Sign China preparing to invade Taiwan?

The Daily Telegraph says China has built a stockpile of gold worth £135 billion, in a move that’s raised fears that Beijing is preparing for a possible conflict over Taiwan. The paper says in the past 17 months China’s central bank has increased its gold reserves by 16% and it is thought the stockpiling is probably an effort to guard its economy against Western sanctions in the event of a war.

https://www.bbc.com/news/blogs-the-papers-68925388

Gold: It’s slit eyes wot done it

Gold’s slightly off its recent record hights.

Chinese speculators super-charged the gold rally and the sell off. Huge bullish bets on Shanghai exchanges show the growing clout of Chinese and other Asian traders in the gold market gold.

Mao would be proud. Remember his “The Chinese people have stood up”?

Buying power: American retail buyers v China’s central bank

Customers from US supermarket store Costco buy from Costco 40,000 to 80,000 ounces of gold each month, half as much as the Chinese central bank. 

China’s central bank added 160,000 ounces of gold, worth $384m, in March.

In August it became possible to buy hunks of the metal at Costco, an American superstore beloved by the cost-conscious middle classes for selling jumbo-size packs of toilet paper, fluffy athletic socks and rotisserie chickens, all at super-low prices. The retailer started selling single-ounce bars of gold, mostly online, for around $2,000—just a hair higher than the spot value of bullion at the time. It sold out almost immediately, and continues to do so whenever it restocks. Analysts at Wells Fargo, a bank, estimate that shoppers are buying $100m-200m worth of gold each month from the superstore, alongside their sheet cakes and detergent.

That would be 40,000 to 80,000 ounces of gold each month; or, in other words, up to half as much as the Chinese central bank. 

https://www.economist.com/finance-and-economics/2024/04/11/what-chinas-central-bank-and-costco-shoppers-have-in-common

Gold: Our central bank looking good

MAS is the world’s third-largest gold buyer from January to September 2023, behind China and Poland. It bought four metric tonnes of gold on regulated gold exchanges in the third quarter of 2023, bringing its total purchases so far this year to 75 tonnes, the World Gold Council said.

Emerging markets central banks: Selling USD, buying gold

Nine of the top 10 gold buyers last year are in the developing world, including Russia, India and China who are in talks with Brazil and South Africa about creating a new currency to challenge the dollar.  States in the Middle East and Central Asia were also “active buyers” 

Gold’s doing well too

Gold hits 12 months’ high.

Gold regains its lustre

So much so that the relationship between gold and inflation-adjusted “real” interest rates is starting to weaken amid concerns about the economic outlook and rising prices. Usually, real rates are negatively correlated with gold. Not this year, as real rates have increased, the gold price has remained resilient.

Err I tot Bitcoin was supposed to have taken gold’s place? Sell Gold, Buy Bitcoin?

Related post: Bloodbaths galore this week/ BS about Bitcoin (Fyi, it’s now around US$39,000)

Sell Gold, Buy Bitcoin?

Recently, I wrote

I suspect that cryptos are now the real hedge against inflation or stagflation: Bitcoin is above US$60,000.

Stagflation? What stagflation?

Look at this

Bitcoin is trading around US$67,000 while investors angst over inflation and stagflation.

Stagflation? What stagflation?

The price of gold, the usual safe haven against inflation or stagflation, does not seem to reflect the possibility of stagflation.

Gold is suffering from an expectation that central banks will raise rates to stem the inflationary shock say the experts. But real interest are still negative so there’s no carrying cost.

I suspect that cryptos are now the real hedge against inflation or stagflation: Bitcoin is above US$60,000.

Everyone’s wrong about the US$

Strong US$ is another reason for gold’s weakness. Other reasons are rising interest rates, and Bitcoin usurping its place as a safe haven

Gold’s not going anywhere

Inflation, what inflation? Why Bitcoin is flying?

So it’s not surprising that serious investors are joining the chase for Bitcoin . Remember the supply of Bitcoin is limited, unlike that of gold, the usual inflation hedge.

Even DBS is trying to get onto the Bitcoin wagon: https://www.channelnewsasia.com/news/business/singapore-bank-dbs-launch-digital-exchange-virtual-currency-13743466

US ETF has more gold than Japan, S’pore or India

US of A gold ETF is tua kee.

Goh Meng Seng will be relieved to learn that China has more gold than this State Street ETF. Still Meng Seng and Grandpa Xi are reminded that America is the hegemon.

Plebs: ETF is Exchange Traded Fund.

Investing in the time of Covid-19: Watch this index

BCA Research says cheong when gains in the CRB index outpace those of gold as Chinese “stimulus seeps through to the real economy”.

Winners, losers this week

In Switzerland, there’s gold in the drains

Where got like this here?

From NYT Dealbook

And Finally: What Is It With Swiss Toilets?

People in Switzerland this summer were so flush that they were literally putting money down the toilet.

Now it turns out that there are more valuables to be found in the country’s drainage system. About $1.8 million of gold passes through it wastewater each year, Bloomberg reports.

(The high-priced waste come from the country’s gold refineries.)

