The Real Asset Report

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The Real Asset Report

New research and commentary on gold, currency wars and money.
11th April 2013
Brought to you by Jan Skoyles and The Research Desk.
www.therealasset.co.uk
Welcome to the first issue of The Real Asset Report

Myself and The Real Asset Company Research desk are delighted to bring you our first fulllength research report which is jam-packed with new research and commentary on gold, currency wars and money. We are only four months into the year and it has already been an exciting one where both money and gold are concerned.
In The Real Asset Report we have.

The face of money as we know it is rapidly changing as increasing numbers of investors place their faith in a virtual currency. We decided a long time ago that we would write something on Bitcoin. Back then, the talk surrounding it was a whisper compared to the deafening noise we hear now.
Where Bitcoin Mania began and where its heading.

Then Cyprus happened and the world saw its full panic potential. At the beginning of February, when we started planning The Real Asset Report, Bitcoin was at $20. 1 At the beginning of March, when we really got down to the business of writing, the price had doubled.
Why Max Keiser thinks Bitcoin is beautiful and how he fares in the Bitcoin Twitter war.
Our plan to do a Bitcoin Brief disappeared when the price began hurtling toward $100 and everyone wrote about Bitcoin. So, for fear of boring you, we scrapped that and bring you some much more interesting content including some superb infographics and a chat with Max Keiser.
Why the Yen will suffer the most this year and what Jim Rickards has to say on the matter.
Speaking of expert commentators, we talk to Jim Rickards who gives us his thoughts not only on Bitcoin but also on who will win the race to debase, how much gold he thinks you should buy and why the Euro is looking pretty strong.
Why the conversation, in 97 countries around the world, surrounding gold is louder than ever focusing on repatriation, hoarding and investment.
The Euro-crisis, despite market beliefs, fails to go away. At the time of writing we hear Cyprus has been ordered to offer up its gold as part of its recent rescue package. The
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conversation on gold is not just in the Eurozone but around the world. And its not all about sticky IMF fingers. We explore this in The whole world is talking about gold where we look at central bank moves to buy gold, hoard gold, steal gold and the individuals working to get their hands on even more of the yellow stuff.
Why several US states are making strides to legalise gold and silver tender, and how the Fed may react.
In efforts to curb their US dollar holdings, thanks to the Feds best efforts to print and print, its not just central banks diversifying out of gold. US citizens are working towards the same goal and we explore this in The US is moving to a gold standard.
Why debasement of a metal currency is more economically sustainable than the debasement of a fiat currency.
The Fed-driven debasement of the international reserve currency is well-documented. We compare this on-going activity with the most famous, and drawn-out debasement in history; the Roman Empire.
Why the new BRICS bank could see a gold price of $6,382
Last month the BRICS nations announced the creation of a new bank, given these countries penchant for gold (and their highly publicised moves away from the US dollar) we ask if theres a plan to back the BRICS bank with gold, read it in The Gold BRICS. 2
Poll data from5,000 investors in 80 countries telling us why they invest in gold, where they store their gold and what they think of Bitcoin.
Do the Gold bugs know something you dont? Find out by looking at our infographic weve created to show the results of all of polls weve run since last year. Thanks to our clients and readers, weve been able to gather a wealth of information on matters ranging from currency debasement to what first sparked their interest in gold. Our polls have proved to be very popular, and we learn from all of them. Not just on the Research desk, but in the way we manage our products and service. Last year we ran a poll asking in which country you would like to store your gold. It was the results of this poll that inspired us to open our Singapore vault. We were the first of our kind to open a vault in this location and it remains our most popular with customers storing gold. So, sit back with a cup of tea and enjoy our first report! If you have any questions or comments we would love to hear from you.
Jan Skoyles
jan.skoyles@therealasset.co.uk
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Bitcointhe money of the future

Bitcoin Mania the road to Bitcoin Infographic Bitcoin Gurus Infographic #bitcoin Infographic Twitter Showdown Infographic
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The Whole World is talking about gold

Who holds the most gold? Infographic Who has the highest percentage gold reserves? Infographic
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The US is moving to a gold standard

Ditching the dollar for sound money Infographic The United gold states of America where are they now?
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The Roman Emperors of today How much did you spend on gold in 2012?
Who spent all their money on gold? Infographic Europeans spend less than 1% on gold Infographic Asias gold rush Infographic
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Gold BRICS Interview with Jim Rickards

Twitter asks Jim
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Do the gold bugs know something you dont? Final words
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Bitcoin the money of the future?

Where are you on Bitcoin? In our readers poll, we found over 50% of respondents already owned Bitcoin, but the other 50% are still sitting on the fence, if not firmly on the other side of it. When we first heard about it nearly two years ago we were certainly sceptical of it; we knew that new money was needed, we just werent convinced Bitcoin was it. Neither were many other people, or they just hadnt heard of it. As you can see from the Google Trends graph, for the term Buy Bitcoin, there was a small spike in June 2011 as Bitcoin rapidly approached $30, before falling to as low as $3. Unsurprisingly searches went to an all-time high, almost exactly in line with the price rocketing this year.
There was a greater velocity of growth in searches however for the term Bitcoin scam around the last price spike, almost in proportion with the same search growth in 2013.
Is it a scam? So, far there is little evidence to say so and people dont seem too worried if it is. Following events in Cyprus last month, the desire to put your money where the governments sticky fingers cant reach has sent the virtual currency skyward.
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The mainstream media are at the very least a little wary of the decentralized currency and, in the extreme, are declaring it to be a huge bubble set to burst imminently. This no doubt helped to fuel the searches for Bitcoin bubble which have appeared in taken off even more dramatically than those mentioned above.
Bloomberg declared it Bubble-tastic1, the FT described Bitcoins as less useful than Air Miles2 whilst the Wall Street Journal described it as a mysterious money which has become the darling of anti-government libertarians and computer wizards prospecting in the virtual mines of cyberspace. In Europeit has found its niche as the coinage of anarchic youth... 5 The rhetoric used to describe Bitcoin, particularly by journalists, is word-for-word the same as that used for gold and silver. Gold bugs are frequently described as anarchic or antigovernment. Very few mainstream commentators have recognised what this rush into Bitcoin means, whether it is something which proves to be untrustworthy in the long-run or not, at present it is clearly something many investors feel theyd rather put their money into than another bank account or asset-class. They feel they can trust it more than their banks and central banks. The other participants are just trying it out, and if they dont get burnt the Bitcoin market cap will continue to grow as it matures as an alternative currency.
Trust ina faceless currency

Founded in 2009, Bitcoins ethos is aligned with much of the general sentiment abiding since the start of the financial crisis a lack of trust in the ability of governments and banks to manage the economy and the money supply. Given that, it is unsurprising that financial war reporter Max Keiser, has long advocated investing in Bitcoin. He is featured prominently throughout our infographics and we had a quick chat with him to hear what he had to say on the virtual, decentralized currency. Max has in fact been touting alternative currencies for many years, and is loving Bitcoins current form.

Bloomberg (2013) Sorry libertarians, history shows Bitcoin isnt the future http://www.bloomberg.com/news/2013-04-04/sorry-libertarians-history-shows-bitcoin-isn-t-the- future.html 2 FT.com (2013) In no-one we trust, the digital dollars rise http://www.ft.com/cms/s/0/50451a72-9d43-11e2-a8db-00144feabdc0.html#axzz2PzXJWesR
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Bitcoin is money without banks that is the thing to keep in mind. Bit Torrents totally transformed the intellectual property business and is still in the process of doing so, and [like that] Bitcoin changed the banking business. What is it about the banking business that people are fed up with? Well, for one manipulation of the money supply. Max Keiser believes this isnt an issue with Bitcoin, and he sees it virtually impossible for someone to corner the market. It seems resistant to manipulation at the moment, because the rate of creation is somewhat slow, 75% of Bitcoin is in very strong hands. Outside of that community they would have to convince a lot people to sell at the current prices and it is in very, very strong hands. Its well distributed, across 20,000 nodes in the network in the highest distributed computer project in the history of the world and 75% are in the possession of people who are not using it they are hoarding it. So it would be very difficult for a hedge fund or something like that to come in and capture 10% market which wouldnt really be enough to create a price manipulation in this market you would need to capture 50% which is, I think, thats virtually impossible.
The historical economics of Bitcoin

