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DINARESGURUS.BLOGSPOT.COM_________________ _______

Tuesday, January 20, 2015

MARKZ & MILLIONDAY TIDBITS, 20 JAN

MarkZ Tweet@originalmarkz: We have them running. Look for outlandish personal attacks on crazy claims. Many are being asked to duck for physical safety.

1-20-15 Millionday: THE OIL MINISTER IS SAYING THAT IRAQ'S OIL PRODUCTION WILL MEET HISTORIC NUMBERS -- HOWEVER THE PRICE BEING LOW IS ONLY EXPECTED TO BE FOR HALF THE YEAR PER SOME REPORTS. SO...THEY ARE GOING TO UP PRODUCTION AND WILL BE DOING VERY WELL BY THE END OF THE YEAR -- THEY MUST BE EXPECTING SUCCESS ECONOMICALLY. 

AKM IMRAN UPDATE, 20 JAN

AKM IMRAN :The plan is to reduce the money supply gradually as the value rises, so that by the time the dinar gets to $1 the total money supply will be 40 billion dinars, worth the same $40 billion that it is now. There will just be less money in the system and, by then, all of the large three zero notes will have been sucked into banks, then to the CBI, where they will be destroyed (effectively lowering the money supply in terms of dinars, not in terms of overall value).

 I would add this additional note: as the value of the dinar rises and the money supply falls, the total value of the money supply remains relatively constant (as I just noted). This means that at a dinar worth $1 the Iraqi currency would STILL be the strongest in the world, since it would still be backed 150% by the reserves ($60 billion in reserves to back 40 billion in dinars, the new lower money supply, but still worth $40 billion.

MNT. GOAT UPDATE, 20 JAN

1-20-15 Mnt Goat: Hi Everyone. I know I must sound like a broken record at times but this is the news until the USA decides to complete the rollout process for Iraq and let their currency become part of the global financial arena once again - meaning to let it finally go international.

Do not get discouraged when you read this news letter today. It is not really all as bad as it sounds and there is still hope that this RV decision can be resolved by the end of January (of this year….lol…..).

The USA has very big plans for this region of the world but has to learn to stop medaling so much in the affairs of Iraq as they must let de Kinder eventually learn to stand on its own two feet.

Sure de Kinder may fall and may need assistance at times (Maliki administration) but this is the process of learning. But these are the infancy years. We all remember de Kinder and their very first walk. This was an amazing time to see de Kinder now and remember only a few years ago when he/she was wrapped in a blanket held in our arms for survival, but now he/she is standing on their own for the very first time.

Sometimes you just have to trust and let go of de Kinder and watch what happens. Sure it would be nice to keep de Kinder small and cuddly their whole life long but that is not what mothers and dads are for. They are supposed to nurture and allow de Kinder to grow to their full potential, as least while they are under their supervision. There is time for cuddling and time for letting go. Then one day they meet their own loved one and have de Kinder of their own. The process starts all over again.

You see the rest of the Middle East will never fully see or understand the democracy of Iraq to bloom to its full potential thus be that example of shining democracy in their culture. How can they wish to make a new democracy in Syria if they can’t even finish what they started in Iraq? How can these new “babies” of democracy then be born in other countries of the Middle East.

Do you understand what I am saying?

One has to ask - Is the USA afraid of losing control of Iraq? Are they now seeing that in letting go of this final “carrot” dangling over Iraq will in fact move this country ahead quickly and ignore any further influence from the USA the control they don’t want to give up.

I have to tell you that you may be right since if you treated Iraq more justly and with dignity they might have more respect for the USA and its policies. What we are witnessing now is destructive and non-conductive to future ties with Iraq in any sense of the word “partnership”. I will explain all this in my news letter today as it is very relevant to the RV process.

I hope everyone also read my last news letters dated 01/16 since this is a continuation of this ongoing saga.

Today’s NewsToday is Tuesday Jan 20th   and we heard over the weekend that the session to finalize the 2015 budget by taking the “final vote” was postponed till Weds Jan 20th.  That is today. We had hoped to hear some good news by now.

Then just yesterday we hear that it was postponed once again till next week sometime and no session date was given. So what is happening here?  Even the Iraqi news is very vague as to why it was postponed. You have to read between the lines of the articles a bit but it becomes obvious when you have read literally thousands of Iraqi news articles over the past years, as I have.

These two recent postponements have solidified conclusively in my mind that Iraq is stalling in completing their budget for a reason. Any reason they give the public is no longer a legitimate reason. You see it is just a game.  It is contrived and used to tell the citizens of Iraq something other than that the USA is meddling in their affairs by holding back the RV.

Could it be Iraq can’t RV without the USA’s permission?

What is this reason then for the USA to keep stalling it?

I tried to explain to everyone in the past the Iraqi’s budget has been completed and ratified already by their president nearly a month ago now. This is fact not rumor. They even had a news cast on it back them and it was quickly hushed up and the article deleted from the news rooms. This is because the USA told them they could RV and then they pulled the plug on it again.

