CB Gold Surges & Raoul Pal Interview

Yesterday we reported on the huge spike in ETF gold purchases last month.  The other big demand for gold is of course central banks.  They had a record year in 2018, 651 tonne of purchases, more than any year since we left the gold standard.  That trend appears not to be abating in 2019.

This week China reported its 7th straight month of adding gold to its official reserves adding another 10.3 tonne on the back of 74 tonne in the 6 months beforehand as we previously reported here.  Poland also announced it doubled its gold reserves over 2018 and 2019 to now become the top gold holder in central Europe and somewhat tellingly also saw half of its London deposits being repatriated home.

As we reported back in May, the 1st quarter of this year “Central banks bought 145.5t of gold, the largest Q1 increase in global reserves since 2013. Diversification and a desire for safe, liquid assets were the main drivers of buying here. On a rolling four-quarter basis, gold buying reached a record high for our data series of 715.7t.”

Indeed Citigroup believe Central Banks could go on to exceed that 2018 record and buy in the order of 700 tonne this year.  Interestingly Saxo Bank analyst Ole Hansen is pointing to this huge central bank demand as the driving force behind that sky high GSR we discussed yesterday as well.

The World Gold Council reported that gold purchases from central banks up to the end of May this year (before the price surge in June) was 73% higher than a year earlier, with Turkey and Kazakhstan joining China and Russia as the four biggest buyers.  India has also just announced it bought 5.6 tonne in April, taking its purchases to 17.7 tonne for the year to April.

Last night gold jumped 2% or around $30 to US$1420 or $2040 in local terms after the US Fed June minutes stated “many fed officials saw stronger rate-cut case amid rising risks”.  In his testimony the Fed chair Jerome Powell reinforced this prompting Bank of America Merrill Lynch to say "Fed Chair Powell delivered a dovish testimony. We now expect a 25bp cut at the upcoming meeting [July] with a chance of a 50bp cut.". 

Yesterday Alex Saunders of Nuggets News released the much anticipated interview with macro investment legend Raoul Pal.  You can also listen to this by podcast but here is the link to the YouTube version.

We consider this to be a ‘must do’ to get an insight on what’s happening now and what’s to come from ‘the smartest guy in the room’.  Real Vision is probably the best source of economic education out there and Raoul is one of 3 industry heavyweights who put it together.  

One thing that struck a chord with us is Pal’s prediction that the Aussie government will be bailing out our banks.  If this was some baseless tin foil hat commentator you could easily dismiss it.  This guy is everything but that.  At Ainslie we have seen a surge in high net worth individuals wanting to get very large amounts of cash out of the banks and into gold and silver as they get increasingly concerned about being an unsecured creditor of those banks as a depositor.  Whilst Pal talks about the possibility of the Australian government bailing them out, he may be unaware of the bail in laws passed by our senate last year as we reported here.  Whether that happens, a hybrid of the 2 or some other arrangement, being a large depositor at a bank could become a very stressful and potentially expensive venture.  Gold and silver have no counterparty risk.  None.  That is why the very orchestrators of this unprecedented credit cycle and global economic experiment, the world’s central banks, are piling into it too.