Friday, November 6, 2015

Two Recent Articles on Potential Changes in the Gold Market

We don't cover the gold or precious markets much here on this blog. However, they are important as sharp moves in precious metals prices indicate that something significant is happening in the global financial system. 

Below are two recent articles that suggest that there may be some important changes in progress in the gold market. The first article is pasted below from an email I received and the second is a link to a recent interview on King World News with precious metals expert Andrew Maguire.

This first article is one I received by email from Alex Stanczyk of The Physical Gold Fund and is republished unedited below here with his permission. I have no affiliation with this fund. I receive emails from them because I am on their email list.

 Dear friend of Physical Gold Fund,

A few years ago I spent a good bit of time traveling to China talking to Chinese fund managers and government officials about the Luxembourg LFP Prime precious metals fund.

At this time the Chinese stock markets were sucking in all kinds of investment capital, but had not yet started their epic run up.

Chinese government authorities I was talking to were very concerned, and were advocating Chinese investors buy gold. It was intimated to me over dinner with a highly placed member of the Chinese equivalent of the SEC that they wanted the Chinese buying gold because they were worried about bubbles forming both in real estate and stocks.

It is important to consider that government officials in China of different organizations from SAFE to the CSRC are more coordinated in general direction than their western counterparts. All government officials and key executives of the largest companies are part of the party, and to some degree are at least aware if not directly involved in the direction the government wishes to go with the economic plan. This is in contrast to regulators in US institutions who are far more focused on their own careers and how their particular institution interfaces with the economy and or politics.

While speaking to Fund Managers, I will usually emphasize the importance of planning ahead for potential systemic issues, in particular having access to liquidity during potential crisis. The feedback from a surprising number of Chinese Fund managers I spoke to when we explained systemic risks was that they were not really concerned about market liquidity or bank solvency, that the Chinese government would not allow those problems to happen.

Recently, the Chinese stock markets crashed.  The markets fell with such ferocity that the Chinese government interceded making it illegal to sell stocks owned by large institutions including funds. The Chinese government begin to publicly blame short sellers and starting arresting traders. As the event was unfolding I had a conversation with a Chinese fund manager who told me he had to issue a letter to his investors indicated his fund was no longer liquid, that they were unable to sell positions, and that investor money was frozen. This is probably the last letter any investor wants to get from their fund manager.

To the point of this email, the carnage from the stock markets in China may be having an un-anticipated psychological effect…a potentially structural loss of confidence. Sentimental swings which accompany bulls and bears in western stock markets are nothing new and have been happening ever since the exchanges were set up in the late 1800’s. Chinese capital markets however are relatively new, and until the last decade or so unknown to the average Chinese and untrusted.  The typical Chinese have two interesting traits in that they save far more than westerners do, but they also have a propensity for gambling. Throw in a stock market casino that seemingly could do no wrong, and you have the makings of a stock market bubble of epic proportions. The confidence in this new casino however may have just reached an an important inflection point.

From a recent Business Insider Article ( ):

I note that gold imports for the latter half of 2015 into China have skyrocketed breaking all records, and it appears we are seeing the opening salvos of what may be a huge shift in Chinese market sentiment.

I suspect this inflection point is going to matter a great deal more to the gold market than anyone realizes or is talking about right now.

With kind regards,
Alex Stanczyk
Managing Director
Physical Gold Fund SP
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This second article is an interview done on King World News with precious metals expert Andrew Maguire. Andrew says he sees a major change in the gold market in progress in regards to the futures contracts traded by the major bullion banks who control this market (like JP Morgan and Goldman Sachs). He says these major banks who have always acted together in the past have split now and are taking positions against each other. He calls it a "split in the ranks."

You can read the interview here

You listen to the full audio interview here

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