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Spanish ‘Anti-Austerity’ Protesters “Sick Of This System They Call Democracy” | Zero Hedge

Spanish ‘Anti-Austerity’ Protesters “Sick Of This System They Call Democracy” | Zero Hedge.

logo

“I’m here to fight for my children’s future,” exclaims one father as Spaniards rallied in Madrid against poverty and EU-imposed austerity. As Reuters reports, the largely peaceful protest latermarred by violent clashes in which police fired rubber bullets. The so-called “Dignity Marches” brought hundreds of thousands to the capital with banners making it clear what their feelings about record 26% unemployment were – “Bread, jobs and housing for everyone” and “Corruption and robbery, Spain’s trademark.” One protester summed up the people’s views of the government,“I’m sick of this system they call democracy… I want things to change.”

 

 

 

Via Reuters,

The so-called “Dignity Marches” brought hundreds of thousands to the capital, according to estimates of Reuters witnesses. Travelling from all over Spain, they were protesting in support of more than 160 different causes, including jobs, housing, health, education and an end to poverty.

 

 

…Spaniards rallied in Madrid on Saturday against poverty and EU-imposed austerity in a largely peaceful protest later marred by violent clashes in which police fired rubber bullets.

 

 

Some protesters started to throw stones and bottles at the large numbers of riot police present and attacked cashpoints and hoardings. The police fired rubber bullets to disperse them, according to video footage seen by Reuters.

Central government representative Cristina Cifuentes said 19 protesters had been arrested and 50 police officers had been injured, one of them very badly, in the clashes.

Once again the issue is government corruption combined with austerity (or at least slowing growth in spending to be perfectly clear) – a combination that we have discussed numerous times tends to end in social unrest…

A housing bubble burst more than five years ago, forcing a 41-billion euro ($56 billion) bailout of Spain’s banks, squeezing homeowners and throwing millions out of work.

 

 

The government introduced public sector austerity to whittle down the deficit, provoking widespread anger amongst middle- and low-income families as dozens of cases of corruption in the ruling class are investigated by judges.

The people’s feelings were clear as the OECD says the economic crisis has hit Spain’s poor harder than in any other country in the euro region.

Banners urged the conservative government not to pay its international debts and to tackle Spain’s chronically high unemployment of 26 percent.

 

Bread, jobs and housing for everyone“, read one banner, “Corruption and robbery, Spain’s trademark,” said another.

 

I’m here to fight for my children’s future,” said Michael Nadeau, a 44-year-old entrepreneur.

 

For those who are in power we’re just numbers. They value money more than they value people,” he said, shouting to be heard above the din of chanting, whistling and drumming.

 

“(I’m here because) I’m sick of this system they call democracy,” said Jose Luis Arteaga, a 58-year-old teacher whose wage has been cut 20 percent. “I want things to change.”

It seems that almost record low bond yields and high stock market levels did not appease the people of Spain either…Time for that IMG income inequality equalizing wealth redsitriburion it would seem…

Spanish 'Anti-Austerity' Protesters "Sick Of This System They Call Democracy" | Zero Hedge

Spanish ‘Anti-Austerity’ Protesters “Sick Of This System They Call Democracy” | Zero Hedge.

logo

“I’m here to fight for my children’s future,” exclaims one father as Spaniards rallied in Madrid against poverty and EU-imposed austerity. As Reuters reports, the largely peaceful protest latermarred by violent clashes in which police fired rubber bullets. The so-called “Dignity Marches” brought hundreds of thousands to the capital with banners making it clear what their feelings about record 26% unemployment were – “Bread, jobs and housing for everyone” and “Corruption and robbery, Spain’s trademark.” One protester summed up the people’s views of the government,“I’m sick of this system they call democracy… I want things to change.”

 

 

 

Via Reuters,

The so-called “Dignity Marches” brought hundreds of thousands to the capital, according to estimates of Reuters witnesses. Travelling from all over Spain, they were protesting in support of more than 160 different causes, including jobs, housing, health, education and an end to poverty.

