AHA Issue 9

R e a l G o l d • R e a l S i lv e r • R e a l A s s e t s • R e a l W e a l t h

AHA.InvestorAU$8.95 | Volume 1, Issue #9

July/August 2012

The Aussie Gold MAGAzine

PLUS: ReSoURceS & eneRgy SymPoSiUm: FULL coveRage

Perth Mint Raises the Stakes

Perth Mint Raises the Stakes

On Gold with David EvansOn Gold with David Evans

The Golden Girl The Golden GirlGuardian Vaults’Jenny TremaineGuardian Vaults’Jenny Tremaine

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A tribute to the inventor of the first chronograph.Monopusher chronograph, self-windingmanufacture movement. 30 min. and 60 sec. rotating disccounters fixed on the counter bridge. 72h power reserve. Crafted in the Montblanc Manufacture in Le Locle,Switzerland.

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contents1 Contents

2 Welcome

4 News

10 Special Report: Energy Symposium The Broken Hill Energy Symposium Words by Jordan Eliseo.

14 London Gold How the City of London affects Gold pricing Worldwide Words from Greg Canavan of Port Phillip Publishing

22 Let’s Get Physical: Gold, Security & what the heck is “unallocated & allocated storage” anyway? Guardian Vaults MD Jenny Tremaine makes it simple.

20 Cover Interview: The Golden Girl One on One with Guardian Vaults MD Jenny Tremaine. Words by Mike Woodcock, Art by Zahrina Robertson & Corey Wright

26 Forecasts: Gold Price (For the next 16 years) Mathematician and Gold Nerds Analyst David Evans on the future of the yellow metal

32 A Barbarous Relic? Melbourne’s Dan Denning compares bullion pricing with some of the better known U.S. Investment funds.

36 Silver: Bottoming out for a Climb? London Analyst & Sovereign Man regular Tim Staermose on Silver’s outlook.

OPINION

38 38 Climate Change & Freedom The Carbon Tax is upon us. And regardless of your views as to it’s impact, one of the key drivers for this legislation – Climate change – is still being debated in many quarters. Probably one of the most important and contentious issues of this century, and certainly one that will impact the resource community, we thought we’d talk to an informed observer. Dr David Evans worked for the Australian Greenhouse Office from 1999 to 2005, building the carbon accounting model that Australia uses to track carbon in its biosphere for the purposes of the Kyoto Protocol. And his views on climate change might surprise you.

NUMISMATICS

44 High Relief New coins from the Perth Mint – from the Bullion Baron

46 Australian Rare Coins & Banknotes A quick look at some Australian currency, and why that $10 note might be worth a bit more than you thought.

CLASSICS & COLLECTABLES

50 Art Investment: Now based in both London & Sydney, Al Bailey takes us through our old favourites the Archibalds, and what it means for a winner.

68 Diamonds: Tradition or investment opportunity? Why not both? From Anna Cisecki of the DCLA

MINING & MINERALS

56 Rare Earths Michael Moore on one of our personal favourites: ‘Rare earth’ Metals plays

58 Mining News – Industry Updates

DIRECTORY

64 Buyers’ Directory

68 The Final Word: Do Nothing, with Tim Staermose

20

Cover photograph by Corey Wright: Guardian Vaults joint MD Jenny Tremaine

2 | AHA.Investor Jul/Aug 2012

PUBLISHER: FREERMEDIA

EDITOR: Mike Woodcock

LAYOUT: Andrew Folos & Frank Demaria

FEATURE WRITER: Michael Moore, ‘Bullion Baron’

CONTRIBUTORS:

– Alistair Bailey, Executive Director, Art Equity

– Tim Staermose, Chief Investment Strategist, Sovereign Man

– Dan Denning, editor, Port Phillip Publishing

– Simon Black, Editor, Sovereign Man

– Jordan Eliseo of LJ Financial Group

– Kerry Stevenson of Symposium

– Michael J Moore of Author Services

The Publisher would also like to thank Andra Muller for her efforts, Andrew

Folos and his team (Hi Frank), Simon Munton at Port Phillip Publishing and

the tireless administrators of GoldStackers.com.au.

Tim Staermose and Simon Black appear courtesy of Sovereign Man. We

find Simon Black’s daily musing from various known and unknown corners

around the world extremely informative and entertaining.

ABOUT US, DISCLAIMER: Australian Hard Asset Investor is 100%

Australian owned and independent. We don’t sell gold, silver, hard

assets or financial advice to anyone.

All commentary and advice in this publication is of a general nature

only, and doesn’t consider your individual circumstances or financial

objectives. You should always consult a licensed financial advisor for

your investment advice. Please do your own research.

CONTACT US FOR ADVERTISINGEnquires to the Publisher: [email protected]

Advertising Enquires: [email protected]

SUBSCRIPTIONSwww.ahainvestor.com

AHA.InvestorWelcome to AHA Investor

W ith the finance headlines in Europe, I’m glad the Olympics

are upon us. I for one could us a little light entertainment, and it’s always good to see Aussies win gold at anything (and you know we’ll always turn a few heads!)

Speaking of Europe, I remember being asked ahead of the Greek elections what I thought would happen. My answer was that it simply didn’t matter – a view that’s

been proven out. The fundamental problem is this: the system in Europe is now in a state where an election in one of smaller countries can have dire consequences across the rest of the Eurozone. With things so precariously balanced, it won’t take much to bring things to a head.

To get a better understanding of this, we look to London, home of the Olympics. The centre of the financial universe, London calculates LIBOR rates (interbank lending rates for the rest of the world), as well as overseeing pricing across the metals community. We take a closer look at how that works, and what it means for the rest of us.

We also take a long hard look at Gold, and try to get a sense of where it’s headed – for the next 16 years no less!

In our cover story interview we go deep inside Guardian Vaults, and get to know joint MD Jenny Tremaine, and her plans for the future.

Michael Moore offers his thoughts on Silver, Al Bailey shares what it means for a winner of the Archibald Prize from an investors’ perspective, and as usual we have coverage on mining, minerals and much more.

Mike WoodcockEditorAHA Investor

P U B L I S H E R ’ S L E T T E R

R e a l G o l d • R e a l S i lv e r • R e a l A s s e t s • R e a l W e a l t hAHA.InvestorAU$8.95 | Volume 1, Issue #9

July/August 2012The Aussie Gold MAGAzine

PLUS: ReSoURceS & eneRgy

SymPoSiUm: FULL coveRage

Perth Mint Raises the StakesPerth Mint Raises the Stakes

On Gold with David EvansOn Gold with David Evans

The Golden Girl

The Golden GirlGuardian Vaults’Jenny TremaineGuardian Vaults’Jenny Tremaine

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Jul/Aug 2012 AHA.Investor | 3

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The DCLA Diamond buying workshop includes: The 4C’s of diamond grading | Establishing quality & value

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w o R L d n E w S | Hard Asset Updates

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As a former branch of the Royal Mint, The Perth Mint is honouring its British heritage by releasing two majestic kilo coins to celebrate the 60 year reign of Queen Elizabeth II.

Struck from 1 kilo of 99.99% pure gold and 1 kilo of 99.9% pure silver, these latest releases complete The Perth Mint’s extensive Diamond Jubilee commemorative coin program. Both coins portray an identical struck design of the St Edward’s Crown edged by 60 diamond motifs - representing each year of Her Majesty’s reign – bordered by the inscription DIAMOND JUBILEE and the dates 1952 – 2012.

“The Queen’s Diamond Jubilee is a remarkable moment in history, and we‘re delighted to celebrate the Royal milestone with commemoratives that are quite literally crowning achievements”, said Perth Mint Sales and Marketing Director, Ron Currie.

Meticulously crafted and housed in a timber presentation case with a foiled and embossed shipper, only 60 HM Queen Elizabeth II 1 kilo gold coins will be released by The Perth Mint for sale worldwide.Similarly, the 1 kilo silver tribute is released to a mintage of only 600, with its classic display case and outer packaging also befitting the occasion.Issued as Australian legal

tender, each coin depicts the Ian Rank-Broadley effigy of Her Majesty Queen Elizabeth II on the obverse.

Priced at $62,950 and $1,990 both the gold and silver releases respectively are accompanied by a Certificate of Authenticity. Both coins are now available from The Perth Mint on toll free 1800 098 817 (Australia), +61 8 9421 7218 (International) or www.perthmint.com.au European collectors can purchase the coins exclusively from Chard in the United Kingdom.

PERTH MINT KING-SIZED KILO COINS mark Queen’s 60 year reign


Hard Asset Updates | w o R L d n E w S

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Roman coins collected by numismatist the late Ken Day are to be sold in a specialist London auction on Tuesday July 3 and the proceeds donated to the British Museum.

Auctioneers Morton & Eden will divide the coins between two sales and expect the collection to raise a total of around £30,000. The proceeds of both sales will be added to the acquisition fund set up to enable the museum to purchase coins of significance to Britain as well as to increase the accessibility of the national collection using new digital technology.

Kenneth Edwin Day, who lived in Thames Ditton, was a leading figure in the Kingston Numismatic Society, a longstanding member of the Royal Numismatic Society, and a constant attender at the RNS London lecture programme. He was also a strong supporter of the British Museum’s Department of Coins and Medals and was a regular visitor to the museum for many years, where he was always keen to share his knowledge of Roman coins and his new

acquisitions with curators.A spokesman for the British Museum said: “Ken decided

some years ago that he would leave his collection to the BM, and we are delighted to have added some of his coins to the national collection for public benefit. It is a fitting testimony to his generosity and to a lifetime’s passion for Roman coins.

June, United StatesU.S. federal bank regulators have issued a proposed

rule-making note regarding capital risk-weightings for various assets, directly affecting gold’s risk exposure ratings. The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Federal Reserve asked for comments on a move that would place a “zero-risk-weight” rating on gold bullion held in banking organization’s own vaults, or held in another depository institution’s vaults on an allocated basis.

The full note can be found at FDIC.gov and Section 11 on page 57 states, “A zero percent risk weight to cash owned and held in all of a banking organization’s offices or in transit; gold bullion held in the banking organization’s own vaults, or held in another depository institution’s vaults on an allocated basis to the extent gold bullion assets

are offset by gold bullion liabilities; and to exposures that arise from the settlement of cash transactions with a central counterparty where there is no assumption of ongoing counterparty credit risk by the central counterparty after settlement of the trade and associated default fund contributions.”

The move will essentially place gold on the same risk level as cold hard cash, zero percent. Historically, gold has received a risk weighting of 50 percent. If the proposal stands, it appears that banks will have more flexibility and will not have their regulatory capital ratios punished for holding gold as a safe-haven, instead of government bonds or fiat currency. This will likely help gold be seen more as a true safe-haven in financial markets and further drive gold bullion demand, which is already at historic highs among central banks.

THE KENNETH Day COLLECTION expected to raise £30,000

GOLD RISK LOwERS


woRLd nEwS UPdATESw o R L d n E w S | Hard Asset Updates

China’s art market has been rocked after a series of prominent figures were detained for questioning by the police as part of an investigation into allegedly rampant tax evasion.

Wu Jin, editor-in-chief of Hi Art magazine, Huang Yujie, chairman of Beijing Bonwin Contemporary Art Investment Co, and He Juxing, former brand manager of Minsheng Bank, were detained for suspected tax evasion, Shanghai-based Oriental Morning Post reported last month, citing an unnamed source.

“These are smuggling cases, similar to that of Lai Changxing,” said Tang Zhijian, a lawyer at Shanghai-based WQLF law office. Lai Changxing was the mastermind behind the notorious Xiamen smuggling ring who was sentenced to life imprisonment in May.

At the end of March, senior executives at Integrated Fine Arts Solutions (IFAS), a Shanghai-based art-freight company and a preferred transporter for Chinese art collectors, were detained for allegedly underreporting the values of imported artworks in order to help buyers dodge import duties and value-added taxes.

Days later, managers of another artwork transporter, Noah Fine Art Shipping Agency (Beijing) Co, were also questioned by the police. According to the Oriental Morning Post, officials seized an 800-name list of clients of the company.

New York-based Sotheby’s and London-based Christie’s International, the world’s two biggest art-auction companies, have also repoertedly been contacted by the Chinese authorities in a request for cooperation with their investigation, Shanghai Securities News reported earlier this month. (There is no suggestion of involvement.)

The nation announced a cut in tariffs for artworks earlier this year, leading some observers to expect a crackdown, but

CHINa’S aRT Investment Scandal

others said there was a feeling of having been ambushed. “It came as a surprise,” said Wang Xiaowen, vice general manager of

Beijing GOOGUT Auction Co.A member of staff with the shanghai office of IFAS said Thursday that

the company’s “Beijing office is still cooperating with the authorities in the investigation,” though the Shanghai office is running as usual.

In China, artworks not defined as antiquities generally fall into the same category as luxury goods. China used to levy a tariff equivalent to 12 percent of an artwork’s price on artworks that have been produced within the last 100 years, while countries like the US, Canada, New Zealand and South Korea have adopted zero

tariffs on artworks, according to news portal ifeng.com.“Hong Kong levies zero tariffs on artworks,

one of the reasons why the region can attract more artworks to its exhibitions

compared with the mainland,” said one gallery manager.

The State Council ruled at the end of 2011 that from the start of 2012, tariffs

on original artworks including paintings and sculptures would be lowered from

12 percent to 6 percent. The rule is expected to bring in an extra 3 billion

to 5 billion yuan ($471 million to $785 million) in trade turnover to the art sector

during 2012. But with the country’s relatively high sales tax and value-added tax, a

collector still needs to pay an extra 24 to 30 percent of an artwork’s price for it

to be transported back to China. According to data from the UN, artworks

worth some 127 million euros were imported to the mainland from Hong Kong in 2010. But official

data from authorities in the mainland recorded an import value of just 1.7 million euros ($2.13 million).

China surpassed the US for the first time in 2011 to become the largest art and antiques market globally based on both auction and dealer sales, according to the European Fine Art Foundation. Auction sales saw a surge of 177 percent in 2010 and a further 64 percent increase in 2011 in China.



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INDIaN gold rises

NEW DELHI: The second half of this year may see 20 per cent increase in gold imports to 300 tonnes over the first six months, an Indian bullion association has said. (India is home to Diwali, the annual gold-gift giving festical held in November.)

“Imports in the second half of the calender year will be around 300 tonnes, higher than what we have imported in first half, which was 250 tonnes,” Bombay Bullion Association President Prithviraj Kothari said.

He further said the import volumes would be dependent on the price of gold in domestic market.

Imports could rise if domestic gold prices stay below Rs 30,000 per 10 grams, he said.

Kothari, however, said for the full year it would be less than 30 per cent from 2011.

When asked about July consumption, he said it would be dull because of lack of marriages and festival season but the demand could pick up from August.

Earlier this year, the government had changed the duty structure on gold and silver from specific to value-linked, making precious metals more expensive.

The import duty on gold was fixed at 2 per cent of the value, instead of the earlier rate of Rs 300 per 10 grams. On silver, the import duty was pegged at 6 per cent, as against Rs 1,500 per kg earlier.

In 2011, about 1,037 tonnes of gold was available in India, the world’s biggest consumer, of which 967 tonnes was imported and the rest was from other sources like recycled, according to the World Gold Council.

First quarter 2012 investment demand for gold was a record 98.6 metric tons, a 13 percent increase from the year ago quarter according to numbers in a recent Bloomberg article. The World Gold Council predicts that in 2012 China will top India as the largest bullion market. “It’s necessary for individual, institutional or even government investors to hold gold when the value of money is decreasing at a time of possible quantitative easing or excessive money-printing practices,” said Zheng Zhiguang, general manager of the precious-metals department at ICBC.

CHINa GOLDEN growth continues


w o R L d n E w S | Hard Asset Updates

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The images featured on Australia’s decimal coins are as familiar to Australians as they are intriguing and world renowned. The Royal Australian Mint is a national icon synonymous with high-quality, artistic collectable coins as much as it is recognised as the producer of our nation’s circulating coins. What started as a demand for proof versions of the original decimal currency has now evolved into a numismatic calendar that is the envy of mints around the world with products that are highly coveted by collectors and investors.

