Record Prices Spur Gold Bar Smuggling Out of China, Negative Real Rates ‘Boost Silver’ as UK

GOLD BARS traded in London’s wholesale bullion market fell and then rose back to $1935 per ounce Wednesday lunchtime, standing unchanged for the week so far as Western stock markets stemmed the steep plunge of the last 4 sessions. With the EuroStoxx 600 rallying 0.9%, the Nasdaq 100 index of US-listed tech stocks headed for a 1.5% rise at today’s opening in New York, trimming its plunge of 1/10th from last Wednesday’s new all-time high. Relative to gold – against which the index peaked at more than 15 ounces at the top of the DotCom Bubble in March 2000 – the Nasdaq has now gone sideways since the middle of 2018, despite rising by more than one-half in cash terms.

Gold prices in China today fell to trade $51 per ounce below London quotes, suggesting weak demand versus supply in the metal’s No.1 mining, importing and household consumer nation – from where it is illegal to export gold bullion bars. “There is a difference in gold prices [between] Hong Kong and mainland China,” the South China Morning Post today quotes a police officer in the city, blaming this 10-20% gap for an attempt to smuggle 20 one-kilogram gold bars – worth around US$1m – into the formerly ‘autonomous’ region of the Communist dictatorship.

Gold Price’s Link with Real Rates Weakening as US 10-Year Falls to New Record, Deflation Hits Euro

GOLD PRICES bounced $5 per ounce lunchtime Wednesday in London from $1960 – their lowest of the week so far – as European stock markets rose sharply from 4 days of losses amid a drop in both the 19-nation Euro currency and longer-term interest rates following data showing the cost of living across the Eurozone falling into deflation for the first time 4 years, writes Adrian Ash at BullionVault. Euro gold prices rose towards €1660 per ounce, the top of the last 2 weeks’ trading range.

That, like Wednesday’s US Dollar and Euro gold price, marked a new record high when first reached in late-July. Inflation-adjusted yields on 10-year US Treasury bonds meantime tell Wednesday to new lifetime lows at -1.11% per annum, while real rates on 5-year debt fell to -1.44%, the lowest since Spring 2013. Gold’s inverse relationship with real interest rates reached a near-perfect -1.00 in early August as the metal set its current all-time high of $2075, but has weakened markedly since, with the 5-week correlation between Dollar gold prices and 10-year TIPS reaching -0.58 on a rolling 5-week basis after touching -0.99.

August brought ” plenty of action to drive position rebalancing,” says a note from the Asian trading desk of Swiss refining and finance group MKS Pamp, pointing to last week’s Jackson Hole speech from US Federal Reserve chief Jerome Powell – vowing to let inflation rise above its 2% target to support the economic recovery – plus Japanese prime minister Shinzo Abe’s surprise resignation for health reasons. “[But] in the end it was largely old themes which prevailed – Dollar weaker, gold stronger, and US equities higher…with ‘reflation’ trades stepping back in.”

Gold pushes higher ahead of Fed meeting

(USAGOLD –9/15/2020) – Gold continued to push higher in the wake of Treasury Secretary Mnuchin’s cautioning of the Fed and Congress that “now is not the time to worry about shrinking the deficit and the Federal Reserve’s balance sheet.” Mnuchin’s unusual appeal comes ahead of the Fed’s meeting and press conference tomorrow and amidst the ongoing wrangle in Congress over a fiscal spending package. Wall Street, for its part, expects trillions more in stimulus from the Fed and Congress, according to a CNBC survey released this morning. Those expectations look like they might be spilling over to the precious metals markets. Gold is up $11 in today’s early going at $1971. Silver is up 38¢ at $27.60.

“What we are witnessing,” writes economist and fund manager Daniel Lacalle in an essay at the Mises Institute website, “is a generalized fiat currency debasement through extreme monetary policy. That is the reason why gold and silver continue to rise despite hopes of an economic recovery that seems to be stalling. The US Dollar will likely remain the most demanded fiat currency, but the excessive monetary stimulus will ultimately damage the confidence in most fiat currencies.”

“As Americans prepare to cast their vote in the US election, a nightmare scenario looms large: what if Donald Trump were to lose the presidency but refuse to accept defeat?”

USAGOLD note:  We were torn as to whether or not we should post this article given our long-standing aversion to covering electoral and party politics at this daily newsletter.  At the same time, the potential market repercussions to the events theorized in this article are something every investor should take under advisement. Though the article centers on what might happen if a defeated President Trump refuses to leave the White House, the Biden campaign has also warned that it might not concede defeat.