Re-posted with permission from Independent Trader
In recent months, we could witness many important events. Their number is so big that I divided this article into two parts. The first part can be found here: http://independenttrader.org/itn-may-june.html
China dominated global trade
Continued from part one... Q1 hedge fund letters, conference, scoops etc Abrams and his team want to understand the fundamental economics of every opportunity because, "It is easy to tell what has been, and it is easy to tell what is today, but the biggest deal for the investor is to . . . SORRY! Read More
The most important battlefield for China and the US is now trade. China has a huge advantage and the map below shows how bit it really is. Big successes of Asians are market takeovers in Oceania, majority of Africa and South America. This makes China doubling the result of the US.
The US is fighting to hold onto power in Europe and to stop an expansion of the New Silk Road, TTIP – ‘free trade’ agreement is being formed. While controversy around TTIP is growing negotiations continue. They do so – under the European Commission’s supervision – even after the European Parliament issued a resolution against it. China is far from being passive in the battle of Europe – Western part of the EU joined the AAIB (which funds ‘One Belt One Road’). Below you can see membership of the AAIB – countries in red which paid a share of the founding capital of 100 bn USD.
Washington actively tries to resurrect the idea of Intermarium (‘Between-seas’) to disable China’s expansion westward. The project with a key role of Poland and its neighbouring countries already made China look for an alternative – Greece. This is why Chinese are increasingly active in the Mediterranean region. Taking Greece out of German auspices (indirect US governance) can help Greeks solve their debt problem. The US knows this and the IMF already lobbies for a write-off to unburden Athens.
China is eyeing a takeover in Venezuela and Brazil
Through both diplomatic and trade channels, China wants to strengthen relations with those two countries. The reason is simple. The corruption problem in Brazil and Venezuela is not discounting their offer and they have a lot of assets that are attractive to Beijing. A decomposition of the state in Brazil is still at a very early stage (the crisis hit political circles for now) but Venezuela is on the brink of a total collapse. When the new government will start structural reforms – which are much needed due to country’s economic ruin – valuable factories and other capital will be available for privatisation. To feed people and go through the hardest early phase of transformation, the government will require capital to import necessary goods. The Chinese will be ready to help at the right moment.
The main target is Amazonian fresh water, forests and areas rich in mineral deposits. China territory is becoming desertified and available resources of drinkable water are heavily polluted. To secure an ability to develop for 1,36 billion people, basic resources must be acquired from somewhere else. The Amazonian region seems perfect for Asians as the economic crisis gives options to achieve Chinese goals. No crisis should be left unused.
The vaults of London are empty
Independent experts of the precious metal market have agreed for a long time now that more gold is leaving the UK than it is coming in. The island has no gold mines and the only source where shiny metal can come from is the vault of London where gold reserves of many countries are stashed. Furthermore, according to data from Koos Jansen, the amount of gold trade is above the balance of all LBMA clients. This means that some part of gold trade has no official confirmation normally found in the balance of country storing the metal.
Gold is hardly available for purchase. The demand is now twice as high as the supply because China has been a major buyer. This shouldn’t come as a surprise that Chinese ICBC bank is preparing to buy one of the biggest gold vaults in Europe – one of the LBMA storage in London. Its capacity is 2000 ton. Various sources confirm that British Barclays is now finishing their precious metal trading after DB admitted to metal price manipulation and agreed to share evidence pointing to Barclays and others.
The LBMA is not only dealing in physical gold but also it is the exchange that is arbitrarily setting the price of gold and silver – so called ‘fixing’. This process is done daily through two teleconferences in which few representatives of the biggest banks in the world decide on the price of gold. Recently silver price fixing has been updated and ‘correction’ happened automatically. This has been confirmed by GATA group, in connection to precious metals price rigging done by future contracts. How many contracts are we talking about when it comes to gold – settled in USD and not in physical metal? Look at the infographic below.
China enters silver market with a bang
JP Morgan owns the biggest physical gold reserves in the world – 70 million ounces. There is a contender on the horizon. Shanghai’s precious metal exchange in just one year attracted 47 million ounces of silver. Americans needed 4 years to do that.
JP Morgan is responsible for settling Comex’s futures contracts in physical metal when required. The bank owns this amount of silver reserves not only because of its status but also due to an event in the early ‘80s. Hunt brothers bought a huge quantity of silver and this pushed the price up.
The “Silver Thursday” was possible because the market for silver was very shallow. The value of silver produced in one year is not higher than 16 bn USD and storages of this metal basically do not exist. The numbers we are talking about could easily be handled by many investment funds. In case of any troubles, JP Morgan accumulated enough silver to be able to cover futures. Why is that Chinese hoarded so much silver in such a short period of time? In my opinion, this is their way of spending surplus of dollar reserves. In similar fashion, but maybe less aggressive, other commodities like iron ore or crude oil are stockpiled.
If authorities of the SGE are not going to slow down with their shopping spree they could create another spike in silver pricing. I do not believe this is their plan. They rather prepare to amass enough reserves for future take over the precious metals trade from today’s leaders – LBMA and Comex.
Druckenmiller buys gold
During New York conference, Druckenmiller said that the boom in equity markets is ending and the biggest share of his portfolio is now gold. It is worth paying attention to this gentleman. Druckenmiller was an operative of George Soros for whom he led Quantum Fund. It was his idea to short GBP in 1992. Jim Rogers complimented him as the ‘best money making machine’. These are not empty words. Throughout his 25 year career (during which he did not close any year with a loss) he multiplied managed capital 20 fold (on average 24% each year). Today he is working for himself and his recommendations can be seen as credible and independent.
His former employer – Soros – is also focusing on gold. According to unofficial sources, he doesn’t buy metal himself but rather through specialised trusts. Also, he bought over 1 million units of ETF SPDR Gold Trust and Barrick Gold Corp equities worth 264 million USD. Soros, apart from shorting equities, sees the situation in China and in the US in very bad colours.
Donald Trump: Brexit would be good for the UK
The Republican Party presumptive nominee endorsed British initiative to leave the EU. The referendum on the matter is going to take place in just 2 weeks. The price of GBP recorded falls since the initiative was first announced and this is a clear signal of investors being anxious about the result of the vote.
Important question: is the UK leaving the EU something bad? Looking at the number of crises in Europe, overregulation and millions of immigrants ready to come aboard, it seems to be reasonable to abandon this sinking ship. Especially that Union looks more and more like German protectorate. Trump’s words are contrary to statements of Barack Obama, seen by some as a threat of losing privileged position in the US-UK relations (TTIP negotiations).
More about potential hazards and advantages of leaving the EU we can learn from the film below.