Remember there are always two sides to every story. Let’s explore each side.

One story is from Iraq – From their viewpoint the budget has to be stalled from implementation because they say they have to work on resolving their deficits in the budget due to a sudden reduction in future oil revenues.

In actuality they want to coincide this event with the revaluation event. This is why they are holding up the final phase of announcing the budget as completed. This last round of postponements on the final vote convinces me of this even more. Many times already they have been told the USA supported the revaluation and then the USA backs down again on its support.

What do they then keep telling their people? It is getting ridiculous. When a delegation recently visited the USA on this topic Iraq was told then to stop telling their citizens anything. The USA recommendation was just to be quit on the topic of economic reforms. Iraq of course did not agree with this tactic and could not do this since promises have been made and it is already in the minds of the citizens that reform completion is just around the corner.  Basically it is too late.

Then there is the USA’s story -  In prior conversations with my contacts in the USA they had told me (they were told to tell me this by their managers and did not entirely believe it) that the holdup on the part of the USA was due to Iraq not completing requirements as agreed to as scheduled. This seemed very plausible and so I passed this news on to you. Security was a major concern both in the physical on the ground sense and the political sense. I was told it only seemed like the USA was holding up the RV but in fact it was still Iraq by the very nature of where the country stood in both of these areas of concern.

Do I still believe this now? Absolutely NOT!  Why!

My contacts were telling me the same reasons over and over again for over a month and a half that it was Iraq who was holding up their own RV. Then all of a sudden last week they reversed and said Iraq completed all of their requirements and they are now ready for the RV.

But still we don’t see the RV. I know for a fact they planned to push it out late last week. Once again the USA stopped it.

Now what is the holdup?

In light of these past facts a reasonable person has to conclude that it is the USA holding up the revaluation process since they themselves have stated just last week that all Iraq requirements are now met. I believe this to be true.

My take on all this-

This game has shifted to pure meddling on the part of the USA in Iraq’s internal affairs at this point they keep stalling this RV any longer. Couple this with what recently happened with the Swiss franc over the weekend and it is now pure and unequivocally evident  that the USA is using the Iraq currency revaluation process for political clout with the rest of the global community to strong arm their opponents to back down on the IMF financial reforms.

Remember just last week a statement came out again from the IMF Managing Director Christine Lagarde ( I paraphrase) stating that the USA has not yet adopted the needed reforms from their legislative body (meaning approval by a vote in Congress). She also stated that the USA should get with the program or step aside. It is time to take action. I believe this was a warning of things to come…example of what happened in Switzerland?  What can we expect next? Is the IMF showing it clout now? Will they find a way to work around the USA?

As always I keep digging and asking questions like WHY? Why the resistance on the part of the USA to allow Iraq not to have  their currency back?

Somehow I have learned over these last 10 years of following this process, (especially in these last 4 years),  that nothing is as it appears. I have tried to explain to you about the economic wars now raging on and how Russia must be once again put in its place with Putin either eventually caving in and pulling out of Ukraine and getting back into the mood of cooperating with the USA once again. This is all good but why hold up the Iraq dinar as a consequence?

You see after the fall of the iron current (communism) and the breakup of the Soviet Union, the relations between the two countries were better than even since prior to WWII when Russia was allied with the USA and Great Britain to fight the Nazis.

At this time the USA even supplied much of the capital for Russia to get standing back on its feet once again as long as it shared the same democratic capitalism ideals with the USA. The IMF supported them too and under the recommendations of the USA, the new Russia soon became a member of the WTO.

Why did the USA work so much in bringing Russia out of isolation? What were these new ideals? They were supporting the USA in its future endeavors to bring the rest of the world around to capitalistic free markets dominated by the yankee dollar (or referred to as the petro-dollar). As long as Russia played along they would be in good standing with the USA and could gain a great deal of the wealth.

Well….Russia got greedy and wanted more than the USA offered. Putin realized just the extent of the wealth that could be derived from the vast future capitalistic markets yet to be exploited in the former Soviet Block countries. Only Putin does not know how to exploit and in reality needs the helping hand of the USA.

But Putin is a former KGB leader not a capitalist by heart and knows very little about running an economy, trade or anything else in the global financial world. Instead he knows brut power to get what he wants. Remember communism depressed much of any growth in these countries so many were still backwards. Those at the very top exploited the system and used their power to gain great personal wealth at the expense of society. Brut force was used to control the system. This is how Putin operates. But this is a new age for Russia.

So now these former Soviet block countries are ripe fruit for the taking. So Russia and the USA were supposed to work together in a joint effort to harvest this fruitful bounty of vast wealth. All it would take is cooperation.

There is also the question of dealing with Syria. Yet another dictator that is the way of capitalistic progress. Did I mention the pipeline ? Did it ever occur to you that if Russia joined a coalition to fight terrorism this war on terrorism could literally be over in years if not even months. Simply put Putin will not cooperate and so maybe the Russian people too have picked the wrong leader to lead them through this process.

