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 Bullion investment information on protecting your investments and hedging
Why you Need a Backup Plan is you are in the Forex Market
9/10/2020 9:21:29 AM

Why You Need a Backup Plan if you are in the Forex Market

Why do I need a backup plan I hear you say?  It’s a big market traded every day.  What traders fail to realise is how quickly the FX Market could disappear, meaning traders would instantly lose everything tied up in the market.  Never before, in its short history, has the FX Market been so vulnerable. The future of the FX Market is balanced on a knife edge.  To explain what I mean we need to look at the history of FX trading.

In previous blogs, I have written about the gold standard which ceased in the 1930’s and was replaced after WW2 by the Bretton Agreement.  The Bretton Agreement pegged the value of the US Dollar against the value of Gold and all the other currencies were pegged against the US Dollar.  This stabilised worldwide currencies and created a benchmark which allowed global trade.

In the 1970’s US President Nixon, due to economic problems in the US, the run on gold because of a devaluing dollar, took the US Dollar off the Gold Standard and the Forex market that we know today, was created. The US$70 million per day trading market, of the 1980’s rapidly increased to over US$1.5 trillion only 20 years later and continues to grow.

Fast forward to 2020, where world economies are in a mess, some countries have astronomical inflation such as Argentina whose inflation rate is 40.60% for the month of July.  Argentina has an average inflation rate of 194.97% although this is way down on the 20,000% (twenty thousand percent) in the 1990s.  While that is an extreme, many countries are recording high inflation with fears of more countries experiencing hyperinflation.

Debt levels have increased exponentially, with the introduction of quantitative easing and countries only too willing to pump more liquidity into the markets to stop banks and other businesses from failing.  During the March 2020 global lockdown, the US printed Trillions of dollars to keep the economy afloat.  The UK printed £656 billion during the March lockdown.  Levels of debt, never before seen, which caused GDP of many countries exceed 100%.  The US, as I write this is on 130% debt to GDP ratio and expected to reach 141% by the end of September.  The UK was on 100% GDP in their last quarterly figures.

During the 2008-2014 Great Recession, the experiment in austerity measures failed, stalling many economies from recovering quicker as governments fought to keep hyperinflation out of the recovering economies.  Major lessons have been learnt and since 2014 there has been a move to bring back a gold standard.  This has gained momentum and favour with many countries.  There are two strategies now being considered.

1.       The Gold Standard – bringing countries back onto a gold standard would need to see the price of gold go up to help the world’s economies reduce debt to more favourable and manageable levels.   This is gaining the backing of many global economies including Europe.

2.       SDR Basket – peg currencies against the SDR Basket instead of the US Dollar. The SDR Basket will in turn be pegged against Gold.  The SDR Basket is a digital currency used by the IMF.  Pegging currencies against the SDR Basket would remove the demands from China for the Yuan to be used as the international currency in lieu of the US Dollar.  With China’s track record of manipulating the price of the Yuan to suit its needs very few want to see the Yuan used as an international benchmark currency.  The SDR Basket is gaining popularity as the world’s economies contribute to the SDR for example the US dollar contribution is 41.73%; Europe is 30.93%; China 10.92%; Japanese Yen 8.33% and UK Stirling 8.09%.


So, what does this have to do with the Forex Market?

As I mentioned at the start of this blog, the Forex Market only came into being because currencies were removed from the Gold Standard.  If a Gold Standard is reintroduced the Forex Market will cease to exist instantly.
 

 

How likely is this to happen?

Very likely, as President Trump and his financial advisor Judy Shelton are in favour of it and have been pushing for the introduction since January 2019.  Europe with the euro as one of the largest currencies in the world, a large contributor to the SDR Basket are heavily pushing for this to be instigated quickly.  It has gained support from the IMF (International Monetary Fund) who are key influencers in the world markets.  As more countries look at ways to bring their increasing, out of control economies back into some resemblance of order the new Gold Standard is gaining more popularity.

World economies are desperate to find a way around the heavy debt/GDP ratio and bring currencies back onto a gold standard either directly or through the SDR would help them.

Gold investors are supporting the move as there would need to be a major increase in the value of Gold to rebalance world economies which is beneficial for major institutional investors who in turn are key to help support government fiscal policies.

Banks have been building their gold reserves since April 2019 when Gold was deemed zero risk by the Basel III agreement.  Prior to the agreement gold had a risk level which prevented banks from holding more than 30% of their assets in the commodity.  By moving Gold to zero risk the foundation was laid to support banks, currencies and a move back to a Gold Standard.

 

Where does this leave Forex Traders?

