World Gold Council/Gold Investor, October 2018/ Aram Shishmanian
“Within China’s financial markets, the insurance industry now manages US$2 trillion of assets, following a decade of rapid growth. The Insurance Asset Management Association of China explains why this fast-growing sector might benefit from investing some of its US$2tn assets in gold.”
USAGOLD note: In a subsequent article, the IAMAC’s Deyun Cao says that China’s insurance industry is looking to gold “as a highly liquid asset, constitutes an effective tool for diversifying investment portfolios. It has a strong and consistent track record and is not susceptible to default risk. . .Our study is ongoing but we are confident that gold could be an effective asset for China’s fast-growing insurance industry.” A ringing endorsement for gold signaling interest from a sector within China that has significant purchasing power.
Repost from 10-18-2019 (and reminder of a long-forgotten potential source of demand)
Bloomberg/Piotr Skolimowski and Joao Lima/6-18-2019
“Speaking at the European Central Bank Forum in Sintra, Portugal, [Stanley] Fischer said the U.S. economy ‘is doing reasonably well, but you wouldn’t know that if you listen to the president of the United States.’ He said lower borrowing costs would boost employment — in an already strong labor market — but at the cost of a mortal blow to the U.S. central bank.”
USAGOLD note: At first blush, Fischer’s reaction seems a bit extreme. In speaking to the same issue, Alan Greenspan has said that presidential pressure on the central bank is nothing new. “The best thing that you can do if you’re in the Fed is put earmuffs on and just don’t listen,” Greenspan said in a CNBC interview last October. “I was at the Fed for 18½ years. I got innumerable notes, pledges, requests, et cetera to lower rates. I do not recall a single instance where somebody in the political realm said we need to raise rates, they’re too low.”
“After Trump raised tariffs on $200 billion of Chinese imports last month, the yuan quickly fell toward 7 per dollar — a level not seen since the financial crisis. The drop effectively reduced the price of Chinese imports in dollars and has blunted the cost shock of higher tariffs. (The same thing happened with the peso following a similar threat against Mexico in late May; the peso plunged over 2% in less than an hour.)”
USAGOLD note: The hole in this argument is that China does not appear to have a great deal of interest in allowing significant depreciation of the yuan and it has the reserves to mount a credible defense of the yuan if it so chooses. History has shown that the free market ultimately overrides currency interventions so we will have to see how all of this works out. Goldman recently suggested a 2019 Sino-American version of the Plaza Accord might be imminent. That agreement between Japan and the United States under similar circumstances in 1985 allowed for a depreciation of the dollar against the yen.
“Even relatively wealthy Americans are so worried about their finances that it’s affecting their mental and physical health. That’s one of the findings in a Bank of America Corp. survey of more than 1,000 people in the U.S. who have enough investable money to qualify as “mass affluent.” Financial concerns affected the mental health of 59% of respondents, while 56% said their physical health has been hurt.”
USAGOLD note: One wonders how many among that 59% are properly diversified – and by that we mean with gold as part of the portfolio mix. (Too many see diversification as the proper mix between stocks and bonds.) Want less stress – or no stress? Diversify and let others fret.
Image by TheVisualCapitalist/Jeff Desjardins
The Hill/Niv Elis/6-12-2019
“The federal deficit in May reached $208 billion, surging 42 percent over last May’s monthly deficit figure, according to new Treasury Department data released Wednesday. The figure put the cumulative deficit for the eight months of fiscal 2019 at $739 billion, within range of the full 2018 deficit, which amounted to $779 billion, according to the Treasury figures. Treasury estimates that the full deficit will exceed $1 trillion by the time the fiscal year wraps up at the end of September.”
USAGOLD note: That $208 billion monthly figure is extraordinary. And that is under relatively strong economic circumstances. What happens if/when the recession hits? The rhinoceros in the room. . . . . . .
“Mike Pompeo, the US secretary of state, has blamed Iran for attacks in the Gulf of Oman that severely damaged two oil tankers, sparked a surge in crude prices and heightened tensions in the Middle East.”
