China's new gold fix to rival the establishment of the West

For years, the gold fixed has been based in London. But with increasing concerns of manipulation, China is seizing an opportunity to take over the reigns.

With the recent introduction of the London gold fix, there has been some speculation in the markets that China would also participate in the new system to price they yellow metal. However, recent indications are that the country is in fact now looking to have a pricing system of its own. Reuters reports that China is already working on a yuan-denominated gold fix, which is expected to go live later this year.

The yuan gold fix would launch on the international platform of the Shanghai Gold Exchange (SGE), with the SGE acting as the medium for the trading. This is somewhat in contrast to the existing London gold fix, whose trades are done between banks without a governing body. That said, the SGE did work with major Chinese banks (and even some foreign ones) when creating the benchmark.

Despite the process already being significantly underway, a participant directly involved in the testing told Reuters: "No final proposal on the fix has been given yet. This was like beta testing and there is still some room for discussion."

This step is seen as yet another move meant to establish China as a global financial force. With the country being among the top in the world both in terms of gold production and consumption, it's not too surprising that they are using the yellow metal to establish their currency by imposing their own benchmark on any Chinese gold trades. Indeed, considering its share of the global gold market, much of this decision stems from China feeling entitled to its own fix.

While the creation of an additional fix itself isn't a direct move against the existing gold pricing system, it's possible that the Chinese gold fix might end up pressuring and competing against the one currently based in London.

It's probably no coincidence that China is pushing for its own gold fix at a time when the established pricing system in London has found itself under heavy criticism due to lack of transparency. To counter such claims against its own system, and reduce concerns about potential manipulation, the SGE will look to trade a 1 kilogram contract a few minutes every day.

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5 Popular Myths About Gold, And Why You Shouldn't Believe Them

There's plenty of misinformation in the public domain about investing in gold and silver. Here are some reasons to be skeptical.

Stefan Gleason of TheStreet recently tackled the five most common gold myths, why they are wrong, and how this misinformation can cause investors to shy away from gold. Gleason lists the myths as follows:

Myth #1: A rise in interest rates will cause the price of precious metals to go down.
Analysts who support this idea ignore the fact that gold and silver had a successful run in the late 1970s, when interest rates were steadily on the rise. Gleason argues that only real interest rates affect the price of precious metals; as long as these are below the rate of inflation, and thereby considered negative, gold prices will likely be strong.

Myth #2: The possibility of government confiscation.
The 1933 Executive Order by President Franklin D. Roosevelt, which ordered U.S. citizens to exchange their gold bullion for cash, was not nearly as far-ranging as many are lead to believe. The government did not seize bullion kept in citizens' homes, and while there was some minor confiscation of bullion from safety deposit boxes in failed banks, another raid of this type is highly unlikely given that the dollar is no longer on a gold standard.

Myth #3: Numismatic coins are "confiscation-proof".
Often perpetuated by dealers of rare coins, the simple fact is that no law says that numismatic coins are not at risk for confiscation. In fact, Gleason suggests American Eagles as an option to consider, saying, "They are considered to be legal tender coins in the U.S., which would seem to provide at least some legal barrier to any potential gold prohibition effort."

Myth #4: Mining stocks can offer greater gains than bullion.
Gleason writes that gold and silver bullion is notably safer, as it experiences much less severe downturns than mining stocks. He adds that "while mining stocks can be attractive at times for speculators or traders, they aren't suitable for most buy-and-hold investors."

Myth #5: The possibility that greater powers are keeping gold's price down.
Price manipulation occurs in all asset markets – not just in the gold market – meaning that no asset class is completely immune. Regardless of whether there is large-scale manipulation or on a smaller level by a few rogue traders, the constant industrial demand for precious metals will likely always make them a safe investment for the "little man" who avoids future markets and owns actual bullion.

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The Dollar or Gold: What's the Best Form of Money?

We all accept the fact that the U.S. Dollar is currency. But is gold a better alternative?

A recent Forbes column from Keith Weiner touches on what money really is contrary to what the popular belief might be, and how using gold as opposed to the dollar when assessing value would benefit everyone. Weiner, a long-time advocate of the gold standard, reminds readers that a large reason why the dollar is used as a medium of exchange as opposed to gold is because the government taxes the precious metal.