 

 

…Spaniards rallied in Madrid on Saturday against poverty and EU-imposed austerity in a largely peaceful protest later marred by violent clashes in which police fired rubber bullets.

 

 

Some protesters started to throw stones and bottles at the large numbers of riot police present and attacked cashpoints and hoardings. The police fired rubber bullets to disperse them, according to video footage seen by Reuters.

Central government representative Cristina Cifuentes said 19 protesters had been arrested and 50 police officers had been injured, one of them very badly, in the clashes.

Once again the issue is government corruption combined with austerity (or at least slowing growth in spending to be perfectly clear) – a combination that we have discussed numerous times tends to end in social unrest…

A housing bubble burst more than five years ago, forcing a 41-billion euro ($56 billion) bailout of Spain’s banks, squeezing homeowners and throwing millions out of work.

 

 

The government introduced public sector austerity to whittle down the deficit, provoking widespread anger amongst middle- and low-income families as dozens of cases of corruption in the ruling class are investigated by judges.

The people’s feelings were clear as the OECD says the economic crisis has hit Spain’s poor harder than in any other country in the euro region.

Banners urged the conservative government not to pay its international debts and to tackle Spain’s chronically high unemployment of 26 percent.

 

Bread, jobs and housing for everyone“, read one banner, “Corruption and robbery, Spain’s trademark,” said another.

 

I’m here to fight for my children’s future,” said Michael Nadeau, a 44-year-old entrepreneur.

 

For those who are in power we’re just numbers. They value money more than they value people,” he said, shouting to be heard above the din of chanting, whistling and drumming.

 

“(I’m here because) I’m sick of this system they call democracy,” said Jose Luis Arteaga, a 58-year-old teacher whose wage has been cut 20 percent. “I want things to change.”

It seems that almost record low bond yields and high stock market levels did not appease the people of Spain either…Time for that IMG income inequality equalizing wealth redsitriburion it would seem…

Probably The Most Important Chart In The World | Zero Hedge

Probably The Most Important Chart In The World | Zero Hedge.

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Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions…

Source: Goldman Sachs

This is not the first time we have discussed “self-sufficiency” – As none other than Bridgewater’s Ray Dalio noted in a slightly different context:

self-sufficiency encourages productivity by tying the ability to spend to the need to produce,”

Societies in which individuals are more responsible for themselves grow more than those in which they are less responsible for themselves.” The nine-factor gauge of self-sufficiency provides some interesting insights into those nations most likely to experience above-average growth going-forward and those that are not; as European countries, notably Italy, France, Spain, and Belgium, all ranking at the very bottom on self-sufficiency.

And here we discussed, What If Nations Were Less Dependent On One Another?

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, ‘self-sufficiency’ in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S.

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale.

Probably The Most Important Chart In The World | Zero Hedge

Probably The Most Important Chart In The World | Zero Hedge.

logo

Having discussed the links between economic growth and energy resource constraints, and with the current geo-political fireworks as much about energy (costs, supply, and demand) as they are human rights, it would appear the following chart may well become the most-important indicator of future tensions…

Source: Goldman Sachs

This is not the first time we have discussed “self-sufficiency” – As none other than Bridgewater’s Ray Dalio noted in a slightly different context:

self-sufficiency encourages productivity by tying the ability to spend to the need to produce,”

Societies in which individuals are more responsible for themselves grow more than those in which they are less responsible for themselves.” The nine-factor gauge of self-sufficiency provides some interesting insights into those nations most likely to experience above-average growth going-forward and those that are not; as European countries, notably Italy, France, Spain, and Belgium, all ranking at the very bottom on self-sufficiency.

And here we discussed, What If Nations Were Less Dependent On One Another?

