Sebastian Lyon on gold and BBC on the Fed

Personal Assets Trust: http://www.investegate.co.uk/personal-assets-tst---pnl-/rns/half-yearly-report/201311211642576716T/

"Recent weakness in the price of gold has been unwelcome, but just because an insurance policy does not pay out for one year in thirteen it does not mean we should not hold it. The opportunity cost of holding gold is now low. Negative real interest rates are here to stay. Beggar-my-neighbour policies, reminiscent of the 1930s, instigated by central banks to keep their currencies competitive will lead to an on-going debasement of paper currencies. The rigging of financial markets by central banks will not end well. Gold, therefore, is not a short term trade but long term portfolio insurance."

I don't know if I should be buying something.

Just listening to this too:  http://www.bbc.co.uk/radio4/  Simon Jack

(Update) Drugs vs gold in Peru - how illegal is gold getting?

The front page of last week's Mining Journal has a story titled: "Mining experts call on Peru to fight illegal gold"

The report came from Peru-based Macroconsultant and could be compared to a report form the BBC  about gold over-taking drugs as the commodity of greatest interest to criminals.

The report said one in five ounces of gold from Peru were illegal but said that government efforts to tackle the problem should focus on the entire supply chain with the report's author Elmer Cuba saying: "It should take advantage of the existence of information on merchants and exporters of gold, which do not exist for the drug trade."

The scale of the problem in Peru has seen illegal gold miners take on police in pitched battles. Here's a BBC video about the problem in Columbia.

Unrest and fear also surrounds legitimate mining firms particularly Newmont's operations in the Peruvian region of Cajamarca and Xstrata in Espinar.

BBC Analysis explores a return to the gold standard

BBC Radio 4's Analysis: "What is money" includes a look at the debate about a return to the gold standard

BBC discussion on return of gold standard with Angela Knight, Detlev Schlichter, Philip Coggan, Lord Glasman

While waiting for the price of gold to fall I was listening on-and-off to Andrew Marr on Start the Week.

I missed the start so here's how the BBC described it: "Detlev Schlichter dismisses the practice of printing more money in times of recession, arguing that in the next decade our reliance on paper money will collapse, and he proposes a return to hard commodities, like gold. The historian Philip Coggan pits creditors against debtors, tax payers against public sector workers, and believes it's time for a new monetary system to emerge. The Labour peer, Lord Glasman thinks we need to change the relationship between parliament and the market. And Angela Knight sticks up for the bankers, insisting they hold the key to the crisis, so deserve both a bonus and a bit of respect."

http://www.bbc.co.uk/programmes/b019f8b5

Hopefully no one will read this far - but also to help pass the time I've been reading Karl Marx's Capital. His description of how commodities work is sort of sinking in. A lot of it is about gold. I'm not sure it's a great help in terms of investment advice or how widely accepted his description of commodities exchange process would be any more, but its the most fundamental description of where value comes from I've seen. But then I haven't looked very hard.

Violent gold thefts hit UK's Asian community says BBC

According to a BBC investigation the rising price of gold has sparked a number of violent robberies in Yorkshire's Asian community targeting wedding gold.

The written introduction for the half-hour-long radio show (broadcast last week) said: "As a result of the fear of this crime there is now a long waiting list for safety deposit boxes - as an alternative those with extended families try and ensure their homes are never left empty, whilst others are buying CCTV systems or working out what to hide where. According to the police it isn't just burglaries - the gold is also being snatched in streets robberies where Asians are being targeted and in a recent cases a newly married bride was robbed whilst at the wedding celebration itself."

A number of wedding gold robbery victims are interviewed and the ease with which stolen gold can be sold via online gold buyers is also discussed.

As a gold ETF investor I don't really care about the gold itself, I'm never likely to see anything I own via exchange traded funds. My focus is on its financial value. 

In fact I sold  all 28 of my gold shares a couple of days ago out of fear that the price of gold might fall as low as  $1,200 per oz. I aim to buy them back but that's not the same for people who own gold for other reasons.

I do own a gold signet ring which a number of local pawn shops valued at around £40 and I think I'd be quite upset if I had to sell it or it was stolen.
   

BBC: Gold is a bigger threat than drugs in Colombia

BBC Radio 4's "From our own correspondent" on Saturday (19 November) included a report from Alastair Leithhead (final segment, about 24 minutes in) saying that the rising price of gold has led to frontier-style gold rush towns in the country's lowlands.