Weiner points out that the dollar is considered money because the government imposes it as such. Further, the government hinders the circulation of gold as a currency by treating it as a commodity (as opposed to currency), which thus subjects it to taxation.

Weiner strongly disagrees with such a view, insisting that gold is the actual money and that "the dollar may circulate, but it's not money. It's just a small slice of the government's debt. It's an I.O.U., a promise to pay, though most have long forgotten what the government once paid — gold."

He further argues that, ultimately, the "government can't change the laws of economics, such as transforming its paper into money." Weiner also believes that re-introducing gold into commerce would improve the free markets and, overall, have a positive impact on the economy.

Weiner concludes by noting that the dollar can't be an appropriate measure of value as its own value is on a constant decline, saying that a "falling unit of measure doesn't work." According to Weiner, there needs to exist a better way to gauge value than merely using whatever is currently the accepted medium of exchange, especially if said medium is an imposed one, stating that "gold is, by far, the best measure of value. Nothing else comes close, certainly not the dollar."

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The simple reason the Swiss are moving away from cash deposits and into gold

With negative interest rates sweeping the nation, investors are turning to gold to avoid cash charges

Swiss bank and wealth manager, Vontobel Holding AG, reports that Swiss investors are turning to gold as the Swiss National Bank is forcing banks to add charges to cash deposits. Coupled with concerns over Greece's potential exit from the eurozone and the possibility of increased conflict in Ukraine, this means that an increasing number of investors will be looking for safe haven assets to protect their holdings.

Gold has already climbed 4.2 percent this year in spite of potentially higher interest rates in the U.S. strengthening the dollar, as investors' holdings in gold-backed funds are reaching a peak not seen since October. Chief Executive Officer of Vontobel, Zeno Staub, told reporters that they "keep noticing that gold is coming back into favor with investors" when the company announced their yearly earnings on Wednesday.

The negative yield from holding onto Swiss francs and bonds is making bankers and their clients look for alternate investment options. The increased charges imposed by the Swiss National Bank on banks keeping their franc deposits in the central bank saw Vontobel increase their proportion of gold in discretionary managed investments by two percent.

Several prominent Swiss banks, including UBS Group AG and Credit Suisse Group AG, as well as Geneva's biggest banks are all introducing additional deposit charges to certain types of customers in order to compensate for the introduction of negative interest rates by the Swiss National Bank. In order to avoid the cash charges, many investors are turning towards gold.

While Staub said that Vontobel charging some clients more is only meant to dissuade large investors (like banks) from seeking security and that smaller and private clients won't be affected by the changes, Chief Executive Officer of UBS Group AG, Sergio Ermotti, voiced his concerns that this might not be the case.

Ermotti believes that the franc's surge and negative interest rates in Switzerland and other euro areas might end up putting pressure on profitability should they continue, suggesting that private clients might end up being affected by the cost of negative rates as well.

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Official casts doubt on Federal Reserve policies

A long-time Fed is worried: "We're not going to be able to hold the line anymore."

In a recent interview with the New York Times, Charles Plosser, president of the Federal Reserve Bank of Philadelphia, voiced some serious concerns over the long-term effects and ramifications of the Fed's ongoing loose monetary policies.

Plosser, whose term as a key policy maker in the bank will end in March, has often criticized the Fed's policies during his nine-year term on the board.

Plosser maintains that history has proven that monetary policy is only a temporary way to assist economic growth and that, once we reach a tipping point with the Federal Reserve's loose monetary policies (such as Quantitative Easing and near-zero interest rates), we will experience significant negative backlashes. Most recently, the European Central Bank experienced this first-hand when the Swiss National Bank de-pegged the franc from the euro, thus sending the value of the euro plummeting. According to Plosser,

"At some point the pressure is going to be too great. The market forces are going to overwhelm us. We're not going to be able to hold the line anymore."

Plosser argues that the idea that low inflation somehow indicates a weak economy was rebutted in the 1970s, and therefore calls for raising short-term interest rates ahead of time – regardless of what the move's effects may be on inflation. By taking such an action, one of his primary hopes is to avoid reaching a point in the future when market forces dictate that the Fed must increase interest rates quickly. Such a scenario could be disastrous to the economy and cause significant volatility.

