Oil For Gold – Real Or Imagined?

By having control of the physical market for gold, China can threaten to use it to destabilize the dollar, without destabilizing the yuan. As such, it is potentially devastating, and used carelessly could trigger an economic collapse in Western capital markets, wreaking financial and economic havoc in America and other advanced nations. China will never be wholly independent from trade with these nations, and severe financial and economic damage to the advanced economies will rebound upon her to some extent. For this reason, she has so far held off using gold as an economic and financial weapon, while she continues to insulate herself from periodic crises in Western economies. – Alasdair Macleod (Oil For Gold)
In response to questions about when China would finally cast aside the dollar and run the price of gold up, I’ve always replied that China would be shooting itself in the foot if it tried to replace the dollar too quickly. Don’t forget, China holds about $1.2 trillion in the form of Treasuries. Note: this ratio does not include the market value of its gold holdings, the actual amount of which is unknown outside of a small circle of Chinese officials.
When the idea of a gold-backed yuan-denominated oil futures contract surfaced, it became en vogue for those unable to analyze their way out of a paper bag to issue commentary refuting the idea. For some, if an event has not already occurred, they are unable to ‘see’ it.

This post was published at Investment Research Dynamics on October 29, 2017.

China Aims to Dethrone the Dollar

Last month, the Nikkei Asain Review reported on a move by China that could take a first step toward dethroning the US dollar. The proposed launch of a gold-backed, yuan-denominated oil futures contract got a lot of attention in alt-media circles, but didn’t make much of a splash in the mainstream. But now the mainstream is sitting up and taking notice.
During an interview with Bloomberg TV Tuesday, Graticule Asset Management Asia CEO Adam Levinson said China rolling out a yuan-denominated oil contract within the next few months will be ‘a wake-up call’ for investors who haven’t paid attention to the plans.
The move potentially creates a way for oil exporters to circumvent US dollar-denominated benchmarks by trading in yuan. The contracts will reportedly be priced in yuan, but convertible to gold.
Levinson said besides serving as a hedging tool for Chinese companies, the yuan-backed oil contracts will aid a broader government agenda of increasing the use of the yuan in trade settlement.

This post was published at Schiffgold on OCTOBER 25, 2017.

SWOT Analysis: How Will Gold Move Into 2018?

Strengths
The best performing precious metal for the week was palladium, off 1.44 percent for the week. Citigroup favors palladium in the short term, in response to pollution control, but says substitution risks prevent the bank from taking a more bullish view long term as the price of palladium is now higher than the price of platinum. After the Indian government eased rules on gold purchases, the country’s demand for gold jewelry and branded coins appears to be better than the last quarter, according to P. R. Somasundaram, MD for India at the World Gold Council. The ensuing wedding season is the key for quarterly demand performance, Bloomberg reports, and with a good monsoon season, stable gold prices should encourage consumers. In the month of September, Swiss gold exports doubled month-over-month to 148.4 metric tons, reports Bloomberg. In August, exports were only 72 tons, according to the Swiss Federal Customs Administration. Specifically, Swiss exports to China rose 21 percent and to Hong Kong rose 92 percent. Weaknesses
The worst performing precious metal for the week was platinum, off 2.41 percent as palladium seems to be the more crowded trade. September makes 11 months straight of China officially reporting a zero increase in the level of its gold reserves, writes Lawrie Williams. The only time in recent years that the Asian nation has published any month-by-month gold reserve accumulations was in the 16 months ahead of the yuan being accepted as an integral part of the International Monetary Fund’s (IMF) Special Drawing Rights basket of currencies, Williams continues. ‘We don’t think it coincidence that such month-by-month reporting effectively ceased once the yuan became part of the SDR, thus paving its way for acceptance as a reserve currency,’ the article reads.

This post was published at GoldSeek on 23 October 2017.

What a Gold-Backed Yuan and Cryptocurrencies May Mean for the Dollar

Amoungst all the crypto news this, and crypto news that, was a tiny item appearing in the Nikkei Asian Review on September 1st. Reporting from Denpasar, Indonesia, Damon Evans wrote, ‘China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry.’
Not bitcoin backed, not ethereum backed, g-o-l-d backed. How low tech of the Chinese. For the moment, oil is priced in dollars, whether it’s Brent or West Texas Intermediate.
Evans explained,
China’s move will allow exporters such as Russia and Iran to circumvent U. S. sanctions by trading in yuan. To further entice trade, China (the world’s largest oil importer) says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong.
This will be China’s first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies.