USGOLD note: For those wondering why gold started the day quietly and ended it with a bang. . . . .
“The Federal Reserve’s two-day Chicago strategy conference laid the groundwork for the aggressive use of asset purchases, known as quantitative easing, to counter the next recession, experts who attended the forum said. With short-term interest rates in a range of 2.25%-2.5%, the Fed does not have a lot of ammunition to fight the next downturn. In the past, the Fed was able to slash rates by 5 percentage points to stimulate the economy as needed. So the Fed is going to use ‘pretty aggressive, desperate, measures,’ to stem the next recession, said Adam Posen, president of the Peterson Institute for International Economics.”
USAGOLD note: What is odd about the resurrection of quantitative easing is that few in and around the Fed seem opposed to it. Now, the Fed intends to employ “desperate measures” in an ordinary recession.
Repost from 6-9-2019
The Gold Telegraph/Lawrence Thomas
“The demand for gold is increasing, yet new discoveries of the precious metal have not kept pace with the demand. Funds for exploration are historically high, $54.3 billion, up 60 percent over the past 18 years. . . Gold discoveries have followed a predictable pattern. 263 major gold discoveries have been made in the past 28 years, but half of those discoveries happened in the 1990s. This boom lasted until the turn of the century when the rate of discovery began to decline. Only 16 discoveries were reported from 2000 to 2002, which produced 108.3 [million] ounces of gold. That amount was below the average finds of the 1990s. This decline has continued, with both new discoveries and the amount of gold mined decreasing steadily. By 2010, only 18.6 million ounces of gold was discovered, a severe drop from the 61.5 ounces found in 2009.”
Repost from 5-7-2018
“The dollar fell slightly against the euro following Trump’s tweets. Trump has repeatedly gone after the Fed for what he considers tight monetary policy. The Fed hiked rates four times in 2018.”
USAGOLD note: Sooner or later, one would think, all of this hectoring of the Fed will have an effect on the markets, including the dollar and consequently gold. . . . .The Fed has already provided plenty by way of indications that it agrees with Trump on the need for more stimulus, but it has not acted as yet.
Financial Times/James Politi/6-11-2019
“Trump told reporters at the White House on Monday that he could impose tariffs of 25%, or ‘much higher than 25%’ on $300 billion in Chinese goods. ‘We’ve never gotten 10 cents from China and now we’re getting a lot of money from China,’ the president said. Trump was asked in an interview with CNBC earlier in the day whether the additional tariffs would be enacted immediately if there’s no meeting at the summit later this month.”
USAGOLD note: I’m no expert on the art of the deal, but doesn’t this kind of rhetoric make it difficult for Xi to comply? Why would he want to look like he’s doing the president’s bidding? Particularly on the domestic front in China where Xi is not going to want to look subservient . . . .
Related: China vows to ‘fight to the end’ in trade war if US escalates tensions/FoxNews/Katherine Lam/10-11-2019
“New York Federal Reserve President John Williams called on Thursday for central banks to change their strategy to combat low inflation, which he labeled ‘a symptom of deeper problems affecting advanced economies. In the pre-2008 era, inflation was a major concern for the public and central banks alike,’ the leader of the Fed’s key district said in prepared remarks for a speech at the Council on Foreign Relations in New York. ‘And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem.'”
USAGOLD note: Now on the easy money bandwagon, Williams joins Clarida, Bullard, Brainard and others. As head of the New York Fed, his voice is an influential one.
Repost from 6-6-2019
Bullion Star/Ronan Manly
“While headlines may be on the Sino-US trade war, China’s gold market continues to fire on all cylinders, with physical gold continuing to flow into, and through, the world’s largest gold hub. Year-to-date, Chinese wholesale gold demand is on a par with recent years, Chinese central bank gold purchases have officially recommenced after a two year halt, and gold import data into China is now more transparent than ever before.”
