DUBAI – Octavian Precious Metals Trading DMCC https://octaviandmcc.com Dubai Based Gold and Strategic Metals Trading Company Wed, 30 Aug 2023 18:25:24 +0000 en hourly 1 https://wordpress.org/?v=6.9 https://octaviandmcc.com/wp-content/uploads/2022/10/cropped-Group-197-32x32.png DUBAI – Octavian Precious Metals Trading DMCC https://octaviandmcc.com 32 32 BRICS Summit Aims to Challenge US Dollar with Potential Boost to Gold, Silver https://octaviandmcc.com/brics-summit-aims-to-challenge-us-dollar-with-potential-boost-to-gold-silver/ Tue, 22 Aug 2023 18:21:58 +0000 https://octaviandmcc.com/?p=8215 The BRICS (Brazil, Russia, India, China, South Africa) summit in Johannesburg could have far-reaching ramifications for the world of finance, specifically for precious metals and the US dollar. As the bloc contemplates expansion and expresses discontent over the dominance of the US dollar in global trade, investors worldwide should be attentive to these seismic shifts in economic power dynamics.

Historically, in periods of political and economic instability, gold and silver have been considered safe-haven assets. As BRICS nations push for a greater role in shaping the global financial landscape and challenge Western supremacy, uncertainties could cause a surge in demand for these precious metals. Additionally, the inclusion of Saudi Arabia, the world’s second-largest oil producer, could provide a further boost. If the bloc promotes trading oil in currencies other than the dollar or even in gold, it could drive up the prices of these metals.

The US dollar’s preeminence in global transactions is under scrutiny. As highlighted in the summit, there’s a growing consensus among BRICS nations to conduct trade in local currencies. While the immediate dethroning of the dollar seems unlikely, a gradual move towards a multipolar financial world, where several currencies co-exist in global trade, is plausible.

Cobus van Staden’s, an analyst at the China Global South Project, analogy of “a lot of paper cuts” perfectly encapsulates the situation. BRICS may not deliver a knockout punch to the dollar, but a series of smaller actions could erode its dominance. These “paper cuts” may include bilateral trade agreements in local currencies, establishment of alternative payment systems, or even gold-backed financial instruments.

An erosion of confidence in the US dollar could trigger a bull market for precious metals. As nations seek to diversify away from dollar-centric systems, they might increase their gold and silver reserves. A multipolar currency world, where local currencies gain prominence, would likely have fluctuating exchange rates. This volatility could further push central banks and investors towards the stability offered by gold.

The US and its allies are closely watching the geopolitical aspirations of BRICS, especially the inclusion of nations like Saudi Arabia. As the bloc grows and its influence expands, it might create a counterweight to Western financial institutions. While the geopolitical repercussions are vast, from a financial perspective, it introduces a new set of players determining global precious metal demand and currency flows.

In conclusion, while the BRICS bloc grapples with internal differences, their united front against the dollar’s dominance signals a transformative phase in global finance. Precious metal investors and dollar watchers alike should keep a keen eye on the bloc’s decisions, as they have the potential to reshape the world’s economic landscape.

Source: FX Empire

]]> BRICS’ new gold-backed currency is coming, but first watch this move from Saudi Arabia at the BRICS summit https://octaviandmcc.com/brics-new-gold-backed-currency-is-coming-but-first-watch-this-move-from-saudi-arabia-at-the-brics-summit/ Thu, 10 Aug 2023 18:04:28 +0000 https://octaviandmcc.com/?p=8204 Even though the timing of the new BRICS (Brazil, Russia, India, China, and South Africa) currency is still a big unknown, it is an inevitable outcome, according to Andy Schectman, President and Owner of Miles Franklin.

“I do believe that the BRICS will issue a common settlement currency, and it will be backed by something,” Schectman told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. “It’s coming. Whether or not it is a gold-back currency that is introduced in a few weeks or in a few months, or next year, to me, the alliance that is being built represents the majority of the human population.”

In the lead-up to the BRICS summit taking place in Johannesburg on August 22-24, there have been conflicting reports about whether a gold-backed currency was going to be discussed.

According to Anil Sooklal, South Africa’s Ambassador at Large to Asia and BRICS, told reporters last month that a BRICS currency was not on the agenda for the upcoming summit.

“There’s never been talk of a BRICS currency, it’s not on the agenda,” Sooklal said. “What we have said and we continue to deepen is trading in local currencies and settlement in local currencies.”

The more immediate goals for the BRICS bloc are to sidestep the SWIFT system and have the ability to avoid Western sanctions. And there is one event that investors need to closely monitor concerning this – Saudi Arabia’s participation at the upcoming BRICS summit.

The BRICS alliance is expected to expand its membership soon, with over 20 countries formally asking to join the BRICS, including Saudi Arabia, Argentina, Iran, the United Arab Emirates, and more.

But how the BRICS bloc expands will play a vital role in the global de-dollarization move as member countries continue to push to ditch the greenback and trade using their own currencies.

Schectman sees Saudi Arabia as an essential player in this transition, with eventually 85% of the global population dumping the U.S. dollar.

“There is this cohesion of countries that have joined together to break free from the Western hegemony,” Schectman said. “And I look to Saudi Arabia as the linchpin of all of the issues surrounding the de-dollarization and the dollar hegemony.”