The Royal Australian Mint’sinnovative technologies result in the most stunning precious metal proof coins,which are laser cut and hand polished with diamond paste to produce their stunning designs.The 2012 GoldProof Set features the familiar 1c, 2c, 5c, 10c, 20c, round 50c, $1 and $2 coins presented in a never seen before way, all struck on the same sized tiny 11.15 millimetregold blanks. These are the smallest circulating coin design representations ever made by the Royal Australian Mint which means that this collection is anything but run of the mill.

Australia’s circulating coin designs, all bar the $2 design,were created by Geelong born craftsman Stuart Devlin,the winner of a competition where six leading artists vied for the honour of having their work displayed on Australia’s coins. After designing Australia’s circulating coins, Mr Stuart Devlin moved to England, and is now the official goldsmith for Her Majesty Queen Elizabeth II.Mr Horst Hahne created the Ainslie Roberts’ inspired portrait of the Aboriginal elder that graces the $2 coin.

The Royal Australian Mint releases gold proof year sets annually which become part of an ongoing collection, allowing investors to build an exciting and often lucrative coin portfolio.These numismatic releases hold great international appeal, with a high precious metal content, low mintages and cleverly designed packaging. The Royal Australian Mint was one of the first mints in the world to achieve formal accreditation through the ISO Quality Standards ISO 9002, which further qualifies their superiority and expertise in this field.

Other Royal Australian Mint gold releases have proven to be highly popular and internationally recognised for their appeal to collectors. The design on the annual Kangaroo at Sunset coin release has won worldwide acclaim for its truly

Australian depiction of a kangaroo hopping across the outback silhouetted against a setting sun, while the 2011 Convict Heritage Sites Coin Collection has been commended for the complete presentation of the product adding to its collectability.

The exquisitely crafted Royal Australian Mint’s 2012 Gold Proof Set is only produced to the tiny mintage of 2000, ensuring that this set will capitalise on its precious metal content, novelty and rarity in years to come. As the coins are also struck in 99.99% gold, this set also represents a possible entry point into the lucrative gold investment market.This collection is the first miniature gold representation of a country’s full set of circulating coins, a trail-blazing numismatic endeavour which will leave other national mints scrambling to meet this new bar of excellence.

The Royal Australian Mint’s 2012 Gold Proof Set is a highly affordable way to acquire the first miniature set of Australia’s circulating coin designs struck in 99.99% gold and available through the Royal Australian Mint Call Centre on 1300 652 020, website www.ramint.gov.au and onsite in the Royal Mint’s Coin Shop in Canberra.

auSTRaLIa’S fIRST MINIaTuRE MONEyThe Royal australian Mint’s 2012 Gold Proof Set



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Sales of U.S. Mint’s American Eagle gold coins fell more than 50 percent year-on-year to 127,500 ounces in the second quarter, its worst three months since the second quarter of 2008 - prior to the height of the global economic crisis, the Mint’s web site showed on Friday.

Intense competition from cheaper gold coins, including the Canadian Gold Maple Leaf, and other precious metal products such as platinum, also cut into sales of the popular U.S. gold coins, dealers said.

Meanwhile, a four-percent drop in the price of gold in the second quarter from the prior three months, its largest quarterly decline in 4 years, has curbed the interest of more speculative, momentum-driven individual investors.

The yellow metal is also at risk of posting its first annual loss this year, as prices have risen in each of the past 11 years.

Unlike in the last couple of years, investors have not been fleeing to bullion in droves despite signs of a worsening European debt crisis. EU leaders agreed on Friday to inject aid directly into stricken banks and intervene on bond markets to support troubled member states.

“Demand will almost instantly increase if the market goes into a sustainable rally,” said Roy Friedman, executive VP of Texas-

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based Dillon Gage.Last year, sales of Gold Maple Leaf totaled 1.15 million

ounces, above the 1 million ounces of American Eagle gold coins.

Michael Kramer, president of MTB, another major coin dealer based in New York, said he expects sales of Gold Maple Leaf could beat Eagle in a close race.

Major coin dealers on Friday were quoting a $15 discount for each one-ounce Gold Maple Leaf below the price of an American Eagle gold coin. However, dealers also pay less to buy back the Canadian coins, they said.

Mints usually charge dealers a 3 percent premium over the price of spot gold.

In addition, a near-record $150 premium of gold above the more rare platinum prompted some investors to profit from the anomaly.

“We have a couple of customers with fairly nice positions have just been unloading gold and buying platinum. So, if he would lose out on one, he would gain on the other side,” Kramer said.


S P E c I A L R E P o R T | Symposium

Broken Hill Resources & Energy Symposium

The 2012 Resources and Energy Symposium got off to a bang this year, with the Sunday

weather gods shining down on a golf day and BBQ which helped break the ice for the

over 500 attendees who helped make the event such a success. The social side of the conference continued on both the Monday

and the Tuesday night, with a drinks event hosted by the Mayor on the Monday, followed

the next evening by a most enjoyable Wild West Dinner with Camel Races (were there

Camels in the Wild West?) kindly hosted by Runge Limited.

Kerry Stevenson, Managing Director of Symposium, was clearly delighted with this years event, saying she was ‘very happy with the number of

attendees in the second year, and that everyone found the experience worthwile and enjoyable. Next year we’ll be back and it will be bigger than ever’

Apart from the regular social events and schedule of key note speakers and company presentations, this years Symposium also featured the first in the ‘Thought Leaders’ series, which brought together a handful of industry experts as well as representatives from the government and finance, who discussed some of the challenges and opportunities that exist in the resources sector today. These issues include labor shortages, high


Symposium | S P E c I A L R E P o R T

levels of staff turnover and a hostile government. To this list I would add our local wealth management

industry, custodian of some $1.4 Trillion in superannuation money, who continue to ignore this sector outside of the large cap miners, despite the amazing opportunities further down the food chain. With average returns no better than cash, It’s no wonder the majority of Australians feel they are missing out on the mining boom when the return on their primary non-housing asset, superannuation, has been so poor since the turn of the century, right around the time the rise in commodity prices got into full swing.

Having thoroughly enjoyed last year’s Gold Symposium, I was even more impressed with line-up and quality of presentations that were offered by the key note speakers at broken hill, who included Ian Plimer, the Honorable John Anderson, Sir Eric Neal, Michael Blythe, John Roskam, Richard Karn and Dr Claire Curtis Thomas amongst many others.

Michael Blythe kicked proceedings off with a review of the global and Australian economies, and the importance of the mining industry to our future. Of

all the facts and figures presented, two were stand outs. The first was the suggestion that fully one-half to two-thirds of our growth going forward will come from the mining industry, staggering considering mining constitutes only 3% of the labour force. The second was that according to the IMF, the sovereign debt crisis will be with us for at least 20 years, as the best case scenario is for GDP/Debt ratios to stabilize around the 60% level in around 2030. Volatility is here to stay.

The Honorable John Anderson’s speech, linking cheap energy with agricultural innovation, essential in a world that is losing arable land yet will grow to 9 billion mouths and require a 75% increase in food production by 2050 was excellent. The reality is pretty straightforward. Renewables are not the answer, and if we don’t want nuclear, coal or gas that’s fine, as long as we don’t want air-conditioning either.

John Roskam of the IPA, also had plenty of interesting information for the attendees. According to his organisations research, since 2007, The Government has monumentally failed in its pledge to


repeal one piece of legislation for every new piece proposed (so as to at least put the brakes on the regulatory burden the private sector faces). Since that time there have been 12,835 new pieces of legislation put in place, and the princely sum of 58 cancelled. That’s a margin of error that would make a Lehman Brothers Risk Manager proud.

The two other areas of particular interest from his speech focused on the growth in the welfare state. In 1972, only 3% of working age Australians needed government welfare to survive. Today this number has more than quintupled to 16%. At the same time, the worker to welfare recipient ratio has nearly halved from 5 to 2.7. The demographic challenge is not something just for the Japanese.

The conference also gave an opportunity to some 30 odd resource companies to show their wares to the investing public via a series of 10 minute presentations. Whilst I was unable to see all of them, and am therefore obviously not in an educated position to judge their merit, discussions ‘around the campfire’ indicated that the presentations by Mutiny Gold, YTC Resources, Marengo Mining and Sandfire Resources (not surprisingly) were particularly noteworthy. I personally enjoyed Ian Levy’s presentation on behalf of

S P E c I A L R E P o R T | Symposium

The challenge of educating Australians about the potential

that exists in mining, energy and agriculture, and the important role they’ll continue to play in

keeping our nation successful and economically strong is

one that falls to all of us with an interest in the sector


Australian Bauxite. It was a fascinating look at the demand for the product coming out of China, as well as the problems China will have in sourcing the Bauxite it will need to fire its 30 odd Alumina refineries going forward, especially as Indonesia plans to halt exports (scheduled for 2014) going forward. These developments will clearly provide a terrific opportunity for Australian Bauxite exporters in the decade ahead.

The last key note speech that I wish to reference in this article was given by Dr Claire Curtis-Thomas, CEO of the Institute of Gas Engineers and Managers in the UK. Whilst her speech focused on gas extraction, and the challenges they have faced in the UK, in reality it was a rallying call for the mining, agriculture and energy industry as a whole in this country. As she expertly communicated, there is no point in being right about what the country needs if the majority of people don’t believe or trust you. This industry must work together and challenge the misconceptions and fears that exist toward it in Australia, and it must defend itself fiercely against the false propaganda that is directed against it on a regular basis.

The challenge of educating Australians about the potential that exists in mining, energy and agriculture, and the important role they’ll continue to play in keeping our nation successful and economically strong is one that falls to all of us with an interest in the sector, no matter whether we are individual investors, mining companies, farmers, financial planners or in the media.

We must take Australians not directly connected to ‘the mining boom’ on a journey to show them why they should support it, and explain the benefits it will bring to all Australians, otherwise the industry will continue to lack the support of the mainstream.

I would urge everyone who attended the conference to not only commit to returning next year, but also to speak to a handful of others who would benefit from attending – this industry must grow together.

Jordan EliseoLJ Financial Group

LJ Financial Group is a boutique financial planning and corporate consultancy firm with a specialist focus on the mining and natural resources sector. We believe in the investment opportunities this sector offers to Australians and bring these to our clients.

Symposium | S P E c I A L R E P o R T


A S S E T I n v E S T m E n T | London Gold


London Gold | A S S E T I n v E S T m E n T

This won’t be easy reading. Sometimes you have to look under

the hood to work out what the real problem is. If you’re not a mechanic, looking under the hood can be daunting. But stick with us, because this could be one of the more important pieces we’ve written for some time.

Trading Physical Gold With PaperLondon is supposedly the home of physical gold trading. But as you’ll see, most of the trading that takes place is actually a form of ‘paper’ gold.

Contrary to what most people think, the gold market is not a small market at all. According to the World Gold Council (WGC), in terms of size it is only behind the US and Japanese debt markets.

The gold price certainly does move in

mysterious ways. Today our task is to try and work out why. To do so, we need to

look into the mysterious world

of the london gold market.

The WGC reckons all the gold ever mined is around 170,000 tonnes...or about 6 billion ounces. Of that amount, they estimate that 60,400 tonnes (2.13 billion ounces) represent private investment and official sector holdings. At US$1,600 an ounce, that’s a market size of US$3.4 trillion.

That’s hardly chump change. The gold market is massive. It may no longer be

officially recognised as money, but gold clearly still plays a hugely important role in the international financial system.

You can see this in other stats too. According to the London Bullion Market Association (LBMA), over the past 12 months average daily turnover in the gold market was 21.2 million ounces. If we adjust this for annualised turnover, an incredible 5.6 billion ounces of gold changed hands last year.

Or did it?5.6 billion ounces is more than twice the size

of the estimated gold investment market, which is 2.13 billion ounces. We didn’t sell any of our gold in the last year, and we’re sure many others didn’t either. So this turnover is clearly not all physical gold. Most of it is paper gold, which is often referred to as ‘unallocated’ gold.

london gold (and how to price it)


Unallocated gold is basically gold you think you own but really don’t. The bank, or counterparty, promises to get your gold if you want to convert it to allocated, but in the meantime your gold is ‘in the system’...more than likely with a number of different claims to it.

Now, here’s where things begin to get interesting.

The GoFo and the Gold Market Although the London bullion market predominantly trades paper gold, it needs some physical to give the appearance that the market is a solid one.

In times of market stress, there are two conflicting forces pulling on the gold market. When liquidity tightens (as it is now) financial assets fall in price. Because the gold market is dominated by paper gold trading, including many highly leveraged players, selling prevails and the gold price falls.

But in reality, physical gold becomes even more valuable in times of crisis. How can this be, you ask?

To explain, we need to look at what is called the Gold

in times of market stress, there

are two conflicting forces pulling

on the gold market. When liquidity

tightens (as it is now) financial

assets fall in price. Because the

gold market is dominated by paper

gold trading, including many highly

leveraged players, selling prevails

and the gold price falls.



Forward Offered Rate - the GOFO. GOFO is the rate of interest you pay if you swap your gold (short term) for US dollars. Alternatively, it is the rate of interest you receive for lending US dollars against gold.

Lately, the GOFO rate has been falling. This indicates a few things. Firstly, it tells us that gold’s value as security for a US dollar loan has increased. If a bank needs to get US dollars in a hurry (as often happens in a liquidity crisis) then using gold as collateral (security) is the cheapest way to do this. Currently, the GOFO rate is 0.3% for a term of one month, the lowest level since February 2011.

Just as a government bond rises in price as its yield falls, so should the price of gold rise as its implied yield (via GOFO) falls. But this doesn’t happen in the gold market.

In fact, it’s the opposite. That’s because in times of a liquidity crisis or deflationary scare you have leveraged paper gold holders selling, while at the same time increasing fear leads unallocated gold ‘owners’ to request taking ownership of their gold...and moving it out of the ‘system’, or out of the London bullion market.

So how do these two contradictory forces play out? Well, let’s have a look at two recent periods in the history of the gold market. One that kicked the gold bull market off in September 1999 and the other that looked like ending it in November 2008.

In both these periods the GOFO rate fell below zero. This almost never happens. A negative GOFO rate says banks will pay you to swap US dollars for gold. It suggests they are desperate to get their hands on gold...physical gold.

In late September 1999 the GOFO rate fell to an unprecedented -4%. Look what happened to the price at that point. It exploded higher in a matter of days. The gold market needed a higher price to entice some gold back into the system.

Now let’s look at November 2008. On November 20, 21 and 24 the one-month GOFO rate went negative, meaning physical gold was again in high demand in the bullion banking system.

If you look at the chart on those days you’ll see that the

gold price bottomed right at this time. The stress in the market was so great that a higher price was guaranteed.

After hitting a low of around US$700, gold surged to over US$900 dollars in a matter of months. Paradoxically, the demand for physical gold (within the bullion banking system) seems greatest when the selling of paper gold (which sets the price) is heaviest.

Riding The Gold Bull MarketThat’s why this long bull market in gold is so relentless. As the global financial system continues to decay, physical gold flees the ‘system’. Rising prices are necessary to bring some of that gold back into the system. This is necessary to keep the US dollar based monetary arrangement going.

If gold wasn’t such a crucial part of global finance, it wouldn’t be such a huge market. Gold is crucial...regardless of what Warren Buffett or Ben Bernanke say.

The day when physical gold leaves the banking system

- for good - is the day when the paper dollar based system dies. The GOFO rate could give us important clues as to when that will happen. As in the past, the gold ‘price’ may fall at the same time.

But at that point, the value of physical gold will be many multiples of the current price. We wouldn’t be surprised to see trading halted and gold repriced much, much higher over the course of a weekend. As it has done throughout history, gold will preserve your wealth. But you must focus on value, not price if you want it to do so.

holding on Tight to Physical GoldThis current pullback in the gold price has not been as severe as past episodes. The GOFO rate did not go negative. But it is suggesting that physical gold is increasingly in demand. The credit worthiness of the whole system is now coming into question.

