Oil prices extended yesterday’s losses overnight as markets came to grips with the prospect that the Fed will continue aggressive rate increases, hampering US demand.

“Macro headwinds once again stifle a rally,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth.

“Many traders have seen this movie before and are not buying the dip until the macro environment stabilizes and the physical market fundamentals are resoundingly bullish.”

Last night’s API report showed a crude draw, all eyes are now on the official data to see if it confirms.

API

• Crude -3.835mm (+700k exp)

• Cushing +24k

• Gasoline +1.84mm (-1.4mm exp)

• Distillates +1.927mm (-1.0mm exp)

DOE

• Crude -1.694mm (+700k exp)

• Cushing -890k

• Gasoline -1.134mm (-1.4mm exp)

• Distillates +138k (-1.0mm exp)

US Crude inventories saw a 1.694mm barrel drawdown last week – the first draw in 11 weeks. Cushing stocks also drewdown (for the first time in 10 weeks). Gasoline inventories dropped for the 3rd straight week while Distillates saw a small build…

Source: Bloomberg

Cushing stocks dropped very modestly…

Source: Bloomberg

The constant ramp this year in total US crude stocks (ex SPR) came to an end this week…

Source: Bloomberg

US Crude production fell modestly as the rig count declines…

Source: Bloomberg

WTI was trading just below $77 before the official data hit and rallied after the draw.

It appears we have an answer to our question of will the EIA un-fudge their ridiculous ‘adjustment factor’

Shocked! a negative adjustment! The biggest weekly swing negative in history…

EIA Administrator Joe DeCarolis admitted that the EIA will make changes to its surveys to account for the light hydrocarbons, which will take time. The Administration will also change its accounting methods for crude oil blending to get more accurate data on U.S. crude oil production, Translation: Don’t hold your breath for any significant change soon.

So much for Goldman’s expectation – not to mention every 3rd tracking service – that today’s JOLTS report would finally tumble and reflect the reality observed by services such as Indeed and Opportunity Insights, both of which have seen a sharp drop in job openings.

Moments ago the DOL reported that in January (as a reminder JOLTS is always one month delayed vs payrolls), the US had 10.824 million job openings, which while a 410K drop from an upwardly revised 11.234MM in December (vs the 11.0MM pre-revision print), was not only well above the consensus estimate of 11.546MM but the drop was tiny compared to Goldman’s expectation for an 800K drop in the number of job openings.

This was the fifth consecutive beat of expectations in the series, and an unprecedented 27 of the past 29 prints (!), just another garden variety ten-sigma event by the “never political” BLS.

According to the BLS, in December, the largest decreases in job openings were in construction (-240,000), accommodation and food services (-204,000), and finance and insurance (-100,000). The number of job openings increased in transportation, warehousing, and utilities (+94,000) and in nondurable goods manufacturing (+50,000)

The modest drop surge in job openings means that there are now 5.13 million more jobs than unemployed workers, which is not that far off from the all time high of 6.055 million in March 2022.

Said otherwise, there were 1.90 job openings for every unemployed worker, down from a near record 1.96 last month. Needless to say, this number has a ways to drop to revert to its precovid levels around around 1.20…

One place where the labor market appeared to be showing modest weakness was in the number of quits, traditionally seen as a “take this job and shove it” indicator as it reflects confidence in finding a better paying job elsewhere: in january, the number of quits tumbled by 207K – the biggest drop since May 2021 – to 3.884MM, the lowest level since June 2021.

So what to make of this ‘data’ which as not only UBS, but also the NFIB…

… Opportunity Insights…

… and even Goldman now (see “Goldman Expects Nearly 1 Million Drop In Tomorrow’s Job Openings“)…

… discredit as fake news?

The answer is simple: well over half of it – or some 70% to be specific – is guesswork. As the BLS itself admits, while the response rate to most of its various labor (and other) surveys has collapsed in recent years, nothing is as bad as the JOLTS report where the actual response rate has tumbled to a record low 31%

In other words, more than two thirds, or 70% of the final number of job openings, is estimated!

