Gold’s Fellow Travelers Refute its Higher High

By Tom McClellan

Gold prices versus Japanese yen

Gold prices recently swooped up to a rather spiky looking top, and on Feb. 21 a big drop started the work of unwinding that blowoff.  It was a good looking spike upward as far as gold itself was concerned.  But it did not come with confirmation from other prices which tend to move in sympathy with gold.

This week’s chart compares gold futures prices to the Japanese yen.  Most of the time the two of them move together.  But occasionally they disagree, and that is when things get interesting.

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Revisiting the Gold-Backed Yuan Fantasy

By Steve Saville

This is an excerpt from a commentary posted at TSI about three weeks ago]

In an article titled “China’s monetary policy must change” Alasdair Macleod discusses a path that China’s government could take to make the Yuan gold-backed and thus bring about greater economic stability in China. Keith Weiner pointed out some flaws in the Macleod article, including the fact that the sort of Gold Standard that involves pegging a national currency to gold is just another government price-fixing scheme and therefore doomed to fail. We will single out an error in the article that Keith didn’t address and then briefly explain why a gold-backed Yuan is a pipe dream.

This excerpt from the article contains the error we want to focus on:

China’s manufacturing economy will be particularly hard hit by the rise in interest rates that normally triggers a credit crisis. Higher interest rates turn previous capital investments in the production of goods into malinvestments, because the profit calculations based on lower interest rates and lower input prices become invalid.

Continue reading Revisiting the Gold-Backed Yuan Fantasy

China And Gold: As The Yuan Goes, So Goes Gold

By Antony B. Sanders

Trade War Effect?

Over the past year, Gold has been looking quite similar to China’s currency, the Yuan. Eerily so.

goldxausd

Bloomberg had this story back in July of this year:  “China’s Gold Mystery: Is Nation Slowly Increasing Reserves?”

The case for China raising its gold holdings seems compelling.

Continue reading China And Gold: As The Yuan Goes, So Goes Gold

Gold Now Bound to the Yuan

By Tom McClellan

Gold and Chinese yuan

Old-school monetarists have longed for a return to having gold as the real reserve currency.  So here is a fun quandary: suppose you’re a hard-core auriphile, longing for a return to gold being the world’s reserve currency.  Suppose you could get what you have longed for, but with a price: China gets to call the shots.  Do you accept the deal?

This week’s chart shows that the movements of gold prices are pretty tightly tied to the movements of the Chinese yuan.  So if gold prices are ever going to start trending higher again, then the yuan is going to have to go along for the ride, or perhaps even lead the way.  That’s assuming that the correlation continues to hold up as it has been doing since around August 2016.

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You Can’t Fix Stupid: U.S. Treasury Will ‘Pressure’ China To Strengthen The Yuan

By Heisenberg Report

They say you can’t fix stupid, which I suppose means the world shouldn’t get its hopes about about the upcoming trade talks between China and the U.S.

On Wednesday, China’s Ministry of Commerce said the U.S. has invited a Chinese delegation to Washington later this month, ostensibly to try and break a stalemate on trade before the Trump administration moves ahead with tariffs on an additional $200 billion in Chinese goods. That escalation, if realized, would trigger a response from Beijing in the form of differentiated duties on $60 billion in U.S. imports, setting the stage for the Trump administration to “go to $500 billion” (as the President put it last month).

According to the New York Times (and there were similar reports out on Thursday), Steve Mnuchin will attempt to pressure China to strengthen the yuan when the two sides meet in Washington.

Continue reading You Can’t Fix Stupid: U.S. Treasury Will ‘Pressure’ China To Strengthen The Yuan

‘It’s Got A Green Light To Weaken’: Yuan Dive Continues As PBoC Looks On

By Heisenberg Report

The yuan rout is deepening.

On Thursday, the offshore yuan weakened past 6.80 for the first time since July of last year, as the easing bias inherent in recent pronouncements from officials and other reports portends a widening policy divergence with the Fed, further undercutting the bull case and tipping a growing sense of consternation in Beijing about the prospect of trade frictions hitting the domestic economy.

Here’s a chart with notable policy actions/turns annotated for reference:

USDCNH

You’ll note that over there on the right side, 6.85-6.90 is flagged as a possible zone for intervention. That’s around levels where the PBoC adopted the counter-cyclical adjustment factor last summer on the way to engineering a historic rally in the currency against the dollar. It’s possible they could resort to leaning on the CCAF again to stanch the bleeding.

Continue reading ‘It’s Got A Green Light To Weaken’: Yuan Dive Continues As PBoC Looks On

The Dreaded Vote of Confidence

By Jeffrey Snider

Chinese officials are getting nervous. Everyone knows that whenever your favorite sports team struggles and fans are calling for the head coach’s head, any owner or general manager who then issues the dreaded (from the coach’s perspective) vote of confidence is essentially sealing his fate. PBOC Governor Yi Gang issued a similar sort of statement today.

CNY is in freefall, which is dangerous in and of itself but more so given the (mistaken) political ramifications. Not only do the Chinese bear the brunt of “dollar” misfortune, they will also be blamed, just as they have been already, for engineering the stunt in the name of trade “stimulus.”

There was nothing really of note within Yi’s message. The significance is that there was anything provided to the public at all. A vote of confidence rarely works; not in sports and certainly not in central banking. There is as much danger that any central bank putting out a message will only end up confirming the worst fears (if they feel they have to say something, what does that really mean?).

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The Art Of Currency And Trade War: Inside China’s Thinking On The Yuan

By Heisenberg

… there is no big problem with the yuan depreciation. It could be beneficial as the economy is slowing. We are able to control capital outflows. There is no need for aggressive intervention.

That’s from one of three anonymous sources Reuters spoke to for a story about the PBoC’s thinking when it comes to rapidly weakening Chinese yuan.

On Tuesday, hours after a sharp early decline in the yuan through 6.70, PBoC Governor Yi Gang attempted to calm things down by assuring everyone that he’s “paying close attention to that”. The yuan’s weakness, he said, is “mainly due to factors such as a stronger dollar and external uncertainties.”

Those comments followed remarks from PBoC deputy governor (and SAFE head)  Pan Gongsheng, who told a conference in Hong Kong that China has plenty of FX reserves and other FX “tools” and is “confident” that they can keep the currency stable.

Continue reading The Art Of Currency And Trade War: Inside China’s Thinking On The Yuan