Opinion Gold is a hedge against monetary and geopolitical dystopia We are living through a fundamental convulsion of the global order, and the dollarised financial system will not be the same at the end of it. Gold buyers are bracing for disorder on a traumatic scale. Ambrose Evans-Pritchard Apr 17, 2024 https://www.afr.com/markets/commodi...ary-and-geopolitical-dystopia-20240417-p5fkei A powerful force is stalking the world’s gold market. It is operating in the shadows. None of the normal footprints are visible on the London bullion market or the Chicago Mercantile. Retail gold bugs have not been buyers: ETF gold funds have been shrinking since December. The crowd is piling into the Bitcoin scam instead. The West has dropped the ball on Ukraine, and has left the door wide open for a knock-out blow by the Kremlin this northern summer. AP Yet gold has smashed through a four-year barrier around $US2000 an ounce, rising in parabolic fashion since mid-February, and hitting an all-time high of $US2431 on April 11. Is somebody preparing for an escalation of the shadow Third World War? “It is not a Western institution behind this. It is a massive player with very deep pockets. I have never seen this kind of buying before,” said Ross Norman, a veteran gold trader and now chief executive of Metals Daily. Gold has been ratcheting up fresh records against the headwinds of a strong dollar, a 70 point jump in 10-year US Treasury yields, and hawkish talk from the Federal Reserve. This mix would normally spell trouble for gold. Whoever it is – or they are – seems insensitive to cost. Central banks do not behave like this. “They buy on the London benchmark, and they don’t chase the price,” said Mr Norman. This rally is happening off books in the OTC market. Yes, China’s central bank has been adding to its declared gold reserves for 17 consecutive months, part of the gradual portfolio shift away from US Treasuries and European bonds by the Global South. It has been clear for three years that Russia, China and Iran are operating in collusion, each feeding opportunistically on each other. AP Dollar weaponisation since the war in Ukraine has unnerved every country aligned with the authoritarian axis of China and Russia. None can feel safe parking money in Western securities after Russia’s foreign reserves were frozen. Yet, the scale is modest. The World Gold Council said central banks bought a net 18 tonnes in February: 12 in China, six in Kazakhstan and India, four in Turkey, partly offset by Russian sales. This hardly moves the needle. The Chinese people certainly have been buying gold, creating traffic jams at the Shuibei jewellery hub. Precious metal is the only refuge from the property crash and the slump on the Shanghai bourse. Tightening capital controls make it hard to smuggle serious sums abroad. But this alone cannot account for the price surge, either. Mr Norman says the gold flow to Asia has been within normal bounds. So let me take two stabs at this mystery, one geopolitical and one financial. It has been clear for three years that Russia, China and Iran are operating in collusion, each feeding opportunistically on each other. All three have fostered belligerent hyper-nationalism as a means of regime survival, and all aim to press their advantage against a fatally complacent West before the window of opportunity closes. This menace on three fronts has reached a dangerous juncture. None of the major democracies have put their economies on a war-time footing despite the obvious threat. The West has dropped the ball on Ukraine – or worse, it is preventing Ukraine from hitting Russian oil facilities – and has therefore left the door wide open for a knock-out blow by the Kremlin this summer. Iran has been emboldened by Putin’s military comeback. It is also flush with money. Joe Biden is so worried about rising petrol prices that he has turned a blind eye to sanctions busting, letting Iran sell as much crude as it wants. This has enabled Tehran to advance its pawns in the Middle East, and now to risk a direct missile strike against Israel. The third shoe has yet to drop, but China knows that the West has run down its stock of military kit trying to contain these other two crises. Xi Jinping may never have a better moment to tighten the noose on Taiwan with a naval and air blockade, gaining a stranglehold over the West’s supply of advanced semiconductors that can then be used as a bargaining chip. How would the democracies respond to this? There is a strong suspicion among gold experts that China is behind the surge in buying, building up a war-fighting bullion chest through state-controlled banks and proxies. But others, too, can see that we are living through a fundamental convulsion of the global order, and that the dollarised financial system will not be the same at the end of it. Gold is the hedge against dystopia. However, there is a parallel explanation. Covid finally broke our spendthrift governments. The talk in hedge fund land is that some big beasts are taking bets against “fiscal dominance” across the West. It