the real asset report - the most comprehensive look at all things gold, silver, bitcoin and money

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www.therealasset.co.uk

The Real Asset ReportNew research and commentary on gold,

currency wars and money.

11thApril 2013

Brought to you by Jan Skoyles and The Research Desk.
http://therealasset.co.uk/


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WelcometothefirstissueofTheRealAssetReportMyself and The Real Asset Company Research desk are delighted to bring you our first full-

length 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 writesomething 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.

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 silvertender, 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. Wecompare 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.

Poll data from5,000investors in 80 countries telling us why they

invest in gold, where they store their gold and what they think ofBitcoin.

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 pollthat 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

[email protected]


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Bitcointhe money of the future 4Bitcoin Mania the road to Bitcoin Infographic 10

Bitcoin Gurus Infographic 11

#bitcoin Infographic 12

Twitter Showdown Infographic 13

The Whole World is talking about gold 14Who holds the most gold? Infographic 18

Who has the highest percentage gold reserves? Infographic 19

The US is moving to a gold standard 20Ditching the dollar for sound money Infographic 23

The United gold states of America where are they now? 24

The Roman Emperors of today 26

How much did you spend on gold in 2012? 31Who spent all their money on gold? Infographic 32

Europeans spend less than 1% on gold Infographic 33

Asias gold rush Infographic 34

Gold BRICS 35

Interview with Jim Rickards 39Twitter asks Jim 42

Do the gold bugs know something you dont? 43

Final words 44


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Bitcointhe 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 thegovernments 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...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 anti-

government.

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 currencyFounded 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.

1Bloomberg(2013)Sorrylibertarians,historyshowsBitcoinisntthefuturehttp://www.bloomberg.com/news/2013-04-04/sorry-libertarians-history-shows-bitcoin-isn-t-the-future.html2FT.com(2013)Inno-onewetrust,thedigitaldollarsrisehttp://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, andhe 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 BitcoinFor 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 far-

reaching 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.3Bernholz.P.(2003).InflationandMonetaryRegimes:History,EconomicsandPoliticalRelationships.Cheltenham:EdwardElgar.


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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 $20billion 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 futureIs 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 anecdotallythey 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-basedlobbyists. 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 againit 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.

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.

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!

Max Keiser and Jon Matonis.

Read our helpful guide tothe 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 screenEmbed 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 ofthe #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.

See our infographic on the big

screen

Embed this infographic
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Twittershowdown

As youve seen from our

interview, and from his shows,

Max Keiser is pretty vocal when

it comes to Bitcoin and no moreso 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?

See our infographic on the big

screen

Embed this infographic
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The whole world

is talking about

goldRead 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.

Bubbles, central banks and goldFor 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.

4AllCentralbankdata,privateholdingsandmajordevelopmentsingoldinvestment

havebeentakenfromtheWorldGoldCouncil.

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 devaluedfiat sovereign currencies, and instead a

move into something of value.

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 lookingfor their gold back, 93 tonnes which were

sent to Russia during WWII for 'safe-

keeping'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 hasntbeen mentioned politically, the

electorate is certainly pushing for it;

Switzerland, Romania, Australia and

Holland to name just a few.

In Holland, only 10% of goldreserves are held in Amsterdam.

The Dutch CDA party has

requested that Holland's gold

supply be repatriated.

Whilst, in a slightly worsesituation in Australia, they hold

99.9%8 of gold reserves in the

Bank of England.

Despite the Queens visit to theBank of England, questions of the

5Repatriationinformationtakenfromgata.org.

6BullionStreet(2012)RomaniawantsGoldtreasurebackfromRussia

http://www.bullionstreet.com/news/romania-wants-gold-treasure-back-from-

russia/30477Apa(2013)Azerbaijantoincreasegoldreservesby2timesin2013

http://en.apa.az/news_azerbaijan_to_increase_gold_reserves_by__186124.html

8Hudson,Greg(2012),ReserveBankofAustraliaAdmits99.9%ofAustralia'sGoldReservesareheldattheBankofEngland

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.

