Monthly Archives: August 2015

by Dan Popescu
31-Aug (GoldBroker) — There is no better way to describe the international monetary system today than through the statement made in 1971 by U.S. Treasury Secretary, John Connally. He said to his counterparts during a Rome G-10 meeting in November 1971, shortly after the Nixon administration ended the dollar’s convertibility into gold and shifted the international monetary system into a global floating exchange rate regime that, “The dollar is our currency, but your problem.” This remains the U.S. policy towards the international community even today. On several occasions both the past and present chairpersons of the Fed, Ben Bernanke and Janet Yellen, have indicated it still is the U.S. policy as it concerns the dollar.

Is China saying to the world, but more particularly to the U.S., “The yuan is our currency but your problem”? China’s move to weaken the Yuan against the US dollar is in fact a huge response to America’s resistance to reforming the international monetary framework. It’s telling American policy makers that the longer they delay acting on reforming the international monetary system, the harder and longer they are going to make it for the U.S. to climb out of their trade deficit and depreciate their currency to where they need it to be.

China has been preparing for this moment for several years by accumulating gold through its central bank but also by using banks/corporations and individuals. It has in recent years signed several international agreements to bypass the US dollar in international trade and use preferably the Yuan. It has created an alternative World Bank (Asian Infrastructure Investment Bank) and a gold fund to invest in gold mining for more than 60 countries. The project is being overseen by the Shanghai Gold Exchange (SGE) and it is likely that the newly mined gold will be either traded on the SGE or be sold directly to the PBoC and other central banks. It has also bought a large amount of gold and kept the exact amount as secret as possible.

…In the conflictual environment we are now in, it looks more and more to me that gold will impose itself as the de facto money. Jim Rickards, in Currencies after the Crash, edited by Sara Eisen, said, “When all else fails, possibly including a new SDR plan, gold is always waiting in the wings as a stable, widely accepted store of value and universal money. In the end, a global struggle between gold and SDRs for supremacy as “money” may be the next great shock added to the long list of historic shocks to the international monetary system.” Any fiat SDR international settlement currency will only be postponing the inevitable “big reset” to some form of gold standard.

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31-Aug (Reuters) — Wall Street was lower on Monday afternoon as investors worried that the Federal Reserve may start raising interest rates in September, although a rally in oil boosted energy stocks.

The market was poised for its worst monthly drop over three years after being pummeled in the past two weeks due to worries about the health of China’s economy and the timing of the first U.S. rate hike in almost a decade.

Comments on Saturday by Fed Vice Chairman Stanley Fischer added to fears that the central bank may raise rates when it meets next month.

Fischer said U.S. inflation would likely rebound as pressure from the dollar fades, allowing the Fed to raise interest rates gradually.

“What you see in the market today is caused by Fischer’s comments over the weekend. If they move in September, it’s going to cast a lot of doubt about where they will stop,” said Stephen Massocca, chief investment officer at Wedbush Equity Management LLC in San Francisco.

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PG View: Meanwhile, it looks like gold will end the month nearly 4% higher.

31-Aug (Reuters) — China’s gold demand is expected to rise and help push the price of bullion back to about $1,200 an ounce next year, the chairman of Zijin Mining Group, the world’s biggest gold producer by market value, said on Monday.

“China’s government is expected to further increase gold reserves as it takes a very small portion of foreign exchange reserves, and demand from jewelry buying and manufacturing will also pick up,” Chen Jinghe said in an interview.

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31-Aug (Reuters) – Gold fell on Monday extending last week’s slide as indications the Federal Reserve may still raise interest rates this year, despite recent market turmoil, offset a retreat in the dollar.

Spot gold fell 0.4 percent to $1,129.01 an ounce by 1348 GMT, while U.S. gold futures for December delivery dropped $5.50 an ounce to $1,128.50. Gold fell 2.3 percent last week after a slide in Chinese equities rattled wider markets.

The Federal Reserve left open the possibility of a September rate rise at a central banking conference at Jackson Hole, Wyoming, at the weekend, though several officials indicated that prolonged financial market turmoil might delay such a move.

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SharpsPixley/Lawrie Williams/8-29-2015

“August is usually a weak time of year for such gold movements, yet the latest week’s figures are for withdrawals of 73 tonnes – the fourth highest demand week ever! And this follows on from deliveries during the month out of the Exchange of 65 tonnes the previous week and 56 tonnes for the first week of August, making a 3 week total of 194 tonnes of gold. If this kind of demand level continues for the final week of the month – figures should be released next Friday – August will be a remarkable month for SGE gold deliveries at 250 tonnes or more – around 90% of global newly mined gold output for the month. And remember this is physical gold, not paper gold! . . .

