January 21, 2014
- A golden shakeup: Is China about to stun the world with its “big reveal”?
- Five down, 295 to go: The glacial pace of Germany’s gold repatriation
- Recovery signal? A U.S. number that just rose for the first time in eight years
- A world of worries… gold for people who like things big… the real “disparities” worth worrying about… and more!
For one frightening moment, we were afraid we’d missed the biggest financial story in years.
“Claiming to have vaulted France and Italy in terms of gold reserves,” said a report last Wednesday, “China has announced that they have expanded their gold reserves by 76%, thus becoming third-largest gold reserves in the world.”
Really?
If you’ve been with us for a while, you know this is huge… if it’s true.
China’s central bank rarely declares its gold holdings. It declared 600 metric tons in 2003. The next announcement didn’t come until April 2009, when suddenly the total leaped to 1,054 metric tons. No further announcement has been forthcoming.
China’s gold accumulation has one of two aims: There’s the Chuck Butler theory and the Jim Rickards theory.
Chuck, our go-to currency expert at EverBank World Markets, believes China’s aim is a gold-backed yuan that knocks off the dollar from its perch as the world’s reserve currency. Mr. Rickards, the author of Currency Wars, believes China wants “a seat at the table” whenever the world currency system collapses and needs to be reorganized; a big gold stash gives them credibility.
“I expect the Chinese to update that official figure in, I’ll say the end of the first quarter 2014,” Rickards told us last summer, based simply on the passage of time. His estimate is roughly 4,000 metric tons, “but I have spoken to a number of sources in Asia, I’ve spoken to a number of people who are very close to the physical market, I’ve done my own investigations, etc. Every time I have an estimate and try to verify it, what I get back is that I’m wrong on the low side.”
In any event, China made no such announcement last week. Officially, at least, China is not yet the No. 3 gold holder in the world, behind the U.S. and Germany.
While the story ricocheted around the Internet, it all was traced back to a site called Scrap Monster, which tracks the world trade in scrap metal. The story was datelined Beijing and reads as if it were written by someone for whom English is not a first language, to wit: “The accurate reports released by the World Gold Council Data has placed U.S. at the first position of world ranking for holding largest gold reserves which is 8,133.5 tons.”
Nor was the story confirmed anywhere else. But for what it’s worth, the story said China’s gold holdings now total 2,710 metric tons.
Hold that thought…
“China may soon announce an increase in its official gold reserve from 1,054 tons to 2,710 tons,” said a Friday story from the Shanghai Daily, citing Jeffrey Nichols, managing director of American Precious Metals Advisors.
Indeed, Mr. Nichols says just that on his own website: “It seems we will soon learn it bought a total of 654 tons in 2009 through 2011, another 388 tons in 2012 and more than 622 tons last year. Much of this has come from domestic mine production and secondary supply.” Add those figures to the existing 1,054 stash and you get slightly over 2,710.
But where do these curiously precise figures come from? Alas, Mr. Nichols’ rationale sits behind a paywall.
Still, we already know the answer…
“Andrew Cosgrove and Kenneth Hoffman of Bloomberg Industries estimate that Chinese central bank holdings are likely closer to 2,710 metric tonnes — a significant increase over their disclosed amount.”
That was Sprott’s David Franklin in our own virtual pages back on Nov. 8. Evidently, he got an early read on the Bloomberg Industries report, because the numbers didn’t show up in an actual Bloomberg News story until Jan. 10 of this year — days before the flurry of stories all citing this precise 2,710 metric ton figure.
So we now have the Chinese media… citing a U.S. expert… making a prediction that the Chinese central bank will do its “big reveal” any day now. Stories like this don’t show up in the Chinese media by chance.
When the moment arrives, “that should be an earthquake,” Jim Rickards told us last year. “Even the gold deniers, the gold doubters, the Nouriel Roubinis of the world are going to have to sit up and take notice. If gold is a barbarous relic, if gold has no role in the monetary system, if gold is a stupid investment — and that’s not my word, that’s their word; they say the people who invest in gold are idiots and fanatics and a lot of other less acceptable words — well, if that’s all true, why would the Chinese have 5,000 tonnes?
“The minute you think of gold and paper money side by side, or having some relationship, this is how you get to these price levels of $7,000-8,000 an ounce. They’re not made up. They’re not there to be provocative. They’re actually the math. Those are the numbers you get when you simply divide the money supply by the amount of gold in the market.”
Thickening the gold plot, we have the glacial pace at which Germany has been able to repatriate its own gold stash.
As you may recall, Germany’s central bank, the Bundesbank, asked the U.S. and France a year ago to return its gold stash. Decades ago, it made sense to keep Germany’s gold stash abroad, in case the Soviet army rushed through the Fulda Gap and launched a full-on invasion. But with the Soviet Union more than two decades in the rearview mirror, the Germans asked to have their gold back.
Three hundred metric tons of Germany’s stash is held at the New York Fed. The New York Fed said it could complete the return process… by 2020. Cue the questions about whether the gold is really in the vaults.
A year later, only 5 metric tons has actually made it back home. The Bundesbank hopes to collect another 30-50 this year. Cue more questions.
That’s not good enough for at least one member of Germany’s parliament. Philipp Missfelder belongs to Chancellor Angela Merkel’s governing coalition. Bring it all home, he says, from New York and Paris — and London too: “I encourage the Bundesbank, now also bring the gold from London and New York completely to Germany.” Well, that’s how it came out after we ran it through Google Translate.
