There is one signal coming through louder and clearer than in many months: how action in physical Gold is signalling a coming crash in the financial markets. Some amazing news occurred this week but I couldn’t find it on the surface news media in Britain very easily. And this news prompted me, in turn, to do some digging into the Stock Market’s health.
This week China bought a $90 billion Gold vault in London from Barclays Bank! This is a huge marker and sign of both the manoeuvres of China into the London Bullion Market arena – specifically Physical – and a sign of the decreasing health of British banks. But while the news was widely visible across the American press, it was only reported, to my current knowledge, in a small piece in the BBC business section. The BBC piece had the “nothing to see here” angle of this move increasing China’s grasp on the bullion market in London, rather than looking at why Barclays is exiting the physical Gold market and why one of the major international physical Gold storage facilities in our country will now be owned by China.
By contrast, the American pieces on this development were marginally fuller in their reporting: “The Chinese state-owned ICBC Standard Bank (IDCBF), the world’s biggest bank by assets, has agreed to buy Barclays precious metals storage business, including its state-of-the-art storage facility in London. The deal will boost China’s access to London’s gold market, and expand the country’s role in the gold business. The vault is in a secret location in London, and can store 2,000 tonnes of gold and other precious metals. At current prices, up to $90 billion worth of gold could be stored inside. London is the world’s largest wholesale over-the-counter gold market by trading volume [Bleyer note: this refers to paper gold, not physical] with estimated $5 trillion worth of gold trades cleared there every year. The precious metal has been traded in London for over 300 years. But China dominates in terms of actual physical gold trading. Gold imports to China have surged over 700% since 2010, and the country overtook India to become the world’s biggest gold consumer in 2013. China now consumes about 40% of the gold that comes out of the Earth’s ground every year.” (CNN Money International, 16 May 2016)
Just a quick note to our customers who store their Gold and Silver via Bleyer. The secure storage we use is not in this vault. Just in case you were wondering!
And just take a look at those figures….China now consumes about 40% of the gold that comes out of the Earth!
But, why is this vault sale to China such a big pointer as to what is on the economic horizon, both in the Gold market and in the banking arena of stocks and shares?
Remember last week, I reported that Barclays was both the bank that, at the beginning of the year, released a report saying “property was in a bubble.” And then last month announced it was, paradoxically, now offering 100% mortgages? It looks as if someone at Barclays is positioning the bank to do well out of a housing crash. But, I am asking myself the question, “Why sell a Gold vault?”
Maybe it is precisely to ensure that a higher proportion of the world’s actual physical Gold is stored in London, because let’s face it, the only country currently able to actually fill a Gold vault that size is China. London may be the Gold trading centre of the world but that is sadly in paper trading certificates and not the real metal. I would also take China’s move to store, hold and trade its physical Gold out of London as, on one level, an optimistic sign that China believes London is the safest Western city and in better shape to be a custodian of their physical gold than say, New York. After a little digging, the facts bare this out, in the economic sense at least.
The health of the Physical gold market in the U.S. Comex is in dangerously poor shape. (COMEX is the primary market for trading metals such as gold, silver, copper and aluminium. Formerly known as the Commodity Exchange Inc., the COMEX merged with the New York mercantile exchange in 1994 and became the division responsible for metals trading, Investopedia)
And the disparity between paper gold and real gold is growing at an exponential rate this year! “The amount of physical gold in storage in Comex versus the number of registered “owners” against each ounce is nuts. From a few owners per ounce, it jumped to 542 by this March! From the early 2000s to not long ago, the number of “owners” per ounce — people who bought a “paper” gold contract, supposedly backed by real metal at Comex — was basically flat, just a handful of claimants for each ounce. Plus, there were literally millions of ounces of gold on deposit in Comex. There was gold in the vault, in other words. If you showed up with a contract, you could walk away with gold. That’s how markets ought to work.
Then starting in 2014 and trending to mid-2015, the number of registered “owners” moved strongly up, to about 100 per ounce, and then 300 per ounce. Note that this was also a period when Comex sold down significant amounts of physical inventory, from several million ounces in vaults to well under 1 million ounces. Most of this gold moved out of the West (London, Zurich, New York) to the East (China, Russia, India, Middle East). By late 2015 and now into 2016, registered “owners” against Comex gold spiked to a nosebleed level of 542-to-1. Thus if even one claimant shows up for an ounce of yellow metal, the cupboard will be bare — and there are 541 other claimants as well!”
