|
Iran
Last week we informed you that Iran
claims to hold 907 tonnes of in gold reserves.
This week we’re informed that Iran
is using gold or oil to buy food as new financial sanctions have hurt its
ability to import basic staples for its 74 million people. The difficulty
paying for urgent import needs has contributed to sharp rises in the prices
of basic foodstuffs, causing hardship for Iranians with just weeks to go
before an election seen as a referendum on President Mahmoud Ahmadinejad's
economic policies.
New sanctions imposed by the United
States and European Union to punish Iran for its nuclear program do not bar
firms from selling Iran food but make it difficult to carry out the
international financial transactions needed to pay for it.
“Grain deals are being paid for in
gold bullion and barter deals are being offered," one European grains
trader said. Some of the major trading houses are involved. Another virtue of
using gold is that barter or gold payments are the quickest option to get
imports.
Any bank that deals with the Iranian
central bank will be punished by the U.S. –they control the
world’s dollars in New York, even if they are owned by other nations.
Please note that the U.S. can freeze
any nation’s dollar reserves! Life is about control or freedom from
control.
We gave you an article last week on gold
in reserves indicating the possibility of the confiscation of citizen’s
gold. While the case of Iran is an exception in what seems to be a stable
world, investors have to ask themselves not simply,
“Will
there be more countries like Iran, but will monetary crises hurt the
exchangeability of any other currency or its international value?
Will political changes to the balance of power weaken the
international exchangeability of a currency or its international value?
Will such
extreme times hit the developed world?”
Future Monetary Values
Such extreme conditions as Iran are not
necessary for the gold price to rise. If there’s danger that other
nations might follow down that road, then their currencies will depreciate
and the gold price will rise in those currencies.
But Iran is a classic case of why gold
is a last resort, reserve asset. Iran’s currency is worthless outside
its borders; its name is mud in the developed world –it’s this
that Alan Greenspan described as “in extremis”.
He said, “Gold is money, in
extremis”. For Iran that’s a very real and present situation now,
and gold is providing a rescue for them. It’s doing the job it’s
expected to do. The most prudent investors in the world are central banks and
those that have made sure they hold a good quantity of gold. Those who can
now afford to are buying it up as fast as the market will allow.
Right now, the price of gold in the
Iranian currency is sky high, but the value of that currency outside the
country is zero. So much for gold prices in local currencies! When such a
situation is reached, then what we have repeatedly said comes true,
“It’s not the price of gold
that counts, it’s the number of ounces you have!”
Are there countries out there that could
move down the same road as Iran? Can developed countries face the same
situation? Maybe not so far down that road as things stand now, but in an
uncertain future, that could happen to several rich and poor countries
including the U.S.
If the dollar cannot hold its sole, reserve currency position and
foreign buyers cease to accumulate; the value of the U.S. dollar will fall
heavily. The U.S. will then be forced to stop issuing dollars for imports but
rather sell goods to earn foreign currencies.
If the Eurozone fragments, those nations leaving the Eurozone will
have to turn back to their old currencies and a two-tier currency system.
Then their gold reserves will take on extra importance. The continued doubts
about Greece tell us that Greece is moving closer to default and to “In extremis” times. We now hear
that despite it cooperative implementation of austerity measures,
Portugal’s debt is still rising strongly as a percentage of GDP. As
cash flows to repay debt contracts, it is inexorably moving into extreme
times.
Banking Crisis
We’ve seen the profits of Societe Generale drop 89% on
its investment side and note that the exposure of that bank to the sovereign
debt crisis is horrific and could possibly bring the bank down, unless there
is a major change of direction in the weaker nation’s
of Europe’s economic direction. This doesn’t appear to be on the
horizon. The implication that we derive from this is that we’re as
close to a banking crisis as we are to a Greek default. If such a crisis does
suppurate, then it will spread far and wide, and many banks as well as
financially weak nations will find their international credit standing facing
extreme times. This affects the
very structure of the E.U. monetary and banking system.
Not only will banks then distrust each
other but so will Chinese investors. No one will support a lost cause. It is
that perception that brings about extreme
times. It is that perception that demands that gold be used as money.
We’re watching the euro struggling
to stay up against the dollar despite the massive support the currency swaps
have given the euro. Just one bank signaling distress may well be the single
shot that started the First World War. Then lack of confidence in the
monetary system in Europe will force a wider use of gold in support of
currencies.
|
