83 replies to this topic

[Carlos77]

It is vital to understand the legal and practical role of gold

Fiat currencies, central banks, commercial banks, and even governments themselves face a looming credit crisis

 

MacleodFinance

08.02.2024

 

Without a proper knowledge of the legal basis which defines gold as money and that everything else is credit, we cannot fully understand why the only escape for individuals from the growing financial calamity faced by America, Britain, Europe, and Japan is to sell credit to buy physical gold bullion and coin.

 

As to the danger, you would have to be a blind deaf mute to not be aware of the mounting instability in our credit system. Not only are central banks, issuers of our currencies technically bankrupt, but profligate governments with debt to GDPs of 100% and more are as well. Additionally, commercial banks face a range of crises which through systemic risk threatens to collapse the entire western banking system. And anyone who blithely thinks that these problems will go away with lower interest rates (as widely expected in heavily managed markets) displays irrational hope over rational thinking.

 

The reality of today’s credit markets is that in the not too distant future they face the prospect of a total collapse. The only escape for those seeking to protect their wealth is to get out of credit. This includes all financial assets. But to sell down risk exposure and to leave the proceeds on deposit at a bank still leaves investors with a pig-on-pork credit risk. There’s the bank itself and also the currency in which the deposit obligation is recorded. It is fiat, meaning that its value in terms of purchasing power is down to no more than faith — faith which is initially decided by foreigners in the foreign exchanges, likely to catch domestic users on the hop unexpectedly.

 

The only escape from this looming credit crisis is to possess physical gold — bullion and coin. But to understand why requires us to unwind decades of Keynesian and statist anti-gold propaganda. 

 

https://alasdairmacl...stand-the-legal

[Carlos77]

World Gold Council: “Blistering Central Bank Buying” Fuels Strong Gold Demand

 

FEBRUARY 7, 2024  BY SCHIFFGOLD

 

Total gold demand hit an all-time high in 2023, according to a recent report released by the World Gold Council.

Last week, the World Gold Council (WGC) released its Gold Demand Trends report, which tracks developments in the demand for and use of gold around the world. Excluding over-the-counter (OTC) trade, 2023 gold demand fell slightly from 2022 to just under 4,500 tonnes. With OTC demand accounted for, last year’s demand peaked at 4,899 tonnes, the highest figure ever recorded.

 

Also of note was gold’s record high price at year-end. At $2,078.4 per oz, gold finished the year 15% higher than it started.

 

In a year of monetary tumult, central bankers themselves turned to gold, driving over 21% (1,037 tonnes) of 2023’s total demand and nearly setting a new demand record of their own. Central banks often hold a share of their foreign reserves in gold as a bulwark to economic and geopolitical instability. 

 

During last week’s Federal Open Market Committee meeting, however, Powell expressed doubts that the Fed will have tamed inflation enough to cut rates in March.

The reaction to Powell’s announcement is illustrative of gold’s hedge against uncertainty. While the stock market plummeted in response to the Fed’s hesitance, the spot price of gold climbed the following day to $2,054 per oz, almost surpassing its 30-day high price.

 

https://schiffgold.c...ng-gold-demand/

[Carlos77]

Gold Wars: the US versus Europe During the Demise of Bretton Woods

 

Jan Nieuwenhuijs

Published: February 05, 2024

 

 

The story on the emergence of the US dollar hegemony 

 

After the collapse of Bretton Woods in 1971 several European central banks tried setting up a new gold pool to stabilize the price and move to a quasi gold standard. The US wanted to phase out gold from the system and enforce a dollar standard on the world. 

What frightened the US was that Europe held the most gold and alluded to raising the gold price periodically to create liquidity, giving them the dominant means of creating reserves. Through its military presence in Germany, protecting it from the Soviet Union, the US was able to pressure the Germans not to cooperate with the gold pool. Without Germany the other European countries couldn’t materialize the pool and gold lost its anchor role in the monetary system. In the meantime, the US made a secret deal with Saudi Arabia to recycle oil dollars into US government bonds. 

The United States didn’t manage to phase out gold from the system altogether, but it did succeed in establishing a global dollar standard which yielded them unprecedented power.

 

Chart 1. A negative balance of payments position was settled in gold, and, because the US issued a reserve currency, increased foreign-held dollars. Source: Federal Reserve Bank of St. Louis.

