Author Archives: News

Turkey’s currency, inflation problems driving up gold coin demand

Bloomberg/Cagan Koc, Rupert Rowling and Eddie van der Walt/5-24-2018

“‘Turkish people have an interesting behavior — they buy gold when the prices are rising, they think it’s gonna rise more,’ said Gokhan Karakan, 32, who runs a gold exchange office in the heart of Istanbul’s Grand Bazaar. ‘People think there is a trend here and choose to buy gold until uncertainty is out of the way.’”

USAGOLD  note:  The rising dollar is putting enormous downward pressure on emerging country currencies, including Turkey’s lira. At the same time, the internal problems created in these countries as a result of that process – the inflation and systemic bank risks – also inspire strong demand for gold coins and bullion. As this Bloomberg article notes, ancient Lydia located in present-day Turkey is where gold coins, like the one shown to the left, were first minted in the sixth century BC.  Croesus, the Lydian king who struck the first gold coin in electrum (an alloy of gold and silver), is the ruler who gave rise to the legend of King Midas and the golden touch.

Photo courtesy of the British Museum, London, UK

 
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China-U.S. trade war timeline offers perspective

tradevistas/Lauren Kyger/5-24-2018

USAGOLD note:  Nice visualization and summary for those who would like to gain a little perspective on what has gone down thus far . . . .

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The Gamble: If gold won’t go up, push the dollar down

Bloomberg/Sebastian Edwards/5-24-2018

USAGOLD note: Part three in this interesting four part series on Roosevelt’s gold gambit.  Secretary of the Treasury Dean Acheson opposes Roosevelt’s plan to his detriment.

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Trump calls off summit meeting with North Korea, extends gold upside

@realDonaldTrump: “Sadly, I was forced to cancel the Summit Meeting in Singapore with Kim Jung Un. “

USAGOLD note:  The cancellation of talks with North Korea added to gold’s upside this morning.

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Japanese investors once bitten, twice shy on U.S. Treasuries

Bloomberg/Chikako Mogi and Takako Taniguchi/5-24-2018

USAGOLD note:  Some insights as to why Japanese banks are staying away from U.S. Treasuries and even selling . . . .

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Fed minutes suggest few worries of economy overheating – NYT

New York Times/Jim Tankersley/5-23-2018

“Federal Reserve officials gave no indication that they are likely to speed up their pace of interest rate increases during their most recent two-day meeting, suggesting instead that they would be willing to allow the inflation rate to rise slightly above 2 percent for a ‘temporary period, while the economy continues to expand.”

USAGOLD note:  Subtle changes are occurring in Fed policy.  We must remember that the Federal Open Market Committee consists of individuals with differing views and views subject to change.  The Fed is not a monolith and it is not beyond politics and being swayed by imminent economic concerns.  That, in some ways, is what is so silly about investors and speculators hanging on every uttered word, phrase, sentence and paragraph  . . . . . .

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Franklin Roosevelt’s 1933 gold bombshell – Part two

Bloomberg/Sebastian Edwards/5-23-2018

“The global reaction in fall 1933 was calm bewilderment. Second of four excerpts from ‘American Default.’”

USAGOLD note #1:  What this short treatise carefully avoids is what made the government price mandate a workable proposition – the seizure of privately owned gold bullion in April, 1933 that came before the gold price fixing scheme discussed at the link above.  Had Americans been permitted to own gold, they might abort the scheme by buying it if the government price were to low or selling it if the price were too high. Perhaps the seizure issue is handled elsewhere in Sebastian Edwards’ book, and as carefully as this piece is written we would not be surprised if it were.  However, those reading this important history for the first time might not be aware of that a previous executive order (#6102) made the subsequent orders feasible as a practical matter.

Photo Credit Franklin D. Roosevelt Presidential Library, Hyde Park, N.Y.

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President further downplays China trade expectations

CNBC/Kate Rooney/5-23-2018

USAGOLD note:  The president says the framework being discussed will be “too hard to get done and verify results after completion.”  That should throw a wrench a things for awhile.  Meanwhile, the Treasury secretary one day ago said China steel and aluminum tariffs will stay in place, but that was a day ago.  .   .  .

