“Bond pros have been watching the data for clues as to whether China would dump Treasury securities to retaliate against U.S. tariffs, but the July data does not indicate a major move, several strategists said.”
USAGOLD note: Japan not China has been the leader in reducing bond holdings over the past two years. China has actually added marginally to its holdings over the period. . . .See below. That said, we still do not know how China is likely to react to the current trade war pressures. The greatest danger to the bond market could very well become Chinese and Japanese bond liquidations to prop up their currencies and discourage capital flight – an economic necessity rather than a wilful retaliation.
Click to enlarge.
“The benchmark 10-year Treasury yield extended its move above a key 3 per cent threshold on Tuesday, as investors took new trade tariffs into their stride and instead responded to expectations of further interest rate increases by the Federal Reserve.”
USAGOLD note: The latest TIC report posted above shows a minor reduction in China’s bond holdings. Some in the media say that news may have triggered today’s Treasuries’ sell-off.
South China Post/Yuging Liu/9-14-2018
“But [Shangdong Gold’s chairman, Li Guohong] said the company was confident that an upwards trend in gold prices will emerge within the next 12 months, with interest rates steadying in the US by the end of next year. Increasing geopolitical tensions will also fuel the demand for gold as a safe haven, he added. The company counts the Shanghai Gold Exchange, the world’s largest spot physical gold exchange, as its top client, making up 73 per cent of its sales in 2017.”
USAGOLD note: Shangdong Gold is state-owned. Its chairman’s optimistic view on gold’s future is particularly interesting when you take into account the current interaction between the yuan and gold. Does it tell us something about China’s intentions with respect to the yuan? China has publicly stated its interest in making the yuan a viable competitor to the dollar for international reserve status. One might read in all of this that Li Guohong and Shangdong Gold take that commitment seriously. By the way, those sales on the SGE are recycled to the nation’s population and banks which, in turn, are owned by the Peoples Bank of China. Acquiring mines, like the Valdero mine in Argentina, in our view, is a back-door scheme for China to build its gold reserves.
“Large precious metals speculators decreased their bearish net positions in the markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday. . . The speculative bearish position was reduced for a second time out of the past three weeks following six straight weeks of rising bearish bets (through August 21st). The gold spec position has now been in bearish territory for five straight weeks after falling into a bearish standing on August 14th.”
Table courtesy of GoldSeek.com
USAGOLD note: Some covering of record short position , but not a rush for the exits – as yet.
Reuters/David Shepardson and David Morgan/9-16-2018
“The Chinese government may decline to participate in proposed trade talks with the United States later this month if the Trump administration moves forward with additional tariffs on imported Chinese goods, the Wall Street Journal reported on Sunday, citing Chinese officials.”
USAGOLD note: The Trump administration is preparing a new round of $200 billion in tariffs to launch as early as next week, perhaps even Monday. China says it will not negotiate with a gun pointed to its head. Thus far the markets have treated the trade war as a sound and fury signifying nothing. One wonders what happens if that changes. We might find out next week.
Financial Times/Phillip Stafford and David Sheppard/9-13-2018
“Nasdaq, the principal trading exchange where futures contracts tied to physical energy markets in the Nordic region are transacted, said a clearing member had defaulted on Tuesday after they were unable to meet margin calls at its clearing house on loss-making trades.”
USAGOLD note: Over €100 million vanishes. . . exchanges and a clearing house cover losses. There is no way to know how much of this sort of thing is lingering out there in trader land. Nor do we know how much of the global financial system is at risk. In this particular case, we do not know what other trading entities might be at risk.
The Silver Institute/9-12-2018
“China will continue to be a major driver in the global silver market for years to come, fueled by continued industrial demand and silver mining activity. China is by far the largest consumer of silver globally, accounting for 18% of global fabrication demand in recent years. In addition, to meet its robust demand needs, the country is a major destination for imported silver products fabricated in the U.S., Japan and other countries. Moreover, China is also the third largest silver producing country worldwide and is a key nation for processing primary raw materials from around the world.”
