What Trump’s First 100 Days Portend for Precious Metals Investors

By Stefan Gleason*

 

The first 100 days of the Trump administration have brought some surprises and disappointments – as well as some new threats and new opportunities for precious metals investors.

Among the disappointments was President Trump’s inability to push Obamacare repeal through Congress. The White House intended for the GOP’s replacement to reduce the deficit and lay the groundwork for tax cuts.

Now there is a very real chance that no tax reforms whatsoever will be passed this year. And that would be an even bigger disappointment to many investors. Ideological divisions within the GOP may well lead to debt ceiling brinksmanship and a possible government shutdown.

Trump’s surprise about-face on foreign policy in ordering bombings in Syria could have far-reaching implications for U.S. relations with other problem regimes including Iran, Russia, China, and North Korea. The geopolitical risks going forward are many and range from a new Cold War, to trade and currency wars, to the worst-case scenarios of a North Korean attack on Hawaii or an all-out nuclear war.

The debate over what to do about Assad’s regime in Syria is a sideshow compared to the looming conflict with China. Unlike Syria, China is a major world power that has the ability to hurt the U.S. economically and undermine its geostrategic position in the world.

The Chinese economy is drowning in debt that is tied to overvalued real estate and overbuilt infrastructure (including its infamous “ghost cities”). The only way to avert a crash may be for Chinese authorities to devalue their currency.

That’s exactly what Jim Rickards, author of Currency Wars and The Death of Money, thinks will happen. He expects the Chinese yuan to be devalued. That, in turn, could trigger turmoil in U.S. financial markets and an angry response from the Trump administration.

Gold and Silver Shine Despite Fed Rate Hikes

During times of rising geopolitical uncertainty, precious metals tend to benefit from safe-haven inflows. So far in 2017, gold and silver have been off the radar of most investors as global equity markets have remained stubbornly elevated – seemingly impervious to any bad economic news or troubling developments in international relations.

Gold (and silver) have performed well
so far during Trump’s presidency.

Maybe investors are willing to give President Trump an extended honeymoon period. But at some point, optimism toward the Trump economy will crack if he and the GOP Congress can’t find a way to deliver on their core promises to voters.

At some point, tensions with foreign adversaries could escalate and blow back on markets.

At some point, the Federal Reserve could raise rates one too many times and trigger a stock market meltdown.

Of course, there is no guarantee that any of the extant threats to financial markets will redound to the benefit of precious metals markets. As long as the Fed remains committed to raising rates, the U.S. dollar stands to gain against foreign currencies – at least in theory.

So far in 2017, the Greenback has drifted slightly lower despite hawkish gestures from the Fed. Gold and silver, meanwhile, have performed well so far during Trump’s presidency. In April, gold prices broke out above a resistance level near $1,260/oz.

A Contrarian Perspective

Markets don’t always move in response to events – and when they do, sometimes it’s in the opposite direction of popular expectations. Case in point: Trump’s election win was supposed to be bad for the stock market. It turned out to be great for the stock market.

The Fed was supposed to be bullish for the dollar and bearish for precious metals this year. So far, that popular expectation has been proven wrong.

If you try to trade in and out of gold and silver positions based on what’s in the news, you’ll get constantly whipsawed. Sometimes events in the world that ought to be bullish for gold end up having no effect or a negative effect on prices. And sometimes seemingly bearish headlines kick off rallies rather than price drops.

As we’ve advised before, investors should expect the unexpected. We live in an unpredictable world and are governed by an unpredictable White House. The best way to make sure you’re never caught off guard is to always hold a core position in physical precious metals.

Largish sale from GLD but gold price still consolidating

 Gold Today –New York closed at $1,281.20 yesterday after closing at $1,279.20 Wednesday. London opened at $1,281.00 today. 

Overall the dollar was stronger against global currencies early today. Before London’s opening:

         The $: € was stronger at $1.0695 after yesterday’s $1.0766: €1.

         The Dollar index was stronger at 99.94 after yesterday’s 99.46

         The Yen was weaker at 109.18 after yesterday’s 109.03:$1. 

         The Yuan was weaker at 6.8867 after yesterday’s 6.8837: $1. 

         The Pound Sterling was weaker at $1.2787 after yesterday’s $1.2833: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    4    21

     2017    4    20

     2017    4    19    

SHAU

SHAU

SHAU

/

285.30

286.11

/

285.23

285.75

$ equivalent 1oz @    $1: 6.8867

       $1: 6.8837

       $1: 6.8854

      

  /

$1,289.11

$1,292.45

/

$1,288.79

$1,290.8

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 The Shanghai Gold Exchange was trading at 285.10 towards the close today. This translates into $1,282.64.

