Latest report from ABC Bullion co-authored by SilverStackers own Bron Suchecki (and John Feeney) https://www.abcbullion.com.au/investor-centre/pdf/go-aussie-debt-go#.XUPes2eP7mU I've copied a few of the sections below. Rest, click the link. Go, Aussie Debt, Go! 02 August 2019 Precious Metals Commentary Just when you think gold prices are going to pull back and have a breather, Trump comes back into the spotlight with some fresh tariffs on Chinese imports, spiking gold to a high of USD$1,449 before pulling back to $1,433, with silver gaining some ground back to $16.23 per ounce. So the volatility in precious metals prices continues this week and we’ve seen some wild swings so far. In AUD terms, we once again pushed through record highs to $2,105 at time of writing, with silver trading close to $24 per ounce. Trump slapped a new 10% tariff on $300 billion worth of Chinese goods and for those wondering why this lead to such a spike in gold, one must think of interest rate policy in reaction to the expected impact on economic growth. In a way, Trump is backing the Federal Reserve into a corner, with each new tariff making it more likely for the Fed to have an easing bias when it comes to rates. We were proven correct in our previous forecast that the Fed cannot normalise rates without catastrophe, so once again it seems that interest rates in the US are going to start moving back down towards zero, and then potentially negative, depending on which central bank is brave or stupid enough to move the cash rate below zero for the first time. The Federal Reserve made a 0.25% cut to their cash rate on Wednesday, which is the first rate cut since 2008. Central Banks Non-Renew Non-Agreement Last Friday, the European Central Bank and 21 other central banks that are signatories of the Central Bank Gold Agreement (CBGA) decided not to renew their agreement. The first agreement was signed in 1999 in response to a market that was very pessimistic about continued central banks sales after the UK’s widely criticised auction of its gold reserves. At the time, the gold price was on its way down to $250 and all expectations were that it would break below that. The first three agreements set a limit on gold sales across the signatories (shown as dotted bars in the World Gold Council chart below) but the fourth one, which will now lapse, we call a non-agreement because it had no limit. All the fourth agreement said was that the signatories thought gold was important part of reserves, didn’t currently plan to sell any but if they did they would “coordinate”. Like we said, a non-agreement because it didn’t lock them into not selling (or buying, for that matter). It may seem a bit farcical but then bureaucracies love precedent, and maybe in 2014 they weren’t brave enough to non-renew so decided not to scare the market by renewing an agreement but do so without a limit. So no surprise that the market didn’t react to the non-renewal. If anything, the message sent is that the central banks felt the market was strong enough to handle it. Those of a conspiracist bent might argue that the agreement was binned because one or more central banks had sales planned, as the chart above shows, it is clear that they are still keen on holding on to their gold. With all the talk about increasing buying by central banks (with Poland the latest), it is worth noting that there are still some central banks selling. The chart below shows the quarterly buying and selling volume in tonnes, as sourced from the World Gold Council’s Goldhub. The black arrow shows that buying volumes have been on an increasing trend with sales volumes reducing significantly apart from a few sporadic surges. It is also worth noting that by far most central banks just sit tight and neither buy or sell. The chart below shows the number of banks buying or selling out of the 130 that the World Gold Council track. The switch from net selling to net buying happened just after the global financial crisis. Posibly central banks became more fearful and looked to gold to provide a counterbalance? Or maybe they just like pet rocks? As the chart below tweeted out by Ronnie Stoeferle from Incrementum shows, gold performs better than other go-to safe havens. It does always amuse us when mainstream commentators disparage gold investing as stupid. If so, then doesn’t that mean that central bankers are also stupid? In which case why do we trust them with controlling interest rates? Talking about mainstream, we noted last week that gold had attracted the attention of mainstream media but that it hardly indicated any mania phase of a bubble. The bubble that the smart money is starting to worry about is in stocks and bonds, with Bloomberg reporting Societe Generale recommending that its clients “ride the bull until 2020 - when a U.S. recession and a debased dollar will make gold the perfect doomsday hedge”. However while Bloomberg says that gold fever is breaking out from London to New York, narrative analysts at Epsilon Theory say that the idea that lowering interest rates further will result in a debt-fuelled market collapse “still isn’t the dominant narrative” and is barely registering “against the tide of ‘Financial Asset Appreciati Strength = National Strength’ memes promoted throughout political and financial media”. Gold will be the bull to ride once the wider market wakes up. Australia Outperforms We shouldn’t get too smug about US-China dramas down under as University of Sydney adjunct professor Adrian Blundell-Wignall warned that “what is going on in China is extremely dangerous” and a threat to Australia’s future prosperity. He says that the levels of debt in Australia and China make “Japan's level of bank debt look like a boy scouts picnic in comparison … Just because we dig holes in the ground and we build houses, we think we are a smart country that hasn’t had a recession in 28 years”. Yes, as this chart from Nucleus Wealth shows, we are real outperformers in the debt game. Go, Aussies, Go! While we have been building houses and racking up debt to buy them, not surprisingly it seems less and less people are getting close to owning them outright. Possibly something to do with stagnant wages over the past ten years? The chart below comes from the Household, Income and Labour Dynamics in Australia Survey. According to the Westpac–Melbourne Institute Consumer Sentiment Index, there has been a sharp loss of confidence around the economy, with the housing correction (the value of which has declined $370 billion since 2017) a key factor as the dent to household balance sheets results in a negative “wealth effect”, crimping consumer demand. The result is that consumers are still heavily favouring “safe options” like deposits, superannuation or paying down debt as the best place for savings. We’d suggest it wouldn’t hurt to allocate some of that deposit money into safe haven gold and silver. Until next time, John Feeney and Bron Suchecki ABC Bullion