And at a time when it is critical for Biden to maintain the illusion that the labor market remains strong when everything else in Biden’s economy is on the verge of recession, we’ll let readers decide if the admin’s Labor Department is plugging the estimate gap with numbers that are stronger or weaker.

As for the Fed, the number was clearly hot (i.e., “labor market remains strong, thank the president), and the only dovish twist was the big drop in quits, although as Bloomberg notes, “that’s a pretty slender thread on which to hang a “dovish Fed” narrative,” and the market’s view shouldn’t really change much at all ahead of the big payroll and CPI reports, which will likely determine the Fed’s decision in two weeks.

More than a month ago (see “US Job Openings Far Lower Than Reported By Department Of Labor, UBS Finds“) and again yesterday, we explained why today’s JOLTs job openings number should may come in far below consensus estimates, with even Goldman expecting an 800K drop in the increasingly unreliable headline series. But there’s more: as Bloomberg’s Imon White explains this morning, there are other reasons why traders should handle today’s JOLTs data with care.

Below we excerpt from his note:

Jobs data in the US, such as the JOLTS survey released later today, should be treated with care due to small sample sizes, low survey response rates and backdated revisions.

Today brings the February update of the JOLTS job openings figure. We will also see a number of updates to the JOLTS report, with data back to January 2018 subject to revision. Normally these sort of minutiae would not matter, but when the path of increasingly tight monetary policy is inextricably linked to the jobs data, it’s wise to dig a little deeper.

One of the many quirks of the post-pandemic cycle has been the rapid rise in job openings. Openings rose and have stayed elevated, both outright and versus hires and separations (quits + layoffs).

This is not just a US phenomenon. France, Austria, Germany, Australia and the UK are just some of the other countries that have also seen large rises in unfilled job vacancies after the pandemic.

One explanation put forward for this in the UK is that prior to the pandemic, up to half of jobs were offered internally, but since then there has been more movement between firms, pushing up recorded vacancies. In some cases, jobs in the US must be posted publicly even if they plan to hire internally, but in many cases they don’t. So this could also be influencing the US data.

Possible behavioral changes are compounded by the JOLTS’ dwindling de facto sample size. It covers 21,000 establishments, out of approximately 11 million in total. This is in contrast to the payrolls data which surveys about 400,000 establishments, accounting for about one third of jobs in the country.

But the actual sample size has fallen further due to the collapse in survey-response rates. All surveys have been impacted since the pandemic, but the JOLTS has been particularly affected, the response rate halving to 31% from close to 60% in 2019. Even with the increase in establishments in the survey from 16,000 to 21,000 just before the pandemic, the drop in the response rate means the actual sample size is now 35% smaller.

None of this may matter of course, but it pays to know what’s behind the numbers, and be ready to act accordingly if the narrative of a super-hot jobs market begins to change.

Other surveys are giving a different picture, with LinkedIn’s showing a 28% fall in the hiring rate since last February versus versus a 9% drop recorded in the JOLTS.

As a reminder, last month, Pulitzer prize winning journalist Seymour Hersh concluded that the United States blew up the Russia-to-Germany Nord Stream natural gas pipelines last September as part of a covert operation under the guise of the BALTOPS 22 NATO exercise.

Yesterday, four weeks after Hersh’s bombshell report, anonymous US intelligence officials told the NY Times that the saboteurs are likely “pro-Ukraine, possibly government-trained Ukrainian or Russian nationals, or some combination of the two,” but that “no American or British nationals were involved.“

In response, Mikhail Podolyak, adviser to the head of President Zelensky’s office said:

“Ukraine has nothing to do with the incident in the Baltic Sea and has no information about “pro-Ukrainian subversive groups.”

That should not be a surprise as the report goes on (multiple times) to claim that there’s “no evidence so far of the Ukrainian government’s complicity in the attack on the pipelines.”

CIA officials “officials declined to disclose the nature of the intelligence, how it was obtained or any details of the strength of the evidence it contains” but we’re supposed to believe this isn’t a smokescreen after the CIA was credibly accused of orchestrating it https://t.co/6cAgYvXvG6

— Tom Elliott (@tomselliott) March 8, 2023

As Paul Joseph Watson writes at Summit News, Russia reacted to the New York Times report by dismissing it as a propaganda ploy designed to obfuscate the truth.