All three global gold markets are in line with each other. At this moment in time, we don’t see that the three are leading or following each other, but the closeness of prices tells us that arbitrageurs are doing a very professional job of smoothing out the gold markets across the world. New York closed $1.44 below Shanghai’s closing yesterday and today. London opened at a $1.46 discount to Shanghai in line with New York. This is the closest we have ever seen them.

LBMA price setting:  The LBMA a.m. gold price was set today at $1,281.50 from yesterday’s $1,279.90.  

The gold price in the euro was set at €1,198.00 after yesterday’s €1,191.05.

Ahead of the opening of New York the gold price was trading at $1,284.15 and in the euro at €1,200.59. At the same time, the silver price was trading at $17.99. 

Silver Today –Silver closed at $18.01 yesterday after $18.14 at New York’s close Wednesday.

 Price Drivers

The dollar is recovering against other currencies today with gold rising in the dollar. Technically gold is sitting on support, while still consolidating.

France

With the French elections taking place this weekend, after another terror attack the mood in the world remains dark. The French polls are reminding us of the polls before the U.S. election, so we do not rate their abilities too highly. There is always a danger that we get so used to the dark side of the world that it becomes a ‘new normal’ but we do expect such attacks [in Paris today] to affect voters in France. Next week could see two euro-skeptics in the run-off for the Presidency.

Expectations too high

Currency markets are behaving in an unpredictable fashion at the moment as are markets.

Equity markets are too high and not for the right reasons as the U.S. recovery is still moderate and not such that gives rise to the current record highs we are seeing. Likewise in Europe with its tentative recovery. The IMF has increased its forecasts for the coming years. We would like to see more reasons and sustainability before endorsing such opinions. There are too many potential events that could disturb such a positive picture. What we do draw from the global scene is that the environment remains positive for gold.

China

When we see China reporting an increasingly robust economy we see a nation that is doing its best to be a separately, self-sustaining economy with supplies coming from countries not under U.S. influence. We do not see the U.S. and China working interdependently with each other in the future. China will walk its own road.

Russia

Russia continues to publicize the gold it buys, with last month’s purchases just below 25 tonnes. We do believe that China continues to build up its reserves in its institutions and through its agencies, but for whatever reason, has decided not to be open about this.

Gold ETFs

Yesterday saw sales of 6.513 tonnes from the SPDR gold ETF but no change in the Gold Trust. Their holdings are now at 854.25 tonnes and at 204.36 tonnes respectively.

Since January 6th 2017 47.20 tonnes have been added to the SPDR gold ETF and the Gold Trust.

Julian D.W. Phillips 

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

The Chinese have not lost their appetite for gold

Gold TodayNew York closed yesterday at $1,318.00 yesterday.  London opened at $1,323.00.

    • The $: € was slightly weaker at $1.1232: €1 the same as $1.1232: €1 yesterday.
    • The Dollar index was stronger at 95.52 from 95.30 yesterday.
    • The Yen was stronger at 102.68: $1 up from 102.18: $1 yesterday against the dollar.
    • The Yuan was slightly weaker at 6.6733: $1 from 6.6800: $1 yesterday.
  • The Pound Sterling was weaker at $1.3201: £1 from yesterday’s $1.3263: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  14

     2016  09  13

SHAU

SHAU

283.68

286.64

284.41

286.14

Dollar equivalent @ $1: 6.6733

$1: 6.6800

$1,322.20

$1,334.66

$1,325.60

$1,332.23

Shanghai went $7 higher than New York but London pulled it back but not far.

This is the second day that we have seen pricing in Shanghai separating itself from New York. London’s pricing seems to respect Shanghai and could be asking the same question. Exchange rates appear to have a key influence on prices at the moment.

We are often the victims of the media’s views on China. They have led us to believe that all in not well in China’s economy. However, we see wages rising, house prices moving higher and industrial production climbing, factors that are the envy of the developed world. This insinuates that the middle classes are thriving and in a position to buy more gold.

Some say higher prices slow buying, but others that rising prices in the Yuan speak of a weakening Yuan, an incitement for Chinese investors to buy. We have no doubt that the Chinese have not lost their appetite for gold. While they are about to enjoy two national holidays they will be back!

LBMA price setting:  The LBMA gold price setting on Monday was at $1,323.20. Yesterday it was at set at $1,328.50.

The gold price in the euro was set at €1,177.59 against yesterday’s €1,182.26.

