83 replies to this topic

[Carlos77]

The threat to currencies from banking failures

 

Feb 29, 2024

Alasdair Macleod

 

Because there is an apparent lull in the banking crisis, it has disappeared from the headlines. But that doesn’t mean it has gone away. A further deterioration in bank balance sheets will undoubtedly call into question the values of individual bank counterparty credit, entire banking systems, central banks, and currencies themselves. Let us remind ourselves of where we are in the bank lending cycle by looking at the relationship between bank equity capital and their balance sheets. The chart below shows the aggregate position for the entire US banking system.

 

 

It is as plain as a pikestaff that this ratio has been rising for as long as the Federal Deposit Insurance Corporation has been collecting these statistics — 34 years. The point about high balance sheet leverage is that it doesn’t take much in the way of loan losses to bankrupt a bank.

 

The chart tells us that the banks have responded to the trend for ever lower interest rates by increasing their balance sheet leverage to grow their profits at a time when credit margins became increasingly compressed. To describe the condition as a lending bubble is not an exaggeration, and we know that all bubbles burst eventually.

 

Unfortunately, the US banking system is the best of a bad bunch. The balance sheet leverage in the large international banks in the Eurozone and Japan is considerably higher, close to twenty times. Undoubtedly these excesses can be linked to the negative interest rate regimes imposed formerly by the ECB’s euro system and still by the Bank of Japan.

 

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[Carlos77]

Questions About Gold The CFTC And Fed Won’t Answer

 

by Dave Kranzler

Feb 29, 2024

 

The gold “held” in custody by the Federal Reserve on behalf of the U.S. Treasury Taxpayer has not been formally and independently audited since President Eisenhower was in the White House. Anyone who has studied this issue, particularly GATA, does not take the official published numbers seriously. Many of us question if the gold is still there, having likely been leased to bullion banks in the official effort to keep the price suppressed.

 

If mainstream financial news organisations ever work up the courage to report honestly about monetary gold, the commanding heights of the issue will have been mapped out for them by U.S. Rep. Alex X. Mooney, R-West Virginia.

Thanks to Mooney, in 2020 the U.S. Commodity Futures Trading Commission was shown refusing to answer whether it has jurisdiction over manipulative trading in the commodity futures markets when such trading is undertaken by or at the behest of the U.S. government: CFTC Letter

 

And now, also thanks to Mooney, Federal Reserve Chairman Jerome Powell has been shown refusing to answer questions about the repatriation of gold vaulted by other nations at the Federal Reserve Bank of New York, repatriation being something that would signify foreign loss of faith in the Fed, the U.S. government, and the dollar.

In December Mooney wrote to Powell to ask:

“Has the Federal Reserve or the Federal Reserve Bank of New York repatriated any gold to foreign nations this year? If so, to which countries and how much?

And:

“How much gold is the Federal Reserve vaulting for foreign nations now and how does this compare to the amount vaulted at the end of 2022?”

Mooney’s letter to Powell is posted here: Rep. Mooney letter to Powell

 

Powell replied to Mooney last week without even acknowledging the congressman’s questions:

“Thank you for your letter of December 14, 2023, regarding the gold market. The Federal Reserve Bank of New York provides gold custody on behalf of certain official-sector account holders, which include the U.S. government, foreign governments, other central banks, and official international organizations. The Federal Reserve Bank of New York does not own any of the gold it holds as custodian, and no other part of the Federal Reserve System owns gold.”

 

In not even acknowledging Mooney’s questions, Powell was arrogant and insolent, especially insofar as the Federal Reserve in previous years has disclosed the tonnage of custodial gold vaulted at the New York Fed and the number of countries vaulting gold there. Indeed, even now the New York Fed’s internet site claims that it is vaulting 6,331 tonnes of gold for foreign nations: NY Fed’s gold vault

 

https://investmentre...ed-wont-answer/

[Carlos77]

Massive Comex deliveries

 

Mar 1, 2024

Alasdair Macleod

 

The stand-out feature is the acceleration of deliveries — 2,005 gold contracts were stood for delivery this week, making the total for February 18,118 contracts, representing over 1.81 million ounces (56.35 tonnes).

