Showing posts with label central bank gold. Show all posts
Showing posts with label central bank gold. Show all posts

01 February 2023

Stocks and Precious Metals Charts - Central Banks Buy Most Gold Since 1967

 

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Upton Sinclair

"It is important to bear this in mind, because it tends to knock down the assertion that the current financial crisis is somehow an act of God, something that just happened.  There was an intent to subvert the regulatory process, to increase leverage beyond what has long been known to be prudent, and to engage in systemic fraud with a group of enables and agencies, such as the ratings firms, in order to reap fabulous personal profits for a small group at the expense of the many. 

There was planning, premeditation, malice aforethought. They may not have intended to harm; they just did not care. They really truly did not care, if they got theirs.  Until the banks are restrained, and the financial system reform, and balance restored to the economy, there will be no sustained recovery.

And there can be no better start than to stop the gambling with the public money that is the core of the existing US banking system.  The parallels with organized crime and the subversion of the public interest through graft and corruption are compelling.  And one thing we must accept is that the financiers will never be able to reform themselves, to regulate themselves, to even tell the truth overmuch about regulation while they are still 'in the game.'  It goes against their very nature, their creed, the rules of their profession. They keep what they kill, and everything that is not theirs is fair game."

Jesse, Restoring Glass-Steagall, 28 October 2009

"Successful crime is dignified with the name of virtue; the good become the slaves of the wicked; might makes right; fear silences the power of the law."

Lucius Annaeus Seneca

“Those entrapped by the herd instinct are drowned in the deluges of history.  But there are always the few who observe, reason, and take precautions, and thus escape the flood.  For these few gold has been the asset of last resort.”

Antony C. Sutton

Just another day in the Pax-American Metaverse.

The FOMC raised interest rates the expected 25 bps.

And in the end Wall Street read this as dovish, and rallied to beat the band, going out near the highs.

The NDX set a new 'third high.'  

The SP 500 was lagging and failed to set a new high.

The Meta stock was soaring after hours dye to 'not as bad' as expected results.

The Dollar slumped hard.

Gold and silver rocketed higher.

While stocks were soaring the Metaverse, back in the real world:  Central Banks Buy the Most Gold since 1967  

And the times, they are a-changing.

Why didn't the spokesmodels, chief strategists, breathless Mahoneys, and sock puppets talk about this historic development, which has been slowly unfolding since before 2009??

Yeah, buddy...

Non-Farm Payrolls on Friday.

Let's see if bully can keep it up.

With these jokers its always easy come, easy go.

Have a pleasant evening.

 



15 June 2019

Physical Gold Withdrawals from the Shanghai Gold Exchange and The New Silk Road


"Time is coming when markets search frantically for physical collateral to find that paper far exceeds underlying collateral for several metals and other resources.    I am warning that when markets fall in sustained negative response to bursting bubbles, widespread deleveraging will reveal insufficient hard collateral underlying traded asset-backed securities.  The words rehypothecation and hyper-rehypothecation may be rediscovered or remembered again, forgotten somehow during much of decade since the Great Financial Crisis."

Harald Malmgren


"Gold has 'worked' down from Alexander's time.  When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."  

Bernard M. Baruch

One might wonder why these countries are steadily acquiring such enormous inventories of gold bullion.

And they might even notice that since around 2008 the central banks of the world have become net buyers of gold, after many years of managed selling.

Gold is flowing from West to East, and into strong hands and official vaults as security against a changing monetary landscape.  And except for the occasional use of subtrefuge and force, it will not return to the public markets anywhere near to these current valuations.



21 August 2018

The Trend Change In Central Bank Gold Reserves in 2008 That Few Have Noticed And Fewer Acted Upon



This excerpt below is from a blog which I published in 2013.   It is a theme that I have been striking since 2009 specifically.

The turn in central bank gold buying came in 2008, although the bullish case for gold for other reasons became pretty obvious in 2002.

The bottom in the gold price was marked when England sold its remaining physical gold, in the notorious 'Brown's Bottom.'

By 2009 the data made it completely clear that the world's central banks had turned from net sellers of gold bullion in order to control its price and had become net purchasers of physical gold for their own reserves. 

Demand has been led by 'the New Silk Road.'

I suspect this change was a reaction to the currency crisis in the emerging markets in the 1990s.   It was referred to as 'the Currency Wars' popularized in China and given little coverage here.

And of course there was the failure of the Washington Agreement, struck in 1999 to manage the gold price through planned central bank sales in order to support what some called Bretton Woods II and the exorbitant advantage of the perodollar.

Hardly anyone outside of a small community of analysts had noticed, and even fewer understood what it meant.

I include the older charts, and a recent tweet by analyst Luke Gromen that shows where the central banks are in their purchasing today.

Hint, they are still buying gold, physical gold, and in steady to increasing amounts such that the 'free float' of available physical gold for delivery is strikingly low compared to demand.

I suspect that silver will have a role to play, judging by the enormous silver hoard that JP Morgan has established, for customers unknown.

Nothing to see here. Just a bunch of conspiracy theories.  And dirty little secrets that we prefer to keep hidden.  Move along.

