More Gold and Silver ATMs in China

I posted in the introduction of Gold ATM in Beijing China in August 2011.

It appears that Beijing's precious metals ATMs will be expanding.

From WantChinaTimes: (hat tip Charleston Voice)

People in Beijing can now buy gold or silver coins at ATMs after the Beijing-based Hua Xia Bank introduced five of the machines earlier this month, according to Hong Kong's We Wei Po.

The bank installed the five machines at its branches across the city in Xidan, Fangzhuang, Zhongguancun, Dongdan and on Qingnian Road.

The ATMs look like ordinary teller machines but have an additional compartment to dispense the gold and silver coins. The machines currently offer panda souvenir gold or silver coins and Year of the Snake silver coin and plate sets.

A single 1-oz panda silver coin priced at 268 yuan (US$40) is the cheapest item available, while the panda gold coin set is the most expensive at 23,800 yuan (US$3,800).

Buyers can purchase the coins using their bank cards. After they place their orders using the machine's touchscreen, their payments are verified through bank card organization China UnionPay and they can pick up their purchased items through the opening on the lower part of the machine.

Gold ATMs have also been introduced in Germany in 2009

Despite the recent crash in Gold prices, the introduction of Gold-Silver ATMs, which means more people will have access to physical gold, reinforces signs of the growing divergence between Wall Street “paper” gold and “real” gold: where paper gold’s inventory from the West have sizably diminished and have been converted into physical gold and flown to the East (Comex inventories chart from Seeking Alpha)

As the great Ludwig von Mises wrote, (bold emphasis mine)

Under the gold standard gold is money and money is gold. It is immaterial whether or not the laws assign legal tender quality only to gold coins minted by the government. What counts is that these coins really contain a fixed weight of gold and that every quantity of bullion can be transformed into coins. Under the gold standard the dollar and the pound sterling were merely names for a definite weight of gold, within very narrow margins precisely determined by the laws. We may call such a sort of money commodity money.

Gold as Money: China’s Gold ATMs and Donald Trump’s Gold Security Deposit

We are witnessing more signs of gold’s reassuming its place as money.

From Forbes, (bold emphasis mine)

China’s got the gold bug. Recently, the government allowed citizens to actually own gold bullion. And now, starting on Sept 23, Chinese people can buy gold bars directly from vending machines.

Gold has caught on like a wrong and oversold political narrative. Is this WMD, or is gold for real?

The China machines, made by German firm TG Gold Super Market, is the first of its kind there, but are already up and running in Las Vegas and Boca Rotan in the U.S., as well as Abu Dhabi, Germany, Spain and Italy. The ATMs dispense gold bars weighing up to 2.5 kilograms and work just like the normal ATMs. The machines can accept both cash and credit cards.

The cash-for-gold machines will be on trial at Beijing’s upscale night clubs and private banks during the initial period for security reasons.

I posted Germany’s first gold vending machine or ATMs in 2009 here.

With gold more accessible to the public, it won’t be long when the function of payment and settlement in the marketplace will include gold bars or coins. (That’s if governments won’t engage in gold confiscation)

In fact, Donald Trump may be setting a precedent on this.

Mr Trump recently accepted gold bars as payment for Security Deposit for property rentals.

From the Wall Street Journal,

On Thursday, the newest tenant in Donald Trump's 40 Wall Street, a 70-story skyscraper in Manhattan's Financial District, will hand Mr. Trump a security deposit worth about $176,000. No money will change hands—just three 32-ounce bars of gold, each about the size of a television remote control.

The occasion will mark the first time the Trump Organization has accepted 99.9% pure gold bullion, rather than cash, as a deposit on a commercial lease. The tenant, precious-metals dealer Apmex, will sign a 10-year lease for 40 Wall's 50th floor at a leasing rate of about $50 a square foot, according to Apmex Chief Executive Michael R. Haynes. The company is promoting the use of gold as a replacement for cash in some situations.

As the great Ludwig von Mises wrote, (bold emphasis mine)

Under the gold standard gold is money and money is gold. It is immaterial whether or not the laws assign legal tender quality only to gold coins minted by the government. What counts is that these coins really contain a fixed weight of gold and that every quantity of bullion can be transformed into coins. Under the gold standard the dollar and the pound sterling were merely names for a definite weight of gold, within very narrow margins precisely determined by the laws. We may call such a sort of money commodity money.

Sound money could be in the future as the current paper money based system self-destructs.

What Gold’s Latest Record Prices Mean

``The struggle against gold which is one of the main concerns of all contemporary governments must not be looked upon as an isolated phenomenon. It is but one item in the gigantic process of destruction which is the mark of our time. People fight the gold standard because they want to substitute national autarky for free trade, war for peace, totalitarian government omnipotence for liberty.” Ludwig von Mises

A major trait of bullmarket is, whatever assets we sell today will climb higher tomorrow. This implies that the most regrettable course of action in a bullmarket is to sell.