is a collective judgment that too many countries have pushed public debt beyond 100 per cent of GDP and beyond the point of no return under prevailing economic ideologies and political regimes. Budget deficits have broken out of historical ranges and are running at structurally untenable levels for this stage of the cycle. Central banks will bottle it – under this scenario – in order to mop up issuance of treasury bonds. They will let inflation run hot to help states whittle down debts by stealth default. You might argue that this is what they already did by letting rip with extreme money creation during the pandemic. The Bank of Japan is refusing to raise rates above zero or halt bond purchases even though core inflation is 2.8 per cent and the Rengo wage round is running at 5.2 per cent. This is what a debt trap looks like. With a debt-to-GDP ratio above 260 per cent, Japan cannot return to sound money without risking a fiscal crisis. Olivier Blanchard, global debt guru and former IMF chief economist, once told me how this would unfold by the mid-2020s. “One day the BoJ may get a call from the finance ministry saying please think about us – it is a life or death question – and keep rates at zero for a bit longer,” he said. The European Central Bank is also in a debt trap. It continued to buy buckets of Club Med bonds even when inflation was over 10 per cent. This was patently a fiscal rescue for semi-solvent states. The ECB has backed off for now but will be forced to shield Italy again with fiscal transfers disguised as QE in the next downturn. The Fed has largely monetised the Trump-Biden jumbo deficits. It now faces an invidious choice: either it stays the course against inflation, at the risk of a US funding crisis, a commercial property/banking crisis, and recession, all ending in a return to QE and fiscal dominance; or it cuts rates hard and fast before inflation is under control, also ending in fiscal dominance. Is gold sniffing this out? Of course, the gold spike may be nothing more than wolf pack speculation by funds orchestrating a squeeze on bullion shorts through the options market, knowing that this sets off a self-fueling feedback loop. If so, the rally will short-circuit soon enough. My bet is that a big animal with a Chinese accent is bracing for geopolitical or monetary disorder on a traumatic scale.
Opinion Papua New Guinea's planned gold monopoly will weigh economy down Key export sector to be damaged by deal with mysterious Singapore company Carolyn Blacklock April 24, 2024 https://asia.nikkei.com/Opinion/Papua-New-Guinea-s-planned-gold-monopoly-will-weigh-economy-down A refinery in Marin, Switzerland: Mines in Papua New Guinea now send their gold overseas for processing. © Reuters Carolyn Blacklock is founder and principal at Ipsum Pacific, a strategic consultancy advising Pacific governments and state-owned companies. She previously served as managing director of electric utility PNG Power, and as a special adviser to the prime minister of Papua New Guinea. Gold has long been one of Papua New Guinea's top exports but its vital contribution to the country's economy is now at risk. Prime Minister James Marape is pushing for parliamentary votes next month on two bills that would create a National Gold Corp. and give it monopoly control over the refining and marketing of the country's supplies of the precious metal. The bills would take exporting and marketing out of the hands of multinational mining companies like Canada's Barrick Gold, South Africa's Harmony Gold Mining and Newmont Corp. of the U.S. But it is quite doubtful whether the results will benefit either the people of Papua New Guinea or the economy. Mining has already suffered under Marape, who came to power in 2019. In 2022, Papua New Guinea produced around 50 metric tons of gold, the country's lowest yearly yield since 2010 and far below the peak output of 73.9 metric tons reached the year Marape came into office. No official figures have been released about last year's output, but it is not believed to have improved much. The prime minister's draft bills would empower a new national mint that would, in effect, be a subsidiary of a mysterious Singapore-registered shelf company called Refinery Holdings, which is at least partly owned by Australian investors. Previous governments rejected doing business with Refinery Holdings in 2010 and 2014, as it was judged the company did not meet national interest criteria. The new mint will have sole authority to set prices on how much to charge local gold producers to refine their raw output. While Refinery Holdings is to set up a refinery in Papua New Guinea, the mint will also be entitled to outsource refining to overseas operators, allowing it to arbitrage cost differences but also potentially undercutting the government's ostensible goal of bringing the activity onshore. The bills would also authorize the new company to form a gold police force with unrestricted access to firearms and power to search, arrest and detain anyone suspected of breaching the new laws, without