USAGOLD note: It is a little known fact that China’s influence in the silver market is binary. It is the world’s largest consumer of the metal. It is also a major producer whose production stays, for the most part, within the country’s borders. As an aside, we should not ignore India’s growing role in the silver market as a major consumer.
Growing U.S. unilateralism is an opportunity to end the greenback’s dominance.
Bloomberg Opinion/Leonid Bershidsky/9-12-2018
“The euro must become the face and the instrument of a new, more sovereign Europe,” [European Commission President Jean-Claude] Juncker said. “It is absurd that Europe pays for 80 percent of its energy import bill — worth 300 billion euro a year — in U.S. dollar when only roughly 2 percent of our energy imports come from the United States. It is absurd that European companies buy European planes in dollars instead of euro.”
USAGOLD note: Even globalists these days are starting to sound like nationalists. . . .
“‘I think it will be more severe in terms of the social, political problems. And I think it will be more difficult to handle … It won’t be the same in the terms of the big-bang debt crisis. It’ll be a slower growing, more constricting sort of debt crisis that I think will have bigger social implications and bigger international implications.”
USAGOLD note: Dalio says investors should be playing some defense.
“To help keep the economy and stocks moving forward, the Federal Reserve should not increase interest rates faster than the market expects, said Dalio, co-chairman and co-chief investment officer of Bridgewater Associates. For now, Dalio warns that investors should be ‘more defensive’ in the stock market and “as time progresses” he sees the risks increasing.”
USAGOLD note: We are likely to get some interesting comments from Ray Dalio in the weeks to come. His statements to CNBC in this interview seem tame compared to observations and analysis from the past. His new book – A Template for Understanding Big Debt Crises – was published recently and he will be out on the circuit. Dalio, as most of you know, is an outspoken advocate for gold ownership.
The Silver Institute/August, 2018
“This study is intended to inform Silver Institute members and the general public about the critical role silver has played and will continue to play in the ongoing green revolution, both within the electrical generation segment and the transportation and related charging infrastructure segments. It will provide a robust framework for evaluating future changes in silver demand within these two markets, focusing on the key macroeconomic, policy and technological views and changes required to bring about such a revolution.”
USAGOLD note: The current gold-silver ratio is 84 to 1. . . .
Reuters/Elias Glenn and Lusha Zang/9-7-2018
“China’s trade surplus with the United States widened to a record in August even as the country’s export growth slowed slightly, an outcome that could push President Donald Trump to turn up the heat on Beijing in their cantankerous trade dispute.”
USAGOLD note: If there is pressure within the White House to go easy on China and the trade issue in general, this kind of news saps it and is probably the basis for the president’s subsequent threat to impost tariffs on another $200 billion of Chinese imports. As we have mentioned in the past, the trade war with China has been gold negative initially, but it could become gold positive down the road as the inflationary result of tariffs begins to show up in the monthly Consumer Price Index.
The Economic Times/Gayatri Nayak/9-3-2018
“The Reserve Bank of India (RBI) has bought gold for the first time in nearly a decade, signalling that the metal could be in demand as a store of value when returns and capital values of fixed-income bonds are declining in a rising rate environment.”
USAGOLD note: India buying the dip. . . . .
“Commodities-related revenue at the 12 biggest investment banks in the first half gained 38 percent year on year, driven by the energy and base metals sectors, consultancy Coalition said on Thursday.”
USAGOLD note: Investor interest in commodities is picking up noticeably, according to this article, and is being led by trading departments at the big international banks.
Coin World/Paul Gilkes/9-6-2018
“The United States Mint notified its authorized purchasers Sept. 6 that the bureau’s inventory of American Eagle silver bullion coins is temporarily exhausted. Mint spokesman Michael White released the notification memo that was sent to the authorized purchasers:
‘This is to inform you that due to recent increased demand, the United States Mint has temporarily sold out of its inventories of 2018 American Eagle Silver Bullion Coins,’ the memo reads. ‘All orders received prior to this communication shall be honored. The United States Mint is in the process of producing additional 2018 American Eagle Silver Bullion Coins. We will make these coins available for sale shortly.’”
