Hong Kong plans biggest gold vault in the world as huge Russian bank starts supplying China
Posted onDont look for Chinas ravenous appetite for gold to subside anytime soon. Just about a week after the Shanghai Gold Exchange launched the first-ever yuan-denominated gold price fix, news continues to surface that confirms Chinas long-term obsession with the yellow metal.
For starters, the key mainstream metric of Chinas gold demand monthly bullion imports from Hong Kong posted another gain for March. The mainlands net purchases rose to 64.1 metric tons, from almost 43 tons a month earlier, Bloomberg reported.
Retail demand remains strong; Chinas central bank keeps buying on a monthly basis; activity on the Shanghai Gold Exchange, which is often cited as the most accurate measure of nationwide wholesale demand, increased to 183 tons in March from 107.6 tons in February; and imports from Switzerland (which incidentally is acquiring massive amounts of bullion from a bankrupt Venezuela) climbed from 27.2 tons to 29.5 tons.
VTB Bank to supply long-term: Top Chinese ally Russia, which is expanding its gold reserves at an even faster pace than China (adding 430,00 ounces in March), also is supplying Beijing with metal. VTB Bank, its second-largest lender, has announced that it will be shipping between 80 to 100 tons of bullion to China per year. The RT network is even suggesting that Moscow and Shanghai are working together to dominate the global gold trade.
We believe that the Chinese market opens up long-term opportunities for Russian business and VTB will contribute as much as possible to developing and facilitating trade relations between our countries, said VTBs chairman, Yuri Soloviev.
Buying spree by Chinas miners: And thats not all China is doing to increase its gold footprint. Chinas gold miners plan to extend the biggest buying spree in four years as the nation seeks greater clout in the global bullion industry, a separate Bloomberg analysis reported. The prospect may be helping drive up the price of assets from Australia to the U.S.
Overseas mine purchases by Chinas top producers quadrupled from 2014 to $483 million in 2015, the news agency noted, as they target assets they deem cheap. That binge looks likely to continue.
Chinese mining companies domestic development is limited by domestic resources, and the future, the hope lies overseas, Zijin Mining Chairman Chen Jinghe said. Thats an astounding statement considering that China already is the worlds largest miner of gold.
Expanding Asian gold hub: But the biggest news this week for the Chinese gold industry is confirmation that the Hong Kong Gold and Silver Exchange Society is proceeding with plans to build what may end up being the biggest gold vault in the world, Zero Hedge noted.
The Hong Kong exchange is joining forces with arguably the worlds largest bank, the Industrial and Commercial Bank of China (ICBC), to launch gold trading services in the Qianhai free trade zone in September, providing custodial and physical settlement service targeted at commercial users and precious metals traders, The South China Morning Post reported.
Although a temporary gold vault will be used, bigger plans are in the making. The exchange plans to build a HK$1 billion permanent gold vault facility, including a bonded warehouse, trading floor and related offices areas in Qianhai. The construction project will take two years.
The partnership has the potential to connect Hong Kong, Macau, Qianhai and Shenzhen as a gold trading hub, the Hong Kong exchange chief added.
The development of the gold industry will speed up the physical delivery process of gold trading in Hong Kong, Shanghai and Qianhai.
Its clear that China is firing on all cylinders when it comes to gold: mining, consuming, acquiring, storing, and working to controls the pricing mechanisms. As the rest of the (developed) world is increasingly exiting the gold trading, bonding, custody and vaulting business, the interest in China, already the worlds largest importer of gold, has never been higher, Zero Hedge concluded.
Gold up on fundamentals while technical indicator signals $1,400
Posted onWas there a single unadulteratedly positive U.S. economic report issued Tuesday? No, and thats why gold gained again ahead of tomorrows Federal Reserve policy statement.
The yellow metal gained about 0.3% to trade near $1,243 by early afternoon. Silver also advanced and was holding above $17 at $17.08 in the afternoon session.
Durable goods disappoint: For starters, although durable-goods orders rose in March, they gained less than expected, just 0.8% versus an anticipated 1.8%. Moreover, the core durable-goods number fell for the 14th straight month, something that has never happened outside of a recession, Zero Hedge noted.
Meanwhile, the Richmond branch of the Fed issued its manufacturing survey, which posted its biggest drop since August.
The American citizen continues to feel the pain of the economys anemic growth, with The Conference Boards consumer-confidence index falling way more than expected.
And after Mondays plummeting new-home sales data, the Case-Shiller housing-price report showed the slowest growth since September and missed expectations for the fifth month in a row.
