Author: Crack Up Boom Patron

When the UK launched this Brexit thing, it seemed like they had a plan and then big gaping holes started to show up. UK citizens who thought that Brexit was just about being autonomous from Europe learnt that it wasn’t as easy as that and that things could actually become worse for them if they exit the European Union. Too little, too late and now the politicians can’t agree on the exit plan.

Ten years ago, the UK’s central bank cut interest rates to a record low of 0.5% and launched quantitative easing (QE) and had fun printing new money as a solution to the global crisis. The United States was doing it, so what would be the harm, right? Just a little quantitative easing to get over a crisis. That is just another example of the UK taking monumental decisions and putting the repercussions of those decisions aside and deciding to come up with a plan to cross any bridge only when they get to it.

Why did Brexit even come to be? Most people claim that the people living in the UK were so frustrated and resentful of the lack of economic progress under the EU that 51.9% of the electorate wanted to quit the EU and go back to the way things were. Brexit was being sold as a revolt against the EU’s elitist policies. That percentage was pretty slim though and you would have hoped the government would hold off and wait a year or two for another’s referendum just to ensure that people understood what they were voting for.

So, what has changed since the UK announced its Brexit move? The property prices in London fell incredibly low and at a faster rate since the financial crisis. But with quantitative easing stripping the pound sterling of its value, it’s getting harder to afford a mortgage. So more people are switching to renting. This has been a boon for property investors who can afford to build property empires. However, those who own their own homes find themselves with property that is worth much less that it was a few years ago.

Politics aside let’s look at Brexit and QE from a practical viewpoint :

If you are looking to make money by selling your house or protect what you have, you’ll discover how hard you have to struggle.

Everyone needs a home and aren’t we always saying people should invest and save more? The UK housing prices and the stock market are at an all-time high, but so is the price of gold. What Brexit and QE have taught us is that currencies can be inflated and rendered obsolete. Gold on the other hand is a great safe haven because it really does nothing. Unlike the currencies we use, gold is a yardstick that can never inflate or destroy. Gold does not change and its status is society has not changed much either. There was a time when gold was more than a store of value but actual money. The great thing about it though is that it retains the same value whether you are selling it in London or the US or Australia, India – there is one spot price that can be converted to pretty much any currency in the world.

 

You can cut down through the noise of say a mortgage by taking the price of 1 ounce of gold and use it to divide the house price or the FTSE Share Index. This way you’ll know how far you can go with your gold.

Why talk about the FTSE index? Well since the 1960, the FTSE and the average UK real estate price dropped when inflation rose. These two have been linked through the 89’s rally to the 90’s surge and the back and forth whipping of the new millennium. The co-movement of gold and stocks has been consistent and it is represented by the FTSE/gold index.

 

Today with the frustrating no-deal or with-deal Brexit the UK house prices and stocks are both low. Either way, property investors and FTSE Index investors. Things look on the up and up. If you are looking for more than just money, but value too, then look to gold it is an unyielding safe haven for those with gold. With Brexit delayed, UK Prices low and the stock market uncertain, there is one thing you can be sure of – gold.

Sources:

https://www.investopedia.com/hard-soft-on-hold-or-no-deal-brexit-outcomes-explained-4584439

https://www.bbc.com/news/business-46862790

We know that the Chinese are the biggest producers and consumers of gold, but do we really know how much gold China really has? The short answer is no.

According to the Chinese Central banks, they have 1,842.6 tons of gold in reserve. That’s what is the official number is said to be. The People’s Bank of China has not announced an increase or decrease in their gold reserves since 2016 but it has been buying gold from other gold countries, so if there is an inflow of gold, but not an outflow of gold into China itself how can we even begin to guess the actual amount of gold in the Central banks. They can go for long periods without saying anything about their gold and then out of the blue reveal large amounts of gold in their holdings.

The People’s Bank of China stopped revealing its gold holdings and then for no apparent reason suddenly reported a 57% increase in its gold holdings in 2015. 16 months later, the bank announced additional gold amounting to 185 tons and then went silent. All the while, China has been pushing for its yuan to be included in the IMF’s basket of benchmark currencies.

A number of foreign central banks have been buying more gold. Cumulatively, the amount of gold bought by central banks is 148.4 tons. That was 22% higher than last year’s third quarter amount. The biggest buyers of gold are Russia, Turkey as well as Kazakhstan, even Hungary and Poland increased their own gold reserves. For a while it looked like China was sitting on the sidelines, but there are strong indications that they have also been increasing their gold stock. According to analysts, Chinese mines yielded about 450 tons of gold, which is about 15% of the global production. This means China is the largest producer of gold in the globe, however the is that the country is the largest producer of gold, but the government bars the sale of gold outside the country. So all that gold stays in China, but China still buys more gold from other countries.

China overtook India as the largest gold buyer in the world. The Chinese buy gold from London, Australia, Switzerland, Hong Kong and Singapore. Most of the gold is bought over the counter making it hard to track.

