number of times. He wants to put a «gold bridle» on the printing press. In other words, Ron Paul proposes to link the dollar emission to certain percentage of US gold reserves (8.133.5 tons of metal for March 2013). He never made precise if the plans include free exchange of paper banknotes for the metal, like it used to be before 1933. In the USA the«monetary sovereignty parades» movement is in full swing at the states level.

The state of Utah is the leader. In 2011 it adopted and enforced the law to legalize gold and silver coins as money… The Utah Sound Money Act of 2011 recognized gold bullion and silver bullion as currency. It also exempts the sale of the coins from state capital gains and sales taxes. As the new law states, the coins called American Gold Eagle (weight from 0.1 ounce, denomination 5-50 dollars) and American Silver Eagle (1 ounce, denomination one dollar) are accepted to pay for any goods and services according to real price of precious metal. At the moment the law became effective, the correlation was 1.5 dollars for an ounce of gold, or 38 dollars for an ounce of silver. Utah also introduced another major innovation. Upon the law enforcement, the state built a gold and silver depository to allow people avoid using the coins first-hand (something that would otherwise cause a lot of discomfort). Gold and silver coins could be stored there; the owners can use a deposit card as if they had ordinary dollar accounts. The value of coin is calculated on the basis of metal prices in US dollars, according to daily London fixing.

Missouri and South Carolina in 2012 were the closest to enacting very similar legislation and creating a gold bullion and silver bullion depository, just like Utah. Both states echo the same sentiments as Utah and this is evident by the names chosen for the bills. For example, in Missouri, the legislation put forth is called the Missouri Sound Money Act of 2012.

Other states considering legislation to make gold bullion and silver bullion legal tender are Montana, Colorado, Idaho, Indiana, New Hampshire, Georgia, Washington, Minnesota, Tennessee, and Virginia. The majority of the states mentioned here foresee the use the coins printed by the US Mint, as well as any other ones coming from abroad. The states also have an intention to follow the Utah example and build depositories to measure exact percentage of precious metal contained in the coins and adjust the metal value to the world market rates.

Ron Paul, the founder of Tea Party, is promoting the Free Competition in Currency Act of 2011, allowing the states to introduce their own currencies and seeking to end all taxes charged by federal, state and local governments on coins and bullion. He also calls for creation of a commission to consider the ways to get back to gold standard.


Gold & Silver Buyers Outpacing Sellers 50 to 1

“Eric, last week we sold more gold and silver than we normally sell in a whole month. On Friday alone it was astounding because we sold as much physical bullion as we would normally sell in an entire week. There is a great deal of big money coming into the market on this decline.

If buying continues at the rate we saw on Friday, there will be immediate shortages of product….

“We will see instant shortages of silver products such as silver rounds, 10 ounce bars, 100 ounce bars, silver eagles, and silver maple leafs if this relentless demand continues. Silver eagles and silver maple leafs are already seeing delayed delivery.

In other words, the mints can’t keep up with the demand for those coins. The US Mint could easily have another record year of 40+ million ounces of American Silver Eagle sales. I would also add that there are already premiums on 90% silver coins that we haven’t seen in decades.

But the buying is coming in huge for both gold and silver. The physical gold market is on fire as well. Our largest 7-figure order this week was specifically for one ounce gold bars. There was also big buying of American Gold Eagles. This massive buying is taking place in the entire metals industry right now.

This is why I cannot stress to you enough that we will see immediate shortages of product if this continues. If another ‘Black Swan’ happens I can promise you we will see immediate shortages of gold products as well.”


Silver’s Coming of Age

Silver is winning market share from gold buyers.

2008 – In March 2008, sales increased nine times over the month before – 200,000 to 1,855,000.

In April 2008, the United States Mint had to start an allocation program, effectively rationing Silver Eagle bullion coins to authorized dealers on a weekly basis due to “unprecedented demand.”

On June 6, 2008, the Mint announced that all incoming silver planchets were being used to produce only bullion issues of the Silver Eagle and not proof or uncirculated collectible issues.

The 2008 Proof Silver Eagle became unavailable for purchase from the United States Mint in August 2008. The US Mint suspended sales of the silver bullion coins to its network of authorized purchasers twice during the year.

20,583,000 Bullion American Silver Eagles were sold in 2008. Silver averaged $14.99 an ounce and almost 80 percent more American Silver Eagles were sold then in any previous year.

