The how, when and why of gold confiscation by governments - POLITICAL ECONOMY | Mineweb

The how, when and why of gold confiscation by governments

In another article on gold confiscation, Julian Phillips reckons that this could become a reality as the decline in currency confidence makes such action inevitable.

Author: Julian D. W. Phillips
Posted: Saturday , 21 Jan 2012

BENONI -

Gold and Liquidity

The issues facing the developed world's financial systems are ones of liquidity and solvency, among others. The assumptions of liquidity levels proved horribly incorrect! The request from the IMF to lift its resources from $380 billion to $980 billion and the currency swaps between the U.S. and Eurozone confirm that (these may still prove inadequate).

Many markets, which reserve managers had considered to be deep and liquid, proved to be the exact opposite with assets-selling only at a large discount. This was even true of some AAA-rated assets, showing that credit ratings offered no effective guide to liquidity. Many central banks had to rely on bi-lateral currency agreements with other central banks, principally the US Federal Reserve.

The situation is heading for even stormier waters on both sides of the Atlantic. But true to history, the gold market remained liquid throughout the financial crisis. This was the case even at the height of liquidity strains in other markets -a reflection of the size, low market concentration, and flight to quality tendencies of gold. As we said earlier: the Swedish Riksbank used its gold reserves at the height of the crisis to finance temporary liquidity assistance.

A look at what we have said so far in a number of articles answers the question that gold confiscation can really happen, but the question of when and under what specific conditions remain. We look at this now...

CONFISCATION OF CITIZEN'S GOLD

To get the issue in perspective, gold as a financial asset -providing liquidity as cash should do but doing so globally-is strongly on the rise, irrespective of its price. A look forward into 2012 points to deeper and more confidence-destructive financial crises, if not worse than we have seen in 2011.

With the problems being structural and so far inadequately addressed, expect to see some deep damage done to the developed world's financial system and most likely its banking system. Gold as a financial asset may provide a safety net as well as the means to repair national currencies.

All the world's currencies are interlinked, and banking systems are telling us that gold has already swung into action to provide financial relief. But it will need to see a very large expansion of this role if it is to defer or rectify these crises.

In a crisis the price of gold becomes irrelevant, it is the number of ounces you have that counts!

That's why the surplus earning world's central banks are buying gold at the expense of currencies, particularly the U.S. dollar. We would go so far as to say that all the world's central banks are very aware of the need to continue to use gold in the monetary system and more pertinently, that that role is growing, much as they hate that prospect.

Should the crises continue to grow this way, we have no doubt whatsoever that governments will consider confiscating their citizen's gold. There's a point in a decline in currency confidence where this is inevitable! Expect that developed world, central bankers have laid down contingency plans for just such an event.

Should they do so, it will likely be done at a weekend when markets are closed and when their citizens will not have time to take action to prevent such a confiscation. It will be overnight, and gold will be gone. As in 1933, the penalties for not handing over personally owned gold will be draconian. Gold held within a nation confiscating their citizen's gold in the country's banks will be handed over without reference to the clients themselves first.

Julian Phillips for the Gold and Silver Forecasters - www.goldforecaster.com and www.silverforecaster.com

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The MasterMetals Blog

Sprott bearish on base metals, positive on gold, oil

Sprott bearish on base metals, positive on gold, oil

Prominent Canadian fund manager Eric Sprott said this week he was bearish on cyclical commodities such as industrial metals because of the economic slowdown, though he remained positive on gold and crude oil.

Sprott, a long-time gold bull who last week filed to launch a platinum and palladium product allowing investors to redeem the physical metals, said he expects that business to grow in the wake of MF Global's collapse.

"I am not bullish on cyclical commodities such as iron ore, coal, steel, lead and zinc because I am worried about this economic contraction that everybody is talking about," Sprott told Reuters in a phone interview from his Toronto office.

He expects gold to hit a record above $2 000/oz this year, with silver also rallying to an all-time high at more than $50/oz. On Wednesday, gold traded at $1 660/oz and silver at $30.50.

Sprott, whose parent company Sprott Inc manages around C$9-billion in assets, has been bearish on cyclical commodities since the 2008 global economic crisis, and has maintained the gold and silver forecasts throughout last year.

"I think there is more upside to the gold-mining stocks. Last year, the stocks were absolutely crushed when the price of gold went down. But when gold goes back up, the stocks will provide a better return."

Bullion lost 10% in December and briefly entered a bear market, as it struggled to regain its safe-haven appeal even though investors questioned the viability of the euro.

Year to date, spot gold was up 6 percent, largely tracking equity markets' gains. It posted a 10% gain in 2011 that sealed its 11th consecutive year of gains.

Sprott cited strong physical gold demand, indicated by encouraging imports by China and Turkey late last year.

In addition, he was positive on the outlook of the energy market because of relatively inelastic demand and depleting output.

"It's getting tougher and more expensive all the time to produce energy. I think that's a pretty good foundation for the oil prices hanging in there."