Physical gold, the only asset without counterparty risk, increases in value at such a time...regardless of what the price tells you. With gold rising today, it’s a sign the ‘system’

Source: StockCharts

Source: StockCharts

London Gold | A S S E T I n v E S T m E n T


C O N T E S S A

To own a rare Argyle pink diamond is to own a truly magnificent heirloom.

Contessa, beautifully handcrafted in Platinum and 18ct Rose Gold, features an exquisite combination of stunning craftsmanship and the rarest of Australian Argyle pink diamonds.

Pink diamonds are the rarest diamonds in the world and are revered for their unique provenance and intrinsic beauty.

SYDNEY

The Westin Sydney No.1 Martin Place +61 (0)2 9233 6661

GOLD COAST

Marina Mirage Main Beach, QLD +61 (0)7 5528 3666

LONDON

The Royal Arcade Old Bond St, Mayfair +44 (0)20 7499 8490

calleija.com.au

BULLISH GOLD WEDGE DETECTED

www.SoundMoneySoundInvestments.com.auSound Money Sound Investments is published by Port Phillip Publishing Pty Ltd.

Registered Office: Port Phillip Publishing Ltd Pty, Level 1, 10 Fitzroy Street, St. Kilda, VIC 3182Port Phillip Publishing Pty Ltd (ACN: 117 765 009) (AFS License: 323 988).

Charts now indicate a bullish ‘wedge’ formation in the gold price. �is is a typical consolidation pattern in bull markets.

We can’t tell the future, says Sound Money, Sound Investments editor Greg Canavan...

but these charts are telling us the consolidation period is nearly complete.

To �nd out where Greg sees the gold bull heading next, visit:

needs a higher price to entice more real bullion into the market. This is a process that moves gold from the weak hands to the

strong. So if you’re thinking of selling your gold...be strong. Think about what you’re swapping it for. You’re going short on 6,000 years of history and long on a 41 year paper and credit based experiment.

As a footnote to this theory about how the gold market actually works, we want to say we are a student of the gold market, not a

teacher. Years of reading and study haven’t changed that...and we’re always willing to learn more.

And finally...we haven’t mentioned anything about manipulation being the reason behind the gold price fall. We think governments certainly attempt to control the price of gold (as they do with all currencies). In fact, the US government funded the Exchange Stabilisation Fund with the proceeds from its confiscation of gold from the public in 1934.

But the presence of such a huge paper gold market means that at certain times (liquidity crises) gold will sell off with all financial assets. As we’ve tried to explain though, a very low gold price is not in a government’s interest because physical gold would leave the system and end the paper money game.

So governments simply try to control gold’s rise, making sure it doesn’t throw off too much of a red alert signal. For the gold price to genuinely fall, we need to see a rise in REAL interest rates. In a world buckling under the weight of debt at all levels, that is just not going to happen.

Regards,Greg Canavan

We think governments

certainly attempt to control

the price of gold (as they do

with all currencies). in fact,

the us government funded

the exchange stabilisation

Fund with the proceeds

from its confiscation of gold

from the public in 1934.



Story Name | S E c T I o n n A m E

C O N T E S S A

To own a rare Argyle pink diamond is to own a truly magnificent heirloom.

Contessa, beautifully handcrafted in Platinum and 18ct Rose Gold, features an exquisite combination of stunning craftsmanship and the rarest of Australian Argyle pink diamonds.

Pink diamonds are the rarest diamonds in the world and are revered for their unique provenance and intrinsic beauty.

SYDNEY

The Westin Sydney No.1 Martin Place +61 (0)2 9233 6661

GOLD COAST

Marina Mirage Main Beach, QLD +61 (0)7 5528 3666

LONDON

The Royal Arcade Old Bond St, Mayfair +44 (0)20 7499 8490

calleija.com.au


A S S E T I n v E S T m E n T | The Golden Girl


The Golden Girl | A S S E T I n v E S T m E n T

Each industry has personalities, and gold

is no different. From exploration & mining

through to retail, the industry has its’

share, and then some. We sat down with

Guardian Vaults joint Managing Director Jenny Tremaine to

find out more about the public face of

one of the country’s most respected –

and private – bullion security firms.

Could you tell us a little about yourself? I’m the baby of four children, two brothers and one sister and grew up in Lower Templestowe and was never really interested in school, always wanted to get out into the big wide world. I suppose if I could put my name to any claim to fame it would be that I was a BIG M girl – the older readers may remember!

Where are you based and how did you get your start in the industry?Guardian Vaults is located at 100 William Street, Melbourne in a heritage building called Scottish House – a great building to work in. It was chosen based on its heritage nature and grandeur.

Originally, my husband Neil (a property developer) was investigating self storage which then led to safe deposit boxes, basically self storage on security steroids. Guardian Vaults was born – and opened its doors in July 2002. I came on board in 2004 and took over the management of the business on a day to day basis.

What were your expectations going in, and what did you want to achieve?My expectations haven’t changed since the beginning , the secure protection of clients’ possessions is paramount and a commitment to personalised customer service. Our goals are simple, offer clients a better alternative to that of traditional banking custodial services. Our core business is safe deposit boxes and we continually re-invest back into our business.

To truly understand where your business is going, you have to know what your competitors are doing or in fact what they aren’t doing. Our extensive due diligence provided the knowledge of what was needed to be achieved to satisfy customer demand.

How big is the typical vault and what can your facility accommodate?Guardian Vaults has 5000 safe deposit boxes with the possibility of increasing

the

GirlGolden


this by another 2000 safe deposit boxes. Generally banks can have anywhere from 2,500 to 13,000, however as they have been around for over 100 years it is more likely that there is a waiting list and then you also have to be a customer of that particular bank.

If I think of a Vault I’d like to imagine some pretty “Bourne Identity” level security. Without going into too much detail, what are some of security measures you might find in a business like yours?Guardian Vaults has often been likened to that of say James Bond, Mission Impossible and the Bourne Identity when it comes to the processes involved, however, I can assure you, unlike the movies, Guardian Vaults has maintained an un-blemished record – you won’t find any air conditioning ducts in our Vault!

Guardian Vaults implemented biometric hand scans, digital photo recognition all combined with an individual pin code for our clients to gain access to their safe deposit box. Our security guard controls the ingress and egress of all clients through a bullet proof air lock or “man trap”, combine this with our computerized access management system, Grade 11 rating, 24/7 monitoring, vibration sensors, smoke cloak, specially designed vault and 3 tonne composite barrier vault door, our security is second to none and Guardian Vaults is proud of the reputation that it has built over the last 10 years.

Is there a “typical” person that would use a vault service? What kinds of people do you see? I’m often asked what our target market is when it comes to safe deposit boxes and I can assure you that our clients range from 18 through to 92 and everyone in between. Safe deposit boxes are becoming more popular and in demand as uncertainty surrounds the economic climate. People are certainly more attuned with security their wealth and personal property. The perception as long been that you need to be wealthy, in fact it is often the irreplaceable items that require full secure protection.

Another component of our client base extends to SMSF. This enables them to take physical possession of their investment, such as gold and silver bullion and as Guardian Vaults offers insurance and an audit process, we have captured a specialized market.

We know Sydney is opening soon; and there’s more to follow. Could you talk more about the preparation that has gone into the expansion?Sydney is exciting, over the past couple of years we have been inundated with enquiries of when we will be opening up in Sydney and our pre-registration list is growing by the day. Sydney is challenging due to the location and access required. We have engaged the services of Kings Security to assist with the electronic security component together with Security Products Pty Ltd for the physical security, eg the vault and vault door which will be supplied and imported by Kumahira. The vault walls themselves weigh in excess of 300,000 kg and logistically this takes a fair amount of time to co-ordinate. Our existing security procedures and protocols in Melbourne will be replicated in Sydney. The protection of our clients possessions is our priority so therefore we are committed in providing the highest level of security possible. There isn’t any legislation for opening a safe deposit box facility which can be dangerous for wannabes, you need deep

I have a tremendous team that supports and respects

the business, each other and our clients. Our clients

deserve professionalism, confidence and excellent

customer service and we all treat them as we

would like to be treated in a business environment.



pockets, knowledge and reputation all of which Guardian Vaults has established in its 10 years of operation. Many people have failed where we have succeeded which I am proud of.

This sounds like a pretty complex project. Could you describe your management style?People often think that a safe deposit box facility would be easy to run – think again! General management of a business of this nature takes a dedicated eye to detail, strict procedures and protocols in every facet of the business. We have thousands of clients that all need peace of mind that they are in capable hands. I personally am accessible to all clients, on call 24/7 and love it. I have a tremendous team that supports and respects the business, each other and our clients. Our clients deserve professionalism, confidence and excellent customer service and we all treat them as we would like to be treated in a business environment. I am also vigilant in developing and implementing any improvements as they become available to ensure that we maintain the reputation as the leading privately owned safe deposit box facility in Australia.

Could you share with us your planned dates for the grand opening?I’d love to share a date with you and your readers, unfortunately at this stage I am unable to - you are just going to have to watch this space – it will be big though!

The Golden Girl | A S S E T I n v E S T m E n T


GC_Advert_AHA_FINAL_OUTLINED.indd 1 19/01/12 11:43 AM

So far 2012 has proved pretty tumultuous in the world of finance, commodities and of course bullion. What do you think the rest of 2012 might hold? What are your thoughts on the current environment?Personally I think that it will get worse before it gets better. I don’t wish to sound negative however I believe if people are realistic and informed then they will be able to make clear decisions when it comes to looking at their financial situation. For example, when looking at investment portfolios gold and silver is certainly number one in my book at the moment. Although the market fluctuates, history definitely shows the benefits in investing in bullion. Significant growth over the past say 9 years has certainly outweighed the share market returns. It’s not for everyone though, if you are looking for a dividend then bullion is not for you, if you are looking at a long term investment solution, then do your homework. There is a couple of matters to take into consideration when purchasing and it’s just not your cost entry point, ensure that you take into account, delivery, secure fully allocated physical storage that you have access to and of course insurance (for SMSF) and then your exit strategy. Guardian Gold in conjunction with Guardian Vaults was established for this specific purpose, to create a seamless solution for bullion investment, delivery, insurance and long term secure storage all in one location.

What are your goals for the rest of 2012?2012 for Guardian Vaults is certainly opening in Sydney and we are also in negotiations with the acquisition of another site in Brisbane, followed by Perth and other States and Territories.

Jenny, thanks for your time.

Guardian Gold in conjunction with Guardian Vaults was established for this

specific purpose, to create a seamless solution for bullion investment, delivery,

insurance and long term secure storage all in one location.



Story Name | S E c T I o n n A m E

GC_Advert_AHA_FINAL_OUTLINED.indd 1 19/01/12 11:43 AM


A S S E T I n v E S T m E n T | Golden Futures

The high rate of debasement of

paper currencies ensures the gold

price trend will be solidly up until interest rates rise sharply, to maybe

15% in 2028.

Gold is monetary. It is the main non-government currency, evolved in the marketplace over 5,000 years.

If you want shiny yellow stuff for jewelry, there are plenty of cheaper alternatives—jewelry is made of gold because gold is valuable, and gold is valuable because it is money. Gold is not a commodity like wheat or iron, because it does not get used up—nearly all the gold ever mined is still available for sale at the right price. Nor is gold an investment that produces goods and services, like farms or factories—it is just a medium of exchange, like cash.

Gold becomes a good investment only when the other currencies are failing, inflating, and debasing. This is one of those times.

Manufacturing MoneyThere is a lot more money around today than there was 30 years ago; a billion dollars used to be a lot of money, but now we talk of trillions. So someone has been manufacturing a lot of money.

In the modern money system, there are two sorts of “money”. First is base money, which is physical cash or the numbers in an account at the central bank. It is created out of nothing by government, by fiat. Technically there are no constraints on its manufacture, but in practice it is moderated by the desire not to raise inflationary expectations. It is about 5 – 10% of today’s money.

Secondly, there is bank money, which is numbers in bank accounts at commercial banks. In essence bank money is a receipt for base money—if you deposit a $100 note, the bank increases the number in your bank account by 100. (The banks themselves call this money “credit”, which can be confusing because “credit” has other meanings.) A little bank money is created by cash deposits, but the vast bulk of it is created when commercial banks make loans—which they do by simply increasing numbers in bank accounts. Thus, nearly all bank money is created out of nothing

for the next 16 years

the

PRICE GOLD


Golden Futures | A S S E T I n v E S T m E n T

by commercial banks when loans are made. (The banks then charge interest on the newly created bank money—great business model!) Bank money constitutes about 90 – 95% of today’s money. Most commercial transactions today just move bank money between bank accounts.

The manufacture of bank money by lending is moderated by the obvious problem that if a bank issues more receipts than it has cash, too many customers might withdraw cash at once and the bank would be broke—with no cash, but owing cash to its account holders. It has long been established by trial and error that in normal times a bank can issue about 10 times as many receipts (that is, make loans of bank money) than it has base money, because not all its account holders will show up at once wanting cash. Central banking and government guarantees reduces this risk further, and modern bank runs are rare.

This ratio of bank money to base money illustrates the notion that the base money is “amplified up” tenfold by bank money. It is called fractional reserve banking. However since about 1990 the manufacture of bank money in western countries has been constrained instead by the Basel Accords, which limit the amount of bank money a commercial bank can create using a formula based mainly on the equity capital of the bank, the riskiness of its loans, and the amount of depositor’s funds. Although banks still technically must obey reserve requirements as well, they are mainly irrelevant due to modern practices like retail sweep and lending of reserves. The Basel Accords can be loosely thought of as limiting the ratio of bank money created by commercial bank lending to about 20 times the amount of base money in circulation.

So the current government currencies are a fiat base, amplified by a modified

fractional reserve system. Both parts create money out of nothing: base money is created by the central bank, and bank money is created by the commercial banks. Historically, any money system where money can be created from nothing is unstable because it eventually gets very debased—and they tend to last on average about 50 years. Each part of our current system is unstable in its own right, and the current system is just 41 years old. What could possibly go wrong?

Our Debt CrisisOur current money system essentially started in 1971, when Richard Nixon cut the last link to gold, which allowed unconstrained manufacture of base money for the first time in the West. The stagflation of the 1970s dealt with the inflationary consequences of the 1960s, then the system was reset in 1980 by


20% interest rates—which halted money manufacture by making it very expensive.

Banks and government then proceeded to blow the deepest and most global monetary bubble in history, by (1) keeping interest rates as low as possible such that CPI did not rise, but ignoring asset inflation, (2) changing banking rules to make money manufacture ever easier and cheaper, and (3) responding to each crisis by bailing everyone out with cheap loans of new money.

We can measure the size of the bubble. Since the vast bulk of money is bank money created by lending, the amount of money is roughly the amount of all debt, both government and private. The size of the economy is its GDP, so the size of the bubble is the debt-to-GDP ratio (for all debt, not just the debt of the national government). We will discuss the US figures because those are easily accessible and of good quality, but the ratios for other western countries are similar.

Normally the ratio is about 150%—the amount of money is about 1.5 times the GDP. There are two notable exceptions. The first was the roaring 20’s, when the ratio soared. At 235% in 1929 the market crashed, and ushered in the Great Depression of the 1930’s. The ratio returned to the usual 150% by 1950, and strong real growth followed.

The second exception started in 1982, when the ratio started soaring again. By 1987 it reached 235%, and again there was a market crash. In contrast to 1929 when the central banks let the money supply fall rapidly as businesses and banks went bust, Fed Chairman Alan Greenspan flooded the markets with liquidity. The real economy shrugged off the market crash after a couple of years, and the ratio soon resumed its ascent, rising strongly until 2008 when it peaked at 375%.

Now nothing can move away from its normal value forever, but why did the ratio stop rising in 2008? Basically the world ran low on borrowing capacity. There was no longer enough income to service the debt (debt was roughly 400% of GDP and paying around 4%, so interest payments were around 16% of GDP). Also, the world was running low on the unencumbered collateral required to take out a loan. The manufacture of money by commercial banks stalled, which brought on the global financial crisis (GFC). Governments promptly stepped in to take up the slack in money manufacture, lowering interest rates, borrowing, and printing a little (“quantitative easing”).

