Thursday, June 28, 2018

Russia, Turkey and Other “Authoritarian Gold Bugs”

 Excerpts from a Bloomberg article

Their moves out of U.S. debt and into the precious metal could be precursors of a bigger global shift.
 "Since December 2017, Russia has cut its holdings of U.S. foreign debt by more than half. Instead, it’s been increasing the share of gold in its international reserves. That’s understandable behavior for a country that has to deal with an unpredictable U.S. sanctions policy, but it’s also part of a trend. Foreign governments and international organizations account for a decreasing share of outstanding U.S. debt, and some economies have in recent years aggressively upped the share of gold in their reserves instead.
The Russian reduction of Treasury holdings, to $48.7 billion in April 2018 from $102.2 billion in December 2017, has been nothing short of dramatic, though it wasn’t a huge blow to the U.S. Russia’s holdings of American government bonds have long been dwarfed by those of China and Japan, as well as Brazil and some European countries. The U.S., with a debt of almost $21.2 trillion, can afford not to notice fluctuations in the tens of billions of dollars by an authoritarian state’s damage-control efforts and attempts to get away from the dollar."
An "authoritarian state's damage control efforts" 
One wonders if the US can really afford not to notice these changes?
As suggested by the ad hominem use of  the "authoritarian state" label. 
Applied to multiple other, pertinent to geopolitical machinations, states.
Maybe there is some cause for concern?

"The U.S. can lull itself into a certain sense of security as it watches the foreign-owned stock of its debt securities increase in absolute terms and as the dollar slips only slowly as a share of official foreign exchange reserves. The U.S. currency, according to the International Monetary Fund, made up 62.7 percent of these reserves in the fourth quarter of 2017, down from 64.59 percent in 2014 — but then the share of the next biggest reserve currency, the euro, has also dropped to 20.15 percent from 21.57 percent. This is hardly a tectonic shift"
Lulling oneself into a 'certain sense of security' is equal to fooling yourself. Lying to yourself.
Must be some cause for concern.
"And yet the U.S. does have a few things to worry about when it comes to its dominance of other countries’ official international reserves. In relative terms, governments and central banks are less and less interested in the ballooning U.S. debt"
And there it is. A trend.  Certain more nationalistic Governments and their central banks are less and less interested in holding onto ballooning US debt.

 Borrowing Faster Than the World Saves
Please see the chart "U.S. government debt and the world's foreign exchange and gold reserves" included at bloomberg- quite interesting

"On the other hand, there’s plenty of U.S. debt to buy, but countries aren’t keen to increase its share in their reserves. Instead, the share of U.S. Treasury securities has gone down to 25.4 percent currently from 28.1 percent in 2008, while the share of gold has held steady at about 11 percent over the same period, according to the World Gold Council. That’s in part thanks to the efforts of a few eccentric gold bug authoritarians. Apart from Russia, they include Belarus, Kazakhstan and, recently, Turkey, where President Recep Tayyip Erdogan believes the West is out to punish Turkey for his sovereignty-enhancing policies"
 
There's that negative labeling again-  "Eccentric Gold Bug Authoritarians". It seems the US may really have something to fret about with this trend.

Authoritarian Gold Bugs
 "Gold as a share of international reserves"- see this chart as well at bloomberg
"Russia, Kazakhstan and Turkey account for 50 percent of net gold purchases by central banks in the last five years. But large European economies, which have long kept most of their international reserves in gold, have mostly held their share steady rather than invest more in dollar-denominated assets. The euro area, including the European Central Bank, holds 55 percent of its total international reserves in gold, just like in 2008.

Most recently, total demand for gold has been down. It dropped 7 percent year-on-year in the first quarter of 2018 because of a drop in private investment demand (accordingly, the price of gold is down for the year). But central banks — primarily those of the gold bug authoritarian states bought 116.5 tons of gold in the first three months of 2018, the most in any first quarter since 2014 and up 42 percent year on year.
 For Turkey as for Russia, the decision to reduce holdings of Western currencies appears to be strategic. Like Russia, Turkey has recently moved quickly out of U.S. debt, cutting holdings by almost 38 percent to $38.2 billion since October, 2017"
Read the rest at Bloombergs- Clearly Russia and Turkey understand they are on the 'hit list'
The sanctions imposed alongside other monetary shenanigans have left more nationalistic & sensible nations concerned about their own well being. Hardly a shocker on the face of it. But in the eyes of the US perhaps it's perceived as defiant? Or non compliant?
 

3 comments:

  1. "...other monetary shenanigans have left more nationalistic & sensible nations concerned about their own well being...."

    Unfortunately, we cannot include Canada in the above group of nations. No, the Captain's cabin boy WILL go down with the ship.

    ReplyDelete
  2. "The U.S. can lull itself into a certain sense of security ..."

    Indeed, and most will with the background music of Brahm's Lullaby.

    I'm telling you, Penny, if I didn't read here I would have no idea what's going on. Thank you for doing the dirty work. :)

    ReplyDelete
  3. Never in the history of the world has a Nation survived very long on fiat currency. The US has lasted longer than it should have already. Eventually we will have to return to the gold standard, silver will be #2 once again. When the smoke clears, those with precious metals will have wealth. Those who don't will have pretty but worthless paper. If you can't afford gold, buy silver bullion regardless of spot price. If nothing else it will act as a hedge safeguarding some "real" wealth. Oh, needless to say, stay out of debt! Pay off your credit cards and keep one for a life or death emergency. Cut up all the others. Sorry for the long comment. This is an area I know something about.

    ReplyDelete

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