requirement of a warrant, to "ensure the safety" of the chain of custody of local gold production. Currently, Papua New Guinea's gold is processed overseas, with miners working with various mints at their own discretion to refine gold for the global market. The state extracts a range of levies and royalties from all locally mined gold that is shipped out. This is all above board, and the system operates with high levels of security and scrutiny. Output from Papua New Guinea's gold sector has declined under Prime Minister James Marape, who came to power in 2019. © AAP Image Of course, Papua New Guinea is within its rights to nationalize gold refining and marketing. It is standard practice that the state holds control of sensitive economic levers to preserve its operational capacity and independence, as well as to ensure its viability. But it is not standard practice to hand over such control to an inexperienced, foreign-owned partner. The government could have looked to the 66 gold refiners accredited with the London Bullion Market Association as potential partners. Nearby Australia is home to at least two experienced refiners accredited by the association and likely well placed to set up a new refinery without the demand of monopoly rights that Refinery Holdings has made. But no tender or public consultation preceded the government's agreement with Refinery Holdings, which apparently was signed in 2021. The PNG Chamber of Resources and Energy has indicated the project proponents have suggested the new arrangement will bring in 1.08 billion kina ($277 million) in taxes over the coming 15 years. But the group says a more realistic figure would be 241 million kina. All business interests in Papua New Guinea, as well as those with a stake in the geopolitical game of chess currently underway in the Pacific, should be wary of developments like this. Major miners like Newmont will be forced to conform to the new arrangement, even though it will undermine their interests. The laws will broadly tarnish Papua New Guinea's standing with foreign investors. More foreign direct investment exited the country in 2021 than came in and while inflows have resumed, companies remain wary. The 2021 drop followed the government's abrupt move the previous year to block Barrick from renewing its lease on the Porgera Gold Mine, the country's second largest. After Barrick filed a dispute claim with international arbitrators, officials agreed to open talks, which eventually led to a new lease as well as the government getting a much larger stake in the mine. Porgera finally resumed operation last December, potentially setting the stage this year for a recovery in national gold output. Yet in reforming the country's gold sector, the National Gold bills will tarnish the good brand and reputation the country has achieved in this area, while unlocking opportunities for graft. Transparency International already ranks the country worst in the Pacific region for corruption. According to the group, 96% of Papua New Guineans think government corruption is a big problem. The Refinery Holdings deal, as is becoming the new normal, will edge out Papua New Guineans themselves and widen domestic tensions. The country is bristling with firearms and law and order is a perennial concern as violent crime is all too common. Riots in Port Moresby in January highlighted festering dissatisfaction with Papua New Guinea's elite and the current system whereby a few win and the majority lose. It is hard to understand what the Marape government is intending with the gold bills, in terms of the national interest and the broader economy. No proper business case has been presented. The people of Papua New Guinea are entitled to a better deal.
My opinion, this should read I believe...."would empower a new national mint that would, in effect, be a subsidiary of a mysterious Singapore-registered shelf company called Refinery Holdings, which is a Chinese back door company bribing its way in." I highly doubt a legit Australian company (unless predominantly its directors are Chinese) would be Singapore registered, its more likely fully Chinese.
I'm sure a guy with a postgraduate degree in Environmental Science loves miners. It does sound reminiscent of Chavez and his ousting of US & French oil operators. Better hope Marape has competent refinery workers or PNG will go down hard & he will be ousted in a coup. I imagine more nationalizations like this explain why gold miners have done so poorly compared to the metal itself.
Hi @themickey My wife and I have been watching TV shows like Aussie Gold Hunters and Outback Opal Hunters (Rod and Les!) for many years. They're on a terrestrial channel here in the UK called Quest (offshoot of Discovery). Just curious, are they popular down under? I recently bought her a gold nugget pendant, for her birthday, on-line from this shop in Kalgoorlie which was on Aussie Gold Hunters. https://naturalgoldnuggets.com.au/collections/gold-nugget-jewellery One day we'd like to do a road trip and visit some of the places in the gold and opal fields.