What Now?In 2012 the ratio is still stuck around 375% and governments cannot borrow much more. Worse, the world is finally realizing that the private sector is debt-saturated, and that there is no return to the pre-2008 “normal”. Most everyone making financial decisions today grew up in the bubble, which started in 1982. All we know is the bubble, when loans were easy to get and the amount of money was increasing quickly. But monetary history tells us that the period 1982 to 2008 was very unusual. Many people now realize that we cannot go back there.

There is an important constraint that is often overlooked. Last year’s debt has to be repaid with interest, so each year the money supply must increase or there will be widespread business and bank failure. It’s like a game of musical chairs—if there isn’t as much money as last year, plus some extra to pay interest, then arithmetically not everyone can pay back their loans. (We don’t literally have to pay back and

re-borrow our loans each year, but for big business loans it is effectively like that because the banks are looking over

their shoulder and will demand immediate repayment if they get nervous.) If a lot of businesses cannot repay

their loans, then some banks will go bust and more businesses will go bust. This is what happened in 1929 – 1932.

But if the private sector cannot manufacture more bank money by borrowing from commercial banks, the only way for more money to be

manufactured is for government to manufacture base money. So the world is now, in 2012, at an important fork

in the road: Either print and inflate, or allow the amount of money to decrease and suffer widespread business and

bank failure. Inflation or austerity. The first path is one of continued currency debasement that keeps the economy stronger in the short term; the second responsibly stops the monetary debasement but 1930’s style failures will ensue.

This is the sort of mess that always eventuates when currency is debased. There is no painless solution; the day of reckoning can only be put off and drawn out. Philosophically, money is a promise, of similar purchasing power anytime in the future. Work is motivated by these promises. But too much money has been manufactured—too many promises have been made. Not all debts can be repaid in dollars near their current value –not all those promises can be kept. There are going to be many losers. The political system, not the usual economic rules, will determine who the losers will be, because the politicians will change the rules as we go.

Politicians Will Choose InflationIt’s the basic democratic calculus: Lenders are few, but borrowers are many—they vote, and they might riot. Further, all big businesses borrow money so powerful business interests will push for an inflation so they can pay back their loans in smaller dollars. The Keynesian fog



will be invoked to excuse the inflationary choice, something like “reducing the people’s debt burden”.

Ben Bernanke, present Chairman of the US Federal Reserve, is a student of the 1930s depression and blames it on the drop in money supply—he has made it clear that his Fed will not allow a 1930’s deflation. Academic economists in the US who strongly influence economic policy, such as Rogoff and Mankiw, are already suggesting running a mild inflation of maybe 6% for a few years. Government spending in most western countries is considerably more than tax receipts, giving governments extra incentive to print. And finally, most western governments are already deeply in debt and face huge interest bills, so they want low interest rates.

GoldGold enforces honesty, because you have to earn it before you can spend it. No one can conjure it up for little effort, and even digging it out of the ground often takes almost as much effort as it’s worth. Gold is an anti-cheating device, because when someone cries “bullshit” you’ve either got it or you haven’t.

In particular, banks and government cannot print it. And who hates gold? The monetary elite and governments prefer their dishonest money. They enjoy the first use of the new money, spending it before it pushes up prices. Governments can print to cover their debts if necessary. For centuries the greatest game in banking has been to buy assets in a sector, approve more lending for purchases in that sector, then sell their assets when the prices subsequently rise, then cut off lending into the sector and watch the prices fall—rinse and repeat every few decades.

Banks and governments bash gold. For the last 15 years most large financials have been predicting gold prices a year hence as 10% less than whatever it was at the time—but considering that gold has been rising at 21% p.a. for the last ten years, a track record that bad is hard to acquire by accident.

As any currency trader knows, the long term value of currencies is determined mainly by their relative rates of manufacture (or debasement). Since 1982 the amount of above-ground gold has been increasing at just over 1% p.a., while the amount of the main paper currencies has average growth around 12% p.a. In 2007 the Australian broad money supply grew at 23% (yet CPI was less than 3%).

Some say gold is in a bubble. Not so. A bubble suggests that some ratio or pricing metric has moved up away from its normal value, and later reverts to its mean. But gold always debases much more slowly than any paper currency, so basically gold goes up forever against paper currencies, at an average rate equal to the difference in their rates of debasement. A gold price of one million dollars per ounce is only a matter of time—but will it take 50 years or 500 years?

The monetary elite and governments prefer their dishonest money. They enjoy the first use of the new money, spending it before it pushes up prices.

Golden Futures | A S S E T I n v E S T m E n T


By historical standards, the price of gold is now low. In the gold rushes of the 1850s, it was worth leaving the city to sail on a wooden boat for three months, then live in the wilderness scratching in the dirt for a few ounces of gold per year. What gold price would it take to get you to do that today? Modern gold mining is a highly mechanized business yet it is barely profitable.

The total amount of debt in the world in 2011 was around 210 trillion USD, and the world’s GDP was 60 trillion. Yet the value of all the gold ever mined, going back to the Egyptians, is just 9 trillion USD. If gold ever re-enters the official financial system, it will have to move up in value quite considerably.

The last gold price rise was 1968 – 1980, when it rose from 35 to 800 USD per ounce. What stopped its rise then? Overnight interest rates around 20%, which made paper currencies attractive and stopped their debasement. Presumably it will take similar interest rates to again stop the rising gold price. But nobody today can afford to pay 20% interest rates, especially governments, so gold is going to keep trending up for quite a while.

Forecast to 2028We can calculate how long the upcoming inflation will last and how high gold will go, based on a few reasonable assumptions. The usual caveats about forecasting apply, and if the central banks lose control of the situation we are likely to veer off either into hyperinflation (more likely) or depression (less likely). But let’s be optimistic and assume they successfully chart the most politically feasible course.

Debt levels are currently around 375% of GDP, but need to revert to their normal level of 150%. This requires a 60% reduction in the real value of debt.

Let’s suppose we get inflation cranked up by 2014, that we run a 1970s high but tolerable inflation of around 12% (which the modern CPI is likely to register as only around 5 – 8%) ,and that interest rates are around 6%. Then the real interest rate is -6%—so it takes 14 years to reduce the value of debt by 60%.

To end the inflation, governments must make a credible commitment to halting the rapid growth in the stock of money: they must raise interest rates sharply, to maybe 15 – 20%. The gold price will continue trending up until that happens, so until then gold investors can relax (ok, the ride might be volatile). But when real interest rates go strongly positive, it’s time to get out of gold.

Gold has been rising at a remarkably steady 21% p.a. for the last ten years. About 11% of that might be due to the current debasement differential, while the rest might be a combination of catch up for the period 1980 – 2001 when the gold price fell substantially in real terms, fear over the possible abandonment of paper currency, and the possibility that gold will re-enter the official money system. Under the scenario outlined above, the rate should remain roughly similar.

Assuming gold continues to rise at an average of 21% p.a.:

Don’t let the nominal prices bedazzle you. Due to the inflation, a dollar of 2028 is only worth 17 cents in today’s money, so the peak price of $50,000/oz is only around $8,400/oz in today’s money.

Nominal price in USD/oz

Price in today’s money, USD/oz

1980 850 3,300

2001 260 360

2012 1,800 1,800

2015 3,800 3,000

2020 10,000 4,600

2025 25,000 6,100

2028 50,000 8,400

The amazingly straight rise of gold for the last 10+ years. Graph from Nick Laird at sahrelynx.com.

Debt levels are currently around 375% of GDP, but need to revert to their normal level of 150%. This requires a 60% reduction in the real value of debt.



Nominal price in USD/oz

Price in today’s money, USD/oz

1980 850 3,300

2001 260 360

2012 1,800 1,800

2015 3,800 3,000

2020 10,000 4,600

2025 25,000 6,100

2028 50,000 8,400

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A S S E T I n v E S T m E n T | Barbarous Relics


Barbarous Relics | A S S E T I n v E S T m E n T

Uncivilized times call for uncivilized investments.

Charlie Munger, Warren Buffett’s partner in crime at Berkshire Hathaway, told CNBC recently, “I think gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold. They invest in productive businesses.”

In a way, Munger is correct. Gold is uncivilized in the sense that it functions best when civilization functions worst. The more uncivilized a society becomes, the more civilized gold becomes.

So the easiest way to dismiss this statement is to say that maybe it’s 1939 again and maybe this time “we’re all Jewish families in Vienna.” But let’s not let Charlie off the hook so easily. Instead, let’s “unpack it,” in the words of our tutors at St John’s College in Santa Fe, New Mexico. To ‘unpack it’ we need to focus on two key words in Charlie’s statement: “productive” and “civilized.”

Charlie might be right if the world were, indeed, civilized. But maybe the modern world isn’t as civilized as he thinks. Part of what made the world so uncivilized in 1939 was unsound money. The abandonment of the classical gold standard in 1914 made the expansion of the Warfare state possible. The

equally unsound system that emerged from World War I — including the Treaty of Versailles — virtually guaranteed that monetary and fiscal instability would lead to political instability. Radical parties like the Nazis flourished.

Gold, on the other hand, is sound money. You are not buying it for a capital gain. You are buying it, by our reckoning, as a way of preserving purchasing power. You extract paper from the fiat money system and turn it into something (bullion) you can later exchange for whatever currency emerges when the financial system becomes more civilized.

Interestingly, for more than a decade Berkshire has underperformed gold — the investment asset Buffett recently called “forever unproductive.”

Barbarous Relic?

A


Since 1997, Berkshire’s shares

have declined relative to this forever unproductive asset. The nearby chart depicts the trailing 10-year return of gold since 2007. Thus, the first data point on this chart shows the return an investor would have received from buying gold or Berkshire Hathaway in 1997. Moving across the chart to the right shows subsequent 10-year time frames. Bottom line: Based on a 10-year holding period, there has not been a single moment since late 1997 what an investor would have been better off buying Berkshire Hathaway instead of gold.

No wonder Charlie is so cranky!This lengthy underperformance by

Berkshire may explain Buffett’s and Munger’s very vocal and public hostility toward gold. Or maybe that’s just a function of both men living most of their adult lives in an era where the monetary system was not disintegrating. They are unable to imagine it.

But the chart above isn’t an indictment of the investment acumen of Buffett and Munger. It’s an indictment of the world’s fiat monetary system! A civilized society with civilized people has sound money. An economy with sound money has price stability. This stability allows for long-term planning and investment. This stability rewards investors for identifying which businesses are the most productive and efficient users of shareholder capital.

A S S E T I n v E S T m E n T | Barbarous Relics


For these exact reasons, William McKinley campaigned for President in 1896 and again in 1900 as a champion of the gold standard. He won…twice. But just 12 years after his assassination in 1901, the Era of Incivility began: The Federal Reserve came into being. Just 20 years after that, FDR confiscated all privately held gold. And 38 years after that, Nixon cut the dollar’s last remaining ties to gold, thereby establishing today’s very uncivilized “fiat money” system.

In an uncivilized society, where the value of your labor is stolen through inflation (made possible by an unsound money system) long-term planning and investment become much more difficult, if not impossible.

If you accept that we live in civilized monetary times where productive labor is actually rewarded, your brain has been tranquilized by the Big Lie of our times. Munger wants you right where you are. The less you think about how uncivilized the current monetary system is, the less likely you are to question it or disrupt it (which would be inconvenient for Charlie).

But if you live an era that subverts accurate valuation of productive businesses — an era that subverts the productivity of the economy itself by encouraging debt and consumption, owning gold seems prudent, not wacky.

Uncivilized times call for uncivilized investments.

If you accept that we live in civilized monetary times where productive labor is actually rewarded, your brain has been tranquilized by the Big Lie of our times.

Barbarous Relics | A S S E T I n v E S T m E n T


O ver a year ago, I penned an article entitled “4 Silver Investments to Avoid.” About two weeks later, on April 26th, I wrote another article:

“Should I Sell My Silver?” saying that I expected an imminent correction in the silver price, after it had gone “parabolic.”

It caused quite a stir at the time. There was no shortage of people calling me delusional for suggesting the bull market in silver was overdue for a pause. Some even labeled me a “traitor,” presumably to the “hard money” movement.

One of the silver companies I recommended to NOT buy immediately contacted me after the article was published, insisting there was nothing to worry about, and that their stock was a great investment.

For the record, since then, the price of silver is down 35.2% (based on the London PM fix). And of the four silver investments I said to avoid:

1. The iShares Silver Trust (SLV) is down 33.3%.2. Large silver bars have obviously gone down

commensurately with spot silver.3. Shares in Silvercorp Metals (SVM) are down a

WHOPPING 61.5%.4. And shares in Coeur d’Alene (CDE) are off by 50.8%.

Not pretty.One of the biggest headwinds for the gold and silver markets

right now is the weakness in India’s economy and currency.For a long time, India has been the world’s biggest market for

physical precious metals. Though it was recently eclipsed by China as the world’s single biggest market for physical gold, India remains in the top 3 for both silver and gold.

As the Indian economy slowed rapidly over the past 12 months, the Indian Rupee swan-dived. Today it takes more than 57 rupees to buy one US dollar, up from 46 a year ago.

That makes the price of silver (and gold), which is priced in US dollars on world markets, much higher for Indian buyers.

Demand has dropped accordingly– silver bullion sales volumes in India are off between 30% and 40% versus a year ago.

Nonetheless, the weakness in India’s currency, which has also been undermined by political uncertainly, is a perfect illustration of why it pays to hold silver and gold in the first place.

Indian savers who entrusted their savings to banks and kept their money in rupees have been at the mercy of the sliding currency.

Those who bought and held precious metals, on the other hand, have seen their purchasing power hold steady, even as the rupee tanked.

While the US dollar may again be enjoying a period of relative strength, this is almost certain to prove temporary.

silver finally bottoming out?

A S S E T I n v E S T m E n T | Silver Bottoms

Is


Silver Bottoms | A S S E T I n v E S T m E n T

•

•

•

•

And just like Indian savers who kept their money in rupees, trusting your money to the government will be a losing proposition in the long term.

Holding your money in US dollars, particularly in some insolvent, illiquid bank earning one-half of one percent interest, will result in the destruction of your purchasing power.

If you agree with that thesis, the question still remains, what’s a good price to exchange your dollars for physical silver at?

To be fair, nobody can accurately divine the short-term movements in precious metals prices. But from a purely technical standpoint, silver is starting to look very interesting.

The gold/silver ratio has been clobbered over the past year in an almost uninterrupted pattern except for a brief respite in early 2012.

At the peak of the last precious metals boom, it took fewer than 20 ounces of silver to buy one ounce of gold. Over the past few years, the ratio has dipped as low as 32. But today the number has blown out 57.

If the thesis holds that we are in another precious metals boom, it certainly stands to reason that the gold/silver ratio ought to correct and become much lower once again.

More importantly, however, every single indication out there suggests that central bankers will continue doing… the only thing they know how to do: PRINT.

Despite some short-term corrections (as we saw in 2008), this is no doubt bullish for precious metals… and especially silver.

Given silver’s already steep decline from its highs last year, a price in the mid-$20s range is beginning to look very compelling.

Tim StaermoseChief Investment StrategistSovereign Man


o P I n I o n | Climate Change

Climate Change and Freedom

How the regulating class is using claims

about climate change to entrench

and extend their economic privileges and political control.

C limate change is also a freedom issue. We are being presented with only one “solution” to the “problem” of climate change, namely a lot more regulation by our governing bureaucratic class.

The Copenhagen Treaty as an attempted CoupNearly all the world’s leaders met in Copenhagen in late 2009, expecting to sign the “Copenhagen Treaty” to limit CO2 emissions. But China and India torpedoed the negotiations, citing concerns about whether warming is manmade and refusing to commit to any quantified emissions reduction targets. The much weaker “Copenhagen Accord” was signed instead.

