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Can gold prevent hyper-inflation? Lessons from the Rentenmark

The suggestion that gold could be used as a reference point for currencies brings on memories of how Germany ended hyperinflation in 1923.

Author: Julian D. W. Phillips
Posted:  Monday , 15 Nov 2010 

BENONI (GOLD FORECASTER) - 

Below right you see a one billion Mark note that was among the last printed notes of the Weimar Republic which saw the dreadful hyperinflation from the First World War's end to August 1923.   Next to it was a currency that replaced it and which helped terminate the hyperinflation that infested Europe, but was at its worst in Germany.  

 

This was at a time when gold was completely accepted as money internationally.   Due to the economic crises in Germany after the Great War there was no gold available to back the currency.    Therefore the Rentenbank in November 1923 issued the Rentenmark, a currency backed by mortgaged land and industrial goods worth 3.2 billion Rentenmark.    The Rentenmark was pegged to the U.S. Dollar at a rate of 1 Dollar: 4.20 RM.    At the end of the First World War, the Deutschmark was valued at 4.63 to the U.S $.   The rate of the Rentenmark to the Papiermark was 1:1,000,000,000,000 (1 trillion Papiermark).    The Rentenmark was only a temporary currency and was not legal tender.   It was, however, accepted by the population and effectively stopped the inflation.  The Reichsmark became the new legal tender on 30 August 1924, equal in value to the Rentenmark.

Together with the responsible fiscal policy of Chancellor of Germany Gustav Stresemann and Finance Minister Hans Luther it brought the inflation in Germany to an end.   The Rentenbank continued to exist after 1924 and the notes and coins continued to circulate.   The last Rentenmark notes were valid until 1948.

WHY DID IT WORK?

How could the German people so devastated by this abuse of un-backed paper money have accepted this new piece of paper?  For a start no-one ever has a choice when it comes to everyday cash needs.   Even when Zimbabwean notes were worthless, when they were printed with an expiry date, the people in that country were forced to use it, by government order.  The Germans had developed all sorts of ways to bypass the use of this paper.   And then the system had flopped.   Well before then, foreigners had refused to accept German paper and the government had sold the German gold off overseas.   So what made the German people accept this new paper currency?   It was secured against something the people believed was unprintable and valuable, industrial goods and land.   This appeared to strictly limit the volume of money that could be printed against it.  It inspired confidence again.   But a closer look showed why it was credible:

• It was national money issued by one bank against collateral that could be handed over in the event of its failure.  
• There was one jurisdiction that imposed laws over the money and the assets involved. 
• It was in a region where the issuers could be held accountable and holders of the paper were essentially government/ mortgage bank creditors.

ONLY WORKABLE AT HOME

While it worked and inspired confidence, it only did so inside Germany!   A foreigner would not have been welcome with such notes, to go to court against the government so he could seize the assets.   To go up against a government on its turf is never wise.   The national nature of the money limited it to within Germany's borders.   Anybody seizing assets of Germany outside the country would have a chance, because the matter would have to be decided outside Germany's Jurisdiction, where the country would simply be a debtor of the foreigner.   At that time, Germany did not have overseas assets anymore. 

Currency, or government issued paper can only succeed when it is trusted and reliable.   The moment it loses that trust and reliability as the Weimar Republic money had, it is worthless!   Today such a scheme would not work because of the devastation of property values in so many parts of the world and the dangers that such values would fluctuate too much.

THE WORLD BANK SUGGESTS GOLD COULD ACT AS A REFERENCE FOR CURRENCY VALUES

Mr Robert Zoellick has set the cat amongst the pigeons this last week by suggesting that gold should be used as a reference point for currencies at the current time, a time when confidence in currencies is declining fast.   Why did he choose gold, you may well ask?   Yes, it has always been seen as money except for the last 40 years when the world has trusted the behavior of governments and their currencies.   There is little chance that a Gold Standard could work in its past form that would be too restrictive of money supply.   Beside the small quantity of gold available would make each piece of gold too valuable to make it a practical money.   But that does not mean to say that gold could not do the job used in another way.

The head of the World Bank suggested it be used as a reference for currency values, not as money itself.   This is entirely different.   What virtues could gold bring to the monetary table?

• Gold is internationally accepted and held by central banks.
• The days when central banks implied they were going to sell their holdings and assisted the gold price to fall have passed.   Central Banks are either holders or buyers of gold now.
•  Gold is not vulnerable to a printing press.
• When economic decay sets in gold is not affected.
• Gold is not vulnerable to individual government action except within the Jurisdiction of that country.
• With national interests overriding international interests, international gold will remain respected money when currencies fail.
• As such in the international arena, gold's value will reflect the value of currencies, whether governments like it or not.   As such a currency can be devalued or revalued against gold when comparison to another currency is inadequate [such as the dollar being valued against the euro - with both suffering one form of monetary decay or another].