Plosser also stresses that any monetary or fiscal policies, especially as loose as those of the Federal Reserve, cloud our view of normal market conditions. He argues that we must deal with the economy in a realistic fashion rather than through unrealistic or overzealous application of stimuli. If anything, he believes that most of the Fed's loose policies should have ceased as soon as the financial crisis was over.

One major concern is what the consequences of the Federal Reserve's monetary policy will end up being, especially over the next five to ten years. Plosser claims that the real cost of what the Fed is doing has not yet been determined:

"I think the jury is still out on the costs. Because the cost I was worried about was the longer-term cost of unraveling all of this. So maybe I was right, maybe I was wrong. That remains to be seen."

Once the market realizes that the Fed can no longer keep holding interest rates back in order to increase liquidity, a snap-back in premiums will become unavoidable. This threatens to further plunge the economy into uncertainty and volatility as everyone would suddenly finds themselves with less money.

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Gold hits a 4-month peak

On the back of a stunning move by the Swiss National Bank, the dollar slumps and gold moves higher

No one saw it coming. Switzerland shocked the world last week when it abandoned its three-year cap on the franc. As a result, European shares and bonds yields tumbled and the dollar moved lower. Gold, however, rose to a 4-month high.

According to investment specialists, this rise has can be attributed to the uncertainty prevailing in the market. Ole Hansen, Senior Manager at the Saxo Bank explained, "Gold is gaining from a risk-off situation because nobody expected the Swiss central bank not to keep that cap." According to him, this has created "potential big losses in many places and is obviously triggering some flight to safety."

On the other hand, the dollar fell 0.2% percent and European stocks plummeted as a result of the move from the Swiss National Bank, which many believe was spurred on by the European Central Bank potentially announcing a money-printing program in the coming days.

Hansen further added that this could add more pressure on the euro as all this happened just "a week before the ECB meeting." Because of this, "gold in euro terms" is sure to benefit further.

Since the financial crisis in 2008, central banks have opted for more liquidity. This has over the years has had a very positive impact on the price of gold. The price of Euro-dominated gold rose to its highest level since May 2013 to 1,077.09 euros an ounce.

Though there is still some uncertainty about what the metal will do in the rest of the year, it has risen six percent in just this month.

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Are bonds a safe investment? Not according to veteran investment specialist

Ian Williams advises against investing in bonds, says gold a far better option

For more than 300 years, bonds have been one of the safest investment options available. No longer, according to Ian Williams, veteran investment specialist and Chief Executive Officer of Charteris Treasury Portfolio Managers. Why? Because bonds have been enjoying a bull run for the last 40 years, one which he predicts will end soon "with interest rates set to rise and lower oil prices boosting growth."

According to Williams, "Bonds are a highly-dangerous asset class" and carry extremely asymmetric risk as compared to the possible reward. In an email statement, he referred to the yields of UK government bonds, currently at their lowest since first launched in 1703. Williams adds, "Buying any asset at 300-year highs carries huge risks."

The 62-year-old Williams believes in 40-year cycles. And as the cycle for bonds is near its end, he has not only launched a special fund that will see higher payments as interest rates increase, but he has turned his attention to gold and silver, saying that they are set to become some of the best performing assets.

Of his new New Strategic Bond Fund, Williams says, "the expectation is that this fund will be in the one percent that does not lose capital when the bear market in bonds begins." And according to him, "If our 40-year cycle analysis is correct, that bear market is not very far away."

This trend is sure to be further accentuated in Europe where government debt has become a proportionately larger share of the GDP. As a result, bonds from some countries like France and Italy are no longer an attractive investment option, since they offer lower returns while the risk that the governments might renege on their debts is growing.

Interestingly, the yield rates on French and Italian bonds dropped to all-time lows amid rumors that the European Central Bank is planning to buy bonds to reduce deflation and bolster growth. The rate for French 10-year bonds went down as low as 0.718 percent while 5-year Italian bonds were knocked down to 0.781 per cent.

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