Category Archives: Financial System

The role of gold mining in climate change

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Gold production operations are high level energy users. Mining and refining gold processes have high greenhouse emissions per ton of ore compared to other metals. However, the mining processes for coal, steel and aluminium produce more product than gold so newly-mined gold actually produces less emission than most newly mined metals. According to the World Gold Council, gold has the least emission intensity of all mined metals. Gold is also more valuable than most mined metals. When we compare the volume of greenhouse gasses to the spent on gold, it is actually lower than most mined products.


There are a number of gold miners who are actively working towards lowering their carbon emissions and these are some of them:


#1. Borden mine

Borden mine which is owned by Goldcorp has plans to switch from diesel to electricity. Current equipment running on diesel will be replaced Battery Electric Vehicles. Changing to electricity will do more than reduce emissions by at least 7% but it will also improve mine safety and performance. Electricity is three times more efficient than their diesel counterparts. Over a decade, it represents a reduction of almost 70,000 tons of CO2 emission. The decrease in emissions reduces the need for more underground ventilation. Borden in particular, will need 50% less ventilation if the switch from diesel.


#2. Newmont mine

Newmont is another mine making important strides in curbing carbon emissions. The company is looking at increasing renewable energy through self-generation. It has partnered with the Council on Mining & Metals (ICMM) to realise its targets. Newmont’s Boddington’s operation has managed to reduce fuel consumption by 5.2%. Lowering emission by switching fuel is an important component in Newmont’s 2020 coal usage plan at all its plants. Necessity is a great incentive, for example, the company’s Tanami project found itself without critical diesel because it could not be trucked to site because of extreme weather and rain in 2017. As a result, the mine could not produce the expected 8,000 ounces per week and firing production to shut down in February. It became necessary for the mine to find other alternative fuel options that would also reduce the mine’s carbon admissions.


It became necessary an important factor in mitigating the risks that climate change brings. It became necessary for the mine to analyse fuel options whiles reducing carbon emissions. Cost is an important factor. The price of coal is estimated to be $25 at $50 per ton of the carbon dioxide.


Newmont has approved the construction of a 450 km pipeline which will deliver gas to the mine thus ensuring reliable power generation. The switch from diesel fuel to natural gas can reduce carbon emissions by 20%. In addition to reducing diesel usage, Newmont has set a target to reduce its Green House Gases (GHG) emission by 16.5% by the end of 2020.


#3. Barrick Mine

Barrick has a plan to reduce Greenhouse gas emissions by 30% in the next decade. The mine’s current electricity is generated by using renewable energy sources. The gold production company is currently evaluating all their mines and will in future include electric equipment powered by renewable energy sources.


Reducing energy demand might be good for the environment, but it also affects the business side of gold production. Take Barrick’s Hemlo Mine in Canada: The mine developed and installed a ventilation management programme to improve the system and the people within. Optimising underground ventilation systems helped drive energy consumption down. The mine also reduced its heating costs by using the geothermal processes that occur naturally. Energy consumption in terms of ventilation per tonne of ore fell. For this, the Canadian Department awarded the company “The Process and Technology Improvement Award” for 2016.


#4. Kinross

Kinross is constantly reviewing its energy supply matrix in order to identify opportunities to reduce both costs and emissions. Kinross’ Paracatu mining operation in Brazil has acquired two hydroelectric power plants with a capacity to generate 155 MW.


There are lots of things that mining companies can do to reduce fuel consumption and lower emissions. Some include optimising ventilation, optimising haulage, routes as well as retraining truck drivers, reconfiguring piping networks, optimizing the use of compressed air and even plant automation. The main point and driving force is to reduce carbon emissions so the gold industry does not become the largest contributor to Greenhouse gases. So far, everyone is conscious of the role the industry plays in the bigger picture, they just have to find real and sustainable technologies that can be applied successfully.






The Volcker Rule and its Effects on the Precious Metal Industry

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Before moving on into the topic of how the Volcker rule affects the precious metal industry, it is crucial that the Volcker rule itself be understood first. The Volcker rule is basically a reformation act that restricts the banks in the United States from taking high risk investments, especially high risk investments that do not benefit the customers of the bank. In view of the major scandals involving banks using people’s money to make short term gains that saw profit flow into the banks but not to the customers, but when things go wrong, the customers bear the burden of the loss.