“During 2008 there was a record inflow of over 93.1 million ounces (Moz) into the three main silver ETFs.Coins and medals fabrication jumped by an astonishing 63% to a record of 64.9 Moz. The main reason for this was a surge in investment-related purchases of bullion coins, both in the United States and Europe. Notably, fabrication of the U.S. Silver Eagle bullion coin achieved a record 19.6 Moz, approximately double the 2007 figure, and would have been higher if the U.S. Mint had sufficient blanks to produce coins to meet demand.”

2009 – 30,459,000 Bullion American Silver Eagles were sold.

On March 5, 2009, the United States Mint announced that the proof and uncirculated versions of the Silver Eagle coin for that year were temporarily suspended due to continuing high demand for the bullion version.

On October 6, 2009, the Mint announced that the collectible versions of the Silver Eagle coin would not be produced for 2009.

The sale of 2009 Silver Eagle bullion coins was suspended from November 24 to December 6 and the allocation program was re-instituted on December 7.

Total ETF holdings rose by 132.5 Moz and ended the year at 397.8 Moz. Coins and medals fabrication rose 21 percent to post a new record of 78.7 Moz.

Silver Eagle bullion coins sold out on January 12, 2010.

The average cost of an ounce of silver in 2009 was $14.67

2010 - No proof Silver Eagles were released through the first ten months of the year, and there was a complete cancellation of the uncirculated Silver Eagles.

Production of the 2010 Silver Eagle bullion coins began in January instead of December as usual. The coins were distributed to authorized dealers under an allocation program until September 3.

Silver posted an average price of $20.19 in 2010. World investment rose by an 40 percent in 2010 to 279.3 million troy ounces (Moz).

“Exchange traded funds (ETFs) registered another sterling performance in 2010, with global ETF holdings reaching an impressive 582.6 Moz, representing an increase of 114.9 Moz over the total in 2009. A significant boost in retail silver investment demand paved the way for higher investment in both physical bullion bars and in coins and medals in 2010. Physical bullion bars accounted for 55.6 Moz of the world investment in 2010. Coins and medals fabrication rose by 28% to post a new record of 101.3 Moz. In the United States, over 34.6 million U.S. Silver Eagle coins were minted, smashing the previous record set in 2009 at almost 29 million.”

2011 – Silver posted an annual average price of $35.12 in 2011, more than double the $14.67 average price for 2009.

Global investment in silver bars and coins & medals produced yet another historic high of 282.2 million ounces – the equivalent of $10 billion, itself a record high.

Physical silver bar investment grew by 67 percent in 2011 to 95.7 million ounces, global coins & medals fabrication rose by roughly 19 percent to an all-time high of 118.2 million ounces.

The US imported 6,600,000 oz of silver for consumption in 2011 – up from 2007’s imports of 4,830,000 oz.

In 2011 the US Mint sold 40,020,000 Bullion American Silver Eagle Coins.

2012United States Mint Authorized Purchasers (AP’s) ordered 3,197,000 Bullion American Silver Eagle Coins on January 3rd, the first day they went on sale. That opening day total catapulted January Bullion Eagle sales higher than half of the monthly totals in 2011.

As of January 25th 2012, 5,547,000 Bullion American Silver Eagle Coins had been sold.

From February to September monthly sales were weaker then the corresponding months in 2011.

In October demand started to pick up. In November, bullion sales took off with sales of American Silver Eagles more than doubling the figures from November and December 2011.

On December 17th the Mint said all remaining inventories of 2012 dated Silver Eagle bullion coins had sold out – no additional coins would be struck.

Since the 2013 dated coins would not be available to order until January 7, 2013 that left a three week void where no one was buying silver Eagles – yet Decembers sales were the third highest on record!

In 2012, the US Mint##Q##s silver coin sales surpassed the amount of physical silver produced via US domestic mine production.

2013 – On January 7th the new 2013 one ounce Silver Eagle bullion coins went on sale and a new record of nearly 4 million were sold that day.

According to David Baker over at the Sprott Group:

  • The US Mint##Q##s silver coin sales reached an all-time high of 13.2 million ounces in the first three months of 2013. If annualized, the Mint would sell 52.8 million ounces of silver in 2013 – a new record.
  • The SPDR Gold Trust (GLD) has dumped 141 tonnes of gold year-to-date (March 22nd) while at the same time silver ETF##Q##s added more than 20 million ounces of silver.
  • Finally from David comes the fact investors are buying 56 times more silver ounces than gold ounces – ask yourself if silver is 56 times more available then gold?