For those of you who are feel uncomfortable with the newness and untested side to Bitcoin relax - its foundations are firmly grounded in economic theory, as Keiser reminds us. Hayek called for competing currencies and at the time that seemed highly unrealistic but now that is very realistic [thanks to Bitcoin]. Hayeks well-known 1976 proposal to separate the state and the money Denationalization of Money, calls for the abolition of legal tender laws and for anyone to be able to issue their own currency alongside central governments. Thiers Law is also in effect here. Thiers Law, as named by Peter Bernholz 3(2003), finds that given flexible exchange rates, long lasting inflation will lead to an ever-more farreaching substitution of the unstable by stable money.
Criminal currency?
The mainstream media, without fail, resort to the criminal attraction of Bitcoins anonymity being a reason to dislike the currency. Whoever asks if Bitcoin is tied to criminal activity is, according to Max Keiser, either duplicitous or stupid or has an agenda, other than to ask that question. He says duplicitous because they [the mainstream media and government] have no problem with HSBC laundering $8bn, major banks commit fraud daily they admit to it! [The Attorney General] of the USA is too afraid to prosecute them. Another weakness many show concern over is a governments ability to shut-down the entire Bitcoin system, Keiser agrees this is a possibility but gives little thought to it, Anything can be shut down - yes there are a number of outlying risks. Like anything, like in the same way you can turn sand into gold at a fraction of the cost, yes it could happen but it doesnt stop me from buying gold.
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Bernholz. P. (2003). Inflation and Monetary Regimes: History, Economics and Political Relationships. Cheltenham: Edward Elgar.
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Where did it come from?

For many, it may feel as though Bitcoin has appeared from nowhere, but this isnt the case. As the glue holding the fragile Eurozone together becomes unstuck, more people are seeing the appeal of Bitcoin. Google searches for Bitcoin mining were high in mid-2011, after the price hit $30, but even more so now.
Look at our Bitcoin Mania infographic and youll see its been transacted long before disastrous events such as Cyprus happened. In our infographic we show you some of the key points, and price moves in Bitcoins run. And where is all this demand and chatter coming from? And its not just Max Keiser on his own. Moscow, Berlin and Sydney are the top three cities with the most Bitcoin trade. As was widely reported earlier this week, Google Trends data shows Russians are the biggest searchers of Bitcoin in the world. This is probably not so surprising given the $20 billion of Russian deposits held in Cyprus, the majority of which belongs to private individuals and small/medium sized businesses. Since Friday 15th March, when the Cypriot banks closed, the price has shot up from $47 a Bitcoin.
Bitcoins future
Is Bitcoin here to stay? We suspect so, but along with other virtual currencies, the perfect Hayekian dream. Certainly, believes Keiser, thanks to both governments and individuals. I think were going to see Iran be the first government to make waves with Bitcoin because they are being unfairly penalised and embargoed. They are already trading in gold and silver anyway and theyre already apparently making inroads into Bitcoin anecdotally they are making inroads into Bitcoin. In Cyprus they are waking up to Bitcoin. I think that countries and regions in Africa will establish a competitive advantage over countries like the US and the UK that are mired in their current systems. Competitively they will shoot themselves in the head especially if the US tries to outlaw Bitcoin that would be a strategic and competitive blunder and that would open the way for all these other countries anywhere there is dial tone to compete with the US in a new way. Keiser believes wealthy Bitcoiners will soon hold immense power. People who own Bitcoin will one day be so wealthy that they will act as a powerful lobby group the rise of Bitcoin could create enough wealth for Bitcoin lobbyists to push out the dollar-based lobbyists. Of course Bitcoin based lobbyists would pass laws which are favourable to
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Bitcoin. Does he see the Bitcoin wealth and the Bitcoin lobbyists as having greater power than the current lobbyists we see? Yes because the dollar is collapsing. For many who have decided to invest in gold and silver, this may be something you dont want to hear about, or perhaps you think its just a fad. For Keiser, the monetary precious metals and Bitcoin can exist quite soundly alongside one another. So how does the relationship between them work? Theyre all hard currencies theyre all desirable, Bitcoin is free to trade; gold and silver are not [i.e. manipulation] I think that the rise of Bitcoin could free up gold and silver to trade freely because they would disempower the forces that are keeping gold and silver cheap.
Bitcoin to beat silvers market capitalization?

We should also take a look at Bitcoins market cap versus silver and golds. We were inspired to show this after chatting to Keiser who believes that one of the milestones Bitcoin will have to overcome, in order to be seen as a true threat to the US dollar and all who support it, will be its market capitalization overtaking silvers. Why? Well, once again it comes down to its role as a hard currency. My only recommendation is silver, gold and Bitcoin as they are legitimate and, of the three, the one with the market cap that is easily achievable would be silver. I dont think it makes sense to compare it to fiat currencies, because its not [a fiat currency], its real money. You have to look at the other real money, and theres only two that Im aware of. 8
At present, achieving silvers market cap at current Bitcoin supply looks nigh on impossible, the Bitcoin price would have to get to around $2,700 according to Keiser. Catching up to gold, is another matter entirely but lets take a look anyway:
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Where will it go?

We hold no illusions that financial peace has come about in the Eurozone, or that the Federal Reserve has turned off the printing presses. Given Bitcoins response so far to such an environment, we expect the virtual currency to thrive for some time. 9 Is it money? Money is what the people choose to be so. At present we suspect the influx of Bitcoiners is as a result of the media frenzy and its performance since the Cyprus bail-in, rather than a desire for a pure-play alternative currency. However there is a strong and growing contingent of investors who are looking for just that; a currency which is out of the reach of insolvent governments, misinformed central bankers and manipulation. Gold and silver have served this cause, repeatedly, for thousands of years and we expect them to continue to do so. Some precious metal investors do also worry about the powerful tools available to our national currency issuers, to manage gold and silver prices. But daily life has significantly developed since past hyperinflations and the re-emergence of sound monetary systems. We now live a large percentage of our life online; Bitcoin exists in this realm, and is showing a global monetary experiment in full force right now. Gold and silver remain safe-havens and value preservers. Central banks continue to stock up and people from all around the world will work hard to own them. As we see it, Bitcoin could well be part of the monetary future, but gold and silver are right alongside it.
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Bitcoin Gurus
Who do you think is the ultimate Bitcoin Guru? We think it comes down to two people!
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Max Keiser and Jon Matonis. Read our helpful guide to the two commentators. Find out about them, their twitter following, where you can find them and what they say on Bitcoin. See our infographic on the big screen Embed this infographic
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#bitcoin
In the last month Twitter chat surrounding Bitcoin has climbed rapidly in line with the price. Here we look at the influence of the #bitcoin hash tag on Twitter. Unsurprisingly, the most influential user at both the beginning and end of the month was Wikileaks who began accepting Bitcoin donations nearly two years ago. Throughout the month the top influencers have been @BitcoinNewsPro and @BitcoinEarner, despite their small followings.
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See our infographic on the big screen Embed this infographic
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Twitter showdown
As youve seen from our interview, and from his shows, Max Keiser is pretty vocal when it comes to Bitcoin and no more so than on Twitter. But how does he fare when pitched against @Bitcoininfo? This tweeter keeps their followers up to date on the latest Bitcoin developments, in a range of languages. Who do you think wins the showdown?
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See our infographic on the big screen Embed this infographic
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www.therealasset.co.uk Much of the gold chatter we find around the world appears to be over central bank purchases and their moves away from holding reserve currencies such as the dollar and the euro. This is an expression of the falling faith in devalued fiat sovereign currencies, and instead a move into something of value.
The whole world is talking about gold

Read any financial paper or website and theyll tell you that the gold-bubble is over. This opinion appears to be based solely on price and not much else. When you look at short-term price action on its own then perhaps you can understand how theyve reached this conclusion. Gold, across many countries, is down since the beginning of the year and many are expecting a weak 2nd quarter. The recent fall in the gold price seems to have been attributed to two things manipulation and investors turning to riskier investments as they regain optimism over the US and Euro recovery.
Bring that gold back!