In silver, yesterday the figure was a huge 2,858 contracts of 5,000 ounces each (444.47 tonnes), making the total for February 563 tonnes.

When Comex set up these contracts, this was never expected; contracts were meant to be closed at expiry and delivery was the notional means of tying the paper contract to the metal.

 

This problem has been building for some time. The question which arises is where is it all going?

We know that central banks are adding to their reserves, and for some of the minor ones a Comex contract allows them to jump the queue for delivery from the refiners.

To this we can almost certainly add ultra-high net worth individuals and their family offices, not so much in the west, but one suspects in Asia, where new billionaires are being created: think India.

Chinese demand continues apace, where deliveries out of the Shanghai Gold Exchange in January were a whopping 271tonnes, only the second highest figure to 285.5 tonnes in July 2015. In the last twelve months, these deliveries totalled 3,344 tonnes which is approximately annual global goldmine output.

 

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[Carlos77]

Inflation vs the Gold Price: Explaining How Inflation Affects the Price of Gold and Silver​

 

Posted 22nd February 2024

Dave Kranzler

 

Analysts have studied the relationship between gold and inflation for centuries.

While the price of gold is subjected to short-term volatility swings, an examination of the data over a longer period suggests that gold is not only correlated with inflation, it acts as a hedge against inflation. Many investors also use silver for inflation hedging.

 

What is inflation?

The term “inflation” is commonly used in reference to rising prices as measured by the Consumer Price Index. Technically, this isn’t correct and it’s not the definition used by economists. They define inflation as the rate of increase in the money supply surplus to the rate of increase in economic wealth output.

As the economist Milton Friedman once said:

“Inflation is always and everywhere a monetary phenomenon. This is in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” 

 

In general, but not always, inflation in the money supply causes prices to rise and the purchasing power of money to fall. When the money supply increases at a rate in excess of wealth output, there are more currency units relative to the supply of “wealth units”. Wealth units represent the number of goods and services supplied by an economic system. 

This ends up in a situation where more money is chasing fewer goods and services. The law of supply and demand kicks in at this point meaning that the price of those wealth units goes up.

 

How does inflation affect gold & silver prices?

Let’s take a look at the data.  

The chart below shows the prices of gold and silver vs. the CPI 1990. Previous records going back to 1971 would be better but the Fed removed the price of gold from its historic St. Louis Fed’s FRED database:

 

The chart above shows that, over the last 32+ years, gold has been well correlated with the CPI index (the rate of inflation). There was a bull market in precious metals between 1980 and late 2000. The graph shows however that, between 1995 and 2001, gold and silver underperformed the CPI index. But from 2001 to mid-2011, both metals significantly outperformed the CPI. Over the entire period, the price of gold and silver rose in lock-step with inflation. 

 

Why is buying gold considered a hedge against rising inflation?

In investing, there is a factor called the “volatility attribute”. It applies to all assets including commodities like gold and silver.

The volatility attribute is a measure of the fluctuation in an asset’s price over time. Investors use this to assess the level of risk and potential reward associated with their investment.

In other words, investing in gold might not be the perfect hedge against inflation in the short run. This was the case between 1995 and 2001. However, it works well in the long-term hedge against fiat currency price inflation caused by money printing.