Ahead of the opening of New York the gold price was trading at $1,321.75 and in the euro at €1,177.77.  At the same time, the silver price was trading at $19.00.

Silver Today –The silver price was  $18.87 at New York’s close yesterday down from $19.13, the day before.  

Price Drivers

We do believe that the equity market is overpriced and have said this for some time. These markets are rising without there being underlying growth of income, because the economic growth levels are far below that of a healthy economy. These markets are rising because equities are giving dividends that provide more yield than bonds. Almost any rate increase will hammer bond and equity markets.

But there is an almost blithe trust that the U.S. economy is getting healthy. Yes, it is not deflating visibly, held up by Fed stimuli. Fed officials keep telling us of the dangers in and outside of the U.S. but this is being treated lightly, with cries that the time for a rate rise is now in a week’s time the overall Fed will speak and markets will react to what they say as if it were a surprise. At that time we expect a surge in volatility, which could well encompass gold and silver markets in the U.S.

Nevertheless, the gold and silver markets will always respond to currency values against each other with the U.S. dollar being the pivot of the currency world.

Gold ETFs – There were sales of 4.451 tonnes of gold from the SPDR gold ETF (GLD) but a purchase of o.45 tonnes into the Gold Trust IAU) yesterday, leaving their respective holdings at 935.489 tonnes and 225.84 tonnes.

Silver – Once again, like gold, the silver price appears unwilling to fall through support at $19 for any length of time. As we’ve said before, silver will follow gold and neither its technical picture nor its fundamentals, a pattern set some years ago. It is being treated as a monetary metal and has been throughout those years.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Chinese buying gold on currency doubts and political discord – Chang

There’s been some big news out of China lately, and today we’ll dive deeper into the discussion Mike Gleason of Moneymetals.com gives us his Market Summary for the week and follows this with an interview with Gordon Chang, one of the foremost experts on the Chinese economy and who has written a book titled The Coming Collapse of China. He’ll tell us why he believes an epic collapse is imminent and what it all means for the Western financial world and why he believes there is what he calls a Chinese floor on the gold price.

MARKET UPDATE

Precious metals markets are pulling back for a second straight week on follow-through technical selling. Gold ran into resistance at the $1,300 level last week, and prices have since retreated by a little over $30. It ended the week at a little over $1,273.

Gold’s more volatile relative, silver, looks lower by 2.7% this week to trade at $17.06 per ounce. Platinum is off 3.4% to trade at $1,045, while palladium shows a weekly loss of 3.1% with prices currently coming in at $592 an ounce as of this Friday morning recording.

Metals markets are correcting after being propelled upward by an explosion in investment demand in the first four months of the year. On Thursday, the World Gold Council released its latest quarterly gold demand report. According to the report, global gold demand surged by 21% in Q1. Total gold demand came in at 1,290 tonnes, the second biggest figure ever for a quarter; this, despite weak industrial demand and falling jewelry sales.

Jewelry is normally the biggest driver of consumer demand for gold. But this year investment buying is almost single-handedly driving the gold market. According to the World Gold Council, gold investment demand skyrocketed in the first quarter by a record 122%. Exchange-traded products such as the iShares gold ETF received so many investment inflows so quickly that at one point they had to suspend the creation of new shares.

Sales of gold coins are also going through the roof. The U.S. Mint reported that sales of Gold Eagles in April 2016 ran at double the pace of April 2015. Demand for Silver Eagles is also coming in brisk, with the Mint selling more than 4 million of the coins in April and 20 million year-to-date.

Last year, the Mint sold a record 47 million silver ounces worth of Eagles – and that’s with the Mint repeatedly selling out of coins and being unable to provide dealers with adequate supplies of its products on numerous occasions. We appear headed for another new record this year unless the Mint puts some artificial brakes on Silver Eagle demand through continued rationing.

Silver Eagles always carry a slight premium to privately minted rounds. Sometimes that premium expands when Eagles are in relatively high demand and short supply. It’s not necessarily a bad move to pay a little extra for Silver or Gold Eagles. You’ll be able to get back some of that extra premium when you sell. But you generally don’t want to buy American Eagles when premiums are elevated, since they could contract back to normal levels by the time you want to sell – or need to sell.

Platinum Eagles are hard to come by, as the Mint stopped regularly producing them in 2009, although there has been talk that the Mint will release some 2016 dated Platinum Eagles at some point this year. In the meantime, investors seeking diversification into platinum and palladium bullion should look instead to Canadian Maple Leafs or 1-oz bullion bars.