Whilst we all heard about Germanys gold repatriation5, you might have missed the statement from the Ghanaian government expressing concerns over their own gold held abroad in foreign central banks. Romania is also looking for their gold back, 93 tonnes which were sent to Russia during WWII for 'safekeeping'6. The best kept repatriation secret is in Azerbaijan where they are in the process of repatriating 330kg per week from London and have plans to increase gold reserves to 30 tonnes in 20137. In countries where repatriation hasnt been mentioned politically, the electorate is certainly pushing for it; Switzerland, Romania, Australia and Holland to name just a few. In Holland, only 10% of gold reserves are held in Amsterdam. The Dutch CDA party has requested that Holland's gold supply be repatriated. Whilst, in a slightly worse situation in Australia, they hold 99.9%8 of gold reserves in the Bank of England. Despite the Queens visit to the Bank of England, questions of the
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Bubbles, central banks and gold

For us though, this isnt enough to predict the end of the gold bubble. As you can see from our infographic everywhere has an interest in gold, whether its the central banks who are stocking up on it or it is citizens who are buying up record amounts. We see little evidence of gold chatter declining, if anything its increasing - particularly when it comes to central banks. There are at least 974 countries that dont seem too bothered about the fall in the gold price. Instead, theyre looking at its value, which has held over thousands of years. Whatever continent and country you look to there is something to be said about gold and a clear respect for its long legacy as money and a store of value.
All Central bank data, private holdings and major developments in gold investment have been taken from the World Gold Council.
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Repatriation information taken from gata.org. Bullion Street (2012) Romania wants Gold treasure back from Russia http://www.bullionstreet.com/news/romania-wants-gold-treasure-back-from- russia/3047 7 Apa (2013) Azerbaijan to increase gold reserves by 2 times in 2013 http://en.apa.az/news_azerbaijan_to_increase_gold_reserves_by__186124.html 8 Hudson, Greg (2012), Reserve Bank of Australia Admits 99.9% of Australia's Gold Reserves are held at the Bank of England http://ausbullion.blogspot.com.au/2012/12/reserve-bank-of-australia-admits-999- of.html
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existence of Irelands gold (96% of reserves are held between there and the US) have recently come to the fore9.
www.therealasset.co.uk Russia, as most will have heard, are working hard to build up their gold reserves, official statistics show it was the largest gold buyer in the last decade, adding 570 tonnes. At investor level jewellery purchases, the most common form of private gold investment, have increased by 8.7% per annum since 2002 according to the World Gold Council. You can read more about our thoughts on Russias gold here. Not far away from Iraq, Lebanon steadfastly refuses to sell its gold reserves, despite its high debt-to-GDP ratio. The country holds the largest gold reserve in the Middle East and North Africa. Gold reserve sales with Cabinet or Parliament's approval are banned13.
South Americas gold

South America is particularly loud in this gold conversation. Venezuela of course famously repatriated 160 tonnes of gold last year and they nationalized all gold mining activities in 2011. Last year many were surprised to read Paraguay had increased their gold reserves from a few thousand ounces to over 8 tonnes in one year. And did you hear that Brazil increased their gold reserves by over 90% last year? In a similar strand of thought to their neighbours, Bolivia are also looking to stock up their central bank coffers with gold. In 2012, a law was passed which will see the central bank buy locally mined gold they are estimated to start at 2 tonnes per year10. Late last year Ecuador was reported to have demanded the repatriation of one third of their foreign gold holdings to support national growth11.
Individuals are stocking up too

Its not all about central banks and repatriation though, in some states of countries the use of gold and silver money is already up and running, we all know about Utah but what about the Malaysian states of Kelantan and Perak? Like in India and Vietnam where jewellery is seen as a store of wealth, these states are recognising the value in using gold and silver as money. As they use gold and silver coins as a potential replacement for the federally issued legal tender. Individuals should also not be ignored in the global conversation on gold. In Bahrain, a survey has shown that over 80% of people consider gold to be a safe investment option14. In Egypt, where the pound has fallen by 54%, a significant increase in gold jewellery demand was seen in Q4 last year.
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Americas history comes back to bite?

One central bank story which seemed to surprise many last year was Iraqs gold purchases. For the first time in years they bought gold, and not just in a small way: they quadrupled their reserves12. The ultimate insult to the US and their dollar no doubt.

Independent.ie (2013) UK bank sits on a pot of 235m in Irish gold http://www.independent.ie/irish-news/uk-bank-sits-on-a-pot-of-235m-in-irish-gold- 28957757.html#disqus_thread 10 Bullionstreet.com (2012), New gold law to boost Bolivia gold reserves http://www.bullionstreet.com/news/new-gold-law-to-boost-bolivia-gold- reserves/113 11 Zerohedge (2012) It Begins: Ecuador Demands Repatriation Of One Third Of Its Gold Holdings http://www.zerohedge.com/news/2012-10-31/it-begins-ecuador- demands-repatriation-one-third-its-gold-holdings 12 Goldcore (20120, Iraq Quadruples Gold Reserves In Two Months - First Time In Years http://www.zerohedge.com/news/2012-12-21/iraq-quadruples-gold- reserves-two-months-first-time-years
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The Daily Star Lebanon (2010) Lebanese gold reserves largest in MENA region, 15th worldwide http://www.dailystar.com.lb/Business/Lebanon/Feb/23/Lebanese-gold-reserves- largest-in-MENA-region-15th-worldwide.ashx#ixzz2Q3CpjobD (The Daily Star :: Lebanon News :: http://www.dailystar.com.lb) 14 24x7 News (20122), Over 80% in Bahrain see Gold as safe investment http://www.twentyfoursevennews.com/bahrain-news/over-80-in-bahrain-see-gold- as-safe-investment/
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Bahrains own neighbour, Qatar, has expressed interest in diversifying foreign assets away from the US dollar. They are rumoured to be increasing gold reserves at a faster rate than official data shows. Often concerns over government controls when it comes to gold ownership and purchasing are expressed by people looking to buy gold. In some countries this is a very real worry. In Argentina the purchase of certified 99.99% pure gold was banned in July 2012. As a result, demand for 99.96% gold is reported to be high as inflation and currency controls climb15. In India, households are believed to hold 20,000 tonnes of gold, not counting religious institutions and trusts. Despite government levies on gold and therefore increased prices, at the moment gold buying remains strong. 16
www.therealasset.co.uk Nearby in Syria, all custom duties and storage, insurance and administrative costs placed on gold imports have been removed in a desperate bid to get hard money into the country16. Gold savings, as encouraged by the government, are no more prevalent than in China, where official gold imports doubled in 2012. The central banks own gold reserves are suspected to be 2,0003,000 tonnes higher than official data. Between 2011-2012 China bought more than 2 tonnes from North Korea17.
Buying their own gold

China isnt the only country who buys up all of their mined gold, Kazakhstan plans to buy up the country's entire gold bullion output until at least 2014-15. But they still cant get a hold of the yellow stuff quick enough; they increased reserves for four months running in January in a bid to reduce their US dollar exposure18. Their neighbours, Kyrgyzstan, (officially the Kyrgyz Republic) have also been replacing US dollars with gold, up until as recently as February this year. Over to the east, in Mongolia, gold reserves are currently at their highest levels since 2008.
Governments encourage gold ownership

In other countries gold ownership is increasingly becoming easier as the government find new ways to help citizens invest in gold. In Mauritius the central bank began selling minted gold bars in 2012 to the public, in a bid to promote a savings culture in the country. In Turkey, the government banks have worked hard to encourage gold savings to come out of homes and into accounts. Many have referred to this as a form of gold confiscation. The World Gold Council estimates private gold holdings amount to 5,000 tonnes. Gold is not only used by citizens, the country has bypassed US sanctions on Iran by exchanging oil for gold.
Whispers in the West

In some countries, mainly in the West, the gold chatter is barely a whisper thanks to central banks showing little regard for safe havens. Canada now holds just 3 tonnes compared with 1,023 tons in 1965, its lowest amount in 79 years19. But its not all down to central banks; in France (where they really should be paying attention to their savings) they
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Economic Policy Journal (2013), Dissing Krugman: Argentina Turns To Gold As Inflation Tops 26% http://www.economicpolicyjournal.com/2013/03/dissing- krugman-argentina-turns-to-gold.html
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Wealth Wire (2012) Mad Gold Grab Begins in Syria http://www.wealthwire.com/news/metals/3683 17 IB Times Gold (2012) North Korea Sells Gold Reserves to China http://au.ibtimes.com/articles/388493/20120927/china-korea- gold.htm#.UWUiYpM3uHM 18 Bullion Street (2013) Kazakhstan to keep buying gold http://www.bullionstreet.com/news/kazakhstan-to-keep-buying-gold-till-2014- 15/1243 19 French Douglas (2013), The Bank of Canadas Gold Hoards http://mises.ca/posts/articles/the-bank-of-canadas-gold-hoards/
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saw the biggest percentage drop in gold investment in 2012 of all countries assessed by the World Gold Council.
www.therealasset.co.uk tonnes of gold lent to Drexel Bank in 199022.
Gold and the Eurozone