“I wonder who allows such leaks, filling the media scene with them?” asked Russian Foreign Ministry spokeswoman Maria Zakharova.

“The answer is: those who do not want to conduct an investigation in the legal field and are going to divert the attention of the audience from the facts in every possible way.”

Andrey Ledenev, Minister Counselor of the Russian Embassy in the United States, said the report served to protect the true culprits behind the attack.

“We have no faith in the “impartiality” of the conclusions of the U.S. intelligence. We perceive anonymous “leaks” as nothing more than an attempt to confuse those who are sincerely trying to get to the bottom of things in this egregious crime. Shift the blame from the statesmen who ordered and coordinated the attacks in the Baltic Sea to some abstract individuals,” Ledenev said.

Kremlin Press Secretary Dmitry Peskov said the New York Times story had “instantly got a ‘green light’ in the local information field” and was intended to distract from the facts presented in Hersh’s piece.

“Obviously, those who have masterminded the [Nord Stream] attack want to divert attention. Obviously, this is a coordinated media hoax campaign,” he asserted.

Further, Peskov said the Kremlin is wondering how US officials can suggest anything regarding the ‘terrorist’ attack on Nord Stream without an investigation, while he suggested it is strange and smells of a “monstrous crime”, according to RIA.

Needless to say, the twitterverse mocked the clear distraction:

”pro-Ukrainian group” makes it sound like the Ukrainian Cultural Association of Ohio recruited military deep sea divers with 1,000 pounds of explosives

— Sam Biddle (@samfbiddle) March 7, 2023

BREAKING NEWS: The CIA alleges that 5 random clowns in a sailboat penetrated the most highly patrolled body of water on earth, drilled through concrete at incredible depths, and planted 1,000 Kilograms of highly unstable C4 plastique, then remote detonated it with pulse sonar.

— Garland Nixon (@GarlandNixon) March 8, 2023

Remember kids, Sy Hersh’s Nord Stream report is untrustworthy because it is unproven and relies on anonymous sources. pic.twitter.com/vu3RjlxgFf

— Caitlin Johnstone (@caitoz) March 7, 2023

However, NakedCapitalism’s Yves Smith points out that even though the US has succeeded in burying the Sy Hersh story depicting Biden and his top foreign policy officials as the instigators of the bombing, it’s gotten traction in Germany.

Moon of Alabama provided a more detailed takedown, relying on the Die Zeit account:

The new claim is that some rather small sailing yacht, which would not even be able to carry the necessary equipment to perform such a deed, was the main instrument in this:

Following joint research by [German main public TV news unit] (ARD’s capital city studio), the ARD political magazine Kontraste, [German public TV] SWR and DIE ZEIT, it was possible to reconstruct to a large extent in the course of the investigation how and when the explosive attack was prepared. According to this, traces lead in the direction of Ukraine. However, investigators have so far found no evidence of who ordered the destruction.

…

Specifically, according to information from [these news sources], investigators have managed to identify the boat that was presumably used for the secret operation. It is said to be a yacht rented from a company based in Poland, apparently owned by two Ukrainians. The clandestine operation at sea is said to have been carried out by a team of six people, according to the investigation. It is said to have involved five men and one woman. According to the report, the group consisted of a captain, two divers, two diving assistants and a female doctor, who are said to have transported the explosives to the crime scenes and placed them there. The nationality of the perpetrators is apparently unclear. The assassins used professionally forged passports, which are said to have been used, among other things, to rent the boat.According to the investigation, the commando set sail from Rostock on September 6, 2022. The equipment for the clandestine operation was previously transported to the port in a van, it is said. In the further course, the investigators succeeded in locating the boat the following day again in Wieck (Darß) and later at the Danish island Christiansø, northeast of Bornholm, according to the research. The yacht was subsequently returned to the owner in uncleaned condition. On the table in the cabin, the investigators were able to detect traces of explosives, according to the research. According to information from [the mentioned news sources], a Western intelligence service is said to have sent a tip to European partner services as early as in the fall, i.e. shortly after the destruction, according to which a Ukrainian commando was responsible for the destruction. Thereafter, there have allegedly been further intelligence indications suggesting that a pro-Ukrainian group could be responsible.