In other words banks are prohibited from investing in short term or long term hedge funds, speculative markets that are highly risky and it also prevents banks from investing in the precious metals industry (gold bullion / silver bullion). Banks are currently actually looking for loopholes in the legislation rather than comply to it, but according to the legislators the loopholes do not exist. How this would affect the precious metal industry is multi tiered, as some analyst say that banks are the biggest buyers and sellers in the precious metal commodity trade industry and that they are the main ‘market forces’ applied through hedge fund managers and their absence would create a huge void in demand and drive prices down. On the other hand there are those who believe that the absence of these speculative strong forces would provide stability to the prices of gold as most of the trading done by these market forces are for short term gains and in retrospect most of the gold bought by them are never held fopr more than a few days.

Looking into the average investor who looks towards the shiny yellow metal as a safe haven to secure wealth, the absence of these speculative forces will actually bring about the true essence of the gold value and allow the average investor to sleep peacefully knowing that there are no hedge fund managers trying to manipulate the gold market prices. Many have applauded this move, especially the savers, as many have seen what has happened in recent years to big financial institutions that were financially ruined and in the process ruined many other lives of individuals who had trusted these financial institutions to keep their life saving safe.

The reformation brought about by the Volcker rule is expected to bring confidence back into the precious metal industry as smaller investors will no longer have to contend with big players who use other people’s money to fill their coffers. Nevertheless, prior to this there have been numerous other ‘so called’ rules that were supposedly supposed to protect the small people, however in light of what transpired during the global financial meltdown and other similar situations, how long this rule lasts before it is overwhelmed or manipulated by the powers that be would not be long, and those who want to place themselves within the safe zone amidst a financial crisis would typically be the ‘Average Joe’ with a fistful of gold.

Is there a Pattern to the Precious Metals Market?

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The precious metals market unpredictability has many in a bind over which direction to go, those who are holding on to physical precious metals or even mining stocks are at the edge of their seats based on what has been unfolding, and many have actually turned towards the capital markets based on the more attractive returns that it has to offer.

Although this may seem to be the best move currently and for the short run, those holding on to precious metals related assets are definitely in a better position for the long run. This based on the fact that the precious metals market has been pressured into submission by the powers that be, and it is only a matter of time before the lid pops open sending the precious metals markets soaring. Gold related assets are and have always been long term investment schemes and buying gold with the intention of making gains in the short term is not only unadvisable, but it is also extremely dangerous from a financial perspective as the precious metals market is known to fluctuate steeply in both ways triggered by the slightest economic spark and unless would be investors have enough patience and resources to endure market pressures working against their positions it is best not to dabble in it.

Most gold bugs who own physical bullion however are optimistic about the current lower prices of gold as it is allowing them to bring the cost of their physical gold holdings by at least 10 % giving them better margins for the future.
What exactly is happening to the precious metals industry is pretty obvious, despite the current shaky global financial situation and volatile markets the strength of the dollar and the appeal of the capital markets are holding ground. Coupled with lower oil prices and governments trying to stimulate economies which require them to inject funds into the markets, the lure of the capital markets is difficult to resist. This has also rendered conventional theories related to the commodity markets and how they respond inapplicable as markets are anything but predictable these days. One thing that is for certain is the fact that the disorganized and fragile global financial system is destined to crumble as even well informed financiers are uncertain of the mechanics that are at work and over the last two to three decades the financial machine has become too obscure to a point that it has become mystical and the only constant in the equation seems to be the fact that gold and other precious metals are still being considered as a safe haven by everyone and it does seem that most have a finger or two in precious metal pies in the event that the capital markets disintegrate.

Many have grown tired of waiting for gold prices to rise and gold bugs are reeling from the losses that they are incurring from the costs of holding, storage and insurance and many gold bugs fear that when the time does come to sell, the margins will not be justifiable.

Golden Conflicts

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It is not new to the world when certain factions misuse natural resources to finance or advocate conflict which has become a common phenomenon over the last few decades: from crude oil in the Middle East, timber in Cambodia, blood diamonds in Sierra Leone and Angola and even gold in low income countries. Very often natural resources provide a means to finance as they are internationally tradable assets which are mobile and easy to dispose off. Without appropriate measures, these assets may find their way towards funding armed groups that are conditioned to overlook human rights and grossly neglect humanitarian laws.

