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From Casey Research:
Gold is near an all-time inflation-adjusted low
By Jeff Clark
If you’re someone who’s skeptical of government-reported numbers, you’ll find the following chart confirms your suspicions. And if you’re someone who’s attracted to value, you’ll love the chart.
There is a lot of criticism of the government’s CPI number simply because it doesn’t really seem to reflect what the average person experiences. Even with gas prices in decline, other segments of our society have seen prices accelerate. Healthcare and college costs are two biggies, rising far more than the current 0.2 percent reading. And many food items have scary trajectories – ground beef has more than doubled since 2010.
Meanwhile, the gold price has fallen by roughly a third over the past three-plus years and been flat for the past four to five months. But is it a good value at current prices?
Since 1980, the CPI formula has been modified at least a dozen times. They even implemented a new “estimation system” this year. Most nongovernment economists think those changes have made the reading less accurate, not more.
So I asked John Williams of Shadow Stats to calculate the gold price in March 2015 dollars (the latest data available) based on the CPI-U formula from 1980.
Here’s what he found.
Adjusted for the 1980 inflation measure, the gold price is approaching its bear market low of 2001. In fact, gold is now below the 1975 price when it became legal to own it again!
These data clearly show that when measured against a more realistic view of inflation, gold is dramatically undervalued.
Mystery of China’s gold stash may soon be solved
China’s push to challenge U.S. dominance in global trade and finance may involve gold – a lot of gold.
While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the U.S. and Europe. China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That’s led to speculation the government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.
The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures. A stockpile that big would be second only to the 8,133.5 tons in the U.S.
“If you want to set yourself up as a reserve currency, you may want to have assets on your balance sheet other than other fiat currencies,” Bart Melek, head of commodity strategy at TD Securities, said by phone from Toronto. Gold is “certainly viewed as a viable store of value for an up-and-coming global power,” he said.
China may be preparing to update its disclosed holdings because policy makers are pressing to add the yuan to the International Monetary Fund’s currency basket, known as the Special Drawing Right, which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings Inc. said in an April 8 report.
Gold played a central role in the international monetary system until the collapse of the Bretton Woods framework of fixed exchange rates in 1973, according to the IMF. While the role of bullion has diminished since then, the fund still holds 2,814 tons and most central banks have some on their balance sheets. Russia more than tripled its holdings since 2005.
China is the world’s largest gold producer and ranked behind only India among top consumers last year, but the amount of metal its central bank last reported holding in 2009 accounts for just 1 percent of foreign-exchange reserves, which have surged more than fivefold in a decade and are the biggest in the world. Most of that is in dollars.
The IMF estimates the dollar makes up 63 percent of world central bank holdings, while the No. 2 currency, the euro, accounts for 22 percent. Data from the Society for Worldwide Interbank Financial Telecommunication show the U.S. currency was used for 43 percent of global payments in February.
While China is promoting the yuan internationally, Swift data show the currency was used for only 1.8 percent of international payments in February. Private investors – both Chinese and non-Chinese – can move their money in and out of the country only through approved programs and in limited amounts, and changes in the currency’s value are only permitted in limited ranges.
Adding gold and other assets would ease China’s reliance on the dollar, said Nathan Chow, a Hong Kong-based economist at DBS Group Holdings Ltd.
It may bolster the view China has “a currency that’s well backed by a range of different assets,” said Steven Dooley, a Melbourne-based currency strategist at Western Union Business Solutions for Asia-Pacific. “The most-liquid currencies tend to have a wide range of foreign-exchange reserves.”
El Salvador sells 80 percent of its gold reserves for U.S. dollars
El Salvador’s central bank sold about 80 percent of its gold reserves last month to diversify risk and take advantage of the metal’s appreciation, a central bank official said on Friday.
The country, which has been dollarized since 2001, sold 5.412 tons of gold for $206 million, which will go into the bank’s reserve portfolios to protect it against market volatility.
From the Epoch Times:
China uses gold to pursue global power
Usually the International Monetary Fund only becomes exciting when it tries to prevent Argentina or Greece from defaulting. After five years of hibernation, another more obscure area of the financial institution might actually shed light on a mystery of global finance: China’s gold reserves.
Given their usual knack for non-transparency, the Chinese haven’t updated their official gold reserve since 2009, when they stood at 1,054 metric tons, far below the United States, the IMF itself, and European nations such as Germany, France and Italy.
Beijing has been accumulating more gold since 2009, with estimates ranging from 3,000 to as many as 10,000 tons. As a comparison, the United States holds 8,133 tons as monetary reserves.
“There is a lot of evidence to suggest there has been buying. We are getting reports from many people in the trade, saying they are shipping a lot into China,” said Ian MacDonald, chairman of Gold Frontiers, a trading platform for physical gold. “I know that one U.S. company alone shipped 40 metric tons to China last year.”
China is also confiscating all of its 500–600 ton yearly production of gold and importing hundreds of tons through Hong Kong. Total demand from the private sector (jewelry, investment, and industrial) alone, however, is double that number at 1,200 tons annually, accord to the World Gold Council. Nobody knows how much gold actually ends up in official reserves with the central bank.
Why are Chinese gold reserves important for international finance and what does the IMF have to do with them?
Maybe Beijing believes in the satirical version of the Golden Rule, “Whoever has the gold, makes the rules.”
“Whoever has the most gold is able to control gold’s valuation. Controlling gold’s valuation, you can control the valuation of all other currencies,” said Chris Powell of the Gold Anti-Trust Action Committee, a nonprofit organization monitoring gold markets.
Henry Kissinger himself believed in that theory when he was secretary of state in the 1970s. “I am sure the Chinese are well aware of this,” said Powell.
From the Gold Anti-Trust Action Committee:
BIS president in 1981: We’ve got to start rigging the gold market
“Regulating the gold price in the free market” was recommended to central banks by the president of the Bank for International Settlements,” Jelle Zijlstra, in a speech at International Monetary Fund headquarters in Washington in September 1981.
The speech, located this week by gold researcher and GATA consultant Ronan Manly, was given as a lecture memorializing the former managing director of the IMF, Per Jacobsson.
Those who follow GATA may recall that Zijlstra, who was president of the Netherlands Central Bank simultaneously with his holding office at the BIS, wrote in his memoirs in 1992 that the price of gold long had been held down by central banks at the behest of the United States, which sought to minimize competition for the dollar as the international reserve currency:
In his speech at the IMF in 1981, Ziljstra said: “I feel that it is necessary for us, within the Group of Ten and Switzerland, to consider ways to regulate the price of gold, admittedly within fairly broad limits, so as to create conditions permitting gold sales and purchases between central banks as an instrument for a more rational management and deployment of their reserves.”
Ziljstra added: “On the occasion of the annual meeting of the IMF in Belgrade in 1979 this was brought up, but regrettably, insufficient agreement could be reached to make even a modest start with regulating the gold price in the free market. It is my conviction that relatively small-scale interventions, though not forestalling the subsequent explosion in the gold price, would at least have reduced it to more manageable proportions. Now that the turbulent emotions seem to have quieted down, we would be wise to reflect anew and without prejudice on these subjects.”
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