SELL SHARES, REDEEM METAL

On Friday, Sprott filed regulatory papers for a planned launch of a physical platinum and palladium trust initially worth $115-million on the New York Stock Exchange and the Toronto Stock Exchange. The firm already runs two physical gold and silver trusts.

Investors in Sprott's funds have the option to redeem physical metals, something that not all ETFs offer.

"A lot of people thought they owned gold and silver before MF Global went bankrupt. And all of a sudden they found out that they didn't own anything at all," he said.

"We like people who own the units to know that they have the ability of getting the physical gold and silver."

Sprott said investors rarely redeem physical metals, but that could change if economic conditions worsen.

"In certain circumstances, we could see a lot of redemption. I am talking about financial meltdown circumstances. So, hypothetically it could happen," he said.

Edited by: Reuters

Read the story online here: Sprott bearish on base metals, positive on gold, oil

The MasterMetals Blog

Virgin Islands refinery shutdown to hit Venezuela hard - Americas - MiamiHerald.com

Virgin Islands refinery shutdown to hit Venezuela hard

This week’s announced shutdown of a major oil refinery in the Virgin Islands could have major ramifications for the Venezuelan oil company, PDVSA.

By Antonio Maria Delgado

adelgado@elnuevoherald.com

The announced shutdown of an oil refinery in the Virgin Islands will hit hard the state-run Petróleos de Venezuela, S.A. (PDVSA), a company that loses a major customer for its hard-to-place heavy crude and a major supplier of components for the gasoline consumed in the country, analysts said.

The experts added that the closing of the refinery — one of the world’s 10 largest — could also impact the cash flow of the state-owned company, as the complex, where PDVSA has a 50 percent share, is one of the clients that best pays for Venezuelan crude.

“It’s a very important customer for Venezuela,” said former state oil company manager Horacio Medina. “It is one of the places where they were sending large amounts [of crude] every month.”

The refinery, operated by the joint venture Hovensa has the capacity to process 495,000 barrels a day, 248,000 of which are supplied by PDVSA.

Hovensa, which belongs to PDVSA and the U.S. company Hess Corp., announced this week it will close the refinery in a month after accumulating losses totaling $1.3 billion in the last three years.

Hovensa said the company had lost its profitability due to the global economic downturn and strong competition from a number of new facilities built in emerging markets.

Jorge Piñón, an oil market analyst, said in Miami that the St. Croix refinery also faced difficulties in competing with U.S. refineries because it uses the oil itself as fuel for its facilities.

“U.S. refineries use natural gas, which is selling at one of the lowest prices in its history,” Piñón said.

So the closure makes sense for Hess, a company that was bleeding from the sustained losses.

But the situation is different for PDVSA, said analysts, describing the shutdown of the refinery as a strategic mistake.

“If I see myself only as a refiner, then obviously the decision is correct; the refinery has to be closed. But if I see myself as a producer, you’re depriving me of 300,000 barrels of production that now I have to place somewhere else,” said Juan Fernández, former PDVSA planning manager.

The problem is that the heavy Venezuelan crude is difficult to place in a global network of refineries designed primarily to process light crude. For Venezuela, it would have been more convenient to reach a financial settlement with the refinery so it could stop operating at a deficit.

The cost of such an arrangement, which could be below $4 a barrel, a small fraction of the more than the $100 per barrel it currently charges, would be far below the cost of losing access to a market that generated revenues of over $9 billion a year.

It was the difficulties in placing its heavy and extra-heavy crude oil in international markets that led PDVSA to invest aggressively in the refining industry, buying stakes in refineries and modifying them so they could process the thick Venezuelan oil.

But that strategy, which had provided Venezuelan industry with an enviable vertical integration, was abandoned during the presidency of Hugo Chávez.

“The Venezuelan government has been destroying its refining capacity abroad. It had about 2 million barrels, with the sales of the refineries it owned in Europe and the U.S., and now comes Hovensa, which, along with Citgo, was one of the few customers that pays it correctly,” said Fernández.

The rest of Venezuela’s customers, like China, Cuba and other ALBA countries, receive oil under economic terms that are unfavorable for the nation, he said.

And the shutdown also could cause problems for the supply of gasoline in the country, because the Virgin Islands refinery had begun to supply components used in the production of gasoline that were no longer produced in Venezuela due to problems in domestic installations.

The problems in the Venezuelan refining system continued during November and December, according to local press reports that highlighted the serious problems faced in the Venezuelan refineries El Palito, Amuay and Cardón.

These problems, coupled with the closure of Hovensa, could exacerbate the problems in fuel supply that have started to become frequent in Venezuela, Fernández said.

“It’s a grim picture, but Venezuela seems to be following in the footsteps of countries like Libya and Iran, which, while big producers of oil, don’t have gasoline,” he said.

Read more here: http://www.miamiherald.com/2012/01/19/2598119/virgin-islands-refinery-shutdown.html#storylink=cpy
Virgin Islands refinery shutdown to hit Venezuela hard - Americas - MiamiHerald.com

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