Author: Sirhc

Gary Wagner Thursday February 07, 2019 18:13

Featuring views and opinions written by market professionals, not staff journalists.

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The Chinese markets might be closed this week, however concerns about the continuation of our looming trade war continues. Resulting in U.S equities closing sharply lower today and as of 4:30 PM Eastern standard time the Dow Jones industrial average is off by well over a full percentage point and currently trading down almost 290 points a net decline of 1.15% on the day. The NASDAQ composite is experiencing deeper losses today currently down approximately 1.5%, and the Standard & Poor’s 500 is down by 1.3%.

At the same time precious metals are not so black and white, as we see major price differences in gold when comparing current futures pricing to that of spot prices. Currently spot gold is fixed at $1310.40, a net increase of $4.20 on the day. At the same time gold futures basis, the most active April contract is currently unchanged at $1314.40.

Most interesting is that today’s moderate gains in the physical price of gold are entirely based on bullish market sentiment, with traders bidding the precious yellow metal higher by $6.00 per ounce. Dollar strength has resulted in a decline of $1.80 limiting today’s upside move in spot gold, this according to the KGX (Kitco gold index).

Although gold futures are showing very little change on the day, most noteworthy is the fact that after trading to a low today of $1306, prices quickly rebounded and are currently range bound between up $.20-$.30, and down $.20-$.40.

Both silver and palladium are trading higher on the day. Currently silver futures basis the most active March contract is trading up almost 2/10 of a percent and currently bid at $15.73. Palladium is exhibiting gains of 6/10 of a percent, which is a gain of $8.10 today. Putting March Palladium futures at $1359.70. Obviously, palladium continues to outshine and outperform the other precious metals in the complex.

It is an uncommon occurrence for spot gold to be trading moderately higher and gold futures to be trading fractionally lower. That being said we have seen this scenario occur twice in the last two weeks of trading. This might be indicating that gold prices will move higher and that the current price correction might in fact be short-lived.

Wishing you as always, good trading,By Gary Wagner

by Ross Norman on January 15, 2019

It is natural that we measure things by a familiar yardstick – the problem is that being so-biased or lazy, we can be deceived.

Take gold. Popular belief has it that gold prices have not performed especially well despite some egregious geopolitical and economic factors. Well measured in 72 currencies, gold is at … or within a few percentage points … of being at an all time high for people in those countries. Not on the list are the British Pound, the Swiss Franc, the Euro and Chinese Yuan – but we are not far off in all of those currencies too. Only in USD does gold lag – and not all of us live in the US.

Using the dollar gold price, as most of us do, has disguised what is actually quite a powerful bull market. If my memory serves me right, we saw the same phenomenon – a stealth rally in minor currencies – ahead of the last major gold bull run (in dollars) in the late 1990’s. Arguably this may be a very good leading indicator.

Faulty yardsticks also takes us onto wealth management. Measuring our net worth in local currencies, we might be rather pleased with ourselves – smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.

There are alternatives.

In the US, the Chapwood Index is highly regarded as it reflects the true cost-of-living increase. Plainly and simply, the Index shows that incomes can’t keep up with expenses, and it explains why people increasingly have to turn to the government for entitlements to bail them out. The basis of the Index is fullly open to scrutiny and if correct suggests Americans have been losing roughly 10% of their wealth each year since 2014. Half of it gone. This compares with the official government figure of 1.9%. Ronald Reagan called inflation “the thief in the night” and it is built for times just as this. It gives the appearance of being wealthy (maintaining high nominal values) while eroding your actual position – which manifests itself in far higher costs on the other side.

Interestingly, gold has seen an average year-on-year gain of about 10% compounded since 2000 – off-setting those real losses – which reaffirms in our mind that it continues as a reliable yardstick against which to measure costs or indeed wealth. In short, gold has maintained what economists call “purchasing power parity” for millenia. So not only is it an excellent yardstick – its actually quite a useful thing to own – especially if you fear wealth erosion. If you haven’t already read this, you must – see :Jastram’s Golden Constant

Many crises invariably start with stealth inflation and then follows currency weakness – so gold gets expensive and then it blows out significantly higher in your local currency. Then you realise that the lifeboat has sailed … the choo-choo train has left the station.