 

 

 

 

 

In February 1965, the President of France, Charles de Gaulle, gave a speech in which he conveyed his criticism of Bretton Woods and America’s “exorbitant privilege”: to the extent countries were willing to hold dollars in reserve, the US could print dollars out of thin air to pay for imports and make investments abroad. In reality, Bretton Woods was designed for the world to accumulate dollars. Additionally, the inflationary policies of the US in the late 1960s were exported abroad through its balance of payments deficit and fixed exchange rates, pushing foreign central banks to buy dollars with their printing presses.

According to De Gaulle, international settlement should be done in gold and the use of reserve currencies had to be limited. De Gaulle and his economic advisors foresaw a dollar crisis advancing. To protect itself from devaluation France ramped up dollar conversions into gold at the Fed, in part to supply the Pool.

 

...

 

In favor of the Americans, the IMF’s Articles of Agreement (Article IV Section 2) stipulated that no central bank would buy or sell gold at a price other than the official price. And so, as a consequence from the Pool’s moratorium, a two-tier gold market was born. Private entities could trade gold at the free market price and central banks could transact at the official price. 

This setup subsided the role of gold in the international monetary system, as it severed the link between gold production and other sources of gold and monetary reserves. Gold also became increasingly illiquid, because no central bank wanted to sell at $35 an ounce knowing gold was worth much more. Gresham's Law assured the use of the dollar as intervention and trade currency by its presumed overvaluation with respect to gold. The world began creeping towards a dollar standard. 

Europe got cornered. By then they held the largest gold reserves, and it would have been a pity, to say the least, to render it useless.

 

 

 

 

 

Conclusion 

 

It wasn’t all smooth sailing for the dollar in the 1970s, but the US managed to secure its currency as the sun in the international monetary cosmos. In his memoirs, Zijlstra looks back on how it happened: 

"Gold disappeared as the anchor of monetary stability. An attempt to replace it with a newly created substitute (the IMF's [SDR] …) virtually failed. The fixed parities, apart from our own EEC system, have disappeared. … The road from dollar supremacy, through endless vicissitudes, to a new dollar hegemony was paved with many conferences, with faithful, shrewd, and sometimes misleading stories, with idealistic visions of the future and impressive professorial speeches. (For every notion, no matter how extreme, there is always a professor of economics available.) The political reality was that Americans supported or fought any change, depending on whether they saw the dollar's position strengthened or threatened."

 

According to Zijlstra and De Gaulle, final settlement in cross-border trade should be done in gold and the use of reserve currencies restricted. What frightened the US was that Europe held the most gold and alluded to raising the gold price periodically to create liquidity, giving them “the dominant means of creating reserves.” A few days after the Zeist conference an advisor of Kissinger explained it to him well: 

 

Mr. Enders: It’s against our interest to have gold in the system because for it to remain there it would result in it being evaluated periodically. Although we have still some substantial gold holdings … a larger part of the official gold in the world is concentrated in Western Europe. This gives them the dominant position in world reserves and the dominant means of creating reserves. We’ve been trying to get away from that into a system in which we can control—

 

Secretary Kissinger: But that’s a balance of payments problem.

 

Mr. Enders: Yes, but it’s a question of who has the most leverage internationally. If they have the reserve-creating instrument, by having the largest amount of gold and the ability to change its price periodically, they have a position relative to ours of considerable power. 

 

 

Remarkably, everything that held back the envisioned monetary system of Zijlstra and friends in the 1970s has been resolved. Since Germany repatriated gold from New York several years ago we may assume it has released itself from bondage. Gold is globally more evenly distributed (chart 5), there is a gold leasing market for those that are looking for a yield, and the gold market is liquid. The fact the Dutch central bank recently signaled that it has prepared for a new gold standard makes perfect sense from a historical perspective.

 

 

 

Experience from Bretton Woods and the need to periodically increase the gold price suggests that Europe would target the price in the free market in order to stabilize it. The remaining questions are, (i) what could trigger Europe to stabilize the gold price in the future, and (ii) at what price level?

 

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[Carlos77]

Why Gold? Why Now?

 

BY JAMES RICKARDS

FEBRUARY 12, 2024

 

Headline CPI (the kind Americans actually pay, not constructs like “core” and “super-core”) was 3.4% in December. 

