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A lot of embarrassed investment advisors out there…

Gold blew through $2400/oz this morning:

And the world’s central banks continue to add gold to their monetary reserves. Note that the real action coincided with the outbreak of the Ukraine war, when the US started slapping sanctions on everyone in sight. De-dollarization is a trend with legs.

A case can be made that China alone is driving the current gold bull market. Note how the metal’s price tracks the increase in People’s Bank of China gold reserves.

Silver just pierced its 5-year resistance. If it holds above $30/oz, $35 becomes the next big test.

One of the problems with gold miner stocks has been the fact that mining costs are rising, which offsets some of the benefits of a higher gold price. But that’s changing, as gold rises faster than mining costs, widening miners’ margins and lighting a fire under their stocks. See Finally, Some Good-Looking Gold/Silver Miner Charts.

The Next Price Driver

Is the gold rush played out? Well, 98% of mainstream investment advisors currently have less than 5% of their clients’ money in precious metals. Imagine all the tense upcoming meetings in which clients demand to know why they don’t own the year’s best-performing assets — and advisors apologize and promise to add gold to their mix. Just 1% of global investible capital flowing into gold would send it to the moon.

Record PBoC gold purchases may indicate that China is planning to invade Taiwan – Experts

May 2, 2024

Record PBoC gold purchases may indicate that China is planning to invade Taiwan – Experts

(Kitco News) – China’s massive and sustained central bank gold purchases are raising fears that the country may not only be shoring up its currency but may also be laying the economic groundwork for a full-scale invasion of Taiwan, according to a Telegraph report published Tuesday.

“The relentless purchases and the sheer quantity are clear signs that this is a political project which is prioritised by the leadership in Beijing because of what they see is a looming confrontation with the United States,” Jonathan Eyal, associate director of the Royal United Services Institute (RUSI) in the UK, told the newspaper. “Of course, it’s connected also to plans for a military invasion of Taiwan.”

China’s gold-buying spree began in October 2022, building up its official reserves to a record high of 2,262 tonnes, valued at $170.4 billion at current prices. The People’s Bank of China (PBOC) added 27 tonnes of gold in just the first three months of 2024.

The PBoC’s current purchase streak came shortly after the United States and its Western allies froze $350 billion in Russian currency reserves held at foreign central banks in response to its invasion of Ukraine.

“There is absolutely no question that the timing and the sustained nature of the purchases are all part of a lesson that [China] have drawn from the Ukraine war,” Eyal said, adding that China’s burgeoning gold reserves are an attempt to insulate the country from the impact of U.S. dollar sanctions if and when it launches its own invasion.

“It was a major shock that it is possible to take sovereign holdings and freeze them,” Eyal said. “I think that was a fundamental change as far as Xi Jinping was concerned.”

President Xi Jinping devoted a part of his New Year’s address to the nation to calls for reunification with Taiwan.

…click on the above link to read the rest of the article…

Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

April 16, 2021

Is China Preparing A Gold-Backed Yuan: Beijing Greenlights Purchases Of Billions In Bullion

In 2018, the Chinese launched a gold-backed, yuan-denominated oil futures contract. These contracts were priced in yuan, but convertible to gold, raising the prospect that “the rise of the petroyuan could be the death blow for the dollar.”

Two weeks ago, The IMF reported that the global share of US-dollar-denominated exchange reserves dropped to 59.0% in the fourth quarter, according to the IMF’s COFER data released today. This matched the 25-year low of 1995.

Also last week, Peter Thiel warned “Bitcoin should also be thought [of] in part as a Chinese financial weapon against the US… It threatens fiat money, but it especially threatens the U.S. dollar.”

All of which sets the stage for the dramatic headlines that hit this morning, as Reuters reports that China has given domestic and international banks permission to import large amounts of gold into the country,

The People’s Bank of China (PBOC), the nation’s central bank, controls how much gold enters China through a system of quotas given to commercial banks.It usually allows enough metal in to satisfy local demand but sometimes restricts the flow.

In recent weeks it has given permission for large amounts of bullion to enter, the sources said.

“We had no quotas for a while. Now we are getting them … the most since 2019,”said a source at one of the banks moving gold into China.