The draft Copenhagen Treaty is still available in a few corners of the Internet. It is 181 pages of dense, convoluted, bureaucratic language, slow and difficult to read. The draft contains options and blanks to be filled in. Nonetheless, it is clear enough.

The Treaty would have set up a new global bureaucracy with the power to regulate CO2 emissions worldwide, able to regulate any market, over-riding national governments as required. It could


Climate Change | o P I n I o n

The regulating class at work in Copenhagen. President Obama of the US [Credit: AP/Susan Walsh], Ban Ki-moon the Secretary General of the United Nations [Credit: China Daily], British PM Gordon Brown [Credit: Reuters/Ints Kalnins], presided over by Connie Hedegaard, the Danish climate and energy minister [Credit: EPA].

also fine and tax any signatory government. In the hands of a judge sympathetic to the regulating class, it could be interpreted to give this new global bureaucracy the power to tax every signatory nation and regulate its energy use almost completely—just look at how the US Constitution has been extended by interpretation over the years, and that’s a much clearer document. A hint or ambiguity in the Treaty could become the basis for a full blown mechanism to do almost anything the bureaucrats wished.

From experience with the monotonic growth of centralized power in federations of states, such as the United States or Australia, it is almost inevitable that within a few decades this new body would be parlayed up into a strong global bureaucracy regulating more than just CO2 emissions.

The mainstream media are very talkative about elections, when power changes hands. And they are extremely interested in wars, when outside groups impinge on a nation’s sovereignty . Yet they were almost entirely silent about the implications of the Treaty for the loss of national sovereignty. If something like the draft Treaty had been signed, it would have been the biggest transfer of sovereign power in recorded human history: nearly all the nations of the world would have ceded much of their sovereign power all at once. Yet the media scarcely raised an eyebrow.

All of that national sovereignty would have been ceded to an unelected group of global bureaucrats: Never in the field of human administration would so much power have been transferred by so many to so few. This was a narrowly averted global coup, an attempt to seize a great deal of power by stealth without the knowledge or explicit consent of the world’s people. It can only have been kept silent with the active support

of the world’s media. But because of that silence, the attempted global coup has never been acknowledged, so the people of the world are unaware of it and further attempts could be made.

Regardless of your beliefs about the likely causes of climate change, this episode clearly raises some disturbing questions. Climate change is being used as an excuse for a massive power play. But who benefits, and why climate change?

The Regulating ClassConsider the array of forces active in the climate argument:

Believers Doubters

UN (including the IPCC)Independently-funded scientists

Western governments Private sector middle class

Major banks and finance housesAmateurs (from amore, the Latin for love)

NGO’s and Greenies

Totalitarian leftists

Government-funded scientists

Academia

Renewables corporations

Mainstream news media


The supporters of the theory of manmade global warming are mainly financial beneficiaries, believers in big government, or Greens. They are usually university educated. They generally prefer the methods of government, namely politics and coercion, rather than the voluntary transactions of the marketplace—especially when it comes to setting their own remuneration.

They are an intellectual upper class of wordsmiths, who regulate and spin rather than produce real stuff. There is little demand in the economy for their skills, so they would command only modest rewards for their labor in the marketplace. Arguably they are a class of parasites enriching themselves at the expense of producers, because they are rewarded out of proportion to the value they create—value as determined not by themselves, but by voluntary

transactions in the marketplace. They don’t like the market place, basically

because the marketplace doesn’t like them. The marketplace doesn’t reward them as much as they think it should. They prefer a system where people like them form the government and bureaucracy, where they take a large slice of everyone else’s income by threat of force, and then they pay themselves what they think they are worth out of those taxes. This stands in stark contrast to most people, who are generally paid only what the market will allow.

Their shared economic basis makes them a class, the “regulating class”. (It seems like a trivial thing, but this argument is bedeviled by the lack of a widely-accepted name for this class.)

The regulating class also attracts people who are not part of it for strictly economic reasons, but who identify with it because of similar backgrounds, or culture and beliefs. The regulating class does not try to hide its belief that it is cleverer, and morally superior

The theory of manmade global warming is not a conspiracy. It is a confluence of vested interests in

increased political regulation of the economy and rejecting market forces.



too. Annoy a member of this class sufficiently to strip away their veneer of politeness, and soon you will be called an “idiot” and eventually a “racist”. Who has not at times felt the siren call and ego boost of feeling superior to one’s fellow man? Viewers can get a very real sense of superiority by watching the mainstream media, especially the government-owned channels, and adopting the trendy beliefs being pushed there. “Oh, I feel so superior to all those idiots and racists out there because I have these shiny new beliefs as validated by the superior regulating class with whom I now identify myself.” Share their beliefs, show them off to your friends, and you too can feel superior and of high status—even though your situation or remuneration may be modest. It is a cheap grab for status that costs almost no effort to earn.

Most of the larger media organizations are sympathetic to the regulating class and relentlessly promote its views.

On the other side of the argument stand those doubting the theory. The skeptics are overwhelmingly from the private sector. People who work with the real physical world but are not employed by government are usually skeptics. The mainstream media is largely denied to skeptics, so they communicate via the Internet and talkback radio.

Why Global Warming is So Important to the Regulating Class If human emissions of CO2 are causing a major planetary problem, then there are only two plausible solutions: wait and adapt, or regulate and reduce. Only the second solution interests the regulating class. To regulate CO2 emissions effectively you must regulate nearly all energy use, and thus most of the economy, in every nation of the world.

The regulating class promotes the dual beliefs that the “problem” of global warming is very scary and that it is caused by human emissions of CO2. The only solution they offer just happens to be complete regulation of the whole world’s economy by … the regulating class, of course. “Enlightened” self-interest doesn’t come any bigger than this.

The theory of manmade global warming is not a conspiracy. It is a confluence of vested interests in increased political regulation of the economy and rejecting market forces. Bureaucrats, academics, government scientists, utilities, renewables manufacturers, bankers, most politicians—all these have a shared financial interest in imposing their solution to “manmade” global warming.

A Global Bureaucracy Would Be BadIf a bureaucracy is global, there is nowhere to run to from high taxes, persecution, exploitation, selective enforcement of regulations, and so on. It would bring an end to the competition that keeps sovereign nations in check and makes them treat their productive citizens decently. Furthermore, any global system is prone to tyranny taking over forever, because if it is global there is no possibility of outside help or refuge for those under its yoke—so the tyranny is harder to dislodge.

It is competition in human affairs that keep people and organizations “honest”, that fuels dynamism and progress. Monopolies are bad for customers. Of course we all want to escape from competition for ourselves, to be monopolists in our own little ways. But we all know that we benefit from competition among those who provide us with goods and services, including bureaucratic services.

A global bureaucracy is especially bad for industries, like mining, that have traditionally relied on competition between nations to prevent being exploited. Nations are in competition with each other for the services of miners: if a nation make conditions too hard or is too taxing then the miners move to a different jurisdiction. Currently there is a world marketplace in mining, a system of voluntary agreements between nations and mining companies. A global bureaucracy would end all that by simply imposing conditions on the miners, take it or leave it—and miners would effectively become serfs.

Climate Change: What’s At Stake for YouIf you are an economic member of the regulating class, a global bureaucracy instigated by the alleged need to regulate CO2 emissions would be terrific: more jobs, power, and

If their “solution” to global warming ushered in a global bureaucracy, people like these would be setting regulations worldwide, with no escape for anyone: The President of the European Council, Herman Van Rompuy, Chairman of the UN’s IPCC, Rajendra Pachauri [Credit: Mikhail Evstafiev]

Climate Change | o P I n I o n


money for bureaucrats and their allies. You would be part of what would effectively become a ruling class, free to tax a captive population whatever they could bear and pay yourselves whatever you “know” you’re worth.

For everyone else, what’s at stake is freedom from the demands of a hostile ruling class, as well as more disposable income, more choice, less red tape, and a better quality of life. The new regulating class—bureaucrats, academics, greenies—look down on others as stupid and morally inferior, they don’t like people who make real stuff, and they don’t like the private sector or the marketplace. They would be happy for the everyone else to compete in the marketplace to make them stuff, but they themselves won’t have to compete. Their regulations would be global so there would be no escape, and competition between nations vying for our services and taxes would shrivel.

ConclusionsThe push towards a global bureaucracy, using climate change as an excuse, is a clear and present danger to sovereign nations, to the competition between nations for productive citizens, and to freedom everywhere. The new regulating class is stealthily globalizing bureaucracy without our consent, demanding the privilege of taxing and paying itself whatever it thinks is worth, while the rewards for the rest of society are instead set by competition in the marketplace.

The real issue here is a grab for absolute power by those who already govern. They have grown tired of democracy and would like to do away with it, without ever giving the game away by actually saying so. This is the age-old divide between the totalitarians and libertarians. Coalitions like the current regulating class have always been instinctively totalitarian, desirous of interfering in every tiny detail of our lives—for our own good of course, and prodigiously at our expense. They are now even telling us what kind of light-bulbs we can use. With the rise of democracy, it looked like the regulating class would be subject to the will of the people. The US Constitution explicitly defines the obligations of government to the people, and not of people to the government. However, liberty, democracy, and the free market are now again at grave risk, and climate change is the Trojan Horse the regulating class are hoping to ride to victory over the people.

Sydney’s Gold Symposium 2012


Sydney’s Gold Symposium 2012

SAVE THE DATE


You might have noticed that the Perth Mint have been releasing

some interesting new coin designs in two particular coin types which haven’t been all

that common up until around 12 months ago.

n U m I S m A T I c S | High Relief

New ‘High Relief’

Coins and Resurrection

of the ‘Privy’

The high relief coins are a proof quality finish, a thicker coin with smaller diameter where the design appears sharper due to it being raised up

higher than on a standard relief coin. For comparison the 1oz Silver Lunar Bullion Coins (Series 2) are 45.6mm in diameter and 2.6mm versus the High Relief Designs which are 32.6mm in diameter and 6mm thick.

In 2010 the Perth Mint issued the first of their high relief coins commemorating the story of Pheidippidis, the ancient Greek who ran 25 miles to Athens with news of his army’s historic triumph at the Battle of Marathon. The mintage limit on this coin is 5,000 and is still available for purchase from the Perth Mint website.

Also in 2010 the Perth Mint released a special Australian commemorative issue portraying Josiah Wedgwood’s historic Sydney Cove Medallion, a significant artefact made from clay found near Sydney Cove in 1788. This release also had mintage of 5,000 and was packaged

with an exclusive fine bone china plate specially made by the Wedgwood Company. This package is also still available from the Perth Mint website.

Over 2010 and 2011 the Perth Mint released a High Relief Kangaroo design. Each of these coins had a mintage limit of 20,000 coins and replicated the design from the Australian Kangaroo Gold Coin Series. The 2010 design is sold out at the Perth Mint, but the 2011 design can still be purchased at their online store. The Perth Mint will be releasing a 2012 High Relief Kangaroo in July this year which will have the same mintage as the earlier coins.

After the success of the Lunar Dragon release the Perth Mint released a High Relief Dragon coin in early 2012, whose popularity saw it sold out very quickly (having a mintage of only 7,500 coins would have helped).

Following the popularity of the High Relief Dragon the Perth Mint has also released a High Relief Kookaburra (with 10,000 coin mintage) and has a 2012 High Relief


High Relief | n U m I S m A T I c S

Koala on the way (although not yet officially announced) according to ComLaw documents that Perth Mint lodges for legal tender status on new coins.

It seems the Perth Mint is trying to borrow from the popularity of their Silver bullion coin designs to sell higher priced collectable high relief versions. It will be interesting to see how some of these coins trade on the secondary markets once sold out at the Perth Mint. The 2010 High Relief Kangaroo has sold for upwards of $150 on eBay, but the High Relief Dragon is still only sitting around issue price or slightly higher on average.

Although the high relief coins are attractive in appearance I suspect Silver bullion coins (which closely track the spot price) will outperform these modern numismatics if we see Silver continue aggressively higher in the short to medium term. I recently wrote an article on www.SilverLunar.com comparing the performance of numismatic Lunar Coins (such as proof coin types) vs bullion Lunar Coins and it showed that bullion coins have outperformed significantly over the past 8 years.

As well as the high relief coins, a modern numismatic, Perth Mint has also started releasing a large number of bullion ‘Privy Mark’ coins (a popular type used earlier in the Kookaburra series, but not common in recent years). These coins carry the same design as the standard bullion version with a small insignia in addition which is generally the only difference.

Privy marks were originally a way of differentiating the design of a coin to identify the mint or some other aspect of the coins origin, however today the Perth Mint is using these privy marks to expand their mintage of popular bullion coins above the limits they have previously set (much to the dismay of some collectors and investors who bought the standard coins specifically due to their low mintage).

The standard bullion Lunar Dragon 1oz Silver Coin

(300,000 coin mintage) sold out in record time and following the popularity of this coin (and to the best of my knowledge at the request of European distributor/s) the Perth Mint issued a Lunar Dragon 1oz Silver Coin with a Lion Privy Mark. This has since been followed by a Berlin Bear Privy Mark on the 2012 1oz Silver Koala coin (50,000 coin mintage), a Dragon (design from the Gold bullion Lunar design) Privy Mark on the 2012 1oz Silver Kookaburra coin (80,000 coin mintage) and one which was also spotted in the earlier mentioned ComLaw documents, an Eagle Privy Mark on the 2012 1oz Silver Kookaburra coin (mintage not yet known).

In some cases these Privy Mark coins are of little significance, for example the 1oz Koala is a bullion coin with unlimited mintage (produced without limit until the next years design replaces it) so the addition of 50,000 Pricy Mark coins with the same design is not detrimental. However in the case of the 1oz Lunar and Kookaburra Silver coins these additional Privy designs have substantially increased the mintage of 1oz variety coins (the Lion Privy Mark coin increased the 1oz bullion Dragon mintage by 66%) albeit with a very slight change to the design.

It’s too early to know for sure, but I suspect these Privy Mark coins could have an impact on the significant long term premiums that low mintage Perth Mint 1oz Silver bullion coins (such as those in the Lunar and Kookaburra series) have enjoyed in the past.

While I assume Perth Mint is making some good short term profit by cashing in on the popularity of some of their bullion series coins, I do wonder whether the substantial number of coins they are pumping out at the moment might eventually turn investors and collectors away from their offerings.

Bullion BaronBullion Baron writes about the Gold and Silver markets at www.BullionBaron.com and is also now writing about Lunar series coins at www.SilverLunar.com.

Privy marks were originally a way of differentiating

the design of a coin to identify the mint or some

other aspect of the coins origin, however today

the Perth Mint is using these privy marks to

expand their mintage of popular bullion coins

above the limits they have previously set


n U m I S m A T I c S | Rare coins and banknotes

Proven Market PerformanceBased on industry statistics, the average increase in value of select rare Australian coins and banknotes over the past 22 years has been 10 to 15 per cent compounded per annum, surpassing most other investments over the same period. Even assuming a conservative growth rate of just 10 per cent per annum compounded, a portfolio of select rare coins and banknotes purchased for A$500,000 today is likely to be worth over A$1,296,871 in 10 years time. Numismatic investments should be held for at least seven to 10 years to maximise potential gains. As testimony to the investment potential of this market, rare coins and banknotes are Commonwealth Government approved for use in company and Self-Managed Super Funds.

1990 1995 2000 2006 2010 2012

$6 mil

$5 mil

$4 mil

$3 mil

$2 mil

$1 mil

$500k

$0

Price growth of a portfolio of 38 select rare coins and banknotes from 1990-2012

Price growth achieved between 1990 and 2012 in a portfolio of 38 select numismatic pieces averaged 13.8 per cent compounded per annum.

(Graph based on figures obtained from the McDonald’s Australian Coins and Banknotes Price Guide).

Australian Rare Coins & Banknotes Secure, tangible, long-term investments


Rare coins and banknotes | n U m I S m A T I c S

Valuable assets of immense rarity and beauty When you invest in rare Australian coins and banknotes you are not only acquiring low risk, physical assets that are in finite supply and growing demand, you are securing significant heritage pieces and works of art in their own right, providing a degree of prestige and pride of ownership few other investments offer.