But a 3.4% inflation rate cuts the value of a dollar in half in 21 years and half again in another 21 years. That’s a 75% dollar devaluation in just 42 years or the course of a typical career from age 23 to age 65.

 

Get Diversified!

 

Geopolitical conflicts and political turmoil often result in unforeseen consequences. These consequences can include supply chain disruptions, economic sanctions, asset seizures and freezes, bond defaults, bank failures and inflation. Oil prices can spike if key waterways are closed, or a vessel is sunk.

Economic sanctions and financial warfare can cause recession or a banking crisis almost overnight. Assets such as stocks, bonds, real estate and alternative investments can be adversely affected by such changes without warning.

Gold tends to be insulated from such shocks because there is no issuer, no creditor and no country involved. It’s just gold. That means you can hold it safely and wait out the turmoil without adverse effects.

 

Gold prices do not correlate closely to stock prices. Gold and stocks are driven by separate factors. That makes gold a good diversification asset for portfolios that are heavily in stocks. When a portfolio is highly diversified, it can produce higher expected returns without adding risk.

 

Golden Tailwinds

 

Today, gold is around $2,033 per ounce, still close to the recent highs. These trends toward higher prices have been driven by lower interest rates; continued inflation; geopolitical concerns about the Middle East; and continued buying by central banks, especially Russia and China.

 

All those trends will continue. One of the principal drivers of the gold price rally is the steep decline in interest rates in recent months. The interest rate (expressed as a yield-to-maturity) on the 10-year U.S. Treasury note plunged from around 5.0% to 4.0% in a matter of weeks at the end of 2023.

Don’t mistake a 1.0% move for something small. That’s an earthquake in bond markets, especially in such a short period of time (47 days). A 1.0% move in that short a period of time has only happened in the Treasury market six times in the past 30 years.

Rates have backed up slightly in the past month, but that’s to be expected. Nothing moves in a straight line. The decline in rates will resume in the months ahead as the U.S. economy moves into disinflation and recession. That will give a boost to the dollar price of gold since notes and gold compete for investor allocations. Lower interest rates generally make gold relatively more attractive since gold has no yield.

 

Meanwhile, Russia and China and other central banks have been adding to their gold reserves consistently since 2008. Total gold reserves have increased from about 600 metric tonnes to 3,000 metric tonnes in Russia, and over 2,000 metric tonnes in China (although there is good reason to believe that China’s gold reserves are much higher, perhaps double the official figures or more).

That increase in gold holdings will continue and probably accelerate as the U.S. threatens to seize Russian reserves in the form of Treasury securities and as progress is made on the new BRICS gold-linked currency.

 

The 10% Rule

 

I recommend a 10% allocation of investable assets to gold. In calculating investable assets, you should exclude home equity and the value of any private business. Don’t gamble with your house and livelihood.

Whatever is left (stocks, bonds, real estate, alternatives) are your investible assets. Allocate 10% of that amount to gold. That allocation is high enough that you’ll make significant profits (and protect against losses in the rest of your portfolio) if gold soars, but small enough that your overall portfolio won’t be hurt badly if gold goes down.

 

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[Carlos77]

Why Gold? Why Now?

 

BY JAMES RICKARDS

FEBRUARY 12, 2024

 

"Headline CPI (the kind Americans actually pay, not constructs like “core” and “super-core”) was 3.4% in December. 

But a 3.4% inflation rate cuts the value of a dollar in half in 21 years and half again in another 21 years. That’s a 75% dollar devaluation in just 42 years or the course of a typical career from age 23 to age 65.

 

Get Diversified!

 

Geopolitical conflicts and political turmoil often result in unforeseen consequences. These consequences can include supply chain disruptions, economic sanctions, asset seizures and freezes, bond defaults, bank failures and inflation. Oil prices can spike if key waterways are closed, or a vessel is sunk.

Economic sanctions and financial warfare can cause recession or a banking crisis almost overnight. Assets such as stocks, bonds, real estate and alternative investments can be adversely affected by such changes without warning.

Gold tends to be insulated from such shocks because there is no issuer, no creditor and no country involved. It’s just gold. That means you can hold it safely and wait out the turmoil without adverse effects.