Gold and EM Funds are cheong

The Oppenheimer gold fund (run by guy with Chinese name) invests in mainly small- and mid-cap gold mining stocks, to magnify the impact of changes in the gold price, which has risen 9.3 per cent over the summer. With rates staying low, the lack of yield on precious metals is less of a deterrent to investors, some of whom also see gold as a hedge against any inflation generated by loose monetary policy.

But Bank of America Merrill Lynch warns that fundamentals in emerging markets were so strong that, given extremely loose monetary policy in the developed world, a “bubble” is “highly possible” in EMs in 2017.

Gold price chart (annotated) from 1998 till July 2015

M’sia mkt outperforms Asean

Not saying much as above chart from FT shows that its flattish unlike the other Asean mkts. Seems the big local funds are buying.

Other Asean round-up news:

According to OSK-DMG while Indonesia will be increasing its oil production over the next few years but only a few offshore marine players here can benefit from this because of an Indonesian rule that protects jobs in the industry for Indonesians.

While rig builders here could stand to gain in the near term, it appears that the cabotage law in Indonesia is being expanded to include Indonesian shipyards as well, boding well for rig builders with Indonesian-based yards. Indonesia has cabotage rules requiring all work in the oil & gas sector to be done only by Indonesian-flagged vessels.

Thailand is the third biggest buyer of gold in Asia, after China and India having overtaken Vietnam.

Buffett on Gold

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce — gold’s price as I write this — its value would be about $9.6 trillion. Call this cube pile A.

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

(Apologies for not crediting where I got this from: feeling tired)

Who Holds The Largest Gold Reserves?

United States – 8,133.5 metric tons

Germany – 3,401.0

International Monetary Fund (IMF) – 2,846.7

Italy – 2,451.8

France – 2,435.4

China – 1,054.1

Switzerland – 1,040.1

Russia – 775.2

Japan – 765.2

Netherlands – 615.5

The Italians and French can issue bonds backed by gold if investors are unhappy with their finances.

More details http://financialedge.investopedia.com/financial-edge/0911/10-Countries-With-The-Largest-Gold-Reserves.aspx?partner=ntu9#axzz1XJX4oAoj

Paulson, Soros selling out of their bets

As of the end of the third quarter, John Paulson had reduced his stake in Bank of America by about 30 million shares, to 137.8 million shares. And he cut his holdings in Citigroup by about 82.7 million shares, to 424 million shares. He had been buying BoA in early 2009 juz when Temasek was cutting its losses, losing in the process “US$4.6 billion loss on a US$5.9 billion dollar investment” according to a CNBC report.

Looks like he is no longer bullish on US banks.

George Soros sold over half of one million shares of  SPDR Gold Trust to finish the quarter with 4.7 million shares. John Paulson maintained a 31.5 million share holding of the exchange traded fund through the quarter.

John Paulson remains bullish on gold while Soros is trimming his stake and laughing all the way to the bank. Remember he called gold a bubble in the making, and jumped into it earlier this year.

Better than gold?

If you believe the gold story but lack the balls to come in at the US$1300 level, why not try silver? The Economist sets out the case.

[S]ilver and gold have much of the same allure. The combination of a weak dollar, low interest rates and economic uncertainty that has convinced some to buy gold and pushed its price up to around $1,300 an ounce has also encouraged them to put their money into other likely-looking stores of value. Silver not only offers investors diversity but it is also supported by real industrial demand.

… 25-30% of gold is bought by investors, only about a tenth of global silver production goes the same way. Roughly half the world’s silver goes to industrial users (the balance is accounted for by jewellery and other silverware), although their identity has undergone a huge shift over the past decade.

Granted film (which uses a lot of silver)-based photography has been made extinct by digital photography but New uses for the metal plugged the gap left by film. Silver is widely used in electronics, whether in buttons for TVs, in membrane switches in computer keyboards or as a coating for CDs and DVDs. But the great hope for silver is the solar-power industry. Photovoltaic cells, the technology used in 70% of solar panels, contain silver. Although other technologies that do not use silver are on the rise, heavy government subsidies are forecast to help keep the solar industry growing.

Demand for silver is likely to keep rising in developing countries in particular: China, which used to export the metal, now imports it. The same cannot be said for supply …  three-quarters of the world’s supply comes as a by-product from copper, lead and zinc mines. So ramping up production is difficult. Total supplies of the metal in 2009, at 27,650 tonnes, were barely higher than in 2004.

But do remember that Warren Buffett has sold off the silver he bot in 2008. He could have some left but the bulk were sold last year.

Related posting

https://atans1.wordpress.com/2010/10/07/equities-and-gold-go-opposite-ways/

Better for gold, worse for stocks

David Ranson of Wainwright Economics:

When gold was up more than 20% over five years, the median return from largecap stocks was 2.1%

When gold was up less than 20%, the median return from stocks was 44.7%

When gold was unchanged, the return was 52%.

When gold fell less than 20%, the return was 68.7%.

When gold fell more than 20%, the median return was 99%.

… the better for gold, the worse for stocks. Which makes the simultaneous strength of gold and equities today look all the odder.

Thanks Buttonwood