Now is a good time to take a look at the platinum group metals, as they have gotten cheap versus gold and silver over the past couple years. The platinum-to-gold ratio has turned up slightly in favor of platinum in 2016, but platinum remains in bargain territory historically speaking. It will continue to be a relative bargain as long as platinum commands a lower price per ounce than gold. Currently, gold commands a $220 premium over platinum.

A great way to get started in platinum and palladium or precious metals in general is through the new PAMP Multigram Portfolio. Money Metals now offers this unique new product, which contains small gold, silver, platinum, and palladium bullion bars in one handy package. Each pack contains 4 bars of each metal in the barter-ready 2.5 gram size. The package is designed to be separated into 16 individual sections, each containing a bar marked with the PAMP name, serial number, weight, and purity.

These Swiss-made bars are second to none when it comes to quality and security features. They carry PAMP’s proprietary Veriscan technology to assure holders that the bars are genuine and untampered with. The microscopic topography of each bar allows PAMP to assign an identity as unique as a human fingerprint. Bars can be scanned again later for verification.

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To add a little flare to your holding, consider investing in any of the PAMP Suisse bars now available from Money Metals Exchange thanks to a new partnership. To view all of the new PAMP products we now carry and for up to the minute pricing on these or other items, check out our website at MoneyMetals.com or give us a call at 1-800-800-1865. And remember, no matter what you choose to buy, shipping and insurance are now free on any $1,000+ order.

Well now, without further delay, let’s get right to this week’s exclusive interview.

Gordon Chang

Mike Gleason: It is my privilege now to welcome in author, lawyer, television pundit, and Forbes columnist Gordon Chang. Gordon is a frequent guest on Fox News, CNBC, and CNN and is one of the foremost experts on the Chinese economy and its geopolitics and has written a book on the subject called The Coming Collapse of China.

Gordon, it’s a real honor to have you on with us today. Thank you very much for taking the time, and welcome.

Gordon Chang: Thank you, and it’s a real honor to be on your podcast.

Mike Gleason: Before we dig into some specifics here, Gordon, China’s economy is now the second largest in the world. They’ve been reporting GDP growth at 7% to 10% per year for decades, and we’ve all heard stories about their booming economy. But few Americans have been there and probably don’t really know what’s going on. The Chinese government is notorious for managing statistics and controlling information, so it can be difficult for U.S. investors to get the real story. That’s why we’re very excited to get your insights today. You’ve spent time in China, you are of Chinese descent, and you’ve been studying their economy for decades, so you have a unique perspective on what is really happening there.

So to start out here, talk about the current state of the Chinese economy as you see it and where it might be headed. As people listening have probably already gathered, based on the title of the book you wrote, you aren’t all that optimistic about what’s going to happen there. Tell us about that as we set the stage here.

Gordon Chang: The official National Bureau of Statistics says that the Chinese economy grew 6.7% in the first quarter of this year, 6.9% in 2015. I think that those numbers are over-statements. So for instance, in Q1 they might have been growing 3% or 4%, but maybe even less than that. In 2015, it was a tragic story because you start looking at some of the indicators, you see the contraction of the important manufacturing sector. You see consumption growing a little bit, but not that much.

And still, the most reliable indicator of Chinese economic activity is the consumption of electricity, and in 2015, electricity consumption grew but only by 0.5%. The country was in deflation in 2015 with nominal GDP at 6.4% and real at 6.9. That’s really difficult to reconcile with an economy growing in the higher single digits. So I think China has got a problem right now because essentially, Chinese leaders no longer have the ability to create growth. This is an economy that’s trying to trend down, and eventually, it will start to contract.

Mike Gleason: The Chinese have made some large trade deals with nations such as Russia and Brazil to buy oil and gas and make payments in yuan rather than U.S. dollars. In addition, China is growing its reserves of both gold and silver. Now you told me off-air that you don’t think a currency war is something China should even consider engaging in based on all of their economic issues, but you have to wonder if they’re trying to position the yuan as an alternative to the dollar nonetheless. Heaven knows, there may be an opportunity there.

The U.S. dollar looks less and less like a bastion of strength. Kenneth Austin, an economist at our own Treasury Department, wrote a 2014 op-ed in the New York Times declaring that the burden of the dollar’s reserve currency status is one we can no longer afford to bear. Maybe a currency war won’t be necessary and officials here will willingly step aside. What are your thoughts? Should we expect a major push by China to supplant the dollar with the yuan any time soon? Maybe it will be a failed attempt, but is that something they’re positioning themselves for, Gordon?

