Friday, 10 March 2023 — Albert Park

By Brian Chu Editor, The Daily Reckoning Australia

[7 min read]

Dear Reader,

Do you feel there’s something ominous about the global economy and the markets?

Yes, the market indices are still trying to grind up like Sisyphus pushing a boulder up a hill, except it seems to roll back down soon after.

Just as you think global inflation is contained; the US Federal Reserve Chair Jerome Powell comes out to say that the Federal Funds Rate needs to be higher to bring inflation under control.

Really, still? The inflation they didn’t see hurtling at us in mid-2021 like an asteroid on a collision course with Earth remains a persistent problem?

So, we should expect leaner times to remain for longer, meaning it’s a good idea to prepare to secure your wealth if you haven’t already.

As a gold enthusiast and a shameless promoter of gold, I’m slightly annoyed that it’s taken a bit of a smacking earlier this week. Though you probably expect I’d be accustomed to it in the last two years.

But there’s another irritant that landed in this saga of gold price stagnation. And this one is more to do with the reaction to the event than the event itself.

Let’s get into it…

On Monday night, I saw a bombshell article from the ABC on a major scandal involving the Perth Mint and how it sold gold of lower purity than stated to China. They were caught and then tried covering it up.

In short, the Perth Mint was seeking to save on costs by diluting the purity of their 99.99% gold bars since 2018, which was estimated to save around $620,000 on the cost of sales annually. In the grand scheme of things, the Mint sold $20.3 billion worth of gold last year and annual sales revenues would be of a similar amount in the recent past.

How did they get caught?

The Shanghai Gold Exchange purchased a large volume of gold from Australia via the Perth Mint and tested it for purity according to their standards, which imposed limits on how much silver and copper are permissible in the gold. However, it found that 100 tonnes of gold from the Perth Mint didn’t meet its purity standards.

The problem came from a coverup, in that when the Shanghai Gold Exchange notified the Perth Mint, the Perth Mint responded by testing batches of its gold bars and found problems in several batches. This was because the Perth Mint allegedly began adulterating its gold bars as part of its cost-saving measures. It failed to notify the Shanghai Gold Exchange of this. Instead, the Perth Mint sought to place the burden of proof on the Shanghai Gold Exchange.

I’m sure as time passes, this web of intrigue will get deeper.

Serious reputational damage to Perth Mint, but not for gold…don’t confuse the two!

I won’t be surprised if there’ll be plenty of hit pieces coming out in the press regarding this scandal, and many gold naysayers could pump this up.

I don’t discount this as a serious scandal, as it is a breach of trust by the Perth Mint. It puts doubt into all buyers of products from the Perth Mint hereafter. There’s no denying that.

But I want to put things into perspective. Let’s look at those numbers again.

So the Perth Mint sells around $20 billion of gold annually. It ‘doped’ its gold to save $620,000 on costs each year.

If you get my drift, something doesn’t seem to add up. But let’s run with these numbers.

Firstly, the purity standards for gold and precious metals products are very stringent. It’s not simply set by a gold bullion fabricator itself, but it’s based on international standards. Therefore, the Shanghai Gold Exchange’s complaint about the purity falling short should be taken as is rather than them downplaying the matter.

This leads me to the second point. If the Perth Mint is only saving that small an amount when skimping on the quality of its gold, then it goes to show the gold products aren’t really that badly diluted. After all, $620,000 a year of savings against $20 billion should hardly raise an eyebrow.

Thirdly, the Perth Mint is likely to have adulterated the gold for industry-size products rather than the smaller denomination bars and coins.

This is my opinion, so don’t run with my views.

Following from these three points, I wouldn’t lose sleep over the Perth Mint gold products that I own. We’re not talking about the previous scandal in China where gold-plated tungsten bars were sold.

In saying that, I would conclude that you should be wary about the gold you purchase. But this scandal shouldn’t deter you from continuing to buy precious metals as a means to protect your purchasing power.

I also want to add one more thing. If you own any South African Krugerrand coins, you’ll realise that they sell for a cut higher than the equivalent products from the Perth Mint, Royal Australian Mint, and the Canadian Mint. This is because the composition of a Krugerrand is around 91.67% gold, and the rest is made up of copper. It’s a more durable coin as a result of the copper. However, owing to its composition of having less than 99.6% gold or 99.5% silver, it attracts a GST.

What am I getting at?

I believe that the Perth Mint’s doping scandal may have meant that it sold gold at less than 99.99% purity, but it’s unlikely to have gone below 99.6%, when you do the maths.

So, in my view, the scandal is more on the trust and reputation of the Perth Mint brand, not on your gold or the investment case for gold. I hope this clears up any confusion that might come up, should the media bombard the public with a likely tidal wave of anti-gold hit pieces.

A lucky coincidence or something more…?

But that’s not all.