South Americas goldSouth 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 therepatriation of one third of their foreign

gold holdings to support national

growth11.

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.

9Independent.ie(2013)UKbanksitsonapotof235minIrishgold

http://www.independent.ie/irish-news/uk-bank-sits-on-a-pot-of-235m-in-irish-gold-

28957757.html#disqus_thread10

Bullionstreet.com(2012),NewgoldlawtoboostBoliviagoldreserves

http://www.bullionstreet.com/news/new-gold-law-to-boost-bolivia-gold-

reserves/11311

Zerohedge(2012)ItBegins:EcuadorDemandsRepatriationOfOneThirdOfIts

GoldHoldingshttp://www.zerohedge.com/news/2012-10-31/it-begins-ecuador-

demands-repatriation-one-third-its-gold-holdings12

Goldcore(20120,IraqQuadruplesGoldReservesInTwoMonths-FirstTimeIn

Yearshttp://www.zerohedge.com/news/2012-12-21/iraq-quadruples-gold-

reserves-two-months-first-time-years

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 commonform 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 goldreserve in the Middle East and North

Africa. Gold reserve sales with Cabinet or

Parliament's approval are banned13.

Individuals are stocking up tooIts 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. InBahrain, 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.

13

TheDailyStarLebanon(2010)LebanesegoldreserveslargestinMENAregion,

15thworldwide

http://www.dailystar.com.lb/Business/Lebanon/Feb/23/Lebanese-gold-reserves-

largest-in-MENA-region-15th-worldwide.ashx#ixzz2Q3CpjobD

(TheDailyStar::LebanonNews::http://www.dailystar.com.lb)14

24x7News(20122),Over80%inBahrainseeGoldassafeinvestment

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 climb

15

.

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.

Governments encourage gold

ownership

In other countries gold ownership isincreasingly 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.

15EconomicPolicyJournal(2013),DissingKrugman:ArgentinaTurnsToGoldAsInflationTops26%http://www.economicpolicyjournal.com/2013/03/dissing-

krugman-argentina-turns-to-gold.html

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 2,000-

3,000 tonnes higher than official data.

Between 2011-2012 China bought more

than 2 tonnes from North Korea17.

Buying their own goldChina 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.

Whispers in the WestIn 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 3tonnes 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

16

WealthWire(2012)MadGoldGrabBeginsinSyria

http://www.wealthwire.com/news/metals/368317

IBTimesGold(2012)NorthKoreaSellsGoldReservestoChina

http://au.ibtimes.com/articles/388493/20120927/china-korea-

gold.htm#.UWUiYpM3uHM18

BullionStreet(2013)Kazakhstantokeepbuyinggold

http://www.bullionstreet.com/news/kazakhstan-to-keep-buying-gold-till-2014-15/124319

FrenchDouglas(2013),TheBankofCanadasGoldHoards

http://mises.ca/posts/articles/the-bank-of-canadas-gold-hoards/


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@TheRealAssetCo

17

saw the biggest percentage drop in gold

investment in 2012 of all countries

assessed by the World Gold Council.

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 lastdecade 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

20

WorldGoldCouncil(2013)Italylookstogoldasanalternativetoausterity

http://www.gold.org/media/press_releases/archive/2013/03/italy_looks_to_gold_a

s_an_alternative_to_austerity/21

Reuters(2013)Cyprustosellaround400mlneurosworthofgold

http://www.reuters.com/article/2013/04/10/cyprus-bailout-gold-

idUSB5N0CP00G20130410

tonnes of gold lent to Drexel Bank in

199022.

Protection from devaluationAs you can see from our gold bug survey

infographic, the majority of thosesurveyed 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 faithin 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.

22WealthDaily(2013)Portugal'sLostGoldhttp://www.wealthdaily.com/articles/gold-repatriation-portugal-currency-wars-

portfolio/3949


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18

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.

