There’s obviously something going on in the world economy that’s causing gold (and lately silver) to rapidly advance. Leading bullion dealer Andy Schectman of Miles Franklin has seen sales accelerate, but it’s the high net worth sophisticated investors who are buying the bulk of it. Joe Six Pack is as usual late joining the party. Andy believes it’s de-dollarization that’s been causing the run-up, but of course there are other factors at play. Euro-zone weakness, impending Brexit, Chinese Economic weakening and much more. But bullion sales are up and for a good reason.
China Partially Lifts Restrictions On Gold Imports
Last week a surprising report emerged from Reuters, namely that as part of its escalating capital controls, Chinese authorities have curbed privategold imports since May as the trade war escalated in a move that could be aimed at curbing outflows of dollars and bolstering its yuan.
According to sources, China’s gold imports were down 300-500 tonnes, with around $15-$25 billion, since May, as the PBOC had for several months curtailed or not granted import quotas to commercial banks responsible for most of the gold that enters the country
Fast forward to today, when Reuters reports that China has partially lifted restrictions on imports of gold, according to bullion industry sources. According to the report, the central bank began to issue quotas again last week, but for lower amounts of gold than considered normal, “three people with direct knowledge of the matter in London and Asia said – without specifying exact amounts.”
“Some (quotas) have been given,” said one of the sources, adding that these were “less than usual.” It’s a “partial lift” of the restrictions, another source said.
China has become a key swing driver in gold prices: it is now the world’s biggest importer of gold, with around 1,500 tonnes of metal worth some $60 billion – equivalent to one-third of the world’s total supply – entering the country last year. Chinese demand for gold jewelry, investment bars and coins has trebled in the last two decades as the country has rapidly become wealthier. China’s official gold reserves meanwhile rose fivefold to nearly 2,000 tonnes, according to official data.
The recent sharp move higher in gold coincided with the sharp escalation in the currency war between the US and China, prompting many to speculate that Chinese residents had been aggressively buying up the yellow metal, in the process adding further downward pressure on the yuan.
The last time Beijing took steps to curb capital outflows was when its currency weakened in the aftermath of the 2015 devaluation when the PBOC enforced restrictions on gold imports in 2016. The result was a surge in cryptocurrencies as Chinese savers took to the digital currency in lieu of gold purchases.
While no clear data for capital outflows exist, a measure from China’s balance of payments called errors and omissions points to $88 billion leaving in the first three months of this year, the most on record.
As we reported previously, Chinese customs figures showed the country imported 228 tonnes less gold in May and June – the last month for which data is available – than in the same two months of 2018. By mid-August, up to 500 tonnes less gold had entered China since May than over the same period last year, people in the bullion industry said.
Macri Massacre Monday: Goldman Says CFK Coming Back As Argentina Slides Into The Abyss
With Argentina’s capital markets sliding into the abyss on what we have dubbed Macri Massacre Monday, when the country’s President unexpectedly lost a primary vote by a landslide, Goldman has effectively thrown in the towel and tells clients that “rather than incoming polls or specific political maneuvers, going forward investors may want to center their attention on any hints about the broad contours of the economic agenda of a probable Fernandez-Kirchner administration.”
In other words, brace for the second coming of CFK…. something markets are clearing doing with Argentina CDS exploding higher, and now reflecting a 72% probability of default in 5 years, up nearly 50% from 49% as of Friday.
And with the CDS market having spoken, everyone else is following with Argentina equities imploding, as the Merval sinks 12%, its worst one day slide since 2008.
One wonders when fund investors – such as Templeton’s Michael Hasenstab who may be on Epstein-watch this morning – will preemptively confiscate Argentina’s ship ahead of the coming default, and CFK 2.0 return.
For all those curious, here is Goldman’s hot take on what a bang up job the IMF did in Argentina:
A Much Worse than Expected Defeat for the Ruling Coalition in the Primaries
The main opposition candidate Alberto Fernandez (Frente de Todos) won the presidential primary elections (PASO) by a landslide on Sunday. Mr. Fernandez, whose ticket included former president Cristina Kirchner as running mate, won almost 48% of the votes, well ahead of incumbent president Mauricio Macri (Juntos por El Cambio) with 32% of the votes. The nearly 16 percentage point gap was much larger than what could be inferred from virtually all polls, which pointed to a tight race between the top two contenders.
Mr. Fernandez’s strong performance in the primaries already leaves him well positioned to win the elections in the first round on October 27, without the need for a run-off. Argentine constitutional rules determine that a front runner presidential candidate who obtains more than 45% of the valid votes or who obtains more than 40% of the valid votes together with a 10 point-lead over of the runner-up will be automatically elected. Importantly, these thresholds exclude blank votes, which could slightly boost Mr. Fernandez’s final tally relative to the PASO.
