Great Britain was once the proud leader of the Classical Gold Standard. A global commercial and economic power, she operated on the gold standard from 1717.

The Standard allowed the free movement of capital which in turn financed and expanded trade. Twenty per-cent of the growth in global trade seen between 1880 and 1910 can be attributed to the stability of the gold standard.

The British people had faith in their money, its value, and the banks they kept it in. How far we have digressed from that confident nation.

The Great War and central banking promptly put an end to the loving relationship we Brits once had with gold. Our governments and central bankers decided over a few short years that we would be better off without our gold money.

Gradually over time we have lost our link to, and our faith in, gold; only to replace it with a faith in governments and the money which they print at their will.

The ultimate defamation to our historical appreciation of gold occurred between 1999 and 2002 when Gordon Brown sold 395 tonnes of Britain’s gold, at the lowest price for 20 years.

Now it is time to bring it back and reinstate our faith in gold. We need to ‘Buy Britain’s Gold Back’.

Britain’s Gold Sales

The motivation behind the gold sales was, according to the Treasury, risk reduction. They believed that with 50% of the net foreign currency reserves invested in gold, the exposure to the single asset was too great.

The proceeds of the gold sales were spent on purchasing further foreign currency assets for our reserves; the split of the assets purchased was broadly 40 per cent dollars, 40 per cent euros and 20 per cent yen.

An average price of $275.60 an ounce was achieved in the gold sales. Since that time gold’s price has increased six-fold. In contrast the values of the dollar, yen and euro have each dropped significantly thanks to inflation and poor monetary policies.

Gold holdings abroad

Was the Bank of England right to allow the gold sales?

The World Gold Council reported last year that central bank buying in the market was highest since 1964, with purchases of 440 tonnes. This is thanks to a lack of sales by Central Bank Gold Agreement (CBGA) signatories and efforts by central banks in emerging markets to diversify their foreign exchange holdings (in an opposite manner to that done by the UK Treasury).

‘With the two dominant reserve currencies beset with issues, interest in gold as the one currency free from the impact of government policy and intervention, has been spurred. The trend in central bank buying is expected to continue given the lack of decisive action in dealing with the underlying issues both in Europe and in the US, as well as low relative allocations to gold among emerging markets.’ – The World Gold Council.

Central Banks are rebalancing their assets in favour of gold.

Gold holdings per country

According to World Gold Council the UK holds 310.3 tonnes of gold. This represents just 17.6% of our reserves; in the US and Germany their gold reserves represent 77% and 74% of their foreign reserves respectively.

The UK has the 17^th largest gold holdings by tonnage. But, we drop to 34^th out of 98 countries for gold reserves per capita. Had our gold not been sold then we would sit more securely at 22^nd.

Our gold holdings per capita are 26 times less than Switzerland’s and 6 times less than the island of Aruba. No other major EU country has less gold per capita than us.

What about private gold investment?

In other countries, private investors’ love for gold is well documented.

In 2011 India and China accounted for over half of total gold demand. The people of India privately hold more gold than US and Europe central banks combined. In 2011 Indians bought 500 tonnes of gold jewellery and 366 tonnes of bullion.

Germany and Switzerland are Europe’s largest holders of gold per capita and this looks set to continue; in 2011 they accounted for the majority of Europe’s seventh annual gain in gold imports in 2011.

Perhaps it is time we started thinking along the same lines?

What are the benefits of gold?

Some investors see gold as a useless asset which just sits idle in a vault. It does not pay dividends. It is not a ‘productive’ investment.

According to the BBC’s Robert Peston, the Treasury under Brown became fixated on the idea of selling the gold; ‘they hated what they perceived as the intrinsic laziness of gold. It simply sat in the vaults gleaming but earning no interest. They wanted assets that appeared to earn their keep, by generating interest payments. They also hoped and believed that rampant global inflation was a thing of the past, and that the days of gold’s soar away success would never recur.’

But as Mark Twain advised, you should be concerned first with ‘the return of your money’, before ‘the return on your money’?