All this points to the potential for a real tightness in the supply of physical gold. In truth this has been building for some time now, but it could be getting near the crunch point. . .Sooner or later, physical gold supplies may thus become tight enough to start driving the markets – rather than the paper gold which has been doing so to date. This day may be fast approaching if current gold flows are maintained – or increase as they usually do in the latter part of the year.”

Friday, 28-Aug-2015

Ranjeetha Pakiam (Bloomberg) Gold Bucks Commodity Rout as Turmoil Sends Investors to Havens Gold was spared from the global market rout that’s sent commodities to the lowest level since 1999 as investors sought haven assets.

…Mounting concern that global growth is faltering pummeled shares, emerging-market currencies and commodities last week, and the selloff deepened on Monday.

Note: Gold displayed remarkable resilience during the latest “Black Monday” rout as safe-haven demand offset broad-based deleveraging pressures.

Anora Mahmudova (MarketWatch) U.S. stocks plummet at open; Dow drops 1,000 points U.S. stocks plunged to lowest levels since last October after a rout in Chinese stocks triggered a world-wide selloff of risky assets such as equities. The Dow Jones Industrial Average dropped 1000 points, or 6%, to 15,441. The S&P 500 opened 100 points, or 4.9%, lower at 1,874. The benchmark index is down more than 10% from its peak reached on May 21. The Nasdaq Composite began the day down 360 points, or 7.6%, to 4,349.

Note: Monday was an exciting day indeed for investors world wide . . . and generally not in a good way. While stocks recovered later in the week, many worry that the rout was a harbinger of things to come.

Koos Jansen (BullionStar) Theory On China’s Gold Strategy Koos Jansen’s latest study offers initial proof of a speculation we published here when China announced its change in the yuan price discovery mechanism. “China says it wants a say in the gold price and that’s why it established its own fix outside of London and New York’s purview. If the price of gold in yuan goes higher, it adds value to both Chinese gold reserves, which are likely much higher than recently announced, and to the asset structure of the Chinese people and banks that are hoarding it. In fact the low announcement may have been in anticipation of the devaluation strategy.

Note: The number of U.S. investors saving in gold remains disturbingly low. Take heed people! The dollar is part of the “rodeo” too and has dropped about 7% from the high set early this year.

Matt Egan (CNNMoney) Trading was halted 1,200 times Monday The selling on Wall Street was so dramatic Monday that it triggered unprecedented emergency freezes on stocks. Stocks and exchange-traded funds were automatically halted more than 1,200 times, according to Nasdaq.

The high level of trading pauses highlights just how extreme the selloff was in a short span of time. Fears about China’s economic slowdown caused the Dow to plummet over 1,000 points when the market opened. The Dow ended down 588 points, its worst decline since August 2011.

Note: Particularly interesting was the illiquidity of ETFs during the market rout. That should be an eye-opener for every investor, warranting a reexamination of your portfolio diversification. Do you have enough physical gold?

John Crudele (New York Post) Crudele says Washington attempting to rig the stock recovery, recommends “switching off” CNBC One of these mornings — or overnight — some mysterious buyer will suddenly start purchasing an abnormal amount of Standard & Poor’s 500 stock index futures. So we get down to direct intervention — just like China did. Only Washington, with Wall Street as its co-conspirator, won’t be as sloppy as Beijing was. That’ll get the stock market moving higher and everyone will pretend that the buyers are just ordinary people who suddenly think Wall Street is oversold.

MK Note: In this cogent piece written two days ago, the New York Post’s John Crudele accurately predicted events and provided a pretty good summary on the true forces at work. He is not happy about the cozy relationship between Wall Street and Washington nor the coverage at our favorite stock-hyping cable channel (which he says “tens of thousands” have already abandoned). This piece will confirm what a lot of you are already thinking. . . . .

(Bloomberg) China Sells U.S. Treasuries to Support Yuan China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter.

Note: Interesting turn of events. Devalue against the dollar and then sell Treasuries to prevent the yuan from falling further against the dollar.

Michael J. Kosares (USAGOLD) Key trade in gold market signals China’s intentions WSJ: “In recent years, China has come to shape the very way in which commodities are bought and sold, traditionally the preserve of financial centers such as London and New York. Late last month, the price of gold fell sharply, to a five-year low, within minutes of Asian markets opening. That came after almost five metric tons of gold—close to $200 million of the metal—was sold on the Shanghai Gold Exchange, according to ANZ Bank. The trade was seen by market participants as a key moment reflecting how China had moved Asian commodity markets away from just following the overnight pattern of U.S. and European trading.”

