RUSSIA TO CREATE RIVAL METALS EXCHANGE

28 October 2024

The LBMA sets the spot price and the COMEX exchange in new york sets future prices and the two work together to determine the  price of gold. But Russia is done with this.

I remember 10 years ago there was a huge scandal because Barclays and a handful of other banks who were charged with setting the price in London were actually colluding. And as a result of that, the whole thing moved on to some electronic auction system, and so it - the method for establishing the price of gold - is more open and transparent.

So although people are still suspicious that the method fiddles with supply and demand in some way, avoiding corrupt practises isn't the real objective of the new exchange that Russia is intending to build over the next three years.

Instead, anew rival metals exchange is part of the BRICS plan to de-dollarise, and to escape sanctions and Russia can expect plenty of pressure from the americans.

Putin recently clearly rejected a common currency for BRICS. But I recall a couple of years ago, Jim Rickards explained how a half-common currency could be engineered if all the different currencies each had a fixed exchange rate of its own to the price of gold, which would vary. But what I couldn't really believe was that they would fix to a gold price established in london and new york. So evidently, this new exchange will be managed by the BRICS themselves and not by the West.

There's a few things to think about.

One is of course, what effect will the competition between the two metals exchanges have on the price of gold, given that there will be competition and volatility and arbitrage?

Another point is that this will make it a lot easiet for BRICS central banks to amass gold, with the idea that this will back their currencies. So a welcome change from the fiat currencies of the West, which abandoned the gold standard back in 1971 under Nixon, permitting massive increases in fiscal spending and inflation as a consequence.

And thirdly, metals exchanges don't just trade gold, they trade other metals, precious metals, and so Putin intends to diversify bank assets into silver and platinum as well. 

So final point, it seems like it might be difficult to predict the effect of this new exchange on the price of gold. On the one hand, banks are buying gold to support their currencies and yet, on the other hand, diversifying into other precious metals might reduce demand for gold....watch this space!

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RESTART EDINBURGH

23 October 2024

Edinburgh needs a strategy for growth and the aerospace sector could be that choice

The Ambition: Edinburgh Aero 2030

There’s enough financial and consulting services in Edinburgh. If you’re looking for growth, then go into some specialist manufacturing area, take aerospace for example.

Edinburgh has a few key advantages that could attract the worldwide aerospace industry - 

For a start, all those universities turning out highly skilled workers in engineering, robotics, AI, data scienc - fields critical to aerospace innovation. 

It’s already a Research and Innovation Hub. I believe that, for example, the Bayes Centre is home to cutting-edge research in space technology, and Scotland has a growing space industry.

Edinburgh is also focused on sustainability and so what about concentrating on niche expertise in green energy and eco-friendly technologies within the aerospace industry?

If you think these factors make Edinburgh an attractive location for R&D, design and manufacturing in aerospace, then who, what companies, could the Edinburgh council approach to leverage Edinburgh’s skilled workforce, research hubs, and strategic location? And what kind of plan and costings would you be looking at?

There’s the usual - Airbus (two existing facilities in Wales, has collaborations in Scotland for space technologies and could expand into Edinburgh’s growing tech and aerospace sectors and would welcome any cooperative initiatives from the Edinburgh regional government.), Boeing, RR (Inchinnan, near Glasgow), Lockheed Martin, BAE (already works with Scottish institutions). These individual companies at the top of the supply chain need to be brought together in a new co ordinated private sector initiative focused on the aerospace industry.

Costed Plan

So here’s a costed plan to get Edinburgh away from overdependence on the financial and consulting services sectors and tourism (eg airbnb) industries and diversify into the export of manufactured goods for the aerospace sector, an industry of the future.

To develop Edinburgh as a high-tech manufacturing hub involves a few key steps: here they are, each with cost estimates.

 

1. Initial Investment in Infrastructure

Digital and Transport Infrastructure: 

Project Edinburgh Smart City

£50 million for upgrading internet bandwidth, logistics, and transport networks to support aero manufacturing.

Advanced Manufacturing Facilities: £100 million to build state-of-the-art, sustainable production sites.

2. Incentives and Grants

Project Kickstart Edinburgh Aerospace 2030

Government Grants and Subsidies: £30 million over 5 years to attract and encourage high-tech manufacturers into research and development in the aerospace supply chain. Start at the top with the likes of Airbus, RR, BAE... And work down integrating new R&D, design and manufacturing technologies into the supply chain with companies like Senior SNR.

3. Skills and Education

Project Upskill Workforce for Growth

Training Programs: £10 million to partner with local uni.s and vocational schools to develop a highly skilled workforce in areas like robotics, AI, and automation.

4. High-Tech Industries

Project Flightpath Edinburgh

Marketing Campaign: £5 million for an international marketing strategy to position Edinburgh as a tech manufacturing hub and attract the best that worldwide aerospace has to offer.

5. Innovation and Research

Project Aero IP

Collaboration with Universities: £20 million for creating research centres focused on manufacturing innovation and design, especially in aerospace, but try bio-technology and renewable energy too with Aberdeen

So there we go, 

for £215 million over a 5-10 year period you’ve put Edinburgh back on the map and we don’t mean as a holiday resort.

