The latest from SocGen’s Albert Edwards features this eye-catching chart:
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The latest from SocGen’s Albert Edwards features this eye-catching chart:
Bitcoin does it. Dogecoin does it. Gold miners do it. And now Kinder Morgan does it too.
What we’re talking about is the amazing ability to create value out of nothing.
The Kinder Morgan self-acquisition deal, which effectively found $12bn of shareholder value from a paperwork reshuffle, is probably the most high-profile example of mining shareholder value from good old fashioned financial ingenuity, even when it involves some finance reverse-engineering. Read more
This Reuters story about China having up to 1,000 tonnes of gold tied up in financing deals is doing the rounds, courtesy of information out of the WGC.
But it’s hardly a revelation.
Goldman even blessed us with a more recent update about the shenanigans in March: Read more
So, havens were what worked in the first quarter, led by a niche precious metal.
Gold has been rising steadily since the start of the year.
Given the US taper, this might seem counterintuitive, especially if you believe that “money printing” should always justify higher gold prices.
But, as usual, everything is relative. Read more
It’s not an easy concept for some gold lovers to grasp, but… a nation importing huge amounts of gold into its economy doesn’t necessarily reflect prosperity on its part. In fact, it can imply economic weakness around the corner.
Prosperous countries, after all, don’t need gold (or huge amounts of foreign reserves for that matter either) to back their fiat currency. They don’t need them because they are so mighty, productive, knowledgable, powerful and desirable to live in that they have seigniorage power all of their own accord. You know. Like Bitcoin. But not because they are artificially scarce, but because they are managed well.
Also, even if you go with the goldbug logic that fiat ‘money printing’ equals debasement, it must then also imply that mass gold importation equals the opposite: purposeful rebasement. Someone is trying to bolster what would otherwise be a naturally weak currency. Read more
Cartels come in many shapes and sizes.
There are Colombian drug cartels. Mafia protection cartels. Oil producer cartels. Diamond cartels. Commodity cartels. Central banks. Altcoin cartels. All sorts.
All of them, however, extract value from potentially low-value things by means of organised collusion and discipline.
Columbian drug cartels organise to ensure drug markets are not oversupplied by wiping out the competition. The mafia organises to extract rents from those who would otherwise not be inclined to pay them, mostly by imposing an artificial market for protection. Oil producers organise to ensure oil markets are not oversupplied for the best possible return from oil prices. Diamond cartels do the same , but since diamonds are not an essential commodity they also create fanciful myths about diamonds being a girl’s best friend to create continuos demand. Central banks control the money supply, and thanks to that can corner and support any market they wish for as long as their underlying currency is demand. Read more
This guest post is from Mark Haefele, Global Head of Investment at UBS Wealth Management, and his colleague Chris Wright, Cross-Asset Strategist.
A key rule in financial markets is that rational investors should not take unnecessary risks. It is strange, then, that some savvy investors still allocate to commodities over a long-term, five-year-plus horizon. The assumption is that commodities diversify portfolios, hedge against inflation, and, in the case of gold, offer a safe store of value. But our research suggests these justifications for long-term bets on commodities are illusory. Read more
Cardiff made a nice point on Tuesday that financial innovation, much like evolution, always finds a way. We have stressed before that that’s because risky lending — i.e. lending to the most distressed who are prepared to pay for it the most — also always finds a way.
So, in what form did the most recent spell of risky lending take place in? Read more
A common criticism of the secular stagnation and post-scarcity theory is that it is contradicted by the fact that unacceptable levels of poverty exist in many places around the world, and in particular the developing world.
If there’s so much growth potential out there, how is it possible that the economy is in secular stagnation? Or so, at least, the argument goes.
But perhaps the question we should be asking is what continues to frighten investment capital away? Read more
BNP Paribas thinks gold is getting closer to the precipice.
How quickly it’s likely to be pushed over will be determined by the rate at which producers accelerate their hedging activity.
From BNP’s commodity markets strategy group on Monday: Read more
Compare and contrast the following from a note by GoldMoney’s head of research Alasdair Macleod that landed in the collective hands of FT Alphaville on Friday.
