Authored by Alasdair Macleod via GoldMoney.com,

Our proprietary gold price model has done a very good job tracking gold prices since we introduced it to our readers for the first time in 2016. As we have explained before, the intent of our gold price model is not to provide trading signals. Instead, we find the model a very useful tool to thoroughly understand the basic drivers of gold prices. Over the years, we have written extensively about the relationship between the price of gold and the underlying variables we identified. Readers can catch up on these discussions in our three-part framework report here (Gold Price Framework Vol. 2: The energy side of the equation, 28 May 2018), here (Part II, 10 July 2018) and here (Part III, 24 August 2018), as well as some follow up reports that built on the model (Gold Price Framework Update – the New Cycle Accelerates, 28 January 2021) and (Gold prices continue to weather the rate storm, 13 April, 2022.

As with all models that aim to explain the price of an asset based on underlying variables over time, there are periods where the observed price and the model-predicted price diverge meaningfully. These instances were always the most interesting to us. When it happens, it raises the question of whether the gold market is pricing something in that the underlying variables don’t, or, whether the gold market does not fully reflect the information the underlying variables provide.

In some instances in the past, prices converged as the model-predicted prices moved towards the observed prices. This happens when the gold market preempts some of the moves in the underlying drivers or prices of the underlying variables are distorted for some reason. For example, long-term inflation expectations implied in the TIPS market (one of the drivers) may be too low or high for technical reasons. At some point over the past few years, the Fed owned a much larger share of all outstanding TIPS than it did for nominal treasuries, and both the building up of this position and the winding down distorted implied inflation expectations in our view. In that case, we suggested that the gold market was reflecting “true” inflation expectations better than the TIPS market. And when these distortions disappeared, model-predicted prices converged towards the observed gold price.

In other instances, prices converged as observed prices moved towards predicted prices. In those cases, the gold market was mispriced relative to the underlying variables, which, in hindsight, turned out to reflect the state of the market more accurately. The last time that happened was in mid-2020 when the gold price quickly moved to $2200 on the back of the unprecedented expansion of central bank balance sheets. The market suddenly became very concerned about the inflationary impact of that latest round of QE. However, while real-interest rate expectations dropped sharply, they stopped around -1.2%. This arguably marked a new low, but the gold market had priced in even higher long-term inflation expectations and thus lower real-interest rate expectations (see Exhibit 1). And when these long-term inflation expectations didn’t materialize in the TIPS market, gold prices corrected lower. However, inflation DID start to rise sharply in 2021, which also impacted long-term inflation expectations in the TIPS. This meant that our model predicted prices began to rise. The gold market resisted moving with observed inflation for a long time but finally capitulated and gold moved again towards $2000/ozt, where the model had been already for a while (see Exhibit 1). Ironically, when prices finally converged, our gold price model already predicted a sharp correction in the price on the back of the Fed’s aggressive rate hike rhetoric (which pushed TIPS yields up over 2% in a very short amount of time). Again, the observed gold price followed only with a lag. In this entire period, the model predicted price was leading the observed gold price (see Exhibit 1).

Exhibit 1: From early 2020 until mid-2022, our model-predicted price was leading observed gold prices by several months both to the up and the downside

Source: Goldmoney Research

Importantly, when observed gold prices and our model predicted prices diverged in the past, it was for either one of these two reasons. However, there was always a third possibility: Several times in the past, when we saw large discrepancies between the two, we asked ourselves whether what we were observing was a paradigm shift and the model simply didn’t work anymore. Had we come to a point where the relationship between gold and the underlying variables that we identified had broken down? 

As we highlighted before, this has never happened so far. Whenever observed gold prices detached from the model-predicted prices, they always converged back eventually. Hence, even though central banks have continuously pushed unprecedented monetary policies, we have not yet seen a shift in paradigm where gold prices sustainably detached from the underlying drivers. However, we eventually expect such a paradigm shift to happen once central banks lose control over the monetary environment. 

We ask ourselves again whether this is now the point of a shift in paradigm.

Over the past few months, the gold price has once again detached from the model’s predicted price. And it has done so in a remarkable way. First, the delta between the observed gold price and the model-predicted price has reached an all-time high. Current gold prices are more than $400/ozt over model predicted prices (See Exhibit 2). The previous all-time high was $200/ozt and it only lasted for a short period of time. 

Exhibit 2: Observed gold prices are substantially higher than the model-predicted price

Source: Goldmoney Research

Second, this is happening in the most unlikely of all environments. The Fed has been aggressively hiking rates for the past 12 months to fight the highest inflation in over 40 years. The Fed raised the Fed Funds rate from 0% to 4.5% in just 12 months. It is very rare that we see such large rate hikes from cycle bottoms. In fact, this has only happened five times since 1975 that the Fed raised rates more than 4% from the bottom (see Exhibit 3). 

Exhibit 3: It happened only 5 times since 1975 that the Fed raised rates by more than 4% from the cycle lows

Source: FRED, Goldmoney Research

And the speed at which this recent rate hike happened is also remarkable (see table 1). Only the rate hike in 1980 was faster (just 4 months for a 8.5% hike), but arguably that was a policy correction due to a fine-tuning error in a 20% inflation/rate environment (More specifically, the Fed had lowered rates too quickly, from 20% in March 1980 to 9.5% just three months later. It was then forced to raise it quickly back to 18%. We would thus argue that this was just a blip in the easing period that followed the Volker shock). In the other three instances when the Fed raised rates by 4% or more from the bottom, it did so over a period of 28 months on average. This means the recent hike cycle was the sharpest in over 50 years. Moreover, it is the only one that started from the zero bound. 