 

Gold prices do not correlate closely to stock prices. Gold and stocks are driven by separate factors. That makes gold a good diversification asset for portfolios that are heavily in stocks. When a portfolio is highly diversified, it can produce higher expected returns without adding risk.

 

Golden Tailwinds

 

Today, gold is around $2,033 per ounce, still close to the recent highs. These trends toward higher prices have been driven by lower interest rates; continued inflation; geopolitical concerns about the Middle East; and continued buying by central banks, especially Russia and China.

 

All those trends will continue. One of the principal drivers of the gold price rally is the steep decline in interest rates in recent months. The interest rate (expressed as a yield-to-maturity) on the 10-year U.S. Treasury note plunged from around 5.0% to 4.0% in a matter of weeks at the end of 2023.

Don’t mistake a 1.0% move for something small. That’s an earthquake in bond markets, especially in such a short period of time (47 days). A 1.0% move in that short a period of time has only happened in the Treasury market six times in the past 30 years.

Rates have backed up slightly in the past month, but that’s to be expected. Nothing moves in a straight line. The decline in rates will resume in the months ahead as the U.S. economy moves into disinflation and recession. That will give a boost to the dollar price of gold since notes and gold compete for investor allocations. Lower interest rates generally make gold relatively more attractive since gold has no yield.

 

Meanwhile, Russia and China and other central banks have been adding to their gold reserves consistently since 2008. Total gold reserves have increased from about 600 metric tonnes to 3,000 metric tonnes in Russia, and over 2,000 metric tonnes in China (although there is good reason to believe that China’s gold reserves are much higher, perhaps double the official figures or more).

That increase in gold holdings will continue and probably accelerate as the U.S. threatens to seize Russian reserves in the form of Treasury securities and as progress is made on the new BRICS gold-linked currency.

 

The 10% Rule

 

I recommend a 10% allocation of investable assets to gold. In calculating investable assets, you should exclude home equity and the value of any private business. Don’t gamble with your house and livelihood.

Whatever is left (stocks, bonds, real estate, alternatives) are your investible assets. Allocate 10% of that amount to gold. That allocation is high enough that you’ll make significant profits (and protect against losses in the rest of your portfolio) if gold soars, but small enough that your overall portfolio won’t be hurt badly if gold goes down."

 

Read more

[Carlos77]

Forget Rate Hikes. Money Printing Has Already Begun

 

Dave Kranzler                                                  

Posted 6th February 2024

 

While most observers are watching what the Fed does with interest rates, few have noticed that the Fed stopped shrinking the money supply in response to the regional bank crisis in March 2023.

 

 

 

 

Even more telling is the ‘Monetary Base‘ (MZM), which is the most “powerful” form of money supply because it measures bank reserves plus coin and currency in circulation. I say “most powerful” because this form of “money” can be translated instantaneously into money used for spending or investing as opposed to M2, which includes less readily available forms of money like savings accounts and interest-bearing time deposits. 

 

 

 

Although the Fed removed the $400 billion it printed by late June, the growth in the Monetary Base between March and the end of December (the most recent money supply report) shows that the Fed increased the base money supply by $470 billion. Very little of this is explained by the change in the level of currency/coin in circulation. This means that the Fed used various “back door” liquidity facilities to replace the $400 billion removed plus it added $470 billion, of which only $161 billion is explained by the Bank Term Funding Program.

In other words, the Fed is opaquely creating bank reserves (aka “printing money”) to address what I believe is a burgeoning liquidity problem in the banking system.

 

Over the next twelve months, an unprecedented $8.2 trillion in Treasury bonds will have to be refinanced.

In addition, based on the first quarter of the fiscal year (starting October 1, 2023), the government’s spending deficit on an annualized basis would be over $2 trillion. This $2 trillion – and the spending deficit likely will be significantly larger – represents additional new debt issuance that will have to be funded – a task made more difficult by the fact that our government’s biggest foreign financiers (China, Japan and OPEC) have been reducing their participation in Treasury auctions.

 

Unless the Fed can find investors large enough to replace the missing foreign investment capital, it will either have to be the buyer of last resort or risk watching Treasury yields soar to a level that might induce foreign capital back to the table at Treasury bond auctions. Because considerably higher interest rates would throw the U.S. into an economic depression, the second motive, in addition to propping up the big banks, for renewed money printing in 2024 will be a requirement for the Fed itself to bridge the gap between the supply and demand for Treasuries.

