Has China Taken Control Of Gold?

July 25, 2018 

* Currencies can’t find a bid on Tuesday

* Subsidies to offset tariffs?

Good Day… And a Wonderful Wednesday to you! I’m sure hoping that my time away from home for the next two weeks, is better for my sleep time! Because I’m tired of what’s been going on here these nights! Yes, the day will finally arrive very early tomorrow morning when I board a plane going south! And this year, the whole family is going to be there with me! Usually it’s Andrew, Rachel and Braden, along with Alex that go with us this time of year. Dawn, Jerry, Delaney and Everett, usually go in the spring for Spring Training games, and warm weather. But this year, Dawn & family are going too! It’ll be a crowded little condo that we own, but we’re all family, so who cares, right? Jr. Walker and the All-Stars greet me this morning with their song: What Does It Take… (love that song!)

For my last Pfennig before vacation, I’m going to be nice and sweet, no harping on or calling people dolts, including myself! No complaining, no whining, no Chuck being Chuck… But more like Chuck when he was courting Kathy, all sweet, and lovey dovey! HAHAHAHAHAHA! So, let’s get to the meat of this letter today!

The currencies couldn’t find any buyers yesterday, and the euro dropped below 1.17 once again. And Gold didn’t do much better, after starting the day up $2, it ended the day down 10-cents… Yes, that’s what was left of the early $2 gain, just one thin dime… 

I am going to point out something that’s worrisome to me regarding the currency was last around this level back in January of 2017, and that was when there was a flight of capital flow out of China… A lot of observers, including me, thought that China would devalue the renminbi at that point, but they didn’t…  And a couple of weeks ago, it appeared that they were finished with this round of weakening the renminbi, but that was just a pause for the cause, apparently…  Talk about currency manipulation! But they have a managed currency, one that doesn’t float, so they can do with it what they want, as long as they realize that a weak currency invites inflation into the economy… 

I was sitting in front of my TV yesterday, for a short period of time, and while doing that, a blurb came across the screem that said that president Trump had announced a subsidy bill for billions of dollars to farmers that will be hurt by the trade war… He then tweeted that “tariffs are great!” Just don’t tell that to any company that gets parts from overseas, like Harley Davidson, Whirlpool, and others… tariffs aren’t so great for them!

So, that’s how it’s done I guess… get in a trade war, and then have tax payers pick up the bill for the subsidies to those hurt by the Trade War! OK, Chuck settle down, you said lovey, dovey today, remember? Yes, I do, but I want you all to think about that.. Your tax dollars being spent that way… Wouldn’t you rather have them spent on new bridges and roads, Fire Houses, etc.? But that’s what happens when you start a Trade War… unintended consequences…

Today, a delegation from the European Union (EU) comes to Washington D.C. to talk to President Trump about ending this Trade War with them. Jean Claude Juncker the EU Commission’s President, said that if no resolution to these tariffs can be found that the EU is prepared to retaliate the U.S. tariffs… So, I guess we want to hear later today that the U.S. and EU negotiated an agreement… Otherwise, that Beemer you were hoping to buy come fall, is going to be more expensive than you planned! 

A dear reader, (thanks Dave!) sent me a link to an article that was about China taking control of the direction of Gold away from the COMEX… OK, I’ve thought long and diligently on this, and I tend to agree with the writer’s theory that the Chinese are not only pushing their currency, the renminbi, weaker to offset tariffs, but also the price of Gold, to keep commodities from getting to high priced while this Trade War is going on. You should see the graph that Gold Guru, Omar Ayales sent me that showed the movement of Gold’s price and that of the renminbi… Talk about moving in tandem! So, Gold get’s pushed down in yet another of the unintended consequences of the Trade War…

Where will it stop? Well, according to the article, it appears that $1,174 has a target on it… That’s another $50 bucks or so, from where we are this morning… I don’t know if I can stand to watch it get taken down like that.. But if that’s what it’s going to be, then so be it… I will batten down the hatches with my Gold & Silver, and expect you do the same, for we all know these two metals are not going to zero value, and that these drops just bring us excellent buying opportunities…

Alrighty then, that brings us to the section that talks about U.S. data…  In the U.S. Data Cupboard yesterday, we saw the Markit version of a PMI index tick higher in July from 55.4 last month to 55.5 this month, so not a great or strong move forward, but no real signs of the Trade War interfering here yet. Today’s Data Cupboard will show us the June New Home Sales… On our Marvelous Monday June’s Existing Home Sales came in weaker than the previous month’s total… Are those cracks in the foundation? I guess we’ll have to keep an eye on that one, eh? 