Just as the Rentenmark anchored currency in a post-hyperinflation nation, gold can bring such an anchor to global money.   It will be unpopular until it is sorely needed because of one or more major nation's profligate behavior regarding their own currencies.   This has already started as we can see in the G-20 nation meeting of this week.   The cautionary note is that it worked because the nation was desperate having exhausted all other alternatives.   This desperation may be needed before gold takes on that role internationally.   Then gold will value each currency at its internationally exchangeable value.   In such a role, you can be sure that each national government will want to control the gold in its own Jurisdiction at some point in time!

 Julian Phillips is a long time precious metals analyst and is the principal writer onwww.goldforecaster.com and www.silverforecaster.com

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Frequent Answer Question about Public Gold

FAQs

1. What is Public Gold? Public Gold allows individual customers to invest in physical gold in a convenient, more secure and cheaper way. Customers can purchase gold in 999.9 fineness at all Public Gold Branches at daily quoted gold prices for 20g, 50g, 100g and 500g in Malaysian Ringgit.         2. Why would you want to invest in Public Gold?  Public Gold is one of the best ways for a customer to build up a personal gold portfolio by purchasing small amounts of gold on regular basis over a period of time. This "cost averaging" will ensure that the total gold investment will be acquired at the average gold price.         3. What are the benefits of having a Public Gold?  There are a number of benefits to customers and these include :  Convenience of investing in gold at any Public Gold branch in Malaysia. It is secure, as it in physical forms. It is cheaper as the gold prices quoted will be pegged to international gold prices without the usual additional charges. Customers can invest in small amounts at a time i.e. minimum 20 grams. There is opportunity for capital gain if the gold price appreciates. Gold can be a hedge against inflation.         4. How would you make a capital gain from investing in Public Gold?  Internationally, the gold price is quoted in US Dollar per ounce. For Public Gold, the gold price will be converted to the Malaysian Ringgit . You will make a capital gain if the gold price appreciates.         5. When is the right time to purchase gold? The right time would be when the gold price is low.         6. Will the gold price quoted daily be better than at goldsmith shops?  The price of gold quoted daily will be pegged to the international gold price and will definitely be better than goldsmith shops.         7. What is Bullion? Means melting place, from the French bouillon, boiling, derived from the Latin bullio). A bullion is a precious metal (Gold) that is valued by its weight in a specific precious metal. Unlike commemorative or numismatic coins which are valued by limited mintage, rarity, condition and age, bullion coins are purchased by investors seeking a simple and tangible means to invest.         8. Why invest in gold bullion? Making the precious metals part of your financial planning is becoming one of the rules of good investment strategy. And people like the idea of holding something of real value in their hands, instead of trusting everything to a bank or broker. The economic forces that affect the price of precious metals are different from, and often are opposed to, the forces which determine the price of most common financial assets. This independent movement of precious metals to other financial assets can reduce overall portfolio volatility and contributes balance. Whether you are conservative or aggressive in your investment approach, precious metals can represent an important part of your asset allocation. Some experts suggest that 10-15% of portfolio assets be in precious metals. No matter what level of risk an investor wishes to take, every portfolio needs a secure foundation. Gold are one of the most liquid of all investments. It is readily portable. It is easy to store. It is recognized in every country. It is easily and discreetly bought and sold. It can be easily converted to cash at any time.         9. What should I buy coins or bars? Bars For the serious and large scale investor, gold bars are a simple and efficient way to invest in gold. The larger bars are usually available at the lowest premiums over their intrinsic gold value, smaller bars tend to cost more. There is a trade-off however, in that larger bars are not as flexible when it comes to selling. If you own a kilo bar, and you wish to sell, say 3 ounces, it’s not easy to slice off one end of your bar. Your choice of buyer is also more restricted as you will need to sell to a larger dealer, it is unlikely that you will find a private buyer as most people are not familiar with gold bullion bars. Coins It is sensible to consider modern one ounce gold bullion coins as being one ounce circular bullion bars. As coins are individually minted they in themselves provide their own authenticity and are available at very competitive prices compared with similar size bars. Because gold bullion coins are almost universally recognised, they are also easy to resell.         10. What is the spot price? The Spot Price is the internationally agreed price, based on supply and demand, for a 1 troy ounce of gold. Spot prices can change every minute.         11. What is a Troy Ounce? A troy ounce is the traditional unit of weight for precious metals. One troy ounce = 31.104 grams 32.151 oz = 1 Kilogram         12. Why do I pay a premium over the spot price? When you buy any bullion product you are buying a precious metal that has been manufactured and minted into a tradeable form. The premium over the spot price is made up of this manufacturing cost.         13. What is meant by the Margin Spread? When you buy precious metal you pay a premium above the live spot price, (Lets say 6%). When you come to sell your precious metal you receive a price below the live spot rate (say 1%) Therefore in this example the margin spread is 7 percentage points.         14. Where can I sell my precious metals? Because Gold is an international standard you will be able to trade coins and bars in most countries in the world. Public Gold offer the most competitive buy back rates in Malaysia.         15. How do I purchase Gold Bullion? You can call Public Gold at +604-6449999 (Main Office), or +604-2619999 (Bishop Branch).         16. When do I need to pay for my precious metal order? Public Gold will provide its Ringgit Malaysia account details in the contract that has been emailed or faxed to you. You must arrange for a credit to this account and confirm payment (Cash, Internet Banking, Bank to Bank transfer or Eftpos) within one and a half hours. We require this confirmation as most deposits will not process until overnight. If you do not provide this confirmation Public Gold retains the right to cancel your order.         17. Do I have to pay any commission on my purchase? While many institutions and dealers charge a commission on trading precious metals, Public Gold does not charge commission.         18. What forms of payments does Public Gold accept? As is international practice in trading precious metals, Public Gold only accepts the following forms of payment, telegraphic transfer, credit card and Internet Banking.         19. When can I take delivery of my purchase? This will somewhat dependent on our product schedule but you can expect to take physical possession of your purchase within 5 working days.         20. How are Public Gold coins packaged? Each coin will be inside individual plastic sleeve to protect them from being scratched or marked by fingerprints. Each coin will be accompanied with Public Gold official Certificate of Authenticity.