USAGOLD note: China still leads the world in physical gold demand and it is no small number: Year to date 688 tonnes have moved from the vaults of the Shanghai Gold Exchange into the hands of Chinese investors. At that pace, China will have imported over 2000 tonnes of physical gold for the year, an amount equal to 61% of annual global mine production. “Therefore,” says Manly, “2019 is shaping up to be another very strong year for Chinese gold demand as physical gold continues to move from West to East.”
Repost from 6-5-2019
Financial Times/James Politi
“In an interview with the Financial Times at the Trump International Hotel in Washington this week, Ms Shelton called on the Fed to ‘think about whether they are doing more harm than good’. If appointed to the board, she would be ‘asking tough questions’ about its most basic mission, she said. ‘How can a dozen, slightly less than a dozen, people meeting eight times a year, decide what the cost of capital should be versus some kind of organically, market supply determined rate? The Fed is not omniscient. They don’t know what the right rate should be. How could anyone?’ Ms Shelton said.”
USAGOLD note: We haven’t had an individual with Judy Shelton’s fundamental sense of free-market monetary dynamics and intellectual cache at the Fed since Alan Greenspan walked the halls of the Marriner Eccles Building. It would be a welcome sight to see her attend her first meeting of the Federal Reserve Board of Governors. She is a friend of gold and has been for a very long time. . . . .
Repost from 5-31-2019
Financial Times/Robin Wigglesworth and Joe Rennison/6-7-2019
“The global bond market has enjoyed its biggest weekly investor inflows in over four years, with investors dumping equity funds in favour of fixed income amid concerns that the international economy is wilting and central banks will have to cut interest rates.”
USAGOLD note: Further validation of the capital flow to safe-havens from Financial Times. . . Wall Street firmly believes rate cuts are around the corner.
Market Realist/Annie Gilroy
“Bridgewater Associates didn’t have any major positions in gold ETFs until the second quarter of 2017. By the end of the third quarter of 2017, GLD formed 3.18% of the fund’s portfolio. Dalio likes gold due to its diversification and hedging properties. In a LinkedIn post last August, Dalio wrote, ‘If you don’t have 5–10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.'”
USAGOLD note: Bridgewater Associates is the largest hedge fund in the world, so 5% to 10% of its assets amounts to a considerable total. We would add that Dalio is not the only billionaire investor recommending gold ownership these days. Billionaires own ETFs to circumvent the insurance, security and storage problems. The typical private investor, on the other hand, can store his or her needs in an average-sized safety deposit box and avoid the costs and limitations imposed by ETFs. If you would like to learn more on that score, please give the TradingDesk a call.
Repost from 5-24-2019
“The phrase ‘Don’t say we didn’t warn you’ was only used two other times in history by the People’s Daily — in 1962 before China’s border war with India and ahead of the 1979 China-Vietnam War. China threatened it would cut off rare earth minerals as a countermeasure in the escalated trade battle. The materials are crucial to the production of iPhones, electric vehicles and advanced precision weapons.”
USAGOLD note: The tone is ominous to say the least – a threat that received a lot of play in U.S. media yesterday and this morning.
Repost from 5-3-2019
Reuters/David Lawder and Makini Brice
“The U.S. Commerce Department said on Thursday it was proposing a new rule to impose anti-subsidy duties on products from countries that undervalue their currencies against the dollar, another move that could slap higher tariffs on Chinese products. The new rule also could put goods from other countries at risk of higher tariffs, including Japan, South Korea, India, Germany and Switzerland.”
USAGOLD note: This rule provides the means for the U.S. government to devalue the dollar against other currencies. If launched, this measure is likely to be viewed as dollar negative/gold positive . . .
Repost from 5-24-2019……….New USAGOLD note: Forgotten in the clamor of the last several days, but still important.
“Venezuela has defaulted on a gold swap agreement valued at $750 million with Deutsche Bank AG, prompting the lender to take control of the precious metal used as collateral and close out the contract, according to two people with direct knowledge of the matter.”
