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.
Silver bullishness hits record highs while gold optimism up to 2012 levels
Posted onGold stayed relatively rangebound Monday, getting an early bounce from failed oil-freeze talks in Doha but later yielding those gains as stocks rose, led by the Dow Jones average breaking 18,000 for the first time since July 2015.
The metal also found some safe-haven buying from uncertainty over big earthquakes in Japan and Ecuador. Gold was trading near $1,233 in late afternoon, while silver was near $16.21.
Gold prices are likely to stay supported around $1,260 in the second quarter ahead of the Feds rate increase, which may happen in July, Natixis analyst Bernard Dahdah told Reuters, thought the timing of that hike remains very uncertain.
Citigroup sees risks in U.S.: Stocks managed to rise despite a new warning from Citigroup on the U.S. economy. The megabank Monday downgraded its growth outlook for 2016-17.
Our outlook has little potential to be surprised on the upside, but the risks are very evident on the downside, wrote William Lee, head of Citigroups North America economics. Recently revised and incoming data imply GDP will grow by 0.9% in (the first quarter) and 1.7% for the year. Its expecting only one late-year interest-rate hike from the Fed.
And if investors needed another reminder about what exactly is propping up U.S. stocks, former Fed Chairman Alan Greenspan gave them one in a CNBC interview April 14, saying: You bring long-term rates down, and the price/earnings ratios in the equity markets go up,which is exactly what they planned to do and its happened that way.
Fed exec urges slow rate hikes: Meanwhile, New York Fed President William reiterated his cautious prognosis for the economy and the banks rate-hike pace, saying, Monetary policy adjustments are likely to be gradual and cautious, as we continue to face significant uncertainties and the headwinds to growth from the financial crisis have not fully abated.
And despite a surge in stocks Monday, more new signs emerged of slowing U.S. economy. Sales and profits are falling at more of Americas biggest companies, CNBC reported, citing a new report from the National Association for Business Economics. The share of those reporting stronger sales dropped to the lowest level in seven years, it added, and, for only the second time since the end of the Great Recession, more respondents said profits were falling than those who said profits were rising at their companies.
Trader bullishness soars: No wonder bullishness over precious metals is near record levels. Money managers increased their wagers on a price rally to the highest since 2012, taking their optimism to a level last seen before a three-year bear market started, Bloomberg reported, citing positioning in the latest CFTC futures trading data that saw net-long positions jump 13% as of April 12.
Silver bullishness is even higher among fund managers. Silver futures have rallied 17% this year, it noted. Money managers last week increased their net-long position in the metal by 30% to 54,885 contracts. Thats the highest since the comparable CFTC data begins in 2006.
UBS sees gold averaging $1,250: Although it thinks gold could slip below $1,200 again if risk appetites increase, UBS issued a note commenting on2016s newfound bullishness in gold. From a bearish stance in Q4 last year, attitudes have turned remarkably positive by the end of Q1 2016, Joni Teves wrote. Global markets entered a phase of heightened risk aversion following the global financial crisis (GFC). In Global Macro Strategy,we expect current high levels of risk aversion to decline, but accommodative policy is needed to reassure markets. This creates a good opportunity for gold to assert its value as a diversifier within a portfolio.
Acknowledging that the spring and summer months historically are marked by price lulls in the metals, UBS nonetheless is cautiously optimistic. Our 3-month target of $1,250 captures this view and the expectation that gold would remain in consolidation phase,especially during these seasonally slower months, to digest the length that has been built up this year. The market may experience some downside pressure around the June FOMC meeting, but continuing interest to buy dips should keep prices supported overall.
Gold refuses to budge: Dundee Economics summed up golds recent performance even better, noting that so far, the yellow metal refuses to decline.
Gold refuses to decline, which may be telling us something, it wrote. Our bias was neutral/negative these last two weeks, because we were concerned there might be a sudden, sharp reduction in the net-long spec position on COMEX (see the chart on p 4), triggered by some event a random, good U.S. economic data release, for example. But gold continues to find strength in Fed developments and the weakish U.S. dollar. Equity market rallies, too, have hardly dampened the gold price. All signs of a new bull market?
