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The Importance and Role of the London Bullion Market Association

The Importance and Role of the London Bullion Market Association

The London Bullion Market Association (LBMA) is the trade association that represents the wholesale gold and silver bullion market in London. London is the hub of the international Over-the-Counter (OTC) market for gold and silver, with a clientele that includes the majority of the central banks that hold gold producers, refiners, fabricators and traders from all over the world.

The LBMA was formally incorporated in 1987. This was done in close consultation with the Bank of England, which, at the time, was the regulator of the bullion market.

Stringent criteria for assaying standards and bar quality have made the Good Delivery List of LBMA as representing the de facto standard for the quality of gold and silver bars. LBMA periodically checks the assaying capabilities of refiners on the Good Delivery List. This is carried out under the Proactive Monitoring programme of LBMA.

The on-going work of the Association encompasses many areas, among them refining standards, trading documentation and the fostering of good trading practices. Some examples:

o In the refining industry, the LBMA Good Delivery List is widely recognized as representing the de facto standard for the quality of gold and silver bars; in large part thanks to the stringent criteria that an applicant must satisfy before being listed. In order to enhance the reputation of refiners on the Good Delivery List, in January 2004, the LBMA introduced proactive monitoring.

o In conjunction with the foreign exchange and money markets in London, the association has developed the Non-Investment Products Code, which provides a code of conduct by which all members and associates are required to abide.

o The annual Precious Metals Conference of LBMA is now widely regarded as “the” professional forum for the bullion market of the world.

Historically, the members of the London bullion market regularly posted lists of accredited smelters and assayers, whose gold and silver bars they would accept without question. These transactions were in settlements conducted between each other and with other acceptable counterparts. These bars earned the distinction of London Good Delivery status.

The main requirements to be considered for the listing are normally that a refiner must:

o Have an established track record of at least three years of producing the refined metal, for which the listing is being sought

o Produce a minimum quantity of refined metal per year – 10 tonnes of gold and 30 tonnes of silver

o Have a tangible net worth of at least £10 million equivalent

o Furnish evidence of their ownership structure and directors

o Provide, if required, a suitable letter of endorsement, e.g., from the central bank or an acceptable commercial bank in their country of operation.

Standard bars are bars of approximately 400 fine troy ounces for gold and approximately 1,000 troy ounces for silver. Bars are listed at the discretion of the Management Committee of the LBMA, which reserves the right to make any investigations that it deems appropriate into an applicant for listing.…

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Property Taxes – What Taxes Do You Pay If You Have an Investment Property?

Property Taxes – What Taxes Do You Pay If You Have an Investment Property?

In Australia there are no investment property taxes as such, however your property sale may be subject to Capital Gains Tax (CGT). The purchase and sale of your property in Australia will be subject to Goods and Services Tax (GST) and your rental income will be subject to Income Tax.

GST is paid on almost everything in Australia at a rate of 10% on the purchase price of your property. GST must be paid on all property that is connected with Australia. With regard to residential property in Australia that is purchased and rented out, the investor can make a claim on input tax credits. That is any GST paid on goods and services purchased to maintain the property can be claimed as input tax credits. These input tax credits can be claimed on a Business Activity Statements (BAS) as a refund and reduce the amount of GST paid overall.

If your Investment Property is held as in a Trust or purchased by a Company, the Trust or Company must register for GST if it’s turnover is greater than $75,000 or $150,000 for a non-profit organisation in a financial year. Once registered for GST the Trust or Company must lodge BAS regularly.

If your Rental Income is paid direct to you and the property is not owned by a Superannuation Fund, Trust or Company, then the Rental Income will be taxed at your Marginal Tax Rate. That is, if you pay tax at a top rate of 45 cents in a dollar, your Rental Income will be taxed at 45 cents in a dollar.

Thus the importance of communicating with your Accountant and Financial Planner about your financial situation so they can work out the best ways to purchase your investment property or properties in order to minimise or postpone the amount of Income Tax that you pay. That is, they will consider using a Self Managed Superannuation Fund, Trust or Company to be set up to purchase your properties.

