Let's talk about the gold market

[GRG55]

Re: Let's talk about the gold market

The above statement of yours, is the following what you meant by it?

"Until the time comes, and there's the real prospect of a global monetary system reset, gold is just a fear-index trade."

If I have interpreted your statement correctly, does this mean you don't think we are about to see a global monetary system reset at this time?

No I do not. For two primary reasons:

1. A reset of the global monetary system would require a level of international cooperation that I don't see evident today, or any time soon.

2. I do not see any obvious replacement for the US$ at this time. Two decades ago there was much press about the Euro giving the US$ some competition. So much for that...

[kbird]

Re: Let's talk about the gold market

don't you think the helicopter money, etc, has to have time to create some effects before any serious monetary reset? at the moment we have a deflationary recession- low production and low consumption.

but prior to a monetary reset i think we have to start seeing significant inflation [beyond the narrow sectoral price gouging in certain medical supplies]. i can imagine a serious inflationary recession, like the one in the 1970's but on steroids, being the necessary trigger. low supply/production meets helicopter funded demand/consumption.

[the main area in which this is NOT happening is energy, which at the moment is characterized by high production and low consumption]

This is the $64k question. I would suggest that a 1970s scenario is a possible prerequisite for a reset but not the only scenario that might precipitate a reset.

Some other potential scenarios (not an all-inclusive list):

1. An extreme stock market collapse (even more extreme than we've already experienced) that requires us to close down the stock market until the lock-down ends.
2. A bank holiday, the last of which happened in 1933 during a period of extreme deflation and a run on banks as consumers worried about banking failures.
3. Foreign central banks and foreign private investors selling their U.S. investments and repatriating their capital back home.
4. The LBMA defaults on its ability to deliver physical gold.
5. Agreement by CBs that the time is finally right to execute a global debt jubilee.

[GRG55]

Re: Let's talk about the gold market

i've seen numerous charts of holdings increasing in russia, china, kazhakstan, i think turkey, and others. i didn't save them, nor the references. i was going to google it, but you can google it as well as i.

Russia, China, Kazakhstan and Turkey all have significant mineral endowments, and all are gold mine producers. And every one of them is corrupt as hell. That their Central Banks are buying gold should be no surprise.

Half the gold mines in Kazakhstan are controlled by the late President's son-in-law (married to his oldest daughter), or others in "The Family". The country requires all gold producers to sell their product to The Family's Central Bank - there is no other market option allowed. Just one example to keep in mind.

Gold used to do well when major economy Central Banks were behind the curve and real interest rates are negative. But that didn't work too well from 2011 on. Until the virus showed up.

Once the initial post-gfc fear trade wore off, and most realized the world wasn't going to end, money moved to places where it could participate in the economic recovery and had some chance of generating a real return.

Once this pandemic has run its course, and the fear abates, why would we not see a similar pattern this time? I wonder if the demand for US$ as the recovery takes hold, economies are being rebuilt and trade is being re-established might surprise some of us.

[jk]

Re: Let's talk about the gold market

i'm not sure that demand for us$'s can get all that much higher than it is already. gold has gone up against all assets EXCEPT the u.s. dollar, and it's not done badly in that realm either.

https://stockcharts.com/freecharts/perf.php?$gold

use the slider along the bottom of that graph to get a view as far back as 1999.

[seobook]

Re: Let's talk about the gold market

i'm not sure that demand for us$'s can get all that much higher than it is already.

Every dollar-based loan accrues interest which must be paid & is demand for more dollars. Even if the economy is shut down (no cash flow to pay interest out of) compound interest still compounds & debt still needs to be rolled over.

Each time a loan goes bad it increases the market rate of interest for other similar loans.

Each time a currency blows up it increases demand for loans to be denominated in dollars.

When is the last time the global economy shut down for a month or two? Was the global economy then anywhere near as debt saturated as it is today?

As long as the domestic economy stays afloat doesn't it increase the power of the dollar to allow a lot of pain to be felt elsewhere?

[kbird]

Re: Let's talk about the gold market

Every dollar-based loan accrues interest which must be paid & is demand for more dollars. Even if the economy is shut down (no cash flow to pay interest out of) compound interest still compounds & debt still needs to be rolled over.

Each time a loan goes bad it increases the market rate of interest for other similar loans.

Each time a currency blows up it increases demand for loans to be denominated in dollars.