Harga Terbaik untuk membeli Emas!!~ Sekarang!~

Salam Sejahtera;

Alhamdulillah saya dah selamat sampai ke Kuching setelah tamat ekspdisi mendaki Gunung Kinabalu.. Semasa di sana pun ada customer membeli emas 20gram x 2 unit & 100gram 1 unit..

Ok.. back to topic... Sekarang adalah masa terbaik untuk membeli emas.. Sila check harga di www.publicgold.com.my & www.publicdinar.com..

Sebarang pertanyaan @ tempahan sila hubungi saya di talian 019-8884452

Trend Harga Emas dari tahun 1995 hingga 2010

Source: www.kitco.com

Tahun 1995 - Harga lebih kurang RM45/gram..

Tahun 2010 - Harga melonjak kepada RM140/gram..

Gred - gred Emas di Malaysia

Salam sejahtera kepada pembaca sekelian, kebetulan ada masa sedikit untuk saya update blog ini sebelum bercuti mendaki Gunung Kinabalu hari Jumaat ni. 

OK artikel kali ini saya nak cerita pasal gred-gred emas yang ada di Malaysia ini. maklumat ini berguna jika anda peminat barang kemas dan nak tahu di mana kedudukan/ranking gred emas ini, yang mana lebih berkualiti…dan paling penting tak tertipu lagi dengan harga yang dijual. Kadang-kadang ada penjual yang beri harga emas 916 pada emas gred 750 dan sebagainya. Ada barang kemas yang dicop kempa 916 tetapi dijual dengan harga emas gred 835….

OK ini grednya. Gred emas tertinggi (paling berkualiti sebab kandungan emas tinggi) adalah yang berada di atas. Emas gred 999.9 adalah paling berkualiti dan mahal kerana ia adalah emas yg telah ditulenkan sehingga 99.9% ketulenan. ..biasanya untuk dibuat jongkong/wafer emas pelaburan.

GRED EMAS  ……………              KARAT NO

999.9                                             24K

999                                                 24K

950                                                23K  (emas tarik)

916                                                 22K

875                                                21K

835                                                 20K

800                                                19k  (emas paun)

750                                                 18k

585                                                 14k  (emas campur)

375                                                   9k  (suasa)

Dalam hal ini gred emas terbaik adalah 999.9 dan paling rendah kandungan emasnya adalah emas suasa. Jadi untuk rujuk harga pasaran barang kemas di Malaysia boleh merujuk kepada website ini

http://www.fgjam.org.my/

Gold Prices Rise in N.Y. on Demand for Alternative to Currency

March 15, 2010, 8:25 PM EDT

By Pham-Duy Nguyen

March 15 (Bloomberg) -- Gold rose in New York, rebounding from the biggest weekly loss in more than a month, on speculation that sovereign-debt concerns will boost demand for the metal as an alternative to holding currency.