Where does all that gold go? Most of it probably ends up in the People’s Bank of China. But the Central bank cannot hold all that gold. A lot of the gold is held by private investors. Analysts put 55% of the gold coming into China going to the hands of private investors whilst the remaining 45% going into commercial banks and the Central Bank. There is speculation that most of the gold is held “off the books” in a mysterious entity known as The State Administration for Foreign Exchange (SAFE). There does seem to be a deliberate obfuscation of information about how much gold China consumes and where all this gold is held.

Why is China buying up and holding on to so much gold? It all comes down to the fact that the country with the most gold has the most power. Gold has value that is tangible and more quantifiable and reliable than fiat currency. Gold could be a way for China to challenge the US dollar hegemony and shift the balance of power. It’s an indirect way to challenge the US and challenge political dynamics. China isn’t the only country amassing gold, Russia has also increased its gold stock perhaps as a concerted effort towards economic independence from a dollar-based global economy.

Sources:

  1. https://sputniknews.com/business/201811031069477784-russia-turkey-china-gold-record-pace/
  2. https://www.forbes.com/sites/greatspeculations/2018/07/05/top-10-countries-with-largest-gold-reserves/#1f8621533496

In the precious metal sector, palladium has gone up by 7.8%, by the 25 September because of China buying a lot of gold. The World Gold Council has reported that central banks have added 193.3 tons to the vaults in a six month period. This is 8% more than the amount recorded during the same period in 2017. Russia, Turkey and Khazakhstan have accounted for 86% of the central bank purchases during this period.

The Perth Mint reported an increase in Physical Gold ETF for the week of the25 September. Investors added $13.2 million into the Gold ETF. This increased the assets of the fund by 41%, the highest levels it has been since it’s inception.

In South Africa, AngloGold Ashanti Ltd reached a resolution to the wage issues that caused a number of labour groups to go on strike. They have signed a three-year deal, which stipulates a 6.5 percent pay rise for the first year and raise the rate in accordance with inflation over the next two years. This has brought some reprieve to the gold industry in South Africa and is positive news for the industry, which has faced a number of challenges over the years.

Weaknesses

As palladium prices rose, gold prices fell by 0.44%. There is a move by some countries to choose certain precious metals as strategic previous. Although the Democratic Republic of Congo produces gold, the country has chosen cobalt as a strategic metal. This will trigger a 10% rise in royalty taxes that will affect the production of gold. A new mining code was implemented in June which gives the government more say on the mining industry metals.

Gold has been trading above $1,200 per ounce for the past month, even as bullion-backed ETFs fell. Gold has struggled to gain traction because of the strong U.S dollar. The yellow metal has been trading sideways because of conflicting stories on tariffs on Chinese imports by the US.

Goldman Sachs revised its 3 to 12-month gold forecast to being $100 less than what was reported before. Goldman Sachs expects gold to hover around $1,250/oz. over next three months until it rises to $1,325 oz. at the end of the year.

Opportunities

The gold/silver ratio has hit its highest number since 1995. An ounce of Gold is now 85 times more expensive than silver. Both metals have been affected by the strong U.S dollar. Gold-backed ETFs fell 1.3 percent this year, while silver climbed 2.3 percent. Smart investors see more value in silver at these levels. The current ratio should attract more investors to silver.

A couple of gold miners have reported high drill results.

– Dalgaranga Gold in Western Australia reported high grade gold ore of more than 1450 grams per ton spread within an eight meter wide zone.

– Nighthawk gold at its Colomac Gold Project in Canada have reported 2.91 grams per ton over a drill intersection of 84.30 meter and 5.5 grams per ton over 24.55 meters.

– Cardinal Resources has reported favourable results of its Namdini Gold Project in Ghana.

Threats

There has been a widespread move to increase royalty taxes for miners. Chile’s is another country that is considering more royalty payment for copper and lithium mining. Chile is the world’s biggest producer of copper. The proposed tax is 3% on the nominal value of extracted metals, but will be applied to producers who extract 12,000 tones of iron and 50,000 tons for lithium. Chile produces more copper than any other metal.

In India, the government is trying to curb gold imports in order to check the Rupee’s movement and get a better handle on the current deficit. The rupee fell by 6% in August but the country’s trade deficit rose to a five-year high back in July. The government will use policy changes rather than raise custom duties. India’s gold imports rose by 93% in August, and demand is expected to go higher because of the wedding season and Diwali.

There have been a number of repatriations in the last couple of months. About $169.5 billion worth of gold was repatriated to the US by companies and certain countries. This means that the US holds $134.6 billions more than what they had, same time, last year. This additional hedging could strengthen the dollar. A strong dollar is not good for the price of gold. More repatriations are expected when Trump overhauls tax. By lowering tax from 35% to 15%, Trumps tax cuts could encourage companies to bring money into the U.S.

