April 2023 - Week 2 Edition

Gold Reached 28-month High

Gold reached a 28-month high of $2,032 on Thursday, April 6, before the jobs report came out on Good Friday, when the stock market and commodity futures market were closed. Gold then declined on Monday, April 10, after those markets re-opened. However, the most active (June 2023) gold contract only briefly dipped below $2,000 before closing at $2,003. The final London price was also $2,003 on Monday. Silver maintained most of its gains, closing at $24.94 in London and over $24.80 in the U.S.

Raising Interest Rates Too Rapidly is Hurting More than the Gold Price

There’s no doubt the Fed is acting rashly by raising interest rates at the most rapid rate in history, after first denying the existence (or longevity) of the inflation they caused!  Then, they belatedly fought it too fiercely with the wrong tools – by punishing savers, homeowners and other investors with suddenly-steep interest rates. One example was the failure of Silicon Valley Bank (SVB) and a handful of other large banks in March, after they put too much money in long-term bonds, which have lost value as rates increased.

Another example is coming soon, as described in an op-ed article in last Monday’s Wall Street Journal by Allysia Finley, about the potential failure of Stadiums and Subways, titled “The Coming Biden Bailout of Blue States and Cities.” She describes projects such as the $124 million minor-league soccer stadium in Pawtucket, Rhode Island, set to receive about $60 in state tax credits. That’s a lot of money to spend for a minor sport in a minor-league city in the smallest state, but when interest rates are zero, where’s the risk!?

Now, with interest rates soaring above 5%, the risk is suddenly sky-high, so Rhode Island’s governor, Daniel McKee, is screaming at the Fed, saying that, “accelerating interest rates is not in the best interest of the people of the state of Rhode Island. They need to stop the increases!” Of course, he won’t blame himself for spending $124 million on 10,500 seats for a city of only 75,000 people ($1,653 per citizen) but that’s what happens when interest rates are near zero for too long – people over-spend on big projects.

On the high-end of the spending scale, San Francisco spent $1.95 billion on a 1.7-mile Central Subway – that’s $217,246 per foot! – thanks to Nancy Pelosi. It moves only 3,000 people per day since it requires riders to walk 300 yards (three football fields) to connect to any other transit line. You must take three escalators to reach platforms 12 stories underground – all to work in a city with violent homeless vagrants looting stores, threatening city workers and defecating on sidewalks all around you. No thanks, Nancy!

Defaults on these inner-city public loans are mounting, while up to half of all big-city office space is still empty following COVID-19. Defaults on property loans are rising, while property values plummet. Many retirement pensions for public workers are tied to these property tax dollars, so another crisis is pending.

Taxpayers will need to make up the difference – and that will likely mean tax increases in blue states.

Central Banks Continue Their Record Gold Buying Spree in 2023 – And Gold ETF Traders are Finally Buying Paper Gold

We reported on the World Gold Council’s annual data of record central bank gold buying in 2022. Now, we see that buying spree is continuing in the first two months of 2023, according to Krishan Gopaul of the WGC.  In January and February, central banks bought a net 125 metric tons of gold, the most for the opening two months since banks became net buyers in 2010. The leading buyers were Singapore (51.4 tons), Turkey (45.5 tons), China (39.8 tons) and Russia (31.1 tons). This totals over 125 tons since some banks sold gold. Net 2023 sellers were Kazakhstan, Uzbekistan, Croatia and the United Arab Emirates (UAE).

The World Gold Council expects the most gold buying to come from the emerging nations, dubbed the BRICS (Brazil, Russia, India, China and South Africa: India bought about three tons in the first two months). This ties in with the BRICS becoming identified with the “anti-dollar” or “de-dollarization” movement of the future, in which the U.S. dollar will soon be replaced as the leading foreign exchange currency – either by the Chinese yuan, gold, cryptocurrencies or by a combination of choices.

Basically, there is a war for the control of the 21^st Century between the U.S. and China, with the buying and accumulation of gold being one of the battlefields for monetary control between the U.S. and China, supported by the other BRICS nations. The BRICS need a dominant hoard of gold to support their various currencies against the dollar and euro. More and more global trade is now denominated in Chinese yuan, with China making more and more separate agreements with nations to trade only in yuan.

The transition is already underway. It used to be that all commodities were traded universally in terms of the U.S. dollar. Now, about 50% are traded in dollar terms, the other 50% in yuan or another currency. Russia has already deferred to China by trading in yuan due partially to sanctions following its war against Ukraine. China recently settled a liquid natural gas (LNG) trade with France in yuan for the first time ever. All of this supports gold, as another “anti-dollar” trade.

It’s also interesting that trading in gold-backed exchange-traded funds (ETFs) turned positive in March 2023 after 10 straight months of outflows. It seems as if Wall Street invariably catches onto any new gold bull market after it is well underway and gold has already passed the $2,000 per ounce “barrier,” thereby forcing traders to lose out on the first $200 or $300 in profits. During March, gold ETF investors added nearly one million ounces in physical gold-based ETFs, the highest monthly increase since March 2022, when investors added 1.4 million ounces.  Back then, gold was also flirting with $2,000 per ounce, but gold traders were massive net sellers of gold ETFs from May through October of 2022 when gold fell.

Don’t be like trend-following ETF traders. Buy gold when it is down and hold on for the strong up moves. Call your professional account representative today to take advantage of this gold-buying opportunity.

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