With gold and silver surging on Friday, with the West’s desperate and massive money printing schemes as a backdrop, Andrew Maguire is right, China will send the price of gold and silver into the stratosphere.
“For China, gold’s strategic mission is to support the internationalization of the renminbi and be a strong support for China’s goals of becoming an economic power and realizing the ‘Chinese Dream.’ Gold is the only product that holds properties of a commodity and currency; it’s the most trusty asset on which modern fiat currency can be based. From a historical perspective, gold has played an irreplaceable role in times of financial and geopolitical crises and in protecting a country’s economic security. It is this unique nature and function of gold that give it a glorious and holy role to play during the revitalization of the greatness of the Chinese people and the realization of the ‘Chinese Dream.’’’ — Song Xin
Stephen Leeb: “Song Xin is head of China’s only state-owned gold mining enterprise and party secretary in charge of gold. He uttered these words at a gold conference in the summer of 2014, and they clearly had the implicit approval of Chinese ministers all the way up to the Politburo…
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Stephen Leeb continues: “I was reminded of them yesterday after seeing KWN’s report that, according to the always impressive Andrew Maguire, China and in particular the PBOC was stepping up efforts to encourage Chinese citizens to purchase gold. It made clear once again that China views gold as a very special commodity, one that stands head and shoulders above all others. What characteristic of gold makes China view it as so critical to its success? The answer is right there in the quote: gold is the “most trusty” asset to back up the Chinese currency.
While in the West the arguments of those who believe that gold should have a major role as a currency fall mainly on deaf ears, in the East that view is already accepted. And while Westerners can only decry the absence of gold from Tier 1 bank assets, the Chinese can do something about it. Indeed, they must do something about it to realize their dream.
My view is simple. In a world in which 17 percent of the population controls about 70 percent of the material wealth, global development will require massive resources – resources that because of growing scarcities are not immediately available and may never be available. Gold is the only suitable currency to ration such scarcities.
Silver To Ascend As Solar Dominates The World
As I noted last week, to increase our use of solar power enough to simply put a dent in our use of fossil fuels will require more silver than we produce in a year. For solar power to account for a meaningful amount of energy will require more silver than we could produce in a generation or perhaps more than exists in the world.
And the situation is similar for virtually all other commodities, from oil to iron ore to lithium. Since the beginning of this century, when China strode onto the world stage, commodities have all begun to correlate with one another. Even those that are seemingly plentiful, like iron ore, have correlated strongly with commodities like oil that were growing scarcer, because oil is needed to transport iron ore. Without oil, iron ore will just sit in the ground.
These mutual scarcities mean building out an energy infrastructure for the 21st century is a daunting challenge. If it’s at all possible it will require a type of bartering of one commodity for another. The only plausible unit of exchange in such circumstances is a currency like gold – cherished not just for its inherent beauty but because its history over the millennia shows that it holds its value in the best and worst of times.
China’s PBOC Urging Citizens To Buy Gold
The fact that the Chinese have chosen this moment to encourage their citizens to step up their gold purchases suggests they see the potential for monetary and economic chaos ahead. My best guess is that the trouble will start with oil. Low oil prices have come from a situation unique in the history of capitalism: the last two or so years have likely been the only time ever in which all major oil producers have been producing oil, the world’s most important energy source, below the price that would balance budgets. Even the mighty Saudis have been borrowing money hand over fist. Now that oil demand has started to catch up with supply, dramatic scarcities of oil could appear very quickly, and oil prices could easily soar above previous highs.
In 2015 China announced a plan to begin trading an oil benchmark, likely dedicated to the Eastern part of the world. Those plans remain firm but have been deferred to later this year. We expect the benchmark will consist of blends of oil from Eastern producers ranging from Russia to Iran to Saudi Arabia. All oil is likely to be getting much scarcer relative to demand, especially demand in the East. It’s utterly foolish to think that scarce oil will be exchanged for paper. Paper backed by gold, however, is another story.