Out of interest, if, like me, you have a child or grandchild taking GCSE’s or A Level examinations at the moment, here’s an interesting fact to compare with the rarity of those physical gold figures: “Your child has about 30 times better odds of applying and getting admitted to Harvard, Yale AND Stanford than does a Comex contract holder have of walking away with one ounce of gold!” I know these are all American institutions and we’re Brits but substitute Oxford, Cambridge and King’s College and that’s staggering! Physical Gold is becoming harder and harder to actually hold.
“There’s lots of “paper” gold and almost no “real” gold, which makes for a high-risk scenario — certainly if you don’t hold gold. It’s high return if you do hold gold. (Feel free to smile if you do.) The cupboard is so bare for gold that Comex could collapse into the equivalent of a “run” on vaults. If that happens — rather, “when” that happens — watch gold prices spike. On that golden day of reckoning, you’ll see more than a buying frenzy or even a panic. It’ll be utter pandemonium. When this bomb explodes, gold prices will melt upward in ways we can scarcely imagine. Instead of a few dollars up or down on the ticker, you’ll see hundred-dollar moves in a matter of minutes. Of course, it’ll be a good day for investors who own physical metal. Here’s what to do now: Own physical gold. If you don’t have some, get some.” (There’s a very dangerous situation taking place in the Comex’s Gold vault, 12 May 2016, Business Insider.)
Wow. I remember writing pieces for Bleyer on the Silver ratio of Physical to paper ounces when that sat at an astonishing 1:100. But to now be in the real world situation where there is only 1 ounce of real physical gold to every 542 ounces sold in funds is mind blowing. I appreciate we’re talking American ratios here but we all know only too well that American’s financial ill-health directly not only affects our own, but gives us a few months advance notice on what’s coming.
So, if this is what is happening in the physical Gold market, what, by contrast, is happening in the stock market, particularly in the US stock market, as the 2008 financial crash that affected our job market so severely started in the States?
“The first month and a half of 2016 was brutal for the U.S. equity market, as the major averages plunged over 10 percent. But since hitting the February lows, the market has managed to hobble back, with the Dow Jones Industrial Average closing above 18,000 for the first time on Monday. The sad truth is that there isn’t any solid fundamental factor to drive stocks higher. Therefore, investors have misplaced their hopes on betting the inflation produced from a falling dollar will be able to bail out the entire market. I think a stock-market sell-off of 25 percent or more will happen if the Fed can’t get the dollar into a bear market. The U.S. is not the only country suffering from secular stagnation. The slowdown in global growth has been fully acknowledged by the International Monetary Fund.” (Buckle Up: Stocks Could Drop 25% or More by Michael Pento, CNBC)
Now, what will happen to Gold and Silver prices is directly affected the whether the stock market is about to crash or not. There is a plethora of information out there on the two views of whether that is coming or not. Is the stock market in a bubble that is about to burst or not? To help, here is a shortened extract from one of the more balanced I found this week:
Macroeconomic Factors: All else being equal, an economy that is growing and creating jobs serves as a catalyst for stocks to advance in value. So do low interest rates, as alternative options such as bonds, certificates of deposit, and other interest-bearing investments become less attractive. Volatile factors such as inflation, deflation, the strength of the world economy, alternative investment options, political upheaval and sudden shocks to the system all play significant roles.
The Case for a Bubble: In the context of investments, Investopedia defines the term “bubble” as follows: A theory that security prices rise above their true value and will continue to do so until prices go into free-fall and the bubble bursts. Without question, values have risen more rapidly than the meagre growth of the economy can justify. We not only see it happening in real time, but we know why. In the aftermath of the Great Recession, the Federal Reserve performed a series of manoeuvres (Quantitative Easing I, II, and III, along with Operation Twist) designed to lower interest rates and massively expand the money supply. These interventionist steps spurred bank lending, consumer spending, business investments, and — given the loss of nearly $13 trillion of household wealth due to the recession — the rise of the stock market. The Federal Reserve completed its final round of Quantitative Easing in 2014, and the bill has now come due. The Fed is literally racing against time to normalize interest rates and the money supply without stoking inflation or tanking the economy in the process. “Bubble” proponents see the Fed’s tightrope act as futile. There is simply too much money in circulation to avoid an eventual onslaught of inflation, a phenomenon that would likely cripple the recovery. Even if the economy avoids that fate, the next recession is on the horizon, as natural forces cause periodic contractions. Coupled with a change in the political landscape this November, the headwinds of uncertainty and upheaval will soon take the steam out of the stock markets.