Key elements of rarity, quality, beauty and history all influence their values in today’s market, so it is important to seek professional advice from a reputable specialist in this field before making any investment decision.

Established in Albany, Western Australia in 1982, The Rare Coin Company has the expertise and resources to offer some of the rarest

and finest Australian coins and banknotes available worldwide, for inclusion in prestigious collections, private wealth portfolios and Self-Managed Super Funds (SMSFs). Numismatic portfolios can be tailored to compliment long-term wealth strategies.

Australian Numismatic Market SegmentsThere are six primary segments within the Australian numismatic rarity market with proven appeal to investors and collectors. Each has its own characteristics in terms of rarity, collector appeal and demand. As a result, market values for individual sectors move in largely independent cycles, each strong at different times.


n U m I S m A T I c S | Rare coins and banknotes

Pattern, Proof and Specimen coins - 1852 to 1964 Predominantly minted as archival examples of proposed or adopted new coin issues, these issues are widely regarded as the most exclusive within the Australian coin rarity market due to their superior striking quality, limited mintages and historical value.

Australian gold coins - 1852 to 1931 Many numismatists consider Australia’s gold sovereign issues the core of our numismatic market. They represent the first Australian coins to form an extensive and cohesive series. A collection of gold coins is often seen as a sound hedge against inflation or devaluation of the Australian dollar during unstable economic times.

Australian Commonwealth pre-decimal coins - 1913 to 1964These are amongst the most collected issues in the Australian market. As they were minted over an extended period and during diverse economic conditions, they vary widely in rarity and historical importance, resulting in several tiers of demand.

Pre-federation banknotes - 1817 to 1901 Banknotes printed during this period offer collectors and investors some of the rarest and most spectacular works of art throughout the world of banknote engraving. Most privately offered in recent years have been Specimen issues, released from archives by engraving firms in England. These numismatic time capsules were sleepers in the market until their extreme rarity and significance was revealed in the 1980s.

Australian Commonwealth pre-decimal banknotes - 1913 to 1966 Due to their purchasing power, very few banknotes from such trying times as World War 1 and the Great Depression of the 1930s survive, particularly in superior quality. Elaborate images and geometric designs displayed on banknotes of this era offer a level of exclusivity not captured on coinage of the time.

Australian pre-decimal and decimal Specimen banknotes - 1913 to currentSpecimens were produced as examples of an intended new design of a banknote issue destined for general circulation. They were distributed to central banks, museums and high profile people such as the Queen and Governor-General, and occasionally presented to dignitaries. Printed in extremely low numbers, they are now considered elite issues within the Australian banknote market.

1887S Victoria £2 Silver Pattern Proof - Unique

1894 The Bank Of Australasia £1 Issued NoteExtremely Rare - Only 2 Known

1914 George V Collins / Allen £5 First Suffix NoteVery Rare - Less Than 50 Known

1993 Elizabeth Ii Fraser / Evans $10 Type 4 SpecimenVery Rare - Less Than 50 Known

1852 Adelaide Gold Pound Piece - Type 1Extremely Rare In This Grade - Less Than 10 Known

1919 George V Kookaburra Pattern Penny - Type 6Extremely Rare - Less Than 10 Known


Rare coins and banknotes | n U m I S m A T I c S

Benefits of investing in rare coins and banknotes•A safe, reliable, physical form of wealth protection•Not subject to daily price fluctuations resulting from

economic volatility•Rarities are non-taxable while held•A discreet form of wealth - no title deeds, share

certificates or registered documents of ownership required

•Highly portable, easily stored and maintenance free•One of the largest collector-based markets in

the world

Given recent growth rates, the numismatics market in Australia would seem to offer investors a realistic market alternative. A range of entry points and easy accessibility means it’s easy to get involved, whatever

your previous experience. In short, numismatics are a viable option for any investment portfolio, and definitely worth investigating in 2012.

Disclaimer: Past performance is no indication of future returns. Potential buyers into numismatics should seek professional advice from a qualified rare coin and banknote specialist and a licensed Financial Advisor.

Information supplied by:The Rare Coin CompanyTelephone: 08 9892 8000 (Within Australia)Telephone: +61 8 9892 8000 (Outside Australia)Email: [email protected]: rarecoin.com.au

Numismatic investments

should be held for at

least seven to 10 years

to maximise potential gains


A R T I n v E S T m E n T | Fine Art

The tension is building to a palpable state, as clandestine deals are hatched in the darker recesses down the corridors of power. Analysts and pundits alike are all

trying to make sense of the situation and the ramifications that the outcome may present. It is clear that there is uncertainty in the air. Oh, and not only that it appears that the fragile deal to sure up the Eurozone could come tumbling down as a result of the French and Greek elections!

We wait with breathe abated……..Yes, it is that time of year – the Archibald is upon us.

Jason Benjamin called it “like a pub fight – everyone comes out to watch it”. John Olsen referred to it as a Chook raffle while The Art Gallery of NSW describes the Archibald as Australia’s most extraordinary and prestigious Art prize. However you view it (for the record, Olsen echoed the AGNSW sentiment in 2005, presumably as he had just won with the superb self-portrait entitled Janus), The Archibald Prize is sure, whether deliberate or not, to court controversy. Perhaps not to the stratospheric levels that the Turner Prize does here in London but the Archie has had it’s fair share - Dobell’s Joshua Smith, Cullen’s Wenham, Ruddy’s Gulpilil and Richard Bell have all ensured that the Archibald’s significance has been coupled with a healthy dose of notoriety.

Winning the prize can be the catalyst to ensuring a long and illustrious career or……..not. Take WB McInnes as an example. A 7-time winner and although a solid auction record of AU$109,000.00 set in 2005, of the 495 trades at auction 485 have been under AU$15,000.00 and the 3 recorded sales in 2012 barely scratching AU$5,000.00. The other extreme, Brett Whiteley, merely a 2-time winner, has an auction record of AU$3.48M and 15 sales at auction in excess of AU$1M.

So what does the award mean for the 2012 winner – Tim Storrier?

Storrier’s winning portrait has been the subject of many a debate on not only the manner in which the winner is selected (by the trustees rather than a board of experts) but also on what constitutes a portrait. Whether the one agrees with the result or not, what is not under debate is Storrier’s immense talent.

As a 19-year Storrier became the youngest artist to be awarded the Sulman Prize (which along with the Wynne Prize hangs with the Archibald). This was the market’s first real awakening to a young artist that had raw talent to burn. Over the ensuing years, Storrier became, and still is, recognized as one the finest draftsmen this country has ever produced. However it was the development of the minimalist blazeline paintings in to hyper-realist surreal paintings and installations that really defined Storrier in the market.

People often tell me about how good Storrier’s oil paintings are. I wouldn’t know as Storrier is a devotee to acrylic paint. Now there are those that are far more learned than I in fine art, however they will tell you, as I do, that acrylic and oil paints behave very differently. Storrier may well be one Australia’s great draftsmen, however he is arguably one of the world’s great masters of acrylic paint. He has the ability to make acrylic look and behave in a similar fashion to oil paint which is nothing short of technically brilliant. It is this ability coupled with a unique take on the Australian landscape that has seen his work collected widely in corporate and institutional collections not only in Australia but indeed overseas as well which include the Metropolitan Museum (New York), The National Museum and Tate Museum (London) and The Louvre (Paris).

So, with a CV so strong, why bother entering the prize now – Storrier’s position in the context of Australian art seems to be well and truly determined. What is there to be gained? Well, aside from the prestige of having the major prize on his long list of achievements, we need to take a closer look at the secondary market activity for his work, I believe, to find the answer.

Storrier’s work went on a run in the auction market from 2002 – 2007. As auction results continued to strengthen so did the primary market prices continue to escalate. The scarcity of works available on the primary market due to long waiting lists and an infrequent exhibition calendar, the pressure on pricing was evident. Storrier was one of the must have artists at the peak of his creativity. And then we started to hear that Lehmann Brothers were in a spot of bother……….

The impact of the GFC has been well documented but specifically for Storrier’s work it created a rather unusual set of circumstances. In late 2008 - early 2009 and number of Storrier works hit the market due to forced sale by distressed vendors. Major works were being picked up by those brave enough to be bidding at that time – there were few and far between let me tell you – for considerably softer than his previous cast-iron prices.

The catalyst for this was two-fold. To state the obvious, the appetite to bid on Fine Art generally was compromised by the frequency and ferocity of margin calls and general lack of any confidence in the broader markets. The vast majority were literally seeing their retirement funds and investment portfolios dwindle at an alarming rate as the ramifications manifested themselves in a number of guises.

The second, no doubt forced by the first, saw a seemingly large number of paintings hit the market in close succession at ‘knocked” down prices. Works still sold well – in some cases for over AU$100,000.00 but well off the comparative prices of a few

ART EQUiTY


Fine Art | A R T I n v E S T m E n T

years ago. Prices softened in the secondary market by up to 40% in some cases. A belief that works are selling cheap coupled with a there being a volume of work on the market has a stigmatism that over-shadows the context of these results in which they were set.

So what was the context? Many of the works presented during this time were dated from the mid-1990’s to early 2000’s. A major Storrier in the mid-90’s would have sold for around AU$30,000.00 – 40,000.00. A reasonable sized work for AU$10 – 15,000.00. By 2009, primary market works were selling consistently from AU$150,000 and in some cases for extremely large works in excess of AU$400,000.00. So while selling for well under the current gallery prices, in some cases these works still gave the owner a return on their initial investment. Moreover these works were still assets that were saleable within a highly illiquid market – not bad for an illiquid asset.

It took until late 2010 for Storrier’s auction prices to find some familiar footing which included a new auction record of AU$248,000.00 (inclusive of BP) for Evening (2005). This is in itself is interesting. With over 1000 trades at auction now accumulated from etchings, to photographs, drawings to major paintings, we are now seeing works from a particular period attracting more attention than others in the same oeuvre painted at a different time. This is not unusual, 1950’s Nolan Ned Kelly’s have a currency which is far beyond that of those painted in the 1970’s for example. If you are going to purchase a Burning Rope then, particularly for investment, there is a period to aim for. The same for Burning Logs, paper planes and now faceless portraits!

It is important to realize that not every work Storrier has created is going to be a great investment. This can be down to any number of reasons however, it is pertinent to remind ourselves that of the top 30 prices realized auction since 2004 have all been over AU$100,000.00. That is a staggering statistic that many of Storrier’s contemporaries (outside of the living holy trinity of Olsen, Smart and Blackman) would simply aspire too. Storrier’s pricing is significantly underpinned as a consequence.

Is winning the Archibald going to have much of an impact on Storrier’s prices? Probably not a great deal in the short term and certainly nowhere near the same impact winning would have had for Luke Cornish (aka ELK) or Jeremy Kibel. Indeed, we only have to look at last year’s winner in Ben Quilty to see the impact winning can have on pricing when Frog Torana sold through Menzies Art Brands for AU$88,000.00 (incl. BP) in November having been purchased at exhibition in 2004 for AU$8,000.00 when, incidentally, Quilty’s auction record was zero. Indeed I would argue that winning the Sulman Prize will have had more impact for Storrier’s pricing than taking out the Archibald. What winning has done is remind us that Storrier is one of the major living Australian artists and as such still warrants serious consideration as part of an investment portfolio or collection of Australian Fine Art. Just remember though, the investment lies in the quality.

Alistair Bailey ©Alistair Bailey is based in London and is the managing director of Art Equity (UK) Limited

ART EQUiTY

Storrier may well be one Australia’s great

draftsmen, however he is arguably one of

the world’s great masters of acrylic paint.

He has the ability to make acrylic look

and behave in a similar fashion to oil paint

which is nothing short of technically brilliant.


c o L L E c T A B L E S | Diamonds

A diamond for investment?

If upward trends in the diamond market continue

as expected, a girl’s best friend could well become the

investor’s best friend as well

investment attractiveness. Not to mention, of course, that a diamond is ‘forever’ – it won’t deteriorate or depreciate.

Most importantly, prices for diamonds have grown steadily and significantly over the past decade, the capital gains providing for some staggering returns on investment if one had the foresight to buy an investment-grade stone with a long-term outlook. Rare natural coloured diamonds have been the best investment, appreciating at a dizzying rate, while large top-

T raditionally, gem diamonds have been classified as a luxury good rather than an asset by mainstream investors.

While their magnificent physical properties and deep symbolic powers have made them a highly desirable treasure, difficulties with valuation, lack of homogeneity, and issues with liquidity have not rendered them a desirable investment vehicle to date.

However, there are strong reasons to believe that demand from investors will become a significant part of the diamond demand pool in the near future. Many investors have lost faith in the banking system, taking a step away from fiat currencies and burying their money in tangible assets like gold and silver. Despite some of their commoditisation issues, diamonds actually possess many inflation-hedge characteristics similar to gold. They are a portable store of value that requires low maintenance, and are protected from currency reforms and bank collapse. Additionally, diamonds are traded globally, and have low volatility and no significant correlation to other assets, which further contributes to their


Diamonds | c o L L E c T A B L E S

A diamond for investment?

quality colourless diamonds have also enjoyed significant price increases. Looking at a Christie’s Auction catalogue from October 2003, the estimated values are almost unfathomable in today’s market – a pink diamond ring estimated at $300,000 would today fetch about $6 million, while a top quality colourless diamond estimated at $350,000 would sell for about $2.5 million. For those with more ‘modest’

means, a 5.29-carat colourless diamond listed with an estimated value of $70,000 at auction in 2003 would today sell for about $660,000. All in all, not a bad day’s work.

That said, there is a common misconception that selling any diamond purchased in the past will bring in a profit, since diamonds have appreciated significantly across the board. However, this is only true for diamonds that could actually be classified as ‘investment’ diamonds, those that possess a certain rarity factor that buyers will pay a premium for; unfortunately, this does not include your average engagement ring. Specifically, for a diamond to be considered an investment it needs to

be unique in size and quality, or colour, or both. Throughout history, natural ‘fancy’ coloured diamonds have been the rarest – purples, pinks, and blues are thousands of times rarer than colourless white diamonds. A recent Christie’s auction in Hong Kong saw the now-famous 12.04-carat ‘Martian Pink’ diamond sell for over double its original estimate, going under the hammer for an incredible $17.4 million. In terms of rarity, it’s one of relatively few pink diamonds in the world that can be called a ‘pure’ pink – many pink diamonds will show a tinge of brown or grey, which greatly reduces their value. With colourless diamonds, rare stones are those in the very top tier of the grading scale and


mantra is always the same: ‘buy low, sell high’. In other words, you must buy the right diamond at the right price for it to be considered an ‘investment’.

What does the future hold? Past price increases notwithstanding, the prediction of a significant investment market for diamonds is primarily based on the long term fundamentals of supply and demand, which consensus agrees will result in continued

appreciation. Growing global demand is outpacing a dwindling supply of rough diamonds, especially the larger top quality stones. Vigorous demand for these stones is expected from a rapidly growing upper and middle class in China, where consumers are concerned about currency inflation and where inflation-hedging financial instruments are not readily accessible. Other emerging markets, such as India, and developed countries around the world are also expected to see growth in demand as the economy recovers.

While the outlook for diamond demand is favourable, growth in rough diamond production is slowing as reserves are being exhausted and no new major mines are set to come into production. This supply shift will create a shortage in the industry and trigger further price increases, giving investors that buy now the opportunity to capitalise on gains in the long-term.

The bottom line? In the current volatile market conditions, not only do diamonds represent a risk-hedging instrument that can be likened to gold and other hard assets, but they potentially represent an excellent long-term vehicle for wealth appreciation – provided, of course, that you buy the right diamond, at the right price.

For any questions related to this article, please feel free to contact The Gold Company or the Diamond Certification Laboratory of Australia (DCLA).

What does the future hold? Past price increases notwithstanding, the prediction of a significant investment market for diamonds is primarily based on the long term fundamentals of supply and demand

large in size, generally speaking those over 5-carats.

