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When I
first joined The Real Asset Company I attended a discussion on the oncoming
collapse of the paper money system, held in a small room at the Houses of
Parliament. It was in this historical place where a (now) good friend of mine
said something which has stuck with me ever since, ‘I don’t know
which money is the right money, but whichever the people choose must be the
right one.’ I couldn’t agree more, but, as we all know,
governments do not.
As this
monetary system fights a hard fight to its bitter end, governments are
working harder than ever to stop individuals choosing how to store their
money. Whilst here in the West we seem blinkered by the monopoly money
governments woo us with, our compatriots elsewhere are onto something; saving
vociferously in gold, aware that their governments are proving poor stewards
of the monetary system. But in many cases, if not all, the government is
putting up a fight.
Whilst
governments and loyal Bernanke followers out there continue to tell us that ‘gold
is not money’ their actions continue to prove them wrong.
As I wrote before the summer, the
Turkish government has launched a campaign to encourage citizens to bring
their gold investments out from under
their mattresses (an estimated 5,512 tonnes).
As the
World Gold Council reported earlier this year, there has been a gradual
movement from gold jewellery purchases to
investment in gold coins and bars, with an increase in demand of 80% for the
coins and bars. Turkey’s economic history has not exactly been an easy
ride, with an average inflation rate of 39.78% between 1965 and 2010, it’s not surprising gold investment is
changing face as politics in neighbouring countries
and their own economic record become increasingly shaky.
The
campaign for gold-accounts is part of an on-going effort to reduce the
country’s current account deficit, the second largest, after the US, in
absolute terms. The government hope that by drawing
in individual holdings of gold into the banking system they can make a
significant impact on the deficit. They officially state it is a way to
‘encourage household savings’ failing to realise
that just because you don’t store within a government recognised savings scheme does not mean you are not
‘saving’.
Customers
opening these gold-based deposit accounts are given the equivalent value to
the gold’s weight in lira, which they may withdraw or take out further
loans. The bank meanwhile is able lend or even sell the gold. This is good
news for banks that have seen the legal proportion of reserves held in gold
increased to 30%.
As Zerohedge said at the time this is just another way to
legally implement gold confiscation. It’s also further proof that the government need the ultimate form of money to sort out the
mess they’ve made of their own.
The
Turkish government, as we alluded to previously, are
aware of the dangers of paper money and the safety of gold. Earlier this week
Turkish Prime Minister Recep Tayyip
Erdoğan, said the IMF would be better to use gold when it
provides aid to a country rather than US dollars. Gold, the Prime Minster
said is ‘an international constant’ which has
”maintained its honor throughout history”. In contrast,
the supply of dollars can actually be harmful.
Iranians
who have seen their currency reduced to almost zero-value this year on
account of government policies, both their own and foreign, have been
choosing to buy gold like nobody’s business in order to protect the
value of their savings. There are now signs Turkey has been sending gold to
Dubai for Iranian buyers, using the country as a conduit.
The
government has also been working hard to stock up; in the first six months of
this year, gold exports from Turkey to the Islamic republic were in excess of
$6 billion.
As we
all know, sanctions have lead the Iranian government to hoard gold to be used
in exchange for necessary goods. Now the Iranian government are imposing
sanctions of their own; effectively banning citizens from exporting gold
because of ‘exchange rate fluctuations at Iran’s markets’.
That may be one reason, but it is also part of an effort to keep some form of
real money within the economy for when the rial
finally collapses.
Over in
Asia, a continent full of citizens who understand gold, we are also seeing
problems with governments’ relationship with gold.
In Viet
Nam which, like Iran, has major inflation issues, gold is discouraged from
being held within homes. This is in order to ‘stabilize’ the
economy which continues to see devaluation of the dong but increasing faith
in the US Dollar and gold, the latter is even used to price houses.
Earlier
this year gold as a medium of exchange was banned and 7
‘solutions’ to combat the ‘goldization’
of the economy were put in place. Later this month credit institutions will
no longer be able to lend in gold.
All
this in a country where overall gold demand accounts for 3.1% of GDP
alongside double digit inflation. Clamping down on the use of gold in both
the banking system and the marketplace is yet another attempt by government
to prove their money is the best money…but they need to control gold in
order to prove it.
India,
the country which has more gold market eyes on it at this time of year than
any other, is said to be able to affect the international gold market with a
single sneeze. The Indian government seem almost a
step behind the Turkish.
Whilst
India has nowhere near the same current account deficit problems they are
growing increasingly concerned of the impact of gold imports on the current
account. They have not yet moved to persuading individuals to put their gold
into the banking system but they are working hard to persuade them to save in
cash rather than the yellow stuff. Duties on imports were also increased and
as a result met with heavy protests from gold-sellers.
The
weak rupee, a growing issue of contention, is being blamed on gold imports
rather than economic mismanagement. Like all the other brief examples
I’ve mentioned, gold appears to be an easy target which, when hit,
punishes the people but puts the banks and governments in a fairly prosperous
and stable position all thanks to gold’s faceless value.
We
should know by now that as soon as government offers anything in return for
our gold, we should turn them down straight away. We should also know that
the second any kind of ‘control’ is put on the movement of our
gold we should jump for joy because it is on its way to being recognised as money.
If
proof that gold is money was ever needed then this is it. Four countries,
each with significant financial problems caused by the spend-easy qualities
that come with fiat money, see their citizens turning to gold; a trait passed
down through history and generations who know that money which can only be
affected in any way by the owner is the one to trust.
The
black-market in gold is undoubtedly growing, evidence that fiat money and its
managers, which can only survive if one has faith in the issuer, are indeed
fighting an on-going retreat.
Jan Skoyles
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