Capital gains tax is another tax you will be subject to when you sell your property. So it is best to sell your property when your income is at a minimum as Capital Gains Tax is paid at your Marginal Tax Rate which is dependent on your income. If your Investment Property is owned for more than 12 months, you may able to receive a 50% discount on Capital Gains Tax.

Now, you are probably thinking is all this worthwhile? If you want to increase your holdings of property investments and you income, and you like the idea of investing in property, this may be the ideal solution for you. There are property investment specialists, Financial Planners, Accountants and Mortgage Brokers whom can assist you with your financial strategies to obtain the best outcomes for you.…

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Seven Ways Predatory Lenders Cheat the Elderly

Seven Ways Predatory Lenders Cheat the Elderly

Our community of elderly, retired homeowners has become a veritable jackpot for predatory lenders. The longer a homeowner has been in his home, the greater the accumulation of equity. Families today move more often than their parents or grandparents did, making the older, retired generation the perfect potential victim of a predatory loan.

Many older homeowners view their home as an investment or savings plan for their future retirement. They look forward to the days of no more mortgage payments and to the profit they can retire on when selling their lifelong home. Predatory lenders look forward to this equity buildup as well because they seek to profit from it! Predatory lenders historically extend loans based on the value and equity in a home rather than the ability of the borrower to repay the loan. Couples on fixed incomes, in a financial bind, are coerced into accepting loans against their home’s equity without realizing the true costs of these loans. Predatory loans can include one or more of the following:

1. excessive loan fees

2. extremely high interest rates

3. expensive credit life insurance premiums

4. homeowner’s insurance recommended by the lender

5. prepayment penalties

6. large balloon payments

7. negative amortization

Mortgage contracts have become progressively complicated through the years. The requirement of more detailed explanations in contracts has only proven to lengthen these contracts and further confuse those less familiar with financial transactions. This again leaves the elderly in a vulnerable position when borrowing money.

The National Housing Institute, in its 2005 Jan./Feb. issue, relayed the story of an 84 year old widow, Florence McKnight. While lying in the hospital under heavy sedation she signed loan documents for the installation of new windows and other general repairs to her home. The bill for the work was only $10,000. The loan offered her was for $50,000. The 15 year loan amounted to $72,000 in payments with a balloon due at the end for $40,000. Those were some very expensive windows that someone else is now enjoying because Ms. McKnight was forced into foreclosure and lost her home.

Occasionally, legitimate sub-prime loans can offer great help to people in financial trouble that are unable to get a conventional loan. But the temptation here just seems to be too great for the predatory lenders. Sub-prime predatory loans benefit no one but the lender. The elderly community is stripped of their home’s equity and often forced into foreclosure. They must rely on their children to survive, as their incomes are fixed and now their credit is destroyed. This retired group is even encouraged by predatory lenders to take out loans to pay for their prescription medication!

The spike in sub-prime lending has not surprisingly coincided with the increase in foreclosures. It’s a real shame that one of our most treasured assets – our parents and grandparents are being ruthlessly solicited for the consumption of the equity they have so diligently strived to accumulate over the years. Predatory lenders use deceptive tactics to rob the next generation of their life long family memories as well the inheritance their parents had dreamed of leaving to them. Every day older Americans are losing their primary source of wealth, their retirement nest egg through the unethical practices of predatory lenders.…

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Who’s in Control of Your Investment Money?

Who’s in Control of Your Investment Money?

Is your destiny, your financial future controlled by you, a family member, a financial person chosen by you or a total stranger?

In other words: Who’s in control of your investments, or your retirement account, of your MONEY?

These can be scary questions especially if you think you are not qualified to manage your own retirement account, create one or invest in the stock market. The truth is, I believe almost every single person can manage their financial future. Perhaps you need a little assistance, but you can not only do it, but probably do it better than almost anyone else.

Controlling your financial future involves just a few key factors:

• Time – are you willing to spend 30 minutes a week, perhaps an hour managing and developing your financial future? Your retirement account?

Yes, this means finding 30 minutes almost every week, perhaps skipping a TV show, but the reward is equivalent to paying yourself the “big bucks”.