GDP stuck under 1%: Although Markits PMI report for the service sector came in at expected levels, its well below its peak hit in 2014. The upturn in the rate of growth of business activity and increased inflows of new orders suggest the economy should see GDP rise at an increased ratein the second quarter, but growth is clearly far more fragile than this time last year, said Markit chief economist Chris Williamson.And what would that growth rate be? The survey suggests the economy grew at an annualized rate of just 0.8% at the start of the second quarter.
Well get a better look at the first quarters growth rate when the government releases its GDP estimate Thursday, but for now, the Atlanta Fed has second-quarter GDP at just 0.4%, up slightly from the previous 0.3%.
The continuing onslaught of weak economic data boosted gold prices by lowering expectations of a Fed rate hike. A new CNBC survey now shows Wall Street anticipating a more dovish Fed in April than it did back in March, with the next rate hike not expected until much later this year.
Another bear turns bullish, buys gold: Lowered rate-hike expectations are one reason why HSBC is sticking to its forecast of $1,300 gold prices this year. And now another long-time gold bear has turned bullish. Independent Strategy Ltd. President David Roche has told Bloomberg he is now buying gold.
Weve increased our holdings of gold; now, thats after a long, long time being short, he said Tuesday. The reason for that is because we dont know what central banks are going to do next. Investors need bullion as an insurance policy against that uncertainty, he said.
The technicals also are signaling further momentum in gold. According to Nedbank Capital in Johannesburg, gold now appears to be forming a so-called pennant, a chart pattern resembling a triangular flag at the end of a pole. That suggests it is about to resume gains to as high as $1,400 an ounce, Bloomberg relayed.
Stay tuned for the results of the meetings of the Fed and the Bank of Japan later this week for further clues on where gold might be headed.
Gold rises as home sales fall: Analyst sees upward momentum to $1,450
Posted onGold started off this Federal Reserve-dominated week with a bang, posting a roughly $10 gain after another pessimistic housing report cast doubt on the state of the U.S. economy.
New-home sales dropped 1.5% in March for its third straight monthly decline, with activity in the West plunging 23.6% on a month-over-month basis. This follows last weeks disappointing data on March housing starts and permits.
Industrial metals were hit this morning on news that home sales were weaker than expected, RJO Futures strategist Phil Streible told Bloomberg. This could have a further effect on the economy, dragging down the chances for a rate hike in June, and investors are seeking some of the safe-haven assets like gold and silver.
All eyes on Fed, GDP this week: Meanwhile, the Dallas Feds manufacturing-activity report contracted for the 16th straight month, thanks to the ongoing oil slump. It is a bad time for manufacturing, agriculture and mining the only sectors that actually create wealth, one respondent lamented.
The news bodes ill for U.S. GDP estimates, which the Atlanta Fed has pegged at a meager 0.3% as of April 19 (an update is set for Tuesday, April 26). An official GDP update from the Commerce Department is due on Thursday. The Fed also starts its two-day meeting Tuesday and will issue its latest rate-hike decision Wednesday, but Wall Street currently puts the odds of an interest-rate increase at virtually nil.
All the major stock indexes were in the red Monday, while gold was on the move higher, advancing almost 1% and topping the $1,240 level at the peak of its session, thanks to newfound weakness in the U.S. dollar. Silver also rose about 0.5% to touch $17.04.
New wave of buying at $1,275: Bulls continue to like golds prospects despite its relatively rangebound trading level since February. For Orips Research CEO Zev Spiro, thats pure consolidation.
As long as prices hold above support in the $1,190-$1,205 area, then the composure remains positive, Spiro told CNBC. Upward momentum is expected with a breakout above the $1,275-$1,280 area. So, thats where I expect the new wave of buying would come in and could carry prices higher. Predicting a total $200 move this year, he added, $1,450 is my objective. Once we get a break above the $1,280 area, I suspect there will be a fast directional move higher.
And MarketWatch columnist Michael Brush interviewed some analysts who also think golds 2016 streak will stay intact. I would not be surprised to see all-time highs in this next leg of the precious-metals cycle, Tocqueville Gold Fund exec John Hathaway said. Theres a war on cash and a war on savings, and people are starting to see that. All of this drives people to think: What else is there? Where else can I keep my money safe?
Silver to $20-$25, expert says: Silvers fortunes also look bright, according to CPM Group chief Jeffrey Christian. A few years from now youre probably going to see it over $20, Christian said, admitting that he underestimated its performance this year. I think that we could see silver trading in the $20 to $25 range within a few years.
Silver already has a strong fan base, judging from the U.S. Mints sales of its 2016 silver American Eagle coins. As of last Friday, those sales are running at a record clip, with more that 17.912 million ounces sold. Thats 27.9% higher than at the same time last year. And on the gold front, 37,000 ounces of gold American Eagles and gold American Buffalos combined were sold last week the most since sales of 98,500 ounces in the week of Jan. 11 when the newly 2016-dated editions launched, CoinNews reported.