Speaking of troubled Eurozone countries, 52% of Italians believe the gold should be used as collateral - telling given the enormous amount of lending conducted outside of the banks. Given that a majority of the small loan market in Italy is P2P (individuals, families and groups), this is telling. Only 4% believe it should be sold completely20. Some countries dont have much choice as to where their gold goes, Cyprus, it was revealed this week21, have agreed to sell excess gold reserves in order to raise around 400 million to help finance it bailout. Aside from realising the precedent this will lead for future Eurozone bailouts, our first question was, who has excess gold? In Spain, the central bank has shown little regard for their gold reserves in the last decade or so, the gold vaults have seen the highest depletion of gold reserves of any other country between 2005-2010. Portugal has impressively high reserves given its size of population and economy, and theyre steadfastly protecting them despite the World Gold Councils suggestion the European Parliament push for Portugal to be allowed to offer gold as collateral for sovereign debt issuance. They have no doubt learnt some harsh lessons about gold after the central bank famously never recovered the 17
Protection from devaluation

As you can see from our gold bug survey infographic, the majority of those surveyed believe the Japanese Yen will be the most devalued currency in 2013. Late last year we saw Japanese pension funds had similar concerns and are now investing in gold to mitigate risks from increased QE.
So, is the gold conversation over?

As much as many Western governments would like gold to disappear and for faith in the US dollar and Euro to be restored, actions by both governments and their citizenry suggest that this wont be happening too soon. As the central banks in the West, with the support of international financial institutions, fight their flawed hands in the currency wars, the rest of the world is preparing for the aftermath and for better money.
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World Gold Council (2013) Italy looks to gold as an alternative to austerity http://www.gold.org/media/press_releases/archive/2013/03/italy_looks_to_gold_a s_an_alternative_to_austerity/ 21 Reuters (2013) Cyprus to sell around 400 mln euros worth of gold http://www.reuters.com/article/2013/04/10/cyprus-bailout-gold- idUSB5N0CP00G20130410
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Wealth Daily (2013) Portugal's Lost Gold http://www.wealthdaily.com/articles/gold-repatriation-portugal-currency-wars- portfolio/3949
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Who holds the gold?

When it comes to official gold reserves23 no-one comes close to the US who hold over 8,000 tonnes of gold. Their Canadian neighbours hardly make an appearance with 3 tonnes! In Europe it is of course Germany, France and Italy who dominate gold reserve holdings.
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All official reserve data taken from World Gold Council, March 2013.
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Who has the highest % gold reserves?

We can tell a lot more about a country when we look at their gold bullion reserves as a percentage of their total foreign reserves. The US still dominates the picture, but countries in South America, Eastern Europe and Asia will soon be giving them a run for their money.
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www.therealasset.co.uk The Utah Gold and Silver Depository allow individuals to deposit their bullion in exchange for a debit card for them to use when making payments. Arizona looks set to be the second state to recognize gold and silver as legal tender. The Bill SB 143925 defines legal tender as a mode of paying debts and taxes. Like the Utah Bill, any gold and silver coins issued by the US Mint will be seen as money, rather than property. Also like the Utah bill no-one is compelled to accept the coins in exchange for goods and services. Once the state has been victorious signing a new Act regarding legal tender laws, it isnt as easy as going out and spending your bullion. In Utah, the state government is still not prepared to take gold and silver as means of payment. Studies still need to be carried out to help determine how setting values for gold and silver coins used to pay taxes will be carried out. In Missouri26, gold and silver to be accepted by the state will be valued according to that days London PM Fix.
The US is moving to a gold standard

No State Shall make any Thing but Gold and Silver Coin a Tender in Payment of Debts 1787 US Constitution: Article I, Section 8. When President Nixon closed the gold window in 1971, ending Bretton Woods, it signalled the final disregard for the Founding Fathers US Constitution. Whilst many have long campaigned for a return to the gold standard, including Dr Ron Paul, a former Congressman and GOP presidential candidate, moves to use gold and silver as legal tender have hit the big time since the financial crisis. 20 There are now 20 US states that either have successfully passed bills to allow gold and silver to be used as legal tender, or have been exploring it as an option.
Constitutional rights
The ability of states to look into using gold and silver is down to the Constitution. Whilst it bans states from printing their own paper money or issuing their own currency, it does allow states to make "gold and silver Coin a Tender in Payment of Debts." The first to take the step into showing the Fed just what they thought of the institution was Utah. In 2011 Utahs Governor signed the Utah Sound Money Act24. The Act allows US Mint issued gold and silver coins to be used as payment in the state of Utah in exchange for any goods and services.
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Protest with your wealth

In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," Republican Representative Glen Bradley27
The name of Utahs Bill the Sound Money Act shows exactly what
25 26
Utah Sound Money (2013) http://utahsoundmoney.org/
Arizona State Legislature http://www.azleg.gov/legtext/51leg/1r/bills/sb1439p.pdf Missouri, House of Representatives, Bill tracking, http://www.house.mo.gov/billtracking/bills121/biltxt/commit/HB1637C.htm 27 CNN Money (2012), States seek currencies made of silver and gold, http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm
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motivations lay behind the law. Missouris own Sound Money Act 2012 tells exactly the same story. States and their citizens are becoming increasingly more concerned about the rising gold price compared to the US dollar which is being printed on a daily basis. Using gold and silver as legal tender is a protest against such bad mismanagement of the US dollar. In North Carolina28, Republican Representative Glen Bradley stated in a currency bill he introduced last year, "In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," 21 Like his contemporary in South Carolina, Republican Representative Mike Pitts in North Carolina argued for the use of any gold and silver coin to be used as legal tender (not just US Mint issued) as the state is facing "an economic crisis of severe magnitude."
www.therealasset.co.uk The Sound Dollar/Federal Reserve Modernization Act, introduced into Congress by Mike Lee, Republican U.S. Senator from Utah, and Rep. Kevin Brady, R-Texas30, requests the Federal Reserve to monitor major assets price, such as gold, and also value the dollar relative to gold. Whilst national bills such as the Free Competition Currency Act are great for bringing about awareness, there is little chance of such bill being passed. Strangely supporters of the Free Currency Competition act are conspicuous in their support for individual states taking on monetary reform. Really it is the actions of all of the states on an individual basis which will bring about the most change, and attention. As each single state successfully passes a legal tender bill, it will raise the chances of other states doing the same until it becomes a given that all states will wish to have the option of using gold and silver. For many this is less of a move to an alternate currency, and instead a protest move to show the Fed that they are concerned with their currency management. Rather than being allowed to spend in gold and silver, it is the removal of state capital gains taxes which means gold and silver are now seen as currencies which is the big step here. One must remember that federal capital gains tax must still be paid on those coins held in the depository, hence why this is likely to be a protest move.
National drive to sound money

Its not just at individual state levels where pushes for monetary reform are being made. The Free Competition Currency Act, originally proposed by Rep. Ron Paul in 2011, was introduced in January 2013 by Congressman Paul C. Broun29. The bill seeks to repeal legal tender laws and prohibit taxes on certain coins and bullion.

Wealth Wire (2012) South Carolina Approves Gold and Silver as Money http://www.wealthwire.com/news/metals/2967 29 Coinnews.net (2013), Ron Pauls Free Competition in Currency Act Reintroduced http://www.coinnews.net/2013/01/07/ron-pauls-free-competition-in-currency-act- reintroduced/
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Mineweb (2012) Missouri lawmakers debate U.S. gold, silver coins use as legal tender http://www.mineweb.com/mineweb/content/en/mineweb-gold- news?oid=151735&sn=Detail
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www.therealasset.co.uk the only way price stability can be restored here (indeed, in the world) is by making the dollar (and other national currencies) convertible into gold. Linking money to gold domestically and internationally will solve the problem of inflation, high interest rates, and budget deficits. They recommended no change unless "reasonable price stability and confidence in our currency are not restored in the years ahead." The rest, as they say, is history. The Fed reacted to the reports release with almost defensive behaviour which suggested they felt threatened by the Commissions existence. The spring following the reports release, a clear relationship between gold price rising and Fed tightening, and gold price falling and Fed loosening; it appears as though the Fed followed a gold price rule for a while. People at the Fed had begun to adhere to the market price of gold, and manage the dollar accordingly. The report and suggestion that the central bank may have their discretionary power taken from them, was enough to set them on the right path, for around the next two decades. Perhaps these moves may be enough to set them back on the right path. Although something tells me not just yet.
Fed retaliation? We are not prepared to rule out that an enlarged role for gold may emerge at some future date. If reasonable price stability and confidence in our currency are not restored in the years ahead, we believe that those who advocate an immediate return to gold will grow in numbers and political influence.
1982 Gold Commission Report
How will the Fed react to these moves from the 11 states? Quite possibly in the same way they did back in 1982. The Gold Commission presented President Reagan (who had requested the commission be organised) with their final report, "Role of Gold in the Domestic and International Monetary Systems. 22 Their recommendation31 was that no change was necessary at the moment but they stated in their concluding remarks The majority of us at this time favor essentially no change in the present role of gold. Yet, we are not prepared to rule out that an enlarged role for gold may emerge at some future date. If reasonable price stability and confidence in our currency are not restored in the years ahead, we believe that those who advocate an immediate return to gold will grow in numbers and political influence. If there is success in restoring price stability and confidence in our currency, tighter linkage of our monetary system to gold may well become supererogatory. The minority of us who regard gold as the only real money the world has ever known have placed our views on record:
Road to Roota (2007) Gold Standard Implementation Update http://www.roadtoroota.com/public/117.cfm
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Ditching the dollar for sound money
23
Read on for a quick glance at which states are getting involved in the race for sound money.
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The United Gold States of America where are they now?

