China Restricting Imports of Gold - ABC Bullion report 16 August 2019

Discussion in 'General Precious Metals Discussion' started by Oddjob, Aug 17, 2019.

  1. Oddjob

    Oddjob Well-Known Member Silver Stacker

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    Latest report from ABC Bullion co-authored by SilverStackers own Bron Suchecki (and John Feeney)

    https://www.abcbullion.com.au/investor-centre/pdf/cash-ban-coming#.XVeTOWeP7mU

    Had to crop report due to length. Clink above link for full report.

    Cash Ban Coming
    16 August 2019

    Precious Metals Commentary

    The gold price consolidated this week with trading bouncing off $1,500 but being capped at $1,525. There was one sell-off mid-week in reaction to better US CPI figures and Trump delaying China tariffs until mid-December.

    [​IMG]
    However investors became risk adverse and dumped US stocks as the yield on 10-year Treasury bonds dipped below the 2-year Treasury, the first time since June 2007. We discussed yield curve inversions back in March, when 3-month interest rates went higher than those for 10-year bonds.

    We noted at the time that many commentators consider the 10-year minus 2-year as the real signal of an upcoming recession. Well, here we are five months later. The local market picked up on those fears with the ASX200 lower by 2.2% and gold stocks in favour.

    Continuing protests in Hong Kong and talk of Chinese troops mobilising on the border, India and Pakistan tensions, collapse of the Argentine peso and a contraction in German GDP gave the markets plenty of doom to focus on and gold looks firm at time of writing as it tests $1,525.

    Silver, after a bit of catch up late July, continues to track movements in gold holding above $17. It is still at a historically high gold:silver ratio of around 88 and we were expecting more outperformance by now, but both metals appear to be consolidating.

    The Australian dollar has also been moving sideways this week just under 0.68, resulting in Aussie gold moving around in the low $2,200s and silver in the mid-$25s.

    China Restricting Imports

    This week, Reuters reported that China has been severely restricting imports of gold since May, cutting “shipments by some 300-500 tonnes compared with last year”.

    While many are aware that local and international banks require a license to import gold into China (with exports not allowed), it is less known that those banks are given monthly import quotas by the Chinese central bank.

    In situations when the yuan weakens and the Chinese government wishes to control capital outflows, restricting gold imports is an option as it is a non-essential consumer good. Such changes show up in the premium/discount that the local Chinese gold price trades at relative to international gold prices.

    You can see from the chart below from the World Gold Council that the premium has been elevated recently.

    [​IMG]
    Not all premium fluctuations are related to explicit import quota curbs and can result from banks misestimating Chinese local demand and then having either too much or too little gold to sell. Reuters reported that the high local gold price has resulted in some domestic sales of gold by investors looking to book profits, and this can provide a counter balance to any import restrictions.

    We would say that the strength of the gold price while these import restrictions have been in place is encouraging and further support to prices will be provided when China inevitably reopens its gold market.

    While commercial imports have been curbed, China’s central bank recently reported that it purchased another 9.96 tonnes of gold, so any concerns about the outflow of dollars is not affecting China’s ongoing diversification of its reserves away from the US dollar.



    Gold Will Fall to $700

    This week we came across an article by newsletter writer Harry Dent who said that $1,525 was a key resistance that gold needed to break through before he would become bullish which, “if pierced, gold would have substantially higher targets –$1,600 to as high as $1,800”. We can see the logic in the $1,525 level and will be watching it with interest as gold is currently testing it.

    It caught our eye because we remember Harry pushing not more than two years ago the claim that “Gold Will Fall to $700/oz!” (with exclamation mark) due to “unmistakable signs” that gold would “melt down” because of a great economic crash forecasted for 2017.

    We don’t generally pull up forecasters on wrong calls as predictions are a tough task but flipping from $700 to $1800 stretches credibility in our opinion. Maybe Harry should memory hole that webpage although that may not help as reading through various precious metal discussion forums we see many that wouldn’t let him forget that call.

    On the more encouraging side, we saw two mainstream mentions of $2,000 gold as a possibility – one from TD Securities worded as “a case for” and Bank of America Merrill Lynch phrasing it as “see scope for gold to rise towards”.

    We are not interested so much in the forecasted price itself, more that these more speculative price forecasts are coming from the mainstream and that there appears to be a ratcheting up of the figures involved. As gold made that initial break in June, the talk was only of $1,500 or $1,600 as a “stretch” call but now we are seeing $1,800 and $2,000 mentioned - an indication in our opinion that the gold bull market is starting to be seen as sustainable by the wider financial market.

    This is a necessary precursor to the (always late to the party) wider public participation in gold as they need the reassurance of obvious bullish chart action and positive mainstream analyst coverage before they feel comfortable buying precious metals.

    Thankfully you, our reader, have already bought your insurance before the proverbial house burns down – right?


    Until next time,

    John Feeney and Bron Suchecki
    ABC Bullion
     
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  2. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    Won't be long before China imposes a tax on gold bullion just like they do in India and Japan.
     
  3. JulieW

    JulieW Well-Known Member Silver Stacker

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    Yes indeed. Dent is someone whose claim to fame puzzles me. Most pundits have at least some correct predictions. I seem to have missed Harry's.

    Speaking of pundits, Bo Polny entertains me. He was an adamant true believer in one of the numbers games, and gained quite a following with his accurate calls, based on his work using his numbers guru's techniques. Unfortunately he stuck his neck out on a call that his infallible number theory supported, making a lot of fuss about how the numbers would prove him right. They didn't and he retreated from the public and proclamations, where in his long day's journey into night he found god. Now his predictions are supported by arcane messages and spirit numbers delivered by god in bible chapters. Seems as reasonable a method of divination as any! :D
     
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  4. JulieW

    JulieW Well-Known Member Silver Stacker

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    On this, Gerald Celente has just called the start of "the greatest depression". He has a better track record than most.

     
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  5. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    How about Gary shilling? Just saw his interview posted on another thread - can't find it now. Maybe someone can hepl post a link? :)

    https://www.youtube.com/results?search_query=gary+shilling

    He's optimistic about the US long term, not so much for China and he thinks we'll be having low rates and inflation.

    He doesn't have much of an opinion on gold but say this many years ago. The last sentence is the most interesting part,

     
    Last edited: Aug 18, 2019

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