"Few people realize that around 2008 central banks turned from being net sellers of gold to net buyers, and began to accumulate gold reserves in a big way for the first time since the 1970's, when Nixon slammed shut the gold window.

This is based on what they report officially to the IMF. There is strong anecdotal evidence that the actual turn in buying occurred quite a few years earlier, and more in line with the rapid appreciation in price as selling declined.

First the selling slowed and the stealth buying began, particularly in Asia and the Mideast.

There was a sea change in the gold market as central banks scaled back on their strategy of supplying official gold to the bullion banks in order to keep the price down.

The bottom in the gold price occurred when Gordon Brown threw England's gold with a pre-announcement into the market in order to bail out any bullion banks that were caught flatfooted 'in the turn' in May of 1999. This was the first clear sign that change was in the wind.

The Big Turn occurred in 2007 when the western central banks capitulated, and realized that they must allow the price of gold to rise, or exhaust their own gold reserves in the process. The central bank change did not cause this, although it certainly reinforces the trend. It is a symptom of the great change and the first unmistakable manifestation of the currency war. Although astute observers could see this coming in the aftermath of the Asian currency crisis in the 1990's and the Russian default on the rouble.

Gold commentators who do not realize this significant dimension of what has occurred and account for it in their thinking have been simply left behind, lost in an outdated frame of reference. They do not see the forest for the trees."

"Gold is unique among assets, in that it is not issued by any government or central bank, which means that its value is not influenced by political decisions or the solvency of one institution or another."

Salvatore Rossi, Chief of the Central Bank of Italy, 30 Sept 2013




02 August 2016

Don't Believe Your Lying Eyes: Gold Does Not Offer a Safe Harbor Against Financial Crises


"Gold has worked down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

Bernard Baruch


"After we came out of the church, we stood talking for some time together of Bishop Berkeley's ingenious sophistry to prove the nonexistence of matter, and that every thing in the universe is merely ideal.

I observed, that though we are satisfied his doctrine is not true, it is impossible to refute it.

I never shall forget the alacrity with which Johnson answered, striking his foot with mighty force against a large stone, till he rebounded from it--

"I refute it, thus!"

Boswell, Life of Samuel Johnson


"For centuries, gold had a profound impact on history, as a symbol and a storehouse of wealth accepted universally around the world. Gold functions as a medium of exchange, particularly in areas where currencies are distrusted.

Yet gold has not been without controversy. The influential economist, John Maynard Keynes, referred to gold as a 'barbarous relic.' Later in the 20th century, former Chairman of the Federal Reserve’s Board of Governors, William McChesney Martin, praised gold as 'a beautiful and noble metal. What is barbarous,' Martin said, 'is man’s enslavement to gold for monetary purposes.' Clearly, this precious metal has aroused great passion. It undoubtedly will continue to do so long into the future."

New York Federal Reserve


"The commerce and industry of the country, however, it must be acknowledged,though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper money, as when they travel about upon the solid ground of gold and silver.

Over and above the accidents to which they are exposed from the unskilfulness of the conductors of this paper money, they are liable to several others, from which no prudence or skill of those conductors can guard them."

Adam Smith, Wealth of Nations

Gold has moved in price from $250 in the year 2000 to roughly $1,350 today. In other currencies the move has been much more pronounced.

The period of 1996-2000 is a good time to pick a start for this monetary episode, because this is when the global monetary regime, which had been in place since the end of WW II with a significant change made by fiat in 1971, began to change, substantially in the most proper sense of the word. 

Some like to cherry pick a study of recent gold performance from the prior top of $1,900, but that says more about them and their intentions than it does about gold.  They know that all bull markets climb a wall of worry and can offer significant retracements from new highs while remaining intact.

And given the structure of global supply and demand, and the vast movements in the global economy, it is likely to go much higher, unless it becomes a fixed asset in a global monetary system once again and its price becomes set by fiat.

More likely it will become a floating asset with a more 'official' status than it has today when some central bankers will hardly recognize its existence in public, although they own it, and worry over it in private.

As shown in the second last quote above from the NY Fed, which unfortunately is no longer found on their web site, some central bankers find the attractive, and yet restraining, qualities of gold as a standard to be cloying, because it restrains their degrees of freedom to act as they would like.

And even when it is not a standard it does tend to utter some 'unpleasant truths.' But there is no denying its role as a refuge during periods of monetary instability, especially for those who are not currently holding the financial power.

And gold is certainly not the only hedge, and only safe harbor available.  But that is a far cry from saying it has not served many people very well during serious financial crises, and worked exceptionally to retain its value during a currency crisis and reissue/reflation.  Even a cursory look at historical crises show that.   The value is to study the nature of crises, and to understand the situation one has, not the one you wish you had, or even worse, the one that serves your mistaken point of view.

By the way, I am not advocating a gold standard as a cure for our ills. What our financial system requires is genuine reform from top to bottom. It is capable of corrupting, for at least a protracted period of time, virtually any single solution that one can imagine.  Look what they have done to the civic impulse for genuine change that became that industry-born frankenstein, Dodd-Frank.

They create a desert, and whimsically call it the 'new normal.'

So let us then consider this paper below, titled Gold Has Never Been a Great Hedge Against Bad Economic Times.