Am I rambling? I think all that I am telling you is very relevant to the ongoing saga as we see it all being played out in front of us. Remember the majority of average citizens have no clue what is going on here. They are not invested in the currency of Iraq they have no motivation to be concerned. They do not read the articles from Iraq, read Mnt Goat news letters or any listen to any of the many other sources of information coming from the Middle East and Iraq.

You see there is no real target date for the USA for the RV only political agendas. The longer this RV is delayed another crisis is bound to pop up and cause the RV to be yet the tool again for political means. Will it ever end? Someone needs to step in and finalize this process. The IMF is attempting to do just that but it is not easy. Eventually either the USA is going to cooperate or the IMF is going to go around them.

Well this is what I do know for a fact. The Republican party would luv to legitimize the postponement of the Iraqi revaluation until after the 2016 election process. They just might do it too. This is pure sour politics and DEADLY WRONG.

This GW Bush followers want to pick up the pieces, continue the process they started in 2003 and take credit for it all and not allow all the glory to go to the current Democratic administration. Keep this in your back pocket at you see what is now going on next. You will see these statements are not really too far fetched.

It makes absolutely little sense for the sake of Iraq and for any political success of the Obama administration to allow the stalling of the progress of Iraq any longer. Any real progress made so far has been made in spite of the USA efforts. Stalling the RV is stalling further progress. The USA is now an obstacle not a facilitator.

Iraq is as ready as a ripe piece of fruit  is ready to be picked from the tree. Sometimes opportunity only knocks once and so they must be careful not to spoil the fruit. All the low hanging fruits have already rotted and are gone (missed opportunities). If this is allowed to continue much longer much of the other fruits of this tree of opportunity too will be wasted. We can already see it happening.

Many will not agree with some of these statements I have made in this news article. They will only regurgitate to me what they have been told over and over again that of  “Iraq being the wealthiest country in the Middle East if not the world”. I am beginning to see that this plan may not have as much merit as many believe if this stalling of their revaluation does not get underway and allow further progress very soon.

A good case in point is the decrease in the oil prices. Given time another crisis is always just around the corner. Could Iraq deal more effectively with the deficit in their budget with a flock of foreign investment money rolling in by being international? Absolutely – YES !  You see it is not the deficit that is the crisis. IT IS THE LACK OF NOT HAVING AN INTERNATIONAL  CURRENCY THAT IS THE REAL CRISIS.

So if you and I know this,  then so should the powers behind this plan to revitalize the middle east also know this? I would not be so sure about that since this foreign policy in the middle east is one huge blunder after another.

Remember not all members of the council of representative are privy to the USA’s stalling tactics. There is only a few from the inner circle ring of politicians in Iraq of who truly know the full sage of what is going on here. They do not tell the other 300+ members of parliament. So many just go along with the deception not knowing any better.

You see those really in charge of authorizing the final rollout of the new rates are not under the direct control of president Obama as many think. As in any administration there is power sharing since the USA is a democracy. We are witnessing this first hand as not even the president has full control of the destiny of the Iraqi revaluation process as many think. At this time of even greater hype over terrorist threats (now in France too) we see that all anyone really has to do is scream that there is a national security issue and the RV is help up once again. It is that easy. So who really has an indirect control then….maybe the CIA?

So when can we expect the RV?

Everything I present to you today is interconnected and meaningful in getting the revaluation of the Iraq dinar but most importantly there is a greater need than ever for Iraq to return to an international currency. I am hearing that if the economic wars persist and worsen, it could mean trouble and lead to yet just another USA excuse as to why Iraq can not yet go international. Any further delay will also harm the Iraqi economy in a huge way.

There are huge plans for Iraq reconstruction in 2015 and they can’t blame the delays any longer on the Maliki government. A new government is in place and it is working hard to see that Iraq stays on track. However it will need for the USA to let of the reigns and allow them to be the democracy and make the necessary economic and political decisions in the future for themselves. It is time!

Peace and Luv To Ya All.

GOLD CORE REPORT :OUTLOOK 2015 – Uncertainty, Volatility, Possible Reset – DIVERSIFY, 20 JAN

2015 is upon us and the turbulence has already begun.
2014 was another year of an uneasy calm interrupted by sudden bouts of abrupt market volatility. We were surprised how risk appetite remained so high despite emerging and a high level of risk especially from the geopolitical sphere. These we covered in our Review of 2014.
goldcore_bloomberg_chart1_09-01-15
This irrationally exuberant, risk appetite may continue in 2015 but we suspect that it is as likely to come to a shuddering halt with renewed volatility on global financial markets.
The sharp falls seen in stock markets in recent days may be a taste of what may transpire in 2015. As may be the tragic events in Paris.
There are many unresolved risks which were present in 2014 and indeed in recent years which did not come to the fore and impact markets. As Greece has shown again in recent days – the Eurozone debt crisis is far from resolved and there remains an underappreciated risk of sovereign crises in other major industrial nations.