The ability to survive without trade or aid from other nations, for example, is not the same as the ability to reap enormous profits or grow one’s economy without trade with other nations. In other words, ‘self-sufficiency’ in terms of survival does not necessarily imply prosperity, but it does imply freedom of action without dependency on foreign approval, capital, resources, and expertise.

Freedom of action provided by independence/autarky also implies a pivotal reduction in vulnerability to foreign control of the cost and/or availability of essentials such as food and energy, and the resulting power of providers to blackmail or influence national priorities and policies.

Consider petroleum/fossil fuels as an example. Nations blessed with large reserves of fossil fuels are self-sufficient in terms of their own consumption, but the value of their resources on the international market generally leads to dependence on exports of oil/gas to fund the government, political elites, and general welfare. This dependence on the revenues derived from exporting oil/gas leads to what is known as the resource curse: The rest of the oil-exporting nation’s economy withers as capital and political favoritism concentrate on the revenues of exporting oil, and this distortion of the political order leads to cronyism, corruption, and misallocation of national wealth on a scale so vast that nations suffering from an abundance of marketable resources often decline into poverty and instability.

The other path to autarky is selecting and funding policies designed to directly increase self-sufficiency. One example might be Germany’s pursuit of alternative energy via state policies such as subsidies.

That policy-driven autarky requires trade-offs is apparent in Germany’s relative success in growing alternative energy production; the subsidies that have incentivized alternative energy production are now seen as costing more than the presumed gain in self-sufficiency, as fossil-fueled power generation is still needed as backup for fluctuating alt-energy production.

Though dependence on foreign energy has been lowered, Germany remains entirely dependent on its foreign energy suppliers, and as costs of that energy rise, Germany’s position as a competitive industrial powerhouse is being threatened: Industrial production is moving out of Germany to locales with lower energy costs, including the U.S.

The increase in domestic energy production was intended to reduce the vulnerability implicit in dependence on foreign energy providers, yet the increase in domestic energy production has not yet reached the critical threshold where vulnerability to price shocks has been significantly reduced.

America’s ability to project power and maintain its freedom of action both presume a network of diplomatic, military, and economic alliances and trading relationships which have (not coincidentally) fueled American corporation’s unprecedented profits.

The recent past has created an assumption that the U.S. can only prosper if it imports oil, goods, and services on a vast scale.

Another Escalation: US Freezes Diplomatic Relations With Syria, Orders Non-US Personnel To Leave Country | Zero Hedge

Another Escalation: US Freezes Diplomatic Relations With Syria, Orders Non-US Personnel To Leave Country | Zero Hedge.

Putin 2 – Obama 0, which means it is time to go back to the one place where it all started last year, and where Putin had his most resounding victory over the US foreign policy apparatus (at least until the Ukraine, where we trampled not only over Obama’s red line… again… but where nobody quite explained the “costs” to the ex-KGB leader): Syria.  Sure enough, with the US unable to respond in Crimea, has decided to take its fight back to where Europe’s natgas reliance on Gazprom product was first truly exposed.

BREAKING: US freezes diplomatic, consular relations with Syria; Orders non-US personnel to leave country.

— The Associated Press (@AP) March 18, 2014

The US can order non-US personnel around? More from Reuters:

  • U.S.
    IMMEDIATELY SUSPENDS OPERATIONS OF SYRIAN EMBASSY IN WASHINGTON, AS
    WELL AS HONORARY CONSULATES IN MICHIGAN AND TEXAS – STATE DEPARTMENT
  • U.S.
    SPECIAL ENVOY FOR SYRIA SAYS ‘UNACCEPTABLE’ FOR INDIVIDUALS APPOINTED
    BY ASSAD REGIME TO CONDUCT DIPLOMATIC, CONSULAR OPERATIONS IN U.S.

Regardless, if the bloodless Russian annexation of Crimea wasn’t enough to push the S&P to new all time highs, this surely will.