Not meaning to be rude, but there are some telling flaws in this paper.  But even then I would not have been moved to respond to it, if they had not had the cheek to use the word 'never' in the title, and to employ such sloppy criteria in their hypothesis as 'bad economic times' and 'major macroeconomic declines,' which they tend to confute with stock market performance.

And that is not to say that any very broad sweep of data over time, without sufficient attention to the particular character and context of the various situations described within, can easily be misleading, or be used to 'prove' something else when using it to draw broad and poorly defined conclusions.

What kind of crisis was it?  Was it a crisis period or not?  What caused it, what policy actions helped to precipitate it, if any, and what were the policy responses?  How are you measuring the asset? Was the change uniform, or different across areas and economies, and what were those differences?

In the Weimar inflation, for example, gold among other assets was a spectacular hedge in a financial crisis, but so were some stocks.   So one can see that using the 'stock market' as your defining variable of a macroeconomic disaster might not be effective.  This is not a quibble.  It is calling out some very fuzzy thinking which characterizes this analysis, that does not support such a sweeping hypothesis.

It may surprise you, but not all crises are the same. And I do not hold gold to be a panacea, not at all. Nor do I consider it to be a outlier or aberration, which is the converse of this, that some others seem to do. 'Gold has never been a hedge against bad economic times.' The use of the word 'never' is a deep tell about their mindset and predisposition.

What variables do tend to have a correlation with gold over periods of crisis?  I have found in my own research that they tend to be risk spreads in bonds, the growth in the broadest money supply, other risk factors, and of course the relative strength of the currency in which you are expressing gold's value.   But even this is not uniform over time, especially in non-crisis or managed price periods, such as when gold is fixed as a 'standard.'

Most assets will smooth out over a long period of time, unless they are artificial constructs,like some stock indices, which are altered by throwing losers out and putting winners in to achieve a semblance of growth.

There is an ebb and flow in everything.

It takes someone with the time and ability and most importantly the open, inquisitive mind not bound by some school of thought or orthodoxy to go into the various situations where something has happened, and happened with a particular cause and effect that was widely acknowledged, in order to really understand the mechanisms and nature of a thing.

When I first began studying money as a practical consequence of my international business dealings, and later with first hand experience to the Russian currency crisis, I could have given two hoots about gold or silver.  They were never even mentioned in any of my business or economic courses.  But later as I continued to study this as an avocation, their role in the history of money and current events could not be ignored.

But never mind what is happening all around you.  Don't buy any gold, and don't like it. Laugh at the rest of the world which is buying it.  Tell them to eat trillion dollar platinum coins because you say so.  It doesn't matter. Keep believing, believe in memes and quaint canards and slogans like the 'efficient market theory' and 'printing money endlessly doesn't matter.' Keep applying top down monetary stimulus and ignoring the results of your serial policy errors and asset bubbles.

So called experts have their noses stuck so deeply into 'what everyone in their profession knows' as an accepted orthodoxy that they can understandably fail to see the forest for the trees. They miss the big changes, the 'sea-changes.'  They are well trained for a world that is changing all around them, using inflexible models too often based on deeply flawed assumptions.

In 2006, the central banks of the world became net buyers of gold bullion for the first time in 30 years, and are continuing to do so in a very big way. Gold has been moving en masse to the emerging economies of Asia, the biggest beneficiaries of 'globalisation.'

And there is a reason for this, that is not based in some quirk or personal idiosyncrasy.

But arguments based on faulty hypotheses such as this paper, or even worse, on almost nonsensical or ad hominem arguments, seem to poke their heads up every so often, either when the banks, or some other major players, get their panties in a bunch because of their exposure to bad bets in the metals markets, or when some central banks start to feel nervous about their ability to manage the markets in their currencies to achieve their financial engineering goals.

Those economic policy goals get in trouble, by the way, because the policy itself is quite possibly running against the markets, and is also misdirected in addition to being ineffective.  We have certainly had enough first hand experience in this for the the past twenty years or so.

But at the end of the day, people may say what they will, but money talks. The real economy has a message to tell for those who will listen to it.   Or not.

There will be those who will continue to say, 'this is not happening' even while a tsunami of change rolls over them.   That is their prerogative.

The time for warnings was then.  This is now.

And events are underway that will have something like the character of a force of nature.

GOLD HAS NEVER BEEN A GREAT HEDGE AGAINST BAD ECONOMIC TIMES: Evidence from decades of US and global data

Gold has not served very well as a hedge against bad macroeconomic and stock market outcomes. That is the central conclusion of research by Professors Robert Barro and Sanjay Misra, published in the August 2016 issue of the Economic Journal. Their study draws on evidence from long-term US data on gold returns, as well as gold returns during some of the worst macroeconomic disasters experienced across the world.

Gold has historically played a prominent role in transactions among financial institutions even in modern systems that rely on paper money. What’s more, many observers think that gold provides a hedge against major macroeconomic declines. But after assessing long-term US data on gold returns, the new research finds that gold has not served consistently as a hedge against large declines in real GDP or real stock prices.

From 1836 to 2011, gold delivered low average real price appreciation and experienced high average volatility. The mean real rate of price change was 1.1% per year, close to the 1% average real rate of return on three-month US Treasury Bills and comparable assets. The standard deviation of annual gold returns was 13.7%, almost as high as the 16.7% on the US stock market...