Parisians Protest the Slaughter of Journalists
Other unresolved risks that are being ignored for now – due to the panacea of cheap money and elevating asset prices – include the Eurozone debt crisis, the appalling fiscal position of Japan, the U.S. and the UK, the risk of an Ebola pandemic, risks posed by terrorism, the events in Syria and the Middle East, Ukraine and geopolitical  tensions with Russia.
Gold – Positives and Negatives
As ever, there are positives and negatives for gold. Indeed, one could say there are as many negatives as there are positives – and most do. However, on balance we believe that the positives outweigh the negatives significantly.
Gold’s Positives
  • Continuing ultra loose monetary policies
  • Currency wars and the risk of bail-ins
  • Risk of sovereign and banking debt crises and the risk of systemic contagion
  • Increasingly uncertain political and military situation globally and the threat of terrorism and war
  • Continuing record demand for gold from China and India
  • Continuing robust demand from central banks such as the People’s Bank of China (PBOC) and Central Bank of the Russian Federation
  • Sentiment, both in the western media and among the public, remains extremely poor. This is bullish from a contrarian perspective
goldcore cycle market emotions
Gold’s Negatives
  • Gold in dollar terms is weak technically after a second consecutive year of lower prices
  • The massive fall in the oil price, should it continue, will benefit gold miners and lower their cost of production which should lead to a lower cost of gold production
  • ETF demand remains weak and liquidations very high – holdings in SPDR Gold Trust, the world’s gold ETF, fell 0.42 percent to 704.83 tonnes on Wednesday, their lowest since late 2008
  • Gold bullion demand while robust in Germany, Turkey, the Middle East and Asia remains lackluster in western markets as seen in the fall in demand from the U.S. Mint and other mints
  • Sentiment, both in the western media and among the public, remains extremely poor

Ultra Loose Monetary Policies Globally

Ultra loose monetary policies are set to continue for the foreseeable future. Major central banks have all kept interest rates at or close to zero
Source: Rba.gov.au
Source: Rba.gov.au
The narrative that the U.S. is tightening continues to be a false one – one heard for many years now. Any meaningful increase in U.S. interest rates would likely severely impact already stretched and stressed asset markets and plunge the U.S. and the world into a depression.
Since 1694 and the ensuing three centuries’ of Bank of England history, the base rate has never been this low. Interests rates in the western world have never been this low.
A reversion to to the mean average – at around 5% to 6% – would create a collapse in property and stock markets. Even the merest hint of a rate rise has led to sharp market falls in recent months.
goldcore_bloomberg_chart14_09-01-15
ZIRP or zero percent interest rates have arrived and there is now the incredible, previously unheard of scenario of negative interest rates. Already, certain banks in the U.S. and Europe are charging customers interest just to have a deposit account with them.
This turns upon its head the basic tenet of capitalism in terms of a return on capital.
Source: AEI
Source: AEI
While America’s massive bond buying programme has been discontinued for now, it continues in the UK, has intensified to a very significant degree in Japan and we may see Mario Draghi’s QE ‘bazooka’ in the Eurozone in the New Year.
The battle between Goldman banker Draghi and German monetary conservatives is a titanic one and the outcome will have ramifications not just for the Eurozone but for the world.
Draghi has won many battles regarding pushing interest rates to zero. However, further money printing will likely be ‘verboten’ and a step too far for the Germans. I am not a betting man but if forced to bet, I think that Draghi may win the immediate battle on further money printing but that the Germans will win the war.
Germany has learned the lessons of the past and will not allow their currency to be printed into oblivion.
Since the 2008 crash, the Federal Reserve has created more than $4.3 trillion to prop up banks and the wider economy. While the Fed finished its bond buying programme in 2014, its balance sheet has been destroyed and it is unable to sell the bonds bought for fear of interest rates moving higher again.
The U.S. economic recovery is weak and there is the strong possibility of a recession. The massive levels of debt at all levels of U.S. and indeed western society make any meaningful recovery highly unlikely.
This possibility is also heightened by the recent collapse of the oil price and falls in other key commodities such as copper. Deflation is in the air. A reversion back to debt monetisation programme seems likely.
America, and indeed the world, is now dangerously addicted to cheap money and the attendant  debasement of the dollar and all paper currencies. Yellen will continue pushing the drug of cheap money, much of which ends up on Wall Street and in frothy global markets.
Indeed, she may be even more generous in doling out wads of electronic currency than her predecessor Bernanke. Irrationally exuberant, liquidity-driven stock markets and manipulated bond markets are giving false signals.
We may need one last and vicious deflationary spiral, further currency printing and then the Ludwig Von Mises’ “crack up boom”. Irrational exuberance and levitating asset prices are early warning signals of a classic cheap money crack up boom:
“‘This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.’
“But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
“It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.”