Simple, the Forex Market would cease to exist if the Gold Standard is reintroduced as there would be no trade or movement between currencies which have a set price to gold.  Now is the time to have a backup plan.  A plan of investing rather than gambling for despite all the strategies devised about Forex Trading, it is simply betting on the movement of one currency against the next with a 50/50 chance of being right.  If currencies are pegged against a Gold Standard then there is no currency movement and there is no Forex Market.

Amateur Forex Traders need to think seriously about being in the Forex Market.  They are likely to be the ones who lose the biggest as they tend to place a larger percentage of their overall wealth or lack of wealth into the hope of striking it big on Forex Markets.

Learn to invest and ensure you have solid investment reserves behind you before entering the Forex Markets as it’s very likely the perceived Goose laying the Golden Egg could shortly be killed off.  Have a backup plan to not only protect any wealth you have created but to ensure it can grow without a Forex Market.

 

The Backup Plan

I learnt trading after I had built and created a wealth foundation.  I also predominately trade Gold with the occasional stocks in volatile markets.  I ensure no more than 10% of my existing liquidity is used for Trading due to the high risk of the market.

The “backup” plan has always been my Plan A, build wealth through business, property, shares, bonds and bullion.  Build a solid foundation and only when there is a solid foundation use 10% of surplus cash to trade if desired.

With world economies in recession and living standards likely to get tougher, with more countries likely to adopt the new Gold Standard, if you are in the Forex Markets the backup plan is essential.  Don’t wait until it is too late.

 

For more information about learning to invest email info@2pound73club.co.uk

 

What is the Gold Standard and How Does It Work?
7/30/2020 9:26:50 AM

What is the Gold Standard and How Does it Work?

Over recent months there has been growing support in the EU to go back to a Gold Standard.  But what is the Gold Standard and how does it work?  Will it work in a modern society?

The Gold Standard was around for hundreds of years.  It was a commitment by participating countries to fix the prices of their domestic currencies to a specified amount of gold. National money and other forms of money were freely converted into gold at the fixed price.  The UK used a type of gold based standard as far back as1717 before formally adopting the Gold Standard in 1819.  In 1834, the United States fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other major countries joined the gold standard in the 1870s. The period from 1880 to 1914 is known as the classical gold standard.

 

Why did the Gold Standard Break Down?

During WW1 countries needed to print money to pay for the cost of war.  It became impossible for the countries to hold enough gold in reserves to cover all the currency being printed.  It was briefly reinstated from 1925 to 1931 and called the Gold Exchange Standard. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold. This Gold Exchange Standard broke down in 1931 following Britain’s departure from it due to it being unsustainable to keep gold reserves with the amount of debt and capital expenditure required for the British economy.

In 1933, during the Great Depression in the US, President Franklin D. Roosevelt nationalized gold owned by private citizens. The Gold Exchange Standard was abandoned as the US tried to create jobs to help bring the country out of depression.

 

Replacing the Gold Standard with a Dollar Based Standard

The Bretton Woods agreement was created in July 1944 when 730 representatives from 44 countries, mostly WWII Allies got together at Bretton Woods, New Hampshire, US.

Under the agreement, countries promised that their central banks would maintain fixed exchange rates between fiat currencies and US dollars. If a country's currency value became too weak relative to the dollar, the bank would buy up its currency in foreign exchange markets. This would lower the supply of the currency and raise the price.  If the value of the currency was too high then the central bank would print more money, thereby, reducing the currency’s price.  Under the agreement trade wars would not exist as each country agreed to regulate their currency so no country could benefit from manipulating the value of their currency.  The agreement meant that the Gold Standard ceased to exist and the world move onto the Dollar Standard.  The dollar was pegged to a set value of gold 1/35


The Collapse of the Bretton Woods System

In 1971, the United States was suffering from massive stagflation—a combination of inflation and recession, which, in turn has an effect on unemployment and economic growth prospects.

In response to an alarming drop in value of the US dollar, caused by too much currency in circulation, President Nixon started to devalue the dollar against gold. Nixon revalued the dollar to 1/38 of an ounce of gold, then 1/42 of an ounce. The devaluation plan backfired. It created a run on the U.S. gold reserves at Fort Knox as people redeemed their quickly devaluing dollars for gold.

In 1971, Nixon passed legislation removing the dollar from gold backing. Without price controls, gold quickly shot up to $120 per ounce ending the Bretton Woods system.

The creation of Bretton Woods resulted in countries pegging their currencies to the U.S. dollar. In turn, the dollar was pegged to the price of gold, and the U.S. became dominant in the world economy. The U.S. was the only nation that could print the globally accepted currency, and countries had more flexibility than they did with the old gold standard.