Coin sales could leap further after the Fed issues its post-meeting statement Wednesday, provided that its message sounds cautious about the state of the U.S. and global economies. Another major central bank, the Bank of Japan, is due to meet Thursday, and bankers everywhere will be watching closely, given the negative interest rates and massive quantitative-easing programs the BOJ has launched with little effect on the nations moribund economy.
Fiddling with currency designs while the U.S. dollar burns and China buys gold
Posted onThe verdict is in: Alexander Hamilton stays, Andrew Jackson goes.
On April 20, Treasury Secretary Jack Lew announced some major design overhauls to the $20 Federal Reserve note and other bills that are scheduled to take effect by 2020. African-American abolitionist Harriet Tubman (1822-1913), who famously freed numerous slaves via the Underground Railroad and later became active in the womens suffrage movement, will be replacing Jackson on the front of the $20 bill. Jackson will henceforth adorn the back of the bill.
Meanwhile, Hamilton, the nations first Treasury secretary, will remain on the front of the $10 bill, as will Abraham Lincoln on the $5 bill. However, the reverse sides of those bills will henceforth feature Martin Luther King Jr., Eleanor Roosevelt, and opera singer Marian Anderson; will depict civil-rights marches at the Treasury building and the Lincoln Memorial; and will salute other suffrage activists such as Lucretia Mott, Sojourner Truth, Susan B. Anthony, Elizabeth Cady Stanton, and Alice Paul.
Worth its weight in gold?: Numerous organizations and publications such as The Washington Post hailed the plans, as did the Professional Numismatists Guild. Money is history you can hold in your hands, and the Professional Numismatists Guild welcomes the planned changes to our circulating money to help educate the public about important people, places and events in U.S. history, said PNG Secretary James Simek.
And according to one civil-rights activist interviewed by The Gainesville Times, giving Tubman such a prominent place is worth more than its weight in gold.
Stop right there. Though honoring these heroes and heroines of American history is laudable, the fact that Tubman and the others will adorn U.S. currency does not change the fact that todays dollar has nothing to do with gold. When push comes to shove, these are cosmetic changes only. The new symbols are highly important, but no matter whose picture is on the greenback, nothing will change the fact that the U.S. dollar has lost more than 90% of its purchasing power in the past hundred years or so since the creation of the Federal Reserve.
Its no surprise either that the Treasury Department chose to retain Hamiltons portrait while dispensing with Jacksons. President Jackson, after all, was a fierce opponent of the establishment of a U.S. central bank, while Hamilton set the template for the flawed Fed-dominated system we have today.
Den of vipers blasted: In fighting against the creation of the second Bank of the United States, Jackson reportedly said, I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.
When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin!
Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, I will rout you out.
Hamilton set stage for Fed: No wonder Jackson is being tossed from his pedestal. In contrast, in addition to being lionized in a popular Broadway play, Hamilton has a 21st-century champion in the form of ex-Fed chief Ben Bernanke, who noted in a 2015 blog post that Hamilton oversaw the chartering in 1791 of the First Bank of the United States, which was to serve as a central bank and would be a precursor of the Federal Reserve System. In other words, Helicopter Ben owes his primary career achievement to Hamilton.
And according to historian Thomas DiLorenzo, Hamilton was a compulsive statist who wanted to bring the corrupt British mercantilist system the very system the American Revolution was fought to escape from to America. He fought fiercely for his program of corporate welfare, protectionist tariffs, public debt, pervasive taxation, and a central bank run by politicians and their appointees out of the nations capital.
With the Treasury Department and the Fed joined at the hip in numerous ways, the demotion of Jackson is not unexpected. Moreover, no one can be happy about his bloody campaigns against the American Indians despite his patriotic service in the American Revolution and as the chief hero of the Battle of New Orleans.
Distraction from looming debt disaster: Yes, its high time that we honor the women and African-Americans who have contributed to U.S. history, and Lew has determined that Jackson is expendable. But in many ways, the debate over whose face is going on Americas fiat currency is a distraction from arguably more serious issues that many of our leaders would prefer we not think about, such as our mushrooming $19 trillion debt enabled by the highly secretive Federal Reserves electronic printing presses, the rising debt-to-GDP ratio, a currency backed only by the full faith and credit of the U.S. government, and the fact that five of our largest banks recently failed their crisis-planning evaluations.
Meanwhile, as we argue about currency designs, the Chinese are designing a future that is focused on elevating its yuan currency to dollar-level reserve status and amassing gold is a key part of its strategy.
