Spin on gold, China, Russia and everything else out of control


Am I just getting cynical in my old age or is everything one reads in the media becoming more and more suspect as to its provenance?  Even this article will undoubtedly reflect some of my own prejudices, but at least they are my prejudices and not fed to me by some monolithic organisation trying to manipulate global thinking.

Americans in particular in the run up to the next Presidential election will be fed all kinds of propaganda for and against the various candidates.  Some will be true, some will be half truths, and some may well be downright lies, but it may be impossible for the general public on the receiving end to know which is which.  The frightening thing is that whoever’s team is most successful in spinning their candidates’ suitability will win the election.  Their sponsor will then be at the head of the most powerful nation on earth.  And the spin will continue at the same kind of level throughout the Presidency.  And the same will apply in leadership elections in virtually any country.

And of course the same factors are being applied in global economics and geopolitics.  The media is force-fed with often axe-to-grind data and opinion designed to move markets, vilify or beatify whole countries and institutions, politicians, business leaders etc. – no-one is immune.  Modern day spin is out of control.

Personally I have a specific interest in precious metals, and in gold in particular as a long term wealth protector.  I readily admit that my articles will probably favour a pro-gold conclusion, although I do try to be rather more balanced in my opinions than many of my peers and look at both upsides and downsides rather than just the one or the other.  I am ever increasingly dismayed therefore by the plethora of opinion and dubious ‘fact’ which appears in the mainstream media in particular.  This only seems designed to try to downplay gold and its role in global economics by attempting to make it ever less attractive to investors.  Thereby to reduce gold’s influence in the global economic picture and try to drive it out of peoples’ understanding as a potential brake on profligate government spending via the degradation of fiat currencies by unchecked money printing.

But of course the spin doctors are not just anti-gold.  They target just about anything and everything which the establishment doesn’t like.  In the West Russia, and its leader President Putin, for example, have come in for enormous vilification over policies on matters occurring on its borders.  The Russian point of view over the expansion of NATO ever eastwards is totally disregarded as irrelevant.  The U.S.A. is lucky in that it has not faced potentially hostile military forces close to its borders since the Cuban missile crisis and, to an extent Russia sees the NATO moves, or potential moves, to move ever closer to its borders as its equivalent of the Russian missiles in Cuba.

In Russia itself, of course the reverse is true.  Any economic difficulties are laid fair and square as being the result of dirty tricks by the Americans and their allies and President Putin is portrayed as a hero standing up to American-instigated aggression – and has domestic popularity ratings which any U.S. president would give their eye-teeth for.  True the Russian state  is rather less tolerant of opposition than Western ‘democracies’ and more controlling of its own media which makes this task easier.  But this is still spin.

China too is beginning to be seen as a threat to American global political and financial hegemony, so we can expect more and more media attacks on Chinese policies and institutions.  One wonders, for example if the very recent, hugely blatant, gold flash crash, being blamed by much of the Western media by insinuation as being instigated by Chinese hedge funds, despite it starting in New York, was designed both to be anti-gold, but also to cast doubts on the position of the rapidly growing Chinese financial and futures exchanges.  These are seen as a threat to Western control of key markets and anything which can set back their progress towards overtaking their American counterparts (which seems inevitable long term) would not upset the latter!  With the IMF considering inclusion of the Chinese yuan in its SDR currency basket, which the U.S. establishment may see as a threat to its position as the main global reserve currency, with the enormous trade and financial benefits that brings with it, anything that might cast aspersions on the integrity of the Chinese markets could be seen as beneficial!

As an example of double standards here and in political spin, one only has to look at Afghanistan, which geographically might be considered in the Former Soviet Union’s geographical sphere of influence.  When Russia put troops into the country in 1979, supposedly in support of the then Afghan government, this was hugely condemned by the West – to the extent of supplying the Afghan Mujahiddin with weapons to fight the Russian ‘invaders’.  Fast forward 22 years with the Russians having withdrawn in 1989, the U.S. and its allies went in to Afghanistan on much the same grounds as the FSU had earlier – but this was a just intervention as far as western political spin to the media was concerned.  Of course Western political spin came up with good reasons for the American ‘intervention’, just as it had with condemnation for the Russian ‘invasion’ although the two sequential super-power involvements look to have been almost identical in purpose – but one to prop up a Communist leaning government and the other to do the same for a Western leaning one.  Such is political spin.