 

The chart, sourced from December 1, 2022, shows gold vs the CPI index from 1971 to mid-2022:

Source: stockinvestor.com

 

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[Carlos77]

What Dollarization Says About Returning to the Gold Standard

 

MARCH 7, 2024  

BY SCHIFFGOLD

 

Argentina, or at least Milei and his supporters, want to switch to the dollar because Argentina’s currency, the Argentinian peso, has been run into the ground by constant government overspending and essentially printing money to cover the costs of government programs that are oversized relative to Argentina’s economy.  According to Stephen Matteo Miller of the Mercatus Center, Argentina has already experienced unofficial dollarization, with individual citizens of Argentina holding onto dollars or dollar-denominated assets because while the American dollar is constantly devalued by inflation it is devalued at a slower rate than the peso. Thus, dollarization would make official what rational Argentinians are already doing.

 

Milei has run into some setbacks with the dollarization part of the agenda and he is now claiming it’s part of a long-term agenda that will follow dramatic cuts to government spending. If Argentina dollarizes, in theory, it would benefit from “only” having to deal with American-level inflation instead of Argentina-level inflation. It would also help keep government spending under control- Argentina would not be able to run huge deficits and offset its spending by printing more dollars, only the United States can produce dollars. The strength of the currency that Argentinians use wouldn’t be undermined by Argentinian fiscal irresponsibility.

 

Argentina can turn to the United States for a source of a more stable and reliable fiat currency. But for the United States, there is nowhere to turn. There is no larger economy. The problems that the United States faces with its fiat currency are shared around the world. Fiat currency is constantly devalued and the existence of fiat currency makes government overspending easy. Another fiat currency will never save the United States from dangerous levels of inflation.

 

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[Carlos77]

What Dollarization Says About Returning to the Gold Standard

 

MARCH 7, 2024  

BY SCHIFFGOLD

 

Argentina, or at least Milei and his supporters, want to switch to the dollar because Argentina’s currency, the Argentinian peso, has been run into the ground by constant government overspending and essentially printing money to cover the costs of government programs that are oversized relative to Argentina’s economy.  According to Stephen Matteo Miller of the Mercatus Center, Argentina has already experienced unofficial dollarization, with individual citizens of Argentina holding onto dollars or dollar-denominated assets because while the American dollar is constantly devalued by inflation it is devalued at a slower rate than the peso. Thus, dollarization would make official what rational Argentinians are already doing.

 

Milei has run into some setbacks with the dollarization part of the agenda and he is now claiming it’s part of a long-term agenda that will follow dramatic cuts to government spending. If Argentina dollarizes, in theory, it would benefit from “only” having to deal with American-level inflation instead of Argentina-level inflation. It would also help keep government spending under control- Argentina would not be able to run huge deficits and offset its spending by printing more dollars, only the United States can produce dollars. The strength of the currency that Argentinians use wouldn’t be undermined by Argentinian fiscal irresponsibility.

 

Argentina can turn to the United States for a source of a more stable and reliable fiat currency. But for the United States, there is nowhere to turn. There is no larger economy. The problems that the United States faces with its fiat currency are shared around the world. Fiat currency is constantly devalued and the existence of fiat currency makes government overspending easy. Another fiat currency will never save the United States from dangerous levels of inflation.

 

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[Carlos77]

The Gold Price May Be Driven By The Physical Market in 2024

 

Posted 6th March 2024

Dave Kranzler

 

Which Central Banks Are Buying Gold?

The funny thing about that “blistering central bank” gold buying is that it’s coming from the eastern hemisphere (BRIC/Asian/SCO) central banks, including the central banks of OPEC nations. 

The physical gold market is starting to reject the efforts of the LBMA and COMEX to push the price of gold (and the price of silver) lower. 

In addition, Chinese buyers have been paying a significant premium over the spot price as set on the LBMA:

 

 

Eyes on Western Gold Markets

The World Gold Council released its Gold Demand Gold Trends report a few weeks ago. The report concluded that total gold demand hit an all-time high in 2023. As an example of the massive amount of physical demand in China, gold withdrawals at the Shanghai Gold Exchange hit 271 tonnes in January, the highest level on record. 