Although the potential for another dip below $1,200 exists, the factors that could keep it supported are just as present in todays market, and any number of catalysts could send it soaring again toward $1,300. And right now, the mood remains majority bullish on gold and silver.
Gold will go up by multiples if Fed policy error stokes major new crisis
Posted onRecessionary winds continue to blow briskly through the U.S., and although the mainstream media consistently downplay the downbeat data, the top Republican presidential contenders have seized on the average Americans discontent.
Ted Cruz warned Friday that the rising stock market is an illusion created by the Federal Reserves easy-money policies. The Fed has, for those with assets, driven up stock prices, he said. But thats not built on anything real. Its not built on an increase in the intrinsic value of those assets. Thats just playing games with money, which means a crash will be coming.
Meanwhile, Donald Trump blasted the self-serving elites in the political class, writing in The Wall Street Journal: Let me ask America a question: How has the system been working out for you and your family?
Industrial output falls for 7th month: But the economic numbers tell the tale much more accurately than political campaign rhetoric. Aside from a positive initial-jobless-claims number, a Fed Beige Book that found just modest to moderate growth, and a strong Empire Fed manufacturing report, the data this week has been grim.
U.S. retail sales tanked once again in March, while Fridays report on U.S. manufacturing output for last month declined by the most since February 2015. The U.S. economy has never ever seen industrial production drop year-over-year for seven months in a row without being in a recession, Zero Hedge noted.
Moreover, total business sales have fallen again, and the inventory to sales ratio has hit the highest level since the last financial crisis, Michael Snyder of The Economic Collapse blog noted.When you add these three classic recession signals to the 19 troubling numbers about the U.S. economy that I wrote about last week, it paints a very disturbing picture.
59% polled say economy worsening: And some new key sentiment reports confirm that the U.S. public is not feeling optimistic about the state of the economy. The University of Michigans consumer confidence index fell for the fourth straight month to hit its lowest level since September 2015.
Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation, it noted.
Meanwhile, a new Gallup U.S. Economic Confidence Index found similar pessimism. Fully 59% say the economy is getting worse against just 37% who say it is getting better, CNBC said of the polls findings. That gap of 22 percentage points is the worst since August. Apparently the fear that the days of sub-$2 gasoline prices are coming to an end has stoked the publics unease.
Despite the sluggish growth picture and the inability of the economy to create substantial numbers of middle-class jobs, some on the Fed continue to talk up at least two interest-rate increases this year. That hawkish tone flies in the face of sinking GDP expectations from major independent firms as well as even some of the Feds own number crunchers.
GDP estimates nose-diving: For example, the Atlanta Feds GDP Now tracker currently estimates second-quarter growth at 0.3% as of April 13. And the New York Feds NowCast model just cut first-quarter GDP from 1.5% to just 0.8%, while slashing its second-quarter target from 1.9% to 1.2%. Its first-half 2016 GDP estimate now stands at only 1.0%. With the U.S. economy so close to recessionary GDP numbers, can the Fed afford to raise rates without crashing the system?
Although the top Fed policymakers are denying the U.S. is in danger of a recession, its important to remember that the Fed missed the financial crisis of 2009, with then-chief Ben Bernanke telling the public that all was contained.
Put 10% in gold for insurance: Investors should consider taking advantage of golds current price levels to prepare for the possibility that the Fed could get it awfully wrong all over again. Economists herd and are wrong most of the time, West Shore Funds strategist Jim Rickards told Fox Business this month. The Fed has never predicted a recession; weve had many, so dont listen to economists, listen to executives. Trump may or may not be right, but Id rather listen to an executive than an economist.
On gold allocation levels, Rickards added, I recommend 10% of your investable assets; people say, Sell everything, buy gold. I dont recommend that. Ten percent of your investable assets. If Im wrong and gold does nothing, you wont get hurt with 10%. But if Im right, if everything else crashes or if Trumps right, gold will go up by multiples, so thats your insurance for the rest of your portfolio.
Numismatic market seems to have come to life as National Coin Week begins
Posted onWriting recently in CoinWeek, the president of the American Numismatic Association (ANA) issued a bullish prognosis on the state of the hobby as well as the rare coin market.