Hopefully, once the dust settles over these design controversies, our nation can start focusing less on the appearance of its paper currency and more on the dollars missing precious-metal backing.
Revalue gold to $5,000 to juice economy, Pimco exec tells Fed
Posted onOn his blog for the Brookings Institution, former Federal Reserve chief Ben Bernanke has written a series titled What tools does the Fed have left?
The entries that Bernanke has penned so far discuss three weapons negative interest rates, targeting longer-term interest rates, and helicopter money that the central bank can still wield to hit the 2% inflation target it needs to declare final victory over the deflationary forces still lingering from the Great Recession.
But one word is missing from the three-part series: gold. Thats no surprise given Bernankes infamous dismissal of the yellow metal in verbal sparring sessions with then-Congressman Ron Paul during appearances on Capitol Hill. Even after Paul retired from Congress, Bernanke admitted to lawmakers that no one really understands gold prices, including Ben himself.
Exec cites FDRs 1933 order: And European Central Bank chief Mario Draghi also got tongues wagging in December 2014 when he said he and his fellow policymakers had discussed buying all assets but gold in planning how to implement a quantitative-easing program for the eurozone.
But leave it to a vice president and fund manager at one of the worlds largest asset managers, Pimco, to invoke gold as an antidote to the economys current lethargy. In a hypothetical piece, Pimcos Harley Bassman proposes that the Fed offer to buy citizens gold at above-market-value prices to stimulate the economy and generate inflation while offsetting the deflation being exported by other nations to the U.S.
Bassman uses as his model the gold-confiscation order issued by President Franklin D. Roosevelt in 1933 to lift the U.S. out from the Great Depression. Under penalty of possible prison time, citizens back then were told to turn in their gold for the price of $20.67, which the Fed later revalued to $35.
Ignoring for the moment the outrageous nature by which the gold was acquired, the plan worked, Bassman wrote. Positive results were almost immediate, Bassman notes. Over the three years from January 1934 to December 1936, GDP increased by 48%, the Dow Jones stock index rose by nearly 80%, and most salient to our topic, inflation averaged a positive 2% annually, despite a national unemployment rate hovering around 18%. (Subsequent Fed policy blunders plunged the nation back into Depression, but thats another story.)
Fed would pay beyond spot value: Bassmans modest proposal for the 21st century is this: In the context of todays paralyzed political-fiscal landscape and a hyperventilated election process, how silly is it to suggest the Fed emulate a past success by making a public offer to purchase a significantly large quantity of gold bullion at a substantially greater price than todays free-market level, perhaps $5,000 an ounce? It would be operationally simple as holders could transact directly at regional Federal offices or via authorized precious metal assayers.
Bassman argues that a Fed-sponsored gold-buying program would be more effective than QE, which was wholly contained within the financial system and didnt boost the real Main Street economy. He also dismissed negative interest rates as just bizarre to most non-academics. In contrast, gold purchases used as an avenue of monetary expansion might finally lift the anchor on inflationary expectations and their associated spending habits.
Gold is uniquely qualified for such a Fed program because of its unique, time-tested functionality as money attributes that other rival assets such as oil or houses lack, Bassman concludes.
Gold could be king after global reset: Of course, Bassmans plan is not new. Besides its roots in 1933, West Shore Funds strategist and gold author Jim Rickards has long suggested that the Fed buy bullion. I discussed #Fed buying #gold in #CurrencyWars p 244 (2011), Rickards tweeted, referring to one of his bestselling books.
Right now, though, the Fed is doing all it can to downplay gold as a potential solution to a world now dominated by fiat currencies, overwhelming debt, and slowing growth. The Fed wants you to think that its bag of monetary-manipulation tricks is all the world needs to navigate through economic turmoil.
But other central banks are not on the same page as the Fed: The Peoples Bank of China has been gobbling up bullion for years in preparation for the day when the U.S. dollar is now longer the pre-eminent reserve currency and its own yuan rises in stature. The potential great reset to the global financial system could catapult gold back into a central role with a much greater value priced in fiat currencies no matter how much the Fed currently chooses to ignore that possibility.
Another gold bear turns big-time bullish: BNP Paribas predicts $1,400 bullion
Posted onPrecious metals were on fire ahead of and just after the European Central Bank meeting Thursday, withsilverhitting a new 11-month high of $17.70 andgoldreaching $1,270 before losing ground.
The metals also may have gotten a safe-haven boost after billionaire investor George Soroswarnedthat Chinas current monstrous debt situationeerily resembles what happened during the financial crisis in the U.S. in 2007-08, which was similarly fueled by credit growth.