Central banks are attempting to inflate their way out of the present crisis rather than the more prudent option which is to avoid a deflationary collapse by downsizing the massively oversized and over leveraged banking and financial system.
This could be done, with grave difficulty admittedly, but could be done nevertheless through a multi month or year process of downsizing, debt write offs and write downs, deleveraging and consolidation.
With the Federal Reserve’s balance sheet having deteriorated significantly, at some stage this will lead the dollar having a sustained period of weakness. A monetary crisis centering on the dollar remains likely. A frightening vista that most cannot bring themselves to consider, let alone comprehend.
Currency debasement will end in financial tears as they have done throughout history. The question is not if, rather when.
Precious metals will only be threatened if currency debasement ends and if there is a sustained period of rising interest rates which lead to positive real interest rates – as happened in the 1970s.
That is not going to happen anytime soon.

Currency and Gold Wars

Currency wars, gold wars, currency devaluations and currency debasement are set to continue globally which remains possibly the most bullish factor for gold.
Currency wars look set to heat up again in 2015. The latest salvo is Japan’s radical, or reckless, decision to further debase its currency through an intensification of already significant monetary easing.
goldcore_bloomberg_chart15_09-01-15
A new “all-out” currency war is possible in 2015 as nations seek to maintain exports and jobs through currency devaluation.  China and Japan – as two of the world’s largest exporting countries – may be set to be the most aggressive in this regard.
Japan is devaluing the yen and China will be reluctant to allow that to happen. China is likely to devalue the yuan in order to maintain export competitiveness.
If Draghi is allowed to get his ‘Euro Bazooka’ out – we may see further weakness of the euro – especially versus the dollar. At the same time, the U.S. cannot afford to have the dollar strengthen much more against the euro as it will impact exports to one of its largest trading partners.
goldcore_bloomberg_chart5_09-01-15
The second aspect of currency wars is the continuing accumulation of gold reserves by nations for diversification purposes and in the case of China, in order to position the yuan as an alternative global reserve currency.

Risk of Bail-Ins in 2015 and Beyond

Bail-ins remain one of the least covered and most unappreciated risks for 2015 and in the coming years. As we have documented, most western nations have put or are putting in place the architecture for bail-in regimes.

Preparations have been or are being put in place by the international monetary and financial authorities, including the Federal Reserve, ECB and Bank of England for bail-ins. The EU, UK, the U.S., Canada, Australia and New Zealand all have plans in place for bail-ins in the event of banks and other large financial institutions getting into difficulty.
Now in the event of bank failure, deposits of individuals and companies can be confiscated.
Just last month, credit rating agencies warned that Europe’s banks are vulnerable in 2015 due to weak macroeconomic conditions, unfinished regulatory hurdles and the risk of bail-ins.
Assessing counterparty risk and sovereign risk remains important. Do not have all your savings or company’s capital in a vulnerable bank in a vulnerable sovereign. A diversification into allocated gold outside the banking system remains an important way to hedge the real risk of bail-ins.

Eurozone Debt Crisis Again – Greece, ‘Grexit’ and ‘PIIGS’ 

In the early days of 2015, the Eurozone debt crisis raised its ugly head again as concerns about the ‘Grexit’ – Greece leaving the monetary union and reverting to the drachma, led to sharp falls in stock markets and indeed the euro.
goldcore_bloomberg_chart16_09-01-15
Concerns over a potential Greek exit or ‘Grexit’ also led to the euro falling against the dollar and particularly gold which surged to close to EUR 1,030 per ounce. Gold in euros is already up 5% in 2015, building upon the 11% gains seen in 2014.
Angela Merkel sought to calm markets and EU citizens by claiming that Germany would be “comfortable” with a Greek exit and that “any fallout would be manageable.” EU citizens in Greece were alarmed by her comments and politicians quickly sought to reassure Greeks that this could not happen and there was nothing to fear. A frequent refrain by politicians prior to economic dislocations.
Germany likely fears the precedent of reopening negotiations between the Troika and Greece, lest other countries upon whom very onerous conditions were placed – such as Ireland – follow their example.
The assertion that the EU could “comfortably” manage the exit of Greece is irresponsible – particularly at this very delicate and uncertain time for the European economy.
Italy’s former Prime Minister, and former head of the European Commission, Romano Prodi warned last week that the “lowering of the oil and gas prices in combination with the sanctions, pushed by the Ukrainian crisis, will drop the Russian GDP by five percent per annum, and thus it will cause cutting of the Italian exports by about 50%.”
Similar dynamics are playing out in Poland and France. Continued antagonisation of Russia may have dire consequences for Europe, especially if Russia chooses to respond more aggressively. France’s Société Générale, alone, is exposed to Russia to the tune of €26 billion.
Were Russia to renege on this and other obligations to European banks it would likely trigger a Lehman style crisis.
Or Russia could cut its supplies of natural gas to Europe upon which German industry, in particular, relies. Thankfully, for now, Russia has reacted diplomatically and conciliatory, even inviting Europe to become a partner in the newly formed Eurasian Economic Union (EEU).
Germany is now dangerously close to deflation as the major states reported from 0% to 0.3% inflation in December, with Saxony at 0.5%, – down from November rates of between 0.5% and 0.8%.
With these and countless other considerations weighing upon the EU, it is not accurate to suggest that a Greek exit and return to the drachma could be comfortably managed.
For one, there is no framework in place for an orderly secession of a member state from the Union. An antagonistic break up would likely cause contagion to many large European banks exposed to Greece.
The ensuing turmoil might also prompt other member states to break away in chaotic fashion – Spain, Portugal and Italy being prime contenders.
Many periphery nations are slowly becoming jaded by the not so single currency and attendant austerity. For almost half the euro’s existence it has been in crisis.
goldcore_bloomberg_chart6_09-01-15
It is likely that the EU will do everything in it’s power to accommodate Syriza should they gain power in Greece. Whether it will be enough to keep Greece on board and the drachma off the printing presses remains to be seen.
Gold will protect from currency devaluations – whether that be in the form of the euro itself being devalued or in the form of reversions to drachmas, escudos, pesetas and punts and subsequent devaluations.
We all know and accept that the “debt can” was kicked down the road. Yet, most remain in denial about the ramifications of this and re emerging risks. At the end of the road there is a sharp cliff.