Royal Economic Society, Gold Has Never Been a Great Hedge Against Bad Economic Times

20 November 2015

An Essay Considering the Current Monetary Order and Gold


This message from a person in the financial business,which is included in quotations below, was shared with me by a reader who received it from a journalist for a major media outlet.  Since it was not clear if this was intended as a private communication or public statement, I will not attribute it by name.

I wanted to use the word 'modern' in the title of this, since this pronouncement below smacks of modernism. You know, the belief that all those who have come before us were ignorant primitives, and those who are not of the same received insights now lack sufficient wisdom and piety.  But since those two words combine to describe a particular and unrelated school of thought, modern monetary theory, whose adherents have already excommunicated me for my stubborn and profane disbelief, I think I will skip that and use 'current' instead of 'modern.'

I could not resist sharing this message with you because it is such a nice, compact expression of what the modern financial media thinks about gold and money. Or at least to the extent that they think about anything, and do not just read their thoughts off the teleprompter provided by the moneyed interests that sustain them.  Or what is considered 'acceptable' by the very serious people, those who are described by Larry Summers as 'insiders.'

It starts as many of these things do, with a few simple statements that seem reasonable and ordinary enough, and use a sort of formalistic style to make it seem 'scientific' and contrast our modern thought with the ignorance of prior days.
"Why do you invest in anything? Because you want to extend the duration of your surplus earnings, the sort of stuff that would have been perishable in olden times.

There are two ways to do that:
1. Share your surpluses today and run a credit exposure to the counterparty that is obliged to pay you back in the future an absolute relative rate that compensates you with respect to income lost and potential earnings made.

2. The alternative is to sell transform your surpluses into something more durable, but which maintains market risk exposure."
Ok, fair enough.  If you have an excess of some presumably perishable asset, you want to do something with it to extend its usefulness to you. Or else it ends up like the neglected lettuce left in a damp plastic package in the back of the fridge.

One way to do that is to provide its use to someone else on loan, and receive adequate compensation that may include some allowance for risk.  Or you may wish to sell it outright, and receive something more durable in return, but again with some allowance perhaps for risk.

Hard to argue with that, right?  It is perhaps a bit simplistic, narrowing down all human economic activity with regard to 'surplus wealth' as investing or saving.  One may donate that surplus to some charitable endeavor, or sacrifice it to their gods of the day for example.  Didn't we just do that with TARP, and the uncounted trillions in bank subsidies?

Or perhaps trade it for something not required but desirable nonetheless, like finely crafted jewelry for one's beloved. Investment? The commercial messages for jewelry would like us to think so, but it rarely works that way in romance except for a fleeting moment, and with a greatly diminishing effect over time.

Not all exchanges of 'surplus wealth' are for productive investments or a truly more durable asset.   What then is 'surplus?'  Anything more than food, water, and shelter?

But let's not quibble about what defines 'surplus' and just say all right for now.  But believe we when I say that people's definitions of what is 'surplus' versus necessary wealth can vary widely, especially in these days of elephantine greed.

That definition of 'surplus' is important because it is so subjective, and yet is later used in this modern theory as a high falutin' accounting entity, the equivalence of all monetary valuation.  But it sounds so 'scientific.'  Is what we spend on food and shelter necessary and all else 'surplus?'  How about healthcare?  Cars and electric lighting?  Things that support knowledge like books?  Would there be a common consensus on what the definition of surplus represents, from let's say between Dorothy Day and Donald Trump?

Let us bookmark that thought and move on.
"Gold was an obvious choice because you could keep it under your bed and it wouldn't depreciate in form ."
Ok, that is a bit snarky, since I do not believe there is a long history of people hiding their gold, or any other large amounts of their durable wealth,  cavalierly 'under the bed.'  But it does serve the modern polemicist who seeks to disparage a choice they do not favor as uninformed, primitive, and naive.

Let's just say that for one of the alternative uses for 'surplus' wealth which is 'savings,' some durable, compact assets were found to be very useful. And that they were stored safely in some appropriate manner, since everyone who was born before our time was not necessarily a complete fool or incompetent naif.

We need to distinguish I think between what is asset barter and what is actual money at some point.  I would like to think that describing the difference is achievable.  For example, we might apply some criteria that suggests that a widespread, highly organized society might be more applicable to our thinking than an isolated island people who have no means of mining or access to precious metals and little access to widespread consensus.

As I recall the first formal coins made for widespread use were gold, silver, or an alloy of gold and silver that started showing up around 600 BC in the eastern Mediterranean. You know, that place where trading cultures that sailed from place to place flourished. Although it is known that gold and silver and certain precious and semi-precious stones were recognized as having great value, as shown by artifacts found as early at the 5th millennium BC in the graves of Varna man.

The point here is that it was not just 'gold' that was considered a durable asset.  Silver was valued as well as a few other things from time to time. They all tended to have similar characteristics.  But at some point the precious metals passed from 'grave artifact' to widely accepted 'coinage' and were used for widespread, diverse trade across governing bodies in addition to asset barter.  And I would not discount barter, which may also be called the black market, as a continuing alternative which may be more viable even now than most theorists will allow.