USAGOLD note: Venezuela’s foreign debt stands at $140 billion according to a Reuters report this past June. That article quotes a well-placed source as saying “The complexity of a Venezuelan debt restructuring is an issue, the day that it happens. It will be very, very complicated.” So what happens next? What will be the effect on Venezuela’s creditors and the global banking system when its foreign exchange reserves finally hit bottom? It appears we are near finding out.
Chart courtesy of TradingEconomics.com
Reuters/Aftab Ahmed and Rajendra Jadhav/5-4-2019
“India’s gold imports in May jumped 49% from a year earlier to 116 tonnes as a correction in local prices during a key festival boosted retail demand, a government source said on Tuesday.”
USAGOLD note: It’s not just the festive season driving Indian demand. The rupee has lost almost 30% of its value against the U.S. dollar since 2012 encouraging India’s already gold-conscious population to seek it for hedging purposes.
“The Q Ratio, the total price of the market divided by the replacement cost of all its companies, is a popular method of estimating the fair value of the stock market…[and it shows that the stock market is overvalued by 50% compared to its arithmetic mean and by 62% compared to its geometric mean. This article explains the Q Ratio more fully complete with illustrative charts.]”
USAGOLD note: Those percentage overvaluations, we believe, are worth noting. . . . .
Repost from 4-4-2019
Financial Times/Gideon Long
“Inflation hit 130,000 per cent in Venezuela last year, the country’s central bank has said in a rare official acknowledgement that the economy is in meltdown. In a series of spreadsheets published on its website, the bank said that Venezuelan gross domestic product contracted by 22.5 per cent year-on-year in the third quarter of 2018 — the most recent period for which figures were available.”
USAGOLD note: What do we label this? Hyperstagflation?? That number was the Venezuela government’s calculation. Trading Economics reports “Venezuela’s annual inflation rate fell to 1.30 million percent in April of 2019 from 1.62 million percent in March, according to estimates from Venezuela’s opposition-led congress.” When you are talking about the difference between 130,000 per cent and 1,300,000 per cent, who would quibble about the details.
Repost from 5-31-2019
“The biggest bullion-backed exchange-traded fund is suddenly getting a lot of love. Holdings in SPDR Gold Shares surged by the most in almost three years as the U.S.-China trade war, signs of a slowdown, and speculation the Federal Reserve will cut rates combined to fan demand. Assets in the SPDR ETF jumped 16.44 metric tons, or 2.2%, on Monday to post the biggest gain since July 2016, while a tally of holdings in all ETFs saw the biggest increase this year.”
USAGOLD note: The surge in ETF stockpiles is a sign that institutional investors are once again taking an interest in gold ownership. The chart is telling and it signals that there is probably substantial liquidity available on the sidelines looking for a place to go.
Chart courtesy of GoldChartsRUs/Nick Laird
“First, they placed a small piece of gold in an electron microscope. Then they started observing it at the highest level of magnification and began gradually increasing the electric field to extremely high levels. When they reached the highest electric field, they noticed that the surface layers of gold had actually melted – at room temperature. ‘I was really stunned by the discovery. This is an extraordinary phenomenon, and it gives us new, foundational knowledge of gold,’ Ludvig de Knoop, a researcher at Chalmers, said in a media statement.”
USAGOLD note: Once again, science teaches us that anything is possible – even melting gold at room temperatures.
Repost from 12/14/2018
“Wealthy investors around the world are holding a relatively high level of cash, and perhaps they’ve become too cautious, according to UBS Group AG. The world’s largest wealth manager said 32 percent of high-net-worth portfolios are in cash, in a survey released May 7. In Asia and Latin America, the portion was 36 percent, compared with 31 percent in Switzerland and 35 percent in the rest of Europe. The outlier: the U.S., at just 23 percent.”
