4-2-19 Three weeks ago a major newspaper in Italy, Il Sole, asserted plainly that central banks have been manipulating the gold futures market to push the gold price down so they more easily can acquire real metal to build their reserves: http://www.gata.org/node/18930
This, the Italian newspaper said, was being done in anticipation of the formal remonetization of gold under the so-called Basel 3 standards devised by the Bank for International Settlements, whereby, as of last Friday, gold in the vault is to be considered an asset as good as cash and government bonds....
What does all this mean to mining companies and their investors? First, it means that metals and minerals are underpriced, along with most commodities, because of the price suppression engineered by central banks to defend their currencies and government bonds. Central banks and governments in the developed world don't want gold, silver, other metals, and other commodities to compete with their currencies as stores of value....
And sixth, it means that people in the mining and commodities businesses may have an obligation to their investors and clients to inform them of the opposition of major governments to free markets and higher commodity prices. It means we all may have an obligation to clamor for governments to tell us the truth about their surreptitious interventions in the markets. For this price suppression works only through deception.
Because it depends entirely on government for its mining claims, royalty requirements and enforcement of environmental regulations, the mining industry is the industry most vulnerable to government. Any government can shut down any mining company on any pretext at any time.
And since the mining industry is also the most capital-intensive industry, with a billion dollars or more required to start a large mine, the industry is also the most dependent for its financing on the major investment banks that are the agents of government in the markets.
………………………………………………………..
An Italian paper gets it: Central banks push gold futures down so they can get more metal to remonetize 2019-03-09
Financial analysis published two weeks ago by a major Italian newspaper, Il Sole, asserted frankly that central banks have been using gold futures and derivatives to suppress the monetary metal's price so they can obtain more of the metal less expensively in advance of its remonetization under new rules promulgated by the Bank for International Settlements to take effect March 29.
Of course the new BIS rules, the "Basel 3" standards, declaring gold in the vault to be a superior asset, equivalent to cash and government bonds, are not news. What's news here is that a mainstream financial news organization has nailed the deception and intrigue of central banks and accused them of rigging the international gold market.
Il Sole may be the first mainstream financial news organization to suggest that central banks are rigging the market so they might obtain more gold in anticipation of remonetizing it and pushing its price up, but the newspaper isn't the first to reach this conclusion. The U.S. economists and fund managers Paul Brodsky and Lee Quaintance hypothesized as much in a study published in 2012 and called to your attention by GATA: http://www.gata.org/node/11373
Will the gold world really change when the "Basel 3" standards take effect on March 29?…But the report by Il Sole may give reason for advocates of limited and accountable government, free and transparent markets, and fair dealing among the nations some reason to stick around for another three weeks.
A not entirely ham-handed English translation of the Il Sole:
Banks and the Return of the Gold Standard: Gold in Financial Statements Becomes Money
By Alessandro Plateroti
Il Sole, Milan, Italy
Monday, February 25, 2019
What is happening with world gold reserves? In the gold market there is a cold war climate: For the first time in 50 years, central banks bought over 640 tons of gold bars last year, almost twice as much as in 2017 and the highest level raised since 1971, when U.S. President Richard Nixon closed the era of the gold standard.
The interesting fact is that the European central banks, together with the Asian ones, have been the most aggressive in their purchases. Is this fear of the euro crisis and currency wars?
In reality, and this is especially true in Europe, behind the great maneuvers with gold reserves there is not only the traditional protective shield against major risks; there is also the call of opportunity. A reminder of which few still seem to know, though the appointment is now a matter of a few weeks: March 29, 2019. The day of judgment for the Brexit will also be the advent for the gold market. It is not clear whether by choice or by chance, the Bank of International Settlements in Basel, Switzerland, called the "central bank of central banks," for its key role in the world financial system, has set an appointment with the story for March 29: Resurrection of the gold standard in the banking world.
For almost 60 years, the gold standard has regulated the convertibility between gold and dollar, engaging the market value. In 1971 it was the American president Richard Nixon, frightened by the bearish pressures that were likely to sink the dollar in the cold war, cut the cord with gold, decreeing the end of the gold standard. Now something starts moving in the opposite direction.
The Sun / 24 Hours has discovered that among the complex but well-known reforms of the standards for credit and finance from the "Basel 3" plan, there is an accounting alchemy that can turn gold into money on the balance sheets of the large banking groups. From March 29, by decision of the BIS, the gold in the portfolio of commercial and business banks becomes "cash equivalent," an asset equivalent to cash and therefore "risk-free." In fact, it is the first "reassuring of gold" since the time of the Bretton Woods agreement. Technicians call it "gold remonetization," a process that is the reverse of the "demonetization" of gold decided by Nixon.