 

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[Carlos77]

Central Banks Taking All the Gold | Alasdair Macleod

 

Authored by Peter Reagan via Birch Gold Group

 

It’s a tale as old as bailouts: if the average person managed their money as badly as big banks, they wouldn’t have a penny to their name. But then the same applies to an even greater extent in comparison between central and private banks, says MacLeod, with the former having basically zero accountability.

Liquidity is another thing they’re lacking, to summarize MacLeod’s lengthy and well-presented overview of the banking sector.

 

Most interestingly, perhaps, MacLeod says that central banks aren’t so much buying gold as they are getting rid of paper currency. We’ve all heard of this interpreted as diversification or de-dollarization. Maybe that’s just a polite way of talking around the issue. In reality, central banks are using paper money to buy gold – and not just foreign currencies, but their own as well.

Why would they do that?

 

Despite gold’s price rising over the last three years, MacLeod believes we aren’t really seeing a bull market yet. He says that interest in gold is disappointing, with nearly every investor, public and private, severely underweight in gold. MacLeod estimates that, of the $150 trillion in global savings, less than 1% is currently in gold.

Nevermind prices: when these portfolios adjust to 5%, 10% or even what MacLeod finds a more reasonable 15%, where is the gold going to come from? Merely adjusting to 2% would require 23,000 tons of physical gold! That’s 10% of all the gold mined in human history…

 

We already know what a 1,000 ton annual purchase for two consecutive years does for gold. We’ve seen it over the past two years with the official sector. Since central banks aren’t likely to stop these purchases, MacLeod leaves us wondering just how soon the rest of the world will catch on.

When $150 trillion in global savings begins to diversify with gold, just how fast and how far will gold’s price rise?

 

https://www.youtube....h?v=1_NO2j3t3xI

 

INTERVIEW TIMELINE: 0:00 Intro 1:32 Banking system 15:57 Middle East conflict 28:13 Gold update 39:28 Gold Money

[Carlos77]

Massive bear squeeze likely in goldMarket report for week ending 16 February

 

MACLEODFINANCE

16.02.2024

 

 

 

Preliminary figures for yesterday are 412,506 contracts, the lowest in four years. In fact, it is the lowest since December 2018 when gold was sold down to under $1200. The level of disinterest today is similar to then, which preceded a 20-month bull phase taking the price to $2074.

 

Two months before, in August 2018 Managed Money had gone record net short (109,454 contracts. It is not so extreme today, with MM net long 68,069 contracts on 6 February.

This gives the Swaps category bullion banks a problem: in August 2018 they were net long 60,000 contracts, so were the right side of the massive bear squeeze that followed.

Ten days ago, they were net short 143,623 contracts (14.36 million ounces, 446.7 tonnes) worth $29.23 billion.

 

The Swaps’ problem is that the other category normally taking the short side, Producers and Merchants, have reduced their hedging to a minimal level.

 

 

 

Taking these technicalities into account, we can only conclude that the situation in the Comex gold contract could become systemically threatening for the bullion banks. It is becoming apparent to the major players (central banks etc.) that the fundamentals behind the US dollar are becoming dangerous to it, threatening its very survival. Yet the bullion banks are unable to close their short gold positions.

Will the dip testing the water at under $2000 be the last chance to buy gold before it roars ahead on a bear squeeze, potentially taking out some bullion banks? It is a possibility which should not be lightly dismissed.

Furthermore, this month so far, nearly 45 tonnes of gold have been stood for delivery. And that was never meant to happen!

 

https://alasdairmacl...-likely-in-gold

 

 

 

 

[Carlos77]

Could This Black Swan Trigger a Gold & Silver Rally?

 

Posted 15th February 2024

Dave Kranzler

 

The Federal Reserve has removed the sentence “The U.S. banking system is sound and resilient” from the FOMC Policy Statement released on January 31st. 

If the Fed was unwilling to make that assertion, the bank crisis from early 2023 is likely rearing its ugly head again. Note that the Fed “stabilized” the banking system back then by printing money, and injecting $400 billion in reserves into the banking system. It also set up the Bank Term Funding Program without a ceiling, with $167.7 billion drawn from it as of January 25th.