23

AllofficialreservedatatakenfromWorldGoldCouncil,March2013.


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19

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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@TheRealAssetCo

20

The US is movingto a gold

standardNo 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.

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 rightsThe 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.

24

UtahSoundMoney(2013)http://utahsoundmoney.org/

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 stateto 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 taxeswill be carried out.

In Missouri26, gold and silver to be

accepted by the state will be valued

according to that days London PM Fix.

Protest with your wealth

In the event of hyperinflation,

depression, or other economic calamity

related to the breakdown of the FederalReserve 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

ArizonaStateLegislaturehttp://www.azleg.gov/legtext/51leg/1r/bills/sb1439p.pdf

26Missouri,HouseofRepresentatives,Billtracking,http://www.house.mo.gov/billtracking/bills121/biltxt/commit/HB1637C.htm27

CNNMoney(2012),Statesseekcurrenciesmadeofsilverandgold,

http://money.cnn.com/2012/02/03/pf/states_currencies/index.htm


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@TheRealAssetCo

21

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 therising 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, "Inthe 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,"

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."

National drive to sound moneyIts 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.

28

WealthWire(2012)SouthCarolinaApprovesGoldandSilverasMoney

http://www.wealthwire.com/news/metals/296729

Coinnews.net(2013),RonPaulsFreeCompetitioninCurrencyActReintroduced

http://www.coinnews.net/2013/01/07/ron-pauls-free-competition-in-currency-act-

reintroduced/

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 asgold, 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 forindividual 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 wishto 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 statecapital 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.

30Mineweb(2012)MissourilawmakersdebateU.S.gold,silvercoinsuseaslegaltenderhttp://www.mineweb.com/mineweb/content/en/mineweb-gold-

news?oid=151735&sn=Detail


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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.

Their recommendation31 was that no

change was necessary at the momentbut 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:

31

RoadtoRoota(2007)GoldStandardImplementationUpdate

http://www.roadtoroota.com/public/117.cfm

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 ofinflation, 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.


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@TheRealAssetCo

23

Ditching the dollar for sound money

Read on for a quick glance at which states are getting involved in the race for sound

money.


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@TheRealAssetCo

24

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 federalgovernment 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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25

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.

Colorado - Senate Bill 12-137 rejected by Senate Democrats in March 2012.

32Mineweb(2013)Navigatinggold,silverlegaltenderisntforthefaintofhearthttp://www.mineweb.com/mineweb/content/en/mineweb-political-economy?oid=183211&sn=DetailandComparegoldandsilverprices.org(2013)Gold&SilverLegalTenderLegislationStatusbyStatehttp://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.

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.

33

Mises.org(2012)InflationandthefalloftheRomanEmpire(1984)mises.org/daily/366334Bernholz.P.(2003).InflationandMonetaryRegimes:History,EconomicsandPoliticalRelationships.

Cheltenham:EdwardElgar.


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27

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.

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.

35

FREDGraphObservations(2013)TradeWeightedU.S.DollarIndex:MajorCurrencies(TWEXMMTH),Index

March1973=100http://research.stlouisfed.org/fred236

AllRomancoincontentdatafromtwosources:Tainter,J(1990)TheCollapseofComplexSocieties,CambridgeUniversityPress|TulaneUniversity(dateunknown)RomanCurrencyOfThePrincipate

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.

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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29

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 abuseof 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.

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 ableto 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 ofindividuals, the Empire was, for a time able to survive. It did so however by vastly increasing


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@TheRealAssetCo

30

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. Dramaticinflation 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 3 rd 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 causesinflation. 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 thedebasement 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 in2012?

Using World Gold Council data we find that in 2012 the average worldwide official spendon gold was 1.6% of individuals income. However, our research shows that the disparitiesbetween how much persons from individual countries allocate to buy gold, as apercentage of their income37, are substantial.