The market for rare coins seems to have come to life, Jeff Garrett noted. 2016 should be a great year for the hobby.
Garrett attributed the pickup in the numismatic market to the gains seen in the bullion world, led by golds 17% advance in the first quarter of the year. Although collectible coins dont really derive the bulk of their value from their precious-metals content, Garrett nonetheless noted that the same forces that drive bullion prices also can influence the values of rare coins, namely: the need for physical assets to serve as a hedge against inflation and drops in the stock market, as well as the search for yield in a world of low and even negative interest rates.
Iconic Liberty designed revived: Next week (April 17-23) the ANA celebrates National Coin Week with special events at its Edward C. Rochette Money Museum in Colorado Springs, Colo. Its theme this year is Portraits of Liberty: Icon of Freedom, which marks the centennial of three landmark coin designs: the Mercury (or Winged Liberty) Dime, the Standing Liberty Quarter, and the Walking Liberty Half Dollar.
Sculptor Adolph A. Weinman designed the Winged Liberty Dime and the Walking Liberty Half Dollar, while sculptor Hermon A. MacNeil created the Standing Liberty Quarter. So iconic are these images that the U.S. Mint is releasing 24-karat gold versions of the silver coins to celebrate their original introduction in 1916, with the 2016 gold dime (a tenth-ounce coin) set to go on sale April 21. The gold quarter will be a quarter ounce, while the half dollar will be a half ounce.
But heres an idea: While these modern reproductions of those classic coins are beautiful tributes, why not focus on acquiring the original silver versions? After all, they have been loved by collectors and coveted by investors since they ceased production decades ago: the Mercury Dime ended in 1945, the Standing Liberty Quarter ceased in 1930, and the Walking Liberty Half Dollars last year was 1947. Their value as collectible coins has now been well-established for decades.
Celebrate National Coin Week by buying a rare U.S. coin today!
Unscheduled Fed meetings raise eyebrows as regulators warn JPMorgan threatens U.S. financial stability
Posted onWhats the Federal Reserve been up to lately? Well, for one, the notably secretive central bank has held several unscheduled closed meetings of its top policymakers in the past two weeks.
The Fed announced these meetings on its Web site under expedited procedures. The topics the bankers discussed purportedly included a bank supervisory matter (April 6, April 12); a review and determination by the Board of Governors of the advance and discount rates to be charged by the Federal Reserve Banks (April 11); and a periodic briefing and discussion on financial markets, institutions, and infrastructure (April 13).
Yellen meets with Obama, Biden: Why are these significant? Because the last time such a meeting took place was on November 21, less then a month before the Feds historic first rate hike in years, Zero Hedge noted. With recessionary signs building in the U.S. and the presidential elections generating huge controversies, the Fed could have been discussing some major policy actions to launch if the economy continues to soften.
Even more interesting was another closed meeting on April 11 held after the Feds conclave this one between Fed Chairwoman Janet Yellen and none other than BOTH President Barack Obama and Vice President Joe Biden. Thats almost unprecedented.
President pleased with Yellen: According to the White House, The President and Chair Yellen met this afternoon in the Oval Office as part of an ongoing dialogue on the state of the economy. They discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally. They also discussed the significant progress that has been made through the continued implementation of Wall Street Reform to strengthen our financial system and protect consumers.
Meanwhile, Obamas spokesman issued a statement saying that the president is pleased with the job Yellens been doing, and that the meeting would give them a chance to discuss the economy. Its an opportunity for them in some ways to trade notes on something theyre both looking at quite carefully, Josh Earnest said.
5 big banks fail living will test: But maybe these unprecedented meetings have something to do with an issue thats never quite gone away since the 2009 financial crisis: too big to fail banks.
According to The New York Times, the Fed and the Federal Deposit Insurance Corp. (FDIC) just warned five of the nations eight largest banks, which are now bigger than they were during the financial crisis, that they are still too big to fail. In other words, the five did not have credible plans for how they would wind themselves down in a crisis without sowing panic. That suggests that if there were another crisis today, the government would need to prop up the largest banks if it wanted to avoid financial chaos.