MK Note: The premise of this article is that China will continue to play a key role in shaping commodities’ markets in the years to come, despite the current slowdown, based on its sheer scale. If you follow this blog, you already know of the infrastructure China is putting in place to influence the gold trade and insert itself as a third gold trading center along with London and New York. We should note that the five tonne trade cited above came after the price had dropped. Keep in mind that Shanghai is a physical market exchange. In other words, someone in China took advantage of the price drop to force the market into a delivery of five metric tonnes of the metal.

23-Aug (Financial Times) — The fact that people treat cash as the go-to safe asset when banks are teetering is heavy with historical irony. Paper money was once the symbol of monetary irresponsibility. But even as individuals have taken recent crises as reasons to stock up on banknotes, authorities would do well to consider the arguments for phasing out their use as another “barbarous relic”, the moniker Keynes gave to gold.

Already, by far the largest amount of money exists and is transacted in electronic form — as bank deposits and central bank reserves. But even a little physical currency can cause a lot of distortion to the economic system.

…Fortunately some benefits of electronic money can be reaped without banning all cash outright. Cash could remain accessible but at a cost, so that its users pay for the privilege of anonymity — and remain affected by monetary policy. Dated banknotes could see their value as legal tender gradually fall over time; banks could be charged for swapping electronic reserves for physical cash and vice versa. The benefits of cash are significant — but they need not be offered for free.

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PG View: Positively insidious. In this scenario, you become a hostage of a banking system that pays you next to nothing (or less than nothing) for the use of your money. If you opt to hold physical cash, it comes with an expiration date.

Take some of your wealth out of the banking system and store it in gold. The yellow metal is shelf-stable, with no expiration date!

28-Aug (ZeroHedge) — Well, that didn’t take long!

After just three days of market turmoil the monetary politburo swung into action. This time they sent out B-Dud to promise still another monetary sweetener. Said the head of the New York Fed,

“From my perspective, at this moment, the decision to begin the normalization process at the September FOMC meeting seems less compelling to me than it was a few weeks ago.”

Needless to say, “B-Dud” is a moniker implying extreme disrespect, and Bill Dudley deserves every bit of it. He is a crony capitalist fool and one of the Fed ring-leaders prosecuting a relentless, savage war on savers. Its only purpose is to keep carry trade speculators gorged with free funding in the money markets and to bloat the profits of Wall Street strip-mining operations, like that of his former employer, Goldman Sachs.

The fact is, any one who doesn’t imbibe in the Keynesian Kool-Aid dispensed by the central banking cartel can see in an instant that 80 months of ZIRP has done exactly nothing for the main street economy. Notwithtanding the Fed’s gussied-up theories about monetary “accommodation” and closing the “output gap” the litmus test is real simple.

…What these unspeakably dangerous fools argued was that cash should be abolished so that the central banks could get on with their job of stimulating “depressed” economies by setting interest at negative nominal rates.

In other words, it is apparently not enough that someone who saved $150,000 over a lifetime of work and foregone consumption should earn just $1 per day of interest on liquid savings deposits or treasury bills. No, the central bankers’ posse now wants to actually expropriate these savings by extracting a monthly levy, and by throwing anyone in jail who attempts to hide their wealth outside the controlled banking system by keeping it in private script or unconfiscated greenbacks.

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Former Greek Prime Minister Alexis Tsipras’ leftist Syriza will emerge as the biggest party after next month’s election but without the sizeable margin it was hoping for, the first major opinion poll since he resigned last week showed.

The survey also found that almost two thirds of voters felt Tsipras should not have sought a fresh mandate and that his favored coalition ally would not make it into parliament.

That suggested his gamble to call early elections to consolidate his power base could backfire, though over quarter of voters remained undecided, making the final outcome far from clear.

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28-Aug (CNBC) — Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said Friday he does not believe the central bank should raise interest rates this year, and policymakers may have to consider further quantitative easing.

“Barring big changes in the data between now and September … I don’t see a near-term increase in interest rates as being appropriate, and by near term I mean really through the course of 2015,” he said in an interview on CNBC’s “Squawk Box.”

If the Fed raises interest rates given the current inflation outlook, market watchers will conclude the central bank doesn’t think it can hit 2 percent inflation, he said. As a result, the Fed’s credibility in terms of people’s beliefs about its long-term inflation goals would suffer, he added.

“You’re already seeing that in market data, so this is not some economic theory. This is actually reality,” he said.

It will take a few years to get back to the Fed’s inflation target, he said.

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28-Aug (Wall Street Journal) — Gold prices were slightly higher on the London spot market Friday, but the prospects of a stronger dollar and further good economic news out of the U.S. will likely keep a cap on the price of the metal in the coming weeks.

Gold missed out on the big gains across commodities on Thursday, as the positive U.S. economic data that pushed oil and metals higher dulled traders interest in safe haven assets and increased the likelihood of a September interest rate rise.

On Friday gold traded slightly higher on a day when many commodities appeared to lack firm direction.

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