Table 1: The speed of the latest Fed rate hike is unprecedented 

Source: FRED, Goldmoney Research

In addition, the Fed funds rate has now clearly broken the 45-year downtrend they have been in. The same happened to the entire fixed income market (see Exhibit 4). 

Exhibit 4: US rates have clearly broken their 45-year downtrend

Source: Goldmoney Research

At the same time, while CPI inflation remains high, commodity prices have retraced substantially. This has two effects. It lowers input costs for gold production as long-dated energy prices have declined with the broader commodity markets (see Exhibit 5)…

Exhibit 5: Both short and long-term energy prices have declined significantly

Source: Goldmoney Research

…and it also suggests that CPI inflation will likely slow down over the coming months (see Exhibit 6), which could affect long term inflation expectations and thus real interest rate expectations even further (Exhibit 7).          

Exhibit 6: Energy prices vs CPI                          

Source: Goldmoney Research

Exhibit 7: long-term energy price vs inflation expectations

Source: Goldmoney Research

Yet despite all this, gold prices have not just held their ground; they have actually risen! Arguably, it could be that the gold market once again has simply got ahead of itself. Or we really do see a paradigm shift this time. 

Before we continue exploring this thought, we must add one caveat here. In our models, we use publicly available data for net central bank sales/purchases. The official data from the IMF is notoriously lagging and incomplete, and we are certain that the reported net purchase numbers are much too low. The World Gold Council (WGC), for example, reports net additions of 1136 tonnes in 2022, more than double the 450 tonnes bought by central banks in 2021. It’s no secret that central banks have been on a buying spree in the second half of last year. But exactly how much gold they added remains a bit of a mystery. That said, even assuming that true central bank gold purchases exceeded the WGC estimates by a massive 50% would bring the model-predicted price only about $70/ozt closer to the observed price. We believe this is partially a shortcoming of our model, as it is based on historical data, and we have not seen a lot of volatility in CB gold purchases in the past. However, we have had years with large central bank purchases before, and we had years with higher overall gold demand from all sectors, and yet this didn’t lead to large distortions in our model. Hence, we don’t think central bank purchases can explain the current huge discrepancy between predicted and observed prices.

Therefore, in our view, the only reason for gold prices to detach from the underlying variables in our model by such a large amount and for such a long time is that the gold market finally starts pricing in that there is a risk central banks, particularly the Fed, are losing control over inflation, which is remarkable given the prevailing narrative that the Fed is willing and able to do whatever it takes to bring inflation under control.

In the second part of this report, we will dive deeper into the current market environment. We will explain why so far it was relatively easy for the Fed to raise rates, why this is about to change and why the gold market may indeed price in a shift in paradigm.

As the banking crisis and the Hunter Biden laptop scandal continues to unfold, the potential indictment of former President Trump on felony falsification charges could be the only headline that really matters next week. 

Fox News anchor John Roberts informed viewers on Friday afternoon that the Manhattan District Attorney’s Office has requested a “meeting with law enforcement ahead of a potential Trump indictment.” He said, “to discuss logistics for some time next week, which would mean that they are anticipating an indictment next week.”

“Same sources familiar with the planning said they will go over security preparations in and around the courthouse in lower Manhattan. Secret Service will take the lead in what they will allow or will not allow, the source cautioned, mentioning, for instance, that the decision to handcuff the president, the former president, or not, they will set the tone and will escort him into the courtroom,” Roberts continued. 

“We are learning that the Manhattan DA office has asked for a meeting with law enforcement ahead of a potential Trump indictment. The meeting is to discuss logistics for some time next week which would mean they are anticipating an indictment next week” pic.twitter.com/IkbM46Naoe

— Acyn (@Acyn) March 17, 2023

Trump’s lawyer, Joseph Tacopina, told AP News that if the former president is indicted, “we will follow the normal procedures.”

If Trump is charged with felony falsification of business records, he would be forced to surrender to New York authorities and make an appearance in a Manhattan courthouse. The former president allegedly coordinated a transfer of $130,000 to pornstar Stormy Daniels through former attorney Michael Cohen. 

“The payments were made to a lawyer, not to Stormy Daniels. The payments were made to Donald Trump’s lawyer, which would be considered legal fees,” the lawyer told MSNBC earlier this week, adding that Cohen “was his lawyer at the time and advised him that this was the proper way to do this to protect himself and his family from embarrassment. It’s as simple as that. That is not a crime.”

According to New York Daily News, the Manhattan District Attorney’s office held meetings with several law enforcement agencies to discuss security concerns ahead of a possible indictment. 

And if Trump is charged next week, he might as well kick off his presidential campaign — would be a hell of a way to start. 