This all hinges on the petrodollar and how other countries need to hold the greenback to buy oil from Saudi Arabia.

Schectman referred to the deal struck between the Nixon administration and Saudi Arabia in the 1970s, which saw Saudis trade oil exclusively in dollars in exchange for security guarantees from the U.S. Following this deal, there was also a shift within the OPEC itself to keep oil in dollars.

“That was the deal we struck with Saudi Arabia and, by extension, OPEC, who has for almost 50 years [conducted] about 90% of all the oil sales across the globe in dollars,” Schectman said. “And this has created a synthetic demand for the dollar.”

This has given the greenback its petrodollar status. But the recent moves from Saudi Arabia should be alarming to the world’s reserve currency, Schectman pointed out.

“I see Saudi Arabia as a very important cog in that [de-dollarization] movement because when Saudi Arabia accepts other currencies for oil, the lack of settlement in the dollar will have substantial effects,” he said. “The glue that will make all of this work is indeed having a currency backed by commodities, presumably gold, using distributed ledger technology or blockchain.”

This whole move against the dollar also goes far being the BRICS bloc, Schectman added. If all the new alliances come together, it would represent 85% of the human population. “If you put together the Belt Road Initiative, the BRICS, the Shanghai Cooperation Organization, and the Eurasian Economic Union … it is a very big deal,” he noted.

Another recent development was Saudi Arabia approving the decision to join the China-led Shanghai Cooperation Organization (SCO) as a dialogue partner. The SCO is a political, security and trade alliance created in 2001 to counter Western influence. Its members include China, Russia, India, Pakistan, and four central Asian countries.

“This is a very big deal. The Shanghai cooperation organization is the largest regional military and financial organization in the world. It represents about 60% of the Eurasian landmass and 40% of the global GDP,” Schectman said. “We can see how they are pushing away from the Western influence and getting very close with some powerful entities.”

The de-dollarization trend has not only been accelerating, but it is also irreversible at this stage, we are at a point of no return – “past the Rubicon”, according to President and Owner of Miles Franklin. “When you see all of this settlement outside the dollar, that’s significant. It creates less demand for the dollar and an environment where the dollar has to fall, and interest rates have to rise to compensate.”

Schectman sees 85% of the global population dumping the greenback in due time. “It’s like a game of Jenga. You keep pulling out these pieces of the dollar hegemony one by one. At what point does it tumble? It’s not going to happen overnight, but you can see the acceleration. So little by little, and then all at once.”

Source: Kitco

]]> These Countries Are Buying up the World’s Gold https://octaviandmcc.com/these-countries-are-buying-up-the-worlds-gold/ Sun, 06 Aug 2023 17:41:52 +0000 https://octaviandmcc.com/?p=8196 Gold buying by central banks reached its highest level in 55 years this February 2023, according to the World Gold Council. The uptick in gold buying is part of a decades-long shift away from the U.S. dollar as the world’s primary reserve currency, and has coincided with the strengthening of emerging economies like Brazil, Russia, India, China, and South Africa. In recent weeks, members of the BRICS economic coalition have announced plans to introduce a new, alternative currency to further challenge the U.S. dollar’s role as primary world currency.

Since the U.S. dollar was officially decoupled from gold in 1971 and the gold standard was fully abandoned in 1973, central banks have bought gold in times of market volatility and uncertainty. Gold can act as a hedge against the U.S. dollar, and may be in higher demand in times of high inflation and political tension with the United States. In recent years, central banks in emerging markets have led the gold buying spree, signaling uncertainty in international relations and a shift towards independence from the U.S. monetary system. (Yet the U.S. is by far the largest holder of gold – here are the countries with the most gold.)

To determine which countries are buying up the world’s gold, 24/7 Wall St. reviewed data on gold reserves by country from the World Gold Council. Countries were ranked based on the net change in gold reserves held by their central bank from 2017 to 2022. Data on the value of gold reserves and gold reserves as percentage of all foreign reserves also came from the WGC and was calculated using the LBMA (London Bullion Market Association) Gold Price for the fourth quarter of each year. Population figures are from the World Bank and are for 2021.

The largest buyer of gold from 2017 to 2022 is, by far, the central bank of Russia (though data for Russia is actually only until the end of 2021. The U.S.-imposed sanctions on Russia in response to its invasion of Ukraine effectively made the hundreds of billions of U.S. dollars the Russian central bank holds worthless. Russia recently said it further increased its bullion holdings in 2022. (Here are the most sanctioned countries of all time.)

Other countries whose relations with the U.S. may be worsening have also purchased gold. From 2017 to 2022, the central banks of Russia, Turkey, India, and China were the largest buyers of gold. 

And while Russia, Turkey, India, and China account for nearly 60% of the net change in gold reserves globally from 2017 to 2022, it is small countries in the Middle East and North Africa that are buying gold at the fastest rates. Mauritania, Qatar, and the United Arab Emirates all more than tripled their gold reserves from 2017 to 2022, while Oman increased its once meager gold supply by more than one hundredfold. 

Countries have also made significant changes to the composition of their central bank holdings, with upper- and middle-income countries in Central Asia and Latin America doubling down on their gold positions the most. In Pakistan, Kazakhstan, Turkey, Lebanon, and Venezuela, gold as a share of central bank holdings increased by more than 15 percentage points from 2017 to 2022, while in Bolivia gold as a percentage of central bank holdings increased by a world-leading 49 percentage points. Globally, gold as a share of total central reserve holdings rose from 9.7% to 12.9%.