And one great example would be the gold market. Gold just set a new record in terms of nominal high (see figure 1).

Figure 1: Netdania.com[1]: Gold’s Stairway To Heaven

The monthly chart reveals that gold prices have been in a bullmarket since 2000. While true enough, there have long periods of consolidation, the general trend over the last decade has been up.

And importantly, contrary to those who allege that gold functions as safehaven during recessions or during the “deflation-symptom” crisis similar to the Bear Stearns-Lehman episode of 2008, evidence has shown otherwise—gold fell during the previous two recessions of 2001 and 2008 (see black channel lines)!

Alternatively, the most recent record run only implies that the fresh milestone high, established last week, DOES NOT presage of any forthcoming market crashes or “double dip” recessions. And if gold serves as a lead indicator as previously discussed[2], then the likelihood is to see reanimated activities in global risk markets.

At the start of the year, we were told that gold wouldn’t generate investor appetite as the menace of “deflation” continues to lurk around the corner. We even read predictions stating that gold would fall back to the $800 levels[3] way until last month[4].

However, as we have always been saying--in a world of central banking, deflation is no more than a bogeyman to rationalize more inflationism, which central bankers are likely to accommodate. After all, inflation is ALL about politics. And central bankers, in spite of their supposed “independent” role, have been the main conduits in financing government expenditures. Thus all talks of “independence” are mostly demagoguery. Fact is, global banking regulations, as the Basel Accords, have all been skewed to accommodate government expenditures[5].

Of course, one major bullish factor about gold is that mainstream STILL doesn’t get it; gold isn’t just an inflation hedge, nor is it about alternative assets[6]. It’s also been starkly misguided to impute ‘conventional’ financial valuation metrics to gold when this doesn’t apply. It’s even myopic to calculate or value gold prices premised on commodity usage. And it is also faulty to appraise gold based on global mining output. Since gold isn’t being consumed, incremental additions to the above ground supplies by existing mines hardly determine the pricing model (see previous discussion[7]).

In a decadent world of fiat money, where money printing to fulfil specific political agenda have been the most convenient route resorted to by political leaders everywhere-for the simple reason that the ignorant masses hardly understands how such surreptitious redistributive activities influences their lives- gold seems to be re-establishing its role as ‘money’.

Therefore, gold’s ascendant trend in ALL currencies have simply been manifestations that demand for gold has been transforming from mere “commodity” (jewelry and industrial usage) to “money”.

Gold is being held as reserve asset not just by the central bank, but importantly by the general public. Gold’s increased function as “reservation demand” is what usually the mainstream sees as “speculation” or “speculative hoarding” or “investment demand”.

Otherwise said, money’s “store of value” is increasingly being factored into gold prices (unit of account). Hence, relative to gold pricing, this implies that reservation dynamics or the reservation model (and not consumption model) determines gold valuations or that the exchange ratio or monetary valuations relative to fiat currency applies-- where valuations are determined by the expected changes in relationship between the relative quantity of, and the demand for, gold as money vis-a-vis paper currencies.

And possibly one day, such transformation would include the deepening of “exchange demand” or gold as ‘medium of exchange’ (see previous discussion[8]). Proof of this has been the emergence of Gold ATMs in Germany[9] and in Abu Dhabi[10].

All these, of course, are ultimately dependent on the stimulus-response and action-reaction of global political leaders on the swiftly evolving political, economic and financial sphere.

And thus, periods of weaknesses, whether from recessions or from consolidations (in technical or chart lingo the “energy fields”), has served as buying windows rather than selling opportunities.

Yet for those whom have remained sceptical and or earnestly drudge to market “timing” gold’s prices, they usually end up chasing gold prices higher-- buy high and sell low.

And this is especially brutal to those in constant denial of gold’s ascendancy; they have entirely missed out the rally for ideological reasons, and vent their frustrations by continually disparaging such developments. The odd thing is that this has already been a 10-year market process.

Yet since gold rise has been threefold, all errant attempts to “time” the market has resulted to lost or missed profit opportunities.

As the legendary trader Jesse Livermore expressed by Edwin Lefevre in the classic must read for any serious investors, “Reminiscences of a Stock Operator”,

``Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks.[11]”

In short, the best returns emanate from long term investments.

---

[1] Netdania.com, Forex charts

[2] See Why The Current Market Volatility Does Not Imply A Repeat Of 2008

[3] Yahoo. Finance, Gold Is "Fairly Expensive," Could Fall to $800 If Fed Moves, Midas Fund Manager Says, January 22, 2010

[4] CNN.Money, The coming gold bust

[5] See The Myth Of Risk Free Government Bonds

[6] Reuters.com, US gold sets record, ends strong as alternate asset

[7] See Gold As Our Seasonal Barometer

[8] See Financialization of Commodities: Boon Or Bane?