In addition to the surprisingly large deficit relative to the front runner, other elements reinforce the extent of Mr. Macri’s setback on Sunday. First, the primaries recorded a reasonably high participation rate (approximately 76% of the 33.8 million registered voters; broadly in line with the 2015 PASO). Second, the primaries were largely dominated by the Frente de Todos and Juntos por El Cambio coalitions as expected; centrist candidates like former Minister Lavagna (Consenso Federal) lagged far behind the top two contenders. Hence, the “reservoir” of potential new voters available to Mr. Macri ahead of the first-round elections may be reasonably limited. To turn things around, the incumbent will likely need to swing a large number of votes away from the opposition, which seems improbable in this highly divisive political backdrop.
The primaries for the governorship of the province of Buenos Aires – home to nearly 40% of the national electorate – proved to be another resounding defeat for the Juntos por El Cambio block. Incumbent Governor Maria Eugenia Vidal obtained less than 33% of the votes, trailing former Minister Axel Kicillof (Frente de Todos) by a nearly insurmountable 17 percentage points. Such a large shortfall is revealing as Ms. Vidal is one of the most popular leaders within the ruling coalition, having been touted by some insiders as a more competitive option for the presidential race compared to Mr. Macri.
By all odds, domestic and international investors will be disappointed with the results of the PASO. The probable deterioration of sentiment and the resulting tightening of financial conditions in coming days and weeks may pose yet another headwind to the still fragile recovery of the Argentine economy. More importantly from a political standpoint, renewed depreciation pressures on the Peso may delay and perhaps even reverse the incipient decline in consumer price inflation, harming the image of the Macri administration and weighing further on the president’s reelection bid.
We believe these results of the PASO would be nearly irreversible. Rather than incoming polls or specific political maneuvers, going forward investors may want to center their attention on any hints about the broad contours of the economic agenda of a probable Fernandez-Kirchner administration.
And speaking of the IMF, and its outgoing head Christine Lagarde, after destroying Argentina again, Lagarde is now off to mercifully finish Europe as head of the ECB.
“In This Age Of Insanity, I Thought Nothing Could Surprise Me Anymore!”
I thought in this age of insanity that we are living in, nothing would surprise me anymore.
But sure enough, there was a headline in the Financial Times the other day, “Central banks should consider giving people money.”
It seems almost impossible that someone could believe in something so ridiculous. And yet this is the world we are living in. The path to prosperity is now based on unelected central bankers conjuring millions of dollars out of thin air.
Bankrupt governments are issuing bonds with negative yields, meaning they are being paid to go deeper into debt. And there are more than $15 trillion of these negative yielding bonds in the world.
If anything this makes a compelling case for why people should consider owning gold.
It’s a store of value with a 5,000 year track record of withstanding inflation, political crisis, and monetary stupidity.
I’ve been suggesting people consider buying gold for quite some time, especially over the last year. I argue that the supply of gold, is actually declining, yet the demand will increase in large part due to all of this central bank lunacy.
And that has absolutely been happening. The price of gold is up more than 25% over the last year, and just surpassed $1,500 per ounce. But unlike most other assets like real estate, stocks, bonds, etc, gold is still far from it’s all time high.
There could still be plenty of gains ahead.
And silver would have to triple before it reaches it’s all time high.
Every summer for the past eight years, I’ve enjoyed a week or two in the Italian countryside at a 400 plus year old villa. Here I relax with friends, family, business colleagues, and some of our Total Access members who fly in from around the world, to break bread and enjoy really stimulating and entertaining conversations.
This year Peter Schiff has been one of my guests. He’s an old friend who shares many of the same beliefs. And when our conversation this morning turned to gold, I thought it appropriate to record it, and make a Podcast out of it.
In our conversation we talk about why gold and silver have plenty of room to rise, and a number of different ways to invest.
DEMAND FOR GOLD COINS SOARING
Collectors value the Pandas simply for their aesthetic beauty; and it probably doesn’t hurt that the dealers authorized by the People’s Bank of China to sell Pandas in the US have a virtual monopoly on the market. Still, this situation can be exploited to your advantage– the difference between the buy price in Hong Kong and the sell price in North America is roughly $275 per 1-ounce coin.
For anyone looking to hold gold as a store of value or even medium of exchange, major gold coin mintage’s like the Eagle, Maple Leaf, and Krugerrand are advantageous because they’re recognizable worldwide.
You can do business in a coin shop anywhere in the world from Vancouver to Vanuatu with one of these coins; bulk bullion, on the other hand, needs to be specially weighed and assayed by experts before being traded. For this reason, the premiums for which gold coins sell tend to rise substantially in crisis periods when demand for physical metal is high.