25. Czech Republic
> Chg. in gold reserves since 2017: +2.5 metric tons, reaching 12.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$305.6 million, reaching $697.4 million in 2022
> Chg. in share of total reserves since 2017: +0.2 ppts, reaching .5% in 2022
> Population, 2021: 10.5 million

24. Kyrgyzstan
> Chg. in gold reserves since 2017: +3.2 metric tons, reaching 10.2 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$306.0 million, reaching $594.4 million in 2022
> Chg. in share of total reserves since 2017: +11.0 ppts, reaching 24.2% in 2022
> Population, 2021: 6.7 million

23. Mongolia
> Chg. in gold reserves since 2017: +3.7 metric tons, reaching 7.9 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$285.3 million, reaching $462.0 million in 2022
> Chg. in share of total reserves since 2017: +10.5 ppts, reaching 16.4% in 2022
> Population, 2021: 3.3 million

22. Ireland
> Chg. in gold reserves since 2017: +6.0 metric tons, reaching 12.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$452.8 million, reaching $701.9 million in 2022
> Chg. in share of total reserves since 2017: -0.3 ppts, reaching 5.4% in 2022
> Population, 2021: 5.0 million

21. Argentina
> Chg. in gold reserves since 2017: +7.0 metric tons, reaching 61.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.3 billion, reaching $3.6 billion in 2022
> Chg. in share of total reserves since 2017: +3.9 ppts, reaching 8.0% in 2022
> Population, 2021: 45.8 million

20. Belarus
> Chg. in gold reserves since 2017: +7.1 metric tons, reaching 53.6 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.2 billion, reaching $3.1 billion in 2022
> Chg. in share of total reserves since 2017: +15.3 ppts, reaching 41.8% in 2022
> Population, 2021: 9.3 million

19. Serbia
> Chg. in gold reserves since 2017: +19.1 metric tons, reaching 38.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.4 billion, reaching $2.2 billion in 2022
> Chg. in share of total reserves since 2017: +5.8 ppts, reaching 12.5% in 2022
> Population, 2021: 6.8 million

18. Ecuador
> Chg. in gold reserves since 2017: +22.0 metric tons, reaching 33.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$1.5 billion, reaching $2.0 billion in 2022
> Chg. in share of total reserves since 2017: +3.3 ppts, reaching 25.9% in 2022
> Population, 2021: 17.8 million

17. Singapore
> Chg. in gold reserves since 2017: +26.3 metric tons, reaching 153.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$3.7 billion, reaching $9.0 billion in 2022
> Chg. in share of total reserves since 2017: +1.1 ppts, reaching 3.0% in 2022
> Population, 2021: 5.5 million

16. Cambodia
> Chg. in gold reserves since 2017: +29.9 metric tons, reaching 52.4 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$2.1 billion, reaching $3.1 billion in 2022
> Chg. in share of total reserves since 2017: +9.4 ppts, reaching 17.1% in 2022
> Population, 2021: 16.6 million

15. Iraq
> Chg. in gold reserves since 2017: +40.5 metric tons, reaching 130.3 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$3.9 billion, reaching $7.6 billion in 2022
> Chg. in share of total reserves since 2017: +1.4 ppts, reaching 9.0% in 2022
> Population, 2021: 43.5 million

14. Egypt
> Chg. in gold reserves since 2017: +48.9 metric tons, reaching 125.3 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.1 billion, reaching $7.3 billion in 2022
> Chg. in share of total reserves since 2017: +14.2 ppts, reaching 22.9% in 2022
> Population, 2021: 109.3 million

13. Kazakhstan
> Chg. in gold reserves since 2017: +51.8 metric tons, reaching 351.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$8.1 billion, reaching $20.5 billion in 2022
> Chg. in share of total reserves since 2017: +17.9 ppts, reaching 58.4% in 2022
> Population, 2021: 19.0 million

12. Uzbekistan
> Chg. in gold reserves since 2017: +59.4 metric tons, reaching 395.9 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$9.1 billion, reaching $23.1 billion in 2022
> Chg. in share of total reserves since 2017: -4.4 ppts, reaching 64.5% in 2022
> Population, 2021: 34.9 million

11. Qatar
> Chg. in gold reserves since 2017: +62.0 metric tons, reaching 91.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.1 billion, reaching $5.4 billion in 2022
> Chg. in share of total reserves since 2017: +3.4 ppts, reaching 11.6% in 2022
> Population, 2021: 2.7 million

10. Brazil
> Chg. in gold reserves since 2017: +62.4 metric tons, reaching 129.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.8 billion, reaching $7.6 billion in 2022
> Chg. in share of total reserves since 2017: +1.6 ppts, reaching 2.3% in 2022
> Population, 2021: 214.3 million

9. United Arab Emirates
> Chg. in gold reserves since 2017: +72.3 metric tons, reaching 80.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$4.3 billion, reaching $4.7 billion in 2022
> Chg. in share of total reserves since 2017: +3.3 ppts, reaching 3.6% in 2022
> Population, 2021: 9.4 million

8. Japan
> Chg. in gold reserves since 2017: +80.8 metric tons, reaching 846.0 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$17.6 billion, reaching $49.3 billion in 2022
> Chg. in share of total reserves since 2017: +1.5 ppts, reaching 4.0% in 2022
> Population, 2021: 125.7 million