Besides rarity, when buying a diamond for investment the importance of a good purchase price must also be considered. A buyer cannot reasonably expect to make a profit on a diamond bought from a designer jeweller selling at a 300%+ retail mark up. Whether you’re talking stocks, real estate, diamonds, or baseball cards, the successful investor’s

c o L L E c T A B L E S | Diamonds

Middle IslandRESOURCES LIMITED

www.middleisland.com.au ASX:MDI

• Highly regarded and experienced executive and management team, with 20 year’s West African experience, and a successful track record of gold discovery and project development.

• Signifi cant initial trenching and shallow drilling results from the 100% owned Reo Project include 10.6m at 17.4g/t Au, 39m at 2.62g/t Au, 34m at 16.4g/t Au, 38m at 2.51g/t Au & 10m at 7.55g/t Au.

• Newmont a substantial shareholder by virtue of the Reo Project share sale and purchase agreement.

• Considerable opportunity to leverage the management team’s extensive local knowledge and experience to access new project acquisitions and applications.

• An executive and management team that takes pride in its industry reputation and has confi dence in its ability to optimise returns to shareholders.

Middle Island Resources Limited is an

exciting new gold exploration and

development company focussed on

West Africa, one of the best endowed and

most prospective gold provinces on earth.

CURRENT PROJECTS

REO PROJECTBurkina Faso

NASSILE PROJECTNiger

DOGONA PROJECTNiger

Exploring Golden Frontiers

2168 Middle Island A4 (AHA Investor) ad.indd 1 9/05/11 12:37 PM

Middle IslandRESOURCES LIMITED

www.middleisland.com.au ASX:MDI

• Highly regarded and experienced executive and management team, with 20 year’s West African experience, and a successful track record of gold discovery and project development.

• Signifi cant initial trenching and shallow drilling results from the 100% owned Reo Project include 10.6m at 17.4g/t Au, 39m at 2.62g/t Au, 34m at 16.4g/t Au, 38m at 2.51g/t Au & 10m at 7.55g/t Au.

• Newmont a substantial shareholder by virtue of the Reo Project share sale and purchase agreement.

• Considerable opportunity to leverage the management team’s extensive local knowledge and experience to access new project acquisitions and applications.

• An executive and management team that takes pride in its industry reputation and has confi dence in its ability to optimise returns to shareholders.

Middle Island Resources Limited is an

exciting new gold exploration and

development company focussed on

West Africa, one of the best endowed and

most prospective gold provinces on earth.

CURRENT PROJECTS

REO PROJECTBurkina Faso

NASSILE PROJECTNiger

DOGONA PROJECTNiger

Exploring Golden Frontiers

2168 Middle Island A4 (AHA Investor) ad.indd 1 9/05/11 12:37 PM


m I n I n G & m I n E R A L S | Rare Earths

The term Rare Earths is a bit of a misnomer. Rare Earths are not actually that rare at all. With the exception of the radioactive

promethium, all the Rare Earth Elements are plentiful in the earths crust. Cerium, for example, is the 25th most abundant element at 68 parts per million, very similar to copper in fact. What gives them the name Rare Earth Elements (REE) is a result of their dispersal in the earths crust. REE are typically widely dispersed and rarely found in concentrated and economically viable mining concentrates. Hence it was this apparent scarcity that gave them the name rare earths. The first such mineral to be discovered was gadolinite. This is a compound of cerium, yttrium, iron, silicon and other elements. This mineral was first extracted from a mine in the village

of Ytterby in Sweden and many of the rare earth elements bear names derived from their location.

Modern mining techniques and the big demand for the Rare Earth Elements in the electronic industry has now made it much more economically viable to mine REE.

The big scramble now is to grab a lucrative slice of the REE market share. With China owning an estimated 96 percent of the world’s supply, this is a challenge indeed, but one many Australian exploration and mining companies are not keen to pass up for example. Once it was said, “There’s gold in them thar hills”. Now it is said, “there’s REE in them thar hills” in such places as Brockman, Cummins Range, Dubbo, Mount Weld, Narraburra and Nolans Bore. So, while China’s reserves are estimated to be around 36 million tones, the Commonwealth of independent States (CIS) 19 million, the US 13 million, Australia still has a respectable 5.4 million tons in the offing.

But why invest in Rare Earths? For one thing rare earths do not suffer

An investors Point of ViewRare earths are not something that immediately comes to mind to an investor in precious metals but, with the opportunity of investing in a basket of rare earths for an individual, emerging into the daylight, the idea has becoming increasingly appealing.

Know Your Rare Earths: Cerium

RARE EARThS


Rare Earths | m I n I n G & m I n E R A L S

the volatile trading of metals such as gold and silver. There is no short selling in Rare Earths and no manipulating of price in the market place.

Rare Earths are in high demand and do fit the bill for a sound investment, stability, rarity and value.

The price of rare earths is on a continue rise with no foreseeable slowing down. With the demand in the military field as well as industry, electronics and the auto industry rare earths are set to continue.

China, with a near monopoly on rare earths, is holding a tight reign in the yearly quota exported and carrying a very small stock pile. This ensures that the value and price of rare earths remains always at its highest.

The continual expansion of electronics, defence and high tech industry is assuring the expanding use of rare earths and demand being higher than supply means that the value will remain high.

This means that Rare Earths are a good investment to

retain asset value and are likely to remain so for the foreseeable future.So where can you get such an investment? It is not easy. There is a

REE EFT (exchange traded fund) in Switzerland. The catch is you have to be a Swiss citizen and reside in Switzerland to participate.

You could also invest in REE mining companies. But there are no exclusively REE mining companies. REE is a secondary mining component, so the company is subject to other vagaries such as stock price based upon their primary mining activity, management activities and other unrelated factors.

Up until now there was no way a private investor could participate in a REE investment. Buying into REE has always been the province of industrial buyers and private investors have not been able to get a look into this stable and expanding hidden market.

However this has changed. A German and Swiss company have both got together and come up

with a way for private investors to buy Rare Earths as an investment and have them stored for the investor. German company Haines & Maassen (H&M) and the Swiss firm Scweizerische Metalhandel AG have joined forces to create a number of smaller ‘baskets’ of selected rare earths for investors. These baskets are stored in a Swizz Vault close to Zurich.

They have currently two rare metals “baskets” consisting of Indium, Hafnium, Gallium, Bismuth, Tantalum, and Tellurium, augmented with Silver Granulates as an add on.

They have divided the most commonly used but still very rare industrial metals into 2 baskets. Each basket is focused on technology and is related to a different area of industry and commerce.

Three (3) metals (indium, hafnium and gallium) are included in the Solar and Energy Basket.

Those three (3) metals and three (3) additional metals (bismuth, tantalum and tellurium) are included in the Key Industries Basket.

Silver Granulates can be added to any basket to further diversify the asset protection plan. It is sold in industry ready granulate form which is the preferred form for use in industry and are sold at spot price plus a fee for the physical delivery of the actual silver.

For more information on how to be an investor and participate in this exciting and privileged investment contact Michael Moore at [email protected] or visit http://www.swissmetalassets.com/michael-moore

Cerium oxide is used as a catalytic converter, and as a nanopowder is added to diesel fuel to reduce emissions and improve engine performance. Flammacerium (cerium nitrate-silver sulphadiazine) is a cream to treat and prevent infections in extensive burn wounds.

Classification: Cerium is a lanthanide and rare earth metal Color: gray Atomic weight: 140.12 State: solid Melting point: 798 oC, 1071 K Boiling point: 3443 oC, 3716 K

Discovered in 1803, Cerium is used in:•carbon-arclighting•phosphorsforcolor

television screens •fluorescentlighting

Know Your Rare Earths: Cerium


m I n I n G & m I n E R A L S | Mining News

St Barbara and Allied Gold merger

Gold miners St Barbara Limited (ASX:SBM) and Allied Gold Mining Plc (ASX:ALD) have outlined plans to merge in a deal worth about $556 million. St Barbara has offered Allied Gold $1.025 in cash and 0.8 St Barbara shares for every Allied share held, which if approved would see Allied Gold become a subsidiary of St Barbara and Allied Gold de-listed. Both companies believe the deal would create an international diversified gold mining and exploration company with a market capitalisation of about $1 billion.

Resolute approves Syama gold expansion

Resolute Mining Limited’s (ASX:RSG) board have backed a major expansion of its flagship Syama gold mining Operation in West Africa.

The Australia and Africa-focussed gold producer says average annual production will now increase to 270,000 ounces over the first nine years of operations and extend Syama’s mine life to 15 years.

CEO Peter Sullivan says the investment will benefit shareholders by increasing the company’s gold production and lowering its average cash costs.

Resolute Mining also advises it is currently in negotiations in respect to awarding contracts for the expansion.


Mining News | m I n I n G & m I n E R A L S

GOLD IS MONEY

There will never be a more critical time to buy gold and silver. When financial markets are uncertain, smart investors put their money into gold and silver. Why? Because even in the worst of economic times, gold and silver are the ultimate store of value. Buying gold and silver is the best way to preserve your wealth and protect your savings. If you are looking to invest in gold, contact The GoldCompany. The GoldCompany provides customers with a secure and confidential means to buy investment gold and silver (LBMA Good Delivery bars) or to sell scrap, unwanted gold, platinum, silver and diamonds. You can also combine the two with our unique GoldSwap service. The GoldCompany, specialists in all your precious metals and diamond trading requirements.

1300 506 707

The GoldCompany HeadquartersSuite 1, Level 1 Piccadilly Tower133 Castlereagh StreetSydney NSW 2000

www.goldcompany.com.au

WA GoldGeological investigations at Blackham Resources

Ltd’s Williamson area have identified an exploration target of 0.5 Moz to 2.0 Moz (2 to 6 g/t Au)

At a Glance:•WilliamsonminepartofBlackham’sMatilda

Project•Largehighlyprospectivetenementholdinginthe

Wiluna region, Western Australia•Unloved&‘forgotten’goldprojectwithlittle

systematic exploration in the last 15 years•Assetsincludepreviousoperatingmines,

infrastructure and residual resources as well as an extensive exploration position

The exploration target has been defined beneath the existing Williamson and Williamson South Resources and over the Carroll and Prior Prospects, approximately 1-2 km south of the Williamson Mine. The exploration target represents potential gold endowment in addition to the estimated combined resources at Williamson of 364,000oz.

Total gold resources at Blackham’s Matilda Project are estimated at 790,000oz.


Sovereign Gold Update

Sydney, June 28, 2012 (ABN Newswire) - Sovereign Gold Company Limited’s airborne magnetic and radiometric airborne data collected over the Rocky River-Uralla Goldfield has revealed the existence of numerous potential gold-bearing targets for assessment and possible drilling that will be detailed in the coming weeks. Initial assessments suggest that the Frasers Find and Diggers Shaft gold mineralisation are potentially linked small parts of a very large gold mineralised target.

The known mineralised structure at Frasers Find is at least 250 metres long and assayed up to 2.47 ounces of gold, 57.5 ounces of silver and 5.95% lead per tonne. Drilling has commenced at Frasers Find and mineralisation intersected. The geophysical studies have provided what the company describes as “potential for a significantly larger gold target”.

New Iron Ore in the Pilbara?

Dynasty Metals Australia have announced the grant of two tenements (E52/2640 and E52/2641) within the Pilbara Region, covering an area of over 160km2. These tenements are 60km west of Dynasty’s Prairie Downs Project and Spearhole Deposit.

The areas are in a similar geological setting to the Spearhole Project, with potential to host channel iron deposits (CID) and detrital deposits which may be sourced from the adjacent outcropping Hamersley Basin.

There is also a possibility of buried iron formations from the Hamersley Basin present at depth with significant magnetic features in the regional magnetic.

Previous work had been restricted to gold, base metal and uranium exploration. Historical drilling had identified large paleo-channels but only limited assaying for iron was undertaken. Work will commence shortly on the field evaluation of the tenements with reconnaissance mapping and sampling, followed by geophysics and if warranted drilling.

African Gold

Gryphon Minerals is nearing an upgraded gold Resource for its Banfora Project in Burkina Faso with the delivery of more high grade discoveries from the newly defined Stinger target, which extends for at least 2 kilometres.

The location of the target is also important, positioned just 10 kilometres to the east of the Nogbele Gold Deposit and planned gold processing plant at the Banfora Project, in a major gold producing district which hosts several multi-million ounce mines.

Further exploration upside is the identification of at least three more parallel mineralised zones across several kilometres at Stinger.

Showing strong potential, follow up reverse circulation and diamond drilling at the target has delivered high grade intersections of:

- 16 metres at 1.2 grams per tonne (g/t) gold from 52 metres and 10 metres at 8.67g/t gold from 141 metres;

- 34 metres at 1.2g/t gold from 10 metres and 20 metres at 3.02g/t gold from 110 metres; and

- 11 metres at 2g/t gold from 104 metres and 17 metres at 4.26g/t gold from 261 metres.

The shallow nature of the target is also important, with mineralisation outcropping from surface and having been drilled to typically less than 100 metres vertical depth.

Several recent drill holes confirm mineralisation continues to over 150 metres below surface and is open at depth.

Steve Parsons, managing director, commented on the new discoveries: “These latest drill results are again showing the robust nature of yet another major gold discovery at the Banfora Gold Project.

“We are now excitedly awaiting the new independent resource estimate which is due in the coming weeks.”



IndoChine Advances in PNGDrilling has advanced successfully at Indochine Mining’s ( ASX:IDC)

major gold/silver project at Mt Kare, in Papua New Guinea (PNG) with 47 holes completed, and 3 holes underway, for approximately 6000 metres of diamond drill core.

First phase Pre-Feasibility Study (PFS) diamond drilling was completed for 3450 metres (29 holes), mainly for metallurgical test work, with more assay results now becoming available.

Recent best results returned, since the last release, include: 9.8 metres(m) at 2.5 grams/tonne(g/t) gold, 20 g/t silver from 90.3m,- to extend the entire mineralised interval to:- 46.2m at 5.4g/t gold, 187g/t silver from 46.2m

(Drill-hole 123SD11).

7 m at 2.5 g/t gold, 6 g/t silver from 108m with further results pending (Drill-hole 127SD12).

Recent results returned were mainly from less mineralised upper and lower sections of drill-holes previously reported. Assay results are combined in the attached table and cross-sections for intercepts around the above results are in prior releases. Mineralised sections have been prioritised for despatch and assay and therefore, part-hole results are released as assays become available. Further assays will become available as core is shipped from site and processed through the IMO and ALS laboratories in Perth.

Mining News | m I n I n G & m I n E R A L S


Gold on them Hills . . . in the Northern territory

Perth, June 2012 (ABN Newswire) - ABM Resources has announced the discovery of coarse visible gold at their NT Golden Hind Prospect, located 800 metres south of Old Pirate on the Company’s Twin Bonanza Gold Camp Project.

Named “The Golden Hind” Prospect:- Approximately 400m strike length of outcropping vein

between 30cm and 3 metres in width extending under cover along strike.

- Coarse visible gold observed in hand-specimen (assays pending)

- Never before drill-tested zone.General Exploration Update- 44 holes for 8460 metres completed at Old Pirate

pending assay.- 14 holes for 5502 metres completed at Buccaneer

with 3864 metres pending assay.- 2400 metres of extensional surface sampling completed

at Old Pirate and extensional nearby prospects completed pending assay.

The New “Golden Hind” ProspectFollowing on from the success of the 2011 surface sampling

program, ABM has continued the approach of exposing and

systematically sampling near-surface and outcropping veins. So far, in 2012, the Company has collected over 2400 samples of new vein material that is mostly outside the existing resource. A detailed description of the process is provided in this release.

The Golden Hind Prospect is a single outcropping vein ranging from 3 metres to 30cm in width. The vein has been mapped over a strike length of approximately 400 metres and continues under shallow cover to the northwest and southeast. To the southeast the vein is interpreted to wrap around an anticline (an arch shaped geological structure) and is structurally analogous to the main Old Pirate deposit

Recently the Company started systematic 1 metre strike length sampling of the outcropping portions of the vein following up on a single historic 4.4g/t gold rock-chip sample. So far approximately 200 samples of The Golden Hind Prospect have been collected and are pending assay. Coarse visible gold has been sighted in the vein (Figure 1, 3 & 4) and it is not known if all or only part of the vein is mineralised. ABM is continuing with the sampling of the vein and dependent on overall results a rig will mobilise to drill test the prospect.