Utah signed into law the Sound Money Act in 2011. In 2012 a law was passed which makes it easier to pay taxes and do business using gold and silver. Arizona Set to be the second state to recognize gold and silver as legal tender. Bill SB 1439 defines legal tender as a mode of paying debts and taxes. Any gold and silver coins issued by the US Mint will be seen as money, rather than property. Missouri passed the Sound Money Act in 2012. Like Utah, citizens are encouraged to deposit gold and silver coins into the state depository and then use a debit card in order to use the bullion as a medium of exchange. The debit cards debits from the value of the precious metal content as opposed to the face value of the coin. Directs the state to accept the gold and silver coins issued by the U.S. government for payment of debts. (Remains to be passed). South Carolina April 2012 Bill advancing which calls for a currency system that would allow people to use any kind of silver or gold coin i.e. Silver Eagle or a South African Krugerrand - based on weight and fineness. In this instance, lawmakers are going one step further than other states and are looking to replace the US dollar with gold and silver coins. Georgia - introduced the "Constitutional Tender Act" in 2011, which will require Georgians to pay their state taxes in gold and silver, as well as banks in Georgia to offer accounts denominated in gold and silver coins. The bill remains to be passed. Kansas - House Bill No. 2379 states gold and silver bullion coins issued by the federal government would be legal tender in Kansas. Sales of such coins would be exempt from sales tax. The bill remains to be passed. North Carolina Rep Glen Bradley introduced a bill that would establish a legislative commission to study his plan for a state currency. He is also drafting a second bill that would require state government to accept gold and silver coins as payment for taxes and fees. The bill remains to be passed. Virginia Bill calls for creation of a 10-member commission that would determine the need, means and schedule for establishing a metallic-based monetary unit. Republican Del. Robert Marshall wants to spend $20,000 on a study that could call for the state to return to a gold standard. In February 2013 the State House voted in agreement, the bill will now go to the Senate. Idaho Bill number 578 the bill states gold and silver are to be used as legal tender and recognised as money. Passed April 2012 . Maine Proposed law to make gold and silver legal tender, An Act to make gold and silver coins and bars legal tender. (Remains to be passed) New Hampshire - Proposed law to make gold and silver legal tender in January 2011 Washington - Proposed law to make gold and silver legal tender in January 2012
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Vermont - Proposed law to make gold and silver legal tender in January 2013 Minnesota - Proposed law to make gold and silver legal tender in May 2011 Tennessee - Proposed law to make gold and silver legal tender in February 2011 Iowa - Proposed law to make gold and silver legal tender cited in the news but cannot confirm. Oklahoma Proposed law to make gold and silver legal tender cited in the news but cannot confirm.
Bills which didnt get anywhere32 South Dakota Rejected House Bill 1100 (January 2013) which would have made U.S. Government-minted gold and silver coins legal tender. These would have been used to pay state taxes at their market value. Indiana - Senate Bill 99, which recognises U.S. issued gold and silver coins as legal tender, appears to be buried in the Indiana State Senate Committee on Tax and Fiscal Policy. Montana - Proposed law to make gold and silver legal tender rejected by 20 Republicans and 32 Democrats in March 2011. 25 Colorado - Senate Bill 12-137 rejected by Senate Democrats in March 2012.

Mineweb (2013) Navigating gold, silver legal tender isnt for the faint of heart http://www.mineweb.com/mineweb/content/en/mineweb-political-economy?oid=183211&sn=Detail and Comparegoldandsilverprices.org (2013) Gold & Silver Legal Tender Legislation Status by State http://www.comparegoldandsilverprices.com/gold-and-silver-legal-tender-status- by-state/
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The Roman Emperors of today

"The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost people know that inflation erodes the real value of the government's debt and, therefore, that it is in the interest of the government to create some inflation." Ben Bernanke, 2002. "This is the most serious financial crisis we've seen at least since the 1930s, if not ever," Sir Mervyn King. We have learnt many, many things from history all of which continue to benefit the human race every day. For instance in medicine and technology the leaps taken in our knowledge are huge. We can now treat illnesses which were once deadly and we can now communicate with people who once would have never known we ever existed. But some discoveries in history we do not learn from. As Bernanke shows us, one of those things is money and government. History shows us that driving down the value of a currency, by printing and debasing, can only end in tears and collapse. At school we are taught about historical ages and periods; the Bronze Age, the Middle Ages, the Roman Empire, the Ancient Egyptians, the Roaring Twenties and the Renaissance period. Today, we are purportedly living in the Post-Modern age. 26 The thing about ages is that they come to an end. Ours will too, what brings it to an end remains to be seen. But drawing parallels with the Roman Empire we might be able to get a hint. Joseph Tainter describes the Roman Empire as paradoxically one of the greatest successes and greatest failures of history. Sounds all too familiar to the age we live in now. There are many academic studies that argue over what caused the Roman Empire to collapse generally however it comes down to monetary, fiscal, political and military issues. [These] issues are all so intertwined because any state normally seeks to monopolize the supply of money within its own territory. Monetary policy therefore serves, even if it serves badly, the perceived needs of the rulers of the state. Professor Joseph Peden, 198433. In the current age, since 1971 we have seen monetary policy do exactly that. As Bernholz (2003)34 explains - governments during peacetime have an inflationary bias. There has never occurred a hyperinflation in history which was not caused by a huge budget deficit of the state - mainly caused by the borrowing of governments to fulfil election promises.

Mises.org (2012) Inflation and the fall of the Roman Empire (1984) mises.org/daily/3663 Bernholz. P. (2003). Inflation and Monetary Regimes: History, Economics and Political Relationships. Cheltenham: Edward Elgar.
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The US dollar index35 began in 1973, two years after all connection to gold was lost and Bretton Woods came to an end. Since then the debasement of the US dollar is clear for all to see. The denarius was originally introduced by Augustus at around 95% silver purity, but it was Nero who in 68AD began to debase it from 92% purity36.
27
The Denarius debasement between Nero and Antoninus Pius bears the greatest similarity to the US dollar index. However this period of debasement, the US dollar debasement we see now from Nixon to Obamas second term, is over a mere 40 years.

FRED Graph Observations (2013) Trade Weighted U.S. Dollar Index: Major Currencies (TWEXMMTH), Index March 1973=100 http://research.stlouisfed.org/fred2 36 All Roman coin content data from two sources: Tainter, J (1990) The Collapse of Complex Societies, Cambridge University Press | Tulane University (date unknown) Roman Currency Of The Principate http://www.tulane.edu/~august/handouts/601cprin.htm
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The denarius debasement didnt end there; successive Roman Emperors dragged out the currency debasement until the fourth century. If we look at the denarius debasement up until it was rarely used then we can see how long the Roman Emperors managed to prolong the painful debasement.
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The Antoninianus was introduced by Caracalla in 215. It contained 80% of the silver of two denarii. The coin was demonetized by Elagabalus in 219 AD, but later Pupienus and Balbinus (238 AD) named the Antoninianus as the principal silver denomination. As the graph shows this was reduced to a mere pith of silver content.
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In contrast to the denarii, the destruction of the antoninianus was a far more brutal process falling from a silver purity 49.5% under Pupienus & Balbinus in 238 to mere 5% silver content by the time of Aurelian (274 AD). Comparing the antoninianus to the US dollar index, as we did with the denarius earlier, we see the debasement of the US dollar is a far more extreme example of government abuse of monetary policy than the Emperors of Rome.
Why did this debasement begin?