7. Thailand
> Chg. in gold reserves since 2017: +90.2 metric tons, reaching 244.2 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$7.8 billion, reaching $14.2 billion in 2022
> Chg. in share of total reserves since 2017: +3.4 ppts, reaching 6.6% in 2022
> Population, 2021: 71.6 million

6. Hungary
> Chg. in gold reserves since 2017: +91.4 metric tons, reaching 94.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$5.4 billion, reaching $5.5 billion in 2022
> Chg. in share of total reserves since 2017: +12.9 ppts, reaching 13.4% in 2022
> Population, 2021: 9.7 million

5. Poland
> Chg. in gold reserves since 2017: +125.7 metric tons, reaching 228.7 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$9.1 billion, reaching $13.3 billion in 2022
> Chg. in share of total reserves since 2017: +4.2 ppts, reaching 8.0% in 2022
> Population, 2021: 37.7 million

4. China
> Chg. in gold reserves since 2017: +168.0 metric tons, reaching 2,010.5 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$40.8 billion, reaching $117.2 billion in 2022
> Chg. in share of total reserves since 2017: +1.2 ppts, reaching 3.6% in 2022
> Population, 2021: 1.4 billion

3. India
> Chg. in gold reserves since 2017: +229.3 metric tons, reaching 787.4 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$22.8 billion, reaching $45.9 billion in 2022
> Chg. in share of total reserves since 2017: +2.5 ppts, reaching 8.1% in 2022
> Population, 2021: 1.4 billion

2. Turkey
> Chg. in gold reserves since 2017: +339.8 metric tons, reaching 541.8 metric tons in 2022
> Chg. in value of gold reserves since 2017: +$23.2 billion, reaching $31.6 billion in 2022
> Chg. in share of total reserves since 2017: +18.5 ppts, reaching 27.6% in 2022
> Population, 2021: 84.8 million

1. Russia
> Chg. in gold reserves since 2017: +462.9 metric tons, reaching 2,301.6 metric tons in 2021
> Chg. in value of gold reserves since 2017: +$57.9 billion, reaching $134.2 billion in 2021
> Chg. in share of total reserves since 2017: +3.6 ppts, reaching 21.2% in 2021
> Population, 2021: 143.4 million

Source: 24/7 Wall St

]]> The mining world turns to Saudi cash for critical metal supply https://octaviandmcc.com/the-mining-world-turns-to-saudi-cash-for-critical-metal-supply/ Sun, 30 Jul 2023 17:07:00 +0000 https://octaviandmcc.com/?p=8185 A $2.6 billion deal announced last week has set the stage for a potentially landmark shift in the metal and mining investment landscape: the arrival of Saudi Arabia as a pivotal player.

The agreement with Vale SA gives the kingdom a 10% slice in one of the world’s crucial suppliers of nickel and copper — essential metals needed to decarbonize. It’s also held other talks, including with Barrick Gold Corp. about investing in a big Pakistan copper mine, according to people familiar with the matter. Speaking privately, executives at top miners said the value of Thursday’s deal made clear that the Saudis are ready to splash cash around.

The move comes as the question of who controls the commodities needed to both sustain and decarbonize the world’s economies has turned into a global flashpoint, jumping to the top of agendas in the US and Europe.

China has for years been the dominant buyer and a key source of funding, as it sought to secure supply for its rapid industrialization. But as tensions with the West have mounted, the mining industry is now facing increased pressure to look elsewhere.

Saudi Arabia is seeking to take minority stakes in global mining assets that will over time help provide access to supplies of strategic minerals. The country also is looking to build a metals-processing industry that could in turn make it more attractive for international miners to exploit its mineral deposits — a central pillar of Saudi efforts to diversify the economy away from oil.

The kingdom has invested heavily into industrial and financial assets and even turned the world of sport upside down by essentially buying the game of professional golf and piling into soccer. However, the Vale deal announced last week is its first major foray into mining. Manara Minerals, a new venture between the kingdom’s sovereign wealth fund and state mining company, will get a stake in Vale’s base metals business, giving Saudi Arabia an interest in mines from Indonesia to Canada producing copper, nickel and other industrial metals.

For western producers, the kingdom offers access to deep pools of capital, which are appealing as Chinese funds become less politically palatable, but also as some institutional investors have turned less comfortable with mining over environmental concerns.

Investors from the region — Qatar is already a major backer of Glencore Plc — are now likely to become one of the most important financiers for the capital hungry sector, according to serial mine builder Robert Friedland, who spent the last few years developing one of the world’s biggest copper operations, in the Democratic Republic of Congo, with the help of Chinese funds.

“Now, probably, the largest supply of capital to the mining industry will come from the Middle East,” he said in an interview last month.

But Saudi Arabia offers something else beyond cold cash: political backing for companies looking to expand into the Muslim world as deposits in more traditional jurisdictions are depleted.

Canada’s Barrick has been in talks with the Public Investment Fund about a potential stake in its Reko Diq copper project in Pakistan, which is a relatively untouched frontier for the international mining industry, according to people familiar with the matter. Bringing the Saudis on board would not only ease Barrick’s funding burden, but also introduce a partner that has significant political influence in Pakistan, the people said.