No. You do not dive down to 80+ meter for an industrial size job, involving the placement of hundreds of pounds of explosives in eight individual charges on very sturdy pipelines, from a sparsely manned sailing boat. Such deep dives require special gases, special breathing equipment, special training, a decompression chamber for emergencies and lots of well trained people to maintain all that stuff.

This is just more chaff thrown up to divert the attention from Seymour Hersh’s revelations that the U.S. military, under order from the White House, carried out the sabotage act.

There is the cynical take that the “blame it on people who like Ukraine” is meant to weaken Ukraine support. That seems unlikely. Pinning blame on mystery operatives with superpowers turns scrutiny as far as possible from government actors, and the big point is to exculpate the US, particularly its top brass. Conveniently, that sort of caper is such a staple of action movies that great swathes of the public have been pre-programmed to believe it.

But the alleged “link” may still blunt Germany sympathy for Ukraine:

German Defense Minister Boris Pistorius says claims that pro-Ukrainian group behind Nord Stream SABOTAGE may have consequences for Western support to Ukraine. 😂🤡💩 pic.twitter.com/o28CqhMhwl

— 🅰pocalypsis 🅰pocalypseos 🇷🇺 🇨🇳 🅉 (@apocalypseos) March 8, 2023

But, as Yves Smith notes, before you get your hopes up, until Robert Habeck and Annelina Baerbock get lobotomies, I don’t see German policy changing. They are diehard hawks and still very much in the driver’s seat.

It’s clearly the US hope that this deflection will make the Nord Stream “whodunit” go away.

But Sy Hersh was already promising more stories on this case, and this mini-barrage gives him additional grist. Pass the popcorn.

As Summit News previously highlighted, both China and Hungary have called for a full international investigation into the pipeline attack under the auspices of the United Nations.

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

The big question facing the Fed is whether they should increase the Fed Funds rate by 25bps or 50bps on March 22, 2023. If Jerome Powell cared for our advice, we would tell him to take the opposite approach of President Theodore Roosevelt. Speak loudly because your stick isn’t that big anymore.  

President Roosevelt’s “big stick diplomacy” defined his foreign policy leadership style. He believed that the U.S. should negotiate with allies and foes peacefully (softly), but making it well understood, the U.S. was prepared to strike hard (big stick) if need be.

Having raised rates by over 4%, over a short period and in a very leveraged economy, the Fed no longer has the big stick it used to have. Therefore, speaking loudly with hawkish rhetoric and narrative must become a priority.

Current Monetary Policy Stance

The Fed has used its large interest rate stick for the last year to thump the economy and tame inflation. Their monetary policy actions are more aggressive than any we have seen in over forty years, yet have thus far proven futile.

The graph below shows Fed Funds (blue) and the 12-month rate of change in Fed Funds (orange). The orange dotted line shows that the current 12-month rate of change in Fed Funds is double that of any period since 1981.

Fed Funds are at 4.50% and expected to climb to 5.25% in the coming months.

Despite the forceful interest rate hikes, the unemployment rate is at 50-year lows, and GDP is trending above the natural growth rate. CPI appears to have peaked, but recent inflation indicators warn it may be sticky at levels higher than the Fed wants. While the economy may seem robust and inflation too high, both can change quickly as the leverage tax exerts itself.

The Leverage Tax

We use the term leverage tax to describe the cost of interest expense on the economy. To better comprehend it, think about buying a car on loan. The initial purchase will boost your consumption significantly. Yet the monthly loan payment reduces the goods and services you can consume until the loan is retired, your income increases, or you can refinance at a lower interest rate. The loan impedes your ability to spend.

From a macroeconomic perspective, the leverage tax is a function of the total amount of debt in the system, the debt’s interest rate, and GDP. The table below compares the current amount of system-wide leverage versus 2000.