If this happens, Trump will be re-elected in a landslide victory

— Elon Musk (@elonmusk) March 18, 2023

Hard to imagine a prosecutor engaging in more egregious election interference than indicting a presidential candidate (and former president) on a charge so vague and petty, no reasonable person would think it’s a crime *of any kind*

— Buck Sexton (@BuckSexton) March 18, 2023

It is possible that a PR campaign is underway to divert the attention of the American public from banking failures and the Biden family.

Trump will most likely be in the spotlight next week. On Saturday morning, he wrote this on Truth Social: 

What exactly is Trump suggesting his followers do? Those last few words seem to play right into Democrats’ narratives.

… and forget about those regional banks and Hunter Biden headlines next week. It might be all about Trump. 

*    *    * 

Here’s more on next week via submission by ‘BlueApples,’ 

Apparently, arrest warrants for populist politicians are en vogue right now. On the same day that the International Criminal Court (“ICC”) announced the issuance of an arrest warrant for Russian Federation President Vladimir Putin, reports out of New York suggest the same fate is forthcoming for former president Donald J. Trump. Local, state, and federal law enforcement agencies met with security agencies concerning the logistical preparations necessary to handle Trump’s arrest. That preparation is in anticipation of an indictment against Trump from Manhattan District Attorney Alvin Bragg for felony charges of falsification of business records, according to NBC News.

The crux of the charges stems back to Trump’s handling of the Stormy Daniels saga that enveloped his 2016 presidential campaign. According to Trump’s attorney, Joe Tacopina, the former president is not guilty of the presumably impending charges. In Trump’s defense, Tacopina shifted the blame to Michael Cohen hose cooperation with the Manhattan District Attorney’s office has accelerated its action against Trump. Under Cohen’s directive, Trump authorized a payment to Daniel’s that the Manhattan District Attorney’s Office contends was falsely categorized as a legal fee when Trump reimbursed Cohen for it. The potential charges coming from the Manhattan district attorney’s office are a near carbon copy of the federal charge Cohen pleaded guilty to in 2018 concerning the $130,000 payment Trump made to Daniels in the 11th hour of his 2016 campaign.

According to Cohen, the directive to issue the payment came directly from Trump. Cohen categorized the order from Trump for the purpose of influencing the 2016 Presidential Election. Cohen contended that the payments to Daniels were made by him directly and that Trump reimbursed him for the $130,000, a transaction that was itemized as a legal fee by Trump’s company. Cohen testified to a grand jury for a second time preceding the emergence of reports about a potential indictment of Trump. President Trump declined to appear before the same grand jury Cohen testified to earlier this week following an invitation from the District Attorney’s Office.

Despite not testifying before the grand jury, Tacopina has addressed the probe behind the looming charges against Trump. “We are not convinced they will bring a case, but if so we will deal with it,” Tacopina said in the wake of the Manhattan District Attorney’s office extending an invitation to Trump to testify before the grand jury. Trump himself categorized the probe as a “Scam, Injustice, Mockery, and Complete and Total Weaponization of Law Enforcement in order to affect a Presidential Election!” in a post made on his social media platform Truth Social. Cohen’s appearance before the same grand jury came following over 20 meetings with prosecutors.

Potential charges from Manhattan’s District Attorney would come at a time where Trump is already under the scrutiny of Justice Department Special Counsel Jack Smith. The Special Counsel’s probe into Trump envelopes the former president’s role in the events of January 6th, 2021 as well as his handling of the classified documents at the core of the FBI raid of Mar-a-Lago.

Like that FBI raid, Trump is sure to capitalize on any charges coming out of Manhattan to fortify the narrative of his 2024 presidential campaign. Like in 2016, Trump has repeatedly framed himself as an anti-establishment candidate despite any record substantiating that claim accrued during his time in office. The FBI raid of Mar-a-lago, coupled with charges that he may be indicted on next week, will surely be categorized as evidence of a political witch hunt against him, just as he has described the Russiagate narrative that emerged following his initial election in 2016.

As reports suggest, the gravity of that continued persecution of Trump is not lost upon the NYPD, New York State Court Officers, the U.S. Secret Service, the FBI’s Joint Terrorism Task Force, and the Manhattan District Attorney’s Office. The law enforcement and security consortium all met to discuss how booking Trump under any charges would be handled. However, sources reporting these deliberations have indicated that the meeting has yet to take place but that the Secret Service would have over-arching authority on the handling of any indictment.

If the Manhattan District Attorney’s Office does indeed move forward, it will mark the second high-profile case it has engaged in against Trump. In December 2022, the Trump Organization was convicted on charges of tax fraud and falsifying business records. Though Trump himself was not a defendant in that case, former CFO Allen Weisselberg eventually plead guilty to 15 felony charges.

Trump’s attorney Joseph Tacopina breathed life into the reality of similar felony charges against the former president by conveying that his client would follow normal booking procedures if he was indicted, according to CNBC. While falsification of business records can be charged as a misdemeanor in New York State, Manhattan District Attorney Alvin Bragg has elected to modify the charges as a felony. The same federal officials who charged Cohen decided against pursuing similar charges against Trump.

Despite any charges against being exalted as an immense victory against Trump by his opposition, any indictment doesn’t appear to dissuade him from his 2024 campaign. In discussing potential federal charges regarding his possession of classified documents, Trump assured his supporters that his commitment to running for election would remain unfettered. Trump told James Rosen of Newsmax that he would run for president regardless of any charges levied against him.

