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Wed, 28th September 2016

Anirudh Sethi Report

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Archives of “GOLD” Tag

Emerging Markets: An Update

  • The Hungarian central bank capped the amount commercial banks can keep at its 3-month deposit facility.
  • S&P upgraded Hungary from BB+ to BBB- with stable outlook.
  • Bank of Israel will move to 8 meetings per year starting in 2017, down from 12 currently.
  • S&P raise the outlook on Russia’s BB+ rating from negative to stable.
  • The South African Reserve Bank signaled a potential end of the tightening cycle.

In the EM equity space as measured by MSCI, Brazil (+5.5%), Turkey (+5.0%), and Peru (+4.9%) have outperformed this week, while Qatar (-0.6%), Hungary (flat), and South Africa (+0.3%) have underperformed.  To put this in better context, MSCI EM rose 3.6% this week while MSCI DM rose 2.1%. 

In the EM local currency bond space, Brazil (10-year yield -36 bp), Turkey (-26 bp), and Hungary (-17 bp) have outperformed this week, while Ukraine (10-year yield +9 bp), Mexico (+2 bp), and China (flat) have underperformed.  To put this in better context, the 10-year UST yield fell 7 bp this week to 1.62%. 

In the EM FX space, ZAR (+3.5% vs. USD), RUB (+2.3% vs. USD), and CLP (+2.1% vs. USD) have outperformed this week, while MXN (-0.6% vs. USD), PHP (-0.4% vs. USD), and CNH (-0.4% vs. USD) have underperformed. 

The Hungarian central bank capped the amount commercial banks can keep at its 3-month deposit facility.  Those deposits stand at HUF1.6 trln today, and the central bank said it would lower that amount to HUF900 bln by year-end.  This unconventional policy is akin to monetary easing, as it pushes funds out of its deposit facility and into government bonds and the interbank market.  The end result should be lower government borrowing cost, lower lending rates, and a weaker forint.

Tokyo Olympic medals to be made from e-waste

Organizers of the 2020 Tokyo Olympics are hoping to source the gold, silver and bronze needed to make medals for the games by tapping the country’s “urban mine” — made up of millions of discarded smartphones and other small consumer electronics.

Such electronic waste contains enough precious metals to produce all the medals for the Olympic and Paralympic Games to be held in Japan’s capital four years from now, according to a group of Olympic organizers, government officials and company executives that discussed the proposal in June.

 For the 2012 London Olympics, 9.6kg of gold, 1,210kg of silver and 700kg of copper — the primary component of bronze — were used to produce medals. In comparison, the amount of precious metals recovered from discarded small consumer electronics in Japan in 2014 included 143kg of gold, 1,566kg of silver and 1,112 tons of copper.

India -Forex reserves hit all time high at $365.49 billion (Jumped by 43 billion last week )

Country’s foreign exchange reserves rose by $ 2.81 billion to reach a all time high of $ 365.49 billion in the week to July 29, helped by rise in foreign currency assets, the Reserve Bank has said.

In the previous week, the reserves had dropped by $ 664 million to $ 362.69 billion.

Foreign currency assets (FCAs), a major component of the overall reserves, rose $ 2.79 billion to $ 341.04 billion in the reporting week, as per RBI data.

FCAs, expressed in dollar terms, include the effect of appreciation/depreciation of non-US currencies such as euro, pound and yen held in the reserves.

Gold reserves remained unchanged at $ 20.58 billion.

The country’s special drawing rights with International Monetary Fund increased by USD 8.5 million to USD 1.48 billion while the reserve position rose by $ 13.6 million to USD 2.39 billion, RBI said.

Emerging Markets:An Update

EM ended last week on a soft note, due in large part to the attempted coup in Turkey.  Weakness in the lira spilled over into wider EM weakness in thin Friday afternoon market conditions.  The situation in Turkey has calmed, and so EM may gain some limited traction this week.  However, that calm will likely be very fragile and so we retain a defensive posture with regards to EM.
Central Bank of Turkey meets Tuesday and is expected to keep the benchmark rate steady at 7.5%.  However, it is expected to deliver another 50 bp cut to the overnight lending rate from 9% currently.  Inflation moved back above the 3-7% target range in June, and so the bank will have to play it cautiously, especially in light of the current political uncertainty. 
Poland reports June industrial and construction output, retail sales, and PPI Tuesday.  Central bankers appear mixed on the policy outlook right now.  If the economy continues to soften, we expect the MPC to tilt more dovish in H2.  Next policy meeting is September 7, and the decision will depend on how the economy looks over the next couple of months.
Malaysia reports June CPI Wednesday, which is expected to rise 1.8% y/y vs. 2.0% in May.  After last week’s surprise 25 bp cut, this data point doesn’t have much relevance.  However, if the inflation trajectory remains benign, further rate cuts are likely in H2.  The next policy meeting is September 7, and another cut then is possible.

Saxo Bank Says : Chinese retail investors have ‘taken over silver’

Is China’s army of retail investors behind some of the recent surge in silver?

That’s the view of Saxo Bank, which reckons the recent advance of the Devil’s metal mirrors that seen in steel rebar and iron ore earlier this year

Silver has advanced more than 10 per cent over the past week and hit $21 an ounce for the first time since 2014 on Monday. In the year to date it is up more than 40 per cent, outpacing gold, another safe haven asset.