The crisis plans (or living wills) submitted by JPMorgan, Bank of America, Wells Fargo, State Street, and Bank of New York Mellon are not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code, the regulators said.
Letter to JPMorgan heavily censored: Only Citigroup passed the muster of both agencies, while both Goldman Sachs and Morgan Stanley were OKd by only one of the agencies.
The goal to end too big to fail and protect the American taxpayer by ending bailouts remains just that: only a goal, said FDIC Vice Chairman Thomas Hoenig.
The Fed and FDIC also released a heavily redacted letter they sent to JPMorgan, which just announced declining profits and revenue for the first quarter, with the stark warning that the deficiencies in its emergency plan could pose serious adverse effects to the financial stability of the United States.
JPMorgan does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution, the letter read. JPMCs liquidity profile is vulnerable to adverse actions by third parties.
In other words, the biggest U.S. banks especially JPMorgan still remain highly interconnected and vulnerable to contagion if another debt/liquidity crisis erupts. The fact that so much of the banks business had to be censored before publication should raise eyebrows about the relationship of the big banks and their overseers.
Monetary policies at their limit: Moreover, the very regulator overseeing the biggest banks appears dangerously out of bullets to revive the economy without majorly aggressive action. Former Fed chief Alan Greenspan warned that monetary policy has done everything it can unless you want to put additional QEs on. Meanwhile, Greenspans successor at the Fed, Ben Bernanke, just posted an article calling for the radical idea of highly inflationary helicopter money to stimulate the economy, if necessary.
With the biggest banks still dangerous derivative- and debt-stuffed time bombs waiting to go off, the case for gold and silver to protect wealth has perhaps never been greater.
Silver is confirming golds bullish breakout in 2016 with monster rally
Posted onGold hit a three-week high Tuesday and has since pulled back as stocks have risen, but the real story this week has been silver.
After breaking through the psychologically key $16 level, the white metal hit a fresh 5.5-month high of $16.31 and is now up more than 15% for the year.
Silver is finally catching up to the gold rally, Bloomberg noted Tuesday. Silver rallied 7.8% in the past four sessions, more than twice the pace of golds increase, helped by signs of improving industrial demand and mounting speculation that the Federal Reserve will be slow to boost interest rates.
ETFs go through the roof: One reason for silvers resurgence has been strong inflows into exchange-traded funds linked to the metal, while in contrast, gold ETF holdings have been relatively flat in recent weeks. According to Bloomberg, silver ETF holdings have jumped to December 2014 highs.
With about 946 metric tons of silver added to ETFs this year, silver holdings of physically backed ETFs have gone through the roof, Natixis analyst Bernard Dahdah told Reuters.
Eagle sales at record clip: Investments in physical silver also are soaring. As of Tuesday, sales totals of silver American Eagle bullion coins have hit 15.964 million ounces. Thats 31.2% higher than sales at the same time in 2016, which was a record year for silver Eagles.
Meanwhile, the Perth Mint was reporting its strongest silver sales in six months, with the Australian company logging its seventh straight month of sales above 1 million ounces. Its March silver bullion sales are 67.4% higher than Februarys and 175% higher than March 2015.
Maple Leaf sales up 76%: Moreover, according to Jason Hamlin of GoldStockBull, in Canada, the latest quarterly report of Silver Maple Leafs had sales up 76% year on year. Indian silver imports were a record 8,506 tonnes (273,473,854 ounces) in 2015.
Hamlins conclusion? The bottom line is that silver is in the early stage of confirming golds bullish breakout in 2016. It now just needs to push above $16 and hold this level for a few consecutive days.
Key ratio favors silver: The widely watched gold-silver ratio also is flashing a buy signal for the white metal. Down from its March peak of 83.2, its now near 78.7, meaning that it takes that many ounces of silver to buy a single ounce of gold. Though now at about 3.5-month lows, the current ratio still continues to suggest that silver is very undervalued relative to gold.
We see further potential for the silver price to catch up on the gold price in the medium term, Commerzbank analysts wrote. That said, the silver price could suffer a setback in the short term as we believe that it has risen too quickly especially given that speculative financial investors continued to bet heavily on climbing silver prices in the week to April 5, with net long positions totaling 43,300 contracts.