Spokespeople for the PIF and Barrick did not comment.

Saudi Arabia’s deep pockets may also present some challenges for the biggest producers who are looking for deals of their own. Keen to get more exposure to copper and nickel, miners have started writing the biggest checks in more than a decade. BHP Group and Rio Tinto Group — the two largest — have just completed multi-billion dollar deals to grow in copper, while Glencore Plc tried to buy Teck Resources Ltd.

For years, the big producers have found themselves repeatedly outbid by Chinese companies when it comes to buying mines. China’s state-owned metal and mining companies have been willing to pay valuations that western firms simply couldn’t match. Saudi Arabia now seems willing to do the same, potentially putting some deals beyond the reach of the industry’s traditional buyers.

Executives at two of the biggest mining companies, which have spent years assessing base metal assets such as those owned by Vale, said privately that they were surprised by the price tag in last week’s deal, which valued the unit at $26 billion (RBC Capital Markets said it was worth about $21 billion.)

Still, unlike Chinese companies, Saudi Arabia is currently more interested in securing stakes — guaranteeing future supply of critical minerals — rather than buying outright and then operating the assets.

Saudi Arabia set down a marker earlier this year when it announced the new firm to invest in mining assets globally, with $3.2 billion for initial investments. The country holds an annual mining conference, which this year featured the CEO of the world’s biggest mining company, BHP’s Mike Henry, as well as the chairman of no. 2 producer Rio Tinto — a major step up from past speakers. CEOs from other top miners are expected to attend next year.

For mining companies looking for funds, the US and Canadian governments’ recent crackdown on Chinese investment in key metals companies has changed the investment landscape. That’s given an opening to Middle Eastern countries like Saudi Arabia to fill the gap.

“Everything’s changed,” said Friedland.

“The American government has an ‘ABC’ policy: Anything But China. So the American government instead goes to rulers in the Middle East and says, “You should be giving the African people an alternative for financing mines in Africa. Recycle some of those petro-dollars.”

Source: Mining.com

]]> Real demand pushes gold towards a new standard https://octaviandmcc.com/real-demand-pushes-gold-towards-a-new-standard/ Wed, 26 Apr 2023 21:00:36 +0000 https://octaviandmcc.com/?p=8147

Key takeaways

  • Financial stresses have translated into gold trading at near-record levels
  • Central banks, including China, have added to their gold reserves as they diversify away from dollar assets
  • Recession risks and banking turmoil have contributed to recent price rises. Medium term, we see prices supported by falling US real rates and a weakening dollar
  • We have raised our gold price target to USD 2,100/oz by the end of 2023 and are using short put options to manage our allocation to the precious metal.

What do the Singaporean, Turkish, and Chinese central banks have in common with jittery investors? Answer, they’ve been buying gold as a haven and diversifier from fears of a recession, a crisis of confidence in banking, and a weakening US dollar. We see this as an indication that economic factors are taking over from financial speculation as the main driver of demand for gold.

Gold has traditionally been presented as a long-term inflation hedge on the expectation that the precious metal retains its buying power over time, and carries no credit risk, even if it does not generate a return. For nearly 14 years, exceptionally accommodative monetary policy, strong consumer spending and financial demand dominated this rationale for buying gold. With central banks having reversed course with higher rates and tightening lending conditions since early 2022, the prospect of peaking real rates, and a weakening US dollar, are now driving prices. 

Persistent price pressures and slowing economies worldwide have taken gold prices, adjusted for inflation, to levels in line with past periods of market stress in the early 1980s, the European sovereign debt crisis, and Covid (see chart 1). Since hitting a one-year low of 1,622 per ounce in September 2022, the price of gold has risen by more than 20%. In March 2023, prices were given a boost, taking the rise to 8% year to date, by fears around US banks and the since-discounted prospect of US interest rates peaking sooner than anticipated. In April, gold prices have traded around USD 2,000/oz.

In March, prices were given a boost… by fears around US banks
Prices moderated from April’s highs last week as the St Louis Federal Reserve President, James Bullard, said that the US central bank should keep hiking interest rates to counter America’s persistent inflation. Headline inflation fell once again in March, to 5.0%, from 6.0% the previous month, while a slowdown in new job openings and hourly earnings show the labour market is also starting to tighten. Yet ‘core’ measures of price pressures remain high. That means there is still little reason for the Fed to pause its tightening for now, and we expect another rate rise of 25 basis points at its May meeting, and perhaps an additional hike of the same magnitude in June or July.

Broadly, this scenario suggests that the process towards lower inflation is on course, even if that path means we may see some periods of negative economic growth before the end of the year. Our expectation is that US interest rates will peak at around 5.5% with Consumer Price Index (CPI) around 3% at the end of 2023, and that we will not see the Fed cut rates before early 2024.

High demand
Although nearly three-quarters of global physical demand for gold remains for jewelry, coin or ingots, recent price rises also reflect central banks’ buying, which has been at its highest levels since 2010, according to the World Gold Council. At the end of March 2023, cethe Council reports that central banks had bought a cumulative 140 tonnes of goldChina, the world’s largest producer of the precious metal and holds reserves of more than 2,000 tonnes, added another 58 tonnes since the start of 2023. These were its first increases since 2019, as it diversifies away from US-dollar denominated assets. At the same time, the Turkish central bank has extended a 15-month buying run. Additional buying by ‘unreported’ actors accounted for a large share of 2022’s purchases, according to the World Gold Council, as geopolitical risks added to global demand for the precious metal.