In the initial days of the 2008 financial crisis, premiums shot up from 4% to well over 10%, even though the price of gold was simultaneously falling sharply. Hang Seng Bank, Bank of China, and Wing Lung Bank. At Hang Seng Bank, Canadian 1 Oz Maple Leaf coins — in pure, 24 karat gold — were available for cash purchase in Hong Kong dollars at just 0.5% above the prevailing spot price of gold. This is dirt-cheap… or as they say in Chile, ‘precio de huevos’, and it certainly presents an interesting arbitrage opportunity.
Depending on your objectives, however, there may be even better gold coin buys in Hong Kong at the moment. Over at the Bank of China, for example, the Chinese Panda coins were quoted at 4.9% above spot gold. Personally, I think the Panda is one of the most beautiful gold coins of all, and in North America they typically sell for much greater mark-ups above the spot price of gold than most other coins, often over 20%. In the UK it’s even more…….
Reminder….. If you have/own/ gold and it is not in your hand…..It will not be yours when you try to retrieve….. READ THIS
Why buy gold now? Because I don’t know
From 2000 through 2012, the price of gold increased every year, rising from around $280 an ounce to nearly $1,700. It was an unprecedented run.
Then, in 2013, gold took a nose dive, losing over 27% of its value.
It was widely reported that the Swiss National Bank, the former bastion of monetary conservatism, lost $10 billion that year just on its gold holdings.
As you probably know, central banks hold a portion of their reserves in gold. The practice goes back to when central banks actually had to have gold on hand to trade in and out of paper money (or even trade for goods and services).
And central banks still hold reserves in gold today, even though they don’t need it to transact like they used to.
So that begs the question, did the Swiss National Bank actuallylose $10 billion? It still had every ounce of gold in its vaults. And gold, after all, is money.
Plus, the SNB wasn’t holding gold to speculate…
Today, central banks hold gold as a hedge against fiat money. These are the guys with their fingers on the printing press… so they know exactly the effect they have on money.
And right now, banks are buying up gold hand over fist. Central banks currently hold 20% of all the gold ever mined—33,000 metric tons.
And JPMorgan Chase says they’ll buy another 650 tons this year and next.
Gold is for the I don’t knows.
And right now, there are a LOT of I don’t knows.
Markets have been going crazy over the past few months.
After a record bull run for stocks, we are now seeing massive volatility with the Dow regularly jumping 500+ points in a single day. Just yesterday, the Dow fell a whopping 800 points.
And there’s plenty of reasons for market to be worried today. For one, we’re 10 years in to a raging bull market… and it’ getting long in the tooth.
Plus, the Fed is raising interest rates. And when the price of money gets more expensive, people get a little tighter with it. That means it’s tougher for businesses and individuals to borrow. All things equal, higher rates mean lower prices.
Before last week, Fed Chairman Powell said rates were “well below” where they should be. And the markets reacted negatively.
Then, last week, after seeing how fragile markets were, Powell said rates are “just below” where they should be.
Just that one word difference sent markets soaring. But the joy was short lived.
There’s also the trade war with China, intensified by the Trump administration tariffs.
And then at the summit in Buenos Aries last week, China and the USA suddenly came to an agreement. They will halt the tariffs for 90 days for a three-month truce in the trade war. That sent markets soaring.
Then people read some tweet from Trump and worried the tariffs might be back on… markets dumped.
If there is one thing markets hate, it is uncertainty. And there’s plenty of uncertainty to go around today.
And while we’re seeing these late-cycle swings in the market, gold is as steady as ever…
While the DOW dips and climbs by hundreds of points, gold is still hanging out just below $1,250 an ounce. And it really hasn’t made any major moves up or down since 2013.
Yet today, an ounce of gold has about the same purchasing power as it had 1,100 years ago… talk about steady.
So while every other asset is still at or near all time highs, gold is relatively cheap.
Gold has held its ground during all this market volatility.
That is exactly how you want insurance to act. It holds steady in the face of craziness, even selling for a discount when everything else is as expensive as it ever has been.
It makes more sense to buy something cheap, that no one is excited about, while people clamber for exciting but massively overvalued stocks like Tesla and Netflix.
Since 2008 this massive monetary experiment of quantitative easing has sent stocks and assets to dizzying, unsustainable highs.
We think this experiment is coming to an end. The day of reckoning is close.
Stocks are up and down, trade wars are on and off, interest rates could keep soaring, or level off…
What do you do for the I don’t knows?
You get some cheap gold while you still can.
And by the way, while gold is on sale, silver is an even better deal.
In ancient times, the price ratio between gold and silver was about 15:1, meaning an ounce of gold was worth about 15 ounces of silver.
But over the past decades, this ratio has been closer to 50:1—an ounce of gold sold for 50 times what an ounce of silver sold for.
Today, that ratio is about 85:1.
To be fair, this could mean gold is overvalued, not that silver in undervalued.
But when gold has the same purchasing power as a millennium ago… when it has stayed steady the past seven years and grew every year of the decade before that…
It’s a safe bet that gold goes up, and silver does too, possibly even more than gold.