Tungsten as a Gold Substitute

By Mike Hewitt
DollarDaze.org
Wednesday, November 11, 2009

http://dollardaze.org/blog/?post_id=00742

In early 2008 it was reported that at least some of the gold bars in the vaults at the National Bank of Ethiopia were fake. The discovery was made when bars shipped from Ethiopia to South Africa were returned after they were identified as being gilded steel.

Gilded steel is a very unconvincing form of fake gold because the density of the iron alloy is significantly less. A steel bar identical in volume to the standard 400 troy ounce gold bars commonly used in bank-to-bank trades would weigh only 162.5 troy ounces (about sixty percent lighter). Anyone familiar with handling gold bars would easily identify them as fake.

Even lead, a common heavy metal, is a poor substitute as it is only 59% the density of gold. One of the things that historically made gold so attractive to be used as money was its unmistakable density.

Nowadays we know of several metals that have similar densities to gold, such as the heavier platinum-group metals. However, using these metals to produce fake gold is unprofitable due to their high cost.

There are two metals that are suitable, from both a density and economic perspective, for manufacturing fake gold - uranium and tungsten.

These metals aren't without their give-aways either. Different chemical and electro-magnetic properties exist. Uranium is of course radioactive. Tungsten is extremely brittle - the exact opposite of gold. Additionally, tungsten has the highest known melting point of any non-alloyed metal at 3422 degrees Celsius, making it difficult to work with. However, it appears that at least one high-temperature furnace is producing gilded tungsten products.

A Chinese company called Chinatungsten is advertising imitation gold merchandise on its website. The following quote is taken directly from their Tungsten Alloy for Gold Substitution page:

"a coin with a tungsten center and gold all around it could not be detected as counterfeit by density measurement alone ... We are well accustomed to exploit more innovative applications of tungsten products. Gold-plated tungsten is one of our main products."

This raises a few (somewhat rhetorical) questions. What kind of customer is this company looking to sell its imitation gold products to and for what purposes are they intended? Furthermore, what exactly are the "more innovative applications of tungsten products" that this company is hinting at?

Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. Reprinted with permission.

For further reading:
"Is the Dollar 'Good as Tungsten'?", FOFOA, November 15, 2009
"On Doing God's Work: Gold Finger - A New Take on Operation Grand Slam With a Tungsten Twist", Rob Kirby, November 12, 2009
"How to Make Convincing Fake-Gold Bars", Theo Gray, Popular Science, March 14, 2008
"Fake fears over Ethiopia's gold", BBC News, March 13, 2008

Plea to Reduce Demand for Dollar Reserves

By Krishna Guha
The Financial Times
Wednesday, November 11 2009

http://www.ft.com/cms/s/0/b163f502-cf02-11de-8a4b-00144feabdc0.html

The world should try to mitigate flaws in the dollar based global monetary system by reducing demand for dollar reserves and exploring alternative reserve assets, a group of economists from the International Monetary Fund said on Wednesday.

The economists said the crisis had “brought to the fore” long-standing concerns about a system based on a single core currency issued by one country.

They said the dollar-based system “suffered inherent weaknesses”.

The US, at the centre of the system, was under pressure to run large current account deficits in order to supply the world with the dollar assets it wants, they said, while there was no effective discipline on either the US or countries such as China that have big external surpluses to adjust their policies.

The report was published by the authors in their individual capacity and not endorsed by the IMF as an institution. But it comes amid renewed global focus on and dissatisfaction with the role of the dollar in the world economic system, following the experience of a crisis at the core rather than the periphery of the world system.

The IMF economists said the crisis highlighted the “scale and volatility of global capital flows” that led countries to accumulate reserves to protect themselves against a sudden reversal in capital.

But it also renewed questions about “anchoring the international monetary system on one country’s currency [the dollar] given the origins of this crisis in the US heart of the global financial system”.

They said the current system was “something of a non-system” because some economies maintained floating exchange rates while others pegged their currencies to the dollar.

The IMF economists proposed creating better alternatives that would allow countries worried about volatile capital flows to stop building up reserves.

These would include helping to create private sector insurance-type markets to provide funds when they were needed, and an enhanced role for the IMF itself in providing reliable access to finance.