All of this is relevant to the Zero Hour scenario our executive publisher and 5 Min. Forecast founder Addison Wiggin laid out a year ago. Assume the Western central banks like the Fed have “leased” their gold to commercial banks. Assume further those commercial banks have sold that gold to Asian buyers and it will never be seen again. That hastens the arrival of Zero Hour, when a major commodity exchange will default on a contract and settle in cash, instead of metal. At that moment, you’ll want real metal in your possession, instead of paper promises.
Until then, we’re keeping an eagle eye out for the next announcement from China…
Gold today, you wonder? It broke below $1,250 soon after trading in London opened overnight. At last check, the bid was $1,243.
Weird action in U.S. stock market as traders return from a long weekend bender: Blue chips are getting socked as we write, with the Dow down three-quarters of a percent, to 16,335. But small caps as represented by the Russell 2000 are slightly in the green, at 1,169.
Most of the Dow’s slump can be chalked up to three stocks — Goldman Sachs, IBM and Johnson & Johnson.
Worldly worries are weighing on some traders: Deutsche Bank, Europe’s largest bank, recorded an “unexpected” loss yesterday. China’s central bank has performed another “liquidity injection” into the commercial banks — $12.39 billion this time.
With that as the backdrop, the dollar is holding its own against the world’s other major fiat currencies this morning, the dollar index at 81.1.
Here’s a milestone: U.S. oil consumption grew 2% last year — the first increase since 2005.
What’s more, the International Energy Agency (IEA) says U.S. oil demand grew at a faster pace than China’s for the first time since 1999.
“It is clear that the U.S. economy is rebounding very strongly thanks to its energy supplies,” said an almost giddy Antoine Halff, the IEA’s head of oil market research.
We suspect the legions of unemployed Americans might take issue with Mr. Halff, but he does add this point of interest: “Sometimes oil is a lagging indicator, but sometimes it is the opposite and shows that an economy is growing faster than thought.” Makes sense, seeing as the driver of U.S. demand growth is fuel like propane for petrochemical plants — that is, stuff used in industry.
As long as we have gold on the brain today… European readers might want to be on the lookout for some golden eye candy.
Introduced in the fall of 2011, the giant Australian Kangaroo made by the Perth Mint weighs 1 metric ton and measures more than 31 inches in diameter.
How can you NOT grin from ear to ear standing next to that thing?
It has a legal tender value of AU$1 million, but the gold content is worth closer to AU$50 million — or US$44 million.
It’s about to embark on a European tour — Vienna, Munich, Stuttgart, Cologne and Berlin — marking the 25th anniversary of the Australian Kangaroo Gold Coin Program.
The itinerary seems oddly appropriate in light of today’s episode of The 5. For perspective, imagine five of those coins. That’s all Germany’s Bundesbank was able to get out of the New York Fed last year, out of a total 300 it has stored there.
“The latest absurdity now being raised by those with a stake in such things is called ‘income disparity,'” writes a reader who seems a bit late to our party. “Here is my take on such a concept.
“Income disparity most often begins with ‘effort disparity.’ It then becomes heavily influenced by ‘ability disparity’ — followed in rapid succession by ‘desire disparity,’ ‘dedication disparity’ and ‘persistence disparity.’
“This disparaging process culminates in ‘values disparity,’ wherein whatever ‘love disparity’ might exist, associated with the motivation to achieve what one wishes to achieve, tends to triumph or succumb to all other considerations and ‘disparities.’
“This human capacity then leads to a further manifestation of disparities termed ‘success disparity.’ This is very often measured in ‘wealth disparity,’ but is now routinely quoted as the increasingly popular ‘income disparity.’
“It is at this point that these disparities coalesce into their ultimate manifestation. This coalescence produces a troubling and deeply personal disparity, one that arises and represents the final verdict on all other disparities: the psychologically persistent ‘happiness disparity.’
“Signposts to this ultimate disparity inevitably arise. Depending upon combined disparities, one may begin to experience ‘jealousy disparity.’ This is an internal affliction wherein the person experiencing this pathology wants what he or she was unable to attain but sees others have attained, and feels somehow cheated. This leads to ‘fairness disparity.’
“Fairness disparity, if left unchecked, immediately leads to ‘envy disparity.’ This is a particularly nasty affliction wherein the person having improperly dealt with the former quickly develops an actual hatred for someone having attained that which they themselves have not, and then, concluding said person should not have attained it, they, therefore, have no right to it — whatever ‘it’ might be.
“This mental state of disparity produces the desire to institute ‘political disparity.’ The mind afflicted with this dreaded and hateful condition wishes to impose, at the point of a gun, whatever brutality may be necessary to try to eliminate the results of the entire disparity chain they have fostered and which has led them to the inevitable ‘victim disparity.’
“In summation: Freedom quite naturally produces different outcome(s). When you look out across the panoply of 300 million citizens in this country, there are some of us that, because of combinations of the above ‘disparities,’ together with their inevitable ‘character disparity,’ are just going to be more successful than are others.
“Our collective goal, if civilized society with all of its attendant and wonderful benefits is to be sustained, should be to assure that there is no said political disparity. To the extent there is, it does produce actual disparity — and it is, indeed, unfair and unjust.
“An injustice not the result of rewards for merit, as judged by our freely acting fellows, but as rewards for merit’s absence; compulsions enforced by those holding the gun(s) to each or any of our heads.
“A ‘disparity’ which is not the product of income, but the product of tyranny…”
The 5: Preaching to the choir, but not a bad sermon…
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S. Even tyrants in training leave loopholes in place. With that in mind, one of our leading editors has hit upon an outstanding method to keep more of what you earn, denying it to the IRS. Here’s where to get started.