This post was published at Ludwig von Mises Institute on October 20, 2017.

Yield Curve Inverts, Yuan Slides As China GDP Growth Slows

Despite all the talk of deleveraging, China did anything but according to its most recent data but the lagged impact of the tumbling credit impulse is starting to show up in the broader macro data. Despite the National Congress being under way (and recent credit spikes and positive PBOC hints) GDP growth limped lower to the expected +6.8% YoY, and fixed asset investment growth was the weakest in over 17 years…
Ahead of tonight’s data dump, China macro data had been disappointing notably, having tumbled for over a month to its weakest since August 2016…

This post was published at Zero Hedge on Oct 18, 2017.

Overheating China PPI Sends 10Y Yields To 30 Month Highs As Banks Inject Another Quarter Trillion Dollars In Loans

Despite a disappointing US CPI report on Friday, which saw core inflation miss once again despite an expected spike due to the “hurricane effect”, moments ago China reported that in September, its CPI printed at 1.6% Y/Y, in line with expectations, and down from, 1.8% in August largely due to high year-over-year base effects, but it was PPI to come in smoking hot, jumping from 6.3% last month to 6.9% Y/Y, slamming expectations of a 6.4% print and just shy of the highest forecast, driven by the recent surge in commodity costs and strong PMI surveys.
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While there has been no reaction in the Yuan, either on shore or off, the stronger than expected PPI has pushed China’s 10Y yield to the highest in 30 months, or since April of 2015.

This post was published at Zero Hedge on Oct 15, 2017.

The Gold-Backed-Oil-Yuan Futures Contract Myth

On September 1, 2017, the Nikkei Asian Review published an article titled, ‘China sees new world order with oil benchmark backed by gold’, written by Damon Evans. Just below the headline in the introduction it states, ‘China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry’. Not long after the Nikkei piece was released ‘the story’ was widely copied in sensational analyses throughout the gold space. However, ‘the story’, as presented by Nikkei, doesn’t make sense at all. Allow me to share my 2 cents in addition to what I shared previously on the Daily Coin.
All the rumours and analyses on gold, oil and yuan that are making rounds now in the blogosphere are based on the Nikkei article. But the Nikkei article itself contains zero official sources. Basically, the whole story has been invented by Damon Evans. So, let’s start addressing the claims made in the Nikkei piece.
It’s true that the Shanghai Futures Exchange (SHFE) – not to be confused with the Shanghai Gold Exchange (SGE) – has recently set up a subsidiary called the Shanghai International Energy Exchange (INE), for foreign enterprises to trade a new oil futures contract denominated in yuan which is expected to be launched later this year (product symbol: SC). Specifications of the contract can be read here. In all official sources, though, there is no mention of gold. Officially this contract is not ‘convertible into gold’.

This post was published at Bullion Star on 15 Oct 2017.

Oil for gold – the real story

Following an article in the Nikkei Asia Review, which reported China will shortly introduce an oil futures contract priced in yuan, there has been some confusion about what it means. The article pointed out that in combination with existing gold futures priced in yuan, an oil exporter to China contracting to accept yuan could use these two futures contracts to take delivery of physical gold in payment for oil.
I was quoted in that article as follows:
“It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,”i
The mechanism of introducing an oil for yuan contract could hardly be clearer, yet the rumour mill went overtime into Chinese whispers. Some analysts appeared to think China was authorising a new oil for gold contract of some sort, or that China would be supplying the gold, both of which are untrue.

This post was published at GoldMoney on October 12, 2017.

