Cyprus Mail
CM Regular Columnist

Oil, gold and debt

Models show gold jewellery amidst an array of gold statues ranging from bullion bars to depictions of the late Chairman Mao and Buddha at a jewellery fair in Beijing

By Hermes Solomon

The middle class is being decimated by debt in the US and EU as the working class reverts to a life of impoverishment comparable to that under Queen Victoria and before.

We think that our money is safe in the co-op bank, which is government owned, but not so safe when it comes to the Bank of Cyprus Public Company Ltd – that Plc Ltd bit meaning it could go broke at any moment and you lose everything held therein.

On the January 20, I received a letter from my local branch dated January 4.

“Dear Customer,

As part of our continuous efforts to offer ‘quality service’ to our customers, should you want to submit any other instructions for the handling of your deposit, please contact your Branch at least three days prior to expiration otherwise your deposit will be automatically renewed upon expiry with the same terms and conditions and the interest rate applicable on the date of renewal.”

Hang on a sec! Three days prior to expiration would require I contacted the bank the day before I received the letter.

I rushed to the bank and gave instructions for the deposit to be transferred on expiry into my current account. The cashier asked why I had chosen not to renew the contract. I asked if my instruction was valid. She told me it was. I then showed her the letter I’d just received. She said there had been problems with the post. I told her that all household bills for January had arrived on time, why not the bank’s letter dated almost three weeks earlier. She asked me if I no longer trusted the bank. I told her that it was difficult for anyone to trust banks after what had happened in March 2013.

She then wanted to know what I intended to do with the money – the cheek of the gal! I told her that I would buy bullion. She looked at me in disbelief!

Two Greek banks have requested extra support from ELA (Emergency Liquidity Assistance) – five billion euros worth. With the likelihood of a SYRIZA win in today’s general election, Greeks have been ‘snatching’ what little is left of their cash from banks before the ECB does. So tell me, where is the trust?

The 45th World Economic Forum at Davos, Switzerland, (21-24, January) had at the heart of its agenda a theme entitled ‘The New Global Context’ – delegates discussing the effects of political, economic and social uncertainty on future policy making.

But who’s making future policy, when, according to Oxfam this week, one per cent of the world’s population make more than all the rest put together? Eighty billionaires, political leaders, economists and ‘gate-crashers’ like our president have partied for three days, pretending all is well in the best of possible worlds. And we, the masses, have been told to eat cake.

But the future of gold is bright with today’s price at 100 dollars an ounce, though below last year’s high.

So let’s buy gold (our churches are full of the stuff) and wait for the euro to recover, if ever, after ECB president Mario Draghi pledged to buy government bonds in an asset-purchase programme (quantative easing) worth at least 1.1 trillion euros to counter the threat of a deflationary spiral. Are banks set to make another fortune at our expense!

While demand for gold might be accelerating, especially in China, India and Russia, the volume of newly discovered gold has reached a record low.

During the 1990s approximately 100 million ounces of gold was discovered annually. In the past 10 years, this has dropped to just 30 million ounces. But scarcity of supply hasn’t affected demand.

Today China and India account for over 50 per cent of world demand.

According to the Wolfensohn Centre for Development in Washington, China’s middle class should reach 670 million by 2021 – double the number of the entire US population. Similarly, the middle class in India could reach 267 million by 2016. This burgeoning Asian middle class tells us about the shift of global wealth – West to East.

The increasing popularity of gold – certainly in China’s case – could be a sign that the precious metal is starting to be re-integrated into the monetary system in a more formal way.

Forget about Bitcoin (for the moment)!

Up to 2008 you could not buy gold in China – it was outlawed. There are now over 100,000 bullion outlets. When you consider that China is a major creditor nation and is putting gold in the hands of the public, through the equivalent of a ‘help to buy’ programme for gold like the one we have for property in the west, I wonder if there is actually something much more sinister going on. A third of China’s 7.5 per cent annual growth is underpinned by bank loans at high interest. Have the Chinese succumbed to what ruined the West – notably, high personal debt?

Cheaper oil should bolster world economies, so why devalue the euro? Imports will cost more and exporting companies become more competitive. That’s not good news for Cyprus, which exports little and imports almost everything.

Now that France’s Total Gas has been coerced by Turkey to back-off, Cyprus has been “securitised” – made into one package where the CyProb Solution, Oil and Austerity/debt are bundled for sale as a single lot, take it or leave it. If we don’t accept then Cyprus will be dropped by the US and EU into the proverbial chocolate.

Our last hope of an economic upturn lies in a radical increase in the number of British holidaymakers and British retirees seeking a safe, clean and disease free place in the sun. What goes around comes around!