[9] See Creative Destruction: Electronic Payments Over Cash And Checks

[10] Financial Times Blog, Abu Dhabi’s gold ATM machine a sign of more opulence to come, May 13 2010

[11] Lefevre, Edwin, Reminiscences of a Stock Operator p.76 John Wiley and Sons

Creative Destruction: Electronic Payments Over Cash And Checks

Creative destruction appears to be taking hold even in terms of the means to conduct payment.

In the United Kingdom, electronic payments appear to be getting the better of checks 'cheques', where the latter may be reckoned as passe.

According to Mint.com (bold highlights mine),

``This week, the British banks governing the UK Payments Council decided to phase out their check clearing system by October 2018. In effect, they set an expiration date for the use of paper checks (or “cheques” as they prefer). In a statement, the group’s chief, Paul Smee, noted: “There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement.”

``Like letters of credit, demands for payment and bills of exchange, bank drafts can trace their history to Roman times, when checks were known as “praescriptiones.” Paper drafts analogous to today’s checks were in use in the Islamic world in the 9th century and as early as the 12th century Templars honored pilgrims’ checks from one chapter house to the next. In England, clearing houses have had responsibility for settling checks since the early 1800s (before that they were often cashed in coffee houses).

``Bankers complain that many British retailers don’t accept checks anymore, that young people don’t even have checkbooks, and that it’s costing them as much as a pound (about $1.63 today) to process every check. But the decision certainly has its critics—especially advocates for the elderly and small business owners. On one hand, a generation uncomfortable with electronics will be forced to risk carrying and handling more cash. On the other, mom and pop stores have one more disadvantage against giant competitors (some of whom are starting to act as banks themselves). The move will also put the “unbanked”, who have to pay fees to cash checks but also lack access to accounts capable of electronic payments.

``The cost of cash keeps going up while the cost of using credit cards and electronic payments keeps going down. More retailers accept credit cards than checks these days. But while US banks also worry about the costs of handling cash and checks, they aren’t likely to echo the UK decision any time soon. Yes, paper checks are increasingly rare in high-tech countries—whether advanced Scandinavian nations or developing/modernizing regions such as Africa—but the US doesn’t rate as high-tech when it comes to personal finance (present company excepted of course). It has lagged dramatically in the modernization of its financial traditions, such as implementing electronic payments, even compared to Britain."

In other words, technology has been bringing about the intensifying diffusion of the electronic mode of payment as primary means to conduct transactions with reduced reliance on the traditional cash and checks.

The caveat here is that facilitating payments via electronics can translate to more debts and could function as faster conduit for the expansion of circulation or bank credit (inflation).

Nevertheless in a cash society as the Philippines, where 40% of the economy is considered informal and where the penetration level of mobile phones is far greater than people with bank accounts, the likely primary mode of electronic payment that could take shape would be that of mobile banking.

According to CGAP, ``To root the global market sizing in real world data, CGAP, GSMA and McKinsey analyzed, unbanked consumers in the Philippines, where two of the global leaders in m-banking operate (Smart, and Globe). One half (1.6 million) of active mobile banking users in the Philippines are unbanked. Furthermore, 26 percent of active users have incomes below $5 per day. On average, unbanked mobile money users spent $1.9 more per month than peers who do not. This is a considerable gain for mobile operators who saw average revenues per user (ARPU) as low as $4.04 in the 4th quarter of 2008, according to Wireless Intelligence...

``Mobile money reaches a base of financially active people. In the Philippines, more than half of the people interviewed for the study reported using at least one financial product. This mirrors findings in other countries showing the poor to be active money managers. Savings is the most common financial product in the Philippines, with low-income mobile money users and nonusers reporting that they save an average of $34. Informal mechanisms for saving dominate the market.

``Ninety-eight percent of unbanked Filipinos receive their income in cash, and overwhelmingly use informal saving instruments, such as keeping their money at home in a safe hiding place, giving money to a friend or family to hold, or joining a saving club. CGAP and GSMA estimate low-income Filipinos save an estimated $450 million in informal, actively managed with frequent deposits and withdrawals."

In other words, market in spite of government interventions has always been looking for the best interests of consumers. In this case by facilitating an easier mode of conducting transactions via electronics, be it through mobile banking, credit and debit cards or others.

And if markets are always looking for a way satisfy consumers, the recent onrush to gold has likewise brought about a new form of Automated Teller Machines (ATM)- gold ATMs in Germany.

According to the Financial Times (last June)

``Germans, long attracted to the safety of solid gold, will soon be able to sate their appetite for the yellow metal as easily as buying a chocolate bar after plans were announced yesterday to install gold vending machines in airports and railway stations across the country.

``The venture by TG-Gold-Super-Markt, a company based near Stuttgart, aims to build on soaring retail interest in gold since the financial crisis shook confidence in other investments.

``"German investors have always preferred to hold a lot of personal wealth in gold, for historical reasons," said Thomas Geissler, the owner of the company. "They have twice lost everything."

``He hopes to install "Gold to go" machines in 500 locations in German-speaking countries this year."

It's a curiosity how gold can be fused with today's rapid technology and market based innovation trends.