The twin policies of zero interest rates and the continual creation of money and credit being enacted today, by all governments and central banks, means that the purchase of precious metals is the only way to protect the value of your assets.

The major monetary metal in history is silver, not gold.” Milton Friedman, Nobel Laureate

Investors are currently risk adverse and mining stocks are not well understood by the general investing public, but at least one thing is going to become very apparent to most – the best way to hedge yourself against inflation could be owning silver and the shares of a silver and gold producer.

Junior resource companies offer the greatest leverage to increasing demand and rising prices for silver. Junior resource companies are soon going to have their turn under the investment spotlight and should be on every investors radar screen.

If this is Silver’s Second Age we need to get ourselves some silver, both bullion and the leverage of shares.

Here’s a way to buy both bullion from, and the shares of, a primary silver producer…..

Great Panther Silver TSX-GPR

Great Panther Silver (TSX-GPL) is a profitable primary (66%Ag, 28%Au, 6% Pb-Zn) silver producing (silver and gold production un-hedged, no royalties) company operating two mines in Mexico, the Guanajuato and the Topia Mine:

  • 2010 – metal production was 2.26M ounces Ag. Eq.
  • 2011 – production was 2.2M ounces
  • 2012 – metal production was 2.38M ounces
  • 2013 – the company forecasts a metal production target of 2.4M – 2.5M ounces

GPR also controls a number of exploration properties in Mexico, including a project which is likely to become Great Panther##Q##s next mine, the very promising 100 percent owned San Ignacio project:

  • Current resource covers only 650m strike length out of a 4km potential on the La Luz vein system just five kilometers west of the principal Veta Madre structure that hosts Great Panther Silver##Q##s Guanajuato Mine Complex
  • Step-out drilling continues to show excellent silver-gold mineralization
  • Mineralization starts 50-100m below surface for easy ramp access, no need for a shaft
  • Ore will be trucked 20km to the Cata processing plant at Guanajuato plant
  • Ability to monetize project immediately to help pay for its development

The 100 percent owned El Horcon silvergold project (7,908 hectares in 17 contiguous mining concessions) is a past producing underground mine with multiple veins in old workings – El Horcon hosts nine known veins, with the Diamantillo vein traceable on surface for more than four kilometres. Mapping and sampling is currently underway and an initial mineral resource is targeted for 2013. El Horcon lies within trucking distance, just 60km, from GPR’s Cata processing plant in Guanajuato – preliminary metallurgical testing at the Company##Q##s facilities in Guanajuato shows the El Horcon mineralization to be compatible with the existing mill feed.

Both San Ignacio and El Horcon show excellent potential to be satellite mines for GPR’s Guanajuato Operations.

Great Panther has spent a considerable amount of money improving operations & exploration/development at both mines over the last two years:

  • Increased plant capacity to process ore from San Ignacio
  • Completed an access drift for the underground transportation of ore from Guanajuatito. Ore from Guanajuatito can now be transported underground to the Cata shaft, thereby eliminating the need for truck hauling to surface and then on surface to the Cata mill. Underground haulage is faster, cheaper and reduces truck traffic through populated parts of the City of Guanajuato.
  • Increased exploration at Guanajuato contributed to the discovery of new high grade mineralization. The drilling at Valenciana included an intercept of 2,900g/t silver and 26.00g/t gold over 1.30 meters, while the two new discoveries at Guanajuatito are highlighted by intersections of 1,010g/t silver and 6.67g/t gold over 1.10 meters and 1,460g/t silver and 4.79/t gold over 1.15 meters.

All of this investment should provide future benefits such as decreased costs and increased production.

Significantly higher production was reported for Q4 2012 compared to the fourth quarter 2011:

  • Processed ore for Q4 was 67,659 tonnes, an increase of 30%
  • Metal production for Q4 2012 was 672,690 Ag eq oz, a quarterly record and an increase of 23% over Q4 2011
  • Silver production for Q4 was 453,934 ounces, an increase of 28%
  • Gold production for Q4 was 2,826 ounces, an increase of 24%

“We are pleased to report a strong fourth quarter with several quarterly and annual production records. We have made and continue to make improvements and changes at both mines that will have a positive impact going forward.” CEO Robert Archer

Great Panther completed a $24 million bought deal financing in 2011 for an acquisition that later fell through. They still have this money and are continuing to look for the right ‘fit.’ Geographically they continue to focus on Mexico and Peru, the two largest silver-producing countries in the world.