Gordon Chang: Well clearly, the Chinese want the renminbi to be the world’s reserve currency. They’d like to shove the dollar aside. The problem, though, is that it is a weak currency right now. Donald Trump might be right that they’re currency manipulators, but they’re not manipulating the currency down to gain an export advantage. What we have seen, especially since August of last year, is that they are supporting their currency.

So this is a problem for China because the last thing that they should be trying to do right now is to internationalize the renminbi. And the reason is when they internationalize it, they start to lose control over it, and that’s exactly the wrong strategy when you have an economy in distress. They have had a lot of money, and they’ve lost actually a lot of money out of their reserves, much more than I think that they’re willing to admit. This is the wrong thing for them to do, at least at this particular time.

Mike Gleason: It’s often discussed how the Chinese are culturally more forward-looking. They plan decades ahead, not just a few months or years. If that is true, one might think that they would have an advantage and avoid some of the traps Western governments have fallen into, but they seem to be making many of the same mistakes. Markets are anything but free. Last summer, officials attempted to prevent a collapse of their stock markets by threatening to arrest anyone selling shares, the antithesis of free-market conditions there. They’ve accrued massive debts and they have an activist Central Bank printing, monetizing debt, et cetera. Are Chinese officials really better at strategic planning and longer-term thinking, Gordon?

Gordon Chang: I actually don’t think so, especially what we saw starting in the second week of July when they started to introduce their support measures for the equity markets. And then, of course, the still inexplicable devaluation of the renminbi, starting August 11. Chinese technocrats show themselves to be less than fearsome and less than competent. So I think that we sort of attribute to them mythic qualities which they don’t really deserve. Eventually, they will be able, I think, to stabilize their economy, and they’ve been trying to do that right now, but as they do that, they incur a lot of debt. They’re still experiencing large capital outflows. So right now, although it looks like they were able to at least staunch the problems, they have some challenges I don’t think that they can meet.

Mike Gleason: Certainly, the information that comes out from the Chinese government is very controlled. I think now, I’ve heard just even recently that if you speak ill of the government’s provided statistics that they’ll send you to prison or try to prosecute you in some way. This is just the opposite of what a free market looks like. What are your thoughts on that? I know this is something that’s been going on for a long time, but they don’t appreciate dissenters, do they Gordon?

Gordon Chang: No, they certainly don’t. The Wall Street Journal report that you referred to where they’re trying to infuse a little positive energy into analysts. As we all know, beginning July of last year they criminalized many forms of trading. They did a lot to prohibit institutions from selling. They just at this point, that’s sort of like the last refuge of a technocrat, where they’re trying to browbeat market participants and analysts. So I think that that’s an indication that the end is quite near because they’ve just run out of solutions.

Monetary policy just hasn’t worked. Fiscal stimulus is adding to their debt woes. They do all of these things and you still have the large capital outflows, perhaps as much as $1 trillion last year, according to Bloomberg. So I think these are desperate technocrats and desperate leaders who at this point don’t know what to do and are just playing for time. As they play for time, they make matters worse, because we saw that extraordinary increase in credit in March. It had very little effect on the economy. It’s a dead panda bounce. Now, I don’t think that they know what to do except to try to imprison people who don’t say nice things about China’s economic potential.

Mike Gleason: I’m curious. How do the Chinese view the American political system as a whole and also the Obama Administration? And how do you think they view Hillary and Trump, since it appears that one of them will be succeeding Obama later this year? What’s the general mood about American politics in China?

Gordon Chang: Well there are a lot of Chinese, so maybe there’s no general view. Of course, the Communist Party is extremely negative about all things American. So you’re not going to hear nice things about the American political system from an authoritarian one like China’s. Chinese people, though, are very interested. They have means of information. They can climb over what’s called the great firewall. There is a lot of discussion all the time about what goes on in the American political system. Right now, as you point out, people are talking about both Secretary Clinton and Donald Trump, and it seems to be pretty evenly divided about what they think in terms of who they favor to be the next American president.

There’s a lot that’s going on there. Donald Trump, as you’d expect, has a lot of detractors in China, but he also has a lot of supporters. The thing that I just take away, and this is a general thing … my wife and I went to my dad’s hometown in early 2008 because we wanted to know about what people thought on the Olympics. But people didn’t want to talk to us about that, which they derided as the “Government’s Games”, which really surprised me.

What they wanted to talk about was who was John McCain, who was Barack Obama, and how, this is really surprising, how did the concept of balance of powers work in the American Constitution. So people there are really focused in on the United States as an alternate model for China. And although the Communist Party will never want that, nonetheless, I think the Chinese people certainly want more say in their lives and they’re willing to learn from others, which I think is a very important sign of a vibrant society.