…click on the above link to read the rest of the article…

China’s Rapidly Expanding Credit Affects Global Markets

September 6, 2020

China’s Rapidly Expanding Credit Affects Global Markets

We again are seeing how rapidly expanding credit in China is spilling over into the global market. In reaction to its economy being slammed by covid-19, China like many countries has unleashed several massive stimulus programs to start things moving. Unfortunately for the Chinese people, they have also been dealing with other issues putting their system under stress. Not only is the trade war and a high level of political stress putting China to the test but it is in the midst of the worst flooding in decades and this is also adding to the pressure.

Since the outbreak of the pandemic, Chinese authorities have issued 4.75 trillion yuan ($683 billion) in local and national debt with most of that earmarked for infrastructure projects to boost construction. China is far from transparent and making it difficult to know what exactly is happening. This is also true when it comes to imports which are sometimes stored away rather than used. Speculation and projections of future use all play into this. Whether we are talking about grain prices, oil, or metal, China is a bigger user of commodities and the demand flowing from China affects prices. Factor into this the notion that China is big in projecting a positive narrative of economic growth and the spillover becomes clear.

An example of this can be seen as iron ore prices hit a six and a half year high on Thursday as the Chinese construction and manufacturing sector claims to be experienced levels of activity not seen for almost a decade. Fastmarkets MB reported that benchmark 62% Fe fines imported into Northern China were changing hands for $129.92 a tonne on Tuesday, up 2.1% on the day. That would be the highest level for the steel-making raw material since mid-January 2014 and put gains for 2020 to over 40%.

…click on the above link to read the rest of the article…

China’s Central Bank Vows To Expand Total Credit By 30% Of GDP In 2020

June 18, 2020

China’s Central Bank Vows To Expand Total Credit By 30% Of GDP In 2020

One of the curiosities about the current global financial crisis is that unlike the global financial crisis of 2008 when a massive credit injection by China sparked a generous reflationary wave around the world which pulled it out of a deflationary slump, this time around China has been far more modest as the following chart shows.

All that may be about to change.

Speaking in a financial forum in Shangha, China’s central bank governor Yi Gang said that China will keep liquidity ample in the second half of the year, but it should consider in advance the timely withdrawal of policy measures aimed at countering the effects of the COVID-19 pandemic.

“The financial support during the epidemic response period is (being) phased, we should pay attention to the hangover of the policy,” Yi said. “We should consider the timely withdrawal of policy tools in advance.”

In other words, just like the Fed, China is pretending that whatever is coming will be temporary. Which, in a world of helicopter money will never again be the case.

But more importantly, we know that in order to boost its stagnating economy, China is about to unleash a historic credit injection: Yi said that new loans are likely to hit nearly 20 trillion yuan ($2.83 trillion) this year, up from a record 16.81 trillion yuan in 2019, and total social financing could increase by more than 30 trillion yuan ($4.2 trillion), or about 30% of GDP. A similar number for the US would be about $7 trillion which is more or less what the US deficit will be over the next 12 months.

In other words, we’re going to need a much bigger chart of China’s broad credit.

Yi added that the bank’s balance sheet remains stable around 36 trillion yuan.

…click on the above link to read the rest of the article…

Get Ready for the Next Game-Changer: the Digital Yuan

May 6, 2020

Get Ready for the Next Game-Changer: the Digital Yuan

A new, radical paradigm shift is in progress. The U.S. economy may shrink as much as 40% in the first semester of 2020. China, already the world’s largest economy by PPP for a few years now, may soon become the world’s largest economy even in exchange rate terms.

The post-Planet Lockdown world – still a hazy mirage – may well need a post-Planet Lockdown currency. And that’s where a serious candidate steps into the fray: the fiat digital yuan.

Last month, the People’s Bank of China (PBOC) confirmed that a group of top banks started trials in electronic payment in four different Chinese regions using the new digital yuan. Yet there’s no timetable yet for the official launch of what is called the Digital Currency Electronic Payment (DCEP).