Two Federal Reserve economic reports also helped gold and silver. The Chicago Fed National Activity Indexslipped furtherinto the red, while the Philadelphia Feds manufacturing survey alsowent negative.
Helicopter money for Europe?:Gold and silver soared early on as the ECB announced it is keeping its easy-money policies in place without new adjustmentsuntil ECB President MarioDraghispost-meeting news conference. There,Draghiconfronted the notionthat the ECB might resort to so-called helicopter money, or highly inflationary, direct cash injections, to juice theeurozoneeconomy.
AlthoughDraghidenied the plan was under discussion, its mere mention was enough to weaken the euro while strengthening the U.S. dollar. A stronger greenback usually translates into lower dollar-denominated gold and silver prices.
Meanwhile, a drop in weekly initial jobless claims in the U.S. also dented bullion prices.Gold ticked negatively on that good economic number because it brought back the thought of a rate increase being back on the table, RBC Capitals GeorgeGerotold Bloomberg.
$1,280 breakthrough key to gold:Traders also took the opportunity to cash in on what had been a roughly $25 gain for gold Thursday morning.Gold and silver prices are pulling back due to some profit-taking, as traders are not sure what to expect from future monetary policy,NicoPantelisof the Secular InvestortoldMarketWatch.However, if gold can break through $1,280, we will see the price of the yellow metal gain higher ground to $1,350, he said, while setting an intermediate target for silver at $19.
Golds staunch performance has driven another major investment bank from the bearish camp to the bullish camp. French banking giant BNP Paribas is predicting that gold can hit $1,400 in the next 12 months. Thats a major reversal for the bank, which at the start of 2016 was predicting gold would fall below $1,000 and average $960.
There has clearly been an uptick in general investor concern about the eroding effectiveness and potential overreach of global central bank policies, BNPs wealth-management armwrote. We expect this concern to remain an important component of the investment landscape in coming quarters.
Gold makes sense amid negative rates:Gold seems to have recovered its safe-haven status, it added. Gold can play a portfolio-diversifying role during periods in which faith in U.S. financial assets is being challenged.
We have been recommending gold as a portfolio hedge, confirmed BNPsPrashantBhayani. As a hedge we think it makes sense, especially with the negative-interest-rate world were in right now.Bhayanialso sees central banks as important buyers of gold going forward.
And in a recentBloomberg appearance, Tethys Partners strategist BobIaccinoalso sees gains ahead for gold, though milder. I think youre going to see gold rally, but I think in the short term youre probably going to see a little bit of pressure, but I do see it hitting about $1,300 by the end of the year, he said.
Other banks issue more modest outlooks:Not every analyst sees total peaches and cream for precious metals.Three investment banks, while not saying the bottom will drop out, think the top is in for gold. ANZ sees gold staying at $1,250 for the rest of 2016 and maxing out at $1,350 by the end of 2017.
AndMacquarie thinks gold could recede to $1,199, while UBS has issued an average price target of $1,225 for this year, although it conceded some upside potential to $1,325. Overall, we think thatgoldfundamentals are broadly stable, it said.
Meanwhile, ABC Bullion chief economistJordanEliseothinks gold could reach $1,350 this year.
With the ECB meeting now out of the way, golds attention will soon turn to the Fed, which is conducting its next major policy meetingon April 26-27, followed by a meeting of the Bank of Japan. The Fed isnt expected to raise rates next week, but Lindsey Group analyst PeterBoockvarwarned thatrecently rising commodity prices could mean that inflation is nearing the Feds 2% target. Also key for markets next week will be the U.S. governments first-quarter GDP estimate, along with new-home sales numbers and earnings reports from some major corporations.
The secret behind Chinas gold fix: Doing away with a U.S. dollar-centric system
Posted onChinas groundbreaking launch of a yuan-denominated gold-pricing fix on its Shanghai Gold Exchange has been downplayed by some Western analysts, who cant seem to envision a day when London and New Yorks dominance of the industry might yield to Asia.
CPM Groups Jeff Christian, for example, told one news service that the yuan-linked gold fix is old news and that it is easy for commentators to read too much into it.
And while Societe Generales Robin Bhar conceded that it was an important development, he argued that as long as it exists inside a closed monetary system, it will have limited global repercussions. For a truly efficient benchmark, the market has to be as unimpeded and unfettered as possible.
But the closer we get to the source the Chinese themselves and the fixing participants, some of whom are Western the more significance this new innovation in the gold market assumes.
Turning the tables on London: Its a market of 1.2 billion people and simply cannot be neglected, said Marwan Shakarchi of the Swiss refiner MKS, one of the 18 institutions participating in the fix. I am convinced that in the future we wont say China is at a premium or discount to London, but vice versa.