Mike Gleason: The Chinese government does seem to maybe nudge their citizens to purchase gold and silver as a way to protect themselves. Does that resonate with the citizenry there? Are they accumulating precious metals at a personal level just because there’s an affinity for it, or are they just going along with what the government is telling them to do? What can you say there?

Gordon Chang: Yeah, I think the Chinese people are acquiring precious metals, but especially gold. But it’s not because they’re nudged by the government. I think they’re doing it because there’s concern about their currency, about their economy, and also about the signs of discord in the political system. So you have people buying gold. This is an easy way of capital flight, in effect, because if people can’t set up a tax haven company in Panama, for instance, just to take an example, the one way to protect your assets is to buy hard metals. So therefore people buy gold.

Now, of course, the Chinese have an affinity for gold, have had for centuries, but now I think the demands are actually much higher. There’s a lot of gold-buying by China. Some of it must be from the Central Bank, but I think a lot of it is by individuals who are concerned about the trajectory of their economy and, indeed, of their country.

Mike Gleason: Are we to believe the reports, Gordon, about how much gold the People’s Bank of China is accumulating? And if not, do you think they’re under-reporting it or over-reporting it? What do you think about China’s gold hoard and what they’ve been telling the world about those figures?

Gordon Chang:For a very long time, the People’s Bank of China was telling us that there was no change in China’s gold position. Then about a year or so ago, they announced a big increase all in one month. So obviously, their reporting is inaccurate and unreliable. I don’t know exactly, but my sense is that they are under-reporting their acquisition of gold. I can’t point you to anything, but it’s just a sense of where Chinese government policy is going. I don’t know what purpose that is for.

People talk about eventually a gold-backed renminbi. I don’t think that they’re thinking about that, but nonetheless, when gold dipped in price, they saw a buying opportunity and so, therefore, they did stock up on gold. And we can expect them to do that at other opportunities when gold declines. So there’s going to be essentially a Chinese floor to gold, largely because of central government buying. But also, as I mentioned, just Chinese individuals will rush in to buy the precious yellow metal when they see that it’s cheap.

Mike Gleason: The Shanghai Gold and Silver Exchange was introduced last month. It provides an alternative to the COMEX and other Western exchanges, which many believe are massively over-leveraged and highly controlled by the banks, some of whom have recently admitted to rigging prices. But investors need to be careful assuming the Shanghai Exchange won’t be subject to problems of its own. What do you think the ramifications of the new exchange in Shanghai might be for the metals markets, and what do you think was behind the decision for the Chinese government to launch this competing exchange?

Gordon Chang: I think the decision behind the launch is what you talked about before, and that is a general attempt to internationalize the renminbi and also to increase China’s influence in markets generally. As I mentioned, I’m not so sure how long that they’ll be able to continue with this initiative, largely because of severe problems in their own economy, but, as you say, they are long-term thinkers, so that’s what they’re trying to do. As I mentioned, this is probably the wrong time for them to do that, and so therefore, they’re increasing volatility in their own currency and in their own markets. So this really is maybe a good move strategically, but tactically, couldn’t be a worse time to do it than now.

Mike Gleason: As we begin to close here, Gordon, what should the key takeaway here be, because I know you’re expecting not only a collapse of the Chinese economy and their current way of life, but an epic collapse? China is now a major player in the global economy, but if the bubble bursts like you expect and in such an incredibly disruptive way like you expect, what are some of the ramifications of that happening? And more importantly for those of us listening today, how might that collapse affect those of us in the Western world as well as the global financial markets?

Gordon Chang: We saw, for instance, last August where essentially unimportant news out of the Chinese economy, which was news out of a private survey of the manufacturing sector, how that erased something like $2.1 trillion in value off the Dow within six trading days. So you can imagine what a big failure in China is going to look like as it rolls through the global financial system and the global economy. China actually is less important to the world than most people think, but nonetheless, with an image of it as being so large, then, of course, it is going to bring down most everything else with it.

I think the important thing is to understand China’s role in that economy so that we will be prepared when it occurs. We know that the Chinese are, for instance, accumulating debt at least four times faster than nominal GDP, probably a lot faster than that. That’s completely unsustainable. There will be a crisis. We don’t know when that crisis will occur, but we also know at some point, China will not be what it is today.

Mike Gleason: How about the future of the Chinese Communist Party? I think I’ve seen you say somewhere where you’re expecting just mass riots and so forth as things unfold there in China. What do you think the ramifications are there?