The Democratic Republic of Congo for Instance was responsible for 0.8 % or 22 tonnes of newly mined gold, but because of the countries weak governance coupled with the fact that most of the gold mines are artisanal small scale mines, they are often subjected to the whims and fancies of armed groups who frequently extort them, therefore the possibility of the gold produced in the Democratic Republic of Congo getting into the gold supply chain is minimal. These are only some of the issues as incidences of forced labour by armed groups, low wages, adverse working conditions, negligent mining practices and conflicts continue to be highlighted and the only way to deter these incidences is by obstructing gold mined under these conditions to get into the supply chain.

However this is not an easy task as gold from independent small mines are usually melted down and mixed with gold from other sources (usually with recycled gold – 35 % of the annual gold supply comes from recycled gold) and sent off to end users through a complex transactions which make them virtually impossible to be traced back to its origins. It is largely due to the availability of ready buyers that these armed groups are brazen about their activities as once the gold artisanal and small scale mines reach a refinery, their origins cannot be traced and therefore refineries have become a strong element in the value chain of armed groups and establishing a relationship with a refinery that would accept their gold (knowingly or unknowingly) is all that they need.

Recently the World Gold Council has launched a ‘conflict free gold program’ which aims to stop or prevent gold from conflict zones or high risk areas from reaching refineries and subsequently end users as this would be an effective measure towards eliminating these conflicts and bring reprieve to those who bear the brunt of these armed groups.

However, it is undeniable that artisanal mining is a vital economic activity in some places and if it was not for the gold, the communities in these places would be left without nothing and based on the fact that a significant proportion of mining in these places are illegal and operate beyond government supervision it is prone to smuggling which is often backed by armed groups.

Proving that a gold batch is from these situations or sources is the first step, but a difficult one undeniably.

Gold Bullion Investments

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It is a commonly known fact that the ultimate hedge against inflation has and probably will always be precious metals, particularly gold. The best way or approach towards investing in gold is also (hands down) ownership of the physical metal itself while mutual funds or mining stock do provide a little hedge, nothing can be compared to owning gold bars on your person. As it provides the most direct counter to the dollar if the dollar was to fall, which it will not too long from now, judging from the way things are transpiring. This is so due to the fact that when the dollar falls, the value or price of gold will inevitably rise and at that point in time buying gold would not only be counterproductive, but plain foolish as the prices will rise quickly and without warning. According to, the dollar is on a self destruct path faster than most other currencies as the finance of the US economy is being raised on debts. However there are ways to position portfolios in a manner that lowers risk levels and increase real potential for profits in time to come – in a long time to come.

It is becoming more evident that the future growth of economies will be based on gold bullion stocks as the world economy will inevitably head back towards the gold standard. However how you invest in gold bullion besides purchasing physical gold is an entirely different matter, it all comes down to your level of market expertise or experience as the more familiar you are with gold related derivatives the better you will be able to handle the case scenarios that would present themselves.

Direct ownership is the best way to own gold bullion it is without any doubt the ultimate expression of pure value. As most of us already know civilizations over the eons have recognized the permanence of gold’s value to an extent where great wars were fought for the sole purpose of pillaging stores of gold. The reason for it simple – Gold, silver and other precious metals are the only real money that has value which cannot be manipulated or controlled by any faction, including governments. If gold bars do not appeal to you other forms of gold bullion include gold coins such as the South African Krugerrands, Canadian Maple Leafs, or American Eagles. Other forms of gold bullion investments that could be considered but not recommended unless you have a good grasp of trading is Gold exchange-traded funds or more commonly known as ETFs. In recent times exchange traded funds have become popular as they provide an interesting way to invest in gold. In essence they are similar to mutual funds that trades trade in the stock exchange like an ordinary share. However an ETF’s portfolio is fixed and does not change.

Gold mutual funds on the other hand are more suitable for those who are not too keen to invest in physical gold, but still want a piece of the precious metal industry action. They are good for diversifying portfolios. For more on ETFs and Gold Mutual funds visit:

China’s Market Cash And PBOC’s Measures Could Open A Window For Gold

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Recent financial mayhem in Asia could be the perfect chance for gold to recover its lost value during the last five years. China’s market crash and PBOC’s decisions, especially the multiple devaluations on the Yuan, can open a profitable window to the gold industry.