BREAKING: @realDonaldTrump told me @CPAC just now that he will stay in the race for the @WhiteHouse even if he is indicted in one or more of the pending criminal investigations into his activities. Watch @NEWSMAX to see the video.

— James Rosen (@JamesRosenTV) March 4, 2023

Trump’s incorrigible defiance in the face of looming charges against him serves as the pathological pillar of his 2024 campaign, assured to revitalize the devout allegiance to him that may have been fractured by the emergence of the likes of Florida Governor Ron DeSantis as a competitor for the Republican Party’s nomination in the next presidential election. Knowing the poignancy of how an indictment could reaffirm the belief that Trump is the victim of a continued political witch hunt, the decision by Bragg may eventually become an example of cutting one’s nose off to spite its face. Even if a conviction or guilty plea were to come from any felony charges, that may prove to be little more than a Pyrrhic victory for Trump’s opposition as it may stoke the same support that led to his election in 2016. In the end, that hubris could lead to the establishment’s demise once again as the Democratic Party struggles to put forward a worthy opponent for 2024.

Authored by Mike Shedlock via MIshTalk.com,

We don’t need to up the FDIC limit, we need to eliminate the need for FDIC and create a safekeeping bank…

Creating a Safe Bank

How many times do we have to go down the duration mismatch road with fractional reserve lending and nearly $9 trillion of Fed QE to prove the current banking doesn’t work?

Once again, systemic risk morphed into economic stress, bank failures, and then a bailout of the banking system, not just Silicon Valley Bank.

If you think only depositors got bailed out, you are mistaken. The Fed put a system backstop on $600 billion in bond losses. And although bank executives will lose their jobs, they cashed out tens of millions of dollars in stock options along the way.

Specifically, we need a bank that puts 100% of its assets in overnight treasuries and makes zero loans. The bank would not need any loan officers or many operational personnel for obvious reasons. There would be no need for FDIC guarantees because there would be zero risk of a run and zero risk of losses. We can still keep the FDIC term in place, but realistically it would not be needed. In essence, we would create a 100% reserve bank.

Such a bank might pay one percentage point less than the Fed ‘s overnight rate for safekeeping. If the overnight rate fell below 1 percent, the bank would charge a fee for safekeeping. The bank could also do term deposits at a slight discount to corresponding treasury yields. Depositors would be required to hold assets to term.

To prevent runs on existing banks right, we would let every bank participate in this offering. Customers would have a chance to place their deposits into safekeeping accounts at existing banks.

Bank Lending

To make loans, I propose banks would have to attract investment money instead of lending money into existence. They would do so by offering higher than market interest rates on term deposits, but those deposits would not be guaranteed.

As an added benefit, this setup would end fractional reserve lending. We would have a full reserve system, unfortunately one that is not backed by gold, but it would be a huge step in the right direction.

The immediate economic reaction would likely be contractionary, but that seems to be what the Fed wants now anyway to rein in inflation.

Alternatively, perhaps we could phase these ideas in over a 10-year period to mitigate  risk.

Fed Should Admit Responsibility for Asset Bubbles

The Fed needs to admit it is largely responsible for these recurring bailouts.

Via QE, the Fed stuffed cash nearly $9 trillion in deposits down the throats of banks and that is why deposits soared so much in the first place.

Then despite the obvious risks, regulators eliminated all reserves on deposits and treasuries encouraging Silicon Valley Bank and other banks to seek yield.

It’s true that there were three rounds of fiscal stimulus, and the last one under President Biden was totally unwarranted as well as highly inflationary. But it’s the Fed’s job to understand that risk.

Unfortunately, the Fed not only sponsored the biggest asset bubble in history, it also failed to understand how free money, student debt cancellations, and zero percent interest rates might cause inflation.

Why Is There a Fed?

If the Fed cannot see the obvious, why is there a Fed? The only answer I can come up with is Congress would be worse.

The Fed aside, there is only one way to truly eliminate borrow-short, lend-long risk, and that is to go to a full reserve system where loans are not borrowed into existence and businesses and banks can have a bank where it is 100% certain their deposits will not be lent.

Admittedly, this could cause some short-term pain. Perhaps it would be the end of 30-year mortgages. But it would also serve to end financial speculation due to cheap money. And, as I suggested, perhaps there is a way to phase this in.

Why the Fed Doesn’t Want Full Reserve Bank

In the span of 20+ years, the Fed has blown three economic bubbles and we have had multiple bank bailouts.

The Fed does not want a full reserve bank because it wants inflation.

Inflation benefits those with first access to money. Banks, the already wealthy, and governments via tax collections are first in line.

Now that the Fed has created inflation, it doesn’t want that much of the tiger it unleashed.

Central Bank Digital Currencies

Another reason the Fed does not want a safe bank is so that it can sponsor its own digital currency.

Instead of sound money or merely sounder money, the Fed wants to be free to blow bubbles to fix the messes it creates while not understanding what inflation even is.

Those who believe the CPI or its PCE cousin measures inflation are wrong. Neither measure directly includes home prices or asset bubbles in general.

And we have proven once again that inflation and asset bubbles matter, not just alleged consumer inflation measures.

Serious change is needed. Instead, the Fed supports more of the same serial bubble-blowing measures, complete with bailouts and a charlatan digital currency savior on deck as its fake solution.