• Method – invest some initial time to review software that can aid you with recommendations for what stocks, ETFs or mutual funds to buy and when; plus equally important when to sell and especially critical, when you should sell out and stay out of the stock market to preserve and protect your money.

The software should be flexible enough to meet your goals, your personality -conservative – moderate – aggressive.

Preferably the software shouldn’t require months to learn or even a college degree. Even then training videos at a reasonable cost should be available along with the opportunity to talk with a human being whenever you have a question – for free.

And the program should work with stocks, ETFs and mutual funds so you have full flexibility. It should allow you to manage your portfolio daily or weekly or even just occasionally.

• Understanding – what kind of future do you want? Just saying “more money” doesn’t cut it. You need to be specific, for example:

Money for a new house

A new car

Secure retirement

Vacation funds

• Recognize – there are pluses and minuses to having someone else handle your portfolio. They may have cookie cutter portfolios that you must fit into or so many clients that there is no time for true personal attention. Yes, some advisors can and do work with your specific goals and objectives, but you must check them out thoroughly.

Your company sponsored retirement account is most likely handled in the most generic manner and without your input and management will grow slowly and is apt to suffer whenever the market drops.

Thus, my suggestion is that the person to really control your financial future should be you if you have 30 minutes or so most weeks.…

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Long-Term Expectations for Gold

Long-Term Expectations for Gold

Putting aside the current issues for the U.S economy and concentrating on the long-term factors affecting the gold price, we can identify several reasons to invest in gold. Gold is well-known for its capability to act as a buffer against deflation and inflation so I won’t be spending too much time on these factors. The more important driver for the gold price in the long-term is the likely devaluation of the U.S Dollar.

As I mentioned in my previous article the Dollar has lost 96% of its value since the abolishment of the Gold Standard and the establishment of the FED. In healthy economic situations gold tends to move inversely to the Dollar and the Dollar has lost 30% of its value since 2001, which explains why the value of gold was going up even before the Credit Crunch. Taking a closer look at the U.S economy, we can see more problems ahead.

Before the Credit Crunch the U.S trade deficit was around $60 billion a month because importing goods, mainly from Asia, was much cheaper than buying the same products from domestic manufacturers. This dragged the Dollar down and pushed to the price of gold up. Now, when people are more aware of the issues weighing on the current monetary system and the quality of Asian products is improving all the time, it is likely that consumers will keep purchasing the cheaper foreign products, even after the recession. This will increase the trade deficit even more and deepen the slide of the Dollar.

The most alarming news for the Dollar is coming from the East since China, the fastest growing economy and the biggest financier of America, is trying to internationalise and stabilise its currency. If China is successful in this, it would not have to hold a huge amount of Dollars as a reserve currency anymore. As the value of the Dollar has been decreasing for such a long time, it is unlikely that any government would be interested in buying trillions of Dollars floating into the markets from China. The only place where the Dollars could go is home to the U.S, and these trillions on top of what the FED has already printed would cause significant inflation pressure just when the economy is starting to stabilise in the future. This leads us back to the basic virtues of gold investments.

The main physical driver for gold is also coming from China as its citizens are getting wealthier and the government is encouraging them to invest in gold. The Chinese government agreed on plans to liberalize its gold markets a few months ago, which will help banks and private investors to buy gold from abroad. Analysts have forecasted that the China’s per capita gold demand could match the numbers from India in the near future, which would mean a 200 tonne increase in physical bullion demand.

Recent turmoil in the global economy has made investors realise the shocking state of the global monetary system and made them more cautious in their investment decisions. Even slightly disappointing news is driving them towards hard assets, such as physical gold. Some speculators are convinced that gold is the next bubble to burst but when looking at the inflation related gold price, we are not even near the 1980s figures when gold was hovering at around $2200 per ounce.

To conclude, we feel that gold has a long way to go before the past price barriers are going to be an issue for future price growth.…

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Risk Differences in Shareholders’ and Creditors’ Claims

Risk Differences in Shareholders’ and Creditors’ Claims

Investors will require different rates of return on various securities since they have risk differences. Higher the risk of a security, the higher the rate of return demanded by investors. Since ordinary share is most risky, investors will require highest rate of return on their investment in ordinary shares. Preference share is more risky than debt; therefore, its required rate of return will be higher than that debt. The risk return relationship for various securities is shown in above figure, It may be observed in the figure that the required rate of any security is composed of two rates a risk free rate and risk premium. A risk free will require compensation for time value and its risk premium will be zero. Government securities, such as the treasury bills and bonds, are examples of the risk free securities. Investors expect higher rates of return on risky securities. The higher then risk of a security, the higher will be its risk premium, and therefore, a higher required rate of return.

