China And The New World Disorder

This Week:

Update on Rising Silver Premiums in New Zealand
GREECE, GUNS, BANKERS & GOLD
Why the Silver Price is Not the Price of Silver
Gold’s Downside Risk vs. Upside Potential
China and It’s US Dollar Peg
China And The New World Disorder – [and impacts on NZ]

Prices and Charts

	Spot Price Today / oz	Weekly Change ($)	Weekly Change (%)
NZD Gold	$1670.36	+ $21.43	+ 1.30%
USD Gold	$1085.40	– $11.80	– 1.07%
NZD Silver	$22.55	+ $0.22	+ 0.98%
USD Silver	$14.65	– $0.21	– 1.41%
NZD/USD	0.6498	– 0.0156	– 2.34%

The NZ Dollar is looking weaker again today. This morning it dipped below 0.65 cents and is down 2.34% on last week.

This has buoyed local gold and silver prices. As can be seen below gold in NZ dollars is up 1.30% while in US Dollars it is down over 1%.

NZD silver up about 1% while USD silver is down 1.41% on last week.

Where to From Here?

Our 2 cents best guess even if you didn’t ask?

While there have been many gold negative articles in the past few weeks, a number of which we shared last week, we still wonder if true capitulation is here yet?

There are still reports of plenty of buying demand and so we just wonder whether we need a further plunge down below US$1000 to wash out all remaining hope?

So on one hand that might sound like the chance to buy more gold at lower levels.

However as mentioned earlier with the NZ Dollar dipping below 65 cents (possibly on the back of another almost 10% plunge in the dairy auctions yesterday), further falls in the Kiwi could well temper any losses in NZ dollar gold terms.

The other unknown factor is if prices do fall further what premiums will refiners and mints charge above spot price?

We’ve had another look at this topic in this weeks feature article on the back of another local refiner raising their premium above spot for locally refined silver.

Update on Rising Silver Premiums in New Zealand

Why the Silver Price is Not the Price of Silver

We’ve heard many recent reports in the US of “junk silver” (being US dimes, quarters, and half-dollars that were minted in the US before 1964 and contain 90% silver) not selling for anything less than a 30% premium above spot. Previously these have often been available for below their “melt value” i.e. the total value of silver in them based upon the spot price.

So what this is saying is that dealers are valuing the silver in the coins for 30% or more above the current spot price. So at current prices that is more like just under US$20 an oz.

Or put another way the market thinks the real price of silver should be closer to US$20 per ounce.

Or a different way again is to say that silver prices are so low that no one is selling actual silver for anywhere near the spot price.

So check out this weeks feature article as we also discuss a few other news items on this topic of silver and gold supply that we’ve seen this week.

COMEX Gold Cover Ratio

In that feature article just mentioned there is an item about some very large draw downs of COMEX silver stocks.

This week we also saw a great chart from the National Inflation Association (NIA) comparing COMEX gold stocks to paper gold currently in open futures contracts. This had dropped to a record low.

“COMEX right now owns a record low 351,519 ounces of registered gold stocks in its physical gold inventories.This compares to 43.5 million ounces of paper gold currently open in futures contracts.A record low 0.8% of COMEX paper gold is currently backed by physical gold or 1 ounce of physical gold for every 123.75 ounces of paper gold. Since 2000, COMEX on average has backed 5.2% of paper gold with physical gold in its warehouses or 1 ounce of physical gold for every 19.1 ounces of paper gold.

The paper gold price is being manipulated and does not reflect the true supply/demand for physical gold. A major shortage of physical gold is developing. Look for a huge short squeeze in the paper gold price to soon occur.”
Source.

They likely have a good point as the previous couple of times we have seen record low gold stocks, a pretty decent rally in the gold price has occurred soon afterwards such as following December 2014.

Gold’s Downside Risk vs. Upside Potential

While on the topic of the NIA, they also had another interesting series of charts comparing the US real money supply to gold. So if you want to contemplate what the downside risk might be versus the upside potential then check that out too here…
http://inflation.us/golds-downside-risk-vs-upside-potential/

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GREECE, GUNS, BANKERS & GOLD

Speaking of articles on our website, we’d also recommend you check out the latest we have from Darryl Schoon.

We reported a month ago how Greece has one of the best funded militaries in Europe, where they have a military budget of 4.3% of GDP. In this piece Darryl outlines how for all the talk of bailouts, cuts and austerity, Greece has not been allowed to reduce its military expenditure.

