The people’s money–gold–is turning up in the news this week as collateral and security in the turbulent financial world.
Precious metals dealer Apmex is signing a lease at Donald Trump’s 70-story skyscraper located at 40 Wall Street and The Donald has agreed to accept for a security deposit, “just three 32-ounce bars of gold, each about the size of a television remote control,” according to the Wall Street Journal.
Over on Park Avenue South, the Provident Loan Society of New York is lending to consumers who pledge gold jewelry to borrow enough to pay their bills and cover the 6-month interest rate of 13%.
It’s tough getting a loan at the bank, so consumers and small business are pledging their gold to get operating cash. “It’s a big problem now with the banks,” Pepa Abad Toledo told the WSJ. She uses Provident loans to buy merchandise for her business selling costume jewelry.
Across the pond, Jack Farchy reports for the Financial Times, “European banks are rushing to use their gold to access much-needed dollar funding, in the latest sign of the growing liquidity crunch for the continent’s financial institutions.”
Farchy explains that the cost of swapping euros for dollars has increased fivefold just since June. It’s normal for large bullion banks to lend some of their gold out at the end of each quarter, but, “the latest move is unusually dramatic and highlights the stresses in the dollar funding market, according to bankers.”
When money is tight and currencies are weak, gold comes in handy.
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Here is a great anecdote from the World Economic Forum too.
CNBC guy, Geoff Cutmore was shocked that people were interesting in buying gold.
http://blogs.wsj.com/chinarealtime/2009/09/13/dollar-gets-roughed-up-in-unusually-heated-world-economic-forum-panel/
In India ,its is an age old practise to mortage the gold for cash to start a new venture or for any other purpose. Gold is very important for familys right across India and its understood that it would be used when the going is tough.When Banks dont lend money easily its assets like gold come in handy to borrow from private business people who charge interset money loaned out against the gold as security.
If this continues or even expands, there will definitely be a crackdown of some kind, since all government bureaus and employees seek ways to increase their finances at the expense of the populace.
Expect a tax that makes it unprofitable, or worse yet, a period of outright confiscation, like executive order 6102 in the 1930′s.
I think it’s different now. Gold is not tied to the currency so the State cannot argue with currency speculation and such. People would refuse to turn in gold and accumulate it in secret via black market.
What is different? Look what happened to this guy (and his gold and silver, or rather that of his customers) when he tried to create a money alternative to the USD. http://en.wikipedia.org/wiki/Liberty_Dollar#Conviction
Good article, Mr. French. This is just another example of gold reasserting its historic, rightful role as the people’s (of the world) money of choice. (To be more precise, it is people exercising their right to choose.) Those fiats are forced on people by control-freak legislators through, ha, ha, ha, “legal-tender laws.” The recent decline in gold’s dollar price from $1920 to as low as $1780 (currently $1815) was probably the result of some market participants misinterpreting the economic impact of a decision by the world’s major central banks to coordinate inflating the Euro to provide liquidity to Europe that is experiencing a credit crisis, which as yet is not quite as dramatic as the one in the US back in 2008.
IMHO, gold’s popularity poses a grave threat to the continuing hegemony and even the future existence of central banks and fiat currencies. I cannot imagine that the enormous power over people’s lives that is currently in the hands of a relatively few agents of the almighty State will be surrendered without some pretty vicious measures to retain control. So, although I would like to think it will not happen again, I certainly wont be surprised to see some restrictions imposed on the ownership or use of gold attempted by the statist. Central banks and governments are in essence losing their grip on the economy and the lives of their subjects to market forces, and are capable of doing anything to preserve their power. In the past, that has often meant war, because during wars people have been willing to surrender all of their rights to defeat whatever enemy their particular State has conjured. Patriotism, ya know, that last refuge of State’s and scoundrels, makes fools out of the best of us.
Gold has always been a suitable loan collateral for many lenders (it is the lender who determines the characteristics of a suitable collateral). But, as far back as I can rmember, ordinary banks in the U.S.–those affiliated with the Federal Reserve System–have been legally prohibited from accepting gold, silver, or even any form of currency (including U.S. $) as collateral. If I remember correctly, land itself is also unqualified as collateral.
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