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WHY GOLD

22 October 2024

Factors affecting the price of gold. 

Generally, as we saw in a previous post, the price of gold in USD is affected by three factors: interest rates, inflation and risk levels eg geopolitics.

https://youtu.be/diQhegS7fPQ?si=5R0lNrjmbIYi6Ocx

https://youtu.be/Z3F4DJWquL0?si=w25PZbgdAA3CRKEW

https://youtu.be/PTZ3qAYwYAE?si=GZJVXGvgWpaPunF1

The signs are that gold is heading to 3,000 USD a Troy ounce and this is because the BRICS are now trading more and more in their own currencies, and their currencies are backed by gold, so there will be a demand for gold. Indeed. 

Since 2022 with the war and the theft of Russian sovereign assets, Central banks have been buying gold. The euro dollar is about twelve times the size of the world's gold assets, so a change away from US treasuries towards gold would squeeze up the price. Central banks ex china and ex russia account for about fifty to sixty percent of gold purchases since 2022.

Putin has said the BRICS are not going for a common currency. What does this mean? Well, if they are to gradually de-dollarise and trade in their own currencies, then there must be some exchange rate mechanism, and this would probably be by each currency tying its value to the price of gold. That's what Jim Rickards was surmising, a year or two ago.

Plus of course, there's geopolitical uncertainty with wars in Ukraine and the Middle East and uncertainty over China and this means a flight to gold and the US dollar, seen as stable in troubled times

Plus there's the upcoming US presidential election, which is looking increasingly certain to go in favour of Trump, which means more short-term uncertainty.

It is difficult to fathom out all the weightings to assign to the multiple cause-and-effect factors even for the price of gold between now and the end of the year, still more unpredictable going forward to next year 2025.

We could expect geopolitical risks, BRICS actions, and the US election to continue conditioning gold’s outlook, potentially driving it higher in the short and medium term. But who knows, volatility and competing factors, like inflation and US monetary policy, will also impact its movement.

Float away the debt

It's not much talked about in the Main Stream Media for obvious reasons, but US government expenses are six trillion and receipts are four trillion, so there's two trillion to borrow or print each year. If the treasury borrows, it will have to offer higher interest rates in view of the risks of holding dollars. and if it prints, this will raise inflation. 

The government could cut spending on social or defence or interest on the debt. Everyone says that's impossible and inconceivable, but then they do it. 

But surely the only possible solution is one that we talked about many years ago at the time of the GFC, which is to inflate the debt away. Nominal interest rates much lower than inflation would encourage borrowing and spending ("reflate the economy", " the Fed pivot"), this increased demand raises prices thus inflation.

With inflation prices, income and tax receipts go up, but the debt is fixed in nominal terms, so it becomes easier to pay off. But of course the dollar crashes.

There are only three ways to increase inflation. One is by lowering interest rates, as above. Another is printing masses of money, ie QE, and a third would be Trump, especially increases government spending by building roads and fences and pushing a lot of demand into the economy that way.

If you think all that sounds a bit risky or possibly disastrous for the american economy then you'd be right. And this is why people are prepared to put money into gold, gold or crypto.

Note on the us government's income and expenses

In FY 2023, the US government collected $4.5 trillion in revenue, with about half coming from individual income taxes and a significant portion from payroll taxes (such as Social Security and Medicare). Other sources included corporate taxes and customs duties.

On the other hand, the government spent nearly $6.2 trillion. The major expenditures were for Medicare, Social Security, defense, veterans' benefits, and interest on the national debt. This resulted in a budget deficit of around $1.7 trillion for the year.

In FY 2024, projections show similar trends, with revenue continuing to come primarily from income and payroll taxes, and spending focused on healthcare, social services, and defense.

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MORITURI SALUTAMUS

21 October 2024

Morituri Salutamus

 

AVĒ IMPERĀTOR, MORITŪRĪ TĒ SALŪTANT

The last words of the gladiator. A rather long but encouraging poem about old age. 

It's a wonderful poem and very inspiring. It tells us that so long as the heart keeps beating, curiosity and perseverance will continue to drive us forward and we can and will and should enjoy our life. By implication, if it helps we should encourage and inspire, guide and lead those for whom we have responsibilities. So this poem is worth a read.

Within the poem, there is a story of the fickle finger of fate pointing to the door to an underground room. The room is filled with peoples and things from our past, roads travelled, decisions taken, and we have the opportunity to reflect and draw lessons.

"Long at the scene, bewildered and amazed

The trembling clerk in speechless wonder gazed;

Then from the table, by his greed made bold,

He seized a goblet and a knife of gold,

And suddenly from their seats the guests upsprang,

The vaulted ceiling with loud clamours rang,

The archer sped his arrow, at their call,

Shattering the lambent jewel on the wall,

And all was dark around and overhead;--

Stark on the floor the luckless clerk lay dead!"

All the same, the last four lines really appealed.

Here's a link and here are the last lines that can be my tribute.

Morituri Salutamus

For age is opportunity no less

Than youth itself, though in another dress,

And as the evening twilight fades away

The sky is filled with stars, invisible by day.

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