As it shows, the amount of debt today has risen to 2.75 times that of the size of the economy, having grown significantly over the last 20 years. While there is more debt as a percentage of GDP, the leverage tax did not increase nearly as much.

Since 2000, total debt has risen 264%, yet the interest expense on the debt is only up 40%. Such is the magic of declining interest rates.

As shown below, interest rates have fallen significantly since 2000. More debt drove economic activity but, on the margin, did not increase the future financial burden significantly.

Interest Rate Magic No More

Interest rates are now rising rapidly, and the leverage tax will follow. To help quantify the increasing burden, we share the table below.

The table estimates how each 1% increase in interest rate costs the economy as a percentage of GDP. Before panicking, realize that most of the debt has a fixed interest rate. As such it will take time to reset at higher levels.

We use the five-year Treasury as a proxy for interest rates to approximate how higher interest rates will dampen the economy over time. The five-year note currently yields 4.25%, about 2.50% above its 1.75% average of the last 12 years. Most maturing debt was added when interest rates were below 2%.

If only 20% of debt matures this year and is rolled over, the additional interest cost could be equivalent to 1.38% of GDP. The percentage will continue to increase as more debt matures and gets reissued at higher rates.

The process whereby higher interest rates slowly but increasingly weaken the economy is known as the lag effect.

HOPE and the Lag Effect

In Janet Yellen Should Focus On Hope, we employ the HOPE framework to show how higher interest rates take time to ripple through the economy.

Per the article:

The Fed first hiked rates on March 17, 2022, by .25%. Assuming it takes a year or longer for the full impacts of a rate hike to be experienced, the first, relatively small rate hike is not fully being felt. There were seven more after March 2022, accounting for an additional 4.25% of interest rate increases.

Graphing Hope

We make a few assumptions below to show when prior rate hikes will fully affect the economy. Rate hikes should affect the economy with the following lags:

• 25% First month
• 50% within three months
• 75% within nine months
• 85% within fifteen months
• 100% within two years

The lags assumptions are estimates and likely conservative. The point is not to quantify the impossible but to raise awareness that interest rate hikes aren’t effective immediately. As the graph below shows, the Fed Funds rate as of mid-March is 4.50%. Yet the lagged-effective Fed Funds rate is likely about 2% less.

Time For the Fed to Manage Financial Conditions

The Fed has already raised Fed Funds significantly. But, it is as if the Fed only did about half of what they did do. The lagged Fed Funds rate is rising rapidly and will increasingly tax the economy significantly.

Does Powell want to increase the tax on tomorrow’s economy further? Or is he willing to wait for previous rate hikes to take full effect?

As we think about the question, remember that the amount of leverage in the system is significant and that higher rates risk the potential for serious financial difficulties. Therefore, Jerome Powell should aim to stop inflation with weaker “financial conditions” as his Fed Funds stick becomes increasingly dangerous to swing.  

Financial markets are a vital way monetary policy is transmitted to the broader economy. As such, higher stock prices, which Powell describes as “an unwarranted easing of financial conditions” driven by a dovish Fed, will further incite inflation, forcing the Fed to stay aggressive.

If Jerome Powell and the Fed can maintain a very hawkish tone and threaten higher rates for longer, the stock market may weaken and tighten financial conditions. Speaking loudly and hawkishly would help the Fed’s effort to tame inflation without further risking financial and economic catastrophe.

Summary

The path ahead is fraught with risk for the Fed. On the one hand, they risk not doing enough regarding the actual policy to normalize inflation. On the other hand, they could raise rates too much and create a financial crisis.

Given the lag effect of prior rate hikes and the massive leverage embedded in the economy, we advise Jerome Powell to speak very loudly but take limited further action regarding rate hikes. If Powell takes our advice and speaks loudly, the stock market could return to last October’s lows or even lower. Regardless of whether such activity is taken, talk of more QT and higher Fed Funds will scare investors.

Putting ourselves in Powell’s seat and weighing the decisions he has to make is one way to appreciate better what the future may hold.