The IMF has already taken steps in this direction through the creation of a flexible credit line for well-run emerging economies. But the authors note that the fund’s resources would have to be greatly increased to enable it to act as a credible lender of last resort for large economies.

The economists said reducing demand for dollar reserves would be only part of the solution. They said the world would also have to examine alternatives to the dollar as the dominant reserve asset.

This could include a move to a system in which the dollar shared its leading role with a few other currencies such as the euro and possibly China’s renminbi. They also argued in favour of taking seriously the possibility that one day the the SDR, the IMF synthetic currency, might replace the dollar as the main reserve asset.

However, in order to do this they said issuers would have to create large-scale liquid markets denominated in SDRs. Moreover, they said moving to such as system would be much easier if countries with large dollar holdings could exchange these for SDRs in off- market transactions with the IMF.

For further reading:
"Dollar Overwhelms Central Banks From Brazil to Korea", Bloomberg, November 13, 2009
"World Bank: yuan to become alternative reserve currency", Reuters, November 11, 2009

Uncle Sam Sitting on a Goldmine

By David Goldman
CNNMoney.com
Thursday, November 12, 2009

http://money.cnn.com/2009/11/12/news/economy/us_gold/

The government holds the world's largest gold reserve, but even with gold prices at a record high, the Treasury is unlikely to sell.

NEW YORK -- Gold is soaring to record high prices, and guess who has the biggest stash?

The U.S. government.

The Treasury Department has 261.5 million ounces of gold in its reserves, representing about a third of the gold stockpiles held by governments around the world. With gold selling at about $1,100 an ounce, that means Uncle Sam is sitting on $288 billion worth of the shiny stuff. (The vault underneath the New York Federal Reserve once held over one quarter of the world's monetized gold. Today, it holds about 500,000 gold bars, 95% of which is owned by foreign nations. This photo, taken in 1968, shows a "sitter" counting gold.)

Treasury's gold sits in vaults across the country. It holds about 25,000 bars in a vault five floors down, 80 feet below street level, in the New York Federal Reserve in Manhattan. The majority of the nation's gold reserves still reside in Ft. Knox in Kentucky.

But rather than sell it, the government is hanging onto its bullion.

So are other global central banks. In fact, as the dollar continues its downward spiral, many countries are even buying up gold.

Last week, the International Monetary Fund offered up 400 metric tons of gold, and the Reserve Bank of India bought 220 metric tons of it. Sri Lanka bought 5.3 metric tons in the auction as well. In the second quarter, central banks were net buyers of gold for the first time since 1997.

"Gold is gold," said Nathan Lewis, author of Gold: The Once and Future Money. "There's no real change in gold's value. Only the value of paper currency declines."

Gold has come in and out of fashion with investors over the years. In times of economic instability or inflation, gold demand and prices have trended higher. Despite wild price fluctuations over the years, gold has maintained its purchasing power for about the past 750 years.

"From the mid-14th century until now, you can draw a relative straight line in the purchasing power of gold, and every central banker in their heart knows that," said Judy Shelton, an economist and director of the National Endowment for Democracy. "Gold is universally recognized as a store of value. That's important because it denotes price stability."

Gold had been the standard currency for international trade for centuries. In fact, the Federal Reserve vault in New York has compartments for different countries. When one country would trade with another, a "sitter" would simply move bars from one compartment to another, according to David Girardin, spokesman for the New York Fed.

Gold's inherent value is buoying its resurgence in popularity. The comeback also raises important questions about the United States' own reserve position and the government's ability to maintain demand for U.S. Treasury bonds as the world catches the gold bug.

Why we're sitting on it

Governments' dependence on gold has waned over the years, but they still hold 848 million ounces of it, down 29% from the 1965 peak of 1.2 billion ounces, and just 10% from the 942 million ounces they held 50 years ago, according to the World Gold Council.

Curiously, Treasury still values its gold at $42.22 per ounce. Congress reached that figure in 1973, two years after the the post-World War II Bretton Woods gold standard, which had valued gold at $35 an ounce, was scrapped.