USAGOLD note: Once backlogging begins, it tends to build-up in the system and almost always inspires fresh demand. So even if the Mint ramps up production, its capacity is limited and further disruptions can occur. We first reported on American Eagle silver bullion coin demand surge Tuesday [LINK 9-4-2018]. Artificially low prices, driven by paper traders on the commodities exchanges, can create distortions in the physical market, the most burdensome being shortages and premium increases.
Back-date stocks have already been pretty much depleted as we reported on Tuesday and will only put more pressure on the Mint to meet demand. We have had some uptick in premiums but nothing substantial as yet. The history of premium increases, though, is that they can be aggressive and occur quickly without warning. Investors have been watching for a bottom and there is quite a bit of pent-up demand present in the silver market.
Current pricing for silver American Eagles is posted at our Online Order Desk. You can order online if you have an interest or call the Trading Desk at 1-800-869-5115 x 100.
“Years of doomsday talk at Silicon Valley dinner parties has turned to action. In recent months, two 150-ton survival bunkers journeyed by land and sea from a Texas warehouse to the shores of New Zealand, where they’re buried 11 feet underground. Seven Silicon Valley entrepreneurs have purchased bunkers from Rising S Co. and planted them in New Zealand in the past two years, said Gary Lynch, the manufacturer’s general manager. At the first sign of an apocalypse — nuclear war, a killer germ, a French Revolution-style uprising targeting the 1 percent — the Californians plan to hop on a private jet and hunker down, he said.”
USAGOLD note: We bring attention to this article to show the level of concern about economic, social and political instability among very rich, self-made, independently-minded entrepreneurs. The placidity of the moment can give way to chaos in a heartbeat as anyone who has studied history – or lived through a Venezuela-type moment – will attest. The odds of society having to deal with a breakdown at this level are slim, as these occurrences are rare. It is the many levels of danger short of the ultimate unraveling that truly need to be hedged, bridged, survived. Anyone who has thought their way through the problem will find their way to gold – the most effective and practical insurance policy against the dangers outlined in this article and the one that buys time. . . .that most valuable of commodities.
South China Morning Post/Louise Moon/9-6-2018
“Advisers to Asia’s super rich think their clients should put more of their money into gold, taking advantage of price declines to buy the yellow metal amid volatile global markets and US-China trade tensions, a new report said. A survey of these advisers found a preference for gold holdings amounting to 5 per cent to 10 per cent of total assets. That is up from an earlier recommendation of 3 per cent to 5 per cent, according the report, ‘Going for Gold’, which was released on Wednesday by US financial services firm INTL FCStone.”
“The U.S. trade deficit rose to a five-month high in July, with the politically sensitive gap with China hitting a record high, which economists said could embolden the Trump administration to aggressively pursue its ‘America First’ agenda.”
“The rout in emerging markets showed no sign of letting up, with most currencies weakening and an index of stocks nearing a bear market. South Africa’s rand led the sell-off, falling to the lowest level in more than two years, followed by Mexico’s peso. The MSCI Emerging Markets Index of shares dropped for a sixth day, set for its steepest slide in three weeks.”
“Investors will have to wait a few more weeks before the gold market is ready to shake off its summer lulls, according to one gold market analyst. In an exclusive interview with Kitco News, George Milling-Stanley, head of gold investments at State Street Global Advisors, said that he is expecting buying momentum to pick up by the end of September after the Federal Reserve raises interest rates for a third time this year and physical demand from important gold consumer nations increases in preparation for important holidays.”
“Argentina and Turkey look like outliers but the rot could spread fast. Emerging-market stresses have been building since at least 2013. Investors may have forgotten the effect of the ‘taper tantrum on the so-called Fragile Five – Brazil, India, Indonesia, Turkey and South Africa – a term coined by Morgan Stanley to describe their vulnerability to capital outflows.”
Gold Eagle/Zachary Storella/9-2-2018
“Large speculators cut back on their bearish net positions in the Gold futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday. The non-commercial futures contracts of Gold futures, traded by large speculators and hedge funds, totaled a net position of -3,063 contracts in the data reported through Tuesday August 28th. This was a weekly advance of 5,647 contracts from the previous week which had a total of -8,710 net contracts.”