After Japan, the UK is now the most indebted leading economy. It is estimated that it will take at least a decade for UK private-debt burdens to return to levels seen before the Credit Crunch. The banking sector is the largest component of debt in the UK; the sector in whose custody we place our savings.

Fears of inflation are not a thing of the past. We recently learnt that UK inflation, measured by the CPI, currently sits at 3.5%. This is blamed on rising commodity prices, core inflation, which discounts rising energy, food, tobacco and alcohol prices, sits at 2.5%.

The RPI which is a better reflection of our everyday consumption has, according to Simon Rose, increase by 53% since the Monetary Policy Committee was formed in 1997. Mr Rose finds a sliced white loaf cost £0.52 fifteen years ago, but today it costs £1.23.

Inflation is eroding the value of our cash.

Inflation is a tax on the hard working people of Britain. It punishes savers, punishes those who earn or have money.

The Sunday Times reported recently that we need a savings account to pay 4.38% to beat tax and CPI inflation. This is an increase of 0.13% in the last month alone. £41.8 billion a year is confiscated from pensioners and savers as a result of negative interest rates. The Centre for Economic and Business Research estimate the bank rate will stay this way until 2016.

So, how can we secure our savings with the same satisfaction and guarantee felt by previous generations? Perhaps we need to look to our heritage, as the once global economic leader, and remember an important lesson about gold. Many other nations are already doing this, as they strive to protect themselves and come out on top of this financial crisis.

Build your own reserves

A 2002 report from HM Treasury outlined why gold is held in foreign reserves:

1.       The war-chest argument – gold is seen as the ultimate asset to hold in an emergency and in the past has often appreciated in value in times of financial instability or uncertainty;

The government are so concerned about this ‘emergency’ that they set up a compensation fund, the FSCS, to pay out up to £85,000 to those whose money is lost in the banking system. Do we really want to store our wealth in a system where this is a possibility?

2.       The ultimate store of value, inflation hedge and medium of exchange. Gold has traditionally kept its value against inflation and has always been accepted as a medium of exchange between countries;

This is something which we mention time and time again. Since 1967, the British pound has lost 90% of its purchasing power. This devaluation is mainly down to the inflationary practices of government’s monetary policies.

In the first quarter of 2012 the British pound was down 3.5% against gold is both an inflation hedge and a store of value. Unfortunately our Treasury was too short-sighted to see this and as a result has loaded us up with depreciating and questionable national currencies.

3.       No default risk – gold is ‘nobody’s liability’ and so cannot be frozen, repudiated or defaulted on;

An excellent point made by Her Majesty’s Treasury, but unfortunately one which works against them. And one which is serves the strongest argument for keeping your money out of the bank.

As the FSCS state themselves, since it was set up in 2001 they have ‘paid out £26 billion in compensation and helped more than 4.5 million’. All of those individuals needed helping because of counter-party risk, because banks and other financial organisations losing their money.

If the Bank of England had kept our gold we would be better insured against the risk of the financial system.

4.       Gold’s historical role in the international monetary system as the ultimate backing for domestic paper money.

Gold is ‘The ultimate backing for paper money’. Paper money is just that; paper. It is worth little compared to the money which once put the ‘Great’ in Great Britain. It is no longer backed by anything real, all that backs it is the confidence we have in the Bank of England. The same central bank that failed to predict the tech bubble, the housing bubble, and the Credit Crunch.

 

Previous governments may have lost some of our security we don’t have to be the victims. With Britain more vulnerable it’s time for us to take matters into our own hands.

Whilst the government are asleep at the watch, let’s buy some gold bullion to secure our future. Let’s buy back Britain’s lost gold ourselves. For each taxpayer the UK Treasury sold 13.2 grammes of gold. Each person who buys their share of the gold is buying their own little piece of financial security and acting as their own central bank. When you own physical allocated gold, it is yours, no-else may sell it or loan it. Your asset is not dependent on any party’s performance, your investment is ‘no-one else’s liability’.