$3,000 gold in 3 years, bull predicts, while HSBC team sets nearer-term $1,500 target
Posted onAfter hitting three-week highs on Tuesday, gold snapped a four-day winning streak but remains poised for further gains, according to several top analysts.
Underpinning gold prices the most is a continuing belief that the Federal Reserve is backing away from the hawkish policy it adopted in December 2015 with its first interest-rate hike in almost a decade. Fed chief Janet Yellen re-emphasized her dovish approach in a new interview with Time magazine, saying the great deal of uncertainty about the global economy justifies her cautious stance as she strived to avoid the big mistakes.
Falling retail-sales numbers for March, as well as an unexpected drop in wholesale prices, add fuel to the Yellens argument that the U.S. recovery remains on shaky ground. Meanwhile, the IMF just slashed global growth forecasts again, while its former top economist warned that Japan is in the terminal stage of an unsustainable debt spiral.
Gundlach still bullish on gold: And DoubleLine Capital exec Jeff Gundlach reiterated his belief that the central bank will stay with its easy-money approach for the rest of 2016, saying he thinks the Fed is one and done in terms of rate hikes this year. I remain bullish on gold; I own gold miners, Gundlach told his clients.
Top Deutsche Bank economist Joseph LaVorgna also predicted ongoing easy-money policies from the Fed, saying corporate debt levels have grown to high for the central bank to risk lifting rates too much.
Currently, the ratio of nonfinancial corporate debt to national income is nearly 45%, an elevated reading that suggests corporate balance sheets are not in particularly good shape, LaVorgna said. Contrary to much of the recent non-Yellen FOMC rhetoric, we believe the Fed will not be able to hike rates very much off their current level.
TDS sees potential $1,307: A weakening U.S. dollar from the Feds policies is one reason that TD Securities sees gold targeting $1,300 this year, along with concerns about a Great Britain exit, or Brexit, from the European Union.
Reduced opportunity cost of holding gold and a limited pool of assets investors/managers have available to hedge against Brexit-related volatility would suggest that prices may still test recent highs near $1,285/oz. if not $1,307/oz. as the quarter unfolds, said TDS analysts.
RBC scenario would hit $1,546: And following RBC Capitals 9% increase in its gold price targets, two of its analysts have issued an ultra-bullish note on the yellow metal. Tyler Broda and Alexandra Slattery see parallels between todays environment and the 1970s when it comes to gold.
A dovish stance has raised the risks for inflation, they wrote, and real rates are now trending back down again along with an increase in gold ETF demand and the gold price.
Based on a regression analysis holding gold as the independent variable, a negative 0.5% real rate level would suggest a gold price of $1,380/oz and a negative 1.0% real rate level would suggest a gold price $1,546/oz.
They conclude: Gold investment appears to be moving towards stronger fundamentals than we have seen over the past few years. In summary, should U.S. monetary policy not be on the path to normalization, a fundamental change in the benefit of gold ownership is taking place, and this increased investment demand should lead to higher gold prices. There is increasing upside risk to gold prices.
Initial target of $1,500 for HSBC: And an HSBC technical team also sees big upside for gold, citing Elliot Wave analysis.
The U.S. dollar price of gold is in an uptrend with a bullish Elliott Wave structure, said Murray Gunn, HSBCs head of technical analysis.
With momentum turning up we open a long position at a spot reference of $1,260. A stop-loss is set at $1,200 with an initial target of $1,500.
Perfect storm could spell $3,000: And speaking at the recent Dubai Precious Metals Conference, Diego Parrilla, co-author of The Energy World Is Flat, predicted that gold could top $3,000 in the next three years. A perfect storm for gold is brewing, he said. Central banks continue to push and test the limits of monetary policy, credit markets, and fiat currencies, which could result in gold prices above $3,000/oz. within three years.
Parrilla thinks that now is the time to buy the dips because gold has few hundred dollars of downside from here but a few thousands of dollars of upside from here.
A perfect storm in gold may be brewing in China as ETFs, yuan fix take off
Posted onSigns of Chinas ongoing love affair indeed, obsession with gold are surfacing almost daily.