*  *  *

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Authored by John Tammy via RealClear Wire,

John Paulsen made his name and immense fortune with a well-timed purchase of securities that would soar if mortgages declined. His billions hopefully remind readers that huge fortunes are made not by doing as other investors are doing, but by doing what they’re not.

It’s something to think about with Silicon Valley Bank’s (SVB) decline well in mind. Left and Right are claiming “regulatory failure” as one of the causes. We’ve seen this in Sebastian Mallaby’s analysis at the left-leaning Washington Post, but also from right-of-center thinkers like AEI’s Paul Kupiec and Hoover’s John Cochrane. Paulsen’s billions reject this analysis.

Figure that those capable of seeing around the proverbial corner can earn billions for possessing such vision. The previous truth raises obvious questions about “regulatory failure.” Really, why would regulators be expected to detect problems that most investors can’t, including John Paulsen?

Yes, Paulsen rates mention once again in consideration of his post-2008 returns. Readers haven’t heard about him as much, and they haven’t because he hasn’t seen the future as clearly since. This doesn’t insult him as much as it’s a statement of the obvious.

It’s a long or short way of saying that to bruit “regulatory failure” is to arguably miss the point. To point to the latter is to presume a “regulator” capable of seeing ahead in the way that the world’s greatest investors almost never do.

All of which brings us to “moral hazard,” another popular narrative of late. Supposedly the FDIC’s insuring of ever-more-sizable deposits has rendered banks careless about customer funds, and worse, made depositors careless about the loan quality of the banks they entrust their money to. If the money is insured by taxpayers, why worry? Up front, the FDIC is unnecessary. Think about it. Since savers would rather not lose their savings, it’s no reach to suggest that absent the FDIC there would be all manner of private insurers willing to insure deposits for a small monthly fee. And because insurer money would be on the line, they would aggressively police banks to make sure they’re not doing anything foolish. It all makes sense.

Still, what’s left out of the FDIC, “moral hazard” narrative is that banks already don’t take big risks. It’s not their business model to. Since banks are lending money in return for interest as opposed to equity, their loans must perform. As banking expert Hall McAdams has long pointed out, one bad loan out of one hundred good loans can warp the returns on the other 99. Which explains the maxim about banks studiously lending money to those who don’t need it. 

It’s worth thinking about the FDIC and “moral hazard” in consideration of the above. As McAdams has pointed out, the vast majority of SVB’s holdings were Treasuries. This and other good-as-gold loans and asset purchases are the norm. Indeed, while it’s the business model of VCs to lose a lot of money in the hope that one or two investments will more than make up for all the losses, with banking it’s the opposite. Which is a way of saying that with or without the FDIC, bank declines would be rare given the kind of lending that they engage in. In other words, SVB was a surprise. It would be difficult to seriously contend that its fate would have been any different assuming the FDIC didn’t exist.

Lastly, there’s the popular corollary to “moral hazard” rooted in the unfortunate bailout of SVB. To be clear, the ideal scenario would have been for the FDIC to have done nothing. If nothing, it’s no reach to say that a buyer would have eventually come in to purchase what was until recently a good franchise. Too bad the FDIC got in the way of this. Of course, that it did has unearthed the portion of the “moral hazard” crowd that will loudly tell all who listen that the bailout will encourage other financial institutions to “swing for the fences” since profits are private, but losses are born by the public. No, this isn’t a serious view either. Think about it.

And in thinking about it, stop and contemplate the CEOs of Bear Stearns, Lehman, and Citibank (among others) in 2008. Have their reputations recovered? What about SVB CEO Gregory Becker? Does anyone think his reputation will return to what it was in February of 2023? Hopefully these questions answer themselves. To pretend as the theorists do that bailouts encourage more failure is too foolish for words.

Which calls for reason. In a dynamic economy, failure is the norm. It’s the stuff of progress. The punditry might acknowledge this truth and move on, rather than providing endless all-knowing explanations that explain very little. And to be clear, “regulatory failure” and “moral hazard” explain very little about SVB.

*  *  *

Did you know that nearly one-fifth of all the gold ever mined is held by central banks?

As Visual Capitalist’s Govind Bhutada details below, besides investors and jewelry consumers, central banks are a major source of gold demand. In fact, in 2022, central banks snapped up gold at the fastest pace since 1967.

However, the record gold purchases of 2022 are in stark contrast to the 1990s and early 2000s, when central banks were net sellers of gold.

The above infographic uses data from the World Gold Council to show 30 years of central bank gold demand, highlighting how official attitudes toward gold have changed in the last 30 years.

Why Do Central Banks Buy Gold?

Gold plays an important role in the financial reserves of numerous nations. Here are three of the reasons why central banks hold gold:

The Switch from Selling to Buying

In the 1990s and early 2000s, central banks were net sellers of gold.

There were several reasons behind the selling, including good macroeconomic conditions and a downward trend in gold prices. Due to strong economic growth, gold’s safe-haven properties were less valuable, and low returns made it unattractive as an investment.

Central bank attitudes toward gold started changing following the 1997 Asian financial crisis and then later, the 2007–08 financial crisis. Since 2010, central banks have been net buyers of gold on an annual basis.

