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How to beat the now-looming Exchange Controls of the G-7 nations? Use BullionVault to own gold offshore...

FINANCE LEADERS from the Group of Seven industrialized nations (G-7) met in Tokyo earlier this month to discuss collective action "to calm markets, if price moves become irrational."

   Finance ministers and central bankers from the United States, Canada, Japan, Britain, France, Germany, and Italy agreed that financial market turmoil was serious and persisting. They also said more work was needed to restore markets to good working order and safeguard global growth. The European Central Bank believes that turbulence on financial markets could continue for months.

  
Consequently the Euro group have agreed that if there are "irrational" price movements in the markets, "we will collectively take suitable measures to calm the financial markets." The markets will not be forewarned of such action, "otherwise it will lose its effect if it is explained."

  
No action has yet been seen – so no-one is too perturbed, it seems. Yet the Gold Price continues to speak to deep and growing anxiety. And here at the GoldForecaster.com, we are very perturbed!

  
Could there be a more dramatic warning from the richest nations of the world for us, as investors, savers and private individuals? It may seem easy to assume that all they are going to do is to manipulate the froth out of the market. But they did not say that.

  
How can one "calm" markets? And why will such action "lose its effect if it is explained?" Such statements are so strong they need to weighed carefully.

  
The succinct admission that turbulent markets will continue being turbulent for some time to come, while stating the obvious, is a warning from the entire body of major financial nations – not a warning from mere newsletter analysts or internet bloggers. The finance leaders are clearly concerned about the veritable Tsunami of Capital that is ready to rush from weak markets to strong, or the disappearence of all money that is happening in the credit markets.

  
Like the pullback of the sea before the Tsunami wave hits, cash is currently being replaced by freshly issued money from the central banks through extra liquidity injections and the Fed's "Term Auction Facility". They are fully aware that volatility is here, as a market feature, to stay. They also realize that such swings destroy the stability of world markets and make the markets malfunction, badly. The situation certainly has to be dire for them to issue such a warning, no?

  
What tools are in government and central banks' hands to "collectively take suitable measures to calm the financial markets"? They are several and of different dimensions but let's look at those that would be the first assumed points of action:

Exchange Rate or Interest Rate Management: It is unlikely the G-7 are referring to exchange rate or interest rate management as these tools are already in use by separate national central banks; however, if these nations want to manage exchange rates 'in concert' the game changes somewhat.

  
We presently believe that the G-7 have agreed trading bands within which currencies will move. Outside those bands we expect the G-7 to act to 'smooth' them out. They would only contemplate such action if they exepected the volumes of capital are so large that they will make currencies move "irrationally". History has shown that central banks – no matter how important in the global money system – can be defeated by speculators. The potential flows of capital that could flow at the moment are far larger than any speculator has imagined before.

  
If the G-7 governments succeed in holding exchange rates within specified trading bands, then it will be like making a four-laned highway for the capital to travel down. The markets from which they come from and those they go to will bear the full brunt of the tsunami and will show "irrational moves".

  
Also bear in mind it will be the movement of capital that will show any irrationality, not normal international trade. Consequently, such moves must be prevented from destabilizing international trade and the exchange rates that affect them. The separation of capital flows from trade flows has usually been the first point of action by central banks often making a separate currency for capital movements. This can be through Capital Controls or Exchange Controls, subject to the severity of the "irrationality" of the markets affected.

Credit Markets: We have seen action from several Central Banks now – in particular, the Federal Reserve and the European Central Bank – to the tune of hundreds of billions of Dollars and Euros, a figure expected to rise to over $450 billion.

  
By the end of March we should know what this figure is headed towards in the next year; we have no doubt the Fed and ECB will continue to act in trying to defend the banking systems of the G-7 group of nations through the replacement of lost values (capital) by the issue of much more new money, as we have seen to date.

  
We are led to believe that the subsidence of confidence in the banking system and amongst private bankers themselves is spreading up from the poor end of the housing market to the more expensive end of the market. Thereafter, it is hitting the bond insurance market, likely to hit the credit card market, and could push over into the car finance market. Thereafter, who knows where?

  
There is no reason why this disease should stop at one point and not the next. The entire system is like an inverted pyramid with the world's central banks – and their own credibility – being the tiny point at the bottom.

  
The role of the big central bankers as lenders of last resort has been amply demonstrated over the last few months and will continue to be so. Unfortunately, the new money issued has not been taken by those who really need it, but has often been taken by banks funding other aspects of their operations leaving the crisis relatively intact. The sheer volume of newly issued capital adds to the mighty volumes of capital that can move and cause "irrational movements" in markets.

  
In short, the G-7 nations are giving us fair warning of their coordinated action. It will be action to 'calm' international movements of capital. As has been the case in the past – and will be again in the future – such action will attempt to leave international trade untouched and unhindered to go its merry way amongst a regime of (relatively) stable exchange rates. Hence, the chief tool has to be Capital Controls or Exchange Controls.

  
These measures will be far more punitive than simple "Witholding Taxes", the sort of measures that penalized the export of capital from the United States in the past. They will have to be immediate and effectively halt "irrational movements". In the GoldForecaster.com we have highlighted the probabilty of Capital Controls and Exchange Controls for some time now, but this warning tells us that they are imminent and will arrive without warning as the G-7 have said themselves.

  
What does this mean for you, me, and all those financial institutions out there across the globe? It means if we want to protect ourselves from the pernicious effects of these Controls we must act NOW! The time for adjusting one's affairs, not only to protect one's wealth but to re-structure it beyond the reach of these authorities, is running out.

  
It would be extremely unwise to wait until the authorities have acted. Because you might find yourself listening to the sound of the trap of Controls snapping shut over you.

  
Storing physical Gold Bullion in Switzerland – as BullionVault does for its clients – is a way to go and we would happily recommend working with them. Storing gold offshore, with full property rights, is out of the reach of the G-7. The only drawback is that your gold remains in the name of the owners, of course, who will likely be resident inside their home country inside the G-7.

  
As such, you are faced with a dilemma when you declare to their authorities that you own gold in foreign lands. It is no small step for those authorities to tell you to bring the gold home. That is where we can help, working with BullionVault to create Control-Proof protection.

  
This article is not the forum to discuss ways and means of protecting oneself from such controls, but after 25 years of practical experience in successfully structuring people's affairs from such controls in a manner satisfactory to the monetary authorities of three jurisdictions, we know of successful ways to protect one's wealth and would be happy to assist any searching for such protection.

  
As a final thought, when such controls are imposed they produce remarkable opportunities to increase and create wealth, so not only benefitting one, but adding to one's wealth.

If you wish to know more on these subjects and would like to understand more about using BullionVault to prepare for Capital and Exchange Controls, please Contact Us Here at Gold Forecaster for more information and articles on the subject.

JULIAN PHILLIPS – one half of the highly respected team at GoldForecaster.com – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

See full archive of Julian Phillips.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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