With gold selling at prices 26 times that amount, why doesn't the Treasury, and by extension, the Fed, realize those gains on their balance sheets by displaying the market value of their holdings? Or, with the gold standard abandoned, why doesn't the government sell off its reserves to put that money into the economy or pay off debt?

There are lots of reasons, ranging from the psychological to the practical.

"If we started selling gold from our official reserves, it would be recognized as a sign of weakness for the dollar," said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital. "America's relatively large gold holdings provide some psychological benefit to our currency."

Many gold experts and economists agreed that even though the gold standard has been abandoned for nearly 40 years, the world is still cleaving to its gold because it is a tangible asset.

Another reason for Treasury to hold tight is gold's fluctuating price. Just ask British Prime Minister Gordon Brown. When Brown was the nation's chief finance minister a decade ago, he decided that gold had become relatively useless to the government -- without the gold standard, it was just an inert metal, and it was expensive to store.

Brown sold off 400 tons, or 60% of the United Kingdom's gold, between 1999 and 2002. Brown's problem: Gold was selling at a record low inflation-adjusted average of $275 an ounce at the time. It turned out, had he waited 10 years, the U.K. would have made four times what it hauled in from the sale.

"Geithner doesn't want to be the Treasury secretary that sells gold at $1,100 an ounce and next year it's at $2,000," said Shelton.

Furthermore, a sale of all the country's gold wouldn't make much of an impact. With the nation's annual deficit at $1.7 trillion, a $787 billion stimulus package and a $700 billion bank bailout, $300 billion is kind of puny in comparison.

"The Fed has plenty of tools to pump money into the economy; it doesn't need to sell gold to do it," said Lyle Gramley, a former Fed governor. "The government has its gold by historic accident, but there's no reason why they'd sell it -- there's no motivation."

But most of all, a sale of the government's gold would be especially poorly timed now, since foreign central banks are lining up to add gold to their reserves. As a result, experts say a mass-sale of gold would mostly end up in other nation's coffers.

That could spell disaster for the U.S. government, which is trying to finance its economic rescue packages by selling record amounts of debt to foreign countries in the form of Treasury securities. As gold holdings take up a larger percentage of foreign reserves, Treasury holdings could be reduced.

Shelton, who believes that paper currency should have ties to hard assets, said the resurgence of gold buying should be unsettling for the government. The trend indicates that some foreign countries would rather hold onto an inert metal than Treasurys that pay interest. Treasurys have long been viewed as a riskless asset, because they are tied to the dollar and are backed by the U.S. government.

"If the trend continues, that could reduce the demand for Treasury securities and bonds' book value would go down," said Shelton.

Central Banks Join a New Gold Rush

By Carolyn Cui
The Wall Street Journal
Wednesday, November 11, 2009

http://online.wsj.com/article/SB125786272097541135.html

The world's central banks are likely to be net buyers of gold in 2009 after two decades of selling, sparking a race among analysts to figure out which country will step in with the next big purchase.

Since 1991, central banks have reduced their gold holdings by 10%. It is a trend that has long been cited as keeping an overhang on gold prices. Developed countries like Switzerland, the U.K. and the Netherlands all sold significant amounts of gold to diversify into other assets in pursuit of higher returns.

India's $6.7 billion purchase of 200 metric tons of gold from the International Monetary Fund last month, absorbing half the amount the IMF put up for sale, was the largest purchase by a central bank in 30 years. Now the market is engaged in a guessing game about which central bank may buy the rest.

Eugen Weinberg, an analyst with Commerzbank AG, is looking to China. Jeff Christian, managing director of CPM Group, a New York-based precious-metal research firm, says other Asian and Middle East countries may be likely candidates.

Wei Benhua, a former Chinese official, was cited by Chinese-language magazine Caijing on Monday as saying China, Brazil or Russia may follow India in buying IMF gold.

India's purchase has thrown central banks back into the spotlight as a potentially powerful force behind gold. Even relatively small changes in the balance of a central bank's reserves could have a drastic impact on gold prices because of the relatively small size of the market.

This year could mark a "watershed year," Barclays Capital analyst Suki Cooper said in a note to clients. And, even though central banks mightn't be big buyers of the precious metal, the prospect of added demand may provide key support to the market, they say.