The euro fell as much as 0.9 percent against the dollar after the finance ministers of Germany and France ruled out a decision today on helping Greece manage its fiscal difficulties. Moody's Investors Service said the U.S. and the U.K. have moved closer to losing their Aaa credit ratings.

"Gold is a good spot to be parking your money for the time being,' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. "Gold has that flight-to-safety aspect to it. It's going to hold its value."

Pic: Last month record highest gold price USD1,145/oz

Gold futures for April delivery rose $3.70, or 0.3 percent, to $1,105.40 an ounce on the Comex in New York. The metal fell 3 percent last week, the most since Jan. 22.

Greece is seeking to narrow a budget deficit that is the widest gap among the 16 nations that share the euro. Gold priced in euros reached a record on March 5.

Under a so-called baseline scenario, the U.S. will spend more on debt service as a percentage of revenue this year than any top-rated country except the U.K., Moody's said today in a report. The U.S. will be the biggest spender through 2013.

"Jitters lent fresh support to the precious metals," said Jon Nadler, a Kitco Inc. analyst in Montreal.

China Rate Concern

Gold's gains may be limited on concern that China will raise its benchmark one-year lending rate, curbing demand for raw materials. The Reuters/Jefferies CRB Index of 19 commodities fell as much as 1.3 percent after a 1.3 percent loss last week.

"Most countries are reluctant to raise interest rates at this point," said Lesh of FuturePath. "They don't know if their economies can handle it. But China has been tightening and they can move quickly." The Asian nation's central bank increased reserve requirements for lenders last month.

In other markets, silver futures for May delivery advanced 6 cents, or 0.4 percent, to $17.108 an ounce on the Comex. Platinum for April delivery rose $7.40, or 0.5 percent, to $1,615.80 an ounce on the New York Mercantile Exchange. June palladium futures slid $2.50, or 0.5 percent, to $460.65 an ounce on the Nymex.

Source: http://www.businessweek.com/news/2010-03-15/gold-prices-rise-in-n-y-on-demand-for-alternative-to-currency.html

Four Reasons Gold Will Remain Firm And Strengthen - Blanchard Chair-Mineweb

Blanchard Chairman, Donald Doyle sees numerous reasons that point to gold's nine-year bull run continuing in both the near and long term.

Author: Geoff Candy

Posted:  Thursday , 11 Mar 2010

GRONINGEN -

In a release put out by Blanchard yesterday, Chairman and CEO, Donald Doyle, points out four signs that the gold price is going to improve:

The first reason he says, is "Central bank demand for gold is likely to continue to grow, with Russia and Venezuela adding to their reserves."

The second sign is that interest rates in the largest global markets remain near zero. Which he says makes "ownership of non-yielding gold favorable and prudent, as it is a currency that cannot be debased by governments or central banks.

"Continuing low rates and currency risk that is prevalent in the market should lead to gold remaining firm in all currencies," he adds.

The third factor he mentions is that China continues to explore severing its links with the U.S. dollar. This he says, should make the yaun appreciate in the medium- and long-term.

"With China's vast dollar holdings, there should be continuing investment and central bank diversification into gold," he adds.

The final point Doyle makes is about Europe, "There are legitimate concerns with the European monetary union, and the outlook for sovereign debt markets internationally is uncertain," he says.

He is not, however, the only gold expert to think along these lines. Jeff Nichols, reiterated the position he outlined on the Mineweb Gold Weekly Podcast, last week when he spoke to Moneyweb CEO Alec Hogg on Tuesday saying, "All the major industrial nation currencies are reflecting problems in the western economies - problems that are being addressed by easy money and low interest rates that ultimately are going to be reflected in higher inflation and depreciating purchasing power for all these currencies. 

The question really is not which one is stronger or weaker, but how long it is going to take for them all to be reflected in the rising gold prices."

He adds, "I don't think we will ever see gold below $1000 again. I think the things that are happening now in the world of gold are changing the future in ways that we might not have guessed a few years ago.

"The world of gold is expanding demographically in terms of the number of systems, the types of systems. We have more people with access to gold than ever before, in part thanks to the introduction of new investment vehicles. Exchange-traded funds (ETFs) are one example but if you go from country to country there are vehicles and products that are designed for local markets. In India for example we have little coins that are distributed through the postal service."

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=100776&sn=Detail&pid=1