In it he describes how drug gangs and terrorists are on the edge of defeat but said: "We discover a new threat to the stability and peace the president is so desperate to sell to investors as he travels the world drumming up trade deals and collecting international allies."

He said: "There's a new source of illegal income: gold".

"The high price of gold has turned a traditional industry into a new cocaine where violent criminal gangs take their cut. And it's a real threat to the grand plan of president Santos."

Gold investors: support competitive pawnshops

Sweeping reports on the global gold market can be too slick for investors like me to get their heads around. But I want my gold exchange traded fund investment (PHAU) to have a foundation in something that I can see for myself. This might be an unrealistic aim but I'm trying.

So far...

When I checked my local gold market on the Narroway in Hackney Central the pawnbrokers offered better prices for scrap gold than the jewellers.

That was all I could squeeze out of my first aimless mission. Then a foray south into Tower Hamlets found muslim gold owners breaking their religious code to pawn their gold.

What next?

If my local gold market is dominated by pawnshops are they offering a good deal? A possible lead came from the BBC report on the gold buying season in India by Delhi reporter, Mark Dummett, for BBC Radio 4's The World Tonight.

Dummett talked about the big business of lending against gold in India and one successful example of a company that does it: Muthoot Finance.

Muthoot, which listed on the Bombay Stock Exchange in May, also opened its first store in the UK last year in the heart of London's Indian community in Southall, in west London. In the UK it charges interest rates between 5.99% per month (for loans between £20 and £199) up to 2.5% (for loans above £3000).

Taken at face value these rates look far better than the 8% per month offered by pawnshops in most other UK high streets.

That's what I was offered at a Money Shop in Bethnal Green - (I couldn't find the rate on its website) and it's the going rate at H&T, a publicly listed UK pawnbroker which explained the deal in its full year results published in March 2011.

H&T said that 95% of the collateral for its loans was gold jewellery, precious metals and/or diamonds. It said: "The pawnbroking contract is a six month credit agreement bearing a monthly average interest rate of 8%."

It also said that if a customer "does not redeem the goods by repaying the secured loan before the end of the contract" it will "dispose of the goods either through public auctions... or the Retail or Scrap activities of the Group."

Since last year there seems to have been a monumental rise in the amount of people failing to collect their items. The group reported scrap profits from "items forfeited from the Group's pledge book contributed £9.0 million (to profits) in 2010" compared to £2.1 million in 2009. However I'm not sure if those figures should be taken at face value (there was some kind of technical postscript).

This looks interesting. My guess is that most of this reclaimed gold will not be recycled as jewellery in the current climate because there are too few buyers (that's what Hackney jewellers were saying).

So what happens to this gold? Does it re-enter the financial system where investors like me buy and sell depending on the price but have no real demand or desire for the metal itself?

May be it would be better for gold investors if people who owned it kept hold of it - even if it remains in a pawnshop's safe. That's not likely to happen while loan rates remain so high. The double disadvantage for anyone pawning their jewellery is that they only get scrap value (weight) and if they want to replace it they'll have to pay the premium for craftsmanship as well as the spread on the gold price.

Before getting too excited about the Indian invasion this isn't a massively well researched piece and although I've put in some questions to the companies mentioned, none have got back to me.

Back to the slippery global picture, the current high price of gold is not expected to deter Indian retail buyers (the biggest demand for gold).

But some Indians think gold loan firms like Muthoot are selling their deals too hard and I haven't checked what the rate of 'forfeit' is for Muthoot - although a lower loan rate is likely to help.

ETF relevance?

I need to get a picture of how important the scrap market is to the global price. In its 2010 Gold Survey analysts at GFMS, a precious metals research agency, said there were three sources of supply in the global gold market.

The first was mining which accounted for 2,572 tonnes in 2009 and the second was scrap at 1,674 tonnes (39% of total supply) with central bank third and only accounting for 41 tonnes.

GFMS analysts said that the supply of scrap gold increased significantly in 2009 in North America and Europe. "Much of this growth was a result of heavy promotion by an improving network of scrap collectors, who made great use of consumer's need to sell unwanted jewellery to raise cash in a challenging economic environment." Read H&T's results to see how they cashed in on this with their "gold bars".

The question is how much of the "unwanted jewellery" was really unwanted and whether that supply would have been less if consumers were offered better deals?