Here’s a look at the 10 largest official buyers of gold from the end of 1999 to end of 2021:

Source: IMF

The top 10 official buyers of gold between end-1999 and end-2021 represent 84% of all the gold bought by central banks during this period.

Russia and China—arguably the United States’ top geopolitical rivals—have been the largest gold buyers over the last two decades. Russia, in particular, accelerated its gold purchases after being hit by Western sanctions following its annexation of Crimea in 2014.

Interestingly, the majority of nations on the above list are emerging economies. These countries have likely been stockpiling gold to hedge against financial and geopolitical risks affecting currencies, primarily the U.S. dollar.

Meanwhile, European nations including Switzerland, France, Netherlands, and the UK were the largest sellers of gold between 1999 and 2021, under the Central Bank Gold Agreement (CBGA) framework.

Which Central Banks Bought Gold in 2022?

In 2022, central banks bought a record 1,136 tonnes of gold, worth around $70 billion.

Türkiye, experiencing 86% year-over-year inflation as of October 2022, was the largest buyer, adding 148 tonnes to its reserves. China continued its gold-buying spree with 62 tonnes added in the months of November and December, amid rising geopolitical tensions with the United States.

Overall, emerging markets continued the trend that started in the 2000s, accounting for the bulk of gold purchases. Meanwhile, a significant two-thirds, or 741 tonnes of official gold purchases were unreported in 2022.

According to analysts, unreported gold purchases are likely to have come from countries like China and Russia, who are looking to de-dollarize global trade to circumvent Western sanctions.

• Balancing foreign exchange reserves
  Central banks have long held gold as part of their reserves to manage risk from currency holdings and to promote stability during economic turmoil.
• Hedging against fiat currencies
  Gold offers a hedge against the eroding purchasing power of currencies (mainly the U.S. dollar) due to inflation.
• Diversifying portfolios
  Gold has an inverse correlation with the U.S. dollar. When the dollar falls in value, gold prices tend to rise, protecting central banks from volatility.

Authored by Lorenz Duchamps via The Epoch Times (emphasis ours),

Germany’s Minister of Health Karl Lauterbach, who once claimed that COVID-19 vaccination is free of side effects, admitted last week that he was wrong, saying adverse reactions occur at a rate of one in 10,000 doses and can cause “severe disabilities.”

On Aug. 14, 2021, Lauterbach said on Twitter that the vaccines had “no side effects,” further questioning why some Germans refused to get vaccinated against COVID-19.

During an interview on ZDF’s “Heute Journal” on March 12, Lauterbach was asked by anchor Christian Sievers about the claim he made in the summer of 2021, confronting the health minister with his previous tweet that stated the shots are virtually free of side effects.

Lauterbach responded that the tweet was “misguided” and an “exaggeration” he made at the time, noting that it “did not represent my true position.”

“I’ve always been aware of the numbers and they’ve remained relatively stable … one in 10,000 [are injured],” Lauterbach said. “Some say that it’s a lot, and some say it’s not so many.”

Lauterbach’s remark on vaccine adverse events came after the German network played a segment of several Germans who’ve been seriously injured after getting the shot, including a 17-year-old gymnast who previously competed in the German Artistic Gymnastics Championships before she was hospitalized for more than one year shortly after receiving the second dose of the BioNTech COVID-19 vaccine.

“What do you say to those who have been affected [by vaccine injuries]?” Sievers asked Lauterbach.

“What’s happened to these people is absolutely dismaying, and every single case is one too many,” Lauterbach responded. “I honestly feel very sorry for these people. There are severe disabilities, and some of them will be permanent.”

Steve Kirsch, executive director of the Vaccine Safety Research Foundation, did not agree with Lauterbach, but he commended the health minister for making “progress” when comparing his latest remark to his previous comments regarding the safety and effectiveness of COVID-19 vaccines.

“The true rate of serious adverse events is approximately 100 times greater than the figures Lauterbach cited—’closer to 1 in 100 doses’ and ‘For death, it is ~1 in 1,000 doses,’” Kirsch said on Twitter.

By Oct. 31, 2022, the Paul-Ehrlich-Institut received a total of 333,492 individual case reports on suspected COVID-19 vaccine adverse reactions or vaccine side effects in Germany, according to official data (pdf) released in December 2022 by the medical regulatory body that researches vaccines and biomedicines.

“The number of individual case reports per month peaked in December 2021 and continued through the summer,” according to the federal agency, which is subordinate to the German Ministry of Health.

Despite these findings, the country’s health ministry website states, as of March 16, that “modern vaccines are safe and adverse effects only occur in sporadic cases.”

Lawsuits Pending

As the subject of post-vaccine injuries has started to be more widely covered by some German media outlets, lawsuits have begun to roll out against BioNTech, and also against other COVID-19 vaccine manufacturers.

BioNTech has denied all responsibilities, ZDF reported.

Vaccine manufacturers such as Pfizer and Moderna have immunity from liability if something unintentionally goes wrong with their vaccines, putting them in a very strong legal position.

“It’s true that within the framework of these EU contracts, the companies were largely exempted from liability and that the liability, therefore, lies with the German state,” Lauterbach said.