Gordon Chang: I don’t think the Communist Party will survive the economic crisis in China, largely because for about 35 years, the primary basis of its legitimacy has been the continual delivery of prosperity. And without prosperity, the Communist Party is going to have a hard time navigating that. Right now, Chinese technocrats don’t seem to be doing a terribly good job. We see fighting between Xi Jinping, the General Secretary of the Communist Party, in other words, China’s ruler, and Li Keqiang, who is the Premier, who is supposed to be the economic czar.

This is, I think, an early indication of what things will look like as the economy tends to trend down, as it has to. Although Chinese technocrats can postpone the application of the laws of economics, they have not been able to repeal them, and because of that, we know that there’s got to be some adjustment. That adjustment will be large because the imbalances in China are large, and because of that, the Communist Party, I believe, will not survive the coming crisis.

Mike Gleason: It’s certainly going to be interesting to watch this play out. China gets a lot of attention throughout the world, as you mentioned, and if we do see an implosion of that economy, there’s going to be a lot of shock waves, I think, throughout the rest of the world.

Well Gordon, it’s been a truly fascinating conversation, and I really enjoyed it. We’ve been talking a lot about what’s been going on with China of late, and it’s great to have had a chance to speak to an expert like yourself about these matters. We wish you continued success with the book and would love to have you back on in the future as all this unfolds. Thank you again and hope you have a great weekend.

Gordon Chang: Thank you so much, Michael.

Mike Gleason
About the Author:
Money Metals News Service

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

China domestic demand could be driver to new commodities supercycle

If you thought Black Friday and Cyber Monday were the peak of overhyped sales frenzy – you ain’t seen nothing yet!  China’s Singles Day – an even more hyped up event from China’s online giant, Alibaba, sees even more conspicuous demand than Black Friday and Cyber Monday rolled together – and all in one day.  The event falls on the 11th day of the 11th month and this year saw sales hit an almost unbelievable US$14.3 billion – up from just over $9 billion a year earlier.  For a country the media tells us is in recession and struggling with its domestic economy – a factor blamed for many of theWest’s current ills, and for the resource sector’s poor performance in particular – this has to be a truly remarkable figure and suggests that whatever may be afflicting the country’s manufacturing and exports sector, domestic demand is running higher than it has ever been – and substantially so.

Do read a couple of my articles published recently on Seeking Alpha about what the Chinese administration is trying to do in terms of a complete reboot of the nation’s economy.  It is turning it from a manufacturing and export driven economy to a consumer and services society, and some sectors, both inside and outside the Middle Kingdom,  are indeed feeling the pain.  The articles are : The Real Facts Behind China’s Economic Restructuring and China’s Singles Day Sales Eclipse Black Friday and Cyber Monday Combined (Click on the article titles to read).

Such a transition cannot be made without cracking a few eggs, but the latest Singles Day sales figures suggest that the country may already be almost there!  With China’s middle classes (where the purchasing power lies) continuing to grow in numbers at a rapid rate, this puchasing power can only but increase – hence the supercycle comment above.  A return to the heady days seen post the 2008 Great Financial Crisis may be just around the corner as China’s domestic conspicuous consumption continues to surge and replace demand for what will be a far more efficient manufacturing sector producing ever higher quality goods.  The new demand thus created will serve to benefit an equally more efficient global resource sector – surely a win-win situation.

And as for gold!  China as a nation has a strong relationship with gold, both as a store of wealth to protect against any future economic woes which may re-occur, but also as a hugely popular element in a society where gifting is an important part of everyday life coming to its peaks at major festivals – and in particular at the Chinese New Year.  Demand as seen from Shanghai Gold Exchange withdrawals is running at huge new record levels this year (it will already have surpassed the 2013 full year record total when the latest SGE weekly withdrawal figures are announced tomorrow, with six weeks to go until the year end).  Even the World Gold Council is seeing an increase in demand coming through, along with record central bank purchases!

The gold price though remains unmoved by all this apparent positive fundamental data, but this cannot, and will  not, go on for ever without a counter reaction setting in sooner or later.  Gold investors will obviously hope it is sooner, and as supply continues to move east surely this crunch point cannot be too far away, although the vested interests in keeping it under control may yet have a few more tricks up their sleeves?

Big Greek No! So what next for the Eurozone and gold

The die is cast.  The  big No vote in the Greek referendum will lead to further negotiations but Julian Phillips in his latest market analysis reckons the EU and ECB will refuse to budge and that Greece will have already printed drachmas to replace the Euro.  