Before the anti-gold hit pieces make their rounds, gold took a hammering in US trading on Tuesday after the speech by Jerome Powell explaining we need to raise rates higher to combat inflation. It fell US$35 an ounce and brought it close to the US$1,800 mark again.

I’m sure that the gold price moved this way because a higher interest rate will see the US long-term real yield rise, putting pressure on gold.

But I just have this uncomfortable feeling about the timing of this speech and the article about the Perth Mint adulterating its gold.

Naturally, some people will read the ABC article and swear off gold, thinking all gold bars and coins are scams. That’ll play into the hands of central banks who’ve been buying gold last year, and likely into this year, as they know the global economy is in the toilet.

It’s not like you can put it past them to buy gold cheap, if possible, even talking it down so they can create this opportunity. I mean, they did tell us they couldn’t see inflation from miles away despite doing everything to cause it and then having government agencies play with the data to create the illusion that it’s not there!

Either way, whether this was a coincidence or planned, I’d say don’t let the Perth Mint scandal scare you off gold.

If you can buy it cheaper, all the better. That’s what the central banks will do.

And this is one of few things where I believe you can follow in their footsteps…

God bless,

Brian Chu,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘Well…it’s one, two, three
‘What are we fightin’ for?
‘Don’t ask me ‘cause I don’t give a damn
‘The next stop is Vietnam
‘And it’s five, six, seven, eight
‘Open up those pearly gates
‘Ain’t got time to wonder why
‘Cause we’re all gonna die.’

Country Joe and the Fish

The news yesterday had everything ‘dropping fast’: Reuters: ‘Fed’s Powell opens the door to higher and possibly faster rate hikes’:

‘The Federal Reserve will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation, Fed Chair Jerome Powell told U.S. lawmakers on Tuesday.

‘“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” the U.S. central bank chief said in opening remarks at a hearing before the Senate Banking Committee.’

Greater challenges

As we’ve been saying…the Fed has to raise rates and lower stock prices. It’ll keep at it until something goes very wrong. Then, when the going gets tough, the Fed is still likely to abandon its war on inflation. Soon, it will retreat, and conduct only rear-guard harassment operations. (On Monday, a businessman explains how the Argentine economy ‘works’ with 100% inflation.)

Money is our beat here. But the US’s financial system…and your money…face much greater challenges than just a bear market on Wall Street.

A friend sends this from the Argentine press:

‘Not sure what to make of this: 

‘US Congresswoman warns Buenos Aires not to build Chinese fighter jets’

What to make of it? What in the world is the politician thinking?

We are exploring the events and trends that are likely to cause the ‘cluster’ catastrophe headed our way. Readers may sense some indignation and disgust in our tone; but ours is a prejudiced view. We liked the Old Republic. 

Yes, of course, it slipped into sin more than once. Yes, it overspent occasionally. Yes, it made terrible mistakes and by mid-20^th century had already bitten into the imperial fruit.

Way back when

But before 1971, no Congresswoman, no matter how dim, would have thought it was her job to tell the gauchos what to do.

Before 1971, the US’s money was still good. So was its reputation.

We remember when gasoline cost 25 cents a gallon, when we could get on a plane without a pat-down, and when we could open a bank account and get a free toaster oven, rather than a third-degree interrogation. There was no war on drugs, no ‘homeland’, and no ‘Homeland Security’…and no snoops reading our mail…or telling us what kind of kitchen stove we should use. And there were a substantial number of citizens, in and out of government, who still wanted to balance the budget at home and leave people alone overseas.

Yes, the US was, then as now, engaged in a pointless war…but at least there were people in the streets challenging it.

Today, the real ‘conservatives’ are all gone…the Democrats are all pro-war, Republicans too…and the citizens go along with everything — COVID Hysteria, war fever, debt, diversity, and dysfunction. The Fed says inflation should be at 2%? Sure, why not?

Permission-based living

Citizens of an honest republic can decide for themselves when to go out of doors. But the subjects of an empire ask permission. They get bread; they must join in the circuses too.

But people come to believe what they must believe when they must believe it. If they were told to stand on one leg and recite the pledge of allegiance, they would do so.

Even fruitcakes eventually go stale. Empires reach their ‘sell-by’ dates too. Now in its corrupt and degenerate stage, at home and abroad the empire implements its Bad Guy Theory. ‘You’re either with us, or against us’, say Bush, Obama, Trump, and Biden.

Here’s an example. Ms Janet Yellen went to visit Ukraine. In her statement she made it clear that good and evil were butting heads:

‘Russia’s barbaric attacks continue — but Kyiv stands strong and free.’

Nor did she have any doubt about what side we are on:

‘America will stand with Ukraine for as long as it takes’

So easy. So simple. Good guys versus bad guys.

But what a bunch of morons.

More to come…

Regards,

Bill Bonner,
For The Daily Reckoning Australia