Global Debt Crisis II – Total Global Debt to GDP Ratio Over 300%
UK, U.S. Japan and China Also Vulnerable
The global debt crisis has abated in recent years but more astute analysts and economists are concerned that it is only a matter of time before the debt crisis returns.
Since the crisis began in 2007, total global debt, public and private, has continued to rise sharply.
The total debt to GDP ratios – household, corporate, financial and sovereign debt – in the Eurozone, Japan, the UK and the U.S. are all at very high levels.
goldcore_bloomberg_chart7_09-01-15
Total global debt, public and private, is estimated to be between 245% and over 300% of total global GDP.
In a comprehensive report on global indebtedness, economists at ING found that debt in developed economies amounted to $157 trillion, or 376% of GDP. Emerging-market debt totaled $66.3 trillion at the end of last year, or 224% of GDP. This report was in May 2013. Debt levels have continue to increase sharply since then.
At the time, the total indebtedness of the world, including all parts of the public and private sectors, was estimated at $223.3 trillion, amounting to 313% of global gross domestic product.
goldcore_bloomberg_chart8_09-01-15
More recent figures come from the Institute of International Finance (IIF), a leading global association of financial institutions in June of this year estimated that global debt, even excluding the financial sector, was equivalent to 245% of total global economic activity or GDP. Obviously, the financial sector is one of the more important categories in terms of debt. That’s up from 214% in September 2008 when the financial crisis was going into its most intense phase.
Most western nations have large banks whose outlook is far from positive and some of which are vulnerable to insolvency and bail-ins.
Many analysts warn that many Wall Street and City of London banks are bigger now than they were prior to the collapse of Lehman Brothers and the shadow banking system is of a greater size now.

$1 Quadrillion “Weapons of Mass Destruction” Derivatives
The worldwide nominal value – also known as the notional or “face” value – of derivatives tripled in the five years leading up to the recession, at which time it was over a whopping $600 trillion, according to the Bank for International Settlements (BIS).
Little has been learned since then and the total value of the derivatives market has actually gotten much bigger.
Although recent BIS data shows only a little growth in the overall value of derivatives, derivatives experts believe that the market has continued to expand rapidly. It is just not apparent in the murky world of the shadow banking system.

While there’s no way of knowing for sure, estimates of the face value of all derivatives outstanding tops a quadrillion (1,000 trillion) dollars, or more than 14 times the entire world’s annual GDP. By comparison, the total value of all the stocks trading on the New York Stock Exchange is roughly $15 trillion.
Warren Buffett’s financial weapons of mass destruction are proliferating significantly. The time bomb will go off in 2015 or later and could be the catalyst which leads to a collapse of the current financial and monetary system and the global financial, economic and currency reset.
The global financial system remains far from safe.

Cold War II and New World Order as China and Russia Flex Geopolitical Muscles
Geopolitical tensions in the Middle East and rising tensions between Russia and China and the U.S.  are set to continue in 2015 and may escalate.

The new Cold War risks sparking some dangerous proxy hot wars in Ukraine and the Middle East.
A new and potentially more dangerous Cold War is upon us. Respected former Soviet leader Mikhail Gorbachev has  warned that the “trust created by hard work and mutual effort” that led to the end of the Cold War has completely “collapsed”.
 Instead of a new world order built on peace and stability, he warned this week that Western hubris has led to the renewal of age-old rivalries and heightened global tensions – turning a “blister” into a “festering wound.”