The operation of the BIS, as reconstructed by The Sun / 24 Hours, carries the signature of the Federal Reserve, the European Central Bank, the Bundesbank, the Bank of England, and the Bank of France, the G-5 of the great global monetary powers. In 2016, when the new rules of the banking system included in the "Basel 3" package were defined, the central bankers committee inserted an epoch-making norm that no one, however, has ever openly discussed in public.
In practice, gold in "physical" bullion -- hence not under the "synthetic" form of certificates -- will return to be considered by regulators as the equivalent of the dollar and the euro in asset security, thus eliminating the obligation to weigh the risk for the purpose of capital absorption, as with any other financial asset, excluding (for now) eurozone government bonds.
The turning point is not insignificant for the gold market and for the very role of national gold reserves. The result is significant: With the new rules of Basel 3, gold is given the same status that is now recognized for sovereign bonds on bank balance sheets.
A question therefore arises: Is the promotion of gold the premise for applying a weighting of risk to the government securities held by banks? From the debt crisis, the regulators' objective was in fact two-fold: to require the banking system to hold an adequate equity to cover the risks. In the crosshairs there are mainly the government securities that according to current rules can be held by banks without any impact on their assets. The issue mainly concerns low-rated countries such as Italy, Spain, Portugal and Greece, which were seen to be special after the debt crisis in 2011.
The banks of these countries, both to increase profitability (carry trade) and to facilitate the issue of public debt in auctions, have the highest amount of government securities in the euro area. And this phenomenon is particularly felt in Italy, where the banking system has 400 billion BTp on the 2.4 trillion of public debt. What would happen then, if it were applied to risk weighting on Italian government bonds as the Basel committee wants?
The consequences depend on the level of risk weighting applied to the Italian government bonds. If it were high, some banks could be forced to replace the securities with other financial assets, including gold, or to proceed with capital increases. At a time when the market is reluctant to buy bank shares, the risk of repercussions on the stability of the banking system could be high. Just look at the credit default swaps (default risk insurance) on Italian banks. According to Bloomberg data, the five-year credit-default swaps of some of the major Italian banks have surged since the spring of 2018, even tripling the value in some cases. It is in this context that the date of March 29 is approaching rapidly.
Countries that have repatriated gold from abroad, regaining control and management, are already protected from the risk of being short of physical gold after March 29 to make available to their banks in case they want to replace sovereign bonds with it. In the arsenal of the system, there is a golden mountain of 33,000 metric tons of gold worth $1,400 billion at the current exchange rate. And that represents 20 percent of all the gold extracted in the world in almost 3,000 years.
As usual, the most forward-looking and prudent countries -- or perhaps the best-informed about the turnaround coming at the end of March -- were Germany, Holland, Austria, France, Switzerland, and Belgium. But Poland, Romania, and Hungary also regained control of gold reserves, increasing their consistency. China, Russia, India and Turkey have been the nations that have bought gold in the last two years more than anyone else, with Moscow having even liquidated its entire portfolio in U.S. government bonds to replace them with precious metal. But the problem is not this; it is the price of gold.
In 2018 as many as 641 tons of gold bars were bought by the monetary authorities of every continent, but above all in Europe, it is the highest level since 1971. The maneuver is unprecedented and should be seen in the phenomenon of repatriation of ingots of state custody. Seven thousand tons of gold reserves were withdrawn by central banks from the coffers of the Federal Reserve Bank of New York, while 400 tons were secretly released by the Bank of England.
In recent years, but especially in 2018, a jump in the price of gold would have been the normal order of things. On the contrary, gold closed last year with a 7-percent downturn and a negative financial return. How do you explain this?
While the central banks raided "real" gold bars behind the scenes they pushed and coordinated the offer of hundreds of tons of "synthetic gold" on the London and New York exchanges, where 90 percent of the trading of metals takes place. The excess supply of gold derivatives obviously served to knock down the price of gold, forcing investors to liquidate positions to limit large losses accumulated on futures.
Thus the more gold futures prices fell, the more investors sold "synthetic gold," triggering bearish spirals exploited by central banks to buy physical gold at ever-lower prices.
With this system, those looking at gold as a safe haven, like China, India, Russia and Turkey, have practically doubled their gold reserves in the last five years. Moscow, to buy gold, has even sold the last 20 percent of the U.S. government bonds it held in currency reserves.
…….
No comments:
Post a Comment