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)
“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.”
“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.)”
“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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“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.”
“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.'”
“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.”
“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.”
“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.”
“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.”
“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.”
