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Global Gold Switzerland Outlook Report No 1

Global Gold Switzerland Outlook Report No 1

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Published by Gold Silver Worlds
In this report, Claudio Grass (managing director from Global Gold in Switzerland) explains his outlook on the world economy and gold for 2013.
In this report, Claudio Grass (managing director from Global Gold in Switzerland) explains his outlook on the world economy and gold for 2013.

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Categories:Types, Research
Published by: Gold Silver Worlds on Jan 04, 2013
Copyright:Attribution Non-commercial


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On how your wealth is and will continue to be confiscated
Financial Repression
The term financial repression isbecoming more and more present inthe media. What’s actually behind theterm? Financial repression is definedas measures which governments taketo channel funds somewhere wherethey wouldn’t go if left to the freemarket. So why would governmentsdo such a thing? The answer is debt!Most western countries have piled upa gigantic debt burden. To illustratethis, the chart below shows the debtburden in percent of GDP for selectedcountries. It is clear, that evencountries which are currentlynot in the spotlight have debt levelswhich already today seem simplyunsustainable. If one takes the socalled unfunded liabilities intoconsideration which are promisesalready made, like pensions etc.that aren’t funded yet the situationseems dramatic (red bar). Due tothese extremely high debt levelsgovernments all over the world havean incentive to channel funds into acertain direction, e.g. governmentbonds. Financial repression hasalready started in one form or anotherbut is likely to increase in the future.So what forms can financialrepression take on? Basically, thepossibilities are limited only by the“imagination” of governments. Somenon-exclusive examples of financialrepression are:
Negative Real Interest Rates 
Capital Controls 
Banking Regulation 
The times of
negative real interestrates
, meaning that after inflation“riskless” assets such as governmentbonds are yielding a negative return,are already upon us. We areconvinced that this development willcontinue for the foreseeable future,because this suits debt burdenedgovernments. Why? Because it leadsto a reduction in the real debt level.The money owed and being repaid isworth less and less with everypayment. These measures are simplya redistribution of wealth from ownersof money to the government.Although not typically seen as ameasure of financial repressionprobably because of the fact that
has become omnipresent,this in our view is the most persistentact of financial repression which isused worldwide to reallocate buyingpower from the citizens togovernments. Governments just loveinflation. Firstly, because most taxsystems worldwide are progressive
Claudio Grass, Managing Director at Global Gold AG 
“In the hectic times we live in it isimportant to take a step back andtake a look at the big picture. Ouraim with this publication is to giveyou, the reader, an overview ofeconomic and political eventsimpacting the gold markets as wellas interesting articles inconnection with precious metals.We plan to provide this newsletteron a quarterly basis in the future.Like everyone else, we don’t havea crystal ball and can’t predict thefuture. We do, however, have ourview of where the future will takeus. You will find an analysisof our views in the “Our Scenarios”section on the last page.I wish all the readers happyholidays and a successful newyear. Please feel free to sendme your comments and feedbackregarding the publication.”
December 2012 
Please feel free to contact us ifyou have any questions.
Global Gold Inc. Herrengasse 98640 Rapperswil SwitzerlandTel. +41 58 810 1750Fax. +41 58 810 1751eMail. claudio.grass@globalgold.chWebsite. www.globalgold.ch
Source: Jagadeesh Gokhal, "Measuring the Unfunded Obligation of European Countries" and IMF 
Current Liabilities in % of GDPUnfunded Liabilities in % of GDP
Current Liabilities in % of GDPUnfunded Liabilities in % of GDP
        1        9        6        7
        1        9        6        9        1        9        7        1        1        9        7        3        1        9        7        5        1        9        7        7        1        9        7        9        1        9        8        1        1        9        8        3        1        9        8        5
1968 - 19852001 - Today
in nature. If wages go up nominally, butstay the same in real terms, thegovernment gets a larger percentageof your new "higher" income. Alsoinflation stimulates “growth”. Nominalgrowth that is! Implying that thegovernment is doing a good job foreconomic growth.In sharp contrast to their prior stanceon the issue, the IMF recentlypublished a paper where they come tothe conclusion that the
implementation of capital controls
 can make sense and therefore couldbe acceptable under certainconditions. For a while now we atGlobal Gold have been pointing outthe risk of capital controls beingimplemented on a wide scale in thewest. We are convinced that this IMFpaper, sets the foundation for thefuture justification of this measure.Another important action whichgovernments have already taken for awhile are
banking regulations
. Dueto the fact that government bonds aredeemed to be a risk-less investment,banks have been induced or in someinstances outright forced to keep asubstantial part of their assets ingovernment bonds. This measure ofcourse is again an “excellent” way ofchannelling savings to thegovernment.The above mentioned examples are just a few forms of financial repressionmeasures which governments canenforce. We are convinced that atleast a combination of the abovementioned and further additionalmeasures will be implemented asgovernments become more andmore desperate.We are certain therefore that it isessential to hold a substantial part ofones’ wealth in safe jurisdictions, suchas Switzerland, which have historicallyalways respected property rights.Furthermore it is of utmost importanceto hold assets which are not prone toconfiscation or measures of financialrepression, the highest form of suchan asset being gold.
How much of gold is actually left? 
Central Bank’s Gold
A very interesting piece of researchfrom Sprott Asset Management titled“Do Western Central Banks Have AnyGold Left?” recently caught ourattention. In their piece they analyzethe change of demand and supply ofgold since 2000. From the figures theygathered they see a massive increasein the demand for physical gold, forexample from central banksworldwide, ETFs or the increase inthe Chinese demand. On the otherhand the supply of gold seemsto be relatively stable.This leads the authors of the report tobelieve that the only possible supplierof the gold to be western centralbanks. Auditing requirements for mostcentral banks do not force them to listswapped or lent out gold as aseparate item on their balance sheet,because it is legally still theirs.This makes it possible for suchtransactions to take place without anysort of notice to the public.Should these assumptions be correct,this would imply two things. Firstly, thatour monetary system is built on aneven shakier ground than previouslyassumed, because the only real asseton central banks balance sheet mightbe technically theirs, but just notphysically there. Secondly, that the“moderate” increase in gold price isdue to the fact that the central banksare lending and swapping out theirgold artificially increasing the supply.
Clients often ask me if I thinkthat gold is in a bubble. In myopinion it is not. If one wouldadjust the gold price of 850US-Dollars in 1980 for inflationone would get a price of around2’200 USD in todays dollars.This price is well belowthe current price.Another interesting chart I like toshow is the one on the left. Itcompares the previous bullmarket starting in 1968 to thecurrent one starting in 2001.Although the prices haveincreased more than sixfoldsince 2001, the price increasesseem to be much moremoderate than the developmentwe had in previous periods.
        1        9        6        7
        1        9        6        9        1        9        7        1        1        9        7        3        1        9        7        5        1        9        7        7        1        9        7        9        1        9        8        1        1        9        8        3        1        9        8        5
December 2012 
Source: Bloomberg 

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