Since the firm sells various securities to investors to raise capital for financing investment projects, it is necessary that investment projects to be undertaken by the firm should generate at least sufficient net cash flow to pay investors’ shareholders and debt holders their required rates of return. In fact, investment projects should yield more cash flows than to just satisfy the investors’ expectations in order to make a net contribution to the wealth of ordinary shareholders.

Viewed from all investors point of view, the firms cost of capital is the rate of return required by them for supplying capital for financing the firms investment projects by purchasing various securities. It may be emphasized that the rate of return required by all investors will be an overall rate of return a weighted rate of return. Thus, the firms cost of capital is the “average” of the opportunity costs of various securities, which have claims on the firms assets. This rate reflects both the business risk and financial risk resulting from debt capital. Recall that the cost of capital of an all equity financed firm is simply equal to the ordinary shareholders’ required rate of return, which reflects only the business risk.

Formula for the Opportunity Cost of Capital

The required rates of return are market-determined. They are established in the capital markets by the actions of competing investors. The influence of market is direct in the case of new issue of ordinary and preference shares and debt.

The market price of securities is a function of the return expected by investors. The demand and supply force in such a way that equilibrium rates are established for various securities. Thus opportunity cost of capital is given by the following formula,Where interest in year zero is the capital supplied by investors in period 0 (it represents a net cash inflows to the firm) Ct are returns expected by investors (they represent cash outflows to the firm) and k is the required rate of return or the cost of capital.…

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Buying a First Home

Buying a First Home

Most young couples dream of owning their own home and having a nice environment in which to raise a family. Buying a house is often as much about emotion as it is about money. For that reason, some couples make mistakes with their first home purchase.

For a start, it’s easy to get emotionally attached to a house that really is not affordable – it’s a natural human tendency to want something that is slightly out of reach. Emotional attachment can also mean you pay a higher price because you are afraid of missing out. Impatience can lead to another mistake, and that is not taking a long term view of how affordable the house is. How will the mortgage be paid when there is only one income coming in? How will repairs, maintenance and upgrades be paid for? Will interest rate increases be affordable?

The starting point for buying a first home is to establish some criteria for the kind of home that will best suit your needs – for example the size of house, proximity to transport and schools, type of construction etc. Have a look at some properties that meet those criteria to get a feel for how much you will have to pay.

Talk to your bank or mortgage broker about how much deposit you will need, how much you will be able to borrow, and what your fortnightly repayments will be. You will need to be in a strong financial position before you buy, because once you are committed to a large mortgage, it will be difficult to save. Compare the cost of the rent you are paying with the costs of owning a house. These costs include mortgage payments, rates and house repairs (plumbing, electrical, painting etc).

For example, you might be currently paying $300 per week in rent, whereas once you own a house you will be paying $600 per week in mortgage payments, rates and insurance. If your house is truly affordable, you should therefore be able to save $300 per week before you buy. Start saving that money now towards the deposit on your house. The higher your deposit the lower your repayments will be, giving you a bit more leeway to cover interest rate increases or a drop in income.

Your first home doesn’t need to be a big family home that is going to last you for the next twenty years. Being forced to sell because you can’t manage the mortgage may cost you a lot of money, so start with something small and affordable and work your way up from there once your mortgage becomes more manageable.

Some young couples start out by purchasing an investment property. It can be easier to find a house that is affordable if you are not going to live in it yourself, because you can then consider buying in areas other than where you would choose to live. Expenses such as interest, repairs and depreciation will also be tax deductible, making the purchase much more affordable. Through most of your life, your home will probably be your biggest asset and the choice you make with your first purchase will have a significant impact on your future wealth. It’s worth doing your homework to avoid making a costly mistake.…