Sunday, February 23, 2020

Oh, Gold!!!!


Gold (Gold)
Always believe in your soul
You've got the power to know
You're indestructible, always believe in, 'cos you are

Gold (Gold)
I'm glad that you're bound to return
There's something I could have learned
You're indestructible, always believe in
—Spandau Ballet (1982)

Oh, Gold!!!!

The financial media have recently bannered unprecedented heights attained by major equity benchmarks of developed economies. The adrenalin rush, however, overshadowed the feat of a critical financial asset: gold.

Of a few establishment media that carried gold, the CNBC reported: Gold jumped more than 1.5% on Friday to its highest level in seven years as investors rushed to the metal’s safety due to concerns over the global economic fallout from the fast-spreading coronavirus. 
 
Up 1.75% on Friday, February 21st, the (Chicago Mercantile Exchange) CME gold prices sprinted to a 7-year high to $1,648.8. For the week, gold was up by 3.93%, boosting year-to-date return to 8.93%.

Despite the spirited run, the USD gold has still been off by about 12.2% from 2011 high of $1,878.

The US financial media broadcasted the USD price of gold. But it did not cover the prices of the gold in OTHER currencies, where the action truly mattered.

What you are about to see is a defining monumental process in financial history!

Lo and Behold, Gold’s phenomenal rise against central banking’s Fiat Money standard!
Gold prices broke into ALL-TIME highs against almost all of the most traded currencies, in particular, the euro, the yen, pound, the Aussie dollar, the Canadian dollar, the Swedish krona, and the New Zealand dollar! Like the USD, gold is within breathing distance of overtaking its previous apex against the Swiss franc.

Like a pandemic, gold’s upsurge had almost been ubiquitous. Gold’s insurgency spread to the emerging markets. Please do note that this is not a one-time event, but a process represented by their underlying trends.
 
Except for China’s yuan where gold prices seem about to test its breakout point, gold has likewise forayed into uncharted territory relative to the major emerging market currencies led by the acronym BRICS, specifically, Brazil’s real, Russian ruble, Indian rupee, and South African rand!

Gold’s rebellion has spread even to ASEAN.
 
It’s a new zenith for gold prices in the Philippine peso!

Gold prices in Malaysian ringgit, the Indonesian rupiah, and the Vietnam dong have also reached fresh spectacular heights! Though lagging, like her peers, gold prices in the Thailand baht appears on the way to set a new record.

In a publication at the London Bullion Market Association (LBMA), the Philippine central bank, the Bangko Sentral ng Pilipinas (BSP), enumerated reasons for their gold reserves*: (bold mine)

The BSP holds gold for several reasons. First is for security purposes as it is a real asset and it is no one’s liability. Further, it is an attractive asset to hold during times of uncertainty as it is considered a safe-haven. Another reason is for diversification as it has a low correlation with other assets that the BSP manages. Still another reason is that investors prefer to own gold when inflation and inflation expectations are high as this precious metal is considered a hedge against accelerating prices. Finally, the BSP maintains a portion of its reserves in the form of bullion since the Philippines is a significant producer of gold.


*Joni Teves, Treasury Operations Officer, A Heart of Gold: Gold at the Heart of Bangko Sentral ng Pilipinas Reserve Management, Bangko Sentral ng Pilipinas LBMA

The near-simultaneous upside price actions of gold against almost every currency has signified a CONVERGENCE.

A convergence of or against what?

For the time being, to cushion the global economy from a slowdown, which is being intensified by the emerging coronavirus COVID19 pandemic, many global central banks appear to have been synchronizing financial easing policies by slashing policy rates (and) or by revving up on asset purchases (monetary inflation).

For instance, major central bank rate cuts from last year (2019) to date: Fed: -75 bps ECB: -10 bps Denmark: -10 bps Australia: -75 bps Brazil: -225 bps Russia: -175 bps India: -135 bps China: -26 bps Korea: -50 bps Mexico: -125 bps Indonesia: -100 bps Philippines: -100 bps Thailand: -75 bps Malaysia: -50 bps Turkey: -1325 bps.

In aggregate, a total of 22 rate cuts as of last week had been implemented by central banks across the world in 2020 alone!

But the negative real rates from these, intended to maintain and support current credit positions, as well as to boost its use, won’t be sufficient to fuel gold’s run. It’s the outcome from it vis-a-vis real economic forces that shapes the socio-economic climate.

Whether street inflation surges or not, in reaction to the massive supply-side disruptions from a crucible of real adverse forces in the face of central bank actions, the escalating uncharted experiments on monetary inflation have pointed to the magnification of uncertainty on a global scale.

In an interview with Ms. Gillian Tett at Council of Foreign Relations (CFR) on October 2014, former Fed chief Alan Greenspan aptly remarked:

Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it. And so that the issue is if you are looking at the question of turmoil, you’ll find as we always find in the past, it moves into the gold price.

The bottom line: Gold's uprising against central banking fiat currencies warn that the world is in the transition of entering the eye of the financial-economic hurricane!

Buckle up!

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