Let’s Buy Britain’s Gold Back; for our security, for our independence, for Britain.

Buy Britain’s Gold Back.

Buy Britain’s Gold Back for security, independence and for Britain. Buy gold bullion in minutes…

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

Jan SkoylesJan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working at Cheviot Asset Management in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from university Jan joined The Real Asset Co research desk and now contributes to the Cobden Centre, The Commentator, The Renegade Economist and Market Oracle.

Last April gold investment analysts where excited to see a new institutional player enter the gold market. The University of Texas Investment Management Co. took delivery of nearly $1bn of gold bullion into a New York vault. The reason gold analysts were so interested was because large institutional players had been largely absent from their market and their huge purchasing power had therefore not had its potentially significant positive effect on thegold price.

The gold purchase by America’s second largest academic endowment was noted in case it was the start of a trend. Nonetheless, continued institutional bids into the gold market did not follow in great enough numbers to identify a compelling trend. Apart from last summer’s run to over $1,900/ounce, the gold price has not hinted at notably increased institutional buying of gold. Gold investors were left waiting and wanting.

However, the Financial Times reported some interesting news for those monitoring such a trend yesterday.

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer (CIO) Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”.

Pension funds and gold bullion

Traditionally pension funds have ignored gold due to their focus on yields. Japan is the world’s second largest pension market, and this move by Okayama Metal & Machinery is worth paying close attention to. Such a move into non-yielding assets becomes more palatable in a world of negative real interest rates where institutional investors are paying for the ‘privilege’ of holding government paper.

The fund’s aforementioned CIO appears to have talked his investment committee into a long term wider view of asset allocation. Mr Kiguchi had made the case that a lack of yield needed to be balanced against currency and default risk. Loose monetary policies and the durability of fiat currencies seemed to be on his mind when he commented: “from a very long-term point of view, gold may be one of the safe currencies”.

This point about long term asset allocation is one that has been articulately made previously by Ben Davies ofHinde Capital. Mr Davies and Hinde Capital have also been observers of Japan’s potential in the gold market, and according to the FT, this potential may be morphing from latent demand into patent demand.

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold… While few fund managers are counting on a crash in core assets such as Japanese government bonds, said Takahiro Morita, head of the Tokyo arm of the World Gold Council, a producers’ association, they were increasingly receptive to the idea that gold could act as a buffer against shocks. “Last year’s tsunami and the eurozone debt crisis shows that it was wise to expect the unexpected,” he said… Nomura, Japan’s biggest wealth manager, added a gold option to its monthly survey of 1,000 randomly selected retail investors in February. Every month since, gold has been ranked the third-most desirable addition to portfolios, well ahead of competing assets such as investment trusts, bonds or foreign securities.

Succinctly explaining recent performance across asset classes, Yoshio Kuno, Japan head of Newedge, the futures broker, argued that “If you look at assets over the past couple of decades, equity has been a loser, while fixed income offers tiny coupons. Gold is becoming an acceptable currency substitute.”

This news and sentiment out of Japan suggests further evidence of declining trust in fiat currencies to us, but is a wider trend of growing institutional demand for gold appearing?

Whales and the gold market

Recent SEC filings, reported by ZeroHedge, show other institutions participating in the gold market. Most of these names are familiar to gold market observers but some of them appear to be increasing their participation whilst others are new buyers.

Eton Park Capital, Paulson and Co., PIMCO, Soros Fund Management, and the Teacher Retirement System of Texas all bought shares of the world’s largest gold exchange traded fund (ETF), known by its ticker of GLD, in the first quarter of 2012.

Within this Soros quadrupled his gold investment position compared to the previous quarter, PIMCO and the Teacher Retirement System of Texas were also net buyers, whilst Eric Mindich’s Eton Park Capital was a new buyer with a purchase of 739,117 shares, having held no position in GLD at the end of 2011.

Large buyers need liquid gold products

It is also worth noting the size of some of this participation. Investment by Okayama Metal & Machinery of $500m and Eton Park Capital of $110m is larger enough for these buyers to need a highly liquid gold investment solution.