Geopolitical risks added to global demand for the precious metal
Some of the demand for gold is also financial, in the form of investors turning from equities and credit, and doubting the safety of their cash through March’s banking crisis. Inflows into gold exchange traded funds (ETFs), increased in March by USD 1.9 billion. Net speculative positions in gold, calculated by subtracting long from short positions and dividing by futures prices, also jumped in March.

Source: Lombard Odier

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]]> Central banks are leading a revolt against the US dollar and shifting to gold at a record pace, market expert says https://octaviandmcc.com/central-banks-are-leading-a-revolt-against-the-us-dollar-and-shifting-to-gold-at-a-record-pace-market-expert-says/ Wed, 26 Apr 2023 20:57:58 +0000 https://octaviandmcc.com/?p=8138

Central banks are turning away from the US dollar and shifting to gold, Ruchir Sharma wrote.
Central banks account for a record 33% of monthly global demand for gold, he said in the FT.
“Thus the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar.”

Assurance in the dollar’s dominance ignores signs that countries are serious about seeking alternatives, according to Ruchir Sharma.

This is illustrated when taking account of recent trends in gold: the safe haven commodity has surged 20% in the last half year.

But demand is coming from central banks reducing their dollar holdings, not the “usual suspects” made up of large and small investors, the chair of Rockefeller International wrote in The Financial Times on Sunday.

In fact, central banks account for a record 33% of monthly global demand for gold and are buying more gold than at any time since data began in 1950, he added.

“This buying boom has helped push the price of gold to near-record levels and more than 50% higher than what models based on real interest rates would suggest,” said Sharma. “Clearly, something new is driving gold prices.”

Nine of the top 10 central banks buying gold are in developing countries, including China, Russia and India, he said.

Those three countries, along with fellow BRICS nations Brazil and South Africa, are also part of an effort to create a new currency that is separate from the dollar. 

“Thus the oldest and most traditional of assets, gold, is now a vehicle of central bank revolt against the dollar,” Sharma wrote. “Often in the past both the dollar and gold have been seen as havens, but now gold is seen as much safer. During the short banking crisis in March, gold kept rising while the dollar drifted down. The difference in the movement of the two has never been so large.”

He attributes the rush for gold to the increasing use of financial sanctions by the US and its allies, with as much as 30% of nations facing sanctions from the US, European Union, Japan and UK.

That’s up from 10% in the 1990s. But after Russia’s invasion of Ukraine, the West froze the country’s currency assets and kicked it out of the SWIFT system.

“Suddenly, it was clear that any nation could be a target,” Sharma wrote.

In the face of the dollar’s weaponization, even US allies like Thailand and the Philippines are beginning to seek alternative currencies.

Most notably, the Chinese yuan has been growing its international reach, but Sharma cites another threat — the fact that the number of central banks attempting to create digital currencies has tripled in three years. 

“The risk for America is that its overconfidence grows, fed by the “no alternative” story. That narrative rests on global trust in US institutions and rule of law, but this is exactly what weaponizing the dollar has done so much to undermine,” Sharma wrote. “It rests also on trust in the country’s ability to pay its debts, but that is also slipping, as its reliance on foreign funding keeps growing.”

Others have been less wary of de-dollarization fears, citing that the trust in the greenback is difficult to replicate.

Commonwealth’s Brad McMillan said even if a strong alternative was to emerge, it would take monumental effort and persuasion to replace the dollar. 

And former Treasury Secretary Larry Summers said the yuan isn’t a threat to the US dollar, largely because China isn’t a predictable and reliable market.

Source: Markets Insider

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]]> Bitcoin ‘Halving’ Due Next Year Spurs Predictions of Rally in Token Past $50,000 https://octaviandmcc.com/bitcoin-halving-due-next-year-spurs-predictions-of-rally-in-token-past-50000/ Tue, 25 Apr 2023 04:18:26 +0000 https://octaviandmcc.com/?p=8123
  • Halving is quadrennial process of curbing supply of new tokens
  • Bitcoin hit record high after each of the last three halving

Bitcoin’s rebound is just the start of a rally that will take it past $50,000 next year courtesy of a process known as halving that curbs the supply of new tokens, according to projections from crypto analysts.

The largest digital asset has climbed 67% since Dec. 31 in a partial revival from an epic rout in 2022. While the token at the moment is struggling in the vicinity of $30,000, halving holds the potential to trigger an advance of at least 81%, according to Bloomberg Intelligence and Matrixport.

A halving – or halvening – cuts in half the amount of tokens that Bitcoin miners receive as reward for their work. The quadrennial event is due next around April 2024 and is part of the process of capping Bitcoin supply at 21 million tokens. The coin hit records after each of the last three halvings. 

 

The upcoming halving is currently about 50% priced in based on previous cycles, said Jamie Douglas Coutts, a Bloomberg Intelligence analyst. Coutts predicts that Bitcoin can scale $50,000 by April 2024. 

“Bitcoin cycles bottom around 12-18 months prior to the halving and this cycle structure looks similar to the past ones, albeit many things have changed — while the network is vastly stronger, Bitcoin has never endured a prolonged severe economic contraction,” he said.  