When the dollar ceased to be pegged to the price of gold, it became the monetary standard with other currencies pegging their currencies to it.

 

A Society Based on Debt

In a previous blog, I discussed how today’s economies are based on debt.  Every pound, dollar, euro or whatever the currency is for a specific country is loaned into existence.

Relevant governments agree to pay interest to holders of the debt (Bonds) until the debt is repaid.  Successive governments need to generate more debt each year to cover the costs of servicing the debt, running their infrastructure services such as hospital, schools and benefits.  There is insufficient tax take each year to balance the books and so more money has to be raised to meet the ever-increasing demand.  Governments are in a continuous spiral of creating more and more debt to provide for the services within their countries. 

The growth of debt is exponential, just look at how much was printed by each country for the first wave coronavirus.  America was in the Trillions of Dollars, Britain was £600+ billion and growing.

In the 2008-2014 Great Recession, governments adopted what was called “Austerity Measures” where they tried to cut back on debt spending and bring their countries debt under control.  The measures were in place for many years and was an experiment that was doomed to fail not only as countries could not balance their books (despite coming up with creative ways to seem as if they had) but it had far reaching consequences to economic growth with many countries barely coming out of recession.(again figures were manipulated for it to appear they had)  When the world economies are based on debt suddenly telling its citizens to reduce their own debt, start saving and stop shopping means the flow of income for growth stops.  It reduces the tax intake for countries forcing them to lend more money into existence.  It’s a vicious cycle.

 


A Gold Standard

This brings me back to the opening statement that EU are floating the idea of going onto a gold standard.  Will it work in modern society?

My belief is no.  Bullion has had a free run since 1971 and has become the safe haven for investors.  With the amounts physically held in storage by investors and the growing debt based economy it is doubtful that there is enough gold in circulation to meet demand.

The effect of coronavirus around the globe has seen many mines closed and the production of gold and silver has been greatly reduced.  Hence, when economies are struggling and people are looking for safe haven investments there is insufficient supply to meet demand resulting in the soaring prices we see today.  Most of the growth to date has been speculative with very little traditional investment.  It will be interesting to see where the price is likely to go once mainstream investors start moving into gold and silver.

China has on several occasions, raised the prospect of moving from dollar based markets to yuan based markets.  As a country which, denies it, but undoubtedly, manipulates the price of its currency the prospect of moving to a Yuan based global market is unlikely.  However, it is possible there could be some break away countries that support the Yuan and there could be 2 separate currency markets one pegged against the dollar and one pegged against the yuan.

Central Banks have started to purchase gold and hold reserves.  Since the introduction of the Basel3 agreement in April 2019, gold was deemed a zero risk asset many banks started to purchase gold to increase their reserves.

Gold would need to be nationalised for governments to move onto a gold standard again.  With the amount in circulation, with reserves held in banks, any form of nationalisation would collapse the world banking system.

I am sure, there are economists with more knowledge than I have about the money markets and the global economy who are behind the scenes trying to come up with a way of introducing a new type of gold standard, especially if, the EU are looking at it.  But, my belief is the economy is too fragile to be able to cope with the transition to a new gold standard.  Any transition, if implemented would most likely be once there has been a collapse of economies and currencies. Only time will tell.

Fake Gold, Shadow Banking and how this impacts on you
7/9/2020 1:14:34 PM

Fake Gold, Shadow Banking and How it Affects You.

Why does finding 83 tonnes of fake gold in a Chinese Vault have major impact on the Global Shadow Banking industry and how is that likely to affect you?

Before we talk about the fake gold, let’s look at Shadow Banking and what it is.

 

What is Shadow Banking

Shadow banking is a generic term used to describe financial activities that take place between non-bank financial institutions globally.

Some of the different types of institutions you would find using the shadow banking system are investment banks, mortgage lenders, money market funds, insurance companies, hedge funds, private equity funds and loans which are not regulated.

The shadow banking system is not regulated, and has successfully fought against regulation, on the grounds that, unlike traditional banks and credit unions, the organisations which operate in the shadow banking industry do not take “over the counter” deposits from clients.

Derivatives, mortgage bundle packaging and peer-2-peer lending have been major growth areas in the shadow banking system.  The value of these types investments is unknown but it has been estimated that derivatives alone are in the quadrillions of dollars value bracket.  The Chinese shadow banking system is said to be worth $3 Trillion per year.

Since 2017, China entered the derivatives market directly targeting risky financial practices such as excessive borrowing and speculation in equities.  This has had a flow-on effect of boosting the Chinese Share Market and creating a “cannot fail” attitude of many investors in the Chinese Markets. 