Here’s the original version: Read more
Gold apparently did not get the memo about the government shutdown. Gold prices have consequently been falling all day. Awkward.
From a SocGen note earlier last week:
ETF disinvestment more than accounted for the net change in jewellery+investment demand. When all the elements of supply and demand are taken together, the gold market registered a surplus of 217 tonnes in H1 2013 against a small surplus of just 37 tonnes in H1 2012. Read more
As we’ve reported, a classic car bubble is potentially in the making — something which has got us thinking (over three posts) about what really goes into determining the value of rare objects more generally.
From our vantage point — and it certainly is a lay vantage point when it comes to classic cars — there seem to be three core attributes associated with vintage automobiles.
The first is uniqueness.
Value related to uniqueness is understandable since it relates to how easily an object or item can be sourced, replicated or mass produced. For now, there is little chance that a classic Bentley will be perfectly replicated. Value applied on these grounds seems rational enough. Read more
FT Alphaville readers are well versed on the potential downsides of collateral scarcity in western markets.
But consider how a collateral scarcity problem might unfold in an emerging market in which the most valued form of collateral isn’t national debt denominated in your own debt but rather a commodity like gold, whose supply is dictated by externalities outside of a government’s control? Read more
The Indian rupee’s plunge continues.
As the FT reported on Wednesday, consensus opinion is that the weakness is connected to India’s growing current account deficit and unimpressive attempts thus far to bring it back to reasonable levels.
There’s a stupid rumour going around in the gold community that the Comex is “bleeding” inventory (especially from the JP Morgan vault) and that this will in some way compromise delivery that causes a default.
Kid Dynamite has already done the bulk of the heavy lifting in trying to debunk this story, as has Miguel Perez-Santalla at BullionVault, but we wanted to emphasise some points that go beyond the mechanics and which might be helpful. Read more
The gold market is abuzz with the news that gold forwards (GOFO), otherwise known as the gold lending rate, have returned to negativity this week. It’s significant because the last time this happened was in 2008 (click to enlarge):
Now that the possibility of a sharp slowdown in Chinese growth, or even an outright contraction, is getting some serious airplay, we can expect a ramp up in forecasts about what this will mean.
Here’s one from Barclays commodities analysts, Sudakshina Unnikrishnan and Jian Chang. They note that their China economics colleagues, having gifted us with the awkward ‘Likonomics‘ neologism, are also canvassing the possibility of a big drop in the country’s GDP growth rates. Read more
What’s really responsible for higher US yields? Falling demand from domestic and western investors? Or Chinese and Japanese official flows?
Earlier in June, TIC data sent us a very important message. Abenomics was somehow prompting the repatriation and redistribution of money held in long-term USTs by Japanese investors, as this chart from Nomura shows:
In the last few years China has become the single largest producer of gold.
It is also, by some measures, the second largest global consumer of the precious metal outright.
Given this, some goldbugs are befuddled as to why, despite all this Chinese buying and scenes like this…
….gold prices are still falling like this: Read more
From Ben Traynor’s commentary at BullionVault on Friday:
CME Group, which operates the New York Comex exchange on which gold futures are traded, announced yesterday it is increasing margin requirements on gold trading by 25% to $8800 per 100-ounce contract. The new initial margin requirement will come into effect after close of trading today. “That is definitely affecting gold,” says Joyce Liu, investment analyst at Phillip Futures in Singapore. “For those who cannot put out margin calls on time, they will be squeezed out even when they don’t want to get out.”
Worth pondering is how all of this now affects the “cash-for-gold” trade. Read more
Despite all the talk of rampant physical precious metals buying, in dollar terms it’s only getting worse for the “gold HAS INTRINSIC value” brigade.
Another way of looking at it, of course, is that the dollar’s value is being rebased. Read more
FT Alphaville participated in a “Gold Bulls vs Bears” event hosted by the Association of Mining Analysts (AMA) on Wednesday.
The motion being discussed was:
Is gold’s role as a safe haven asset in the global financial system outdated and redundant and if the ubiquitous QE programs have been successful and the global economic upturn is confirmed, the price of gold will continue to struggle?