Read more here…

As Sweden looks to reorganize its embattled 1 trillion kronor ($90 billion) pension system following an embezzlement scandal, the office overseeing the process says it won’t accept applications from asset managers that don’t incorporate ESG (Environmental, Social and Governance) into their strategies.

“Unlike in the current system, there will be a requirement that the manager systematically integrates sustainability aspects into its operations,” said Erikl Fransson, executive director of the Swedish Fund Selection Agency, Bloomberg reports.

The move underscores the wildly divergent approaches different jurisdictions are taking as they figure out how big a role ESG should play in mainstream investing. In Europe, ESG is currently being hardwired into financial regulations. In the US, lawmakers just voted to block the pension industry from taking ESG risks into account.

The decision only affects pensions under the state’s control. Sweden’s private pensions market has made headlines after it emerged that Alecta, which oversees more than $100 billion in retirement savings, was the fourth-biggest shareholder of the now collapsed Silicon Valley Bank. -Bloomberg

So now, ESG requirements will be enshrined into law for pension managers, which must show an “exemplary approach to sustainability through responsible investment and responsible ownership.”

If an international investment firm is interested in applying for the pool of pension savings – which represents around 10% of Sweden’s overall public retirement funds – they need to be able to document their fealty to the ESG movement, including proving they have processes in place to prevent funds from being linked to various international agreements such as the OECD’s guidelines for multinational corporations, the UN Global Compact, and the UN’s guiding principles for human rights.

What’s more, firms will need to have their investment products registered as ESG funds under Articles 8 and 9 of Europe’s Sustainable Finance Disclosure Regulation, according to the above-linked draft.

Approximately 150 funds will be chosen sometime in the second quarter of 2023 for the new framework, which was dogged with widespread fraud that cost taxpayers at least 2.8 billion kronor.

New investment managers will also face reviews “on an ongoing basis” to ensure that they remain dedicated to the “requirements that will appear in the fund agreement,” including a rule stipulating that they can prove they’re responsible custodians if they also track indexes.

“If the requirements are not met, it is a breach of contract which can lead to the fund not being allowed to remain on the fund market,” according to Fransson.

Authored by Thomas Brooke via Remix News,

The success of the Farmer-Citizen Movement (BBB) will further undermine the Dutch government’s plans to impose radical agricultural reforms campaigners say will destroy rural communities…

Lawmaker Caroline van der Plas, leader of the populist BBB Farmer-Citizen Movement, reacts after casting her vote for the provincial elections in Okkenbroek, eastern Netherlands, Wednesday, March 15, 2023. (AP Photo/Peter Dejong)

Voters dealt a hammer blow to the Dutch establishment in Wednesday’s regional elections, propelling the Farmer-Citizen Movement (BBB) to become the largest party in the Senate in just its first election.

Exit polls projected the movement will win 15 seats in the Dutch upper chamber as voters sent a clear message to Mark Rutte’s government over its planned nitrogen emissions laws campaigners say will devastate the country’s agricultural sector.

“The Dutch have clearly shown that they are fed up with the policy,” BBB leader Caroline van der Plas told De Telegraaf late on Wednesday. “I’m going to party.”

“The turnaround has started. The voters have spoken and have denounced support of this government,” she added in a tweet.

“She did very well,” Dutch Prime Minister Mark Rutte admitted, whose People’s Party for Freedom and Democracy (VVD) saw its projected seats fall from the current 12 to 10.

Government coalition parties didn’t fare much better. The liberal party, Democrats 66 (D66), is projected to drop a seat, as is the Christian Union (CU), while the Christian Democratic Appeal (CDA) is expected to drop four seats from its current nine.

With a collective seat share of just 24, the government coalition has fallen well short of a majority. It will now have to rely on working with opposition parties on specific legislative proposals to push through government policy.

The Senate wields considerable influence in the Netherlands, unlike many other European nations. While it cannot initiate legislation, it has the power to block government policy, and Thursday’s election suggests a period of sustained political stalemate for the country.

One victim of the election night was Thierry Baudet’s Freedom For Democracy (FvD) party. It saw its core voter base capitulate and is expected to lose 10 of its 12 seats. The collapse suggests the surge in support for BBB is to a large degree off the back of deep anti-government and right-wing sentiment.

Turnout was 61 percent, up significantly by 5 percentage points on 2019, suggesting the BBB managed to galvanize disenfranchised voters as the movement stormed to victory in almost every province to have already declared an outcome, including Drenthe, Overijssel, Friesland, Flevoland and Zeeland. The party is also projected to win in Gelderland, North Brabant, Limburg, and Groningen, and is neck-and-neck with the governing VVD in both North and South Holland.

The election result follows a recent Rabobank survey that revealed just 1 percent of Dutch citizens believe the country is clearly heading in the right direction, while 86 percent of respondents are pessimistic about the country’s trajectory.

The rise of the BBB over the past two years has been in response to the government’s plans to appease EU nitrogen emissions targets by imposing radical agricultural reforms. It introduced plans last year to reduce livestock numbers by a third, while farmers have also been told their land could be subject to compulsory buyouts.

The policy resulted in agricultural workers staging several demonstrations against the government, blocking motorways and supermarket distribution centers in mass protests last year.

At a recent demonstration in The Hague ahead of the elections, over 10,000 Dutch farmers came to hear campaigners speaking out against the government plans.