Another Escalation: US Freezes Diplomatic Relations With Syria, Orders Non-US Personnel To Leave Country | Zero Hedge

Another Escalation: US Freezes Diplomatic Relations With Syria, Orders Non-US Personnel To Leave Country | Zero Hedge.

Putin 2 – Obama 0, which means it is time to go back to the one place where it all started last year, and where Putin had his most resounding victory over the US foreign policy apparatus (at least until the Ukraine, where we trampled not only over Obama’s red line… again… but where nobody quite explained the “costs” to the ex-KGB leader): Syria.  Sure enough, with the US unable to respond in Crimea, has decided to take its fight back to where Europe’s natgas reliance on Gazprom product was first truly exposed.

BREAKING: US freezes diplomatic, consular relations with Syria; Orders non-US personnel to leave country.

— The Associated Press (@AP) March 18, 2014

The US can order non-US personnel around? More from Reuters:

  • U.S.
    IMMEDIATELY SUSPENDS OPERATIONS OF SYRIAN EMBASSY IN WASHINGTON, AS
    WELL AS HONORARY CONSULATES IN MICHIGAN AND TEXAS – STATE DEPARTMENT
  • U.S.
    SPECIAL ENVOY FOR SYRIA SAYS ‘UNACCEPTABLE’ FOR INDIVIDUALS APPOINTED
    BY ASSAD REGIME TO CONDUCT DIPLOMATIC, CONSULAR OPERATIONS IN U.S.

Regardless, if the bloodless Russian annexation of Crimea wasn’t enough to push the S&P to new all time highs, this surely will.

Which European Countries Will Suffer The Most If Russia Turns Off The Gas | Zero Hedge

Which European Countries Will Suffer The Most If Russia Turns Off The Gas | Zero Hedge.

With the Sunday Crimean referendum seemingly unstoppable now, its outcome certain, it is set to unleash a chain of events that is not entirely predictable but is at best, ominous, as it will involve the launch of trade, economic and financial sanctions against Russia (despite China’s stern disapproval), which will lead to a “symmetric” response in kind by Moscow. And in a worst case escalation scenario, should game theory completely collapse and everyone starts defecting from a cooperative equilibrium state, the first thing to go will be European gas exports from Russia, anywhere from one day to indefinitely. So which European countries are most exposed to the whims of Gazprom? The following map from the WSJ, shows just how reliant on Russian gas exports most European countries are.

One wonders just how “stern” any sanctions these countries support and enforce against Russia will truly be. Then again, as the WSJ reports, Europe somehow believes that despite its massive reliance on Ukraine for energy, it can weather a storm:

Mr. Oettinger says Europe is now in a stronger position to withstand possible disruptions in supplies, thanks in part to a mild winter, more storage capacity and pipeline infrastructure that allows more gas to flow from west to east.

But he has also said that the EU should reach out to other gas exporters and build more terminals for liquefied natural gas, and that countries should also start exploratory work on shale gas.

“The Russians are now more dependent on our money than we are on their gas,” said Mr. Wieczorkiewicz, adding that around half of Russia’s revenues are derived from oil and gas sales. “The EU could also explore ties to Norway, Algeria and Qatar as alternative suppliers, increase the use of coal and import LNG.”

But in the short term, others argue that the EU is short of options if it wants to use energy as a tool against Moscow. “Russia remains the largest exporter of gas to the EU; there’s no way of [quickly] sourcing those amounts of gas elsewhere,” said Simon Pirani of the Oxford Institute for Energy Studies.

“Europe has to ask itself how important is the economic relationship with Russia, which provides that cheap energy, and how important is the political protest that it wants to make” about Crimea, he said.

So who wins in the end: the provider of the commodity, or the buyer who pays with infinitely dilutable fiat, especially if any further escalation by the west against Russia will merely bring China and Russia together even closer. Somehow we think our money is on the KGB spy instead of the clueless and insolvent European bureaucrats.