Everyone was worried and talking about Greece and its bailout trouble. In the meanwhile, China had (and still have) bigger problems. The market crash occurred recently represents a great threat to worldwide economies. Now, the disaster has been appeased and the media is optimistic about it. But devaluing three times in a row a currency as the Yuan is no good signal.

Despite the Greek crisis mentioned above, gold hadn’t the chance to rebound. In fact, it was the US Dollar which got stronger during those confusing days. It must be thanks to the FED’s promising aspirations of raising the interest rates. By the way, those aspirations were a lie or naive assumptions, because the FED chairman publicly disbanded those intentions on Bloomberg TV. That same day, gold recovered a little bit.

Even with the disappointing declarations, the US Dollar keeps growing these days. And still offers an attractive interest rate. Something gold can offer the investment. The precious metal sacrifice a return over the safety of being a safe-haven asset.

World Gold Council stated that the low prices will cause an imminent drop in gold supply. Producers will offer less and less every day if the prices keep falling in the future. This action will be taken in order to prevent higher costs. Decreasing the metal output, the prices will be forced to go up in the mid-term.

That shortage on supply would help the gold to slowly recover within the year but, that is not the greater news. Investors must need about the demand during the Greek crisis. The media stated that the European investors didn’t bet in favor of the precious metal, because the prices didn’t go up. In fact, a relevant share of the European investors did buy an important volume of gold in order to store their wealth, addressed by the panic. The only detail was that the demand wasn’t enough to raise the prices in relation with the supply.

At the same time, Chinese gold consumption drops about 3 per cent during the same period of the year. Local observers pointed out that Asian investors preferred to put their money in the Shanghai stock market, looking for short-term profits. In the meanwhile, climatic problems suffered in India affected local jewellery demand.

Why this is so relevant to the global prices? Jewellery demand represents almost 60 per cent of the total global consumption of gold but, this statistic has been affected by the decreasing demand within China and India. Those two countries represents by themselves almost the half of the gold demand worldwide. Any distortion in those countries will surely impact on the gold prices, hard.

Now, the problem that China is suffering could open a window for the gold sector. If a supply decrease is combined with a sudden Asian demand hike, caused by panic, gold prices could sky-rocket to record-high numbers, at least for this year trade.

The PBOC’s devaluations had triggered already a big purchase of gold. The progression of the situation should show more direct interaction with gold as a safe-haven for Asian investors. Despite the late aversion to the precious asset, investors are going back to the basics. Even a falling US Dollar can be seen in the near future as a cause of the financial hardships in progress. If there is any contagion effect in the next months, gold would shine again.

Low Gold Prices: A Gift from the US to China

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We often hear the voices of near lunatics discussing conspiracies and plots between global superpowers that are aiming at gold, usually something to do with a new world order and all that kind of stuff. Themes and subjects like these are widely debated in online media, thanks to the internet and the appearance of obscure ‘truth’ somehow coming from this medium, has increased the efficiency of this type of media itself. Everyone has free access to it (technically not everyone, cases like China and North Korea must be considered) and anyone can publish his opinion on it.

Having this in mind creates misconceptions, mistruths, and false beliefs, a dangerous combination that leaves people naive to the real situation we are facing. We must think and hear some logical and rational ideas with an open-minded stance, not dribble with stories presented as facts with no real evidence behind it. To get a grounded understanding of the actual situation, it is well worth  reading about James Rickards’ worldwide scale economic plots. Mr. Rickards is a well-known American lawyer, finance academic who writes about the upcoming monetary disaster. He has a couple of really successful books published on the subject.

He wrote a really interesting article for The Daily Reckoning, titled “Why the U.S. is Letting China Accumulate Gold” and that’s what I want to talk about now. I really haven’t seen monetary events from this kind of a point of view. He really considers that there is a clear cooperative relationship between the People’s Republic of China and the United States of America.

In fact, China is the biggest and stronger US trading partner. Despite all the ideology differences, looks like this relationship are really valuable and both countries are interested to maintain it healthy and strong. Now, Mr. Rickards use a great example to explain the role of the massive gold demand by China the latest years.

Right now, China officially does not have enough gold to have a ‘seat at the table’ with other world leaders. Think of global politics as a game of poker” he said. Having huge gold reserves gives you the power and relevance between international superpowers. The elite must hold gold in huge quantities. But when your reserves become technically “huge”?