Hmmmmm, I rarely turn on the TV, they're possibly only on pay tv channels which I don't subscribe to. Sorry I can't be of help. The last few years my TV wasn't even plugged into the wall socket.
Chinese youth flock to viral gold beans amid economic uncertainty By Lisa Visentin May 2, 2024 https://www.smh.com.au/world/asia/c...mid-economic-uncertainty-20240430-p5fnpu.html Singapore: Traditionally a favoured haunt of the cashed-up older generations, China’s gold and jewellery shops have been ushering a distinctly younger customer through their doors in droves. Millennial and Gen Z customers have been turning up to buy small gold “beans”. They are jumping on a viral bandwagon, with social media fuelling the buying trend, triggering something of a mini gold rush among young Chinese. Gold beans have become a popular investment among younger generations of Chinese.Credit: Douyin The beans, which weigh as little as one gram and cost about 600 yuan ($130), are seen as a safe investment for a younger generation peering into gloomier economic horizon. The country’s export-driven economy has struggled to regain the pace of growth it enjoyed before the pandemic, an event which prompted the US to boost its own manufacturing to compete with China. Signs of trouble abound, with the property market in crisis, the stockmarket sluggish, and youth unemployment hovering at 15 per cent. Enter the gold beans. Shi Wu, a 23-year-old actress in Beijing, began her gold bean collection a month ago, and has purchased three beans so far, costing 1700 Yuan ($363) in total. Gold beans for sale at a Luk Fook jewellery store in Shanghai, China.Credit: Bloomberg “It was both fun and an investment. So I jumped on the bandwagon. Also, it seems there are not much other good options for investment today,” she said. “Gold is stable and gold price will never go down too badly. They are not too expensive and I can afford it.” A 30-year-old jeweller, who declined to give her name, has also jumped on the craze, but conceded she was losing interest in the investment. “The desire for shopping often lingers around me when I work. But if I buy other things, the money will be gone forever,” she said. With a slumping economy and high youth unemployment, China has seen a trend in young people investing in 'golden beans'. “When a friend’s kid was having a birthday, I thought gold beans would be a good option. So I bought some both for myself and friend. Later I bought a little bit more but soon gave up.” The price of gold has soared to record highs in April, surpassing $US2400 ($3754) an ounce, driven by demand from China’s central bank, and Chinese investors and consumers who see the precious metal as a safe-haven asset in volatile times. Investing in gold bars has typically been the domain of China’s middle class, in particular among Chinese dama (middle-aged women), who collectively poured billions of yuan into bullion-buying spree more than a decade ago when gold prices dropped. A customer checks out the display at a Luk Fook store in Shanghai.Credit: Bloomberg The beans offer China’s youth a small slice of the action, though the latest trend has also been accompanied by reports of gold-related scams, including beans that are filled with non-precious metals such as zinc and copper. Some banks have been quick to tap into the trend, among them China Merchants Bank Co, which introduced a line of gold beans in July 2023, Bloomberg reported last month. But not everyone is sold on the beans. “Instead of buying 1g gold beans each month, I buy one 10g gold bar each year. I know it’s not a big investment but they could be a betrothal gift when my son gets married,” said a 30-year-old man, shopping for gold in Beijing with his four-year-old son. Like many Chinese in their 20s and 30s, he was downcast when reflecting on the turbulent past few years, as the country struggled to emerge from the economic quagmire of its harsh COVID lockdowns. “I thought 2022 was the worst year in terms of economy but actually 2023 was worse. Lots of companies closed down. Now, I’ll be very satisfied with a not-that-highly-paid but stable job and my social security insurance covered,” he said.