The Economic Times/Santanuka Ghosal/8-31-2018
“‘There is an expectation in the market that gold will touch Rupee 32,000 per 10 gm (without GST) by Diwali. So, people have started buying,’ said Surendra Mehta, national secretary of India Bullion & Jewellers Association. Bullion traders and jewellers expect festive season demand to be 5-10 per cent higher than last year’s despite prices moving up in the local market due to weakness in the rupee.”
USAGOLD note: Demand for gold in emerging countries associated with currency and debt problems – and those problems are widespread – will likely push up premiums, particularly if prices generated in the global paper markets do not keep up with burgeoning physical demand. Through premiums, the physical market adjusts to market realities. We pass along the Economic Times report on India as an example.
“Investors are returning to gold exchange-traded funds, said BMO Capital Markets. Analysts cited Bloomberg data showing that global ETFs added some 225,000 ounces to holdings on Wednesday. This is the highest single-day inflow since mid-April.”
USAGOLD note: Though the various problems with gold ETFs are well-known among Main Street gold investors, we still track them as an indicator of current hedge fund and institutional interest.
Bloomberg/Rita Nazareth and Ben Bartenstein/8-30-2018
“The peso tumbled to a record low, prompting Argentine policy makers to boost the nation’s interest rate to 60 percent in a bid to shore up confidence. In Turkey, a report that the central bank’s deputy governor was set to resign sank the lira. South Africa’s rand slumped, sending volatility to its highest since December 2016 amid a controversial land reform debate. Brazil’s real pared losses after the monetary authority extended its currency intervention.”
USAGOLD note: Contagion. Where does it stop?
The Jakarta Post/News Desk/8-30-2018
“State-owned mining company PT Aneka Tambang (Antam) has said its gold sales jumped significantly in the first half of 2018 as a result of the weakening rupiah. . .“An impact of the dollar strengthening is that people are buying gold. Domestic demand has increased. . .”
USAGOLD note: Indonesia joins a number of emerging countries experiencing greatly increased gold demand among citizens concerned about currency and debt problems. The list, in fact, grows longer by the day.
Chart courtesy of TradingEconomics.com
“Four in 10 Americans are struggling to pay for their basic needs such as groceries or housing, a problem even middle-class households confront, according to a new study from the Urban Institute. Despite the U.S. economy being near full employment, 39.4 percent of adults between 18 and 64 years old said they experienced at least one type of material hardship in 2017, according to the study, which surveyed more than 7,500 adults about whether they had trouble paying for housing, utilities, food or health care.”
USAGOLD note: This articles states that researchers were surprised at these statistics. They weren’t the only ones.
“India is set to overtake China as the biggest source of growth for oil demand by 2024, according to a forecast announced Monday by research and consultancy group Wood Mackenzie. . . India’s expanding middle class will be a key factor, as well as its growing need for mobility, according to Wood Mackenzie.”
USAGOLD note: The rise of the middle class in both economies bodes well for future gold demand.
CNBC/Yen Nee Lee/8-29-2018
“The Indonesian rupiah should stabilize from here on out, the country’s trade minister, Enggartiasto Lukita, told CNBC. The rupiah is one of the worst-performing Asian currencies this year as investors flee emerging markets with current account and fiscal deficits. “
USAGOLD note: A familiar refrain. . .and of the kind that these days inspires a reaction opposite of what is intended.
Financial Times/Joachim Fels/8-27-2018
“Damned if they keep raising, damned if they don’t. Federal Reserve chair Jay Powell and his colleagues face a difficult choice over the next few months — and it is one that could have unpleasant ramifications whatever they decide.”
USAGOLD note: So raise or stay pat after September, that is the question. As of Friday, Powell made it clear that he wants to keep the central bank’s options open, but that, in itself, was interpreted as a dovish tilt. This article does a good job of outlining what the Fed is up against with emphasis on the big build-up in emerging country debt since the financial crisis and the impact it is now having on Fed policy decisions. It also raises the possibility of a pause in raising rates after September.