 

Crucially, withdrawal on the SGE is an actual withdrawal of the physical gold that passes through the SGE – contrast this with the COMEX or the LBMA. When gold is delivered on these “physical” gold exchanges, it’s typically “delivered” to hedge funds or other COMEX futures and LBMA forward investors who leave their “delivered” gold in the COMEX or LBMA respectively. 

The COMEX, which is the most egregious example of this “fractional” bullion allocation system, will eventually collapse when entities who took “delivery” look to remove their “delivered” gold or silver from the COMEX. This was close to happening in 2020 when the COMEX and the LBMA conjured a bogus gold contract that incorporated the LBMA’s alleged gold inventory with the COMEX’s inventory. 

 

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[Carlos77]

Can bitcoin act as money?

An analysis of bitcoin's ultimate credibility

 

MACLEODFINANCE

07.03.2024

 

Since 24 January, bitcoin has risen 65% and gold rose about 7% priced in US dollars. Before gold began its current successful but relatively modest leap into new high ground, there is little doubt that hedge funds and others sold down their Comex gold contracts and bought some bitcoin ETFs instead. The listing permissions for bitcoin ETFs made regulated investment possible. And attracted by the limitations of supply, an investment cohort moved in for the kill.

 

This raises the often debated question yet again as to whether BTC will become money, which is the long-stop argument of its supporters. For the avoidance of doubt, I approach this topic not as a goldbug insisting on an old-school argument. Defending bitcoin, Colonel Macgregor put it in a recent interview that Macleod has a vested interest as a gold bug. I maybe a gold bug, but that does not mean that I am one through bias. I try to look at all matters objectively, which is how I approach an examination of bitcoin without any bias against or in favour. But there are some factors that investors should bear in mind and that is what this posting is about.

 

I draw your attention to the correlation between BTC and US tech stocks, illustrated in the chart below.

 

 

I constructed the tech index by taking the weekly close of seven large-cap stocks, rebasing them all to 100 on 24 February 2020 and then taking the arithmetic average of all of them to construct an index. It is therefore a pure price index instead of the weighted by capitalisation approach. This is then compared with bitcoin’s (BTC) weekly closing price, similarly rebased. Since bitcoin has far higher volatility than even the tech stocks, I put them on different axes to facilitate visual comparison. The current bull markets in both tech stocks and bitcoin commenced at that same time.

 

The result is striking.

Until early November 2021, the correlation was loose, though both were in bull phases. But remarkably, bull phases ended at the same time, and a bear phase ensued until both markets bottomed a year later in November 2022. The correlation in that correction was then much tighter, as it has been in the subsequent bull phase, particularly in recent months.

 

This begs the question: is bitcoin to be regarded as a new form of money, escaping from government currency debasement, or does it merely act as an investment or speculative substitute for tech stocks? This is important, because many hodlers argue that the tech bubble is being fuelled by “money printing”, the very evil that justifies their hodling. But the reality is that by their actions they appear to be chasing profits as if they were punting in momentum-driven tech stocks, instead of genuinely hedging out of fiat currencies.

 

https://alasdairmacl...in-act-as-money

[Carlos77]

Gold — Catch it if you canMarket report for week ending 8 March 2024

 

MACLEODFINANCE

08.03.2024

 

Comex volumes in both contracts were heavy, but the startling increase was in gold’s Open Interest, which has surged by 100,000 contracts since 20 February:

 

 

 

 

Comex deliveries have also soared. In the four days of this week so far, 1,056 gold contracts have stood for delivery, making the total this year 28,159 contracts (87.58 tonnes). But the more remarkable increase has been in silver contracts: 1,628 this week so far representing 8,140,000 ounces or 253 tonnes. The total for this year to date is 1,122 tonnes.

Admittedly, this would take fleets of security vans working 24/7 to handle these quantities if on being stood for delivery this bullion was actually delivered out of the vaults. Instead, it represents change of ownership rather than actual deliveries, but it is an indication of the stress on bullion bank liquidity which must be being badly squeezed, not just on Comex but in London as well.