DOLLAR BLOW: China Launches New ‘Yuan-Ruble’ Payment Mechanism

The US received a major blow to its global hegemony, and one which is sure to trigger more fighting talk from hawks in Washington.
This week it was announced that China has established a ‘payment versus payment’ (PVP) system to clear Chinese yuan and Russian ruble transactions. The aim, we’re told, is to to ‘reduce risks and improve the efficiency’ of its foreign exchange system.
The new mechanism, which could rival the long-held monopoly of the US SWIFT inter-bank payment system (allowing for simultaneous settlement of transactions in two different currencies) was launched on Monday after receiving approval from China’s central bank, according to a statement by the country’s foreign exchange trading system.
However, financial oligarchs in Wall Street will view this move as an act of aggression in challenging the preeminence of the US dollar as the planet’s global reserve currency – which is inextricably tied and nearly completely dependent on the US ‘Petrodollar’ to prop-up the value of the US fiat currency. Georgetown University scholars note here:
Since petrodollars and petrodollar surpluses are by definition denominated in U. S. dollars, then purchasing power is dependent on the U. S. rate of inflation and the rate at which the U. S. dollar is exchanged (whenever there is need for convertibility) by other currencies in international money markets. It follows that whenever economic or other factors affect the U. S. dollar, petrodollars will be affected to the same magnitude. The link, therefore, between the U. S. dollar and petrodollar surpluses, in particular, has significant economic, political, and other implications.

This post was published at 21st Century Wire on OCTOBER 13, 2017.

Stocks Up and Yields Down

Many gold bugs make an implicit assumption. Gold is good, therefore it will go up. This is tempting but wrong (ignoring that gold does not go anywhere, it’s the dollar that goes down). One error is in thinking that now you have discovered a truth, everyone else will see it quickly. And there is a subtler error. The error is to think good things must go up. Sometimes they do, but why?
First, we think it’s a cop-out to say, ‘well it’s all subjective.’ If it were all subjective, then there would be no way to say that gold is good, and no way to say that it ‘should’ go up. It would be sufficient to say, ‘gold is $1,276.’ Indeed that is all that one could say, if everything were subjective.
Why is gold trading at that price? Subjective preference, nothing more. Will it trade at $12,760? Maybe. If subjective preference changes. One might as well say ‘if God wills it.’
But it is not all subjective. There is something objectively wrong with the dollar and all of its derivatives such as euro, pound, yuan, etc. They are all slowly failing. Gold is the alternative to holding the dollar.
It is important to keep in mind that most people do not like to buy on speculation. This may be particularly difficult to understand if you are someone who bought gold as a bet on its price. Most people buy, not because they expect a discontinuous change, but simply because they have goals to achieve.

This post was published at GoldSeek on Monday, 9 October 2017.

I Know What the Economy Did Last Summer Part 2: The Real Estate Rollover

In fact, I knew what the economy did last summer before summer even began. Since the beginning of the year, I have been writing that it appeared housing was reaching a new bubblicious peak and that the real estate market was getting ready to roll over. Just before the start of the summer, I confirmed that prediction by saying that it looked like that process had begun. I anticipate it will be a slow turnover at first, just as it was in 2007, which did not reach free fall until late in 2008. Likewise, I anticipate the present decline will not reach free fall until 2018.
While housing played out about as I expected this summer (see below), the more obvious collapse right now is developing in metropolitan commercial real estate, particularly in retail space due to the retail apocalypse. Even longtime commercial real-estate mogul Sam Zell warned last week that he would not consider investing any capital in retail real estate. In Zell’s words, the real estate landscape looks ‘like a falling knife.’
‘An area that’s in this much disarray, with so many weak players, is not an area where I would want to deploy capital at this time. And I’m generally a contrarian, and I generally rub my hands together at the opportunity for serious dislodgment, but I think what we’re dealing with here is very significant… It’s going to be very hard to take that shopping center land and redevelop it with all of these competing people having rights.’ (Newsmax)
Zell sees retail’s mortal throes as a violent struggle that is going to take a few years to play out.
A second problem the commercial real estate bubble faces (and Zell describes it as a bubble in that there is way too much space dedicated to retail in the US compared to other nations), is that Chinese investors are being forced to exit, and they have been a major support to that space. In Manhattan, for example, Chinese investors have made half of all commercial real estate purchases. The Chinese government decided this summer to squeeze that dry in order to stop the flow of yuan out of the country. In London and Australia, Chinese buyers accounted for about a quarter of commercial real-estate purchases. The Chinese government is pressuring Chinese banks to stay away from these deals.

This post was published at GoldSeek on Sunday, 8 October 2017.