For much the same reasons as we see money being created of thin air today. President Barack Obama, UK Prime Minister David Cameron and Japan Prime Minister Shinzo Abe have all been elected to run countries which are heading for insolvency. As we explained earlier, monetary policy is used to serve the states needs and to fulfil election promises. Newly elected governments are no better than their predecessors as shown in the previous dollar index graphs and in that below.
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In modern times the race to debase has been much quicker from government to government, currency to currency, than it ever was in Roman times. But that doesnt mean reasons for doing so were any different. Emperors upon accession were often faced with insolvent government, and rarely were able to accumulate reserves for emergencies. When extraordinary expenses arose the supply of coinage was frequently insufficient. To counter this problem, Nero began in 64 A.D. a policy that subsequent emperors found increasingly irresistible. He debased the silver denarius; raising the content of base metal to ten per centthis proved no solution. Joseph Tainter, 1990. Our period of debasement has only been going on for forty-years or so, the Romans managed to carry on the charade for centuries. The lengths they went to do so do not sound dissimilar to those of our own governments. By debasing currency, increasing taxes and imposing stringent regulations on the lives of individuals, the Empire was, for a time able to survive. It did so however by vastly increasing
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its own costliness and in doing so decreased the marginal return it could offer its population. These costs drained the peasantry so thoroughly that population could not recover from outbreaks of plague, producing lands were abandoned and the ability of the state to support itself deteriorated. Joseph Tainter, 1990. The devaluation of the denarius accelerated into the third and fourth centuries. Dramatic inflation in both centuries is something which cannot be denied. Today, the defence of many central bankers is that inflation has not been as dramatic as many predicted. However, inflation took time to kick during the 3rd century nearly 100 years after debasement began; around 238 AD; when the antoninianus was reintroduced. This debasement of 238 was unique because for the first time in Roman history it was done without defensible monetary policy. Wassink 1991 (cited, Bernholz, 2003) According to Bernholz (2003) from 238 A.D inflation slowly accelerated since first the good money was driven out of circulation, so that the total money supply rose only scarcely in the beginning. In modern times there is no good money to be driven out of circulation, and there is no defensible monetary policy. It is all bad. This suggests high inflation, whether real or that recognised by the government, is not far around the corner. Bernholzs data shows inflation was 3.65% per annum on average between 250 - 293, it then rose to 22.28% from 293-301. Bernholz agrees that this is impressive inflation given the metallic monetary regime, but is dwarfed in comparison with what is possible under a discretionary paper money regime. There are conflicting views as to whether it is confidence or debasement which causes inflation. Lendon (1990, cited Bernholz (2003) believes loss of confidence in a currency results in inflation: So long as the coins circulated at a [nominal] value higher than that of the bullion they contained, their value rested upon public confidence, and there was always the danger or panic, whether set off by the death of the reigning emperor, retariffing the coins or any number of unrecoverable causes. Confidence once destroyed cannot readily be restored, and each blow to the coins esteem would add to the public suspicion, driving the value of the coins ever down, and the prices of commodities even higher. However Bernholz (2003) believes an increase in price is principally down to the debasement of a currency, his research finds no evidence of pessimistic expectations, in a paper currency, causing inflationary episodes. Whenever one is drawn into a discussion over a return to sound money, those for the motion are accused of dragging the economy back 100 years. In truth, the debasement we see today has its roots even further than the gold standard of the late 19th and 20th centuries we can trace it back to Ancient Roman times. We live, by a long way, in the most developed of all ages, but so did the Romans and look where debasement left them.
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How much did you spend on gold in 2012?

Using World Gold Council data we find that in 2012 the average worldwide official spend on gold was 1.6% of individuals income. However, our research shows that the disparities between how much persons from individual countries allocate to buy gold, as a percentage of their income37, are substantial. So often we hear people say I wish I could buy gold, but its too expensive. Such people are usually from the some of the worlds wealthiest countries but over in poorer countries we see significant percentages of income being spent on gold. In wealthy, Western countries we find less than 1% of annual individual income being spent on gold, in contrast Indians spent over 9% of their income on the yellow metal, more than double that of any other country. Our research also finds that, despite government efforts, gold buying has so far had little impact. This was most prevalent in Vietnam where, despite efforts to curb demand on gold, the Vietnamese spent one of the highest amounts of gold proportionate to income (4.5%). Despite high levels of QE and fiscal instability, Western countries spent the lowest percentage of income on gold. In the US, they allocate twenty times less income to gold than those in Thailand do. Meanwhile in Europe, Switzerland was the only country to spend more than 1% of their income on gold. The UK and France spent less than 0.1% of their incomes on gold. No countries in the Eurozone spent more than 0.4% of their income on gold, and Germans spent the highest percentage in the Eurozone. In contrast, France spent the lowest amount on gold, proportionate to their income, out of all countries studied. As expected, gold investment in the West is still an exceptionally small market when compared to other asset and equity markets. Those in poorer countries are now benefitting from what Eric Sprott calls the great wealth redistribution. Investing in gold since 2000 has allowed many to prosper, an unlikely situation for the majority of investors in Western countries.
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data taken from average income data from a variety of sources, available upon request
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Who spent all their money on gold?

When it comes to percentage income spent on gold few will be surprised to see India shining. Read on for a more in-depth look at India and Asias gold buying.
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Europeans spend less than 1% on gold

Unsurprisingly, Europeans spent an exceptionally low percentage on gold compared to their Asian counterparts. Switzerland was the only country to spend over 1% of their income on gold.
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Asias gold rush

Indians spent 9% of their income on gold last year, but their neighbours didnt do too badly either. Vietnam spent 4.5% of their incomes on gold in 2012.
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www.therealasset.co.uk States, US$26.8 billion)40. This was echoed in earlier years when trade with other nations was declining against the backdrop of the financial crisis. Brazil-India trade has surprised many commentators, increasing by 15% in 2012 to USD$10.6bn, just a decade before it was USD$1.2bn. Brazils exports to Russia are also impressive, growing from $22millionin 1992, to $4bn in 2010. It is a similar story in India, where China is also the biggest importer of Indian exports. The countries have agreed to work to substantially increase bilateral trade, working to a target of $100 billion by 2015. As we have written about in the past, the key trade between Russia and China is energy. In March 2013, Chinese President Xi Jinping signed various energy deals during a visit to Moscow. Rumours that energy was being paid for in gold, particularly grabbed the attention of those in gold investment.
Gold BRICS
Earlier this month the BRICS nations; Brazil, Russia, India, China and South Africa, announced their decision to create a single bank and within it a single currency. A recent United Nations report stated38 "by 2020, the combined economic output of three leading developing countries alone - Brazil, China and India - will surpass the aggregate production of Canada, France, Germany, Italy, the UK and the United States". These large, and growing, economies represent 43% of the worlds population. Putting South Africa to one side for a moment, in the last ten years trade between the BRICs and the outside world, namely North America, Europe and Japan has grown by 300% to more than USD$2 trillion. But trade amongst themselves is set to increase further, in the last decade trade it has increased by 1,000% to just under $320 billion.39 China is the popular kid in the BRICS playground, Brazil who is the most active of the South American nations in trying to remove itself from the USs commercial, economic, and political grasp, has embraced its relationship with China in ways which dwarf that of the other inter-BRICS relationships. In 2012, China was the single largest export nation for Brazil, with exports totalling US$41.2 billion, (compared to the United
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Moves towards a currency union

Jim ONeill, father of the BRIC term, comments that: "Three of the four [BRIC] countries have a BRIC counterpart as one of their top trading partners". Many analysts believe that current trends are set to continue, setting up inter-BRIC trade to rival trade with developed economies in terms of absolute size. Just from the above it is clear that the BRICS power will soon be, if not so already, a force to be reckoned with. Trade amongst BRICS members is currently growing at 28% per annum and presently stands at $230 billion a year. Following their 5th summit, in March 2013, the BRICS nations decided to cut their foreign reserves in euro. This move
40