The Case Against a Bubble: Detractors simply do not feel the odds are in favor of a “bubble” bursting. Furthermore, despite a few high-profile recent instances, they believe markets tend to act rationally. Speaking to rationality, a longstanding core principle taught by economists is that investors tend to act in their collective self-interests, which preclude inflating markets significantly beyond their sustainable limits. Corrections (defined as 10 percent+ decreases) release steam and rebalance values, preparing the markets for future growth.
Which One Is It? While nobody knows that answer with certainty, it is undeniable that Federal Reserve intervention has never been more heavy-handed. Cycles are substantially longer than they once were, and on average, growth is markedly slower. The money supply has ballooned out of control, while interest rates remain close to historic lows. The United States is experiencing its own variant of Japan’s “Lost Decade” of 1991-2000, and putting the genie back in the bottle has been as difficult for this country as it was for them.” (The Cases for and against a Looming Stock Market Bubble, The New American, April 2016)
So, all the signs are clear. I believe banks are positioning themselves for a stock market and property market crash. China is positioning itself even stronger into the Physical Gold market, including now a substantial London base. Another commentator actually believes he’s got an idea on timing. I’m not going to guess timing, as I’ve been watching this game long enough to be amazed at how long the whitewashing of the economy has continued: Quantitative easing, lowering of interest rates, suppression of Gold and Silver prices against the free market demand etc. But here’s his opinion anyway, because it raises a salient point – people will often blame a political event for a collapse that was, in retrospect, a financial certainty: “Around the presidential election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse. Yes, a crash of 20%, worse than 2008 and 2000. No wonder our brains tune out, turn off, why we prefer happy talk and good news, even if it’s just a pep talk intended to mislead. Like before the 2008 crash when our Treasury Secretary Hank Paulson was telling Fortune, “this is far and away the strongest global economy I’ve seen in my business lifetime.” They don’t even know. Later, after the crash, after running America’s monetary system 18 years, even former Fed Chairman Alan Greenspan finally admitted to Congress, “I really didn’t get it until very late.” Today, it’s déjà vu all over again.” (Countdown to the Stock Market Crash of 2016, Market Watch, 17 May 2016)
To link this thoroughly into the next political event for Britain and our own great little country, I’m sure you’ve noticed that we are being warned that a vote to leave the euro-project will damage our economy. And these warnings are packaged as if they are all from different sources. But I didn’t know, until this week, that the Remain Campaign is funded by several major banks; Goldman Sachs, JP Morgan and Morgan Stanley to name a few. So no wonder the banking industry and banking economists will “advise” us the way they do. I also didn’t know until this week that the remain campaign is funded by people like Lord Dorfman, who owns the world’s largest foreign exchange bureau. So, the slight increase in cheap European airfares and securer international borders for travellers and citizens which would result from a Brexit has no bearing on his agenda to fund the Remain campaign right? I wish these facts would be reported more, because all we want the information to make an informed decision. The source of some of the funding for both campaigns can be found via the Electoral Commission but some were also highlighted in a brilliant short article entitled, “Undecided on the EU referendum? Here is a simple solution” by John Longworth, Former Director General of the British Chambers of Commerce.
We at Bleyer thoroughly enjoy the independent thinking of own customers. And in line with this The Telegraph concludes this week that indeed, “Yes, the IMF and 200 Economists can be wrong” just as Alan Greenspan admits he was about the previous economic crash. Hidden interests may account for some of the voices but that enemy of free independent thought – group-think – then accounts for far more:
“Last week saw yet another warning about the dire economic costs of Brexit, this time from the IMF. This followed similar warnings from the Bank of England, HM Treasury, the OECD, the National Institute, and Uncle Tom Cobley and all. There was even a letter signed by 200 economists, highlighting the same dangers. This recalled the 1981 letter signed by 364 economists warning of the threat of recession – published just as the economy was starting to recover. Such an overwhelming consensus of economists might seem impressive. After all, how could so many different voices come to the same conclusion, yet still be wrong? Easily. They aren’t umpteen different voices. These people are the victims of group-think. Moreover, there is a long history of the global economic establishment getting the most important issues of the day profoundly wrong. It did not foresee the fall of communism, the collapse of inflation or the global financial crisis.”