So what point am I making here?  Primarily don’t necessarily believe anything you read in the mainstream media which could have been placed to suit some government or financial institution’s political or economic agenda.  Someone’s likely paying for it big time and it’s for their own benefit, not yours!

As I said at the beginning, I have a specific interest in gold as a long term store of wealth and my personal prejudices and feelings will show up in the above article.  But, despite my views on Afghanistan above,  I’m not what used to be described in the U.S. press as some pinko-liberal – indeed politically I probably fall on the right wing side of things in the European context (i.e. not as far right as the American right!).  This article has thus been prompted by the enormous volume of anti-gold propaganda in the mainstream media – described as reaching bubble proportions by one commentator yesterday.  Much of this negative spin is by insinuation rather than by condemnation, and in many respects that is the more dangerous as it makes readers think they are coming to the desired conclusion by themselves rather than being told what to do.

Modern day political and economic spin is dangerous, but in this day of global news and comment dissemination by internet we all have to live with it.  The important thing is to understand that it is an integral part of modern day propaganda and to consciously try and reason things out for oneself rather than just follow the mainstream media and the herd.

Updated: Interesting times: Putin plays gas card, SNB cuts Euro link, gold surges

Lawrence Williams
Two reports on Thursday combined to drive the gold price significantly higher as early 2015 geopolitical events accumulate.  Latest article now up on Mineweb.com – Click here to read this article and many others on Mineweb
Lawrence Williams
A supposed ancient Chinese curse, almost certainly apocryphal*, which has been doing the rounds for many years is “May you live in interesting times.” These are interesting times indeed as a confluence of geopolitical events threatens to drive the gold price ever higher. Apart from the seemingly ever ongoing Russia/Ukraine disputes, which may, or may not, involve the Russian military, and ISIL’s apparent expansion of action from Syria and Iraq, where it controls vast swathes of territory, into Afghanistan (interestingly bringing it into conflict with the Taliban) a couple of reported events today suggest the scary start to the year is continuing with a potentially very positive effect on Safe Haven demand for gold. Add substantial nervousness in the general stock markets after a steady rise over the past few years and you have a recipe for a take-off in the gold price perhaps foreseen by the Elliott Wave analysts we’ve reported on in these pages in the past.
See: Elliott Wave analyst sees big gold and silver price surge ahead

Reports on Thursday suggest that Russia may have cut off much, if not all, of its flows of natural gas through the Ukraine, thereby effectively halting supplies to a number of European nations which depend on it for a significant proportion of their domestic power. Ostensibly the cutoff is reported to be because Russia is accusing Ukraine of siphoning off supplies of gas moving via the pipeline through its territories without paying for them, but the political motives may be much stronger – or this could perhaps just be a warning shot across the bows to the EU not to extend economic sanctions – or even to drop them and the taps could be turned on again after a short ‘warning burst’ of supply disruption.

There is some doubt about the accuracy of the above report, but there is little or no doubt about the veracity of Russia’s staed longer term policy in bypassing the Ukrainian pipeline system in favour of a pipeline through Turkey.  Russia thus says that longer term it will be re-routing the bulk of its supplies to Europe via a pipeline running through Turkey, and thence to Greece and then it is up to the European nations to organise how supplies are transmitted onwards from there.

According to a statement by Gazprom CEO Alexey Miller, quoted in Russian news agency Tass, the Turkish Stream gas pipeline project is to be in the future the only route for Russia’s future supplies of 63 billion cubic metres of natural gas to Europe that is currently delivered via Ukraine. (The Turkish route is the proposed replacement for the South Stream pipeline project across the Black Sea to Bulgaria which has now been cancelled).  Miller’s statement has since been confirmed as accurate by EU Commissioner for Energy Maros Sefkovic, who has been in discussions with Miller over the matter and describes the decision as making no economic sense – as if many of the geopolitical events today make any economic sense!