Which European Countries Will Suffer The Most If Russia Turns Off The Gas | Zero Hedge

Which European Countries Will Suffer The Most If Russia Turns Off The Gas | Zero Hedge.

With the Sunday Crimean referendum seemingly unstoppable now, its outcome certain, it is set to unleash a chain of events that is not entirely predictable but is at best, ominous, as it will involve the launch of trade, economic and financial sanctions against Russia (despite China’s stern disapproval), which will lead to a “symmetric” response in kind by Moscow. And in a worst case escalation scenario, should game theory completely collapse and everyone starts defecting from a cooperative equilibrium state, the first thing to go will be European gas exports from Russia, anywhere from one day to indefinitely. So which European countries are most exposed to the whims of Gazprom? The following map from the WSJ, shows just how reliant on Russian gas exports most European countries are.

One wonders just how “stern” any sanctions these countries support and enforce against Russia will truly be. Then again, as the WSJ reports, Europe somehow believes that despite its massive reliance on Ukraine for energy, it can weather a storm:

Mr. Oettinger says Europe is now in a stronger position to withstand possible disruptions in supplies, thanks in part to a mild winter, more storage capacity and pipeline infrastructure that allows more gas to flow from west to east.

But he has also said that the EU should reach out to other gas exporters and build more terminals for liquefied natural gas, and that countries should also start exploratory work on shale gas.

“The Russians are now more dependent on our money than we are on their gas,” said Mr. Wieczorkiewicz, adding that around half of Russia’s revenues are derived from oil and gas sales. “The EU could also explore ties to Norway, Algeria and Qatar as alternative suppliers, increase the use of coal and import LNG.”

But in the short term, others argue that the EU is short of options if it wants to use energy as a tool against Moscow. “Russia remains the largest exporter of gas to the EU; there’s no way of [quickly] sourcing those amounts of gas elsewhere,” said Simon Pirani of the Oxford Institute for Energy Studies.

“Europe has to ask itself how important is the economic relationship with Russia, which provides that cheap energy, and how important is the political protest that it wants to make” about Crimea, he said.

So who wins in the end: the provider of the commodity, or the buyer who pays with infinitely dilutable fiat, especially if any further escalation by the west against Russia will merely bring China and Russia together even closer. Somehow we think our money is on the KGB spy instead of the clueless and insolvent European bureaucrats.

Iran, Russia Ruffle US Feathers With Oil-Swap Deal | Zero Hedge

Iran, Russia Ruffle US Feathers With Oil-Swap Deal | Zero Hedge.

This morning’s apparent U-turn in US-Iran relations – when the US demanded the UN rescind Iran’s invite to the Syrian peace conference having somewhat instigated their invitation in the first place – is a little confusing for some. However, as OilPrice’s Joao Peixe points out, reports are emerging that Iran and Russia are in talks about a potential $1.5 billion oil-for-goods swap that is sure to upset the powers that be in Washington.

 

Submitted by Joao Peixe via OilPrice.com,

Reports are emerging that Iran and Russia are in talks about a potential $1.5 billion oil-for-goods swap that could boost Iranian oil exports, prompting harsh responses from Washington, which says such a deal could trigger new US sanctions.

 

So far, talks are progressing to the point that Russia could purchase up to 500,000 barrels a day of Iranian oil in exchange for Russian equipment and goodsaccording to Reuters.

 

“We are concerned about these reports and Secretary (of State John) Kerry directly expressed this concern with (Russian) Foreign Minister (Sergei) Lavrov…  If the reports are true, such a deal would raise serious concerns as it would be inconsistent with the terms of the P5+1 agreement with Iran and could potentially trigger US sanctions,” Caitlin Hayden, spokeswoman for the White House National Security Council, told Reuters.

 

Russian purchases of 500,000 bpd of Iranian crude would lift Iran’s oil exports by 50% and infuse the struggling economy with some $1.5 billion a month, some sources say.