When is the last time the global economy shut down for a month or two? Was the global economy then anywhere near as debt saturated as it is today?

As long as the domestic economy stays afloat doesn't it increase the power of the dollar to allow a lot of pain to be felt elsewhere?

Absolutely. The dollar has become dangerously overvalued. It reminds me of of 1933, just before the system reset that occurred then.

The world is experiencing a very significant "ka" event. I don't know when the poom begins, but it's going to be even more serious than the ka.

[kbird]

Re: Let's talk about the gold market

We source directly from refineries & the shortage of kilo bars for immediate delivery is 100% real. Email from a top global refinery a few hrs ago:

"I regret to advise that we have virtually sold out of all product, the demand we have seen in recent weeks is beyond belief."

— Simon Mikhailovich (@S_Mikhailovich) April 1, 2020

[kbird]

Re: Let's talk about the gold market

This seems like a your-money-is-safe-in-the-bank kind of message; it is the sort of press release that occurs when you are trying to prevent a run.

https://uk.reuters.com/article/uk-go...-idUKKBN21J6Q5

CME, LBMA say gold stocks healthy in New York and London

(Reuters) - U.S. exchange operator CME Group Inc (CME.O) and London Bullion Market Association (LBMA) said on Wednesday that gold stocks remain healthy and depositories are operating normally, as the markets work toward easing market volatility.

The latest published numbers show record stocks of 8,326 tonnes of gold in London, which is equivalent to 666,045 standard 400-ounce gold bars, according to the LBMA, which oversees the London trade hub.

Meanwhile, CME said its New York depositories held 9.2 million ounces of gold with 5.6 million ounces eligible as of March 30, nearing a record high in terms of stock levels.

CME Group last week announced the initial listing of enhanced delivery gold futures that will be deliverable in 100-ounce bars, 400-ounce bars, or kilo bars, effective April 6.

The announcement came after LBMA and several major banks that trade gold asked CME to allow gold bars in London to be used to settle its contracts to ease disruption to trading.

[kbird]

Re: Let's talk about the gold market

Bullion banks prepare CME (Comex exchange) pullback

https://www.reuters.com/article/us-h...-idUSKBN23424L

[thriftyandboringinohio]

Re: Let's talk about the gold market

Great find kbird

[llanlad2]

Re: Let's talk about the gold market

Every dollar-based loan accrues interest which must be paid & is demand for more dollars. Even if the economy is shut down (no cash flow to pay interest out of) compound interest still compounds & debt still needs to be rolled over.

Each time a loan goes bad it increases the market rate of interest for other similar loans.

Each time a currency blows up it increases demand for loans to be denominated in dollars.

When is the last time the global economy shut down for a month or two? Was the global economy then anywhere near as debt saturated as it is today?

As long as the domestic economy stays afloat doesn't it increase the power of the dollar to allow a lot of pain to be felt elsewhere?

Which individual government is short the most dollars?
I'm guessing it's the US of A. Which country's corporations and businesses are most short dollars? I'm pretty sure it's the USA. Which generation is shortest dollars? The youngest.
The riots on the streets are testament to that... They are just as much about generational inequality as racial equality.
If the US doesn't create more dollars the US will be inflicting pain on itself as well as RoW.

[kbird]

Re: Let's talk about the gold market

It appears that the temporary shortage of gold has probably ended (for now). I've noticed that the premiums charged at precious metals dealers have declined although they are still higher than normal.

https://www.zerohedge.com/commoditie...-transfer-gold

[GRG55]

Re: Let's talk about the gold market

Which individual government is short the most dollars?
I'm guessing it's the US of A. Which country's corporations and businesses are most short dollars? I'm pretty sure it's the USA. Which generation is shortest dollars? The youngest.
The riots on the streets are testament to that... They are just as much about generational inequality as racial equality.
If the US doesn't create more dollars the US will be inflicting pain on itself as well as RoW.

Foreign holders of US$ denominated debt earn the income that services that debt in their local currency. As the US$ exchange rate rises, and their local currency relative value declines, the absolute amount of the debt owing and the cost to service that debt rises. That is why it is much less of a problem for US domiciled companies that earn their income in US$, and benefit from the protections of US law (including the US bankruptcy provisions).