Following reports of steering wheels detaching from the steering column while driving, the National Highway Traffic Safety Administration (NHTSA) has initiated yet another investigation into Tesla’s Model Y SUV.

As per a report by AP News, the NHTSA has initiated an investigation into approximately 120,000 Model Y vehicles from the 2023 model year. The agency was prompted to act after receiving two complaints of steering wheels detaching while driving. Some customers have suggested that a missing bolt securing the wheel to the steering column may be the cause of the issue.

@elonmusk @TeslaOwnersWW @BLKMDL3 Family was excited to receive Tesla Y delivery on 1/24/2023. Was driving on highway and all the sudden steering wheel fall off, was lucky enough there was no car behind and I was able to pull on devider #SafetyFirst #Fixit #TeslaModelY #help pic.twitter.com/4UMokFA2cv

— Prerak & Neha Patel (@preneh24) January 30, 2023

According to documents published on NHTSA’s website on Wednesday, the agency noted that both incidents occurred when the Model Y SUVs had low mileage. The investigation will focus on determining if the issues are widespread and reviewing Tesla’s manufacturing and quality control process. 

Last month, Tesla paused the rollout of the $15,000 driver-assistance system (Full Self-Driving Beta) until a new software upgrade can be deployed over the air to address the recall of 362,758 vehicles equipped with FSD Beta. The recall comes as NHTSA said FSD Beta might “allow the vehicle to act unsafe around intersections” and “respond insufficiently to changes in posted speed limits.” 

Tesla shares fell 1.4% as of 0750 ET in premarket trading in New York. 

Meanwhile, Berenberg Bank analyst Adrian Yanoshik has downgraded Tesla’s rating from “buy” to “hold” in a note published on Wednesday. Yanoshik believes there is now little room for disappointment and less upside potential.

Here are some of the highlights from Yanoshik’s note (list courtesy of Bloomberg): 

• With the shares now priced on a 2025 P/E of 25x and EV/sales of 4.5x, analyst Adrian Yanoshik writes that he now prefers other automakers within his coverage
• Price cuts are an investment in growth, but do come at cost of near-term margins
• While trims near-term estimates, continues to see strength in outer years
• PT set to $210 from $200, implies a 12% increase from Tuesday’s close

NHTSA is on a scrutinizing roll with Tesla. What will they investigate or recall next? 

After tumbling last month to its lowest in two years (blamed on weather), ADP’s employment report was expected to show a rebound in Feb, adding 200k jobs. The actual print was even higher at +242k (with January’s revised up to +119k).

Source: Bloomberg

Large companies dominated the beat…

Business Services and Construction sectors saw job losses…

ADP’s chief economist Nela Richardson said of the January weakness, “we saw the impact of weather-related disruptions on employment during our reference week.”

Richardson’s comments for February:

“There is a tradeoff in the labor market right now. We’re seeing robust hiring, which is good for the economy and workers, but pay growth remains quite elevated. The modest slowdown in pay increases, on its own, is unlikely to drive down inflation rapidly in the near-term.”

However, pay growth for job stayers slowed to 7.2 percent in February, the slowest pace of gains in 12 months. Pay growth decelerated for job changers, too, falling to 14.3 percent from 14.9 percent.

As a reminder, ADP has dramatically under-forecast BLS ‘official’ job gains for months…

Source: Bloomberg

Equity bulls better start hoping for a big ugly print in payrolls soon or The Fed’s hawkish dreams may come true sooner rather than later. All eyes now turn to JOLTS data (and the potential for a big miss).

Via SchiffGold.com,

After charting the highest level of net gold purchases on record in 2022, central banks started out 2023 right where they left off.

Central banks globally added another net 77 tons to their gold reserves in January, according to the latest data compiled by the World Gold Council.

It was a 192% month-on-month increase from December and above the 20-60 ton range of reported purchases we’ve seen over the last 10 consecutive months of net buying.

A late report of a 45-ton gold purchase by Singapore in January bumped the numbers up from the initially reported 31 tons.

The Central Bank of Turkey was the biggest buyer in 2022 and continued to add gold to its reserves with another 23-ton purchase in January. Turkey now holds 565 tons of gold.