A key metric of Chinese gold demand is activity on the Shanghai Gold Exchange. SGE withdrawals for the month of March totaled a brisk 183 metric tons, signaling that domestic wholesale demand remains robust
The Chinese of course are buying jewelry, coins, and bullion bars, but more Western-style investment products linked to gold also are starting to gain traction.
ETFs report surging inflows: According to a Reuters report, two major Chinese gold ETFs have seen investors flocking to their products. The HuaAn ETF saw its holdings leap to 13.5 tons at the end of March from 3.2 tons at the end of 2015, while Bosera Asset Managements ETF recorded a 63% increase in holdings from the end of last year up through March. New gold-linked products are being introduced almost daily, such as one tied to the futures price from China Merchant Securities.
Growing confidence in golds price rally is underpinning investment demand for the metal in top consumer China, even during its post-Lunar New Year period, when buying is traditionally weaker, Reuters reported.
Faith in equities has been lost: We think that there might still be some shocks and uncertainties coming around from global markets that might be driving the risk aversion trade, HuaAns Richard Xu said. And GFMS analyst Samson Li added that The Chinese have lost faith in the domestic equities market and remain cautious towards the property market which left gold as one of the more sensible investments. A perfect storm in gold may be brewing in China.
And that perfect storm might even start to be felt in Western gold epicenters like London. The Shanghai Gold Exchange has announced updates on its new yuan-linked gold benchmark. Eighteen institutions, some Chinese and others not, will participate.
Major Western banks joining: Standard Chartered, ANZ, and Swiss trading house MKS will be among the 18 members, while Chinas largest banks and gold retailers will fill out the rest of the roster.
As the worlds top producer, importer and consumer of gold, China has balked at having to depend on a dollar price in international transactions, and believes its market weight should entitle it to set the price of gold, Reuters reported. The new yuan-linked gold fix will launch April 19 and could ultimately give Asia more power in setting the global gold price.
China buying gold like crazy both over the counter and under the table
Posted onThe bears have been carping over the fact that Chinas March addition to its central-bank gold reserves is the smallest increase since Beijing began announcing updates last year.
The fact that Chinas officially reported gold holdings rose by only 0.5%, from 57.50 million ounces to 57.79 million ounces (or nearly 1,800 tons), therefore signals that demand there is slowing, the media would have us believe.
But anyone with an eye on the larger long-term trend can see through the smoke and mirrors of the gold bashers in the mainstream media.
China lies, says expert: West Shore Funds strategist Jim Rickards has summed up Chinas gold-buying practices on numerous occasions, most recently on Bloomberg TV.
The thing you have to understand about China is theyre the largest gold producer, so they have 450 tons (per year) of indigenous output, he said. So they dont have to import all the gold they want, and (yet) they are importing enormous amounts of gold.
The bottom line for Rickards? China lies about their gold holdings. You can look at Hong Kong exports and mining output as far greater than what the Chinese government says they have. So theres a lot going on thats not revealed.
Aiming for 3,000 more tons: In fact, Rickards argues that China is on course to buy an astronomical amount of gold in coming years. Chinas out to buy another 3,000 tons to reach parity with the U.S., Rickards speculated. It would be 10% of all the official gold in the world. But thats why they dont talk about it. If you were out to buy 3,000 tons, you wouldnt want anyone to know it because the price would go up. The United States has 8,000 tons; China has (between) 4,000 and 5,000 tons, Rickards added, implying that Chinas true bullion holdings are much higher than its officially reported tonnage. They need another 3,000 tons to have parity so when the system collapses theyll have a good seat at the table. Think of it as a poker game: You want a good pile of chips when you sit down at the table.
Some analysts believe the next financial crisis could lead to a reset of the global financial system, in which the dollar would cede ground to Chinas yuan currency (with its implied gold backing) and/or an increasing role for the IMF monetary unit known as the SDR, or Special Drawing Rights. Thus, a huge amount of gold reduces dollar exposure while also bolstering the Chinese yuan as an alternative.
Aggressively scouting for overseas mines: A recent Wall Street Journal article titled China goes prospecting for worlds gold mines bears out Rickards argument about Beijings subtle gold-acquisition strategy.