 

Since sanctions were slapped on Iran in July 2012, exports have fallen by half and Iran is losing up to $5 billion per moth is revenues.

 

In the meantime, a nuclear agreement reached in November with Iran and world powers is in the process of being finalized, and the news of the potential Russian-Iranian oil swap deal plays to the hands of Iran hawks in Washington who are keen to seen the November agreement collapse.

 

The November agreement is a six-month deal to lift some trade sanctions if Tehran curtailed its nuclear program. Technical talks on the agreement began last week.

Under the terms of the tentative November nuclear agreement, Iran will be allowed to export only 1 million barrels of oil per day.

 

In mid-December, Iranian oil officials indicated that they hoped to resume previous production and export levels and would hold talks with international companies to that end.

 

This announcement sparked an immediate reaction from US Congress, which has threatened oil companies with “severe financial penalties” if they resume business with Iran “prematurely” following the six-month agreement reached in Geneva.

 

There are plenty of figures in Congress—Republican and Democratic alike—who are opposed to the deal. The key “Iran hawk” in US Congress, South Carolina Republican Lindsey Graham, has described the deal as “so far away from what the end game should look like”, which should be to “stop enrichment”.

 

The opposition in this case believes any talk between Tehran and Western oil companies is premature because they are convinced that we won’t see a comprehensive resolution after the six-month period, and that sanctions will be laid on stronger than ever before.

Yet again, it would seem, Iran is another proxy pissing match between the US and Russia… and remember, nothing lasts forever...

 

Into The Gold Labyrinth | Zero Hedge

Into The Gold Labyrinth | Zero Hedge.

Gold_Labyrinth

The surprise of 2014 is gold! The yellow precious metal had its fourth week of gains in a row. It seems like the gold market has been ‘set free’ in 2014. This would mean the end of the cyclical correction, which indicates that the market is ready for the big and final phase of the secular bull run in gold. All of this fits perfectly with everything we have been saying for years about gold.

For those who didn’t notice, please read our free Guide to Gold.

One thing becomes very clear here: gold is moving from the West to the East. Chinese gold import from Hong Kong has been rising dramatically since 2011 and at the same time, the gold price has seen a 30% correction. This brought up a lot of questions from subscribers.

Hong-Kong-China-monthly-net-exports-gold

Source: Toqueville Funds / Bloomberg

“How is it possible that the price goes down when there is huge demand?!” To know the answer you have to look at the futures market. Because that is where the market price for gold is set. Yes, you read it well: paper contracts dictate the price of the physical metal.

Since 2011 there are a lot of ‘sell contracts’ for gold, better known as short positions. This caused huge downward pressure on the gold price. An ideal way for China to buy physical gold cheaply. But the Chinese were not the active shorters. American investment banks did that, with JPMorgan in the lead. JPM, AKA, the ‘banker’ of the US government.

JPMorgan built up an historical short position over the years. But at the same time, the bank was bringing in more and more physical gold to store it in its vault below the famous Chase Manhattan Plaza in New York. Where does this gold come from? Just look at the chart for the registered physical gold at warehouses with the COMEX, the American futures market.

COMEX warehouse gold

Source: 24hGold

The COMEX has been sucked dry in the last year. You will never guess who recently signed a sale agreement for the JPM building in the center of New York, underground gold vaults included… yes, you got it, the Chinese!

Those who want an even better view, should check out the next photo of the new situation in NY.

JPMorgen Chase Manhatten Building now belongs to the Chinese

(H/t Koos Jansen)

Yes, that is correct, the vaults of the Fed are right across from the Chase Manhattan Plaza. Coincidence? We do not think so… But the reserves in the US are naturally insufficient to satisfy the Chinese hunger for gold. The effect of the price correction made sure that the ‘weak hands’ in the gold market let go of their gold. Weak hands is a synonym for (small) investors.

