Gordon Chang: China in Big Trouble, Could Bring Global Economy Down with It by Mike Gleason, Money Metals Exchange
Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
There’s been some big news out of China lately, and today we’ll dive deeper into the discussion when I welcome in Gordon Chang. Mr. Chang is one of the foremost experts on the Chinese economy and has written a book titled The Coming Collapse of China. He’ll tell us why he believes an epic collapse is imminent and what it all means for the Western financial world and why he believes there is what he calls a Chinese floor on the gold price. Don’t miss an incredibly enlightening interview with Gordon Chang, coming up after this week’s market update.
Precious metals markets are pulling back for a second straight week on follow-through technical selling. Gold ran into resistance at the $1,300 level last week, and prices have since retreated by a little over $30. As of this Friday recording, gold trades at $1,269 an ounce, down 1.6% on the week.
Gold’s more volatile relative, silver, looks lower by 2.7% this week to trade at $17.06 per ounce. Platinum is off 3.4% to trade at $1,045, while palladium shows a weekly loss of 3.1% with prices currently coming in at $592 an ounce as of this Friday morning recording.
Metals markets are correcting after being propelled upward by an explosion in investment demand in the first four months of the year. On Thursday, the World Gold Council released its latest quarterly gold demand report. According to the report, global gold demand surged by 21% in Q1. Total gold demand came in at 1,290 tonnes, the second biggest figure ever for a quarter; this, despite weak industrial demand and falling jewelry sales.
Jewelry is normally the biggest driver of consumer demand for gold. But this year investment buying is almost single-handedly driving the gold market. According to the World Gold Council, gold investment demand skyrocketed in the first quarter by a record 122%. Exchange-traded products such as the iShares gold ETF received so many investment inflows so quickly that at one point they had to suspend the creation of new shares.
Sales of gold coins are also going through the roof. The U.S. Mint reported that sales of Gold Eagles in April 2016 ran at double the pace of April 2015. Demand for Silver Eagles is also coming in brisk, with the Mint selling more than 4 million of the coins in April and 20 million year-to-date.
Last year, the Mint sold a record 47 million silver ounces worth of Eagles – and that’s with the Mint repeatedly selling out of coins and being unable to provide dealers with adequate supplies of its products on numerous occasions. We appear headed for another new record this year unless the Mint puts some artificial brakes on Silver Eagle demand through continued rationing.
Silver Eagles always carry a slight premium to privately minted rounds. Sometimes that premium expands when Eagles are in relatively high demand and short supply. It’s not necessarily a bad move to pay a little extra for Silver or Gold Eagles. You’ll be able to get back some of that extra premium when you sell. But you generally don’t want to buy American Eagles when premiums are elevated, since they could contract back to normal levels by the time you want to sell – or need to sell.
Platinum Eagles are hard to come by, as the Mint stopped regularly producing them in 2009, although there has been talk that the Mint will release some 2016 dated Platinum Eagles at some point this year. In the meantime, investors seeking diversification into platinum and palladium bullion should look instead to Canadian Maple Leafs or 1-oz bullion bars.
Now is a good time to take a look at the platinum group metals, as they have gotten cheap versus gold and silver over the past couple years. The platinum-to-gold ratio has turned up slightly in favor of platinum in 2016, but platinum remains in bargain territory historically speaking. It will continue to be a relative bargain as long as platinum commands a lower price per ounce than gold. Currently, gold commands a $220 premium over platinum.
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Well now, without further delay, let’s get right to this week’s exclusive interview.
Q&A with Gordon Chang on China
Mike Gleason: It is my privilege now to welcome in author, lawyer, television pundit, and Forbes columnist Gordon Chang. Gordon is a frequent guest on Fox News, CNBC, and CNN and is one of the foremost experts on the Chinese economy and its geopolitics and has written a book on the subject called The Coming Collapse of China.
Gordon, it’s a real honor to have you on with us today. Thank you very much for taking the time, and welcome.
Gordon Chang: Thank you, and it’s a real honor to be on your podcast.
Mike Gleason: Before we dig into some specifics here, Gordon, China’s economy is now the second largest in the world. They’ve been reporting GDP growth at 7% to 10% per year for decades, and we’ve all heard stories about their booming economy. But few Americans have been there and probably don’t really know what’s going on. The Chinese government is notorious for managing statistics