Miller went on to say further that Gazprom has notified its European partners about its Turkish Stream gas pipe plans and now their task is to create the necessary gas transport infrastructure from the border of Turkey and Greece Tass reports. “They have a maximum of several years for this. This is a very tight schedule. To comply with it, work for the construction of new trunk gas pipelines should be started in EU countries right now. Otherwise, these gas volumes may be redirected to other markets.” (see Gazprom to use Turkish route to substitute Europe-bound supply of 63 bcm via Ukraine)

With Russian natural gas providing around 25% of EU energy, and the greater proportion of this flowing through the Ukraine pipeline system, this is potentially very serious for the economies (already reeling) of a number of European nations which rely to an even greater extent on Russian gas supplies. Further the reports today that Russia has turned off the Ukraine pipeline altogether suggest a further escalation which the EU is ill-prepared to cope with.
A second event today is that the Swiss National Bank (SNB) has been forced to sever the Swiss Franc’s direct link to the Euro which had seen the nation’s currency fall even more heavily against the US dollar than it is obviously prepared to live with. The SNB statement said it is discontinuing its minimum exchange rate of 1.2 Swiss Francs to the Euro, where it has been pegged since September 2011. It is also moving interest rates into even more negative territory to help try and counter resultant Swiss Franc strength against other currencies. Even so trade saw the Swiss Franc appreciate quickly against the US dollar by as much as 15%! The gold price shot up too in U.S. dollars – and even more in the Euro – at one time reaching $1260, although it had fallen back to the lower $1250s at the time of writing – still a big increase on the overnight level.

So where do we go from here? The confluence of disturbing geopolitical events continues – and we’re only two weeks into the New Year. Short covering should be coming in as traders digest the events and the gold price pattern which could drive prices even higher still. As we said at the start – Interesting Times!

*The Wikipedia comment on the ‘Chinese curse’ is as follows: “May you live in interesting times” is an English expression purporting to be a translation of a traditional Chinese curse. Despite being so common in English as to be known as “the Chinese curse”, the saying is apocryphal and no actual Chinese source has ever been produced. The nearest related Chinese expression is (níng wéi tàipíng quǎn, mò zuò luànshì rén) which conveys the sense that it is “better to live as a dog in an era of peace than a man in times of war.”

Chasing the 2015 Black Swans

What happens if Putin turns off the gas or the Euro starts to collapse, or other potential Black Swan events. An analysis of some of the changes and dangers for the global economy in 2015 and a view that gold remains the best currency for a time of uncertainty.

I would commend everyone to read the New Year prediction letter from Black Swan plc’s Richard Poulden linked at the end of this article. It is possibly a controversial piece, but also enlightening in its detailed look at the rise of the BRICs and Chinese driven multinational development funds which could usurp the positions of the USA, the IMF and the World Bank.

Richard introduced the piece in an email thus:

“I attach the usual view of politics and economics for 2014 as history and a few predictions for 2015 from the crystal ball. I would urge you to read this on the screen if you are still able to do so, unless you live in the EU. In the latter case you should save it up, print it, burn it and then gather round the glowing embers to warm yourselves if you impose further sanctions on Russia and Putin turns off the gas.”

It is also worth reading Richard’s previous year end letters on blackswanplc.com .  As is the case with many such prognostications, some of his past predictions have been remarkably accurate, others rather further off the mark, but always his views have been forthright and enlightening and should hold a serious place in analysis of the global economy and of gold.

As he has been for the past three years, he remains bullish on gold but recognises that some of his earlier prognostications were a little premature although he hasn’t been one to predict a runaway gold price. This time around he reckons that ultimately gold is the best currency for a time of uncertainty, and he still “remains committed to gold as a way of hedging against the massive market uncertainties that have built up since 2009 and the inflation which will in the end follow QE.”

To read the latest Black Swan 2015 New Year letter, click on this link – you will find it an interesting, and well worthwhile, read.