BBC (2013) Brics nations meet to cement relationships http://www.bbc.co.uk/news/business-21923874 39 Global Finance (2012) Special Report: BRICs, Dan Keeler http://www.gfmag.com/archives/147- february-2012/11604-special-report- brics.html#axzz2PrSp85cp
38
As above
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not only shows a lack of confidence in one of the most dominant reserve currencies, but also a show of independence and unity against Western powers. We suspect it will only be a matter of time before US dollars will receive similar treatment. Already the countries have signed an agreement to facilitate banks to lend credit one another in local currencies, a move made in order to reduce dependency on the US dollar. Further to these currency moves and the formation of a new bank, it is not unreasonable to expect a single currency to arise out of these latest developments.
www.therealasset.co.uk had not added to its reserves since 2009 when they were reported to be 1,054 tonnes.42 However many believe this to be impossible given their production and gold import capacity. Of all the BRIC nations, China is now competing with India for the worlds largest gold importer. Discounting China and Russias mining capacity, Chinas imports last year accounted for 25% of total world mine supply.
We suggested that Chinas gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years. State
Council advisor Ji (2009) In November 2012, the China Securities Journal featured a commentary from Goa Wei, a key government official. He wrote China needs to add to its gold reserves to ensure national economic and financial safety, promote Yuan globalization and as a hedge against foreign-reserve risks. He believes the current gold reserves are too small.43 The World Gold Council recommend that an optimal reserve portfolio is 9% gold something which China is most likely aiming for. Russia has relatively added more gold to its reserves than any other central bank in the last decade. As of March 2013, it has more than 31.4 million troy ounces. Thats according to official figures. We of course expect Russias numbers to be nothing compared to whats really going on in China.
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Moving from the USD into gold

Aware that the US dollar is likely to get into a difficult position, central banks in Brazil, Russia and China are working to protect their reserves with gold. Those countries that have gold to back their currencies will not only be in a better position should the dollar get into trouble but are choosing gold over dollars to make up their reserves. Recent data41 has shown that these three countries have been working exceptionally hard to not only stock up on gold but to move away from the dollar. Since June 2011, China has been working to reduce its holdings of US Treasuries. But when it comes to gold, the PBOC has demonstrated its significant role in the formation of the financial market system. China produces approximately 400 tonnes of gold a year and imports 500600 tonnes. A recent statement from Yi Gang, Vice Governor of the Peoples Bank of China (PBOC), implied that the bank
41
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World Gold Council, gold.org
Mineweb (2013) Massive increase in Chinese gold reserves unlikely PBOC http://www.mineweb.com/mineweb/content/en/ mineweb-gold-news?oid=182144&sn=Detail 43 The Real Asset Company (2012) Chinas Golden Plan http://therealasset.co.uk/chinas-golden- plan/
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Since 2006 the Russian central-bank has been slowly accumulating gold rublecost averaging over the last seven years. The more gold a country has, Evgeny Fedorov, a Russian politician, told Bloomberg, the more sovereignty it will have if theres a cataclysm with the dollar, the euro, the pound or any other reserve currency.44 According to official figures Russia has bought 25% more gold than China. Meanwhile Brazil has a finance minister who has been particularly vocal over the on-going devaluation of the US Dollar; Guido Mantega is credited with coining the term currency wars in response to wealthy nations devaluing currencies in order to boost exports namely the US dollar. Last year the country doubled its gold reserves, no doubt in response to not only the dollar devaluation but also the buying patterns of their biggest trading partners China and Russia who are stocking up on gold. Meanwhile in India, they may not be making headlines with central bank buying, but they certainly have over 9% of their reserves allocated to gold whilst their citizens are suspected to have some 20,000 tonnes held privately45.
A BRICS gold-dollar?
Given the clear moves the BRICS are making to stock up their foreign reserves with gold, its not impossible to foresee a BRICS single currency backed by gold. For the sake of data released from each of the BRICS countries, we compare their gold reserves and money supply using the M2 measure. M2 money supply is classified slightly differently across economies; generally it is used as a general measure to quantify the amount of money in circulation in a country. M2 in USD46 Brazil Russia India China South Africa 863882336361.800 000 862549230350.000 000 329724032610.000 000 15993644100.0000 00 204737322596.000 000 Troy oz Au47 216053 0 311862 24 179304 71 338868 87 402205 9
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In total the BRICS nations, officially, hold 89,186,171.49 troy ounces of gold. Should they decide to back their money supply with gold it would give the following gold price depending on the percentage backing. Percentage backing 20% 40% 100% Gold (USD) $5,105 $10,211 $25,530 price