Opinion Gold is soaring on fears Kamala Harris is about to unleash an economic catastrophe By Matthew Lynn September 1, 2024 It has already punched through $US2500 ($3679), the highest price it has ever reached. Over the next month, it may well go to $US3000 or perhaps even higher. Gold has entered a new bull market, with investors piling into the precious metal. There are plenty of conventional explanations for that, from the prospect of falling interest rates to strong buying from Chinese and Middle Eastern central banks. Vibe high: Democratic presidential nominee Vice President Kamala Harris on the final day of the Democratic Convention. Credit: AP But there is a far bigger one that we should be paying more attention to. This could be the “Kamala Trade”. Kamala Harris has cruised to the Democratic nomination on a wave of vibes, and that may well take her all the way to the White House. And yet she is also certain to continue the wild spending, and soaring deficits, of the Biden presidency. The dollar may be about to be debased, and gold has always been the only real protection against that. It is an early warning of the potential catastrophe she is about to inflict on the global economy. The artificial intelligence stocks might grab the headlines, along with tech companies and commodities. But there has been only one real standout asset in 2024 so far and that’s gold. From $US2000 an ounce at the start of the year, it reached $US2500 last week, and may keep on climbing higher. It is now well above the highs it reached at the height of the eurozone crisis, and shows little sign of slowing down. To the mainstream analysts who follow the precious metal, there are a host of reasons for that. The Federal Reserve is expected to cut interest rates in the autumn, and that always boosts the gold price as the metal does not pay any interest. There is plenty of geopolitical uncertainty around, with conflicts in the Middle East, and the war between Russia and Ukraine escalating. And of course, central banks have increased their holdings. “Led by China, central banks purchased 1037 tonnes of gold in 2023,” claimed a recent note from JP Morgan on the soaring price. “In the same vein, 2024 has started strongly with net purchases of 290 tonnes in the first quarter – making it the fourth-strongest quarter of purchases since the buying binge began in 2022, according to the World Gold Council.” Add those all up, and the stage was always set for a stronger gold price. And yet, there may be a far bigger force at work: the prospect of a Kamala Harris presidency. Over the last month, the American vice-president has executed a political coup of breathtaking audacity. The Harris campaign has been all about vibes and tactics with almost no clues on what her policies might be. She filled the void left by the ageing Joe Biden with speed, killed off any potential rivals and wrapped up the nomination with hardly a murmur of opposition. There is no question that she is a formidable political street-fighter. In response, her Republican rival Donald Trump has been left floundering, and looks old and exhausted. Harris is ahead in the polls, and is the favourite with the bookmakers. Here’s the problem. The Harris campaign has been all about vibes and tactics with almost no clues on what her policies might be. Even heading into September, with the presidential election only two months away, her campaign website is all about how to donate, and says almost nothing about what she might do with four years in the White House. Her only concrete ideas so far have been a plan to prevent “price gouging” that was dismissed even by Left-leaning economists as wildly impractical, and a pledge to increase the corporation tax rate from 21 per cent to 28 per cent. But one thing we know about her for certain is this: she is a big government, high-spending politician, whose instincts will be to dish out even more money than the man she will replace. Gold may well go to $US3000 or perhaps even higher.Credit: Louie Douvis The United States has a huge and growing budget deficit. Even with an economy that is performing respectably, and with no major crisis such as a pandemic or a war to deal with, the deficit is expected to come in at close to 7 per cent of GDP this year, and will remain at 6.5 per cent next year. The amount the US borrows every year has already gone over $US2 trillion, and will hit $US2.8 trillion by 2034 on current spending plans, while total debt as a percentage of output has surged. These are unprecedented figures for what remains the world’s reserve currency. Under Biden, money has been spent on a vast scale on industrial and green subsidies, most of it in the form of tax credits that are open-ended. Democratic presidents used to at least pay lip service to controlling the deficit, and Bill Clinton actually delivered a surplus, the last occupant of the White House of either party to do so. Those days are long gone. They don’t even pretend to be interested any more. The message of Harris’s rapid elevation, and indeed of her likely victory later this year, is already clear. On her record, there is no possibility that she might try to reduce the deficit. Instead, she is far more likely to borrow even more. The United States will continue on a path of fiscal and monetary recklessness that has no real parallel in economic history. In effect, the dollar will be debased, and debased again, until finally there is a reckoning with the vast deficits it is running up. It may well end up destroying the global monetary system. There is only one real refuge from that: gold. Its bull run may be, in reality, the “Kamala Trade” – and it could take the precious metal a lot higher still. The Telegraph, London