Shadow banking institutions were deemed to be the innovators in the financial markets and were able to finance deals, such as real estate and other major lending which would normally, not be accepted due to rules on capital and liquidity that are required by traditional lenders.  These regulations are in place to prevent bank failures, runs on banks and supposedly financial crises.

 

Fake Gold

China is now at the centre of one of the biggest gold scams in recent times. This is due to a company call kingold.  The company is supposed to have taken out risky high value loan for various projects which failed due to various economic circumstances. 

The loans were backed by gold assets (83 tonnes of gold valued at 14 billion yuan) and insurance company’s underwrote the loans due to the gold backing.  Kingold defaulted on loans and the lenders attempted to seize gold bars to cover the defaults.  However, it was discovered that 83 tonnes of gold, set aside as assets for the loans are in fact, gilded copper.

There are major repurcussions from this in the shadow banking system as 5 Chinese banks were behind the loans and it is unknown how they will be affected and if the market could collapse.  83 Tonnes of Gold equates to 22% of China’s annual gold production affecting the gold market.

The credibility of the insurance companies is affected as they failed to audit the gold.

In addition, US lawmakers have started removing Chinese companies from the US share markets as they have failed to allow auditing.


 

How Does this Affect You?

In 2008, the shadow banking system (called the sub-prime market) was the catalyst for the credit crunch and subsequent global recessions.  The system broke down as a result of several economic situations which affected the public and institutions being able to meet the payments.  This was exacerbated by the hurricane which hit New Orleans where many home owners were uninsured and just walked away from their mortgage payments.  In addition many mortgages were coming out of the fixed term adding to borrowers unable to make payments. 

Asset security was undervalued or the value not even know and trust between banks ceased to exist.  In his book, Mervyn King, the current Bank of England Governor, says that if he and Hank Paulson, his equivalent in the US were trying to keep the markets working.  They were just 30 minutes away from the total collapse of the financial markets and fiat currency.

Wind forward to 2020, history is repeating itself and stability in the shadow banking system is on shaky ground.  Instead of the hurricane, we have the coronavirus outbreak with the economic repercussions from the fallout.  We are facing a perfect storm which could trigger one of the biggest economic crashes in history.

 

How Can you Protect Yourself?

Financial education is key to protecting your wealth and your future.  Bullion is definitely a major investment opportunity, as I write this, which should not be overlooked.  Both Silver and Gold provide a hedge against downturns and insecurity within the markets.

For example, over the past month as all this news is breaking together with coronavirus second wave, gold has risen in price by 5.30% and silver has gone up 6.79%. 

To learn more about the investment programs we run join our FB investment group https://www.facebook.com/groups/1032901670065445  or contact us for more details at info@2pound73club.co.uk

 

 

 

What has happened to the Price of Gold
3/19/2020 10:28:18 AM

What has happened to the Price of Gold & Silver?

Bullion is a traditional hedge against turbulent economic times.  So why are they going down in value now?

Throughout history gold and silver have been classed as real money with today’s paper currencies being called Fiat Currency.  All Fiat Currency was backed by Gold and Silver reserves until the 1970’s when US President Nixon made the decision to remove gold as security and rely on the dollar to be trusted enough to guarantee a dollar bill was a dollar.  It wasn’t long before other countries followed suit and the reserve banks sold off their bullion reserves.

The crash of 2008 highlighted the lack of confidence in paper currencies especially with quantative easing from governments.  The result Gold and Silver Bullion once more became the safe haven and drastically rose in price.

Today, with stock markets plunging, most people would have expected the bullion to become a safe haven and boom in value. But it hasn’t. In fact, it has done the opposite and gone down.  So, what has happened to the price of Gold & Silver?

Watching the flow of money around the markets is the key to discovering why Bullion is dropping in value and I have seen some trends that indicate there are 2 key reasons for the drop in value.


Margins

Many traders use leverage to trade.  For example if you were to trade on gold going up in value then you only need a percentage of the value of the trade to complete the transactions.  ETF’s are one of the main leverage tools.  You can buy anything for a percentage of the cost.  When the price goes in the direction you have placed your trade you sell the ETF and pocket the difference. This is in an up or down market.  For example you can buy $10,000 worth of gold etf’s and only pay $1000.  Then if you said Gold was going up and it did to the price you nominate you make the difference in the profit you would have made as if you owned $10,000 worth of gold.  In reality you only paid $1,000 for it.  If the trade goes against you then you have to cover the cost of the loss.