Tomorrow’s Data Cupboard will have the June print of Durable and Capital Goods Orders, which should go in line with the rest of the data that has printed for June and be stronger than the May print, which for Durables was negative! 

To recap…  The currencies couldn’t find a bid yesterday, and lost some ground, while Gold was only able to eke out a 10-cent gain. Gold is up more than $6 in the early morning trading today though…  Trump announces subsidies for farmers hurt by the Trade War, and Chuck has a problem with the whole scenario… But he just points it out today, as he is all lovey dovey today!

For What It’s Worth…  Ok, since the news this morning on Gold and it’s price going forward for now, wasn’t so good, this article from Zerohedge.com seems to be bang on time! And it can be found here: https://www.zerohedge.com/news/2018-07-21/case-gold-not-about-price

Or, here’s your snippet: “Rather than long-term, ever-higher, onward and upward, we see strictly defined periods of extreme volatility. Indeed, it appears almost cyclical.

And our previous total return of 4,400 percent for the forty-year period August 1971 to August 2011, is reduced to 900 percent. Even so, that is the equivalent of a 6% average annual return, net of inflation. Which is huge.
(In case you are interested, the average annual return for the S&P 500 – with dividends reinvested – for the same exact time period, is 5.13 percent.

That relatively small differential on an annual basis is magnified considerably when you compare cumulative total returns: Gold at 900% vs. S&P 500 at 639%)

So, does the nine hundred percent total return/6% annual return represent a profit? Yes, most definitely. Net of the effects of inflation, the price of gold increased ten-fold; all of which represents added value. Here’s why…

In 1971, the cost for one loaf of bread was $.24. The average cost for one gallon of gasoline was $.36. With gold at $42.00 per ounce, you could purchase one hundred seventy-five loaves of bread or one hundred seventeen gallons of gasoline (or some combination of the two).

Forty years later, in 2011, the average cost for one loaf of bread was $2.42; and one gallon of gasoline was priced at $3.52. Hence, again, using only one ounce of gold (this time priced at $1900.00 per ounce) you could purchase seven hundred eighty-five loaves of bread or five hundred thirty-nine gallons of gasoline.”

Chuck Again… The title of the article is: The Case For Gold Is Not About The Price…  of which I wholeheartedly agree! It’s a store of wealth and protection from raging inflation… 

Currencies today 7/25/18… American Style: A$ .7415, kiwi .6812, C$ .7620, euro 1.1693, sterling 1.2155, Swiss $1.0079, European Style: rand 13.2470, krone 8.1660, SEK 8.7980, forint 278.86, zloty 3.6795, koruna 21.9458, RUB 62.98, yen 111.10, sing 1.3624, HKD 7.8451, INR 68.69, China 6.7995, peso 18.82, BRL 3.7638, Dollar Index 94.51, Oil $68.40, 10-year 2.94%, Silver $15.59, Platinum $841.61, Palladium $931.20, and Gold… $1,231.13

That’s it for today, this week, and for the next two weeks! This is the vacation where I don’t even take my laptop with me! It’s my opportunity to “get away” from the markets… Another gem of a game pitched by a different rookie pitcher for my beloved Cardinals last night, this time the Cardinals were able to win the game! Day game today! YAHOO! Love day baseball, the way it should be played all the time! Well, it’s that time to say goodbye for two weeks… The late great Alvin Lee takes us to the finish line today with a live version of his song: Going Home… Alvin Lee was a great guitar player, and died too early in life, when he checked into a French hospital for a simple procedure, and his life ended… I still say his performance at Woodstock was one of the best there!  And with that, I’m outta here… I hope you have a Wonderful Wednesday, and please remember to Be Good To Yourself!

Chuck Butler