So often we hear people say I wish I could buy gold, but its too expensive. Such peopleare usually from the some of the worlds wealthiest countries but over in poorer countrieswe see significant percentages of income being spent on gold.

In wealthy, Western countries we find less than 1% of annual individual income beingspent 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 littleimpact. This was most prevalent in Vietnam where, despite efforts to curb demand ongold, 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 lowestpercentage of income on gold. In the US, they allocate twenty times less income to goldthan 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. Nocountries in the Eurozone spent more than 0.4% of their income on gold, and Germansspent the highest percentage in the Eurozone. In contrast, France spent the lowestamount on gold, proportionate to their income, out of all countries studied.

As expected, gold investment in the West is still an exceptionally small market whencompared to other asset and equity markets. Those in poorer countries are nowbenefitting from what Eric Sprott calls the great wealth redistribution. Investing in goldsince 2000 has allowed many to prosper, an unlikely situation for the majority of investorsin Western countries.

37

datatakenfromaverageincomedatafromavarietyofsources,availableuponrequest


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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 Indiashining.

Read on for a more in-depth look at India and Asias gold buying.


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Europeans spend less than 1%ongoldUnsurprisingly, 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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34

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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@TheRealAssetCo

35

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, andgrowing, 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

38

BBC(2013)Bricsnationsmeettocement

relationships

http://www.bbc.co.uk/news/business-21923874 39

GlobalFinance(2012)SpecialReport:BRICs,Dan

Keelerhttp://www.gfmag.com/archives/147-february-2012/11604-special-report-

brics.html#axzz2PrSp85cp

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 manycommentators, 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.

Moves towards a currency unionJim 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

Asabove


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@TheRealAssetCo

36

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 willreceive 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.

Moving from the USD into goldAware 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 betterposition 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 workingto 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 500-

600 tonnes. A recent statement from Yi

Gang, Vice Governor of the Peoples Bank

of China (PBOC), implied that the bank

41

WorldGoldCouncil,gold.org

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.

WesuggestedthatChinasgold

reservesshouldreach6,000tonsin

thenext3-5yearsandperhaps10,000tonsin8-10years. 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.

42

Mineweb(2013)MassiveincreaseinChinese

goldreservesunlikelyPBOC

http://www.mineweb.com/mineweb/content/en/

mineweb-gold-news?oid=182144&sn=Detail43

TheRealAssetCompany(2012)ChinasGoldenPlanhttp://therealasset.co.uk/chinas-golden-

plan/


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@TheRealAssetCo

37

Since 2006 the Russian central-bank has

been slowly accumulating gold ruble-

cost averaging over the last seven years.

The more gold a country has, Evgeny

Fedorov, a Russian politician, toldBloomberg, 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 arestocking 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.

44

Bloomberg(2013),PutinTurnsBlackGoldto

BullionasRussiaOutbuysWorld

http://www.bloomberg.com/news/2013-02-

10/putin-turns-black-gold-into-bullion-as-russia-

out-buys-world.html45

MaxKeiser(2012),Indianhouseholdshave

piledupasmuchas20,000tonnesofgold,worth

$1.16trillion,anhistorichigh

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/

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 Troy ozAu47

Brazil 863882336361.800000

2160530

Russia 862549230350.000000

31186224

India 329724032610.000000

17930471

China 15993644100.000000

33886887

SouthAfrica

204737322596.000000

4022059

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.

Percentagebacking

Gold price(USD)

20% $5,105

40% $10,211

100% $25,530

Should the BRICS nations go all out and

back their money 100% with their gold,

then we would see a $25,530 internal

46

TradingEconomics(2013)MoneySupply

http://www.tradingeconomics.com/country-list/money-supply-m247

WorldGoldCouncil(2013)


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@TheRealAssetCo

38

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, wewould 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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39

The onlycountries who

win currencywars are those

who don't fightthem

James Rickards is the author of theinternational 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.

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.

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 concernsabout 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 usedas 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.


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40

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. Whichdo 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 othercurrency. 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 f

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