- Playing for keeps: China grabs a piece of London’s gold action
- Dissing gold as the preferred currency of drug dealers and terrorists
- The real story about “gold confiscation” and a windfall profits tax
- Why we’re not wringing our hands about foreigners dumping Treasuries
- Saudi disclosure: One step closer to devaluation
- A mixed bag o’ numbers… The dire threat to the homeland from unlicensed massage therapists… Would Trump sell out America to China?… and more!
It’s not as if China’s cornered the gold market… but the Middle Kingdom just took a meaningful step in that direction.
ICBC Standard Bank — the world’s biggest bank and one of China’s “Big Four” state-owned banks — is buying a huge gold vault in London, with a capacity for 2,000 metric tons of precious metals.
The seller is Barclays, which opened the vault only four years ago. Purchase price? Not disclosed. ICBC will take possession in July. The deal comes only days after ICBC joined the system where London’s precious metals trades are settled.
China might account for a quarter of global gold demand, but the gold action is still in London and New York. So China’s closer to the action now. Indeed, ICBC will be one of only seven providers of vault storage services in London — an elite club that includes the Bank of England, HSBC and JPMorgan Chase.
Clearly, it’s not enough for China to acquire a massive gold stash — something we’ve chronicled in our virtual pages for years now.
“The deal will give ICBC more influence over trading, pricing and storage of precious metals,” reports the BBC. The Beeb was too polite to point out that influence can be wielded with little transparency.
“The gold market is liquid, but thinly traded,” Jim Rickards writes in his latest book The New Case for Gold. “If China’s intentions and actions were fully disclosed, the price of gold would likely be much higher. This is always true when a huge buyer shows up in a thin market. China wants to keep the gold price as low as possible until it completes its acquisition program.”
Reminder: China wants a big gold stash so it has the proverbial “seat at the table” whenever the global monetary system falls apart and the powers that be have to start over.
Got your own gold?
Meanwhile, the powers that be appear to be going out of their way to demonize gold — at least when it’s held outside official hands.
Or so Jim believes after seeing a recent headline at Public Radio International that’s being reposted all over the Web: “Some Drug Cartels Now Make More Money From Gold Than Cocaine.”
The story cites a recent report from an outfit called the Global Initiative Against Transnational Organized Crime. It claims 80% of the gold mined in Columbia is mined illegally. And 90% of the gold mined in Venezuela. “In some places, like Peru,” says the PRI story, “mine owners are in cahoots with human traffickers. In places like Colombia, insurgent groups including the FARC actually manage the mines.”
Ah, yes, gold — the ultimate currency of drug dealers, human traffickers and, of course, terrorists.
We haven’t forgotten about ISIS’ attempts to last year to launch a gold-backed dinar. It was mostly bluster, spread via social media. But a slick ISIS video denouncing the West’s “financial system of enslavement” cherry-picked interview clips with both Jim Rickards and Ron Paul — ample guilt by association for the clueless.
Again, all we can say is… Got your own gold?
Which brings us back to the matter of gold confiscation. “Damn well sure know Uncle Sam will confiscate if he gets into a bad jam,” a reader wrote us a few weeks back.
Well, it’s not that simple. Two months ago, we explained how FDR’s 1933 gold-confiscation order actually worked. Over the previous couple of decades, the American people were lured down the primrose path of convenience. It was much easier to carry “gold certificates” — paper money — than it was to carry $5, $10 and $20 gold coins.
By 1933, most of the gold was already sitting in bank vaults — the coins having been melted down and recast into huge 400-ounce bars. Easy peasy. No G-men going door to door.
Now? Fact is, there’s nowhere near enough gold in the public’s hands to make it worth the feds’ while.
But what about a 90% “windfall profits tax” on gold?
That’s a more realistic threat — as Jim told your editor three years ago. By the time the next meltdown hits, only a relative few people will have taken protective measures with gold. “So you’re going to have this resentment, this political resentment, where the vast majority of the people who just sort of took it on the chin are going to be looking at a small number of people who protected themselves, and they’re going to say that’s not fair.”
But as Jim points out in The New Case for Gold, “A windfall profits tax on gold is not something that can easily be accomplished by executive order because of congressional control over taxation. Such a tax requires legislation, and the legislative process is slow. Gold holders would know in advance and have time to prepare.”
One more time, with feeling… Got your own gold?
[But before you buy another ounce: You should know Jim says now is not the time to add to your stash. Even though he believes gold priced in dollars is set to grow eightfold, to $10,000 an ounce. Instead, he says now’s the time to seize on a once-in-a-decade opportunity for much bigger gold-fueled gains. Similar times in the past have turned up opportunities to turn every $1 invested into $192.
Jim and our publisher have poured $1 million into a new project to help you create a fortune during this brief window of opportunity. He explains how it all works right here — no long video to watch, either.]
At last check, the bid was up about a half percent, at $1,281.
The major U.S. stock indexes are digesting yesterday’s gains, the S&P off a quarter percent at 2,061.
The day’s economic numbers are a mixed bag…
- Inflation: The consumer price index grew 0.4% in April — more than expected. Most of that, however, is gasoline. The “core” rate excluding food and energy is up 2.1% year over year… and that’s down from 2.2% in March. For the Federal Reserve, inflation is moving in the “wrong” direction
- Industrial production: Up 0.7% in April, better than expected. The manufacturing component of this number grew 0.3%, also better than expected
- Capacity utilization: 75.4% of the nation’s industrial capacity was in use last month — up from a 74.9% figure last month that was the worst since 2010
- Housing starts: Up 6.6% in April, but the year-over-year number is now down 1.7%. Permits, a better indicator of future activity, are down 7.2% year over year. Much of that cooling-off is in apartments and condos.
