Cash Hoarding No Security Against Confiscation, UK’s Panic Buying of Physical Gold

A gold bear analyst recently commented that the confiscation of bank deposits particularly in Cyprus represents a bearish factor for gold. The reasoning goes that deposit confiscation will motivate people to pull money out of the banking system and hold onto cash by storing them in pillow mattresses rather than own gold, because gold is subject to seizures.

Well lucky for the bloke that gold prices fell in his direction.

But such logic doesn’t stand on firm grounds. While gold is also subject to confiscations, hoarding cash does not secure one’s savings or purchasing power from government's predation.

Governments around the world has embarked on the trend to ban cash or to limit cash transactions. Such has been the case of Russia, Mexico, Italy, Spain, Louisiana in the US,  Greece and elsewhere. Scotland proposes to restrict use of cash on scrap metal sales, while Sweden’s anti-cash programs promoted by banksters have been stonewalled by the public.  

A few years back, I had a personal nightmare with Philippine airport authorities, who initially threatened confiscation of my excess cash holdings due to arbitrary Anti Money regulations that I have not been aware of.

And this is partly why people have sought alternative currencies such as the use of Tide detergent (in the US) or of Bitcoins.

As a side note, bitcoins after the recent crash, which ironically had been coincidental with gold’s flash crash, has began to show signs of recovery also along with gold prices.

In addition, governments confiscation of people’s savings are being done directly (deposits) and indirectly (inflation), so cash holdings provide no better safehaven alternative to gold. Both are subject to legal forfeitures but at least gold can preserve the purchasing power from growing aggressiveness by central banks to resort to the paper money solution. Central bankers have now been revered by media as superheroes. Move aside Iron Man and the Avengers, here comes Bernanke, Draghi, Kuroda, Carney, Tetangco and their ilk to save the world.

Yet events in UK has also been proving the opposite of such theory as the UK's physical gold market reveals of the same panic buying spree as elsewhere.

From Bloomberg: (bold mine)

Britain’s Royal Mint, established in the 13th century, sold more than three times more gold coins this month than a year earlier as prices declined.

Sales are more than 150 percent higher than last month, according to Shane Bissett, director of bullion and commemorative coin at the Royal Mint. Gold is down 11 percent this month, heading for the biggest drop since September 2011.

Gold markets operates in a distinct market relative to other commodity markets. Demand is hardly driven by consumption but by demand due to gold’s quasi money properties (store of value) or as seen by mainstream as “investment” and or from speculative functions or particularly reservation price model or from reservation demand.

Hence when media reports that physical gold inventories have been strained, then this means that much of the current cumulative physical gold holders, which consist of all gold that had ever been mined since history (171,300 tonnes), simply have resisted selling, since they don’t see current price levels as adequate.

Alternatively this means that when the physical markets have seen tight inventory pressures, which means that the current mining output can’t service (close to 2,500 tonnes annual), aside from where most current gold owners have resisted the temptations to sell, then much of the selling may have come from elsewhere.  They may come from stealth central bank selling via bullion banks or from Wall Street’s paper gold. Central banks own 19% of all above ground gold

In short actions in the physical "non-political individual" markets have been exposing on the attempts to manipulate the gold markets via bear raids using "Wall Street-government" paper gold.

The physical markets also reveals that gold hasn’t lost its luster as insurance and as safehaven alternative in the quest for the preservation of the purchasing power by the non-political public.