New York closed Friday at $1,167 up slightly. Asia and London took it down to $1,164. The dollar was 0.25 of a cent stronger at $1.1029 and the dollar Index was higher at 96.45 up from 95.93.  The LBMA gold price was set this morning at $1,164.25 down $4.00. The euro equivalent was €1,055.67 up €3.00. Ahead of New York’s opening, gold was trading in London at $1,165.60 and in the euro at €1,056.47.

The silver price fell to $15.65 up 6 cent in New York. Ahead of New York’s opening it was trading at $15.60.

Last week we said, “Unbelievably the I.M.F. has put its foot in it! The report just issued clarifies that Greece needs to be given 40 yrs to repay its debt and needs lower interest rates and for a portion at least of its debt to be written off if it is to return to growth. Even then it will still have debt to GDP of 150%.” – It seemed that the Greeks understood this and rejected the offer from the E.U. Any negotiations going forward will undoubtedly include these, or more liberal terms for Greece from the Greek side. The E.U. just will not go along with this as the bulk of members will vote against it. We have no doubt that the new Drachmas are already printed and ready to go out to the Greek banks. The E.C.B. will wait for the political OK for it to cut off funding to the Greek banks.

By way of comparison, Argentina, is still in the midst of its debt crisis but an economic recovery, unemployment down to just over 6%, down from 22% seven years ago and using the Peso and not the U.S. dollar. So there is life after default! For gold and silver investors, it is not the Greek crisis that is the issue but the exchange rate of the euro. At first the euro dipped slightly, but with the weakest member likely to exit the E.U. it is likely to go stronger. The E.U. Finance Ministers will show the way forward tomorrow.

In China it is not the Greek issue that is causing the equity market to fall but the mess being made by the authorities in managing the ‘bull’ market. Likely the average Chinese investor is losing confidence in equity markets and staying with gold. Last week saw a huge 46.1 tonnes of gold withdrawn from the Shanghai Gold Exchange [the official gold demand figure].

On Friday there no sales or purchases  of gold from the SPDR gold ETF or the Gold Trust.  The holdings of the SPDR gold ETF are at 709.65 tonnes and at 167.40 tonnes in the Gold Trust.

Silver is waiting for gold, which is waiting for currency reactions.

Julian D.W. Phillips for the Gold & Silver Forecasters www.goldforecaster.com and www.silverforecaster.com

 

Gold could be breaking out downwards so possible price action ahead

Julian Phillips’ latest analysis of the gold and silver markets and their price drivers.

New York closed at $1,186.80 down $15.00 on Wednesday in NY. Asia again lifted the gold price to $1,189 and London held it there. The LBMA Gold price was set at $1,187.75 down $14.65. The euro equivalent stood at €1,105.71 down €14.58 while the dollar was weaker at $1.0742 against yesterday’s $1.0784. Ahead of New York’s opening, gold was trading lower in London at $1,190.20 and in the euro at €1,107.42.

The silver price closed at $15.79 down 22 cents on Wednesday. Ahead of New York’s opening it was trading at $15.90

This latest move down was still not enough to establish a clear chart pattern. We still await a bigger fall or a return to consolidation mode ahead of a big move.

The tone of global markets is disturbing as China records a greater factory output downturn than expected.  We have been fully warned that China’s growth will slow as it tries to boost the consumer part of its economy and household wealth. This means far less growth for the West by way of imports to China for infrastructure supplies, but a continued drawing off of wealth from the developed world, as China’s products compete effectively. Against lower growth and record low interest rates we see booming equity, bond and housing markets, implying they are in ‘bubble territory’ as global growth does not warrant such high market levels. The dollar index rose to 98.16 before slipping to 97.94 with a weaker euro at $1.0746.  Gold is trying to break out of its consolidation mode downwards, so we may well see more action in the price today.

There were no purchases or sales of gold into the SPDR gold E.T.F. or the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 742.347 tonnes and at 165.58 tonnes in the Gold Trust.

The media’s tone on Greece is moving to a default being a certainty. If you have known someone who went broke you will understand the mentality that is being seen in Greece, where local governments are refusing to hand their funds over to central government for the payment of the next installment of Greece’s debt. When there is no hope, financial revolution does not need to be one of action. Just refusal to act is sufficient. Then the creditors have to act. But that act is mainly angry frustration while they begin to accept that they have lost their loans. We are about to see that now.  Greece is hoping they won’t accept that loss, but pay more funds to the debtor to avoid the loss. It’s surreal, but it’s life – and gold positive!

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com