For the unprotected, your backstop plan to protect your wealth by “buying gold when I need it” has just failed. You are now trapped with a dissolving currency and every financial escape route looks too expensive … and so it goes. Ask anyone in one of those 72 countries (see below) where gold is starting to look expensive.

In short, insurance is best bought before you think you need it … boring, but true.

PUBLISHED MON, JAN 14 201911:33 AM ESTUPDATED MON, JAN 14 20193:33 PM ESTRichard X. Bove

KEY POINTS

• China and its allies have placed a great deal of emphasis on using the yuan as a dollar replacement in many parts of the world.
• In areas where this has happened, it presents a threat to U.S. trade and economic health, writes Dick Bove, analyst at Rafferty Capital.

No one is likely to dispute the fact that China and its allies are working diligently to establish a multilateral world. In it China would control its own sphere from the eastern Pacific rim to the countries located along the historic “Silk Road.” That trade route stretched from East Asia to West Africa.

In this regard, a great deal is being written about the Chinese military build-up in the Pacific; the theft of technology secrets; unfair trade policies; and discriminatory investment practices. Very little focus has been placed upon the creep of the yuan and the expansion of the Chinese banking system. Yet, this might be the greatest threat of all.

China and its allies have placed a great deal of emphasis on using the yuan as a dollar replacement in many parts of the world. In those areas where this shift has occurred countries fall out of the United States orbit. This impacts U.S. economic health and, at some point, will affect the ability of this country to grow trade internationally and to fund its debt with international resources.

Yuan Creep

Prior to China joining the World Trade Organization in December 2001, only a few hundred banks in the world would clear transactions completed in yuan. A decade later, it was reported that well over 10,000 banks, worldwide would transact in the yuan. So many global entities were using the yuan that in October 2016, the International Monetary Fund (IMF) decided to include the yuan as one of four currencies backing its Special Drawing Rights (SDRs). In sum, the yuan had become one of the world’s reserve currencies.

The yuan had reached this lofty level due to a three pronged approach. First, countries that had historic issues with United States dollar dominance supported greater use of the yuan. They include Russia, Iran, North Korea and to some extent South Africa and Brazil.

Second, China isolated countries that were having difficulty accessing large amounts of dollar based loans due to poor repayment histories. In South America this included small nations like Ecuador and larger countries like Venezuela and possibly Argentina. In Africa, the list is very long. At the top is Angola, Ethiopia, and the Republic of the Congo.

The third group of nations are countries, primarily in east Asia, who trade heavily with China. In many cases, the Chinese demand that these nations use the yuan in all trading transactions. In fact, China has gone even further. It has established the Asian Infrastructure Investment Bank, a replica of the western world’s IMF. This banks is funded by China and lends to other Asian nations.

Stated crudely, the yuan is becoming the dominant currency in many countries with small and troubled economies but the world’s largest and fastest growing populations.

Why is this Important?

The American Century was built on many factors related to the stability of this nation’s economy; its strong military; and its financial dominance. Following World War II, one might argue that the dollar was the only currency in the world that mattered. Backing this currency was a large, relatively stable, banking system. If a nation wanted to trade internationally it had to have dollars and the only place to acquire them was from American banks.

Some would argue that this financial dominance led to the creation of the multilateral rules and organizations that fostered and incentivized the global growth that developed in the past 7 decades whereby virtually every nation benefited. If yuan creep continues these rules and organizations will be re-written.

Most importantly, large areas of the world will function under a new financial system orchestrated by China. From the perspective of the United States this would reduce this nation’s trade and its ability to fund its debt. Yuan Creep has the potential to cause major disruptions in this country over time.

How is the U.S. Reacting to this Threat?

Actually, the U.S. is unwittingly aiding Yuan Creep. This country is penalizing domestic banks that increase in size. It is putting operating restrictions on American banks that operate in global markets. It is using its banks to attack other nations with a variety of financial sanctions. It is penalizing foreign banks that compete with China in nations shifting their financial allegiances.

The United States is creating a financial vacuum into which the Yuan is creeping. The biggest banks in the world are now headquartered in China. The biggest U.S. bank is smaller than the fourth biggest Chinese bank. This is simply bad for this country.