Since the rise of the SPDR Gold Trust ETF (GLD) in 2007, more and more investors committed larger amounts of capital to the gold ETF. At the peak of the market there were 1,300 tonnes of gold in GLD, more than countries like China. That was also not part of the Chinese plan. You probably understand by now where this is going. When the gold price got shaken up, those same investors stepped out of GLD.

Meanwhile, more than 500 tonnes of gold was pulled out of GLD, which implies that the ETF has less than 800 tonnes of gold today.

GLD tonnage gold holdings

Where did all this GLD gold go? From the vaults in London, to the smelters in Switzerland to the depots in… Hong Kong! And now we are full circle again: the enormous transfer of gold from Hong Kong to China. All of this – large scale price manipulation in combination with huge gold transfers – is not a walk in the park. All parties need to cooperate.

So it would be hard to imagine that it did not happen with the approval of the US government and the Fed. And probably forced by China! Let us clarify that. China has stopped buying US debt since 2011. That was also the moment that the Fed needed to jump in to support the market. After QE we quickly saw QE2, QE3…

QE Fed base

Without these actions from the Fed there would not have been a single buyer of US Treasuries, which would probably mean the end of the American empire. China wanted, or rather demanded, its gold from the West! You can say many things about the Chinese but they certainly are not dumb.

The Chinese realized that for years they received a poisoned gift from the Americans. Only through the acquisition of gold, both world powers would be on a ‘level playing field’ again. Of course, we do not know where this level playing field is, but we do assume that China has more or less reached it. How much gold landed in China since 2011, is very hard to determine. In 2013 alone, more than 2,000 tons was transferred from Hong Kong to China. And this is just one of the import routes. China is not just buying gold from its own gold mines, but is also directly or indirectly the largest customer of most gold producers. All melted gold also found its way to China.

In short, China was the gold market in the last two years!

However, we are spotting a few signals indicating that China is releasing its grip on the gold market. Not only has the continuous drain from GLD stopped, but we also read that China has started buying US Treasuries again. Even more, the Chinese portfolio of US government bonds is at record levels! Now you also know why the American central bank suddenly started ‘tapering’, or scaling back the buyback program of US debt.

Does China have enough gold then? It would not surprise us.

A small calculation taught us the following:

  • The US owns more than 8,000 tonnes of gold while the yearly US GDP is just shy of 16 trillion dollars. The yearly GDP of China is a little over 8 trillion dollars, almost half. You would expect then that the level playing field for gold in China hovers around 4,000 tonnes.
  • The official amount of gold in the Chinese central bank is still 1,054 tonnes today, but because of the huge gold transfers these last years, we expect that China is close to its golden level playing field.

We do admit, it is a lot of information to digest, but it is extremely important! You have to understand that the US, with the largest pile of debt in the world, would be helped hugely by a higher gold price. The higher the value of gold, the lower the real value of their debt. We have the feeling that if China loosens its grip on the gold market, the gold price can move up quite fast. There is nothing that America wants more and China is now well-hedged.

Where can the gold price go to then? Another small calculation to help us out…

The historical ratio of the monetary base of the Fed teaches us that a gold price of 5,000 to 7,000 dollars/ounce should be enough for the US to make its debt bearable again. From the current level this means at least a quadrupled gold price. For most people this seems improbably high, but do not forget that since the start of the secular trend in gold, its price already went 5x higher. Also in the 70s, the gold price skyrocketed in its second phase from 100 dollars to 850 dollars per ounce in barely four years!

As for now, we’re in the midst of the bottoming proces with gold. Once this proces ends- lets say above 1,300 dollars – the gold price could see a voilent upswing towards 1,550 dollars, where the next battle field arrives for gold. We prefer to play the next U-turn in gold with a selection of quality gold stocks, as the current leverage to the gold price – risk/return – is the best in years, even decades!

Download our Free ‘Guide to Gold’

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