China, Russia and Brazil have tiny holdings of gold relative to their overall foreign reserves, placing them among more likely buyers. China, for example, has just 2% of its reserves in gold, compared with the world average of 10.3%., according to the World Gold Council; and Russia is at 4% and Brazil 0.5%.

The most logical buyers are countries that are running current-account surpluses and that don't have their own domestic gold production, Mr. Christian said.

With a net inflow of dollars and euros every month, central bankers in these countries are worried about the growing exposure to these currencies and have the most desire to diversify into other assets. According to the IMF's International Financial Statistics, Malaysia, Singapore, Kuwait, Saudi Arabia and Venezuela are among other biggest surplus countries behind China and Russia.

Typically, central banks hold a basket of foreign currencies, bonds and precious metals in reserve, using it to make international payments or adjust the value of their domestic currency. The U.S. dollar was considered the preferred reserve currency for decades. But the greenback's recent decline has spooked many countries sitting on big dollar assets.

While China has become an obvious buyer, some analysts say the country is likely to buy production from Chinese mines rather than buy from the IMF. China, the world's largest gold producer, has $2.3 trillion in foreign reserve, with the majority in U.S. Treasury securities.

Even a tiny shift in China's reserves toward gold could have big ramifications, says Andy Smith, a senior metals strategist at Bache Commodities, a subsidiary of Prudential Financial. That makes it likely China probably won't make any big moves, he said.

For example, to increase its gold holdings to the world's average of 10%, China would need to buy $180 billion of gold, or about 5,400 metrics tons -- the equivalent of more than two years of the world's mine production. Gold prices would probably spike above $6,500 an ounce, Mr. Smith estimates, making the scenario highly unlikely.

To be sure, the recent surge in prices may deter many banks from buying right now. Since the Indian deal was announced, gold has gained 5%. On Tuesday, gold for November delivery rose for the seventh consecutive day, settling at a record $1,101.90 per troy ounce. India said it paid about $1045 an ounce.

India's purchase "highlighted in two ways the ongoing shift of central banks and governments from being net sellers of gold to net buyers, which we believe will likely continue to provide strong fundamental support for gold prices," analysts at Goldman Sachs said in a note to clients on Tuesday.

As of September, central banks around the world kept a total of 26,297 metric tons of gold, equivalent to 11 years of global production, down from 29,214 tons in 1991, according to the World Gold Council.

David Rosenberg, chief economist and strategist with Gluskin Sheff & Associates Inc., said he sees prices rising through $1,300 an ounce should China buy the remaining 203 metric tons of IMF gold.

For further reading/viewing:
"Ron Paul on Monetary Policy" (video), Campaign for Liberty, November 12, 2009
"A rock-solid case for gold reserves", The Globe and Mail, November 11, 2009

Currency That Kills

By Richard W. Rahn
The Washington Times
Wednesday, November 11, 2009

http://www.washingtontimes.com/news/2009/nov/11/currency-that-kills/

Converting to electronic money could prevent disease

Can you imagine how many people have physically handled your money? Do you know who has previously touched it? Did they have a flu virus or some other communicable disease that is transmitted by physical contact with an infected object? Physical paper currency is often dirty - not so much to the sight, but it is a good home for dangerous microbes. It is often kept warm by our body heat and even absorbs some body moisture - a perfect breeding ground for bad stuff.

It has been well-known for decades that paper currency is a major source of disease transmission. During the life of the average dollar bill, it will be handled by hundreds, if not thousands, of people. It is hard to think of any physical object that is handled by more different people than paper currency. Millions become ill every year as a result of handling currency, and a not insignificant percentage of them die. The Centers for Disease Control and Prevention (CDC) estimates that 36,000 Americans die each year from flu-related causes. How many people received the flu from paper currency? The precise percentage is unknown, but if it is just 10 percent, that still translates into a couple of million needlessly ill people and thousands of deaths.

The good news is that it is no longer necessary to use paper currency in the digital age. Payments of all types can be made by electronic means - with electronic banking; credit, debit and smart cards; and cell phones - all of which help the user avoid physical contact with dirty paper money. (Note: Most paper currencies are made largely from cotton cloth, which makes them very absorbent.)