“We are fighting against a corrupt and unjust government,” Eva Vlaardingerbroek, a prominent campaigner in defense of the farmers, told attendees. She spoke of a government that “drives our farmers from their land” and that has “turned on its own population.”

The planned reductions affecting Dutch agriculture have been described by industry leaders as “so severe that rural communities will be totally devastated economically.” Those were the words of Sander van Diepen, a spokesperson for the Dutch agricultural and horticultural association, LTO Nederland, speaking in June last year.

Wednesday’s electoral victory does not guarantee success against the government’s plans, but with support from JA21 and Geert Wilders’ PVV party, the farmers’ movement will be able to establish a solid block of opposition to government policy and seek to frustrate the process.

Authored by Andrew Korybko via The Automatic Earth blog,

Eurasia’s geo-economic integration took a great leap forward as a result of the Iranian–Saudi rapprochement, which unlocks the Gulf Cooperation Council’s (GCC) trade potential with Russia and China. Its wealthy members can now tap into two series of Iranian-transiting megaprojects in one fell swoop through this deal, with the North-South Transport Corridor (NSTC) connecting them to Russia while the China-Central Asia-West Asia Economic Corridor (CCAWAEC) will do the same vis-à-vis China.

The bloc’s de facto Saudi leader has been prioritizing a comprehensive economic reform policy known as “Vision 2030” that was introduced by Crown Prince and first-ever Prime Minister Mohammed Bin Salman (MBS) upon his rise to power in 2015. It regrettably stumbled as a result of the disastrous Yemeni War that he’s been waging since that same year, but everything is now back on track and more promising than ever after securing $50 billion worth of investments from China last December.

The People’s Republic regards Vision 2030 as complementary to its Belt & Road Initiative (BRI) due to MBS’ focus on real-sector investments for preemptively diversifying the Saudi economy away from its presently disproportionate dependence on oil exports. His country’s location at the crossroads of Afro-Eurasia also makes investments there extremely attractive from the perspective of China’s logistical interests, hence its massive commitment to his comprehensive economic reform policy.

Without last week’s Beijing-brokered deal, China would have had to rely on maritime routes under the control of the powerful US Navy to facilitate the forthcoming explosion in bilateral real-sector trade, but now everything can be conducted much more securely via the Iranian-transiting CCAWAEC. Looking forward, there’s also a theoretical possibility of Chinese energy investments in Iran connecting the Gulf to Central Asia and thenceforth to the People’s Republic, thus fully securing its strategic interests.

That’s still a far way’s off, if it even happens at all that is, but it nevertheless can’t be ruled out. Saudi Arabia’s desire to join BRICS and the SCO, which are the most influential multipolar organizations in the world right now, could turn this scenario into a reality a lot sooner than even the most optimistic observers might have expected. All of this in and of itself will herald a revolution in geo-economic affairs, and that’s even without Saudi Arabia having yet to throw its full support behind the “petroyuan”.

Once this major oil exporter begins to sell its resources in non-dollar-denominated currencies like China’s, then the petrodollar upon which the economic-financial aspect of the US’ unipolar hegemony is predicated will be dealt a deathblow. The global systemic transition to multipolarity and the impending trifurcation of International Relations that will precede the final inevitable form of this process would unprecedentedly accelerate once this happens, thus further hastening America’s ongoing demise.

About those aforementioned processes, they were already made irreversible by the special operation that Russia was forced to commence in defense of its national security red lines in Ukraine after NATO clandestinely crossed them there and subsequently rejected Moscow’s security guarantee requests for politically resolving their resultant security dilemma. Over the past year, the New York Times was forced to admit that not only did the sanctions fail, but even the plot to “isolate” Russia did too.

These outcomes were largely the result of Russia’s example inspiring the Global South to rise up against neo-colonialism by refusing to comply with the demands placed upon them by the US-led West’s Golden Billion to unilaterally sacrifice their own interests simply to serve that de facto New Cold War bloc’s. India played the leading role in this respect due to its status as the world’s largest developing country, which gave comparatively medium- and smaller-sized ones the confidence to follow in its footsteps.

That globally significant Great Power, which sits on the South Asian end of the NSTC that transits through Iran en route to Russia, also scaled up its purchases of discounted oil from Moscow to the point where its decades-long strategic partner is nowadays its largest supplier. Of crucial significance to the present analysis, a growing number of its deals are in non-dollar-denominated currencies, which sped up de-dollarization processes to such an extent that even Reuters felt compelled to write about this.

Considering this newfound financial context, there’s no doubt that upcoming Saudi moves in support of the petroyuan that are taken in coordination with Iran and Russia would catalyze the next natural phase of de-dollarization. Russian-GCC real-sector trade that’ll be carried out via Iran across the NSTC will be conducted in national currencies and thus prepare those three for the moment when they finally decide to deal a deathblow to the petrodollar.

All in all, it’s not hyperbole to declare that the dollar’s prior dominance is done for as a result of the Iranian-Saudi rapprochement. That Beijing-brokered deal makes this outcome an inevitability unless some subversive black swan event takes place such as a US-backed coup against MBS, though that’s unlikely to happen after he successfully consolidated his power in late 2017. With this in mind, it can confidently be declared that that last week’s development will be seen in hindsight as a game-changer.

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