The greatest danger the ROW has been facing since the financial crisis in 2008/09 is a strong and rising US$ - the reason I have been steadfastly long the US$ and a skeptic of the pundits that have been calling for the "collapse" of the US$ these past years. Attached a chart that shows US$ foreign non-bank borrowing trends since the financial crisis. This data is to 2017; the situation has only become more exaggerated since.

Take a look at the currency exchange trends against the US$ for most of these countries. Argentina appears to be on the brink of hyperinflation The ARS to USD has moved from 3.44 in January 2009 to 68.43 today. Imagine what that does to your US$ debt servicing ability. Turkey might not be far behind. The TRY has moved from 1.55 at the beginning of 2009 to 6.82 today.

The more stable exchange rates, such as the Mexican peso, the Saudi riyal, which is pegged to the US$, and the Russian ruble benefited greatly from US$ earnings from oil exports. That income has now been hammered with the drop in oil prices, as have the floating currencies. Saudi dealt itself (and much of the rest of OPEC) a head-shot in March. Russia, with it's other US$ priced non-oil mineral exports to buffer the damage, only suffered a "flesh wound". Both are still bleeding profusely (as an aside, this is the reason I don't buy the irrational and illogical "kill US shale" analysis of many so-called analysts for what Russia and Saudi did to each other ).

China? Well, let me put it this way...if you are wealthy what possible reason would you have to want to keep your money, your family or yourself in mainland China or now Hong Kong? The sheer amount of illicit capital outflow is already showing itself in the weakening traded yuan exchange rate. The CCP has been trying to control the outflow, and hold the exchange (which risk only encourages more capital outflow), with ever more interventionist and draconian measures in the past few years, but the endemic, institutionalized and often creative corruption in Chinese society is a formidable force.

I do not understand your premise for conflating the riots in the USA with US sovereign debt.
There have been riots in Berlin on May 1, May 8 and again yesterday.
France dealt with the gilet jaune public disturbances from October 2018 through all of last year.
These are just examples. Are these debt related as well?

i'm not sure that demand for us$'s can get all that much higher than it is already. gold has gone up against all assets EXCEPT the u.s. dollar, and it's not done badly in that realm either...

The absolute worst thing (outside of a war) that could happen to impair the recovery of the global economy from COVID-19 is a rising US$. The US Federal Reserve started to head that off in earnest last fall with it's repo operations and has continued to do a remarkably good job keeping a lid on the US$ in the face of rising demand from the ROW as the current economic downturn has progressed.

However, as 2020 unfolds, if this virus induced economic crisis morphs from just another liquidity event (like 2008) into an almost certain solvency crisis spreading from one country to another around the world, it will be increasingly difficult to prevent a spike higher in the US$. It may also become increasingly difficult to avoid some sort of capital controls in the overindebted nations of southern Europe - even though they share the same currency as their northern cousins.

[llanlad2]

Re: Let's talk about the gold market

Foreign holders of US$ denominated debt earn the income that services that debt in their local currency. As the US$ exchange rate rises, and their local currency relative value declines, the absolute amount of the debt owing and the cost to service that debt rises. That is why it is much less of a problem for US domiciled companies that earn their income in US$, and benefit from the protections of US law (including the US bankruptcy provisions).

The greatest danger the ROW has been facing since the financial crisis in 2008/09 is a strong and rising US$ - the reason I have been steadfastly long the US$ and a skeptic of the pundits that have been calling for the "collapse" of the US$ these past years. Attached a chart that shows US$ foreign non-bank borrowing trends since the financial crisis. This data is to 2017; the situation has only become more exaggerated since.

Take a look at the currency exchange trends against the US$ for most of these countries. Argentina appears to be on the brink of hyperinflation The ARS to USD has moved from 3.44 in January 2009 to 68.43 today. Imagine what that does to your US$ debt servicing ability. Turkey might not be far behind. The TRY has moved from 1.55 at the beginning of 2009 to 6.82 today.

The more stable exchange rates, such as the Mexican peso, the Saudi riyal, which is pegged to the US$, and the Russian ruble benefited greatly from US$ earnings from oil exports. That income has now been hammered with the drop in oil prices, as have the floating currencies. Saudi dealt itself (and much of the rest of OPEC) a head-shot in March. Russia, with it's other US$ priced non-oil mineral exports to buffer the damage, only suffered a "flesh wound". Both are still bleeding profusely (as an aside, this is the reason I don't buy the irrational and illogical "kill US shale" analysis of many so-called analysts for what Russia and Saudi did to each other ).