Institutions that need to invest in regulated securities tend to look towards the largest ETFs, like GLD, as only these products are liquid enough to handle their buying and selling without inordinately affecting the price. This can be especially relevant for some pension funds that may be unable to take delivery of physical bullion as the University of Texas Investment Management Co. and David Einhorn’s hedge fund, Greenlight Capital, did.

Eric Sprott’s Physical Gold Trust and the Central Fund of Canada might be a structurally superior means of achieving gold, or precious metals ownership, but at the time of writing the Sprott Trust’s Net Asset Value (NAV) was less than $2.2bn and the Central Fund’s NAV was less than $4.8bn. This is compared to GLD’s current NAV of $63.5bn. Whales sized gold buyers need deeper liquidity and, regardless about opinions as to its suitability for gold investment, GLD has it.

Whilst the above institutional action in the gold market might not point to a firm trend of hot institutional activity it is worth paying attention to. Trends have to start somewhere, and whilst gold is not significantly held by institutions generally, the motivating concerns mentioned by Okayama Metal & Machinery’s CIO might be held more widely across the industry.

The move into gold by Okayama Metal & Machinery should be looked at in the same light as the University of Texas Investment Management Co.’s gold investment last year. For now we just hear a slow dripping sound as financial glaciers melt and capital begins to look for more secure homes and better collateral.

Central banks and pension funds buying gold bullion. Invest in gold like a professional in minutes…

Please Note: Information published here is provided to aid your thinking and investment decisions, not lead them. You should independently decide the best place for your money, and any investment decision you make is done so at your own risk. Data included here within may already be out of date.

Will BancroftAside from being COO, Will also contributes to The Real Asset Company’s Research Desk. His passion for financial markets and investment led him to develop a keen interest in monetary economics, gold and silver. Will’s views are sought by and appear on sites such as Seeking Alpha, Market Oracle, Stockopedia, Resource Investor, and Commodity Online. Will holds a BSc Econ Politics from Cardiff University.

Once every year gold and stocks form a major yearly cycle low. Commodities form a major cycle bottom every 2 1/2 to 3 years. Every once in a while all three of these major cycles hit at the same time. I’m pretty sure that’s what is happening right now.

The implications are that once the CRB has completed this major cycle bottom we should see generally higher prices over the next year and a half to two years, presumably topping during a major currency crisis as the dollar drops into its next three year cycle low in the fall of 2014.

I think the 30 point rally in gold today is signaling that gold has put in its yearly cycle bottom. Since gold did not break below the December low of $1523 I think we can assume that this is a B-wave bottom and should be followed by the consolidation phase of a new C-wave that should breakout to new highs either later in the fall or next spring. The next two years should generate an even more impressive advance than the 2009-2011 rally, possibly even generating the bubble phase of the bull market in late 2014 or early 2015 as the dollar crisis reaches a crescendo.

As gold usually leads the stock market by a few days, we should see the stock market put in its yearly cycle low sometime in the next several days. However the outlook for stocks is not as bright as the commodity sector. While I do think continued currency debasement will probably drive the stock market to at least marginal new highs I also think an increasing inflationary environment is going to compress profit margins and constrict consumer spending. After a long topping process the stock market and economy will probably roll over and follow the dollar down into that 2014 bottom.

While I’m not ruling out one more quick dip below $1523 to wash out stops below that technical level, I think gold is in the initial stages of the next leg of the secular bull market. This last C-wave from 2009 – 2011 was the C-wave of silver with a 400%+ gain at the parabola top in May of last year.

This next C-wave will be the C-wave of the mining stocks. During the irrational selling over the last eight months mining stocks have reached levels of undervaluation that have only been seen one other time in history(2008). That drove a 300% rally over the next two years.

I suspect we will see something similar or even larger as the market gets busy correcting this irrational undervaluation.

I think we are at, or very close to what is likely to be a once or twice a decade opportunity in the metals sector, especially the mining stocks.

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