So why not just trade with rocks and put them under one's bed?  Granite and marble are very durable.

Yes the asset must be durable in that it does not spoil or rot or rust away.  It has to be enduring with regard to time.  But there has to be enough of the durable asset to function as more than ornamentation for a few of the finest people.  It must be malleable enough to be systematized into some uniformity of size and purity so that it can be easily weighed and measured and exchanged to facilitate trade without introducing excessive transactional friction.

And so we notice that the author has ignored one key point: manageable scarcity.  What facilitated that transition of precious metals from grave artifact to money?  I would suggest that it was a manageable scarcity combined with social organization and broad consensus that set standards on purity and form.  It was both a natural and social agreement that was widespread and acceptable enough to be effective.  And that manageable scarcity had to be as reliable as the durability of the material.  The scarcity was not expected to be wildly unpredictable and certainly not discretionary by some ruler over time.

So we will not use common rocks because they are not scarce, and not particularly portable.  There has to be a natural scarcity, to make that durable item 'special.'  But there does have to be enough of it so that it can be widely used by more than just a few of the top people.

Moving along.
"Gold is only worth the total surplus of the nation.  When surpluses are running high there's a lot of spare capacity in the system. Gold will be easily swapped into almost anything."
This is of course where we start to smell a reductio ad absurdam and the authority of the modern equivalent of a burning bush.   Let's read on a bit and see where this is going.
If there's a deficit of stuff, neither gold nor money guarantee you access to current output. 
Yes, is there is a deficit of highly desirable 'stuff' any money and not just gold will guarantee you access to it. Unless it is backed by some hairy knuckled fellows holding weapons, in which case they do not even need to bother with the facade of money.   In the strict sense of the word only your own death is guaranteed.  And maybe the recurrence of whacky theories designed to separate the common people of their rights and wealth.

But assuming that a market still exists, which presumes the dynamic of supply, demand, and price,  and a willingness of participation, then the 'prices' or the exchange value of money of whatever form will rise to meet whatever the holders of that highly desirable item may be.  If there is no market, and the item is highly desirable enough, they may be robbed of it, and they have been, but that is besides the point.

I think this may be the point where someone who was writing this has had a recollection of Adam Smith and is distorting the things which he has said to justify some modern theory.  As if Adam Smith was a received source of truth when it suits their purposes, or so they think.

One of the few advantages of not belonging to a 'school of economic thought' is that you are not compelled to carry its baggage, pro or con.  And believe me when I say that in economics there is more baggage, and much of it having nothing to do with economics and everything to do with politics and a pursuit of position and advantage, than on a Kardashian vacation.  While people say 'money is power,' it might be more correct to day that for some types of people power is everything, and money is just a means to it.

There is no shame in misconstruing Adam Smith's thought.  Some of our finest economic minds may have done it from time to time, despite an otherwise admirable record for the most part.  Nobel prize winner Paul Krugman did it in spades not all that long ago by misconstruing things that Adam Smith 'said' about gold.

What Adam Smith was actually addressing in the paraphrased thought was the non-productive hoarding of 'money' while placing greater emphasis on widespread economic transactions, the 'organic real economy' if you will as opposed to the financialized economy.  And he did favor the flexible expansion of money, as typified in fractional banking it seems, as long as it was in response to a legitimate increase in real activity that produced things.

I do think that Smith would have been dismayed though by the actions of the monetarists who believe that one can create the vigor of a wealthy economy by merely expanding the money supply, in QE for example, and doing nothing else in conjunction with it.  I have previously described that as 'cargo cult economics.'   If big plane of real economic activity brings nice things, we can get more nice things by building some things that look like the big plane of real activity out of paper and sticks.

I wonder at what point the money masters will admit that QE is counter-productive rubbish?  Don't hold your breath.  People of privilege will never let go of what gives them advantages willingly.

I like Adam Smith.  I recall visiting his grave once in Edinburgh.  And he was therefore just a man, whose ideas must be considered as his and of his time and experiences.  I do not hold any dictates of dead economists as sacred, and their 'laws' are all too often opinions and observations written in sand.

Paul Krugman Does Some Injustice to the Thoughts of Adam Smith On Money, Gold, and Silver

Adam Smith was no economist.  He was a 'moral philosopher.'  And many of our modern financial shamans have tried to take the moral considerations completely out of economics, in their vain quest to turn it into a pseudo-science of equations and a priori pronouncements from the god of the market that dictates policy as if it were an oracle, or a black box.

But I digress.  Let us move on.
"Money [fiat money] will hold its value better because in an inflationary period it can't be mined."
There it is. The modernist 'money shot.'  And delivered with a straight face.

There is a lot of nonsense wrapped up in this, combined with a leap of faithlessness to the facts.  Let's just take supply, demand, and price and throw them out the window, along with geology and any sense of the current reality.

Firstly, one of the enduring attractions of gold, and to a slightly lesser extent silver, is that they cannot be created by human means.  They exist on and in this world at least in what can be described as a natural scarcity relative to other things.

I cannot speak to the specific numbers, but it is my understanding given the current state of reality that one does not add to the supply of gold via actual mining without effort and delays.  And I think if we keep distorting the markets and driving the mining companies into red ink we will obtain a serious object lesson in this.

