Wednesday, 21 April 2010

gold confiscation



There has been many discussions about the possibilities of gold confiscation. Back in 1933 gold played a crucial role as a reserve currency albeit as a last resort and it would have been important to confiscate gold in order for revaluation and subsequent demise as reserve currency in order to promote paper.

That has been successful and now confidence, because of the recent turmoil in markets, has begun to wane as far as the public are concerned for fiat. The need now would be to confiscate gold in order to remove the possibility that gold should once again become a currency of choice.



In my opinion this process of confiscation is already well and truly underway albeit by stealth. The gyrations in the price of gold have enabled this to happen.

Just as pavlov’s dog responds to a whistle, the public and entities were trained to part with their gold. For the main part jewellery is the vehicle for physical gold for the public at large (this could include for example: manufacturers and traders) Since the previous peak in gold prices in 1980 the price steadily meandered downhill into 2000. Every so often the price would spike high and it became the smart thing to sell physical gold so as not to incur further losses. This pattern of behaviour persisted even though prices rose steadily since. Now as prices rose and being conditioned to sell on price rises, it was not possible to restock because prices continued ever higher. This had the effect of removing gold from the markets since it wasn’t being replaced by the sellers. This pattern of dishoarding persisted until more recently

when it gathered extra momentum brought about by the lack of credit that had previously funded consumer spending.



Here the first signs of rapid dishoarding was apparent by large volumes sold by manufactures and traders of mostly brand new jewellery (sometimes with the sale price tickets still on them). There is now very little prospect that all this physical gold will come back to the market for the all important jewellery market.



So many companies are exploiting this opportunity that advertisements on television have become common place for raising cash for gold. When these companies sell the gold on its usually done in bar form so the cost of melting is borne by the companies in a ready format to be taken off the market. The consequences are particularly dire for the all important jewellery market which has been the mainstay of the demand for gold. Once removed out of circulation no manufactures would be willing to produce for a public unable to fund jewellery purchases and even if miraculously, the public should develop an appetite for gold jewellery, the high cost of retooling and manufacture would be prohibitive



Then came the wave of selling by the general public being spurred on by endless advertisements for get cash for your gold. So now most of the scrap gold now is ‘dirty’ in colour because it has been found in the far corners of the cupboards. I personally think there is now not a long way to go before the public is completely out of their gold



So what about silver confiscation? Without question physical silver is much scarcer than gold on a value basis. The concept of silver confiscation is perhaps in one way more important than gold. It can be argued, silver, because of its monetary role is more essential in everyday transactions.

There really isn’t that much silver in public possession. I have heard how, the 1980

super spike in silver price, queues formed around the block at refineries. People queued up to part with their silverware which could not realistically be replaced.



The opinions expressed are my own and does not constitute trading advice

August 2009

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