Sources:

https://www.kitco.com/news/2018-09-21/Goldman-Trims-Gold-Forecast-But-Sees-Prices-Rising.html

http://m.miningweekly.com/article/three-months-to-first-gold-at-dalgaranga-project-2018-02-15/rep_id:386

A lot of people have been talking about the stock market. Everyone thinks that the stock market is about to crash, but funny enough, no one is doing a thing about it. Many current investors are bearish about gold and constantly looking for signals of the Great Unwind. According to fund managers the Bank of America Merrill Lynch’s end-of-year surveys, fund managers should be doubling down on stocks and buying precious metals. Should you be worried? You should be if you have more stocks than precious metals in your investment portfolio.

A lot of experienced asset managers worked through the last global financial crisis, which happened over a decade ago. This means they have experience of getting through a catastrophic banking crash and would know how to weather the storm. Most will tell you that gold is safe and always keeps its value. Through the worst of times, gold always has value. No matter how late you get in the game when a crisis is looming, gold will keep paying.

Have you ever heard the analogy that you shouldn’t wait for your house to burn down before you get insurance? The same can be said about your own money, you don’t wait for a crisis before you protect it. Remember the times when things were really bad for the stock price like the 1987 Black Monday that saw share crashing through the floor and diversify your investment portfolio by buying gold. Think of gold as your insurance. When the economy goes up in flames.

 

Gold is a protective measure against shares slumping. The metal does not really change much, but sits there accruing more value. The question of how much gold you should be buying to mitigate economic risks this year you need to ask two fundamental questions:

Will the stock market stop going up in 2018? So it drops, how far will it drop? What will central banks do?

Put geopolitical risks on the back burner. Don’t obsess about mining supplies and don’t worry about demand from the big consumers like China and India the demand from the big consumers. In fact, China has been increasing like China and India go down?

No one knows for sure, but there is a lot of speculation. The only thing that everyone is sure of about the market is that 2018, will be the longest time that equities have been bullish in the US if things continues the way they have until the end of the year. If by the end of December equities go into a slump or crash or turn bearish, how will the US Fed react?

It may tighten its policies to put a dent in the bull market. It may loosen its policies, but may make gold more appealing. The rally we’ve seen so far may trigger the implementation of weaker policies. Gold is holding its own alongside all-time stock market highs. Most money managers are buying gold as a precaution for the bumpy ride everyone sees coming. It’s not just big moneyed investors who are buying gold, but private citizens are waking up to the new reality that gold is the best bet in an uncertain future.

 

Sources:

  1. https://www.fool.com/investing/2017/07/01/why-investors-buy-gold-in-a-recession.aspx
  2. https://www.cnbc.com/2018/12/06/3-reasons-experts-say-the-stock-market-is-plummeting-and-what-to-do.html

 

A lot of countries have been taking their gold back from foreign banks in countries like Britain and France. Hungary is the latest country in the list of countries repatriating their gold. Germany bright $31 billion worth of gold from the US, England and France. This is almost half its gold reserves. In 2015, Australia announced its plans to bring half of its gold reserves from foreign vaults. The these aren’t the only two countries with plans to repatriate their gold, the Netherlands and Belgium have also launched their own plans to repatriate their gold. Even individual US states like Texas are planning to repatriate gold into their border. Analysts also believe that having gold reserves at home will boost their financial standing.

There is an interesting story behind the Hungarian gold reserves. The country has been in the gold industry since 1924. Although it is not a great gold producing country, but it bought and held gold reserves since the early 1920s. The US Army actually stopped a train transporting gold out of the country. Hungary, which was pro-Nazi, had been hoping to ship its gold reserves to Austria but that plan was thwarted by the US. In 1946 the US repatriated the country’s gold. So for years Hungarian gold was in foreign hands. It is believed that Hungary had 65 to 70 tons of gold. In the 1980s, just after the Bretton Woods System collapsed, Hungary sold a substantial amount of gold reducing it to the barest minimum level. By 1992, the gold reserves had been reduced to 3 tons. The 2008 global financial crisis forced a lot of governments to rethink the role of gold and keeping enough reserves to hedge against risks like the ones that came in 2008.

The country’s gold holdings have remained tiny when compared to other Central European countries. For instance, Poland and Romania held a combined 103 tons of gold while Serbia had about 13 tons. Hungary’s gold was substantially smaller. Despite the tiny holdings of gold the Hungarian Central Bank had not been particularly interested in buying and hoarding more gold, until now. The National Bank of Hungary (NBH) repatriated 100,000 ounces of gold worth EUR130million which was held by the Bank of England. This is in line with the trends that a lot of countries have been following.

Gold repatriation may be the latest trend but it underscores the importance of having physical gold you can have easy access to. When they were not buying physical bars of gold, Hungarians where trading “paper-gold” or Gold-backed exchange-traded funds (ETFs). This might have been good enough to keep Hungarians participating in the gold market. However, physical gold offers stability and security. This is the reason why countries like Hungary, Germany, France, Venezuela, Turkey and other countries are bringing their gold back to their own vaults. Having more gold in Hungary will strengthen the economic confidence towards the country. The gold market is importantly linked to geopolitical risks as an economic safe haven.

Sources:

  1. https://www.goldbroker.com/news/hungary-central-bank-repatriate-gold-reserves-london-1273