Chinese gold miners are aggressively scouting for overseas acquisitions, encouraged by historically low gold prices that could help them scoop up assets cheaply, the article noted. If cash-rich Chinese gold miners embark on an asset-buying spree, China could reduce its dependency on other international producers for supplies and increase its heft in global gold markets.
The CEO of Sprott Asset Management confirmed the trend in a comment for the story. China has five to six gold companies. I have been in touch with all of them, and they all have plans for increasing assets overseas, said Peter Grosskopf.
3rd Chinese bank wins London role: Meanwhile, even as it builds up its massive Shanghai Gold Exchange by offering yuan-denominated contracts and inviting foreign bank to participate, its also jockeying for an increasing role in the Wests markets.
The Intercontinental Exchange, one of the largest exchange operators in the world, has just announced that a third Chinese bank the Industrial and Commercial Bank of China (ICBC) has been approved for a role is helping set the global benchmark gold price in London, otherwise known as the LBMA Gold Price.
We welcome ICBCs participation in the LBMA Gold Price. ICBC brings the total to 13 direct participants, a quarter of which are Chinese firms, said ICE President Finbarr Hutcheson. The continued growth and interest of firms to become direct participants demonstrates the global significance of the LBMA Gold Price benchmark and the importance of the auction as the key point of liquidity for physical spot gold.
I am very pleased to welcome the third Chinese bank to join as a direct participant in the auction process, added the London Bullion Market Association s chief executive, Ruth Crowell. This takes the total number of participants to 13, seven more than when the LBMA Gold Price was launched on the 20 March 2015. This demonstrates the international appeal and liquidity of the auction.
Buying an awful lot of gold: Thus, Chinas role in setting prices continues to grow. From going straight to the source of overseas gold mines through its state-owned firms, while gaining a foothold among Londons gold market makers, Beijing isnt turning its back on the yellow metal, no matter what you may have been told by the mainstream media.
Kenneth Hoffman, Bloombergs expert on precious metals, also doesnt buy into the anti-gold propaganda. Right now gold has everything at its back, he recently noted. Whats been holding gold in there and then really maddening the bears is there has been a bid for gold out of China. The Chinese love gold, theyve been buying it like crazy, and theyve been constantly in the market. Particularly every time gold has had a leg back, the Chinese always step in and buy an awful lot.
Gold can clinch bull-market status with strong 2nd quarter, says WGC
Posted onNow that gold has experienced its best single-quarter performance in three decades, the question remains: How long can bullion keep gaining?
In a new report titled Gold outshines the market in Q1 2016, the World Gold Council is bullish on the second quarter. We may be entering a new bull market for gold, it wrote.
Five factors helped drive gold to a 17% advance in the first quarter that beat all other major asset classes, the WGC notes:
- concern about economic growth and financial stability in emerging markets;
- a pause in the dollars rise;
- the increasing use of negative interest rates;
- strong investment demand; and
- momentum.
Those factors should remain in place, the WGC said. And with U.S. Mint gold-coin sales, surging near-record inflows into gold ETFs, and a huge increase net-long futures positions on the Comex, the council is predicting increasing investment from both the retail and the institutional (particularly central-bank) sectors.
If gold can sustain its momentum for a second straight quarter, it should have the wind at its back and make the case for a renewed bull market in 2016. The metals roughly 52-month bearish trend since the price peaked in September 2011 has lasted about as long as previous bear markets in gold, the council noted.
But even more importantly, history also shows that two consecutive quarters of strong returns have typically resulted in a more sustained rally. So far, we have had one very strong quarter. But inflows into gold look, to us, set to remain robust in second quarter, as the current macroeconomic environment remains supportive for both investment and central bank demand. The WGC also noted the potential for the next financial crisis to spill over into interconnected global markets, thus increasing golds appeal going forward, as well as the preponderance of negative rates in major economies to drive investors into alternative investments.
Therefore, based on the World Gold Councils analysis of golds first-quarter resurgence, the answer to the question of whether gold could seal the deal on two winning quarters in a row is a resounding yes. Time will tell.
