Golden Conflicts

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 regular gold buyers 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 gold 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 batch of gold bullion is from these situations or sources is the first step, but a difficult one undeniably.

For more information on gold investments, selling gold and gold bullion, please visit the Brisbane Gold Company.


The Macro Picture of the Gold Investment Spectrum

Gold bullion with money on table close up
Gold bullion with money on table close up

The governments, politicians, corporations and central banks that will be managing the impending financial crisis that is upon us are the same governments, politicians, corporations and central banks are that will be managing the crisis of 2016-2017 and what they normally do, is put band aids on the fractured system with measures such as increasing spending, printing more money, addressing the excess debt problem with more borrowing, passing complex and convoluted laws while simultaneously pumping even more funny money into the global financial circus.

A simple fact pertaining to the official US national debt that increases faster than its 9 % per year compounded rate tells us a lot about the financial fixes that will not last for long. Also currency wars that cause devaluations against each other especially between the dollars, the Euro, the Japanese yen and other currencies as well as against real assets lead to collapses that drag down the stock markets with them and when this happens and credit crunches rear their ugly heads, central banks resort to “printing” causing currency do devaluate further which in turn will ripple through already depressed commodity prices which will become worse as currency devaluations are pursued by central banks aggressively.

What happens next is that become aware of the fact that currencies are devaluing and that they require something besides over-valued bonds, crashing stock markets, and paper promises and this is where gold and silver step in to save the day. Silver and gold prices have rallied since the beginning of 2016 due to increased investor demand from a short stack supply market and this is a clear indication of an impending crash. Crazy and completely illogical things have happened before and based on what’s going on now, it is almost certain that these things will happen again.
Between gold and silver it does seem that silver is the less manipulated market due to its lesser popularity and the expected hyperinflation and massive currency devaluations that is over the horizon would create situations where silver prices could achieve four digit numbers.  Whatever it is that the powers at the helm are planning the fact remains that the future prices of precious metals especially gold and silver are very dependent on the reactions of the major gold buyers, governments and central banks, thus making moves sooner than later is advised as when the castle comes crashing down, it will happen within a blink of an eye and by then it will be too late.

A deflationary crash response would definitely be the increase of the purchasing power of silver, however the complication would still be there when the price in dollars, Euros, yen and other are thrown into the equation and only time will tell and the problem is the fact that ‘time’ is not exactly a friendly element in the investment dimension, as a matter of fact it is the investors worst enemy and best friend at the same time.

Market Profiles: Gold Market V Dow Jones Index Average

It is rather unfortunate that most investors hope to get lucky and this is why most burn holes in their portfolios. Instead of scrutinising the markets and understanding their characteristics, most choose to run with rumours, and as far as rumours go, try creating one and see if you recognise it when it gets back to you through the grapevine. For those of you who have often wondered about the correlations between the gold market and the Dow Jones Index Average this article will give you the heads up.

Since 1970 right up to 2014 which is a good 44 years gold has been on an upward trend for 28 years, meaning gold percentage of upward trend years is 64% or 28 years out of 44 years, gold has been moving up. In that same period of time the DJIA (Dow Jones Index Average) has been up for 70 % of the years meaning the DJIA has been moving up for 31 years out of the 44 years. In terms of ups and downs, the DJIA wins. However, if one was to look at it from a different perspective, let’s say the longest winning streak, gold is definitely the champion to choose because gold’s longest winning streak is 12 years as from 2001 to 2012, gold did not falter, whereas the DJIA’s longest winning streak has only been 9 years and that was from 1991 to 1999 when markets were more believable and less manipulated. Obviously after looking at the longest winning streaks, the next best thing to look at would be the longest losing streak and gold’s longest losing streak in a row was from 1988 to 1992 a good straight five years and in contrast the DJIA went on bear rampage for 3 consecutive years from 2000 to 2002.

Since the above factors put both these investments on an equal platform, the real good stuff would be to look at gains and losses. The largest gain chalked up by gold in a single year was 139 % in 1979 and the largest annual loss for gold was in 1981 when it lost 33 % of its value in that year. From a broader 44 year perspective, gold prices have increased by 3,614% based on the fact that Gold was only about $35 an ounce in 1970 whilst prices now are on average around $1300.

The DJIA’s largest annual gain was 38% and that was in 1975, whereas it largest annual loss was 34% during the global financial crisis in 2008. Over the last 44 years the industrial average for the DOW has increased by 2,650% as the DJIA was around 600 in 1970 and currently it is at about 16,500.

For more information on these two financial instruments please visit the websites listed below. Knowing about something thoroughly before getting into it is a critical success factor and thus the moral of the story is – do your homework!