Mining takes time and effort, implying 'costs' and 'risks.'  Yes, the supply of gold and silver may be increased, but it takes money, luck and hard work.  And the pricing of the market adjusts to supply and demand with valuation dynamically as it does all commodities.  And gold and silver are commodities as well as 'money.'  More gold is not mined unless it is a profitable venture in a market economy.

But to contrast gold with fiat paper money and say gold is more easily expansible is a real howler.  Has the author looked at the Fed's Balance Sheet lately?  How much time and effort did that take?

Yes gold and silver can be mined.  There is also the recovery of scrap which, like real physical mining, is more difficult and costly to do than just creating fiat money out of thin air, electronic digits.  We have thousands of years of experience with mining and scrap recovery. How much and what type of experience do we really have with purely fiat money tied to no external standard or limiting factor including transparent exposure to public scrutiny?

Unfortunately it is true that the Western gold supply these days is increasingly 'synthetic' in that the financiers are expanding this supply through selling and reselling claims on the same bullion with leverage.  But this is not real gold or silver but paper claims to it.  They are non-transparently mining the stores of gold in central banks and funds and unallocated supplies and multiplying it on paper in a web of non-transparent counter-party risks.
"Money on the other hand can be withdrawn from supply and ratioed up."
Ok, there is the real heart of the matter. This is where the rubber of financial engineering hits the road to power.

Gold can be 'mined' and therefore it is no good, but 'money' can be manipulated quite easily, both up and down.

But now we get into a stickier subject of a 'gold standard,' of gold and silver as formal money.  As you may recall I am making the case for gold and silver as private stores of wealth, against what are some fairly narrow and nonsensical arguments.  The reasons for this will be provided later.

Our experience with a gold standard and its uses are historically knowable.  Which of course the author completely ignores.  Gold and silver are physical units of measure by purity and weight.  They act as a 'brake' on money supply of sorts.

If one wishes to expand their money supply against a gold standard, are they stuck?  Not happening?  No, they alter the valuation of their particular currency against gold, which is the 'universal money' especially with regard to trade amongst diverse currency regimes.  This is what Roosevelt did in 1933.

What makes this particularly unattractive to the modernist is that it requires a transparent and conscious act which the people can see for themselves.

Since 1971 the world has substituted the US dollar as the 'gold of universal reference,' the reserve currency.   This was the replacement of the 1944 Bretton Woods agreement, which tied the US dollar to gold directly, with what some have called 'Bretton Woods II.'

The Federal Reserve of the US has quite a bit of latitude with regard to the expansion of that US dollar supply AND the distribution and use of that creation through its member banks.  And that is power, real power.

And people who have that kind of power do not give it up easily.  Theoretically in the hands of philosopher princes a purely fiat monetary system can 'work' like a gold standard.  Greenspan said it could 'emulate it.'  And by that he implies restraint and rigor and transparency tied close not to economic models and the whims of power but to real economic activity. And then he betrayed this principle himself.

In every case of recorded history the financiers have stretched and strained against any and all regulatory restraints, and abused their power to create money.  Even for Adam Smith this was already a recognized phenomenon in 1776 when he published Wealth of Nations.  How could it not be with the memory from 1716 of fellow Scotsman John Law and his Banque Générale and the enormous wreckage it caused in continental Europe still fresh in his mind?
"When the people of any particular country have such confidence in the fortune, probity, and prudence of a particular banker, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him; those notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them...

The commerce and industry of the country, however, it must be acknowledged, though they may be somewhat augmented, cannot be altogether so secure, when they are thus, as it were, suspended upon the Daedalian wings of paper money, as when they travel about upon the solid ground of gold and silver."

Adam Smith, Wealth of Nations
But I would like to stop here and see if there are any real objections to what I have said in your mind. Think about it. Gold and silver are stores of value of wealth and, with the proper attention to form and purity, have functioned as a store of wealth, and of money at times, both widely and throughout record history in industrialized and organized societies.

Let us trudge on to the end of this.
"Gold is a volatile asset because it is only ever worth what anyone is currently prepared to pay for it. Since it has little consumption utility, the value is mostly maintained by the mass cornering effect of goldbugs who refuse to sell under any circumstances."
Gold and silver are not particularly volatile.  In their synthetic form, which is leveraged and hypothecated representations of bullion, they are volatile and encumbered with counterparty risks.  There are some who think that the current price manipulation in certain markets is intentionally volatile, for all the reasons that the recent rigging in so many other markets has occurred, and for years.

And that last sentence about gold bugs is just fatuous.  Who holds the greatest concentration of the world's gold?  Those ravening lunatics, the central banks.

One of the characteristics of 'money' versus asset barter is that money ought not to have much consumptive value in addition to its durability and nominal stability.  Have you ever tried to eat dollar bills?   People have used paper money to heat their houses.  But it is not very good at it.

What is particularly volatile now are the financial and international monetary markets, because the 'Bretton Woods II' monetary regime based on the US dollar as purely discretionary reference asset for international trade is falling apart, as theories such as Triffin's Dilemma have suggest that any fiat reserve currency would do.
"The use of a national currency, such as the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account, as some goals require an outflow of dollars [Eurodollars, a component of M3] from the United States, while others require an overall inflow."
When considering who the stronger dollar benefits, would you be surprised to learn that it is primarily the dollar based financial sector?