We have seen historical drops in the value of share markets and tradeable products.  Traders have lost millions/billions on ETF’s and other tradeable contracts and have to cover those losses.  Physical Gold & Silver which they owned has been sold to cover losses. 

For every sell there has to be a buyer and vice versa. With so much gold and silver flooding the markets to cover Margin Calls the price goes down.  That is basic supply and demand.  Too much product on the market and price drops.


Bonds

There are a variety of Bonds on the market, in this case I am talking about Government Bonds also known as Treasury Bonds. Government Bonds are guaranteed.  In the UK there is a restriction of £1,000,000 (one million pounds per person) but other countries have no restrictions and all bonds issued by the government are guaranteed.

Bonds pay interest twice a year.  When the interest rates are higher than the returns on the Share Market then money flows into Bonds.  When the returns are higher on the Share Market then money flows to Shares.

We have currently seen the biggest drops in history on the Share Market so money has flowed into Bonds.  Some governments have reacted and dropped interest rates while other governments have kept rates high.

When the governments of the world are in sync with dropping rates then investors will move their money into the next investment seen to offer the best security. That tends to be Gold & Silver Bullion.

 

What Next for Gold & Silver?

It is still regarded as a safe investment.  An investment that offers a hedge against economic woes.  It is still one of the traditional money flow tracks. 

Already Governments are talking about the amount of fiat currency they will need to print to support countries through these difficult times.  Those same countries have for several years been stock piling bullion reserves for such an emergency so there is plenty of reason to have confidence in gold and silver still being a hedge.

In an earlier post I wrote about the Basel 111 agreement which from April 2019, removed risk restrictions on bullion investing for banks to zero.  This encourage banks to also buy heavily into bullion for their reserves.


It is unlikely that with both Governments and Banks investing so heavily into bullion that it will suddenly fall out of favour.  In fact, the opposite is likely to happen and more money from both institutions will likely go into bullion.

 

When is the Best Time to Buy Gold and Silver?

The simple answer is now.  Both have dropped in value due to the exceptional circumstances I mentioned above offering the best time to buy.  Many bullion businesses are unable to dispatch bullion at the moment to clients but are offering storage and delayed postage.

The Gold/Silver ratio which is a marker which tends to indicate whether it is best to buy Silver or Gold is at historical highs indicating silver is very undervalued and suggesting that would be the best investment at the moment.

The economic turmoil is just starting and as it goes through it’s cycle money will start to flow back into Gold and Silver Bullion.  Then both will accelerate exponentially.  When will that happen, no one knows.  It’s very much watch this space and watch the markets but one thing is certain there has not been a better time to invest in bullion since pre 2008 than now.

  

 

 

How High will Gold Go?
2/21/2020 4:36:57 PM

How High Will Gold Go?

During the Great Recession of 2008-2014 the UK economy saw Gold hit a high of £1163.49 on the 9th September 2011 today as it has hit a high of £1273.14 we ask the question how high will gold go?


During difficult times gold and silver bullion are a safe haven to protect investments and in February 2020 this is most apparent due to the Coronavirus C-ovid19 which has hit the global economy since December 2019.  With no end in sight to the spread of the virus and many places going into quarantine the likelihood of trade struggling and the fear of countries going into recession means gold and silver bullion are favoured investments.

The airline industry has announced it is expected to lose up to $30billion as people take fewer flights.  The Asian airline are expected to be the worst hit.

In the final quarter of 2019 Japan announced it’s economy had shrunk by 1.6% with a risk of recession.  These were based on data produced up to 31st December 2019 before the threat of the coronavirus had been announced.  The effect on the Japanese Market will no doubt push the country close to if not into recession for the first quarter of 2020.

China is in lock down with many manufacturers and resellers struggling to fill orders as their materials and stock are stuck in Chinese ports. These industries will be greatly affected until the quarantines are removed.  Oxford Economics has estimated the cost to the World Economy will be around £850 million while the IMF (International Monetary Fund) have described the world economy as fragile.


Ronald-Peter Stoeferle of Incrementum AG researched global gold trends and comparisons to the 1970’s gold bull market.  In discussions with Mike Maloney of GoldSilver.com they talked about the similarities of the 1970’s bull market and the current bull market and when overlaid one on top of the other they are following a similar trend.  The 1970’s bull market suddenly accelerated in value from 1975 – 1978 which indicates the current cycle could continue upward for the foreseeable future especially with the global economy being so fragile.

How high will gold go?  Your guess is as good as mine but it is feasible it will go up to or beyond £2000 an ounce over the coming months especially while the coronavirus has such an impact on global economies. It will be interesting to watch.

For more information on our investing courses email info@2pound73club.co.uk

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