The man with the plan is PBOC governor Yi Gang. He has confirmed that apart from the trials in Suzhou, Xiong’an, Chengdu and Shenzhen, the PBOC is also testing hypothetical scenarios for the 2022 Winter Olympics.

While DCEP, according to Yi, “has made very good progress,” he insists the PBOC will be “cautious in terms of risk control, especially to study anti money-laundering and ‘know your customer’ requirements to incorporate in the design and system of DCEP.”

DCEP should be interpreted as the road map for China leading to an eventual, even more groundbreaking replacement of the U.S. dollar as the world’s reserve currency. China is already ahead in the digital currency sweepstakes: the sooner DCEP is launched the better to convince the world, especially the Global South, to tag along.

The PBOC is developing the system with four top state-owned banks as well as payment behemoths Tencent and Ant Financial.

…click on the above link to read the rest of the article…

Corona Virus? The Chinese Central Bank Has a “Solution”

February 9, 2020

Corona Virus? The Chinese Central Bank Has a “Solution”

In response to the economic paralysis brought about by the coronavirus, the Chinese central bank has pumped $243 billion into financial markets. On Monday February 3 2020, China’s equity market shed $393 billion of its value.

Most experts are of the view that in order to counter the damage that the coronavirus has inflicted, loose monetary policy is of utmost importance to stabilize the economy. In this way of thinking, it is believed that the massive monetary pumping will lift overall demand in the economy and this in turn is likely to move the economy out of the stagnation hole.

On this way of thinking consumer confidence, which has weakened as a result of the coronavirus could be lifted by massive monetary pumping.

Now, even if consumers were to become more confident about economic prospects, how is all this related to the damage that the virus continues to inflict? Would the increase in consumer confidence due to the monetary pumping cause individuals to go back to work?

Unless the causes of the virus are ascertained or unless some vaccine is produced to protect individuals against the virus, they are likely to continue to pursue a life of isolation. This means that most people are not going to risk their life and start using the newly pumped money to boost their spending.

It seems that whenever a crisis emerges, central banks are of the view that first of all they must push plenty of money to “cushion” the side effects of the crisis. The central bankers following the idea that if in doubt “grease” the problem with a lot of money.

…click on the above link to read the rest of the article…

The Pandemic Isn’t Ending, It’s Just the Beginning of Global Disorder and Depression

February 8, 2020

The Pandemic Isn’t Ending, It’s Just the Beginning of Global Disorder and Depression

When you’ve been lied to, you’ve been betrayed. Betrayal has consequences.

Unsurprisingly, denying the pandemic is unstoppable and consequential is the order of the day: authorities everywhere are terrified these realities might leak through all their oh-so-obviously desperate firewalls and filters. Why are they terrified? Because they know the entire global economy, including the linchpin Chinese and U.S. economies, was extremely fragile before the pandemic arose: why else the panic-stimulus and panic-repo policies of the Federal Reserve and the People’s Bank of China in the pre-pandemic months of Q4 2019?

And so everything is covered up, and if that doesn’t work, then outright denial is the default policy. The number of cases globally is absurdly understated, the number of deaths in China is absurdly under-reported, and so on.

But the biggest denial campaign is aimed at masking the fragility of the global economy, as the only thing keeping the rickety, speculative-bubble, insolvent global economy from imploding is the belief and confidence of the masses that everything is going swimmingly, so keep on borrowing, borrowing, borrowing, buying, buying, buying and speculating, speculating, speculating.

While the real-world battle to limit the spread of the virus in China gets the headlines, the battle inside your head to maintain your confidence in the system is just as important. Economists talk about recession and depression in quantitative terms: deflation, sales, profits, employment and so on.

The key dynamic in recessions and depressions is confidence: confidence that the condo you buy today will be worth a lot more tomorrow, the business investment you make today will generate higher profits tomorrow, your job benefits will increase tomorrow, your house value will rise tomorrow, and so on.