He stated that “The U.S. gold reserves at the market rate is about 2.7 percent of GDP”. In the meanwhile “In China, that number is 0.7 officially”. Now we know for sure how many gold China has, and thanks to that, we also know that is not powerful enough yet. In comparison with other superpowers worldwide, China actually holds a little gold reserve if we consider the size of its economy.

The author determines that the gold prices manipulation is evident and it’s because the US wants to help China to avoid being left behind. “If you took the lid off of gold, ended the price manipulation and let gold find it level, China would be left in the dust. It wouldn’t have enough gold relative to the other countries, and because their economy’s growing faster and because the price of gold would be sky-rocketing, they could never acquire it fast enough. They could never catch up” he stated in the mentioned article.

So the actual gold prices depression is intentional? According to Mr. Rickards, it is. There is a cap on gold prices while China purchase the quantity it needs. After that, the mentioned cap will be eliminated. But why is this happening? China does not feel comfortable with its dollar’s reserves. Any FED decision on the monetary policies affect the Asian country and that escapes from its will. With a healthy balance of dollars and hard assets, like gold, in China’s reserves, the PBOC will sleep better.

Why the US is doing this for China? The relationship between these countries has become fundamental for the worldwide economy. China is the main manufacturing and exporting in the world. It is a well-known fact that biggest US companies have factories in the Asian country. They have to watch closely to the eastern ally and take care of him. China knows well about its relevance to the US and the rest of the world. This quid pro quo situation will be active for much longer.

The Gold Standard – The Past, Present and Future

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Most people have probably heard of the gold standard and most are under the notion that the gold standard is a system whereby a country’s currency was backed by a certain amount of gold stored as reserves in each country’s respective central banks. Well, to an extent this is true however; the ‘gold standard’ is much more complex than money representing the amount of gold held in reserves.

To begin with, it must be understood that the gold standard was a monetary system whereby anybody in a country that uses this monetary system would be able to take a certain amount of money to a bank and exchange that sum of money into gold or vice versa, this however is only in theory as the main function or objective of the gold standard was to maintain economic stability due to the fact that when a currency is backed by gold unit for unit, it creates trust in the currency. Historically the gold standard had its genesis in Great Britain, when in 1694 the Bank of England issued bank notes that were back by gold and convertible back to gold by the bearer of the bank notes. As time went by, towards the end of the 18th century a surplus of paper currency was observed which caused the suspension of the convertibility of these bank notes to gold (basically there was more bank notes than there was gold – the first incident of money being overprinted – causing the notes to lose value as they had to be re-valued according to the amount of gold that was actually physically present in the vaults). The suspension was eventually removed and the gold standard was re-established in 1821 and most other countries realising that it was a practical way to place value on paper money soon followed suit – hence the gold standard became the monetary system that lasted until the advent of World War I when it was again suspended only to be reinstated soon after. However immense pressure stemming from the post war world and the dawn of the Great Depression fractured the system to a point that by 1933 both Great Britain and the United States of America exited from the gold standard and withdrew gold from circulation entirely (Elwell, 2011) only to be replaced by the Bretton Woods system in 1944. The Bretton Woods Agreement was a similar monetary system that was is generally described as the ‘gold exchange standard whereby the gold standard was maintained without domestic convertibility.

The Bretton Woods Agreement

Without doubt the Bretton Woods agreement was the first completely negotiated monetary policy that was agreed by independent industrial nations collectively that was proposed in order to govern financial transactions. The system was conceptually sound when it was imposed as each participating nation was obliged to adopt a monetary policy that would bind the exchange rate of its respective currency to gold which would facilitate the International Monetary Fund (the IMF) to bridge the imbalance between trading nations temporarily, this system also addressed the need to keep competitive devaluation of currencies in check. This system effectively governed the global financial system for almost 3 decades by stemming destabilizing speculation and competitive depreciations which were rampant in the 30’s. The US dollar under the agreement will remain as the only currency that would retain convertibility to gold and since gold reserves in most countries were limited, countries with payment surpluses stabilized their exchange rates by purchasing dollars which were almost ideal surrogates for gold (Cohen, 2010). However the system was only optimal between 1959 up to 1968 (full convertibility) after which both official and private liquid dollar claims that were being held by foreign entities coupled with the lessening of official gold holdings especially the US gold reserves steered the system towards inevitable collapse (Garber, 1993).