The bad news is that government policies are slowing down and, in many cases, preventing the movement to the use of digital currencies. Most electronic payment systems require the user to have a bank account. For decades, the percentage of the population having a bank account grew, but that growth stopped a couple of decades ago as the government started its war on money laundering - which, ironically, resulted in the unintended consequence of requiring more people to handle dirty paper money.

Physical money is expensive to produce. It is subject to counterfeiting, easily stolen and costly to handle. As noted, it is a major transmitter of disease. A rational and responsible government would be doing everything possible to eliminate physical currency. But no - legislators and policymakers have put destruction of the citizen's financial privacy and tax collection above reducing the costs and dangers of physical currency.

People will only move away from paper currency when they can easily use an "electronic wallet" and have the ability to make non-identifiable and non-traceable transactions. As noted above, an electronic wallet can be a credit, debit or smart card - a cell phone or a PC. The electronic money can be held in an electronic chip within the cell phone or other device or in a depository account that can be in a bank, telecom company or some other depository institution. Encryption software has become sufficiently robust to protect users of digital money and is far safer than holding or handling physical cash.

In many parts of the world, monetary transfers by cell phone are becoming the norm - they are particularly useful for small payments. The Philippines has become a world leader in cell-phone payment systems and use. Cell-phone use is expanding at a very high rate through the developing world - already, in Africa, a third of the people have cell-phone subscriptions, most of which can be used for electronic payments. The fact is that the spread of digital technologies will soon make it possible for all paper currency to become obsolete, but unfortunately, that is unlikely to happen because of the global political class.

The politicians and international bureaucrats are increasingly limiting the ability of people to use non-highly regulated bank institutions as the depositories and clearinghouses for electronic money. As the political class demands ever-more-stringent and costly "know your customer" and other anti-money-laundering regulations, fewer and fewer people can qualify for bank accounts. The young, who have no financial track record; the poor; and those in transient occupations are particularly discriminated against and thus are forced to use inefficient, costly and unhygienic paper currency.

The political class is also increasingly requiring banks and other depository institutions to spy on their customers and reveal all transactions to government officials - which gives individuals about as much privacy as having all their expenditures posted on a public Web site. Almost everyone occasionally wants to keep some expenditures private; for example, not wanting a spouse or loved one to know how much one spent on a gift; making an anonymous or confidential contribution to a church, charity or other nonprofit group; or even using the Internet for legal gambling, porn, cigarette or alcohol expenditures, etc.

Encryption technology has developed to the point where electronic expenditures can be kept private if governments would only allow it. The fact is, people will not give up the use of paper currency, for good or bad reasons, until they know they will have the same anonymity with electronic money as they do with paper currency. Meanwhile, each year, millions of people needlessly get sick and thousands die because the folks who run Washington and the other world capitals are too dimwitted to understand the unintended consequences of their financial regulations - or are just plain callous.

Richard W. Rahn is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.

e-gold Closer to Unblocking Frozen Accounts

By Ecommerce Journal
Tuesday, November 10, 2009

http://www.ecommerce-journal.com/node/25170

The now shut-down online payment system e-gold reported on its blog that it is working with the various US Federal and State government authorities, including the Florida Office of Financial Regulation, the state where e-gold’s Operator is located, so as to allow some account holders to access their funds that were blocked under the previous agreement with the U.S. Department of Justice.

In the blog e-gold states that in the near future it may finalize a Value Access Plan that satisfies the requirements of the Florida Office of Financial Regulation following which the company plans to engage with other jurisdictions where e-gold Owners reside.

e-gold says: “Value Access Plan will allow account Users on accounts with Owners residing in jurisdictions in which the Plan is not prohibited or otherwise restricted by law to direct the exchange of value in the e-gold accounts they control for US dollars.”

The prerequisite to participation in e-gold’s Value Access Plan is full compliance with e-gold’s Customer Identification Program (CIP), Customer Due Diligence (CDD), and Enhanced Due Diligence (EDD) requirements for the accounts you control.

More Book Reviews: Good Money

Business History Review (Autumn 2009) from Harvard Business School published an excellent book review of Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821 (2008) by George Selgin.

Jeffrey Rogers Hummel of San Jose State University also completed a book review for George Mason University's History News Network on August 6, 2009.