He also believes Greece is merely one of the early dominoes to fall in what will be a wave of sovereign defaults across the planet as futurist Buckminster Fuller foresaw decades ago. But how this will be the “door to a better tomorrow”.

GREECE, GUNS, BANKERS & GOLD

We had a great discussion with Darryl in Australia a few years ago on the subject of “Bucky” Fuller. We were reminded of this last week when we watched a decent presentation from Robert Kiyosaki of Rich Dad Poor Dad fame called “The Man Who Could See the Future”. This featured Buckminster Fuller’s predictions for “Spaceship Earth” as he called it. Check out “Grunch of Giants” by Fuller (GRoss Universal Cash Heist) for his angle on the monetary system. It’s available free online if you Google it.

China and It’s US Dollar Peg

We’ve seen a lot of volatility in currencies over the past year. Greg Canavan at the Daily Reckoning Australia reports this week on how there is likely more ahead if/when China ends its US dollar peg:

“–A key signal of the building stresses in the global economy is the unrelenting strength of the US dollar.

–…the US dollar index is going through a consolidation period after peaking in March this year. But the two moving averages tell you the trend is undoubtedly bullish.

–How long will it be before the strong dollar starts to impact on US economic growth? The dollar bull is now one year old. You’d think it would have an effect soon.

–The other very big issue here is China’s currency peg to the dollar. As the US dollar strengths and the US loses competitiveness, so does China. A break of the dollar-yuan peg is coming.

–And that will send another deflationary impulse through the global economy.

–One of the best ‘big picture’ strategists going around, Russell Napier, discussed this in his latest research. He believes we’re heading towards a ‘great reset’.

‘The Great Reset, which began with China’s first reported foreign reserve decline in 2012, is now accelerating. The ultimate destination for China is either to continue to support the exchange rate and accept ever lower growth, probably accompanied by deflation, or to devalue. Either option will further exacerbate global deflationary pressures and place huge pressure on other Ems [emerging markets] that compete with China and are linked to the USD.’

–Napier reckons China will defend the peg for a while. Indeed, it’s what they’re doing right now. But they won’t be able to maintain the policy.

‘PBOC [People’s Bank of China] liquidation of Treasuries to support the RMB [yuan] exchange rate would not be prolonged. Both the US and China would recognize the dreadful dynamics inherent in such a policy if it did indeed push Treasury yields higher. Very soon China would be given the permission to devalue its exchange rate and the nature of the pain to be endured by the global system would be of a somewhat lesser and somewhat different nature. It would, however, still be a deflationary adjustment.’

–Napier’s analysis suggests that the post-2008 efforts to reflate the global economy by the Fed and others have not worked. They have merely exerted pressure on emerging markets, which will force destabilising currency devaluations.”

China And The New World Disorder – [and impacts on NZ]

We haven’t read The Automatic Earth Blog for a while but came across this very interesting article this week from over there.

It has a very negative view on China but also on the impacts for commodity producing countries like Canada, Australia and New Zealand.

Warning – it is pretty lengthy but has some interesting conclusions

Some “brief” (well “brief compared to the full article anyway) excerpts:

“Vulnerable Commodity Exporters

Commodity exporting nations, which were insulated from the effects of the 2008 financial crisis by virtue of their ability to export into a huge commodity boom, are indeed feeling the impact of the trend change in commodity prices. All are uniquely vulnerable now. Not only are their export earnings falling and their currencies weakening substantially, but they and their industries had typically invested heavily in their own productive capacity, often with borrowed money. These leveraged investments now represent a substantial risk during this next phase of financial crisis. Canada, Australia, New Zealand, are all experiencing difficulties:

“Known as the Kiwi, Aussie, and Loonie, respectively, all three have tumbled to six-year lows in recent sessions, with year-to-date losses of 10-15%. “Despite the fact that they have already fallen a long way, we expect them to weaken further,” said Capital Economists in a recent note. The three nations are large producers of commodities: energy is Canada’s top export, iron ore for Australia and dairy for New Zealand. Prices for all three commodities have declined significantly over the past year, worsening each country’s terms of trade and causing major currency adjustments.”

…Complacency has been rife in these ‘lucky countries’ which have tended to perceive natural limits as someone else’s problem and to regard themselves as impervious to systemic shocks……The greater the extent to which an exporting economy has placed all its eggs in one basket, the greater the vulnerability of its economy……Even erstwhile ‘rock-star economies’ are feeling the pressure to cut interest rates, in the vain hope that beggar-thy-neighbour currency devaluations will be beneficial:

“Yesterday, the Reserve Bank of New Zealand slashed borrowing costs for the second time in six weeks even as housing prices continue to skyrocket. A day earlier, its counterpart across the Tasman Sea (already wrestling with an even bigger property bubble of its own) said a third cut this year is “on the table.”