The Bitcoin bounce has sputtered of late, restrained by cooling expectations of Federal Reserve interest-rate cuts amid persistent inflation. A US regulatory crackdown on crypto in the wake of the FTX exchange’s collapse in November 2022 also threatens to darken the market outlook.

FTX Low

 

“If the collapse of FTX was indeed the bottom of this cycle, then history would suggest that we still have approximately 350 days of ‘accumulation’ before witnessing the characteristic post-halving breakout price action,” said Jacob Joseph, an analyst at CCData. 

Markus Thielen, research head at Matrixport, said in a recent note that Bitcoin will reach around $65,623 by April 2024 — more than double the current price.

Bitcoin remains about $41,000 down from its all-time high of almost $69,000 in November 2021 — which came 18 months after its 2020 halving. Crypto markets crashed last year as central banks jacked up rates to curb price pressures and digital-asset companies imploded.

“Bitcoin may once again reach a new all-time high in the future, however, it is unlikely to see the same growth as previous cycles due to increased market size and competition from other digital assets,” said CCData’s Joseph.

Bitcoin edged up less than 0.5% to $27,590 as of 8 a.m. in Singapore on Monday after retreating a little more than 9% last week. Smaller tokens like Ether, Cardano and Solana also made modest gains as the trading week got underway in the Asia-Pacific region.

Source: Bloomberg

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]]> Gold Digger: The last time the US deficit blew out this bad gold went on a 10-year, 700% bull run https://octaviandmcc.com/gold-digger-the-last-time-the-us-deficit-blew-out-this-bad-gold-went-on-a-10-year-700-bull-run/ Tue, 25 Apr 2023 03:16:59 +0000 https://octaviandmcc.com/?p=8104
  • US deficit blew out in the early 2000s, sparking a major bear market for the USD
  • This was a catalyst for a major increase in price of gold, from US$250 in 2001 to a high of ~$2,000 a decade later: Jesse Felder
  • Yesterday’s ASX News Highlights: Ramelius Resources, Breaker Resources

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

 

Gold is ready for another dalliance with record territory as economic threats loom large.

Last week, the US Treasury reported that the federal deficit hit US$1.1 trillion in the first half of the fiscal year ending in March, US$432 billion larger than the same period a year earlier.

If history is any guide, this deteriorating fiscal trend should represent a structurally bearish influence for the US dollar in the months and years to come, says former hedge fund manager and publisher of The Felder Report, Jesse Felder.

“If history is any guide, the best protection against a deteriorating fiscal situation (mathematically guaranteed by rapidly growing social security and medicare spending) is gold,” he says.

The last time the deficit blew out like this in the early 2000s it sparked a major bear market for the USD. A feeble USD is generally good for gold.

“This was one of the primary catalysts for a major bull market in the price of gold which rose from a low of $250 in 2001 to a high of nearly $2,000 a decade later,” Felder says.

 

OANDA senior analyst Ed Moya agrees risk aversion is starting to run wild and safe-haven flows are once again coming gold’s way.

“Too many risks remain on the table and investors are going to need some safety going forward,” he says.

“Debt ceiling drama is around the corner, a couple months away, and as the risks to the outlook pile up, gold is starting to look even more attractive.

“Gold has major resistance around the $2050 region, but if earnings and the outlooks continue to deteriorate, a record move could be eyed.”

‘Major resistance’ is an understatement. Gold has made aborted runs at US$2050 three times this month, falling short every time.

Gold was paying US$1985/oz at 7pm EST, Friday. Silver continued to outperform its cooler cousin, holding steady at US$25.11/oz.

 

ASX news highlights: Friday

Acquisitive WA gold miner Ramelius Resources (ASX:RMS) has now scooped up 33.26% of Breaker Resources (ASX:BRB) under its 1 RMS share for every 2.82 BRB shares offer, but appears exasperated by the holdouts.

It is now extending the offer period to Monday May 8 and urges “all remaining Breaker shareholders to accept the offer without delay”.

RMS says this is its final offer, and it won’t be increased unless $150m capped BRB receives a competing bid.

Originally, the implied value of the offer was $0.40 per BRB share or ~$130.7 million, based on a RMS share price of $1.127.

Both stocks have gained since then; BRB by 20%, RMS by 23%.

“On the date the Offer was initially made, the premiums to the undisturbed trading prices of Breaker were significant,” RMS says.

“Since the Offer the Ramelius share price has increased and as such the Offer for each Breaker share has increased accordingly.”

Source: Stock Head

 

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]]> Equity raises stake in Congo subsidiary through buyout, cash call https://octaviandmcc.com/equity-raises-stake-in-congo-subsidiary-through-buyout-cash-call/ Tue, 18 Apr 2023 10:53:55 +0000 https://octaviandmcc.com/?p=8091

 
  • DRC has huge copper and cobalt reserves, with a population of about 93 million.
  • In 2021 the Group injected $ 100 million of fresh capital into Equity BCDC.
  • According to Equity, regional subsidiaries are high-growth assets with Uganda and Rwanda becoming high return subsidiaries.

Kenyan lender Equity Group Holdings Ltd has increased its investment in the Democratic Republic of Congo (DRC) by $76.7 million after a buyout of smaller stakeholders.

The bank says it acquired additional 6.6 percent shares in EquityBCDC, DR Congo’s second largest bank by assets, through a buyout of minority shareholders and dilution of other shareholders through a cash call.