Maduro Visits Putin, Proposes Global Oil Trade In Rubles, Yuan

Three weeks after the US imposed financial sanctions on Venezuela in an effort to cripple its economy and choke the Maduro regime, which in turn prompted Caracas to announce it would no longer receive or send payments in dollars, and that those who wished to trade Venezuelan crude would have to do so in Chinese Yuan, today during an energy summit held in Moscow, Venezuela’s president Nicolas Maduro proposed to expand his own personal blockade of the US, by proposing that all oil producing countries discuss creating a currency basket for trading crude and refined products. One which is no longer reliant on the (petro)dollar.
‘Developing a new mechanism of controlling the oil market is necessary,’ Maduro said on Wednesday at the Russian Energy Forum, being held in Moscow this week.
Quoted by RT, Maduro also blamed trade in crude oil paper futures as having an adverse impact on the oil market, which has undermined attempts by OPEC to stabilize prices. To counteract such “speculation”, Maduro proposed an alternative currency basket, one which is based not on the world’s reserve currency but includes the yuan, ruble, and other currencies, and which will mitigate the alleged adverse impact of futures trading.

This post was published at Zero Hedge on Oct 4, 2017.

A Failing Empire, Part 2: De-Dollarisation – China and Russia’s Plan From Petroyuan To Gold

As seen in my previous article, US military power is on the decline, and the effects are palpable. In a world full of conflicts brought on by Washington, the economic and financial shifts that are occurring are for many countries a long-awaited and welcome development.
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If we were to identify what uniquely fuels American imperialism and its aspirations for global hegemony, the role of the US dollar would figure prominently.
An exploration of the depth of the dollar’s effects on the world economy is therefore necessary in order to understand the consequential geopolitical developments that have occurred over the last few decades.

This post was published at Zero Hedge on Oct 4, 2017.

China Catalyst To Send Gold Over $10,000 Per Ounce?

Jim Rickards is on record forecasting $10,000 gold.
But is China about to provide the catalyst to send gold even higher? And by how much?
Today, we fare forth in the spirit of speculation… follow facts down strange roads… and arrive at a destination stranger still…
China – the world’s largest oil importer – struck lightning through international markets recently.
According to the Nikkei Asian Review, China has plans to buy imported oil with yuan instead of dollars.
Exporters could then exchange that yuan for gold on the Shanghai Gold Exchange.
Not only would the plan bypass the dollar entirely… it would restore gold’s role in international commerce for the first time since 1971, when Nixon hammered the last nail through Bretton Woods.

This post was published at Gold Core on September 30, 2017.

Another Potential Game Changer for Gold Supply: Chinese Oil Imports Convertible to Gold

There are clear supply pressures coming to the gold market, so the last thing it needed was a new source of demand. But that’s exactly what it’s about to get, and as you’ll see, it could potentially push supply into a strained predicament. If this new development catches on it could lead to some fireworks in the gold market.
This source of demand comes from China’s announcement that oil exporters to China will accept yuan as payment. This is normally done in dollars (hence known as the petrodollar system). The yuan is not well established internationally yet, so as an incentive, China will offer its exporters the option to convert their yuan into gold. This will essentially result in a new source of gold demand, one not currently present in the market.
So how much gold are we talking about? Let’s run the numbers…
China’s imports in 2017 have averaged 8.55 million barrels of oil per day. This is already 14% more than last year, and has made them the world’s largest crude oil importer. Every report I’ve read says imports will continue to grow by double digits. A launch date for the program hasn’t been finalized, but let’s assume 9 million barrels per day starting next year.
The one-year forecast for a barrel of crude oil is $60 (it’s $59 as I write). That equates to $540,000,000 per day. At a $1,300 gold price, that means 415,384.6 ounces of gold per day could potentially be converted. That’s a whopping 151,615,384 ounces per year.
Not all of that would be converted, of course. But consider that many of the countries that export oil to China aren’t exactly friends of the US, and some are outright enemies, so the conversion rate would probably be greater than if it were all coming from Canada or Norway, or countries that already have a lot of gold. Further, conversions would almost certainly rise in a crisis, especially if Mike is right about the coming monetary shift.

This post was published at GoldSeek on Friday, 29 September 2017.