All the financial information points to a coming collapse in stocks and property and a rise in demand for Physical Gold and Silver. If an economic crash is coming, any one political event cannot be blamed for a financial certainty that has been seven years in the making. So, either way we vote, whatever our political background, we encourage our readers to call us, because when the rush starts the doors are often too small. And I quote The Royal Bank of Scotland:
“Several noted economists and distinguished investors are warning of a stock market crash. Billionaire Carl Icahn, for example, recently raised a red flag on a national broadcast when he declared, “The public is walking into a trap again as they did in 2007.” And the prophetic economist Andrew Smithers warns, “Stocks are now about 80% overvalued. Smithers backs up his prediction using a ratio which proves that the only time in history stocks were this risky was 1929 and 1999. And we all know what happened next. Stocks fell by 89% and 50%, respectively. Even the Royal Bank of Scotland says the markets are flashing stress alerts akin to the 2008 crisis. They told their clients to “Sell Everything” because “in a crowded hall, the exit doors are small.” (The Sovereign Investor, 17 May 2016).
So, here are the two ways to invest in Gold which Bleyer offer to our readers, through bespoke customer care:
GOLD IN YOUR PENSION: If you are a UK citizen, you can invest in Gold Bullion through your Self-Invested Personal Pensions (SIPPS). SIPPS are personal pension schemes containing a basket of investments of your choosing until you retire and start to draw a pension income. SIPPs can hold tangible investments, which can now include Physical Gold. Investments made in gold bullion are topped up in the form of tax relief, meaning individuals can claim back the tax on the money they put in. The amount varies depending on the income tax band into which they fall, so if you are a higher rate tax payer you can get up to 40% back. So, for example, a £10,000 investment will only cost you £6,000. Physical Gold is allowed in a SIPP providing it is investment gold, such as the fine gold bars that Bleyer sell in a variety of denominations. The bullion must be stored at ‘arm’s length’ with a secure third party. It cannot be taken possession of and used as a “pride in possession” article. It can, like any other investment, be sold within the pension wrapper and then the cash re-employed within the normal rules of a SIPP pension. Thus Physical Gold is allowed in your SIPP when we store it for you. Please call one of the Bleyer Team to find out more. We maintain the gold in your SIPP Gold account, while you are in complete control in instructing an Independent Financial Advisor (I.F.A.) and a Trustee Company will manage your SIPP Pension as a whole. You will instruct us to either communicate directly with you or with your I.F.A. / Trustee, whichever you would like.
PHYSICAL GOLD AND SILVER BARS AND COINS AS A SAFE HAVEN: Seamus Donoghue, Chief Executive at Allocated Bullion Solutions, a Singapore-based international bullion-trading network said back in January words that now sounds so prescient: “There is always a move into people wanting to own and hold their own Physical Gold and Silver in financial crises, I believe 2016 will be no exception. It is clear to see that it has begun already. Gold is up about 4.3% since the beginning of 2016…If there is continued weakness in stocks, then we expect gold prices to move higher.”
Because he predicted this in January of this year I’d just like to update his figures. The Gold price is now up from a rise of 4.3% to 23.8% in the last six months! That’s a rise of £169.87 per ounce. Now, I cannot promise, as no one else should, that the price of Physical Gold and Silver will rise steadily, it never does. As we know, falls in stock markets are usually proceeded by a few ups and downs, when everyone thinks, “Oh, we escaped that one.” #
But all these signs point to a time for action. Call one of the Bleyer team to discuss how you can either begin to purchase your own Physical Gold and Silver in bullion coins and bars. Or discuss how to invest your savings into a Gold SIPP. (Pensions are extremely exposed to crashes in the stock markets.)
We hope you have a good week.
The Bleyer Bullion Team