Present Global Financial System

The global financial system that is currently in place is a labyrinth of legal frameworks that are ‘patch ups’ of a seriously flawed design that has been constructed on a fragile foundation to facilitate investments, trade financing and financial capital flows. The complexity of the banking systems that are currently in place make it virtually impossible to continue ‘patching up’ the global financial portrait into something that is acceptable, the recent reforms imposed via the Basel Committee and other governmental regulations have actually made assessing systemic risks even harder and financial risks continue to tear the seams of the financial system at different ends relentlessly. The collapse of Lehman Brothers and AIG and the current financial reforms that involve ring fencing, counter-cyclical capital buffers, and contingent convertible debt are complicated equations that even those who devise them are not able to provide explanations on how they will perform in different scenarios. As markets bubble and fluctuate and nations head towards insolvency, the complications of their implications become shrouded with more reforms that only manage to provide temporary relief. Eventually the rickety financial system is bound to collapse and a complete overhaul of the global financial system will be necessitated and the only system that is known and viable is the gold standard.

US Dollar get stronger among bearish markets

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Every bit of bad news coming from Greece achieves a strike at peoples confidence in the European Union, and with it, its currency, the Euro. The Eurogroup decided that it was too late for extending the existing bailout on Greece and a threat was added to the declarations. The Greeks stance in front of its creditors must change before a future possible agreement on payments and financial rescues.

In other times, when a currency suffered an important blow on its value, most investors used to consider the precious metals as a safe option, now things have changed. With a very weak Euro against an everyday-stronger US Dollar, no one is looking for gold or other similar commodities.

With near FED’s announcements about the numbers of the domestic US production (the Nonfarm Payrolls reports and the similar other coming up next weeks), everybody is betting in the US Dollar favour.

The market is solid right now thanks to the popular Dollar but if the reports shows unfavourable numbers about the economy, may be this the opportunity for precious metals to experience the first important price gain in months.

On that issue, the FED is confident that economy is improving every day and that the numbers will be one hundred percent positive. Also they think that the Grexit event and the default happening right now will not affect in a significant way the US and its important growth. Maybe there is no over-confidence on the US numbers.

John Fox, director of research at Fenimore Asset Management in Cobleskill told to Bloomberg News the following: “Our stocks are trading at one hundred percent fair value. They’re not really over-valued but they’re not cheap. Fixed income has really struggled.”

If we study the numbers, looks like things for gold are not going to improve any time soon. US equities benchmark climbed as 3 percent at the last quarter. Also consumer confidence in June increased more than expected, thanks to an optimistic attitude from Americans about the economy growth and the health of the labor markets.

Good things are happening in those aspects: 280.000 new jobs created and an hourly earning had an important raise for the first time in several months. Domestic finances are looking good and prosper at this point. So all the “smart” players in the markets will aim the productive sector of the US economy.

The upcoming crisis for the European Union can be a window for the United States to boost their indexes’ performances. The Dollar, once again, is consolidating itself of being the most solid and safe currency available. In the meanwhile, investors feel safe with it and the gold is still out of the picture.

But other markets still suffering. The German DAX fell 8.5 percent in the quarter. This represents the biggest fall in the last couple of years. European markets are not looking better than this. The Greek crisis is creating a state of panic between investors and society in general. The Consumers Confident is dropping harder every day, especially in Germany.

As expected by many, China is not getting affected in a significant way by the Grexit event. Even the Shanghai Composite Index enjoyed a raise for the first time in four days. They have their own problems but the People’s Bank of China (PBOC) already had executed actions about it. Problems on China’s markets has affected directly the marvellous gold import, so, again, the things are not looking good.

Further in Asia we can see how Japan is feeling the Grexit. The Topix Index rebounded from an important drop during the beginning of the year to finish the quarter above the numbers by 5.7 percent. Now the Asian markets can demonstrate their solitude facing the upcoming European turbulence. The US markets are already demonstrating their strength.

Back to Europe, everything seems to be tough. The already-considered failed negotiation between Greece and its creditors is affecting all the block. The measures imposed by the International Monetary Fund have bothered and offended the Greek people. Now a referendum on Sunday will decide the short-term fate of the country.