…click on the above link to read the rest of the article…

The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US

September 1, 2019

The Real “Helicopter Money”: Since 2009, China Has Created $21 Trillion Of New Money, More Than Double The US

Back in the days of the Fed’s QE, much of thinking analyst world (the non-thinking segment would merely accept everything that the Fed did without question, after all their livelihood depended on it), was focused on how massive, and shocking, the Fed’s direct intervention in capital markets had become. And while that was certainly true, what we showed back in November 2013 in “Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water” is that whereas the Fed had injected some $2.5 trillion in liquidity in the US banking system, China had blown the US central bank out of the water, with no less than $15 trillion in increases to Chinese bank assets, all at the behest of a juggernaut of new credit creation – be it new yuan loans, shadow debt, corporate bonds, or any other form of debt that makes up China’s broad Total Social Financing aggregate.

Now, almost six years later, others are starting to figure out what we meant, and in an Op-Ed in the FT, Arthur Budaghyan, chief EM strategist at BCA Research writes about this all important topic of China’s “helicopter” money – which far more than the Fed, ECB and BOJ – has kept the world from sliding into a depression, and yet is blowing the world’s biggest asset bubble.

Budaghyan picks up where we left off, and notes that over the past decade, Chinese banks have been on a credit and money creation binge, and have created RMB144Tn ($21Tn) of new money since 2009, more than twice the amount of money supply created in the US, the eurozone and Japan combined over the same period. In total, China’s money supply stands at Rmb192tn, equivalent to $28 TRILLION. Why does this matter?

…click on the above link to read the rest of the article…

Getting to a Special State of Ugly

August 11, 2019

Getting to a Special State of Ugly

There are certain phrases – like “trust me” or “I got this” – that should immediately provoke one’s suspicion. When your slippery contractor tells you, “trust me, your kitchen renovation will be done before Christmas,” you should be wary. There’s no way it’ll be done until late spring.

Or when your incompetent client says, “I won’t be needing your services at this time, I got this.” You should expect a panicked phone call at 5pm on Friday. “This is way more than I can handle,” your client will say, “take care of it.”

On Monday, when the sky was falling, and there was much weeping and gnashing of teeth, the Chinese yuan weakened to above 7 per dollar for the first time in over a decade. This prompted U.S. Treasury Secretary Steven Mnuchin to waft out a suspicious phrase of his own. He called China a “currency manipulator.”

Mnuchin’s logic, as far as we can tell, is that China manipulated their currency because their central bank didn’t adequately intervene in foreign exchange markets to prop up the yuan. Conversely, direct intervention into markets, to maintain a centrally planned price that’s acceptable to Mnuchin, is not currency manipulation. Go figure!

On Tuesday, to restore confidence in the yuan, and refute accusations of being a malevolent currency manipulator, the People’s Bank of China (PBOC) announced a plan to price fix the yuan. Specifically, the PBOC will sell 30 billion yuan ($4.2 billion) of offshore bills in Hong Kong on August 14. This move is designed to drain liquidity offshore, thus strengthening the yuan against the dollar.

Why bother?

Cooperative Currency Debasement

The world, circa 2019, is a fabricated reality. Debt, piled upon debt, piled upon debt, ad infinitum, has erected a financial order that’s at perilous odds with the underlying economy. Central bankers attempt to manipulate fake money and fake foreign exchange rates to keep the debt pile from cascading down.

…click on the above link to read the rest of the article…

Weekly Commentary: “Hot Money” Watch

August 11, 2019

Weekly Commentary: “Hot Money” Watch

In the People’s Bank of China’s (PBOC) Monday daily currency value “fixing,” the yuan/renminbi was set 0.33% weaker (vs. dollar) at 6.9225. Market reaction was immediate and intense. The Chinese currency quickly traded to 7.03 and then ended Monday’s disorderly session at an 11-year low 7.0602 (largest daily decline since August ’15). While still within the PBOC’s 2% trading band, it was a 1.56% decline for the day (offshore renminbi down 1.73%). A weaker-than-expected fix coupled with the lack of PBOC intervention (as the renminbi blew through the key 7.0 level) rattled already skittish global markets.