I think the current volatility may continue for some time due to an historical event that so few really remark upon or even understand fully:  the unraveling of Bretton Woods II, and its slow replacement with something else.  But that begs the question of cause and effect.  It is not gold that is changing.  It is as it always is.  And so is silver.  It is the context in which they exist that is changing.

Valuations are wildly swinging in certain markets because of the mass creation of 'synthetic gold' that, with the effects of Gresham's Law, has caused real physical bullion underlying it to flow in increasing amounts to the centers of real wealth creation.   The 'synthetic gold' remains in the vaults of the West, and the real gold is accumulating in the vaults and strong hands of the East.

I am not proposing a return to the gold or silver standards.  As I have said previously, the existing financial system, and the political process it has corrupted, is in dire need first of rigorous reform. Our system is capable of corrupting almost any monetary changes that are introduced, including a gold standard.

Addressing a final assertion, we can stipulate that valuation of most things, and even people, can be purely arbitrary if such a valuation is enforced with sufficient, draconian power.  Some of the most notorious tyrants of the twentieth century have not only believed this, but have embraced and used it to inflict widespread suffering and death on their people.

What I would like is government to keep their noses out of precious metal pricing, so it may reach an equilibrium that is at least mildly sustainable in the face of massive flows of bullion into Asia. And to start reforming the financial system which quite frankly has slid off the rails several times already and looks perfectly capable of doing it again.  Our philosopher kings have feet of clay.  What a surprise.

But since the banking elite are living a lie, that the precious metals are not a currency even though they treat them as such, hold them as such, and interfere with their pricing relative to other currencies as such, it may take some time for that to unfold.

These poorly thought, often contrived, and politically motivated policies that serve special interests are the sort of things that plunge a country into endless wars, a proliferation of unproductive spending for anti-human purposes, increasing repression, and a financial culture of systemic fraud that over time drains the real economy of all of its vitality.

But what is power, if the powerful and privileged do not exercise it.  Even until their own eventual destruction.

08 June 2015

The Global Monetary Phenomenon That Almost No One Is Seriously Discussing


I wish to present, in just a few charts, a remarkable monetary phenomenon that almost no one is discussing publicly.
 
As you can see below, the central banks of the world, largely those of the West led by the US and the UK, were net sellers of gold throughout the 1990's and through the turn of the century.  
 
As the Bankers to the world's reserve currency and sole global superpower, the Western central banks will make no major international policy decisions without the involvement of the Treasury, and especially the Federal Reserve and its constituent global banking machinery including the behemoth
Banks and the SWIFT system.
 
Gold purchases by central banks, at least those they were willing to publicly acknowledge, turned positive by 2010 at most.
 
The pundits did not expect this change to continue, as is shown in the 'forecast section' for 2012 and after in this first chart from RBC/Bloomberg below.
 

This chart shows most clearly perhaps how the Western central banks stepped up their gold selling attempting to control and then crush the price of gold, driving it down to a low of $250 in 1999-2001.
 
Interestingly enough this came to be known as Brown's Bottom.    England, under the leadership of Gordon Brown, then UK Chancellor of the Exchequer, very publicly sold 400 tonnes of its sovereign gold starting in late 1999 and 2001, reportedly to bail out some of the Banks who had gotten over their heads on short sale positions.

The largest net sales amount of gold reserves was in 2005, as the central banks attempted to dampen the price of gold which had risen from $250 to $450.   This selling was co-ordinated under the Washington Agreement, which was a so-called gentleman's agreement amongst some of the Western central banks, first created in 1999 and thereafter revised and extended in 2004. 

The banks included the ECB, Sweden, Switzerland, the UK.   Although it was not a signatory, the Federal Reserve was obviously involved.   In August 2009 this agreement amongst 19 central banks was extended for another five years. 

Spun positively by the financial media as 'good for gold,' this coordination of selling was designed to allow the Banks to coordinate their efforts, and not clumsily disrupt the markets as the Bank of England had done in 1999, allowing them to manage their sales and announcements for a smoother effect on price.  

As can be seen on the chart below, the central bank gold selling was unable to obtain traction, and the price of gold continued to rise as the Banks began to taper off their attempts to control the price through outright physical selling which seems to have had its last hurrah in 2007 as noted by Citigroup
"Official sales ran hot in 2007, offset by rapid de-hedging. Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price. Our sense is that central banks have been forced to choose between global recession or sacrificing control of gold, and have chosen the perceived lesser of two evils. This reflationary dynamic also seems to be playing out in oil markets."
There are other non-bullion instruments which the central banks may employ to manage the price of gold which include strategic leasing, derivatives, and the use of proxies to influence markets in the manner in which certain financial entities have been recently exposed to be manipulating many other global prices and benchmarks, over periods of many years.   Yet there is still a great deal of denial over the central bank attempts to manage the price of gold relative to their currencies, despite an abundance of circumstantial, historical, and direct evidence.