 Mr Gorbachev calls for renewed dialogue between Russia and the West, leading to the lifting of economic sanctions. Economic sanctions are badly affecting many European economies – especially the already vulnerable periphery nations.
The international crisis regarding Syria abated after the U.S. backed down from military action after the Russian diplomatic offensive and due to strong political and public resistance internationally. China remained silent in the wings.
However, the Middle East remains a powder keg and the risk of a wider conflict in the region centring on Israel and Iran remains real. The risk of a conflagration involving Sunni versus Shia muslim nations is also increasing.


Although, the tensions with Russia is possibly the greatest geopolitical challenge and risk.
It is worth listening to the words of Gorbachev as he a respected international statesman and not a stooge of Putin and the Kremlin.

This week in an Op-Ed in Project Syndicate, he wrote, “Though I am, by nature, an optimist, I have to admit that it is very difficult not to be pessimistic as 2014 comes to a close.”
“Nonetheless, we must not submit to panic and despair, or allow ourselves to be drawn into a vortex of negative inertia. The bitter experience of the past few months must be transformed into the will to reengage in dialogue and cooperation. This is my appeal to our leaders, and to all of us, for 2015: Let us think, propose, and act together.”
Let us indeed. If Gorbachev’s pleas fall on deaf ears, 2015 will be more volatile than 2014.

Enter The Dragon and the Elephant – China and India Gold Demand Is Paradigm Shift – 
2015 Likely To See Chinese Gold Demand At Record Levels Seen in 2013 and 2014 
The ongoing paradigm shift that is China’s gradual move to become a dominant player, if not the dominant player, in the global gold market continues. China was the largest buyer of gold in the world again in 2014.


Chinese demand for gold bullion saw some month on month falls in 2014 but full year 2014 again saw very robust demand for physical gold from the 1.3 billion people in China.
China’s gold imports from Hong Kong alone in November 2014 rose to their highest level since February 2014, indicating strong demand in the world’s top bullion buyer ahead of the Lunar New Year which is slighter later this year on February 19th, 2015.
goldcore_bloomberg_chart9_09-01-15
Net gold imports from Hong Kong to the mainland rose to 99.111 tonnes in November from 77.628 tonnes in October.
China does not provide trade data on gold and the Hong Kong figures have served as a proxy for gold flows to the mainland. The Hong Kong data is seen as an increasingly poor proxy as it provides a quite limited picture of total Chinese demand as it does not include direct imports through Shanghai and Beijing which have risen dramatically in recent years.
goldcore_bloomberg_chart10_09-01-15
Chinese gold withdrawals from the Shanghai Gold Exchange (or SGE) are the best indicator of China’s physical gold demand and the best way to establish actual total Chinese physical bullion demand.
Shanghai Gold Exchange (SGE) gold withdrawals were very high throughout 2014 – averaging around 50 tonnes a week to come to some 2,150 tonnes of gold. SGE withdrawals were 57.655 tonnes for the week ending December 26th and 2089 tonnes for the year so far. The last weeks data figure will be released later today.
goldcore_bloomberg_chart11_09-01-15
That means despite a lot of talk of falling Chinese demand – demand in China in 2014 will be only a percent or two below the record levels seen in 2013. It is higher again than the record years for Chinese gold demand that were 2011, 2012 and 2013 (see chart).
To put that 2,150 tonnes of physical gold demand in context, global mining supply will be around 2,900 tonnes this year. This means that the Chinese people alone will buy nearly 75% of total global production.

Most of the gold that enters the Dragon will be hoarded and remain in China for decades to come.
What we in the West need to appreciate is that – in the case of both India and China, where around one third of the people on planet Earth reside – it is masses of individuals, families and local businesses who are driving this demand.
It is the poor, the middle classes and rich and very rich. It is being driven particularly by the burgeoning middle classes and newly who are accumulating gold with their disposable income and net worths. The desire to own gold as savings and financial security is culturally embedded in these ancient cultures amongst every strata of the society.

The experience of people in most Asian countries with fiat paper currencies has not been a good one. Nor has their experience of banks been a good one.
As such, the demand is not speculative and a cyclical, short term blip. Rather, it is a long term, structural shift to higher demand and sustained high levels of demand.
While the trend may dissipate and see peaks and troughs, it is very unlikely to reverse into a trend of mass selling. Nor  is it likely to reverse trend anytime soon given the fiscal, monetary and economic challenges facing the Western world and indeed the entire world.

The People’s Bank of China is almost certainly continuing to quietly accumulate gold bullion reserves.
As was the case previously, they will not announce their gold bullion purchases to the market in order to ensure they accumulate sizeable reserves at more competitive prices. They also do not wish to create a run on the dollar – thereby devaluing their sizeable reserves.