Safe haven assets were bought aggressively. Gold surged $23, or 1.6%, Monday to $1,441, the high going back to 2013 (trading to all-time highs in Indian rupees, British pounds, Australian dollars and Canadian dollar). The Swiss franc gained 0.9%, and the Japanese yen increased 0.6%. Treasury yields sank a notable 14 bps to 1.71%, the low going back to October 2016. Intraday Monday, 10-year yields traded as much as 32 bps below three-month T-bills, “the most extreme yield-curve inversion” since 2007 (from Bloomberg). German bund yields declined another two bps to a then record low negative 0.52% (ending the week at negative 0.58%). Swiss 10-year yields fell two bps to negative 0.88% (ending the week at negative 0.98%). Australian yields dropped below 1.0% for the first time.

It’s worth noting the Japanese yen traded Monday at the strongest level versus the dollar since the January 3rd market dislocation (that set the stage for the Powell’s January 4th “U-turn). “Risk off” saw EM currencies under liquidation – with the more vulnerable under notable selling pressure. The Brazilian real dropped 2.2%, the Colombian peso 2.1%, the Argentine peso 1.8%, the Indian rupee 1.6% and the South Korean won 1.4%. Crude fell 1.7% in Monday trading. Hong Kong’s China Financials Index dropped 2.5%, with the index down 4.4% for the week to the lowest level since January. European bank stocks dropped 4.1%, trading to the low since July 2016.

…click on the above link to read the rest of the article…

Chinese Bank With $100 Billion In Assets Is About To Collapse

July 25, 2019

Chinese Bank With $100 Billion In Assets Is About To Collapse

While the western world (and much of the eastern) has been preoccupied with predicting the consequences of Trump’s accelerating global trade/tech war and whether the Fed will launch QE before or after it sends rates back to zero, Beijing has quietly had its hands full with avoiding a bank run in the aftermath of Baoshang Bank’s failure and keeping the interbank market – which has been on the verge of freezing – alive.

Unfortunately for the PBOC, Beijing was racing against time to prevent a widespread panic after it opened the Pandora’s box when it seized Baoshang Bank, the first official bank failure in an odd replay of what happened with Bear Stearns back in 2008, when JPMorgan was gifted the historic bank for pennies on the dollar.

And with domino #1 down, the question turned to who is next, and could it be China’s Lehman.

As a reminder, back in May, shortly after the shocking failure of China’s Baoshang Bank (BSB), and its subsequent seizure by the government – the first takeover of a commercial bank since the Hainan Development Bank 20 years ago – the PBOC panicked and injected a whopping 250 billion yuan via an open-market operation, the largest since January. Alas, as we said at the time, it was too little to late, and with the interbank market roiling, with Negotiable Certificates of Deposit (NCD) and repo rates soaring (in some occult cases as high as 1000%) we said that it’s just a matter of time before another major Chinese bank collapses.

We Are Neutral on Chinese Equities, Says Bank of Singapore’s Malik

…click on the above link to read the rest of the article…

Something Just Broke In China As Repo Rate Soars To 1,000% Overnight

July 19, 2019

Something Just Broke In China As Repo Rate Soars To 1,000% Overnight

Ever since the unexpected failure of China’s Baoshang Bank in late May, which caused a freeze in the interbank market among smaller, less credible (and government bankstopped) banks, and which sent rates on Negotiable Certificates of Deposit (NCDs), various bank bonds and assorted report rates sharply higher…

… investors have fretted that China appears on the verge of a “Lehman moment”, where wholesale interbank liquidity and overnight funding markets suddenly lock up. The reason for this, as we explained last month, is that China’s short-term lending market for banks and other financial institutions has for years operated under the assumption that Beijing wouldn’t allow big losses in the event of defaults or insolvencies (hence the reason why Baoshang’s failure was a shock). That confidence has been shaken by regulators’ unusual public takeover of the troubled Chinese bank near Mongolia last month, and the even more stunning public admission by the central bank that “not all of Baoshang Bank’s liabilities would necessarily be guaranteed.”

“Bank failure always causes greater concern given systemic fears,” said Owen Gallimore, head of credit strategy at Australia & New Zealand Banking Group, suggesting greater pressure on the private sector ahead.

Naturally, with China growing at the slowest pace in recent history, beset by shadow bank deleveraging, trade war, a shaky transition to a consumer economy and China’s first ever current account deficit, these stresses come at a very bad time for the normal functioning of the local economy.