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Turkey goes full blown “currency crisis”

Bloomberg/Dana El Baltaji and Tugce Ozsoy/5-23-2018

“Turkey is entering the throes of a full-blown currency crisis. The lira suffered its biggest loss in almost a decade Wednesday on a closing basis as trader confidence in the central bank’s willingness to halt its slide all but evaporated.”

USAGOLD note:  Turkey is not the only emerging country with currency/debt problems associated with the strong dollar on international markets.  In trading circles these problems translate to a weaker gold price, but in the countries affected it is sure to generate strong demand for physical metal among the citizenry. The lira was down 5% in overnight trading.

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$17 billion treasure, sunken galleon found off coast of Columbia

Independent/Chris Baynes/5-23-2018

USAGOLD note:    Doubloons and pieces of eight.  The British navy sunk the galleon in 1708 in the War of Spanish Succession.  If past finds are an indicator, there will be a long battle between Columbia’s government and the treasure hunters over the rights.

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Trump: There’s no deal with China on ZTE, and I’m not satisfied with trade talks

CNBC/Jacob Pramuk and Mike Calia/5-22-2018

“President Donald Trump says his administration has not yet reached a deal with China on saving Chinese telecommunications company ZTE, contrary to reports. Trump faces bipartisan backlash on Capitol Hill over a potential deal to lift sanctions on the firm. The president says he is not satisfied with trade talks with China that took place in Washington last week.”

USAGOLD note:  Obviously, there is considerable disarray in the administration on the China trade issue.  Just a few days ago, we warned in the DMR that what is seemingly under control today can suddenly spin out of control tomorrow. Just yesterday Treasury Secretary Mnuchin told the country that “we’ve made meaningful progress on China trade wars.” The president just gave the nation the opposite impression. . . . . .

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Citigroup says Treasury sell-off signals bearish new era for risk

Bloomberg/Sid Verma/5-21-2008

“As the Treasury selloff kicks off in earnest, Citigroup Inc. says investors should prepare for a possible ‘normalization’’ of risk premiums across credit and emerging markets as the era of monetary distortion unravels.”

USAGOLD note:  “Normalization” sounds innocuous enough until you consider what it might really mean – a potential global debt crisis as emerging countries struggle with domestic currency problems and systemic risks coupled with repayment of debts denominated in dollars – the double whammy as Harvard economist Carmen Reinhart called it in an article referenced here last week.

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Corporate bonds sink fast in one of worst tumbles since 2000

Bloomberg/Cecile Gutscher/5-21-2018

“You need to rifle through 18 years of history to find selloffs that compare to the one corporate bond investors are now enduring. Debt of American companies just posted their third-worst 100-day returns since 2000, according to a JPMorgan Chase & Co. index, as tighter monetary conditions leave their mark on high-quality bonds with longer maturities.”

USAGOLD note:  An unwelcome and debilitating consequence to rising interest rates. . . . .

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Warren Buffett explains why he never listens to economists

CNBC/Tae Kim/5-18-2018

“‘I don’t pay any attention to what economists say, frankly,’ Buffett said two years ago. ‘Well, think about it. You have all these economists with 160 IQs that spend their life studying it, can you name me one super-wealthy economist that’s ever made money out of securities? No.'”

MK note:  I’ve always found the economists who concentrate on the history of economics and finance much more interesting than those on a mission to make economics a branch of physics.

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Fed’s Bullard sees no need to ‘scramble’ to hike rates

Bloomberg/5-18-2018

“We don’t have inflation worries like in the 1970s-80s.”

USAGOLD note:  The doves are in the minority at the Fed but that could change in a hurry if inflation fails to materialize.  Concerns remain that the Fed is tightening into a economic slowdown – a prescription that some will liken to the Fed’s posture before the 1929 stock market meltdown and subsequent economic depression.  I don’t think many foresaw the current strength in the dollar or the rapid descent into mayhem it would cause among some emerging countries.

My read on chairman Powell’s, keeping in mind the Fed’s most recent public remarks, is that he has begun to think that keeping the options open might be the best strategy at this juncture.  I will add to this short comment – and I do not do so to confuse but to provide a caution – that the history of inflation is that it almost always surfaces suddenly and without warning.

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Diamond jewellery demand at all-time high – De Beers

Mining Weekly/Simone Liedtke/5-17-2018

“Global consumer demand for diamond jewellery hit a new all-time high in 2017, climbing to $82-billion, a 2% increase on the previous year, according to industry insight data published by De Beers on Thursday.”