 

This simple chart more vividly portrays how the forecasts of declining purchases of gold by central banks after 2011 were wrong-footed.

Since that time, central bank purchases have risen to 48 year highs.

One thing that we should bear in mind here is that the central bank numbers are based on 'official' numbers given to the World Gold Council.  

There is significant evidence that some of the central banks, notably China, are significantly understating their acquisition of gold as a matter of their own discretion.
 

Here is my own depiction below of the sea-change called 'The Turn' in global central bank purchases of gold.

This turn coincides with what I along with more important others have called the currency war,  most notably in a bestselling Chinese book published in 2007 by Song HongBing called Currency Wars (货币战争), and a book published in Nov. 2011 by Jim Rickards by the same name.

 This is different from the 'currency war' which the financial media likes to portray, as the devaluation of national currencies to obtain competitive advantage, is more of an artifact from the 1930's.   This new currency war involved a rethinking of the US as the global reserve currency, an unusual condition for a fiat currency which has been in place since at least 1971 when Nixon closed the gold window.  
 
From the end of WWII the Bretton Woods Agreement had set up the US dollar reserve as a proxy for gold, redeemable at least by other central banks and their governments.  After the closing of the gold window the world was pushed into a scenario of central monetary authority it had not experienced in recorded history:  a single country, through a semi-public banking entity controlled the issuance of the world's global reserve currency unencumbered by a hard reference to some neutral external standard. 
 
This currency regime has been maintained by military and political power, informal agreements, treaties and trade sanctions, between 700 to 900 foreign bases of power and influence, and the indirect control of key global resources such as oil, the so-called petrodollar.
 
 
I certainly cannot predict where this will end, except to point to the example of past endeavours such as the London Gold Pool, and suggest that absent draconian government actions, market forces tend to overcome and overwhelm such efforts over time.  
 
As I have forecast for many years, at least from 1999, the natural objective of a global fiat currency regime is a unipolar, or quite possibly a multipartite global government that is more centrally directed oligarchy than sovereign democracies.  
 
The relationships of the various countries with the central authority in the evolving Eurozone are an approachable example on a small scale, a test run for the inverted totalitarianism, or neo-corporatism, of the bureaucrats and their corporate sponsors, to be a bit extrapolative.  Although I think that the TTP and TTIP are glaring signposts along the way.
 
One particular point of frustration has been how slow on the uptake so many economists and financial commentators have been in thinking through the various monetary schemes that they promote.  I doubt if they understood where they were leading that they would support them, even as their objectives are thought to be good. 
 
 

30 January 2015

China Takes Down Another 71 Tonnes of Gold Bullion From Shanghai


Major macro trend changes in long term buying habits by the world's major Banks don't matter.

Daily prices are perfect indicators of all information.  No markets are ever rigged.
 
Central Banks don't know any more about their own long term strategies than a beer vendor at a ball game, and have about the same amount of buying power to back them up.

People hang on every word from Janet Yellen's lips, but whatever China does is meaningless.

Nothing to see here, move along.  




28 November 2014

Fed Earmarked Gold Holdings Continued to Decline In October


Nemo debet esse judex in propria causa.

Earmarked gold at the Federal Reserve dropped 42 tonnes for the month of October as foreign countries repatriate their gold.

Despite these declines the Fed's earmarked holdings are quite substantial to say the least.  

One has to wonder why the German people are not able to get back their gold for seven years. 

Why would the US raise such a fuss about returning it, if they still have over 6,000 tonnes of other people's gold in their accounts?

Are they 'managing' this gold held in custody?  Are they receiving and sharing returns from it? Or is it just idly sitting their in storage?

Is it all still physically there, and unemcumbered by multiple claims?

Something does not quite add up.   Let's check the latest audit.  The Fed does not allow itself to be subject to independent audits.   They demand our trust.

"Justice must not only be done, but must be seen to be done."

They are independent of the law, and beyond good and evil.



20 October 2014

Lower Gold Prices Prompt Large BRIC Purchases


Apparently those lower gold prices proved attractive to the BRICS.

Not all the economic theorems are utopian myths.  Supply and Demand still works now and then.

There was a sea change in the international gold markets around 2005, as central banks became net buyers for the first time in over twenty years, and few even know about it.

Russia saw it's largest monthly purchase of gold in 15 years with 1.2 million ounces
 
Yes, these things are happening. 
 
And yes, most media people are not speaking about them, or pull a cloak of obfuscation and misdirection over them.    The media does not help the people, it handles the people.
 


China's had its third largest flows of gold bullion from Shanghai at 68.4 tonnes after it's week long holiday. And there is a similar story for India, except there the people are buying and the government sahibs would like to resist with import fees.    Or maybe they just simply cannot.

Gold at these prices is steadily flowing from West to East. What is not sustainable will not be sustained. There will be a reckoning, and a revaluation.

It would be better for the world if the would be financial engineers and central planners allow it to be gradual, rather than precipitous. Otherwise the gold leasing window will some day be slammed shut, and gold will go into a highly disruptive backwardation.

Then they will be carrying traders and even whole firms out on stretchers, along with the credibility and reputations of quite a few economists, analysts, regulators, and politicians.


These charts are from the data wrangler Nick Laird at Sharelynx.com.