This latest investment signals the lender’s assessment of the Congolese market as the lender seeks to control the East and Central African banking market, which will have an expected clientele base of 100 million customers by 2030.

The group disclosed in its 2022 annual report that it acquired additional shares (2.3 percent) in EquityBCDC from minority shareholders at a cost of $6.2 million in a transition completed on August 25.

During the year, the Kenya-based lender also increased its shareholding in the Congolese subsidiary by acquiring 452,659 shares for a consideration of $70.5 million through a rights issue.

The new shares – from the rights issue and the minority shareholders – increased Equity’s shareholding in EquityBCDC to 84.1 percent from 77.5 percent in 2021.

Regional expansion

According to the report the bank also injected an additional capital of $10 million in Equity Bank Tanzania and capitalised retained earnings of Ush25.75 billion ($6.85 million) in Equity Bank Uganda, leading to an increase in Uganda’s share capital from Ush94.24 billion ($25.07 million) to Ush120 billion ($31.92 million).

The lender, with about 17 million customers, is consolidating and strengthening its operations in six markets after its plan for cross-border expansion was adversely impacted by a failed bid to acquire four banks in Rwanda, Zambia, Tanzania and Mozambique in 2020.

Currently, Equity Group, which is listed on the Nairobi Securities Exchange, has a presence in six regional countries – DRC, Kenya, Uganda, Tanzania, South Sudan, Rwanda and a representative office in Ethiopia.

It had hoped to establish a presence in 15 to 18 countries by 2024, with a customer base of more than 100 million clients.

Return on assets

In DRC, Equity bank’s return on assets employed improved marginally by 0.8 percentage points to 15.7 percent in 2022 from 14.9 percent in 2021, while in Tanzania this increased to 7.2 percent from 1.6 percent.

In Uganda, the ratio – which measures the profitability of a business in relation to the total assets – declined to 15.1 percent from 24.2 percent while in South Sudan it improved from negative 5.2 percent to 54.8 percent

Equity’s return on assets employed in Rwanda increased to 36 percent from 20.8 percent

However, in DRC, Equity faces the second highest cost of capital in the region at 22 percent after South Sudan (25 percent) compared to Tanzania (20 percent), Rwanda (19 percent) and Uganda at 19 percent.

Customer deposits at the Congolese subsidiary grew at a paltry two percent to Ksh367.7 billion ($2.76 billion) compared to loans that accelerated at 53 percent to Ksh170.7 billion ($1.28 billion). Its net profit grew by 45 percent to Ksh5.8 billion ($43.6 million).

Rwanda reported a 104 percent growth in net earnings to Ksh2.8 billion ($21.05 million), the Tanzania subsidiary grew by 409 percent to Ksh400 million ($3 million) while the Uganda subsidiary’s net profit declined by 25 percent to Ksh2 billion ($15.03 million).

South Sudan grew by 1,318 percent to Ksh2.3 billion ($17.29 million).

Promising subsidiaries

According to Equity, regional subsidiaries are high growth assets with Uganda and Rwanda becoming high return subsidiaries.

The lender reckons that its operations in Congo remain in investment phase for the medium term, with the country remaining a high growth investment destination.

Equity Bank began operations in the DRC through a subsidiary, Equity Bank Congo (EBC) SA, which it established by acquiring 86.6 percent stake in a German bank ProCredit between 2015 and 2017.

On August 7, 2020 Equity Group acquired 66.53 percent shareholding in BCDC (226,000 new shares) at a par value of $100,000 from George Arthur Forrest for a consideration of $95 million and later merged its existing Equity Bank Congo with BCDC to form a new bank, EquityBCDC.

After the merger Equity Group held a majority 77.5 percent stake in the new entity, with the remainder being held by IFC, the government of DRC and minority shareholders.

Fresh capital

In 2021 the Group injected $ 100 million of fresh capital in Equity BCDC to enhance the lender’s capacity to fund development projects and large mining & manufacturing companies in DRC

DRC has huge copper and cobalt reserves, with population of about 93 million, of which an estimated 45 percent of them live in urban centres presenting huge consumption opportunities.

Equity Bank is positioning itself to reap from increased business in the DRC following the admission of the mineral-rich central African nation into the East African Community in July 2022.

In 2021 former President Uhuru Kenyatta and his Congolese counterpart Felix Tshisekedi signed a bilateral agreement that led to a Kenyan trade delegation comprising members from both government and private sector going to DRC to explore trade and investment opportunities.

Source: East African

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]]> Gold Is Near a Record High—and the Rally Might Not Stop There https://octaviandmcc.com/gold-is-near-a-record-high-and-the-rally-might-not-stop-there/ Tue, 18 Apr 2023 10:34:19 +0000 https://octaviandmcc.com/?p=8073

Three related forces are propelling gold toward a record price: economic concerns, lower bond yields, and a weaker U.S. dollar. A boost in buying this year by central banks has added fuel to the rally. The tailwinds look likely to continue.

The price of gold settled at $2,041.30 an ounce on Thursday, the second-highest value in history and about half a percentage point below the August 2020 record of $2,069.40. The yellow metal has gained 13% since late February, before Silicon Valley Bank failed. Gold is up more than 25% since November. Other precious metals have rallied even more lately: The price of silver has surged nearly 30% in a month.

Source: Barrons

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