USAGOLD note:  The United States is number one in diamond jewellery demand and China is number two – interesting little known fact.

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Trump: I ‘doubt’ China trade negotiations will succeed

CNBC/Jacob Pramuk/5-18-2018

“‘Will that be successful? I tend to doubt it,’ the president told reporters during an appearance with NATO Secretary-General Jens Stoltenberg. ‘The reason I doubt it is because China has become very spoiled. The European Union has become very spoiled. Other countries have become very spoiled, because they always got 100 percent of whatever they wanted from the United States. . . . But we can’t allow that to happen anymore,’ Trump added.”

USAGOLD note:  That comment comes as China and the United States sit down to the latest round of trade negotiations in Washington.  Posturing or honest assessment?  The media will be parsing that one for days if not weeks to come, but I chalk it up under the honest assessment column.  Keep the bar low and any progress will be seen as remarkable.  Meanwhile, China issued a statement overnight denying it had agreed to the $200 trade deficit reduction demanded by the Trump administration.

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Italian bond yields jump after report that 5-Star, League want ECB to forgive debt

Reuters/Staff/5-16-2018

“Borrowing costs in Italy jumped in early Wednesday trade, pushing out the gap over benchmark German bond yields after a report that Italy’s 5-Star and League plan to ask the ECB to forgive 250 billion euros of Italian debt.”

USAGOLD note:  There has not been further confirmation of this report since Reuters published on Wednesday, but it is interesting nevertheless.  There is much going on behind the scenes in Italy on its future direction, and much has been said, but nothing as yet has surfaced on the actual 5-Star/League program with respect to its relationship with the rest of the European Union.

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Fitch says emerging markets vulnerable as debt hits $19 trillion

Bloomberg/Selcuk Gokoluk/5-17-2018

“Debt levels that quadrupled in a decade have made emerging markets vulnerable to tightening financial conditions in the era of rising U.S. interest rates, Fitch Ratings said.”

USAGOLD note:  It is the equivalent of the individual who maxes out his or her credit cards then begins to suffer the effects of rising interest rates and payments.  In the case of emerging countries income levels are likely to remain static or decline compounding the problem.  Industrialized countries can be pulled into the emerging debt vortex via the contagion effect.  In October, 1997 the U.S. stock market dropped 7.2% in a single day during the “Asian flu” debt crisis.  In today’s terms that would equate to a drop in the DJIA of nearly 1800 points.

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It’s not China, but Japan, that is selling U.S. Treasuries

Reuters/Richard Leong/5-15-2018

“China’s holdings of U.S. Treasuries grew for a second month in March to $1.188 trillion, its highest level since October, even as overall foreign purchases of Treasuries fell, data from the Treasury Department showed on Tuesday.”

MK note:  It’s not China, but Japan, that is selling U.S. Treasuries. This Reuters report paints an interesting picture of recent international capital flows. Foreign investors, as the headline indicates, are dumping stocks.

Here’s the link to the Treasury Department’s full table on foreign holders of U.S. debt.

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Wall Street drops on concerns over US-China trade woes, rising inflation

Reuters/Medha Singh/5-15-2018

“Wall Street indexes fell on Tuesday as investors worried about a lack of progress in U.S.-China trade talks and Treasury yields rose after U.S. retail sales data indicated rising inflation.”

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Erdogan plans to tighten his grip on Turkey’s economy

Bloomberg/Guy Johnson and James Hertling/5-14-2018

“With the Turkish lira at a record low against the dollar and down this year against all 17 major currencies tracked by Bloomberg, Erdogan told Bloomberg TV in London on Monday that after the vote transforms Turkey into a full presidential system, he expects the central bank will have to heed his calls for lower interest rates. The central bank’s key rate is now 13.5 percent, compared with 10.9 percent consumer-price inflation.”

MK note:  Such intentions are likely to send the Turkish lira into another tailspin. “When the people fall into difficulties because of monetary policies. They’ll hold the president accountable,” Erdogan told Bloomberg.  The Trump administration might be taking notes . . . .

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U.S., China still ‘very far apart’ on trade: U.S. ambassador

TRADE WARS UPDATE

Reuters/Leika Kihara/5-15-2018

“The United States wants China to give a timetable on how it will open up its markets to U.S. exports as the two countries are still ‘very far apart’ on resolving trade frictions, U.S. Ambassador to China Terry Branstad said on Tuesday.”

