Over the course of each week, one central topic may grab my attention more than any others. But during other weeks, what grabs my attention is one or two key economic developments that weave perfectly together, to build the economic global signposts to the future. Much like taking two photos of a jigsaw puzzle, with a week in between. The difference in progress is marked.
So, this week, I hope the most helpful approach is to draw our Bleyer customers’ and readers’ focus to a few key events, which we hope you strongly agree, highlight the growing wisdom in owning your own Physical Gold and Silver bards and coins.
I have written several pieces on China, mainly because we sit within a landscape of history when super-power and economic influence is shifting from West to East. If you’d like to catch up with some economic observation of this mega-giant of an economy, please enjoy these previous pieces:
The Currency War: China, the Dollar and Gold (August 2015)
China: The Stock Market Dominoes Begin To Fall (July 2015)
China and Alan Greenspan: Something Big is Coming (April 2015)
China’s economic moves over the last decade have clearly revealed an unobtrusive, global desire for imperialism. What has characterized the action born out of this motivation is its stealth. It’s actually quite clever. It takes a special kind of withholding and self-control to move with such slow but constant speed that, to all but the observant, it appears not to threaten the dollar-dominated status quo.
Within the last few years, China has:
- Formed the Asian Infrastructure Investment Bank (AIIB). According to the Financial Times, “The Asian Infrastructure Investment Bank is one of four institutions created or proposed by Beijing in what some see as an attempt to create a Sino-centric financial system to rival western dominated institutions set up after the second world war.”
- Joined, on 22nd June 2015, the select list of eight banks which fix the daily Gold price: “Although being the world’s largest gold producer and consumer, China has never played a major role in the global gold fixing. Bank of China’s direct participation would reinforce the connection between the Chinese domestic market and overseas markets, make the international gold price better reflect the supply and demand in China, and help to promote the internationalization of the Chinese gold market.” (The London Bullion Market Association.)
- And YESTERDAY China, “the world’s largest gold producer, made a big move to advance its efforts to become a global price leader for the yellow metal. On Tuesday, the Shanghai Gold Exchange, dubbed the largest physical gold exchange in the world, launched the Shanghai Gold Fix—a twice-daily price fixing for the metal per gram, denominated in Chinese yuan. The move is “hugely important,” said Julian Phillips, founder and contributor to GoldForecaster.com. It’s a step toward “China controlling the gold price.” (Market Watch, 19 April 2016)
What can we learn from watching how China moves as an entity, whether we are a small or larger investor in Gold and Silver?
Firstly, there is a profound difference between the western mindset of investing in the precious metals and the eastern psychology of owning the same metals. And this can be seen in two dichotomies:
1) Physical vs. ETF’s: In the U.S. most of the daily trading on the Gold and Silver fix is in paper certificates. But in China, trading is more often than not in the physical metal: “Chinese markets have a deep physical gold liquidity that leads the world. By contrast, the Comex gold market in the U.S. doesn’t deal that much in physical gold… less than 1% of the gold Comex trades actually go to physical delivery. The Shanghai Gold Fix launch is the start of a new global gold market. After all, China, isn’t just the world’s largest producer of the metal, but also one of the biggest buyers of gold, often running neck and neck with India as the globe’s top consumer.” (Market Watch) And did you know, and I didn’t until very recently, that China currently has a ban on gold exports, meaning Gold can go into the country but can’t come out! We at Bleyer have long since believed that the true safe haven is owning the physical metals, either in person or in secure storage, rather than trading in paper certificates representing gold and silver.
2) Preparation vs. Profit: This next point is so salient to the entire impetus within many of our customers’ conversations with us, that it is rewarding to see it so eloquently expressed elsewhere. And it is this:
“One report claims, for example, that gold demand in China is down because the yuan has fallen and made the metal more expensive in the country. Sounds reasonable, and it has a grain of truth to it. But as you’ll see below, it completely misses the bigger picture, because it overlooks a major development with how the country now imports precious metals. I’ve seen so many misleading headlines over the last couple months that I thought it time to correct some of the misconceptions. The basis for the misunderstanding starts with the fact that the Chinese think differently about gold. They view gold in the context of its role throughout history and dismiss the Western economist who arrogantly declares it an outdated relic. They buy in preparation for a new monetary order—not as a trade they hope earns them a profit. Combine gold’s historical role with current events, and we would all do well to view our holdings in a slightly more “Chinese” light, one that will give us a more accurate indication of whether we have enough, of what purpose it will actually serve in our portfolio, and maybe even when we should sell (or not). The horizon is full of flashing indicators that signal the Chinese view of gold is more prudent for what lies ahead. Gold will be less about “making money” and more about preparing for a new international monetary system that will come with historic consequences to our way of life.” (Casey Research, “The Truth About China’s Massive Gold Hoard“, 2014)
So, that is the first jigsaw piece that came to my attention this week. China is always one to watch, in how they view trade in gold and silver, the sheer amount in which they are trading and how they are positioning themselves to direct the future price of physical Gold and Silver.
The second piece of the jigsaw I have noticed being strategically lowered into place is Quantitative Easing (QE). QE has taken a bit of a back seat in headlines this last year but we wrote about it extensively first back in 2013: “Quantitative Easing Made Easy.” QE thereafter invariably enters the discussion in so many of our articles, because by definition, the creation of more paper money devalues that paper currency and drives up the price of Physical Gold and Silver in comparison. History can always spot real money (Gold and Silver) vs. fake money (currencies) and in times of turmoil always gravitates to the historical safe haven.