 

US Banking Activity

 

The removal of that sentence from the policy statement could not be a coincidence. The day before the statement was released, the New York Community Bank (NYCB) announced a massive loan loss reserve provision and slashed its dividend. The stock plunged 37.6% the day the policy statement was released.

Fed Chairman Jerome Powell was featured on “60 Minutes” four days after the FOMC meeting and after NYCB blew up. When asked about the possibility of a real estate-driven bank crisis like the one in 2008, Powell asserted (with a straight face) that this was unlikely and assured the audience that the big banks were in good shape. It was strikingly reminiscent of when then-Fed Head, Ben Bernanke, in 2007 assured the country that the raging subprime debt problem was “contained.”  

The relevance of Powell’s appearance on such a prime-time, nationally-televised show making that assertion cannot be overlooked. The next day, one of the larger Japanese banks with heavy exposure to U.S. office building loans, Aozora Bank, announced that it was slashing the book value of its U.S. CRE loan portfolio and it hiked its loan-loss reserve ratio to 18.8% from 9.1%.

 

Commercial Real Estate Crisis​

 

While everyone was discussing the potential for a commercial real estate debt crisis this year, the NYCB and Aozora earnings reports confirm that it has already begun. $117 billion in CRE office debt needs to be refinanced this year and $1.5 trillion matures or needs to be refinanced before the end of 2025. 

The problem with refinancing this debt is that, based on recent market transactions, many buildings are worth 50% or less of their book values, which means the outstanding loans are worth far less than the original amount of the loan. 

The loan-to-value for many buildings is 100% to 200%, which means some of the loans are close to worthless. Losses of this magnitude will not be confined to just the regional banks – this will blow holes in big bank balance sheets. In addition to this, large public pension funds have heavy exposure to CRE loans.

 

A Banking Crisis Fomenting

 

The banking crisis fomenting “below the surface” is likely the continuation of the crisis that hit the U.S. markets in March 2023 – NYCB and Aozora are warning shots. 

This situation is quite similar to the 2008 bank crisis, driven primarily by the collapse of residential real estate mortgages. The crisis was magnified by the massive default of related over-the-counter derivatives.

The Fed was able to defer the onset of a bigger crisis in March 2023 by swiftly printing $400 billion and injecting it into the banking system. In addition, it made available a collateralised loan facility of unlimited size to banks in need of liquidity (the Bank Term Funding Program).  

If the March 2023 crisis is rekindling, this may be why the Fed has increased the Monetary Base (formerly MZM) by 9.5% since the end of February, with the bulk of the increase occurring after July last year. The Monetary Base is composed of currency/coin plus bank reserves. It is the bank reserves that have expanded since February.

 

https://kinesis.mone...d-silver-rally/

[Carlos77]

America cannot afford another warThe US Government is in a debt trap already, and it would merely hasten the collapse of her finances

 

MACLEODFINANCE

15.02.2024

 

America cannot afford another war because the US Government is in a debt trap already, and it would merely hasten the collapse of her finances. Measured in dollars, gold would soar handing economic power to Russia and China.

 

We can be sure that the highest levels of government in the US Treasury realise this. Earlier this month, a team of five Treasury officials went to Beijing “to discuss the economy”. We can be certain that the Treasury’s real concern is to find out China’s intentions with respect to her Treasury holdings, and at the least persuade her not to sell any more.

 

This is an approach by the Americans on bended knee. The Treasury has already tapped out banking and money fund liquidity by issuing T-bills at an interest cost of over 5%, and in the next few months will have to start issuing notes and bonds of longer maturities. As the marginal demand factor, foreigners must be persuaded that it is in their interest to keep buying so as to put a cap on yields.

 

The problem for the Treasury is that they can talk to their opposite numbers in China as much as they like, but the reality is that America’s political class is openly belligerent against China over Taiwan, and also against Russia and Iran — China’s allies. China has shown herself to be more patient with the Americans than Russia and Iran. But unless China can extract convincing commitments from America to back off over Taiwan and what they are now calling West Asia (the Middle East to us), the hapless Treasury officials are likely to leave empty handed.

 

With Donald Trump likely to be the next US President, to the Chinese convincing commitments are virtually impossible, particularly with America’s track record of reneging on its promises and the upcoming presidential regime change. Therefore, the US Treasury will have to tell the White House that funding the anticipated budget deficit will be very difficult.

 

https://alasdairmacl...ord-another-war