USAGOLD note: That U.S. number is interesting to say the least. . . .American investors are all-in with respect to the stock market thinking they can get out when the time comes without any serious injury. Blind faith? Wishful thinking? Or trust well-placed? Time will tell. . . . . .For those with a healthy skepticism and a lot of cash, though, we know of another liquid instrument that does not carry the burden of counterparty risk. It is yellow, shiny, comes in the form of coins and bullion and has a history of serving its owners as a storehouse of wealth since before the time of the Caesars.
Repost from 5-8-2019
“Malaysian Prime Minister Mahathir Mohamad on Thursday mooted the idea of a common trading currency for East Asia that would be pegged to gold, describing the existing currency trading in the region as manipulative. Mahathir said the proposed common currency could be used to settle imports and exports, but would not be used for domestic transactions.”
USAGOLD note 1: If East Asian states were to agree to a gold-backed currency, it would present an immediate challenge to the yen, dollar and yuan for reserve purposes particularly when you blend in the region’s cultural affinity for gold. “The currency that we propose,” Mahatir says, “should be based on gold because gold is much more stable.”
USAGOLD note 2: Where will the gold come from to back this new currency? Local production would become one source – a slow and tedious process as China and Russia are finding out – but one that would take that production off the market. Where the market could really get a major boost is if the new currency union decides on open market purchases – and that might be the only means for achieving the end of the fully-backed currency Mahathir envisions. The fact that such a currency is even being discussed shows how far gold has come over the last five to ten years – a time featuring massive repatriations, a virtual halt to central bank sales and outright acquisitions by a number of nation states and/or their central banks for reserve purposes.
Repost from 5-31-2019
“Powell said the tools used during the crisis — near-zero rates and asset purchases that took the balance sheet to more than $4.5 trillion — are likely to be deployed again. ‘Perhaps it is time to retire the term ‘unconventional’ when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in future ELB spells, which we hope will be rare,’ he said.”
USAGOLD note: Frankly we were surprised that these comments, along with a statement ala the ECB’s Draghi that the Fed “will do what it must to keep the near-record expansion going,” didn’t have more of an impact in the gold market. There was an initial spike but then the price settled back into the day’s range. That ‘do-what-it-must’ quote, we should caution, is not a direct statement from Powell, but CNBC’s interepretation of his remarks made in a speech earlier today.
Bloomberg/Yuliya Fedorinova and Elena Mazneva/5-23-2019
“‘Russia may become the world’s second-biggest gold miner globally, beating Australia in three to five years, assuming that there is no force majeure,’ [Sergey Kashuba, head of the Union of Gold Producers of Russia] added. Russian growth will partly come as Polyus PJSC, its biggest miner, develops Siberia’s Sukhoi Log, one of the world’s largest untapped gold fields, with a potential annual output of as much as 1.7 million ounces.”
USAGOLD note: Russian gold production is channeled into national reserves and not sold in international markets as part of Putin’s program to break away from the U.S. dollar. The Sukhoi Log’s 1.7 million ounces of annual production translates to about 50 tonnes. Russian mines produced about 300 tonnes of gold last year. China and Australia were the number one and two producers. We recently updated our World Gold Production by Country page to include the 2018 statistics released by the U.S. Geological Survey.
Chart courtesy of TradingEconomics.com
“A flight to safe-haven assets pushed U.S. Treasury yields to their lowest levels since September 2017 on Monday, while gold hit a 10-week high.”
USAGOLD note: Concerns, trade conflicts deepen. Charts below tell today’s tale – the flight to safe havens.
Chart courtesy of TradingView.com Chart courtesy of TradingEconomics.com
“Hopes that the US and China were about to sign a deal ending in May proved overly optimistic. With little sign of either side backing down, the stand-off could well become ‘the largest trade war in economic history to date’ — a warning issued by the Chinese Ministry of Commerce.”
USAGOLD note: With that comment Financial Times offers an interesting graphic-timeline on the U.S. trade war – beginning, escalation, standoff. It ends ominously: “Businesses are starting to feel the squeeze and consumers may be next.” Worth the visit. . . .and retaining for future reference.