The expected announcement from the People’s Bank of China (PBOC) that they have trebled their reserves to over 3,000 tonnes, from 1,054 tonnes, did not materialise in 2014. Having given further thought to the announcement we now question whether the Chinese will make any such announcement in the short term.
More likely is that they will quietly continue to accumulate gold in volume until their gold reserves are the largest in the world and surpass those of the U.S. at over 8,133 tonnes. No announcement is likely until they see a significant monetary, geopolitical and economic advantage in doing so or they have nothing to lose as they realise the inevitable fate of their debased dollar holdings and a potential U.S. default.

Indeed, tactically they may have warned the US Treasury and Fed that any default by the U.S. would lead to them loudly announcing they are selling their dollar holdings and accumulating gold with them and they have the world’s largest gold reserves. This would mortally wound the dollar as global reserve currency and position the yuan as the new global reserve currency.

The ramifications of China’s huge demand for physical gold, both from the Chinese people and the People’s Bank of China is yet to be realised and factored into prices.

2015 Likely To See Indian Gold Demand At Record Levels Seen in 2013 and 2014 
2014 also heard much chatter about a significant fall demand in India due to government taxes and import restrictions. However, the death  of the Indian gold market was again greatly exaggerated.
Decades, indeed hundreds of years of tradition will not be ended by silly, ineffectual financial repression and bureaucratic government meddling.

Indian demand looks set to be well over 850 tonnes in 2014. This represents a lot of gold and the equivalent of nearly 30% of global mining supply of some 2,900 tonnes.

There is now also huge unrecorded smuggling of gold into India from Bangkok, Dubai and other cities in Asia. The law of unintended consequences took place and the government meddling may have contributed to even higher demand for gold.

Long Term (2015-2020) MSGM Fundamentals
The long term case for having an allocation to precious metals is due to the still positive fundamentals:
  • Macroeconomic risk is high as there is a serious risk of recessions in major industrial nations with negative data emanating from the debt laden Eurozone, Japan and China. Even the recoveries in the UK and the U.S. are tentative at best. Issues with banks, a laLehman, or a major terrorist incident or another war could badly impact fragile consumer and investor sentiment.
  • Systemic risk remains high as little of the problems in the banking and financial system have been addressed and there is a real risk of another ‘Lehman Brothers’ moment or a new ‘Grexit’ moment and seizing up of the global financial system. The massive risk from the unregulated “shadow banking system” continues to be significantly underappreciated. There are many potential Lehman Brothers out there both in the Eurozone but also in the UK and the U.S.
  • Geopolitical risk  remains elevated – particularly in the Middle East and with Russia. This is seen in the continuing significant tensions in Lebanon, Syria etc and between Iran and Israel. There is the real risk of conflict and the consequent effect on oil prices and the global economy.Many analysts believe that the deepening economic, political and military tensions between Japan and China could devolve into an actual war.There are also simmering tensions between the U.S. and its western allies, primarily the UK, and Russia and the resurgent and increasingly powerful China.
  • Monetary risk is high as the policy response of the Federal Reserve, the ECB, the Bank of England, the BOJ and the majority of central banks to the risks mentioned above continues to be ultra-loose monetary policies, zero interest rate policies (ZIRP), negative interest rate policies (NIRP), the printing and electronic creation of a tsunami of currency and the debasement of paper and electronic currencies.Should the macroeconomic, systemic and geopolitical risks increase even further in the coming months, then the central banks’ response will likely again be more cheap money policies. This will lead to further currency debasement and there is a risk of currency wars deepening.

Gold – Research Shows Is Proven Hedging Instrument and 
Safe Haven
There is a significant and growing consensus amongst academics, independent researchers and asset allocation experts that gold is a hedging instrument and a safe haven asset. Thus, many financial professionals now believe that gold should form part of investment and savings portfolios for reasons of diversification and financial insurance .


Indeed, there is now a large body of academic and independent research showing gold is a safe haven asset and showing gold’s importance in investment and pension portfolios. This allocation is in order to both enhance returns but more importantly reduce overall volatility.

The importance of owning gold in a properly diversified portfolio has been shown in numerous academic papers. It has been shown in independent research by the asset allocation specialists, Mercer Consulting and Ibbotson Associates. It has also been shown by consulting group, New Frontier Advisors and by leading international think tank, Chatham House.
Gold has protected people throughout history from inflation and currency debasement. The historical record also shows how gold has protected people from stock and property market crashes and from asset confiscation.

Conclusion


The outlook in 2015 is uncertain – as uncertain as it has been in our lifetimes.
Volatility and turbulence is guaranteed. Financial repression and currency debasement is certain. Bail-ins, a currency reset and international monetary crisis is on the cards. The question is not if, rather when.

The only free lunch in 2015 and the coming years will again be diversification. We cannot emphasise strongly enough the importance of being properly diversified. Owning hard assets and allocated ownership of physical bullion will aid in protecting and growing wealth.

Dollar, pound or euro cost averaging into position remains prudent. Similarly, when prices rise sharply or rather when currencies devalue – dollar, pound or euro cost averaging out of a position will be prudent as it will be nigh impossible to time a currency bottom or a  market top. LINK