Furthermore, nonbank borrowing through bond repos and interbank loans skyrocketed since China’s central bank began easing monetary policy in early 2018, hitting a net 74 trillion yuan ($10.7 trillion) in the first quarter of 2019, according to Enodo Economics, and up nearly 50% from a year earlier.

…click on the above link to read the rest of the article…

China’s Central Bank: “Everyone, Please Don’t Worry”

June 5, 2019

China’s Central Bank: “Everyone, Please Don’t Worry”

Many unhappy returns. Thirty years ago, British ambassador Sir Alan Donald cabled home his classified report on the bloody goings-on in Tiananmen Square: “Students linked arms but were mown down. Armored personnel carriers then ran over the bodies time and time again to make, ‘pie’, and remains collected by bulldozer, incinerated and then hosed down drains. . .”

Unsurprisingly, the Xi Jinping-led government has little interest in commemorating the event, or in allowing others to pause and remember. Domestic social media platforms have “barred users from changing their profile photos and other information,” Bloomberg says, while financial data company Refinitiv has blocked all Tiananmen-related stories from its Eikon terminals, after the Cyberspace Administration of China “threatened to suspend the company’s service,” according to Reuters.

While Refinitiv may suffer a reputational knock in the West for this evident kowtow, its social credit score looks poised for an upgrade.

If only the recent trouble in China’s banking system could be so easily suppressed. Following the government’s takeover of distressed Baoshang Bank Co., the People’s Bank of China tried to calm the situation by assuring investors that no further such interventions were in the cards: “Everyone,” says a message on the PBOC website: “please don’t worry. At present we don’t have this plan.” But Bloomberg reports today that a pair of smaller institutions, Guilin Bank Co., Ltd. and Jincheng Bank Co., Ltd., have delayed plans to sell RMB 1 billion ($140 million) in tier-2 bond sales following the Baoshang news.

Over the weekend, Bank of Jinzhou, which holds $113 billion and $53 billion of assets and deposits, respectively, saw its auditor Ernst & Young Hua Ming LLP resign due to “indications that some loans to institutional customers weren’t used in ways consistent with the purposes stated in documents,” per Bloomberg. In response, the bank’s 5.5% dollar-pay perpetual bonds fell below 65 from 81 a week ago, for a 19.2% yield-to-call.

…click on the above link to read the rest of the article…

Separating truth from fiction in China’s golden game of Poker

January 12, 2019

Separating truth from fiction in China’s golden game of Poker

This month the Chinese central bank reported that in December 2018, its gold reserve holdings increased by 10 tonnes, the first claimed increase in Chinese monetary gold holdings since October 2016.

Based on previous patterns reporting patterns, a two year hiatus in reporting gold holdings is not unprecedented for the Chinese central bank and its reporting agency SAFE. What is strange, however, is that after an extended absence of reporting, the Chinese are coming back to the table with not a lot to show for it.

It is extremely difficult to believe that the Chinese central bank has not been accumulating gold throughout the last two years. Having said that, the claimed 10 tonne gold addition in December is worthy of analysis in regards to its timing and what it may signal. However, it is also important to keep in mind that there is huge and justified skepticism about the true size of the Chinese State’s monetary gold holdings held through the People’s Bank of China (PBoC), and to this we can probably now add skepticism about the real accumulation pattern of PBoC gold.

A 10 tonne teaser

News of December’s central bank gold purchase was initially published on the web site of China’s State Administration of Foreign Exchange (SAFE) in it’s December 2018 ‘Official Reserve Assets’ report. Note that SAFE reserve asset updates don’t actually state the quantity of gold the PBoC holds but instead report a US dollar figure valued at the corresponding month-end US dollar gold price.

So for example, the PBoC’s gold holdings were valued at US$ 72.122 billion at the end of November, which at a month-end November gold price of US$ 1217.55 was 1842.5 tonnes, while the stated gold valuation at the end of December was US$ 76.331 billion, which at an end of December LBMA gold price of US$ 1281.65 was 1852.5 tonnes, i.e. a 10 tonne increase.

…click on the above link to read the rest of the article…

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