Saxo says the pick up in trading volumes on the Shanghai Futures Exchange over the past week and the decline in open interest suggest Chinese retail investors have “taken over silver for now”.

“As long this continues, we are likely to see bigger daily price swings with the Asian session seeing most of this,” Saxo said in a note to clients.

Commodity trading in China surged earlier this year as retail investors, high net worth individuals and yield hungry wealth mangers piled into the sector, using it as a quick and easy way to place leveraged bets on the outlook for the domestic economy.

$20 Silver? James Turk Says Real Bull Market Doesn’t Even Begin Until Silver Takes Out $50 High!

With Gold and Silver Prices Breaking Out In a HUGE Upside Move, London Analyst James Turk Joins A Crucial Metals & Markets to Break It Down:
You Haven’t Seen Anything Yet – Real Move Begins After Silver Takes Out the $50 High…

In the Final Blow-Off Top, You Won’t Sell Your Gold and Silver For Dollars…

  • $20: We’re Very Close to Breaking Out Here in Silver.  Is it Time to Pile In?
  • Deutsche Bank Trading at 25% of Book Value- What is the Market Pricing In?
  • THIS is Why You Want to Maximize Your Exposure to Gold and Silver
  • James Turk Explains Why He Is “So Bullish On Gold and Silver Here, Particularly Silver Bullion” 
  • Silver Will Ultimately Take Out $50 High, That’s When the REAL Silver Bull Market Begins!  

“Atomic Bomb In the Works for July”: Someone VERY BIG Is Standing For Gold & Silver!

Someone very real and VERY BIG is standing for gold.  This “someone” would not be bribed to go away last month and does not look like they will go way this month!
Who is this long who all of a sudden cannot be bribed to stand down?
Looking specifically at silver, we have a true potential atomic bomb in the works for July…

For more than three years we have watched the COMEX very closely. The initial clue to begin watching were the waterfall events where the amounts of paper gold and silver sold simply dwarfed what was being mined. I have said many times after the smackdowns, “first, no one has this much (gold or silver), second, no trader would ever sell in this fashion and destroy the price he will receive for the sale. Clearly the sales were done to affect price downward”. Each time I have written on this topic and suggested it would ultimately end with a delivery default I have been trolled. It looks very much like we will soon find out a default of delivery is not only possible but highly probable.

Starting with gold, last month (May) saw 221,000 ounces stand for delivery. This amount actually grew during the month which is highly unusual as the amount standing has ALWAYS dropped during delivery periods, this is the first time to my knowledge that the amount standing actually increased.

 For comparison, May 2015 delivered only 2,500 ounces. Looking back at June of 2015, the amount standing on first notice day was 509,000 ounces. The final amount delivered was 295,000. As I have written and questioned before, who would fully fund their account 100% to take delivery …and then “go away”? The answer of course is someone willing to accept a “premium” as a bribe to not take delivery.

This June as you know does look to be quite interesting. The initial amount standing was 49.119 tons or over 1.5 million ounces. The amount dropped on day two by about 4 tons but has since gained back nearly all of it to stand at 49.11 tons. (If I am not mistaken, this month is the largest month of gold contracts ever standing for delivery.) Over 40 tons have already been served so we know these longs could not be persuaded to “go away”. We have seen no evidence of delivery for March, April or May. If we add these together with June, we have 65.813 tons standing with only 51.12 tons of registered gold.

COMEX Registered Silver Owners Per Ounce Jump To Record Leverage

Something very interesting took place in the COMEX Registered silver inventories last week.  There were two very large transfers of silver from the Registered to the Eligible category.  What makes these two large withdrawals so interesting is that the Registered silver inventories are now at a record low.

The first large transfer of silver was reported on June 1st, in which 2.5 million oz (Moz) were taken out of the CNT Depository and another 410,000 oz from HSBC.  Nearly 3 Moz of silver were transferred out of the Registered inventories in one day:

COMEX Silver 060116

Mervyn King’s Alarmist Warning: “All China’s Assets In The US Might Be Annulled”

What is it about former central bankers who first destroy the fiat system with their monetarist policies, only to go into retirement, and preach the virtues of the one compound they spend their entire professional careers trying to destroy: gold. To be sure, when it comes to polar reversals of opinion, nobody comes even remotely close to Alan Greenspan: the former Fed chairman who is not only instrumental in launching the “Great Moderation”, which unleashed the current unprecedented global debt wave which will lead to unprecedented disaster sooner or later, has in recent years become one of gold’s biggest advocates as demonstrated most recently in “Greenspan’s Stunning Admission: “Gold Is Currency; No Fiat Currency, Including the Dollar, Can Match It.”

Now it’s the turn of his former colleague at the Bank of England, Mervyn King, who in an interview with the WGC’s Gold Investor monthly, pours cold water over Bernanke’s “explanation” that gold is merely a tradition, and says the following: 

“I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold,” he adds.”

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A Few Questions To Those Who Slam Gold

Gold is perhaps the most maligned asset class in the world.

On an almost weekly basis the financial media mocks Gold and publishes articles claiming it is a terrible investment.

It’s rather odd, as less than 1% of investors actually owns Gold. Why is it so important to trash an asset class that almost no one actually owns?

Actually, forget that question, I’d like to see answers to these questions instead…

If owning Gold is such a bad idea…

·      Why are Central Banks buying it?

·      Why do we rank countries based on the Gold reserves they own?

And finally…

If the goal for Central Banks is to generate inflation… why is owning Gold stupid?