Oil vs Gold
I will end by answering a question some of you may be thinking: Instead of accumulating gold, why not just accumulate oil? The answer is gold’s convenience, long a reason for its appeal as a currency. One ounce of gold, which any toddler can easily hold, would currently buy 24 large barrels of oil. China gets it. It’s late in the day for America to catch up, but I am not giving up hope.”
(Kitco News) – Since the beginning of May when April US employment printed weaker than expected, gold has declined, stocks have gained and Fed tightening expectations have increased. It appears the marketplace is expecting May data to offset April. Or, is US employment data becoming less relevant, similar to the widely revised GDP measures? As we get the first read on US employment data for May, it is important to focus on what the markets might be telling us. This presidential election is likely to be strongly influenced by the markets. A declining stock market coinciding with economic slowdown is more likely to result in a president Trump, more of the same – a president Clinton.
Against the consensus investments have been outperformed in this tightening cycle. Investors who have been overweight cash, US Treasury bonds and/or gold have generally outperformed since the Fed tightening on December 16th. Gold is up about 13% since December 16th, US Treasury bonds are up about 10% (as measured by the TLT ETF) and cash is up for the first time in history, when measured against negative interest rates in Europe and Japan. For those seeking what is different this time – voila. The stock market, as measured by the SPY ETF, is up 2.5%. The shift towards an extended period of below historical average market returns appears to have accelerated since the initial tightening. But what then, if US Treasury bond yields catch up to the rest of the world? The US 10yr note is currently yielding 1.8%, compared to 0.1% in Germany and 1.3% in the UK. Even Spanish and South Korean 10yr notes yield less than the US.
Markets Vs. Experts – Maybe most investors will get lucky and the US will lead the rest of the world back to some true expansionary inflation. US Treasury bonds should be the first go-to indication of inflation. They continue to indicate the opposite. Treasury securities are the foundation of basic performance for all investments on the planet. Along with gold, most experts have recommended against purchasing US Treasury bonds the past few years, notably coinciding with tapering of QE3 in 2014. The fact that the majority of experts have been wrong is a clear signal something is clearly different this time. Investors are advised to position accordingly. Until proven wrong by some sustained losses in US Treasury bonds and/or gold sustaining below $1,100/oz., overweight portfolio positions in gold and/or US Treasury bonds appear to be simply prudent.
Gold has surged more than two per cent as it headed for its biggest one-day jump in seven weeks after US payrolls data fell well short of forecasts, boosting expectations that the Federal Reserve will hold off on an interest rate rise.
The US economy created the fewest jobs in more than five years in May, a Labour Department report showed.
That could make it difficult for the Fed to raise interest rates further.
The data sparked a rebound in gold, which had slid to a three-and-a-half-month low of $US1,199.60 on Monday on growing expectations for a hike.
Spot gold was up 2.5 per cent at $US1,240.70 an ounce at 2:19 pm EDT (0419 Saturday AEST), while US gold futures for August delivery settled up 2.5 per cent at $US1,242.90 an ounce.
“The climate for gold to go higher … was certainly set because this pretty sharp drop in bond yields, along with the pull-back in the US dollar and declining equities created a good combination for the gold market to go higher,” said James Steel, chief metals analyst for HSBC Securities in New York.
US and European shares, the US dollar, oil and bond yields dived after the US job data.
“The sharp drop in non-farm payrolls is negative for the dollar and positive for gold,” ABN Amro analyst Georgette Boele said.
“Expectations for a rate hike soon have clearly diminished … Precious metals prices will fly higher.”
Gold was on track to rise 2.3 per cent for the week, following four straight weeks lower after comments from senior US central bank officials, including Fed Chair Janet Yellen, boosted expectations of an imminent rate rise.
Gold is highly sensitive to US rate expectations, as rising rates lift the opportunity cost of holding non-yielding bullion, while boosting the dollar, in which it is priced.
Gold demand in Asia, home to the world’s biggest consumers of physical gold, was muted this week as a slight increase in India and Japan was offset by reductions in other trading centres as buyers awaited further price declines.
Among other precious metals, platinum was up 2.7 per cent at $US977.76 an ounce after touching its lowest since April 8 at $US950 an ounce. It was on track for its first firm week in four.