Having more sway in the gold market befits the long-term strategy of expanding the yuans role as a global currency, saidJiang Shu of Shandong Gold Financial Holdings, an arm of the Shandong mining giant and another participant.
It reflects the next stage of the internationalisation of Chinas gold market, Aram Shishmanian of the World Gold Council told The South China Morning Post.
And perhaps the most bombshell analysis of the new yuan-based fixing comes from a strategist at Hong Kong banking behemoth Bocom International. In a Bloomberg interview (edited here slightly for clarity), Hao Hong makes it clear that dumping the U.S. dollar is front and center in Chinas long-term geopolitical and economic strategy not an overnight revolution but a slow, methodical plan with many interlocking parts, of which the Shanghai yuan gold fix is just one.
Slowly chipping away at the dollar: Its a planned move to move away from a U.S. dollar-centric monetary system, he said. What were seeing here right now is actually a move spanning across more than two years. If you still remember, in 2014 Shanghai opened the Shanghai International Gold Exchange, and it very soon became the largest gold exchange in the world. And they actually trade physical gold instead of paper gold. And also I think in 2016 this year, early this year, they already announced theyre going to fix the gold price in renminbi. In so doing, were slowly chipping away at the dominance of the U.S. dollar, and for China its moving away from a U.S. dollar-centric system.
Controlling the gold-pricing mechanisms is a key part of the plan, which also has involved stockpiling valuable, strategically important commodities. Silver and gold and also petrol are three very important commodities that are priced in U.S. dollars, and I think gold in particular is one of the commodities that the Chinese central bank is hoarding very hard, Hao said. The gold reserve holdings in the Chinese central-bank balance sheet have almost doubled since 2009, so by holding gold and by doing away with a U.S. dollar-centric system, we actually require less U.S. dollar holdings.
Although SocGens Bhar argued that the yuan gold fix will have limited repercussions because of Chinas relatively closed markets, Hao here reminds us that Chinas ultimate goal is going international. He cites the Chinese yuans recent green light from the International Monetary Fund to be added into the global reserve-currency basket known as Special Drawing Rights, or SDRs. Were trying to get a seat on the international table, and obviously weve been permitted into the SDR league. Very soon this year we are going to formally be included in the SDR currency, and also in so doing were doing all these concerted moves to move away from the U.S. dollar dominance.
A new system is needed: Hao concedes that China cant dump the dollar immediately, acknowledging that Beijing holds massive amounts of U.S. greenback currency reserves. China cant immediately challenge effectively the U.S. dollar dominance, he admitted.
Still, the current dollar hegemony is no longer serving Chinas long-term interests, and therefore its time for a change, Hao said. The system used to work very well for both countries. The U.S. people buy the Chinese exports, and then the Chinese buy the U.S. Treasuries. It worked very well. It depressed the U.S. bond yield and also created liquidity in the Chinese system. But then since 2015, the whole system sort of stuck in reverse. Since 2015, weve seen a decline in Chinese forex reserves and also weve seen a very slow buildup in Chinese forex reserves and a slowdown in Chinese exports as well. So we have to work out a different system to provide liquidity, a new system to provide liquidity in the Chinese macro-economy.
Investors who dismiss the significance of the yuan-linked gold fix do so to their own potential detriment. Were talking about the worlds biggest consumer and producer of gold, and the signs are clear that China is no longer content to take a back seat to Western powers. We have trained our eyes on the global market, said Li Guohong, general manager of the Shandong Gold Group. U.S. dollar holders should be paying close attention and acting accordingly, and that means hedging for the possible day that King Dollar might have to bow before the Royal Renminbi.
Silver surges to 10-month high as China launches landmark gold-pricing fix
Posted onGold and silver continued their two-pronged attack Tuesday after an unexpected plunge in new-home starts and permits cast a fresh cloud over the U.S. economy.
Also boosting gold was news that Chinas Shanghai Gold Exchange has officially launched its yuan-denominated gold-price fixing. The move is seen as a major Chinese step to exercise more control over golds pricing and increase the stature of the yuan currency versus the U.S. dollar.
This is a very important development and will obviously be very closely watched, Societe Generale analyst Robin Bhar told Bloomberg.
Rate-hike expectations fading: Rising 2% to hit a one-week high, gold gained about $20 to top $1,256. But once again, silver was the real head-turner, reaching a 10-month peak in a 5.2% ascent and breaking through the psychologically significant $17 level.
Gold should probably hang on to its gains in the second quarter because the dollar is likely to stay relatively subdued with the expectations of U.S. interest rate hikes being pushed out to the second half of this year, Mitsubishi analyst Jonathan Butler told Reuters.