Bloomberg (2013), Putin Turns Black Gold to Bullion as Russia Outbuys World http://www.bloomberg.com/news/2013-02- 10/putin-turns-black-gold-into-bullion-as-russia- out-buys-world.html 45 Max Keiser (2012), Indian households have piled up as much as 20,000 tonnes of gold, worth $1.16 trillion, an historic high http://maxkeiser.com/2012/11/29/indian- households-have-piled-up-as-much-as-20000- tonnes-of-gold-worth-1-16-trillion-an-historic- high/
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Should the BRICS nations go all out and back their money 100% with their gold, then we would see a $25,530 internal
46
Trading Economics (2013) Money Supply http://www.tradingeconomics.com/country- list/money-supply-m2 47 World Gold Council (2013)
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gold price. We suspect this would be unlikely, especially as even the Classical Gold Standard typically operated on a 25% backing. If the BRICS were to decide on a similar monetary standard for their new international reserve currency, we would be looking at a gold price of $6,382.50. Using our gold calculators this is over $3,000 dollars less than if the US were to back their own money supply at the same percentage backing. When anyone tells you that the gold price could be at least four-times what is now, and then it always sounds a little over the top. But really, how impossible is it? We have five countries who are leading the global economy. The most problematic thing slowing them down is US dollar dominance. Theyre dealing with this by reducing dollar holdings and buying gold. What else could they possibly have planned?
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www.therealasset.co.uk Currency Wars is a personal favourite of ours here at The Real Asset Company, so when it came to our first Real Asset Report we knew who to turn to for an interview. In a no holds-barred interview, Mr Rickards speaks to us about why Cyprus wasnt the tipping point, who will win the currency wars and how he allocates his personal wealth.
The only countries who win currency wars are those who don't fight them
Bitcoin has increased to over $200 since the beginning of the year. Much of this, we believe is down to concerns over Cyprus. Do you think the rise of Bitcoin in inevitable and do you think this, or other distributed virtual money could play in the global currency war? (Thanks to @tomjdalton for the question) The rise in Bitcoin usage may not be inevitable but it is not surprising. Bitcoin and systems like it would not be emerging if people did not have serious concerns about the monetary system as it currently exists. Throughout history, money is whatever people say it is. Gold has always served the purpose, but so have feathers, shells, paper, knots and other media at various times. Bitcoin is just the latest entrant into the long history of money. In general, new forms of money arise when the old forms suffer from a lack of trust or undue scarcity. Wooden nickels were used as currency in many localities in the U.S. in the 1930's due to the extreme shortage of legal tender. Bitcoins do reflect the convergence of new technology and loss of trust in traditional money. They will not play a role in the currency wars because currency wars are fought between countries using central bank money and no central bank has yet adopted Bitcoin as either money or a reserve asset.
39 James Rickards is the author of the international bestseller, Currency Wars: The Making of the Next Global Crisis and a Partner in Tangent Capital Partners, a merchant bank based in New York. He has been interviewed in The Wall Street Journal and has appeared on CNBC, Bloomberg, Fox, CNN, BBC and NPR and is an Op-Ed contributor to the Financial Times, New York Times and Washington Post. Mr Rickards is a visiting lecturer at Johns Hopkins University and the School of Advanced International Studies. He is an advisor on capital markets to the Director of National Intelligence and the Office of the Secretary of Defense.
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Weve asked our readers which currency they think will be the most debased in 2013. At the moment the majority believe that it will be the Japanese Yen, but the Euro, British pound and US dollar are competing for second. Which do you think it will be? Do you think the reasons for Japans QE are more valid than those of other central banks? Among the major reserve currencies, the Yen is the most vulnerable to devaluation, although the British pound will also come under pressure and is more likely to be the object of a currency crisis than any other currency. The Euro is strong and getting stronger because Europe is making the necessary structural adjustments in unit labor costs and Eurozone harmonization of deposit insurance, fiscal discipline and financial regulation to move to an investment and export driven model and avoid the temptations of currency wars, inflation and money illusion. There is strong pressure from the Fed to devalue the dollar, but that pressure is being negated by several forces that tend to make the dollar stronger. These forces include China's return to a soft dollar peg, Japanese devaluation, UK devaluation and the flight to quality over European concerns. Since the Fed wants a cheaper dollar and is not getting it, expect the Fed to try harder through continued QE. Japanese, UK and US QE are all forms of market manipulation rather than true growth oriented policies. QE acts to create nominal growth rather than real growth. Nominal growth is desired by policy makers because debt is nominal and the inflation that accompanies nominal growth reduces the real value of debt and robs savers to help government and banks. The Japanese QE program is no more justified than the money manipulations taking place in the US and UK.
In this issue we discuss the US states that are working to change legal tender laws and use gold and silver as money, and of course the Texas move to bring gold back to the state. We also discuss Russia and Chinas gold hoarding. Do you think this growing demand for change from the American people will wake the Feds up to what theyre doing to the dollar, or do you think they will be shocked into realising when the gold hoarding nations announce how much gold they really have? The Fed is oblivious to the damage they are causing because they misapprehend the statistical properties of risk and are using models that bear little or no relation to reality. The Fed will not understand the importance of gold to the monetary system until the super-spike in gold prices commences and confidence in paper money begins to decline very quickly. This period will not arrive for at least a year, perhaps two. When the collapse accelerates, it will resemble the period from 1978 to 1981 when the dollar was practically destroyed. Right now we are in a period more like 1975-1977 when people were more concerned about growth than they were about inflation. But the inflation was right around the corner and when it arrived it came hard and fast. Russia is quite transparent about its gold purchases. China is much less transparent, but it is widely known that they are acquiring it as fast as they can. The issue is not that the Fed does not know Russia and China are acquiring gold, but rather that they are intellectually ill-equipped to understand the importance of it. What will shock them is not the acquisition program but the gold price take-off, which is simply the reciprocal of the dollar collapse. These
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things will happen quickly but not quite yet.
www.therealasset.co.uk Who is winning the currency war? Who will win in the end? You differentiate between financial and currency warfare, how quickly do you think it will escalate to financial warfare? The only countries who win currency wars are those who don't fight them. These are countries that maintain a strong currency and do not take artificial steps such as cutting rates and QE to cheapen their currencies. The losers are all of the countries that fight the currency wars by manipulating their currencies. Things can change as new governments emerge and new central bank policies are adopted. So far, the winners are Australia, New Zealand, Canada, Singapore and the Euro. The losers are the U.S., the UK, Japan and the BRICS. In the end, the big winner will be global inflation which will arrive quickly and spin out of control hurting everyone except banks, speculators and sovereign debtors.
In the last year you have predicted gold will reach $7,000 in the coming years. Given this, what percentage diversification do you recommend should be put into gold and/or silver? What do you invest your wealth in? (Thanks to @cetrhamcr3 for that question) I recommend an allocation to gold from investable assets of 10% for the conservative investor and 20% for the more aggressive investor. Given my forecast for gold, I am frequently asked why I do not recommend higher allocations. There are several reasons for this. The first is that if my forecast is correct, investors will see returns of 400% in gold and those profits will go a long way to protecting against losses in the rest of the portfolio. Also, there could be changes in policy that will moderate the rise in gold prices; I don't expect these changes but they are possible and must be considered. This is where diversification is useful because it allows some protection against all scenarios including deflation. There are other asset classes which will preserve wealth in the same way as gold and also do well if deflation predominates. These asset classes are land, fine art and cash. Along these lines, my personal allocation is 15% precious metals, 15% fine art, 30% land, 20% private equity (companies that I own or am associated with) and 20% cash.
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Do you think Cyprus was the tipping point? Not just for the Euro but also in terms of trust in the banking system? Or do you think it will take further bailouts/bailins and capital controls to wake people up to the state of the Euro? Do you think Europe will end the Euro? Cyprus was a significant event, but not the tipping point. The problem with tipping points is that you probably never know what they are until it's too late. The state of the Euro is fine, it is actually strong and getting stronger. The problem many analysts have with the Euro is that they confuse the banks, the economy and the currency. European banks are weak and the economy is in recession, but the currency is strong. These are three different things and analysts, especially in
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the U.S. and UK, tend to lump them together. They need to separated and analyzed separately. When Lehman Brothers defaulted on billions of dollars in bonds, it was the end of the bonds but not the end of the dollar. The dollar currency got stronger even as the dollar economy got weaker. This is a point analysts of the Euro miss.
www.therealasset.co.uk Europe and America when it comes to their currency? The dollar and the Euro are very similar in the designs of their central banks. The big difference is the Fed has a "dual mandate" of employment and price stability and the European Central Bank has a single mandate of price stability. The other difference is that the U.S. has unified fiscal policy and bank regulation whereas Europe does not.
Twitter asks Jim

AsifAmeer @AsifAmeer_AP asks Why foreign central banks do not demand their OWN issued currencies to settle their Export bills? Trading partners generally do not have the exporter's currency available because there is no large pool of investible assets in most currencies.
gpross @gpross2012 asks can u ask him when he believes the collapse of us dollar will happen ...some speculation will be 3-4 years time This is impossible to predict in a rigorous way, but the 3 to 5 year time frame is a reasonable first approximation.
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Blivy @BBlivy asks Q if windfall tax employed where is safety element? Exchange out of country? i.e.: buy @$2k revalued to $5k 90% tax gains $300 profit but gold is now $5k #fleeced! Where is safety in ownership? Black markets maybe? The trick is to ride the gold wave higher and then pivot from gold to land before the windfall profit tax becomes law.
Liberty News @LbrtyNews asks Why is the Federal Reserve so afraid of Congress passing Audit the Fed bills (HR 24 and S 209)? The Fed's balance sheet is OK and the gold is where it is supposed to be. The Fed does not like the audit because it would reveal hidden liquidity rescues to Europe and possible hidden gold manipulations at the BIS.
Antony Seville @asev71 asks have any mainstream financial institutions changed the way they model risk in light of the crisis? No. They have revised their models, but the models were defective in the first place and remain defective, so no amount of modification will help them to get things right.
Bart Peters @bp1990 asks What are the major differences between
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View our poll infographic here
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Final words
Thank you for reading our first issue of The Real Asset Report.
Do you think the BRICS are looking to create a gold-backed currency? Do you agree with Jim Rickards that the Euro is a strong currency? Do you think Bitcoin will displace or compliment gold and silver
in the next monetary system?
44 Wed love to hear your thoughts and feedback on any of the topics discussed here.
Email the Research Desk: researchdesk@therealasset.co.uk Follow on: Twitter Like us on: Facebook Circle us on: Google+ Connect on: LinkedIn
If youre interested in using any of our infographics, please visit our infographics section.
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The Real Asset Report - The Most Comprehensive Look at All Things Gold, Silver, Bitcoin and Money.

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www.therealasset.co.

11th April 2013

Brought to you by Jan Skoyles and The Research Desk.

Welcome to the first issue of The Real Asset Report

In The Real Asset Report we have.

Where Bitcoin Mania began and where its heading.

Bitcointhe money of the future

The Whole World is talking about gold

The US is moving to a gold standard

Gold BRICS Interview with Jim Rickards

Do the gold bugs know something you dont? Final words

Bitcoin the money of the future?

Trust ina faceless currency

The historical economics of Bitcoin

Where did it come from?

Bitcoin to beat silvers market capitalization?

Where will it go?

See our infographic on the big screen Embed this infographic

See our infographic on the big screen Embed this infographic

The whole world is talking about gold

Bring that gold back!

Bubbles, central banks and gold

South Americas gold

Individuals are stocking up too

Americas history comes back to bite?

Buying their own gold

Governments encourage gold ownership

Whispers in the West

www.therealasset.co.uk tonnes of gold lent to Drexel Bank in 199022.

Gold and the Eurozone

Protection from devaluation

So, is the gold conversation over?

Wealth Daily (2013) Portugal's Lost Gold http://www.wealthdaily.com/articles/gold-repatriation-portugal-currency-wars- portfolio/3949

Who holds the gold?

Who has the highest % gold reserves?

The US is moving to a gold standard

Protest with your wealth

Utah Sound Money (2013) http://utahsoundmoney.org/

National drive to sound money

Ditching the dollar for sound money

The United Gold States of America where are they now?

The Roman Emperors of today

Why did this debasement begin?

How much did you spend on gold in 2012?

Who spent all their money on gold?

Europeans spend less than 1% on gold

Asias gold rush

Moves towards a currency union

Moving from the USD into gold

World Gold Council, gold.org

things will happen quickly but not quite yet.

Twitter asks Jim

View our poll infographic here

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