Silver was up 2.4 per cent at $US16.35 an ounce, while palladium was up 2.9 per cent at $US548.03 an ounce. Both were on track for their first strong weekly performances in five.
Halting its two-day rising trend, gold prices declined by Rs. 135 to trade below Rs. 29,000 at Rs. 28,865 per 10 gram at the bullion market on Thursday owing to slackened demand by jewellers and retailers at prevailing level even as the precious metal firmed up overseas.
Silver also moved down by Rs. 160 to Rs. 38,600 per kg due to reduced off-take by industrial units and coin makers. Traders said easing demand from jewellers and retailers at the prevailing higher level mainly caused the decline in gold prices, but a better trend overseas capped the fall.
Globally, gold rose by 0.21 per cent to $ 1,215.30 an ounce and silver by 0.19 per cent to $ 15.95 an ounce in Singapore.
In the national capital, gold of 99.9 per cent and 99.5 per cent purity drifted lower by Rs. 135 each to Rs. 28,865 and Rs. 28,715 per 10 grams, respectively. The precious metals had gained Rs. 335 in last two days. Sovereign also declined by Rs. 100 to Rs. 22,800 per piece of eight grams.
Following gold, silver ready too softened by Rs. 160 to Rs. 38,600 per kg and weekly-based delivery by Rs. 70 to Rs. 38,495 per kg. On the other hand, silver coins continued to be traded at previous level of Rs. 66,000 for buying and Rs. 67,000 for selling of 100 pieces.
In the precious metals industry, trust is paramount. That’s why if you own any gold or silver bullion, there is a good chance that it comes from one of the few internationally recognized and reputable mints around the world.
In this infographic with JMBullion, we highlight key facts and comparisons on some of the world’s most popular mints, including the United States Mint, the Royal Canadian Mint, Perth Mint, PAMP Suisse, and Sunshine Minting.
Some quick facts on each of the world’s most popular mints:
The United States Mint was founded in 1792, and now has minting operations in Philadelphia, Denver, West Point, and San Francisco. The mint produced more than 17 billion coins for circulation in 2015 for the fastest annual pace since 19.4 billion coins were struck in 2001. Legend holds that George Washington donated some of his personal silver to the Mint for manufacturing early coinage.
The Royal Canadian Mint was founded in 1908 in Ottawa, Canada. It produces over one billion coins per year, with the Silver Maple Leaf as its signature bullion offering. In 2007, the Royal Canadian Mint created the largest coin in the world – a 100 kg, 99.999% pure, $1 million gold bullion coin.
The Perth Mint was founded in 1899 in Perth, Australia. It was originally built to refine metal from the gold rushes occurring in Western Australia, while also distributing sovereigns and half-sovereigns for the British Empire. In 1970, the Mint’s jurisdiction was moved to the State Government of Western Australia. The Australian Kookaburra (1990-), Koala (2007-), and Kangaroo (1990-1993, 2016-) are some of the mint’s most popular products among bullion buyers.
PAMP Suisse, a private mint, was founded in Switzerland in 1977. The mint refines an impressive 450 tonnes of gold annually, and much of the gold used for worldwide jewelry production comes from PAMP. The Mint also produces the popular Fortuna bar, which is available in gold, silver, and platinum, with sizes ranging from 1 gram to 100 oz.
Sunshine Minting is another private mint. Founded in Idaho in 1979, Sunshine mints 70 million ounces of bullion each year, including its version of the popular Silver Buffalo Round. Sunshine Minting is also the primary supplier of one-ounce silver planchets (round metal disks, ready to be struck as coins) to the United States Mint.
(Kitco News) – Gold futures prices are modestly lower and have hit a 3.5-month low to start the U.S. trading week. Bears continue to gain near-term Technical strength in gold. In overnight news, the Euro zone’s consumer price index was down 0.1% in May, year-on-year, for the second month of a row of a deflationary reading. World stock markets were mostly firmer overnight, and are ending what has been a good month of May for the world stock market bulls. U.S. stock index futures are set to open the New York session near steady to slightly higher levels, following a three-day holiday weekend.