There are several other outcropping veins in the vicinity of The Golden Hind Prospect which will also be systematically sampled.

TIME IS PRECIOUS. Nicolas Cage values every

moment of his life and every moment with his Montblanc watch.

Nicolas Rieussec Timewriter. Monopusher chronograph, self-

winding manufacture movement. 30 min. and 60 sec. rotating disc counters

fixed on the counter bridge. 72h power reserve. Crafted in the Montblanc

Manufacture in Le Locle, Switzerland.

sydney 75 castlereagh street - 115 king street | melbourne 175 collins street | brisbane queens paza 1300 36 4810 | www.montblanc.com



TIME IS PRECIOUS. Nicolas Cage values every

moment of his life and every moment with his Montblanc watch.

Nicolas Rieussec Timewriter. Monopusher chronograph, self-

winding manufacture movement. 30 min. and 60 sec. rotating disc counters

fixed on the counter bridge. 72h power reserve. Crafted in the Montblanc

Manufacture in Le Locle, Switzerland.

sydney 75 castlereagh street - 115 king street | melbourne 175 collins street | brisbane queens paza 1300 36 4810 | www.montblanc.com


d I R E c T o R Y | Contacts

ABC Bullion Australian Bullion Company (NSW Pty Ltd) Suite 30 Level 6, 88 Pitt Street Sydney NSW 2000Call (02) 9231 4511 www.abcbullion.com.au

Ainslie Bullion Company289 Queen St, Brisbane, QLD 4000iaCall 1800 819 474 / +61 7 3221 0500www.ainsliebullion.com.au

Aliom Financial MarketsLevel 4, 131 York StSydney 2000Call 02 8246 8500

Argyle Pink Diamonds2 Kings Park RoadWest Perth, WA, 6005Call +61 8 9482 1052

Art Equity16-20 Barrack StreetSydney 2000Call (02) 9262 6660www.artequity.com.au

Autore PearlsSydney Head OfficeLevel 5, 125 York Street, Sydney NSW 2000 AUSTRALIAT: +61 2 9285 2222 F: +61 2 9285 2255www.pearlautore.com.au

Australian Gual MetalsSuite 5, level 2, 88 Pitt St. Sydney 2000Ph 02 9216 6000www.australiangualmetals.com.au

The Blender Gallery16 Elizabeth StreetPaddington 2021Call (02) 9380 7080www.blender.com.au

Brisbane Vintage WatchesShop 23 Ground Level Brisbane Arcade160 Queen StreetBrisbane Qld 4000Call +61 7 3210 6722 www.brisbanevintagewatches.com

BullionListCall +61 415 875 008Or email [email protected]

BullionMoneySuite 102, 25 George Street. Parramatta, NSW 2150, AustraliaPh 02 8677 4289www.bullionmoney.com.au

Calleija JewellersBrisbaneShop 102 Seaworld DriveMain Beach QLDCall +617 5528366

SydneyThe Westin SydneyNumber 1 Martin Place SydneyCall +612 9233 6661

LondonShop 14 The Royal Arcade28 Old Bond StreetMayfair LondonCall +44(0)20 7499 8490www.calleija.com.au

CoinworksPO Box 1060HawksburnVictoria Australia 3142Ph +61 3 9642 3133www.coinworks.com.au

Fat ProphetsLevel 322 Market Street Sydney NSW 2000 Call 1 300 88 11 77 www.fatprophets.com.au

Contact Directory


Contacts | d I R E c T o R Y

Calleija JewellersBrisbaneShop 102 Seaworld DriveMain Beach QLDCall +617 5528366

SydneyThe Westin SydneyNumber 1 Martin Place SydneyCall +612 9233 6661

LondonShop 14 The Royal Arcade28 Old Bond StreetMayfair LondonCall +44(0)20 7499 8490www.calleija.com.au

CoinworksPO Box 1060HawksburnVictoria Australia 3142Ph +61 3 9642 3133www.coinworks.com.au

Fat ProphetsLevel 322 Market Street Sydney NSW 2000 Call 1 300 88 11 77 www.fatprophets.com.au

Corality FinancialLondonOffice 102, Level 1, 29 Throgmorton StreetLondon EC2N 2ATCall +44 020 7947 4019

MelbourneLevel 3,480 Collins StreetMelbourne, AustraliaCall +61 3 8610 6301

SydneyLevel 8, 200 George StreetSydney 2000, AustraliaCall +61 2 9222 9222

SingaporeOne Raffles Quay, North Tower, Level 25, Raffles Place, Singapore 048583Call +65 6440 8803www.corality.com

Generation OneGenerationOne is a movement for all Australians - Indigenous and non-Indigenous. It is a non-partisan movement and will listen to any and all contributions that can help break the poverty traps, in our generation.Ph 02 9310 2600www.generationone.org.au

Gold Bullion AustraliaBrisbane Office(Secure office - contact for appointment)Level 23 127 Creek StreetBrisbane Qld 4000Call 1300 754 602

Melbourne Office(Secure office - contact for appointment)HWT TowerLevel 23, 40 City RoadSouthgate, Vic 3006Call 1300 754 602

Sydney Office(Secure office - contact for appointment)Level 32, 1 Market StreetSydney NSW 2000Call 1300 754 602

Head OfficeShop 2 / 2713 Main PlaceBroadbeachGold Coast QLD 4218Call 1300 754 602www.goldbullionaustralia.com.au

Gold Company, TheSuite 1, Level 1, Piccadilly Tower, 133 Castlereagh Street Sydney NSW 2000Call 02 9020 5150 / National: 1300 506 707www.goldcompany.com.au

Gold De RoyaleSuite 103 192 Ann Street Brisbane, Queensland 4000Call 07 38305319www.goldderoyale.com.au

J Farren Price JewellersShop 2, St James Centre80 Castlereagh Street Sydney NSW 2000 Call (02) 9231 3299 www.jfarrenprice.com.au

L.G.Humphries & Sons. 149 Castlereagh St, Sydney AustraliaPh (02) 9267 7691www.lgh.net.au

Guardian Vaults100 William Street Melbourne, VICPh 03 9606 0588 (Opening In Sydney Mid 2012 )www.guardianvaults.com.au

Menzies Art BrandsMelbourne1 Darling Street South Yarra, Melbourne, VIC, AUSTRALIACall +61 3 9832 8700

Sydney 12 Todman Avenue, Kensington, Sydney, NSW, AUSTRALIA Call +61 2 8344 5404www.menziesartbrands.com


Mont Blanc Boutiques Sydney75, Castlereagh StreetSydney, NSW 2000Ph: +61 2 9233 3927

115-117, King StreetSydney NSW 2000Ph: +61 2 9231 5671

Melbourne175-177, Collins Street,Melbourne, Vic, 3000.Ph: +61 3 9663 5077

BrisbaneShop 12, Queens Plaza,Edward St, Brisbane, Queensland 4000Ph: +61 7 3012 9150www.montblanc.com

Noble NumismaticsSydneyGround Floor169 Macquarie StreetSydney NSW 2000Call +61 2 9223 4578

MelbourneLevel 7350 Collins StreetMelbourne VIC 3000Call +61 3 9600 0244www.noble.com.au

Perth Mint310 Hay Street East Perth WA 6004Bullion Bars & Coins Sales InquiriesCall 1300 201 112 / +61 8 9421 7428www.perthmint.com.au

Port Phillip Publishing Level 1, 10 Fitzroy Street,St. Kilda, VIC 3182,Australia Call 1300 78 29 11 www.portphillippublishing.com.au

Raphael JewellersShop 118, Gallery Level 2The Strand Arcade412 – 414 George Street Sydney 2000Ph: 02 9233 4843

SilverStackerswww.SilverStackers.com.au

SPOTMEXUnit 11, Level 3K1 Building16 Innovation ParkwayBirtinya QLD 4575Ph : 07 3375 7578

State Street Global Advisors Australia, LimitedLevel 17 420 George Street Sydney NSW 2000 Tel: +61 2 9240 7600

Southern Cross Bullionwww.southerncrossbullion.com.au

SymposiumLevel 9, 66 King StreetSydney, NSW 2000Call +61 2 9299 4350 www.symposium.net.au

Utopia2 Danks StreetWaterloo 2017Call (02) 9699 2900www.utopiaartsydney.com.au

Varoujan Jewellers70 Castlereagh StreetSydney 2000Ph: 02 9232 2328

Victoria & Albert AntiquesShop 17, The Strand Arcade 412 - 414 George St, Sydney NSW 2000Call (02) 9221 7198

Watch TraderLevel 8, 350 Collins Street, Melbourne, VIC, 3000Call 1800 60 20 71www.watchtrader.com.au

d I R E c T o R Y | Contacts

Feb/Mar 2012 AHA.Investor | 71 2011

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September

Resources Roadshow Sydney Tuesday 20th 5.30pm – 8.30pm Establishment

Resources Roadshow Melbourne Wednesday 21st 12.30pm – 2.30pm CQ Functions

October

Resources Roadshow Melbourne Monday 17th 12.30pm – 2.30pm CQ Functions


November

The Gold Symposium Sydney Mon 14th – Tues 15th 9.00am – 5.00pm Luna Park

Resources Roadshow Sydney Tuesday 22nd 5.30pm – 8.30pm Establishment

Resources Roadshow Melbourne Wednesday 23rd 12.30pm – 2.30pm CQ Functions

www.symposium.net.au • [email protected] • +61 2 9299 4350

2011

2012February


Resources Roadshow Melbourne Wednesday 15th 12.30pm– 2.30pm CQ Functions

March


Resources Roadshow Melbourne Wednesday 28th 12.30pm – 2.30pm CQ Functions

April

Resources Roadshow Melbourne Monday 23rd 12.30pm – 2.30pm CQ Functions


May

The Great Australian Outback Golf Challenge Broken Hill Sunday 20th 10.00am – 7.00pm Golf and Country Club

Resources and Energy Symposium Broken Hill Mon 21st – Wed 23rd 9.00am – 5.00pm Entertainment Centre

June



July



August

Resources Roadshow Sydney Tuesday 21st 5.30pm – 8.30pm Establishment

Resources Roadshow Melbourne Wednesday 22nd 12.30pm – 2.30pm CQ Functions

September



MinExpo USA Mon 24th – Wed 26th 9.00am – 5.00pm Las Vegas Convention Centre

October

Resources Roadshow Sydney Tuesday 23rd 5.30pm – 8.30pm Establishment


November




2011/2012 Events Calendar

Jul/Aug 2012 AHA.Investor | 67 Feb/Mar 2012 AHA.Investor | 71 2011

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September


Resources Roadshow Melbourne Wednesday 21st 12.30pm – 2.30pm CQ Functions

October

Resources Roadshow Melbourne Monday 17th 12.30pm – 2.30pm CQ Functions


November


Resources Roadshow Sydney Tuesday 22nd 5.30pm – 8.30pm Establishment

Resources Roadshow Melbourne Wednesday 23rd 12.30pm – 2.30pm CQ Functions

www.symposium.net.au • [email protected] • +61 2 9299 4350

2011

2012February



March



April

Resources Roadshow Melbourne Monday 23rd 12.30pm – 2.30pm CQ Functions


May

The Great Australian Outback Golf Challenge Broken Hill Sunday 20th 10.00am – 7.00pm Golf and Country Club

Resources and Energy Symposium Broken Hill Mon 21st – Wed 23rd 9.00am – 5.00pm Entertainment Centre

June



July



August

Resources Roadshow Sydney Tuesday 21st 5.30pm – 8.30pm Establishment

Resources Roadshow Melbourne Wednesday 22nd 12.30pm – 2.30pm CQ Functions

September



MinExpo USA Mon 24th – Wed 26th 9.00am – 5.00pm Las Vegas Convention Centre

October

Resources Roadshow Sydney Tuesday 23rd 5.30pm – 8.30pm Establishment


November




2011/2012 Events Calendar


F I n A L w o R d

Don’t let my voice be the only one.To find out what you can do to help, go to

www.generationone.org.au– Madeleine Madden

One of the most important habits of highly successful investors is that, when

market conditions call for it, they have the ability to sit on their butts and do absolutely nothing.

Great investors wait patiently for the next slam-dunk opportunity to present itself. They do not jeopardize their capital in half-baked ideas, nor risk money on investments in which they do not have conviction.

As the famous early 1900s stock speculator Jesse Livermore put it, “It never was my thinking that made the big money for me. It always was my sitting.”

Or, as the contemporary billionaire investor, Jim Rogers puts it: ”I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime.”

It’s good advice at any time, but especially apt right now as there are few OBVIOUS opportunities in the market.

The problem with so much of the investment management industry, however, is that they are paid to “do something.” And their mandates typically say that they must be “fully invested.” So, as money keeps pouring into mutual funds, fund managers have to buy things.

However, as an individual investor focused on absolute returns, as opposed to returns relative to a benchmark index, you have the luxury of being able to do nothing.

And sometimes, in investing, there really isn’t anything to do — other than sitting patiently and scouring the market for the next obvious trade or investment.

Right now in the markets, I see no obvious speculations. There are no ”slam dunks,” such as when silver went parabolic and rose from $30 to $50 in a matter days early last year, and I went short. Or, when platinum prices fell well below gold prices towards the end of last year and I went long.

The few obvious opportunities– such as betting against the worthless paper issued by insolvent governments in the Western hierarchy-may take too much time to play out to qualify as a ‘slam dunk’ right now.

Besides, fighting the Fed certainly does entail quite a bit of risk… especially since all the money being conjured out of thin air by central banks has to end up somewhere. For now, that somewhere is the bond market– if only by default (no pun intended).

One day, the institutional market will wake up and find a sound alternative. Yet predicting when that day will be is not something that is obvious to me. In the meantime, I am happy to sit on my butt and wait, just as Jesse Livermore, Jim Rogers, many other successful speculators and investors in history have done.

Of course, even “doing nothing” also entails making decisions. What’s the best way to hold cash?

My own method is a system I developed based on takeover arbitrage, a model that even Warren Buffett has called a ‘cash equivalent’. Our 4th Pillar subscribers have been able to enjoy double digit returns through this system without having a single day in the red, ever.

Precious metals also make a lot of sense for those with a long-term view of their investment capital;

gold and silver are among the best ways to hold savings if you distrust politicians and central bankers.

Holding physical metal can be cumbersome for funds earmarked for investment, though. The conversion back and forth to paper currency can be costly and time consuming.

If you’re looking to keep your risk capital plugged in to the financial system, Hong Kong dollars are an interesting option to consider; right now, the currency is pegged at 7.80 to the US dollar +/- a small band of variance.

In the event of a major deleveraging event that pushes the US dollar higher (like we saw in 2008), the Hong Kong dollar will strengthen against everything else concurrent with the US dollar’s rise.

If, on the other hand, the US dollar sinks away to its value in wallpaper or BTUs, the Hong Kong dollar will likely be released from its peg, reducing the inflationary loss on your capital.

It may also be a worthwhile to consider diversifying across a basket of currencies from stronger economies like the Australian dollar or Philippine peso. Simon has been vocal about the Chilean peso and Mongolian tugrik as well.

Of course, the minute I think there is an obvious, slam-dunk opportunity in which we can deploy our capital to make a solid gain with limited risk, I’ll let you know. In the meantime, I strongly suggest sitting on the sidelines.

Until next time,Tim StaermoseChief Investment StrategistSovereign Man


Don’t let my voice be the only one.To find out what you can do to help, go to

www.generationone.org.au– Madeleine Madden

“Royalty and Eminence Comes with Gold”

www.goldderoyale.com.auSuite 103, 192 Ann Street, Brisbane, Queensland 4000, Australia

Tel: 07 38305319 • Fax: 07 30365787

Documents

AHA Issue 9