Silvers rise driving down gold ratio: Whats driving silver? Traders are seizing on the disparity in the gold-to-silver price ratio, which currently suggests that the white metal is underpriced relative to the yellow metal. The ratio fell to its lowest level in four months, to 74, on Tuesday, down from a high of 83 in March, its highest level since 2008.
Inflows into silver ETFs are nearing record levels, trading volumes in New York are soaring, and the U.S. Mints sales of its 2016 silver American Eagle coins are continuing at a blistering pace, with more than 17.6 million sold so far this year.
Moreover, with signs that its economy might be picking up, China is a major silver buyer of late, according to Ronald Leung of Lee Cheong Gold Dealers in Hong Kong. One reason is that the dollar is weakening. Another reason is that there is heavy buying in silver in Shanghai, and that has triggered buying in gold as well, he told Reuters.
New-home starts plunge 9%: But back to the U.S. housing data. New-home construction slumped in March, with residential starts falling by 8.8% in what is supposed to be one of the busiest times of the year for the construction industry, while permits also dropped.
Meanwhile, underneath the rosy depictions of U.S. job growth is bad news that temporary-help employment has fallen for two of the past three months, down 1.8% for the year, while the Federal Reserves own labor-market conditions index also turned negative last month. A slowdown in temp hiring has signaled recessions in the past.
With U.S. manufacturing and retail sectors already suggestive of recessionary conditions, the housing market is or was the one major bright light left. Now that U.S. growth seems to be grinding to a near halt, the Fed will have little choice but to keep its monetary spigots flowing in the form of near-zero interest rates. The odds of an imminent rate hike are fading, and thats good news for both gold and silver prices.
Gold can take out $1,350 this year, says Capital Economics
Posted onEven before Tuesdays robust performance in the precious-metals sector, several respected analysts continued to argue that gold has further room to run higher.
Bloomberg published an April 18 article titled Golds best forecasters see rally resuming on rates caution, in which top analysts from Capital Economics and Cantor Fitzgerald submitted their opinions on the yellow metals prospects.
Gold resilient as investors dig in: Capitals Simona Gambarini sees the metal advancing to $1,350 by the end of 2016, while Cantors Rob Chang also predicted gold would rise, but perhaps not to that level this year.
Both analysts think the Federal Reserve will raise interest rates twice this year, and Gambarini thinks gold will grab a second wind after a potential June rate hike. The gold price has been quite resilient, which means that investors have definitely changed their attitude towards gold.
And citing a cautious Fed, Chang predicted gold will continue its march higher, albeit at a more conservative pace.
Gold is gonna take off: And Kyle Bass of Hayman Capital also weighed in on gold in a couple of recent interviews, telling Fox Business that gold has the wind at its back thanks to the growing preponderance of negative interest rates.
On paper, negative rates make a lot of sense if youre running academic models, but in reality they make no sense, Bass said. This experiment thats going on we all know will end poorly at some point in time. I just dont know when that time is.
Of course, the central bankers know that negative rates can only work if depositors arent hoarding cash. Thats why weve seen high-profile economists and bankers like Larry Summers and Mario Draghi advocate for abolishing higher-denominated currency notes. I think that one of the fears that they have is a run on cash, Bass said. If they told you and I that theyre going to tax your deposits by a hundred basis points, well, its better to put it in a safe or under your mattress. And thats why you see a resurgence in gold. The more they move to negative rates, the more gold is gonna take off because theres no carrying cost.
Central bankers cant print gold: And in a separate Bloomberg appearance, Bass also came out swinging for gold in a world dominated by money printing. Weve always had a position in gold, he said. When you think about the largest central banks in the world, theyve all moved to an unlimited printing ideology. Monetary policy happens to be the only game in town. Im perplexed as to why gold is as low as it is, but I dont have a great answer for you other than you should maintain a position. At some point in time Id much rather own gold than paper. I just dont know when that time is. They cant print any more of it. They can mine some more, but they cant print it at the rate that central banks are printing. I just view gold as another currency, its that simple. I dont view it as a commodity.
And although not an economist, former Congressman Ron Paul of Texas also thinks precious metals are indispensable in the current environment fostered by the Feds interest-rate manipulation.
Long-term its not a very good investment, Paul said of stocks in a CNBC interview. I think were going to go through cycles as we have been whether its the Nasdaq bubble, the housing bubble, or the current bubble. Everything is so out of whack when you look at interest rates at zero and now maybe negative so I think its a very dangerous place to be. Long-term Im not very confident that Im going to put my retirement money into the ordinary stock market. I think that were facing a downturn thats probably a lot worse than what we had in 08 and 09.
