22 August 2014

A Bond Paid For and Denominated In Gold: A Rhyme From the Past

I don't think that we have seen such a thing since the gold bonds which went the way of the twenty dollar gold piece in the early part of the 20th century.

There is a Bloomberg story on this today that is not generally available so I do not have a link as yet. It will be added as it becomes available.  An astute reader sent it my way.
(Later) Here is the story as it has come out on the web as Gold Bonds' Glittering Future.

Here is the actual bond announcement on the JSE site.

As you may recall, South Africa puts the 'S' in BRICS.

Most Americans will struggle with the notion of using any other measure of value than the US dollar, because they have had so little exposure to foreign exchange, except for the occasional trip to Canada or Mexico.    But the rest of the world seems more keenly aware that notional currencies are various forms of measurement of value, and the 'referees' can move the goalposts if they will.

I am not so sure whether it is a good investment or not.  After all, a bond is a bond, and represents the credit risk of the issuer, no matter what yardstick is used to measure it. 
When thinking about this bond it is important to remember that the krugerrand is legal tender in South Africa.  The bond is denominated specifically in krugerrands.

As I see it, all the uses of gold in traditional ways have a common weakness.  Price discovery is too driven by the bucket shops and carney games of the Banks, where price can be whatever they wish it to be, at least judging by the rigging scandals in nearly everything. 

The US dollar had a nice long run as the post WW II under Bretton Woods I & II because, as Fed Chairman Greenspan put it, the dollar emulated the stability of a gold standard.  

Alas, that has given way to the more fashionable "Liars's Poker Standard" which has become de rigueur with the Banks.  National sovereigns eventually chafe at being cheated and abused, in the manner of domestic customers.  So I expect the changes to show up first in the international payments arena.  Oh yes, they already are.  Mirabile dictu.

I assume there are plans to change that for a more 'delivery based' supply and demand price discovery mechanism, most likely centered in Asia where the transactions and exchanges of bullion seem to be located.

But it is certainly an interesting development to see a real bond denominated in both purchase and payout with gold as its underlying 'currency' once again.  As the force and fraud of the status quo increases, those who have the means and the determination will seek their alternatives, one by one at first. 

And to all the banking cartel trolls, shills, and performance artists,  remember that you have brought this on yourselves.  It is not due to any plot by those who are jealous of your great success.  It is because you were too greedy and dishonourable to stop yourselves from destabilizing the financial system, once again.  Winning...

What will we remember next?  

Gold Bond Harks to Gilded Age and Presages Future
By Mark Gilbert

Aug. 22 (Bloomberg View) -- In these post-credit-crisis days, true innovation in the shell-shocked world of money is a rarity. Mistrust of the financial industry, central banks and fiat currencies, however, is ubiquitous. So a new breed of security that combines innovation and mistrust is noteworthy.

FirstRand Bank Ltd., South Africa's second-biggest lender, has created what seems to be the world's first fully gold-denominated bond, borrowing 2 billion rand ($188 million) for five years. Investors have to pay for their bonds in krugerrands, gold coins minted by the South African government with one troy ounce of the metal.

One of the charges leveled against gold -- the "barbarous relic" in the sweeping judgment of John Maynard Keynes -- is that you don't earn interest or dividends on the precious metal; the FirstRand bond offers 0.5 percent:

At its expiry the value of the bond is determined by the current gold price, the Dollar/Rand exchange rate and the interest earned. This interest is calculated in terms of ounces of gold as represented by Krugerrands. Investors may take physical delivery of the Krugerrands on maturity or opt to get settled in cash...