In earnings-land, Home Depot beat expectations decisively.
Sign of the times: If foreign central banks don’t want U.S. Treasuries anymore, there’s no shortage of other buyers.
“Central banks are dumping America’s debt at a record pace,” says the lead to a CNNMoney story. Which is true, judging by the monthly Treasury International Capital (TIC) report released late yesterday. Through the first quarter of the year, foreign central banks have unloaded $123 billion in Treasury paper…
That’s the fastest pace in records going back to 1978. Not surprisingly, China, Russia and Brazil are leading the way. Each is draining its foreign exchange reserves for its own reasons. Dumping Treasuries helps stanch the flow.
But private buyers are more than willing to step in. Thus, the yield on a 10-year Treasury note this morning is 1.74%. A year ago, it was 2.21%. That’s the impact of negative interest rates in Europe and Japan: Low as Uncle Sam’s rates are, they’re still the best deal around… so buyers swoop in, pushing yields down even more.
That same report revealed for the first time how much Treasury debt is held by the kingdom of Saudi Arabia.
For more than 40 years, the TIC report lumped in Saudi Arabia with other “oil producers.” So the actual amount was always a black box.
No more. As of March, the kingdom holds $116.8 billion of U.S. Treasury debt — down about 6% from a record total in January.
Hmmm… Sort of puts a different spin on Saudi Arabia’s threat in March to dump $750 billion in Treasuries and “other U.S. assets” if Congress allowed Sept. 11 families and survivors to sue the Saudi government for its alleged role in the attacks.
[Just in: As we go to virtual press, the bill has passed the Senate.]
“The disclosure may bring more questions than answers, because Saudi Arabia’s foreign reserves amount to $587 billion, and central banks typically put about two-thirds of their coffers in dollars,” says Bloomberg — which requested the disclosure under the Freedom of Information Act. It’s possible the kingdom holds other Treasuries via offshore vehicles in Belgium, Switzerland or the Cayman Islands.
Whatever the case, we know Saudi Arabia is burning through its forex reserves at a blistering pace to prop up the Saudi riyal. It has to as long as oil prices remain relatively low. It has no other alternative… unless it double-crosses Washington and devalues the riyal, as Jim Rickards anticipates.
Your government in action: The terrorism threat must be over and done with, because the Department of Homeland Security is now cracking down on… unlicensed massage therapists.
“In a joint operation last week,” writes Elizabeth Nolan Brown at Reason, “DHS and police from DuPage County, Villa Park and Oakbrook Terrace, Illinois, took down four women who were allegedly offering unlicensed massages at a place called the Pine Tree Spa.”
Each of the four was charged with unlicensed practice of massage therapy. One was charged with a single count of prostitution after police say she propositioned an undercover cop.
How this falls under Homeland Security’s stated mission to “prevent terrorism… secure and manage our borders… enforce and administer our immigration laws… safeguard and secure cyberspace… and ensure resilience to disasters” we’re not exactly sure. But being the government means never having to explain yourself…
“What will wireless power do to Granny’s pacemaker?” says a brief email that came in after yesterday’s episode.
Well, we can’t imagine the makers of such devices would want to be liable for any pacemaker malfunctions. Too, we’re fairly sure these devices would come under the FCC’s regulations for consumer electronics that rely on radio waves to work. And the cost of complying with those regulations is a pittance compared with the technology’s profit potential.
“Here is a perhaps crazy, far-out idea, or maybe not,” says a chatty email from a reader.
“Of course, I read and enjoy The 5. Especially enjoy reader comments. Now lately, I have been spending a lot of time on YouTube.”
“I’m following the ideas of the new world order coming to pass, etc., along with the good and evil of Donald and the evil of Hillary. Of course, being Canadian as well helps to not be overly concerned. A passing parody about China and how it owns all your debt caught my attention. It got me to thinking how the Donald was such a deal-maker and in a few videos has the NWO gang upset since he is not their choice.
“I wonder if Donald will sell out to China and give them control of your finances and probably the military. To have the debt wiped out. Especially since your economy will be shattered by the time he gets into office. I haven’t seen a scenario like this anywhere.”
The 5: In the first place, China’s Treasury holdings amount to about 6.6% of the national debt. We get the collapsitarian fantasies about America’s new Chinese overlords, but it’s just not realistic.
That said, we bring this episode of The 5 full circle, coming back to the matter of China and gold.
As Jim Rickards explained here in March, you can’t consider China’s Treasury holdings without also considering its gold holdings. Together they help cover all eventualities — inflation and deflation.
“If inflation is low,” Jim writes in The New Case for Gold, “China’s gold won’t go up much, but the value of its paper Treasury reserves is preserved.”
On the other hand, “If the United States gets the inflation it wants, China’s Treasuries will be worth less, but its gold will be worth much more. Having Treasuries and gold is a hedged position that protects China’s wealth even as the Treasury tries to destroy U.S. savers’ wealth with inflation.”
Bottom line: Watch China’s gold moves. We’ll be on top of it…
The 5 Min. Forecast
P.S. Wow… As we check our screens this morning, gold stocks have doubled since Jan. 25.
But don’t feel as if you’ve missed out. The best is yet to come… provided you have the right strategy and you act soon.