Silver looks pretty good: On precious metals, Paul said, In 1971 when Bretton Woods closed down, I bought for the next decade gold and silver and held it as my nest egg and that has done well. And I havent touched that too often, but a month ago though, I bought some silver, and so far it looks pretty good, especially today. … Gold is money, and I think silver is still money, and its sort of catching up, and I was pleased with buying silver about a month ago.
Paul predicted that the U.S. will have to start handing out money (so-called helicopter cash) in order to generate spending. We are destined to continue to spend, continue to run up debt, and continue to print money, and even with the next recession coming when were at zero interest rates, boy, they are going to start passing out money is what theyre going to do.
And those sorts of currency-destroying, inflationary policies are exactly why investors need to have staunch allocations to gold and silver. Numerous analysts think the near term looks positive, especially once gold takes out resistance at the $1,270 level. And certainly the long haul looks even brighter for precious metals given the borrow-and-spend future that Paul has outlined.
Dollar threat – Saudi Arabia to dump 750 billion in US assets over 9-11 bill
Posted onIf the U.S. needed a reminder about one of its greatest Achilles heels on the geopolitical front, Saudi Arabia has given it one: The oil-rich kingdom is threatening to dump up to $750 billion worth of U.S. assets, mainly Treasury bonds, if Congress passes a bill removing the sovereign immunity in U.S. courts enjoyed by the Saudi government. The bill theoretically would allow Saudi Arabia to be held culpable in American courts for any role it might have played in the Sept. 11, 2001, terrorist attacks.
Selloff would avoid any seizure: According to a New York Times report Sunday, the Saudi foreign minister, Adel al-Jubeir, delivered the threat personally in March while in Washington, D.C. Because the bills passage would allow compensation to be sought by 9/11 victims and their families, the sale of such assets would be a pre-emptive move to prevent their seizure.
The controversy is related to 28 pages of the 9/11 investigative commissions report on the attacks that remain classified to this day, reportedly because they detail some level of Saudi involvement. The Obama administration opposes the passage of the bill, saying it might endanger U.S. citizens living or traveling overseas.
Saudi portfolio also vulnerable: Regardless of whether (or not) the Saudis played any role in the attacks, or whether such a sale of assets would be practical, the news highlights the vulnerability of the U.S. because of its debt addiction.
The Los Angeles Times, for instance, points out that a dumping of U.S. assets could carry serious collateral damage for the Saudis themselves. Liquidating their entire holdings of U.S. Treasuries would have to be done over time, and if the sales began to move market prices not necessarily the case that would have an effect on the Saudis own portfolio, it wrote.
And of course, some analysts argue that the Federal Reserve still serves as the ultimate backstop against this threat of a Treasury dump. After all, the central bank could just swoop in and buy up more Treasuries a la its quantitative-easing programs to offset the Saudi selloff. But with the Feds balance sheet already pumped up to a massive $4.5 trillion that still has to be unwound, thats easier said than done.
China dumping bonds slowly, for now: But the elephant in the room remains the fact that Saudi Arabia is not the worlds biggest U.S. bondholder. That would be China, which owns $3.2 trillion worth, followed by Japan, at $1.3 trillion. The three nations together own 35% of the entire U.S. government bond market.
And as the 24/7 Wall St. Web site points out, China is slowly but steadily selling off its Treasury bond holdings, which have fallen 20% since 2014. It also notes the with liquidity drying up in the bond market thanks in part to Chinas liquidation, JPMorgan has estimated the amount of Treasuries that can now be sold in 2015 without affecting price has fallen to $80 million.
Although Saudi Arabia at present might not have the vindictive motivation to dump its Treasury holdings quickly to upset the market, that could change. And whos to say China might not find a reason in the years to come? Numerous high-ranking Chinese policymakers and academics have called for dumping the dollar, and even the Xinhua news agency, during the 2013 U.S. debt-ceiling standoff, urged a move toward a de-Americanized world. And now tensions are running high in the South China Sea as Chinese armed forces play chicken with the U.S. Navy over control of the controversial Spratly Islands.
China already is making multipronged moves to replace the U.S. dollar with its own currency, often in tandem with Russia. The fact that one of Americas biggest allies and chief enabler of the petrodollars supremacy, Saudi Arabia, is now making threats about dumping U.S. government bonds should be very troubling. China and Russia already are planning for the dawn of a de-Americanized world. The notion that Saudi Arabia is now getting in on the game, at least rhetorically, is yet another reason why investors should be diversifying their wealth out of dollars and into alternative currencies like gold and silver.