A New Challenge to the Dollar

In a move that was little noticed outside of the financial world, China announced the creation of an oil futures contract (open to international traders) that will be denominated in Yuan and convertible into gold. This move provides the first official linkage of oil to gold, and more importantly a linkage between the Chinese currency and gold. While the contract volumes that will be traded on this new platform will certainly be minuscule in comparison to those in the dominant markets of New York and London (at least initially), I believe the move is the latest, and perhaps most significant, step that China has taken down the path that could lead to a global economic system that is not fully dependent on the U. S. dollar. The move amounts to a direct challenge to the dollar’s privileged reserve status and could threaten U. S. dollar price erosion.
The move comes at a time when the U. S is particularly vulnerable to an economic challenge. Given the bold, but not particularly diplomatic, efforts of the Trump Administration to push an America First agenda, the U. S. finds herself somewhat isolated. Add to this the widening political polarity in the U. S., which will make it that much less likely that Washington can take needed action in passing economic reforms to prevent a looming debt crisis. The dollar has been neglected far too long, and its strength may be far more tenuous than many imagine.
By way of background, the United States emerged from World War II as the world’s undisputed economic, financial and military leader. In 1944, at Bretton Woods, the U. S. dollar, convertible into gold exclusively by central banks, was adopted as the world’s main reserve currency. This status meant that the dollar was used to price most commodities, used to transact nearly all international trade. This status further strengthened the dollar and helped make Americans the richest people in the world.

This post was published at Euro Pac on September 28, 2017.

The Demise Of The Dollar As We Know It: ‘A Break Is Coming… On A Worldwide Basis’

The significance of the shift taking place on a geo-political basis to unseat the U. S. dollar as the world’s reserve currency cannot be understated. It is, by all means, a complete upending of the financial and economic systems as we have come to know them. According to Keith Neumeyer, the Chairman of First Mining Finance and Chief Executive Officer of First Majestic Silver, the world’s purest silver producing mining company, the move is already taking place with countries like China, Russia, Venezuela and Iran already beginning to trade commodities with Yuan, Rubles and gold.
Amid a recent announcement about developments in the gold and silver mining industry discussed in the following interview with SGT Report, Neumeyer, who previously called out, in very public fashion, the manipulation of precious metals by a small concentration of market players, says that the global currency wars currently playing out on the monetary battlefield will lead to significant price increases in the world’s most trusted hard assets of last resort.

This post was published at shtfplan on September 24th, 2017.

Bond Market Bulls Embrace China Debt Downgrade

It appears credit ratings agencies simply get no respect…
Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how “stable” China truly is through its nationalized capital markets, S&P followed suit this week when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most important congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.
‘China’s prolonged period of strong credit growth has increased its economic and financial risks,’ S&P said.
‘Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”
According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.
The cut will ‘have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,’ said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. ‘It will affect corporate financing.’

This post was published at Zero Hedge on Sep 23, 2017.

S&P Downgrades China To A+ From AA- Due To Soaring Debt Growth

Four months after Moody’s downgraded China to A1 from Aa3, unwittingly launching a startling surge in the Yuan as Beijing set forth to “prove” just how “stable” China truly is through its nationalized capital markets, moments ago S&P followed suit when the rating agency also downgraded China from AA- to A+ for the first time since 1999 citing risks from soaring debt growth, less than a month before the most important congress for Chiina’s communist leadership in the past five years is set to take place. In addition to cutting the sovereign rating by one notch, S&P analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. are unlikely to avoid default should the nation default on its sovereign debt. Following the downgrade, S&P revised its outlook to stable from negative.
‘China’s prolonged period of strong credit growth has increased its economic and financial risks,’ S&P said. ‘Since 2009, claims by depository institutions on the resident nongovernment sector have increased rapidly. The increases have often been above the rate of income growth. Although this credit growth had contributed to strong real GDP growth and higher asset prices, we believe it has also diminished financial stability to some extent.”
According to commentators, the second downgrade of China this year represents ebbing international confidence China can strike a balance between maintaining economic growth and cleaning up its financial sector, Bloomberg reported. The move may also be uncomfortable for Communist Party officials, who are just weeks away from their twice-a-decade leadership reshuffle.
The cut will ‘have a relatively big impact on Chinese enterprises since corporate ratings can’t be higher than the sovereign rating,’ said Xia Le, an economist at Banco Bilbao Vizcaya Argentaria SA in Hong Kong. ‘It will affect corporate financing.’
‘The market has already speculated S&P may cut soon after Moody’s downgraded,’ said Tommy Xie, an economist at OCBC Bank in Singapore. ‘This isn’t so surprising.’

This post was published at Zero Hedge on Sep 21, 2017.