Just one year ago, it seemed unthinkable that officials in Wellington and Sydney, more typically known for their hawkishness and stubborn independence, would join the global race toward zero. But with commodity prices sliding, China slowing and governments reluctant to adopt bold reforms, jittery markets are demanding ever-bigger gestures from central banks. Even those presiding over stable growth feel the need to placate hedge funds, lest asset markets falter. When this dynamic overtakes countries such as New Zealand (growing 2.6%) and Australia (2.3%), it’s hard not to conclude that ultra-low rates will be the global norm for a long, long time.”

Contagious instability is spreading from the periphery towards the centre, threatening to convulse the financial world again, with considerable knock-on consequences in the real world:

“Less than a decade after a housing/derivatives bubble nearly wiped out the global financial system, a new and much bigger commodities/derivatives bubble is threatening to finish the job. Raw materials are tanking as capital pours out of the most heavily-impacted countries and into anything that looks like a reasonable hiding place. So the dollar is up, Swiss and German bond yields are negative, and fine art is through the roof.

Now emerging market turmoil is spreading to the developed world and the conventional wisdom is shifting from a future of gradual interest rate normalization amid a return to steady growth, to zero or negative rates as far as the eye can see….Indeed, the major monetary powers that are easing — Europe, Japan, Australia and New Zealand — have all suggested rates may stay low almost indefinitely. Those angling to return to normalcy, meanwhile — the Federal Reserve and Bank of England — are pledging to move very slowly. Even nations with rising inflation problems, like India, are hinting at more stimulus….

….So…the central banks will panic. Again. Countries that retain some control over their monetary systems will see their interest rates fall to zero and beyond, while those that don’t will be thrown into some kind of new age hyperinflationary depression. Not 2008 all over again; this is something much stranger.”

Stranger indeed, and a far more powerful contractionary impulse than in 2008. While ultra-low rates are characteristic of the current stage, as we stand on the brink, they are not likely to persist into the coming strongly deflationary environment rife with risk. While perceived low risk states may be able to maintain low rates for a while, others will not be so lucky as credit spreads blow out to form self-fulfilling prophecies. In any case, rates may appear low only in nominal terms. In a contractionary environment, where the real rate is the nominal rate minus negative inflation, real interest rates will be high and rising. This will compound the burden imposed by decades of over-leverage, for both companies and countries, to an enormous extent. Indebted ‘lucky countries’ are not going to look so lucky in a few years time.”Source.

Some quite dire warnings to our trans tasman neighbours and also to us in there. The sentence we have put in bold is a point we have made before ourselves.

Low interest rates may not be able to be maintained in NZ if the situation was to deteriorate globally. Given we run a current account deficit we need capital coming in each and every month to fund this. So might it then take higher rates in order to attract it? That would likely be quite a surprise for most given the now pervading view that rates will be low for a long time to come yet.

Most people we talk to are still oblivious to the risks to not just New Zealand but the global economy as well.

If you’re after some financial insurance then you know where to find us. As we’ve stated a lot lately consider splitting up your purchases rather than trying to pick the bottom. It worked well back in 2009 and will probably work well again now too.

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This Weeks Articles:

The Chinese Stock Market Crash and its Impact Down Under

2015-07-30 01:14:20-04

This Week: Advice on Reserve Bank Cutting Rates More on Rising Interests Rates and Gold Gold’s Down. What’s Up With That? The Chinese Stock Market Crash and its Impact Down Under Are You Wondering if the Bottom is in or at Least Close? Similarities Between the 1970’s and Today in the Gold Market Prices […]

GREECE, GUNS, BANKERS & GOLD

2015-08-05 06:28:35-04

We reported a month ago how Greece has one of the best funded militaries in Europe, where they have a military budget of 4.3% of GDP. In this piece Darryl Schoon outlines how for all the talk of bailouts, cuts and austerity, Greece has not been allowed to reduce its military expenditure. He also believes Greece is merely […]

Update on Rising Silver Premiums in New Zealand

2015-08-05 18:22:59-04

3 weeks ago we reported: “Yesterday one of our suppliers of locally refined NZ silver advised us they would be raising their prices for silver bullion as of this Monday. Silver Demand Rises – So Do NZ Silver Prices on Monday 20 July They advised that there’s been an increase in Silver demand globally and […]