Commodity Trade Mantra

Posts Tagged ‘Treasury Securities’

Issues that drove Gold Prices to all-time highs in 2011 Have Only Worsened

In 2011 there was an entire narrative around the gold market, when gold was at $1,900 & it was partly about US markets. The narrative in 2011 was that U.S. Federal Government on-balance sheet liabilities, at $16 trillion & the off-balance sheet liabilities of $55 trillion were unsustainable. Today, they are estimated at $19 trillion & $90 trillion respectively. Worsened enough?

Alarming Evidence of Gold Supply Tightness, Chinese Hoarding

China and Russia are acquiring thousands of tons of gold. The Chinese have a huge pile of U.S. Treasury Securities of about $3.2 trillion. They can’t dump the treasuries, but they are worried about inflation destroying the value of the treasuries. So what the Chinese are doing instead is, they’re acquiring gold as a hedge. Where they lose on paper, they make it up on gold.

China needs a lot of Gold to make-up for the Loss Expected on Treasuries

Right now, China’s reserves are about $3.2 trillion, of which about $2 trillion is denominated in US dollars, and most of that are U.S. Treasury Securities. They can’t dump them. So what the Chinese are doing instead is they’re acquiring gold as a hedge. China is going to be in this position where they lose on the paper, but they make it up on the gold.

Gold is (Once Again) Money

What China and Russia have in common is they are both protecting themselves against dollar & oil price manipulation by converting their export sales into gold. They are using gold to hedge dollar exposures in Treasury securities & oil respectively. While investors may have missed this development, other central banks have not.

U.S. Government Is Borrowing About 8 Trillion Dollars A Year

A lot of money on interest payments is saved by borrowing over shorter time frames. This strategy has indeed saved the US federal government hundreds of billions of dollars in interest payments, but it has also created a situation where the federal government must borrow about 8 trillion dollars a year – JUST to keep up with the game.

Are Capital Inflows Propping Up U.S. Markets?

Nobody really believes the official narrative that the “recovery” is powering the remarkable strength of U.S. stocks, bonds & real estate. While capital inflows into U.S. stocks are difficult to monitor, put various factors together & it seems likely that significant capital inflows are helping prop up asset valuations in the U.S.

The U.S. Fed And It’s Secret Piggy Bank

The Fed has announced using “Reverse repos” as a new tool to manage monetary policy. Its just a way the Fed soaks up cash from financial institutions. The Fed is the “borrower,” swapping its Treasuries for banks’ cash. You might call it opposite of quantitative easing: Reverse repos drain money from the financial system.

FOMC Minutes Reveal Taper Likely In "Coming Months"

FOMC participants expected that the data would prove consistent with the Committee’s outlook, but also considered scenarios under which it might, at some stage, be appropriate to begin to taper down the program before an unambiguous further improvement in the outlook was apparent.

Treasury Warns Default Impact Could Last A Generation

The U.S. has never defaulted on its obligations & the US dollar and Treasury securities are at the center of the international financial system. A default would be unprecedented, catastrophic & negative spillovers could reverberate around the world.

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