Fiat currencies are inherently maudlin and QE is just the act of putting on way too much make-up. It can’t disguise the ill-health underneath. To quote from a previous Bleyer piece on fiat currencies, entitled, “Who’s the Best Looking Leper in the Colony?” fiat currencies are always doomed to fail: “As many of you already know, “Fiat” is Latin for “let there be”, a man-made copying of the ancient Hebrew phrase in the Genesis account of creation. This means man wanted to create something (man-made money), so he spoke it out of his imagination. Regardless of our theological position, whenever man gets above himself and thinks he’s a god, it doesn’t bode well. Fiat currencies, from the moment of their man-made creation, are in decay, if you will, unless they are pegged to the real historical and ancient form of money, Gold and Silver. This is because Gold and Silver, like air and water, are found in the earth and are part of a limited natural supply in our earth’s crust. It’s a physical thing, not an idea that can evaporate.”
But this week, a few lines caught my eye in giving more signs as to the future price moves of both Gold and Silver:
“Both the ECB and Bank of Japan are preparing to expand their QE programs shortly. This is why both Gold and Silver are breaking out of long-term wedge patterns. Central Banks are prepping the printing presses. Look for inflation hedges to hit lift off shortly.” (19 April 2016, Zerohedge)
I’m not sure of the timing of this one. Many Central Banks are still flirting heavily with Zero Interest Rates and even Negative Interest rates, of which we wrote last week. And this fantasy may continue a little longer. But, hyper-inflation usually follows deflation, which is where we are now. So, it makes sense that when the unprecedented global and Euro project use of ZIRP and NIRP don’t work, then more Quantitative Easing will catapult inflation higher than we have experienced in many a decade.
For a truly excellent and visual illustration of this, I came across a brilliant piece by GoldSilverMoney.com. For a three minute peruse through the history of fake currency vs. real gold and silver to how hyper-inflation occurs click here. It is a neat little story of a “Goldsmith as a simplified form of what has really happened throughout history. Just like in our story, a country will start out with money, gold and silver, then through debasement will turn that money into currency. Thereby robbing the people of their wealth.”
Thirdly, once again I’d like to highlight Silver. I’d been promising to do so for a while. Then two weeks ago I felt it the right time to focus on the strong investment potential yet again of this lesser known sister to Gold. Gold gets all the headlines, but Silver has some incredible facts and figures in her favour. Since writing that piece, the gold price has increased by 0.57% but the Silver price has increased by 7.76%. In the last week those figures go to -.89% and +4.56%, so that was, I believe, a good call.
Fourthly, it is prudent to regularly watch the investment banks. I’m pretty sure we all noticed the horrific crashing of the markets just as we entered 2016, lead by China. Then the headlines went quiet. But if I told you that investment bank revenues were down by around 60% in the first three months of this year, would you believe me? “I hope you’ve tuned your teeny-tiny violin. It is now clear, although it had been growing apparent for a while, that investment banks have endured an absolutely diabolical start to the year.
Senior bankers may just about be able to maintain a thin veneer of optimism. But, as a wise, old journalist told me when I started covering the sector many years ago, don’t listen to the words they utter, look at the numbers they produce. And the numbers are truly horrific. Yesterday, Goldman Sachs became the latest big US bank to publicly display its pain. The headline news was bad enough – profits were down 56pc in the first three months of the year compared with the first quarter of 2015 – but, as with all scary movies, the real shock comes in what lies beneath. Analysts expected things to be bad – predicting that revenues would fall from $10.6bn (£7.36bn) in the first quarter of last year to $6.7bn this time round. In the event they were even worse that, coming in at $6.3bn. Net income was down from $2.7bn to $1.2bn – a near 60pc tumble. Each of the bank’s four main units – fixed income, currency and commodity trading; equities trading; investment banking; and investment management – suffered double-digit revenue falls.” (Ben Wright, Business Telegraph, 20 April 2016)
And lastly, a quick glance at the U.K. unemployment figures released today, which do not bode well for the supposed economic recovery, and that affects the future rush into Gold and Silver as a safe haven. I believe the imposition of the national minimum wage puts pressure on many small to medium sized U.K. businesses. Ironically, the very act of trying to protect workers from injustice may be the precise market pressure that decreases jobs. By imposing an external Orwellian central government policy, rather than letting the free market and the ability to simply find another job if the quality of our work is under-recognised, may have contributed to this recent rise in unemployment. “UK unemployment rose by 21,000 to 1.7 million between December and February, the Office for National Statistics (ONS) says. That is the first increase since the May-July period of last year. “It’s too soon to be certain, but with unemployment up for the first time since mid-2015 – and employment seeing its slowest rise since that period – it’s possible that recent improvements in the labour market may be easing off,” ONS statistician Nick Palmer said.” (20 April 2016, BBC Business.)
So, in conclusion, it is noticeable how many concurrent headlines and figures are interweaving to point strongly at a break-out and rise in the price of physical Gold and Silver. The Silver price has ramped up to £11.80 an ounce this morning, which is the highest its been since 21 January 2015 – a 15 month high! Yet I can’t find that piece of information in any business section this morning.
Throughout history, when a currency collapses, the population rushes into Physical Gold and Silver, usually too late as the price sky rockets out of their reach. We recommend not waiting until the price begins to run. Browse our website now for Gold and Silver bars and coins now and call one of the Bleyer team to find out more about holding your Gold in a Pension, safes and secure storage and our current special offers.
Have a great week enjoying the Spring sunshine and we look forward to hearing from you.