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Goldman: Something strange is happening with the US economy that could cause interest rates to jump

CNBC/Jeff Cox/5-14-2018

“America’s budget deficit and unemployment rate are heading in opposite directions — something that’s never happened during post-World War II peacetime and could cause a significant jump in interest rates. Goldman Sachs projects, for instance, that the 10-year Treasury note could be yielding 3.6 percent next year.”

MK note:  We can add this to long and growing list of difficult-to-explain anomalies present in today’s economy.

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China’s crude oil futures boom amid looming Iran sanctions

Reuters/Henning Gloystein and Meng Meng/4-14-2018

“A U.S. decision to reimpose sanctions on Iran is supporting China’s newly established crude oil futures, and may spur efforts to start trading oil in yuan rather than dollars, traders and analysts said. . . . Traded daily volumes hit a record 250,000 lots last Wednesday, more than double the day before, spurred by news of the Iran sanctions.”

MK note:  File this one under unintended consequences.  Among the far-reaching consequences of the petroyuan is the indirect effect it will have on gold demand and prices.

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Crude oil price forecast: $100 per barrel by 2019

Investopedia/Gary Ashton/5-12-2018

“Disruption in Iran could force OPEC to adjust up production levels earlier than it had expected and could prompt U.S. shale drillers in West Texas to drill more. Despite these efforts to fill in for lost supply, analysts at Bank of America still expect oil to reach $100 per barrel in 2019.”

Related:  DMR Chart of the Day/4-24-2018

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Could Israel and Iran go to war in Syria?

CNBC/Natasha Turak/5-11-2018

“If the attack from Syria, which saw approximately 20 rockets fired at Israeli military positions in the occupied Golan Heights region, is confirmed as Iran’s doing, it would represent the first strike by Tehran directly onto Israeli soil. And Israel’s response was its largest military engagement in Syria in 45 years — since the Yom Kippur war of 1973.”

MK note: Global markets, except for oil, have acknowledged then moved on  from the potential for war in the Middle East.  In the meanwhile, reports like the one above hammer home a warning: The shackles to war are being thrown off and that we are a time of great uncertainty and danger in that part of the world.

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Oil near multi-year highs as Iran sanctions tighten supply outlook

Reuters/Christopher Johnson/5-10-2018

“Oil prices steadied near 3-1/2 year highs on Friday as the prospect of new U.S. sanctions on Iran tightened the outlook for Middle East supply at a time when global crude production is only just keeping pace with rising demand. . . .’The up-trend remains strong and intact,’ said Robin Bieber, technical chart analyst at London brokerage PVM Oil Associates.”

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Iran oil sanctions could advance China’s ‘petro-yuan’

Reuters/Kate Duguid/5-10-2018

“China is positioned to be a chief beneficiary of the U.S. decision to withdraw from the Iran nuclear deal as it would give China leverage to demand oil imports be priced in yuan, several currency experts said on Thursday.”

MK note: Comments posted 3/29/2018 – I am trying to think of a reason why China would not move quickly to encourage any potential sellers of crude oil to take yuan in settlement. Russia and Angola, two of three top suppliers of oil to China, have already expressed an interest in breaking the petrodollar’s dominance. When you stop to think about the petroyuan introduction, it is in China’s interest to maintain a strong yuan against the dollar for obvious reasons – the end seller will end up with the stronger of the two currencies in terms of global purchasing power. Such a development would be an economic game-changer the parameters of which are yet to be defined and likely a boost to gold as a hedge against dollar weakness.

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IMF says to continue talks with Argentina for fund-supported program

Reuters/Staff/5-10-2018

“Argentina’s government said on Wednesday it was requesting a ‘high access stand-by’ financing arrangement from the IMF.”

MK note:  It’s been a few days since we checked in on the problems in Argentina.  It looks like it will take the IMF route to buy time, but it may also be buying into a stringent repayment program likely to include restrictions on government spending, additional borrowing, etc.  It is likely to be another long road for Argentina with many bumps along the way.  Given the scope of the emerging nation debt problem, as it has been outlined at top financial publications, one hopes that the IMF has a large budget these days.  It looks like it may need it.

Related:  Argentina on brink of economic meltdown as inflation soars and peso plummets/Daily Express/Paul Withers/5-9-2018

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