China? Well, let me put it this way...if you are wealthy what possible reason would you have to want to keep your money, your family or yourself in mainland China or now Hong Kong? The sheer amount of illicit capital outflow is already showing itself in the weakening traded yuan exchange rate. The CCP has been trying to control the outflow, and hold the exchange (which risk only encourages more capital outflow), with ever more interventionist and draconian measures in the past few years, but the endemic, institutionalized and often creative corruption in Chinese society is a formidable force.

I do not understand your premise for conflating the riots in the USA with US sovereign debt.
There have been riots in Berlin on May 1, May 8 and again yesterday.
France dealt with the gilet jaune public disturbances from October 2018 through all of last year.
These are just examples. Are these debt related as well?




The absolute worst thing (outside of a war) that could happen to impair the recovery of the global economy from COVID-19 is a rising US$. The US Federal Reserve started to head that off in earnest last fall with it's repo operations and has continued to do a remarkably good job keeping a lid on the US$ in the face of rising demand from the ROW as the current economic downturn has progressed.

However, as 2020 unfolds, if this virus induced economic crisis morphs from just another liquidity event (like 2008) into an almost certain solvency crisis spreading from one country to another around the world, it will be increasingly difficult to prevent a spike higher in the US$. It may also become increasingly difficult to avoid some sort of capital controls in the overindebted nations of southern Europe - even though they share the same currency as their northern cousins.

Of course I know all of this....but you are writing like the only people to suffer from this situation is those outside the US. That's wrong.
I absolutely guarantee that many US citizens are suffering right now....and despite the rising dollar, prices of goods will go up if they aren't already which is completely opposite to what everyone has predicted.
I'm in the UK and they've been predicting DEFLATION but guess what.....supply destruction is having the opposite affect. Discounting in supermarkets is NADA. I imagine it's the same in the US.
The World has just suffered an almost sudden stop and......vs the crappy Euro the dollar is at a lower level than Jan 2017, it's not trading that much higher vs the corrupt Yuan, it's the same vs sterling.
Yes, the US can turn off the flow of dollars to the world but not without making its own suffer.
I won't be in the least bit surprised to see an uptick in inflation against all expectations.

[GRG55]

Re: Let's talk about the gold market

Of course I know all of this....but you are writing like the only people to suffer from this situation is those outside the US. That's wrong.
I absolutely guarantee that many US citizens are suffering right now....and despite the rising dollar, prices of goods will go up if they aren't already which is completely opposite to what everyone has predicted.
I'm in the UK and they've been predicting DEFLATION but guess what.....supply destruction is having the opposite affect. Discounting in supermarkets is NADA. I imagine it's the same in the US.
The World has just suffered an almost sudden stop and......vs the crappy Euro the dollar is at a lower level than Jan 2017, it's not trading that much higher vs the corrupt Yuan, it's the same vs sterling.
Yes, the US can turn off the flow of dollars to the world but not without making its own suffer.
I won't be in the least bit surprised to see an uptick in inflation against all expectations.

Hmmm. iTulip is most renowned for being a macro economic site.

As the chart attached will show the Euro has been in a consistent downtrend (lower lows and lower highs) against the US$ for the last 12 years.

You may be expecting inflation, but I haven't seen a cogent argument from you as to why. The declining Euro is inflationary - but you argue it hasn't really declined. The COVID induced disruption to global supply chains is certainly inflationary...but only in the short term. Food costs have gone up in Canada, one of Her Majesty's colonies and where I happen to live. But the Canadian economy is most definitely not experiencing inflation - not with one-third of the labour force out of work or underemployed.

So if you already know everything about what I wrote, pray tell what exactly is your logical case for inflation in the face of the growing likelihood of a global solvency crisis?

And where on earth did you get the idea the US would even contemplate "turn(ing) off the flow of dollars to the world..."?

I think we have a reasonable probability of a couple of years of mild global deflation (higher structural unemployment, insolvencies, slow economic growth with record sovereign debt acting as a drag on investment and output, the potential for a persistently overvalued US$) before we have to worry about inflation (primarily from supply destruction and de-globalization running head on into accelerating regional growth in Asia, accompanied by a shift in flows out of the $ as the safe haven trade fades). The market will, of course, price in the pending inflation in advance.