According to the global media, the popular demand selected on Sunday will be the “No”, making everything worst for the European block. This will consolidate the idea of the Grexit. The sudden withdrawal of Greek country from the EU could entail a serious list of financial consequences for the zone and for the rest of the world. The Euro could reach an historic low, giving a win to the US Dollar but also providing the FED a headache, because their constant intention to devalue the currency and, in that way, give the US economy an important boost at exports.

With several finance trends falling can be the appropriate time for the long time expected measures by the Federal Reserve. But with an unstable situation, any risky move can be counter productive and irremediable. The American executive has to study the possible devaluation and the scenario that they are facing.

Fiat money and its house of cards

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Popular ignorance can be harmful for all of society. Lack of knowledge in economic theories and affairs is very common right now and hurts the financial system, at least for middle and lower classes. It begins to be a political matter when you study the actual foundation and characteristics of fiat money. Millions of people ignore it but it must be an obligation to spread the word about this particular issue.

Global fiat currency began when Nixon declared the Gold Standard as an ineffective and discontinued financial means of determining true value of the US Dollar. That’s when the fiat money scam began. Now the value would be determined by the trust of the consumer on the currency and not by a physical hard asset as backup, money just represents paper with numbers on it. A few years later the prices of precious metals and oil multiply several times. The prices of the sugar went up forty times. The consumers were petrified by fear. The trend of hoarding primary goods began with these odd events. Speculation took hold in every area of economy.

By that time, the Government invented another good term for controlling the financial expectations of the people. “Inflation Targeting” was presented as a useful tool that the Federal Reserve and political leaders had for getting “realistic and practical information” about the national indicators of economy. In that way, the concept of Central Banks acquired supreme powers over the economic health of countries. Now they could make some choices when it comes to price increases.

If you see the events in an objective way, you can understand the great abuse of power that exists in having a Central Bank who can choose inflation rates at will. Added to that, the fiat money clearly represents a modifiable instrument for political purposes. There is unrealistic facts about a currency that doesn’t have a physical asset supporting it. It is like a house of cards. A fragile structure with no foundations or securities about its strength.

The financial authorities adopted a god-like status between all those privileges that fiat money allowed to and things went even worst. Many important journalists in the financial world supported all these dangerous politics in the currency matter. The levels of complacency were insane. In 2007, The London Times published a festive article called “The Great Moderation” which began with: “History will marvel at the stability of our era”. All those unhealthy measures were well accepted and speculation in every aspect continued.

The Federal Reserve (functioning as the central bank of the United States) and its chairman, Mr. Ben Bernanke didn’t expect any financial disaster or anything like that. They were blinded by pride and arrogance, belonging to the achievements of another era. The virtual success created by they was expected to be everlasting. The several manipulations of a fragile system and a currency backed by smoke were lethal for the already injured markets.

Even one of the most supportive journalist in this matter, Mr. Martin Wolf, said “If fiat money is not made to work better than it has, who knows what our children might decide to do in desperation. They might decide to bring back and embrace gold”. This was declared after publishing a lot of articles supporting the irresponsible measures. Also, in the quoted article, Wolf still declares an aversion to the Gold Standard.

Now, the real question is: this disaster was the product of the ignorance or corruption, or both? Because the manipulation of inflation rates and fiat money can’t be done without ignorance on the subject. The bubble would explode at any time. They had to know that and more. Were economic and financial principles ignored for pursuing a greater and private goal? We can always distrust on the Government actions and purposes and it is clear that they use in their favor the unstable fiat money, but they cause this disaster by design?

Some considers that the Gold Standard is a fundamental element of the freedom, because offers security, and better than that, offers the capacity of saving and creation of wealth being independent of Government actions, politics, measures and intentions. The State must be guarantor of security and justice, not of choosing without foundations the value of the national currency or the prices increases. This is what happens when Government and banks team up and decide to oppress the people in a way that they don’t even realize.

When a country hoards millions of tons in gold and reflects the value inside their vaults into their currency, making every bill a representation of that wealth, you get financial safety and the Government gains trust. When your bank account shows numbers that are only that, numbers, no one can have safety. They are living day after day in a house of cards, built by speculators. The consequences of these financial politics are alive to this day. The Gold Standard works hand by hand with democracy and with all the freedom principles proposed in the Constitution.