 

 

The bullion establishment in western capital markets has been caught badly short. The squeeze is global, which is why when the charts say “buy gold” as they now do the effect has been dramatic. After a 43-month consolidation, breaking into new high ground was bound to be a major event. The next chart shows the technical position.

 

 

 

 

 

Silver supplies limited

With a price ratio of 88 ounces to one of gold, silver appears to be particularly oversold. Industrial demand for it has soared in recent years, eating into the balance of stocks held as investment. The deterioration of the liquidity pool is illustrated by the decline in LMBA vaulted stocks since 2022.

 

 

And now there appears to be a run on Comex deliveries.

 

 

The next chart shows the position of Comex Swaps (aka bullion bank traders) on 27 February, adjusted for today’s gold price.

 

 

They have found it impossible to get their short positions down to the pre-2018 levels, because the miners are no longer hedging forward production. Since the last Commitment of Traders report, Open Interest has increased nearly 100,000 contracts, most of the short-side burden falling on their shoulders.

Which brings us to systemic risk. The possibility of a bullion bank failure should not be dismissed lightly if the gold price continues to rise steeply. Unlike the last real squeeze on them in late-2000, this time the miners are not hedging their output and the squeeze is entirely on the financial establishment’s shorts.

 

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[Carlos77]

What’s Behind the Gold Rally? Will It Last?

The bigger questions are: What are the factors driving gold higher, and will they continue the trend?

Some of the factors are clear. Central banks have been net buyers of gold since 2010 after being net sellers from 1970–2009. Mining output has been flat for the past eight years; it’s not shrinking but it’s not expanding either.

That combination of strong demand from central banks and flat output from mining is a recipe for higher prices and a de facto floor. Some analysts point to potentially lower interest rates as a driver of higher gold prices since fixed-income instruments compete with gold (which has no yield) for investor dollars.

It seems likely that the most powerful driver is the one getting the least attention.

 

Outright Theft!​

At the start of the war in Ukraine, the U.S. froze about $300 billion of U.S. Treasury securities lawfully purchased by the Russian Federation.

Legally, those securities are still owned by Russia, but they cannot be sold, traded, transferred or used as collateral. (By the way, this is easy to do because all Treasury securities are held in digital form by custodians on a ledger ultimately controlled by the U.S. Treasury.)

Now the U.S. is trying to seize those securities. This is outright theft. Such theft is contrary to numerous provisions of domestic and international law, but the U.S. is pushing the main custodian of those securities, Euroclear in Belgium, and European banks to amend their laws or ignore them for this purpose.

Other countries are watching. China, South Korea, Japan, Saudi Arabia, Taiwan and other nations have hundreds of billions of dollars each in U.S. Treasuries in their reserve positions.

Watching what the U.S. is doing to Russia is causing those countries to consider alternatives to Treasuries. That’s easier said than done. If U.S. Treasuries are in danger of being stolen, it’s not clear euro- or yen-denominated securities are any safer.

Gold is the liquid, safe alternative and appeals to many investors in a world where Treasuries can be confiscated at will.

 

The first bull market in gold ran from August 1971 to January 1980. The dollar price of gold rallied from $35 per ounce to $800 per ounce. That’s a 2,200% gain in 8.4 years.

The second bull market in gold ran from August 1999 to August 2011. The dollar price of gold rallied from $250 per ounce to $1,900 per ounce. That’s a 670% gain in 12 years.

The third bull market in gold began on Dec. 16, 2015, with gold hitting a bottom of $1,050 per ounce at the end of the prior bear market. Since then, gold has rallied to about $2,187 per ounce as of today.

If we take a simple average of the price gains and durations of the two prior bull markets in gold, we arrive at a 1,435% gain over a period of 10.2 years.

Applying that gain and duration to a baseline of $1,050 per ounce beginning in December 2015 leads to a gains projection for this bull market of $15,070 per ounce by August 2026.

 

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