The country has been battling rampant inflation. Price inflation accelerated to as high as 85% last year and was at 64% in December. The Turkish lira depreciated by almost 30% last year.  Meanwhile, the price of gold in lira terms increased by 40% on an annual basis, according to Bloomberg.

China reported another 14.9-ton increase in its gold reserves on top of the 62 tons reported between November and December 2022.

The Chinese central bank accumulated 1,448 tons of gold between 2002 and 2019, and then suddenly went silent until it resumed reporting in November 2022. Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

There has always been speculation that China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last year, there were large unreported increases in central bank gold holdings.  Central banks that often fail to report purchases include China and Russia. Many analysts believe China is the mystery buyer stockpiling gold to minimize exposure to the dollar.

The European Central Bank reported a nearly 2-ton increase in its gold holdings in January. According to the WGC, this was related to Croatia joining the eurozone.

The National Bank of Kazakhstan increased its gold reserves by a modest 3.9 tons in January after selling over 30 tons in November and December.

The only prominent seller in January was Uzbekistan with a 12-ton decrease in gold reserves.

It is not uncommon for banks that buy from domestic production – such as Uzbekistan and Kazakhstan – to switch between buying and selling.

The World Gold Council projects that central banks will continue to buy gold through 2023, but it’s not unreasonable to expect that the rate of buying won’t match the record level of 2022.

Looking ahead, we see little reason to doubt that central banks will remain positive towards gold and continue to be net purchasers in 2023. However, by how much is difficult to call, as evidenced by our expectations at the start of 2022. But it is also reasonable to believe that central bank demand in 2023 may struggle to reach the level it did last year.”

Total central bank gold buying in 2022 came in at 1,136 tons. It was the highest level of net purchases on record dating back to 1950, including since the suspension of dollar convertibility into gold in 1971. It was the 13th straight year of net central bank gold purchases.

According to the World Gold Council, there are two main drivers behind central bank gold buying — its performance during times of crisis and its role as a long-term store of value.

It’s hardly surprising then that in a year scarred by geopolitical uncertainty and rampant inflation, central banks opted to continue adding gold to their coffers and at an accelerated pace.”

World Gold Council global head of research Juan Carlos Artigas told Kitco News that the big purchases underscore the fact that gold remains an important asset in the global monetary system.

“Even though gold is not backing currencies anymore, it is still being utilized. Why? Because it is a real asset,” he said.

Yesterday we reported that for the first time ever, US drillers spent more on share buybacks and dividends – some $128 billion – than on capital projects (understandably so, courtesy of a clueless administration which has sought to demonize and alienate the very corporations it needs to push key energy prices lower, while vowing to end energy demand as we know it: almost as if Hunter Biden is in charge of US energy policy).

Of course, energy companies would not have been able to return that kind of money to shareholders unless they generating comparable profits, and sure enough. according to a new report from Oliver Wyman, commodity traders – perhaps the most profitable subset of commodity companies – saw record gross margins of about $115 billion last year.

If confirmed by trading companies’ annual profit figures, this would reflect an increase of about 60% over the previous year.

Where did the record profits come from? In a nutshell, the Kremlin: the Ukraine invasion sent commodity prices from energy to metals and grains on a tear while sparking a record burst of volatility; that volatility, along with sanctions and export restrictions, created arbitrage opportunities for traders as the world’s energy and food supply maps were redrawn.

“Trading firms that spent years developing their portfolios, agile culture and expertise were well positioned to handle the disruption and keep commodities flowing,” the study said without listing individual firms.

According to the report, industry gross profit margins have roughly tripled from $36 billion in 2018, with those of independent trading houses now far outstripping others in the sector.

And, as Bloomberg notes, for the first time, the consultancy’s analysis split out hedge fund numbers into their own section, having merged them with others previously.

“Hedge funds more or less left commodities after 2010-2011, but over the last two to three years they’ve really built up their capabilities in a return to the market, and quite successfully so,” said Ernst Frankl, who leads Oliver Wyman’s global commodity trading and risk practice.