Two pieces of news broke last week, if the first turns out to be true, there will certainly be far ranging consequences. The second revelation was that of the truth being told, now we will await the far ranging consequences.
News last Wednesday regarding Apple’s new proposed smart watch is a head scratcher. The headline was astonishing, “Apple to buy 30% of global gold production”. We should look at this from several different angles because several things do not add up. If this article is true and Apple does plan to purchase 30% of global gold production, this is THE biggest game changer in the gold market since 1849!
One million watches per month using two gold ounces for each watch? It sounds like an aggressive goal but Apple does have an impressive track record with new products. The other side of the equation is the use of two ounces of gold for each watch, if true then the math becomes mind boggling and Apple will require 24 million ounces. This represents 30% of the 80 million ounces the world produces. My guess is you’d probably be looking at a price of close to $4,000 per watch, $2,500 for the gold content alone.
Can Apple really do this? Is it even true? The “math” may add up but something else really does not. First, there was absolutely zero reaction in the gold market. Can you imagine if some builder announced they were going to build 300,000 houses per year on top of what is already being built? What would the price of lumber, gypsum and other building products do? They would explode and there would be front running actions of hoarding product. Did we see anything at all like this on Thursday and Friday with gold? Not even a whiff!
Next, how exactly would Apple be able to procure this amount of gold? We are talking about 746 tons of it. Let’s compare this to what the Germans told us one year ago. They were saying they couldn’t get anymore than five tons from the Federal Reserve because of the “logistics” problems …just too much weight I guess? We of course now know this was false because Germany has received more than 10 times this amount and the Belgians 122 tons (which fits nicely into a Boeing 747 cargo plane).
The real question to the procurement question is this, in a market that only produces 80 million ounces per year while demand has been far in excess of 150 million ounces, where would another 24 million ounces fit in? If this Apple story is true and they really do want to market luxury I watches, they will have a serious production problem! Namely, I think they will have a very hard time putting a “shine” on shares of GLD or COMEX contracts. Steel cannot be delivered, construction cannot be completed nor can a vehicle run on derivatives contracts. Though these contracts are wonderful in “pricing” product (for a while), they cannot and will not create real supply. In fact, when they are used to suppress price, they inevitably will create excess demand and reduce available supply. The only thing I can say about this Apple news is if true, it will blow the physical gold market wide open and expose the reality of just how rare gold truly is.
The next bombshell came out on Friday. The Chinese ambassador to Belgium threw a card or two down on the table . Qu Xing apparently made clear what we were all thinking in the first place. He chided the U.S. for their actions within Ukraine. What he said was not really Earth shattering stuff, but, what he said was blunt and to the point which is highly unusual for diplomats who usually try to say very little while doing it “nicely”. Mr. Xing stated the obvious when he brought up the fact that Ukraine borders Russia and of course Russia would have concerns both geographically and ethnically. This alone was a big step because China in fact has now publicly chosen a side albeit the obvious one.
The truly giant step and one I have waited for, for quite some time, was his warning if you will of U.S. external intervention. Even stronger and more shocking was his quote “The U.S. is unwilling to see its presence in any part of the world being weakened, but the fact its resources are limited, and it will be to some extent hard work to sustain its influence in external affairs”. In case you need this broken down, China just said the U.S. is losing power and control all over the world. A starkly blunt statement from the very polite Chinese, a long time in coming but brutally true. Now, what if any response will come from the U.S.? Sad to say I have seen bar fights start over more gentle words than these.
Before finishing I want to add one other piece of news from Friday afternoon. Russian opposition leader Boris Nemtsov was murdered in Moscow. Zerohedge reports and asks “who” did it? and speculates the Western press will again come down on Mr. Putin “like a ton of bricks”. They also speculate there will surely be another round of sanctions against Russia. Several points here, if this was “official action” and sanctioned by Mr. Putin to silence Nemtsov, wouldn’t it have been done in a manner other than a sloppy drive by shooting? If done by the KGB would there even been a body to be found? Also, with the previous news the Chinese have publicly declared sides, what good will sanctions be? Can’t Russia in essence funnel finance via and be helped by China? Have they both signed long term trade, financial and energy deals only to see Russia hung out to dry by what obviously looks fishy (or false flaggy)?
The above was written Saturday, then HUGE news broke on Sunday.
Hypo Alpe-Adria bank the 6th largest bank in Austria looks to have a 9 billion euro smoking hole in its balance sheet. Austrian officials as recently as last week claimed there was no problem …they were either wrong or lied. The first thing you need to understand is Hypo was originally packaged with assets from “bad banks”. The funding came from the wealthy province of Carenthina (10.7 billion euros) and Austria herself (1 billion euros). Until now, this bank was rated “AAA” because of the provincial and national backing. …So much for feeling safe in a AAA rated bank eh? Bail ins are now expected to follow. Notice I did not say “bailout”? Depositors accounts will now be targeted to re “fund” the bank.
What does this mean exactly? My take is there will now be depositors in other banks doing some “math” and making some withdrawals. Remember, interest rates are non existent and may very well be negative for depositors, why would anyone want any risk whatsoever if they are getting no return? The question will arise “what bank” is really safe if Hypo was rated AAA and supposedly backed provincially and federally? In my opinion, this could very well be a “rhyme” with CreditAnstalt which failed in 1931 and ushered in bank runs all over the world.
Is “this it”? Is this the trigger or the “big one”? We cannot know for sure yet but it would be foolish and very dangerous to bet it is not. This situation arose as a result of the Swiss actions, the bank had lent in terms of Swiss francs which became harder to pay off as the franc rose in value. People borrowed in francs because of the low yield and are now burned …as is this bank …and it was not the only one lending heavily in francs, others will surely surface shortly. As I have been pounding the table over the last few weeks, I believe we will see “gaps”, market closures and re set action. Hypo could very well kick it all off as investors come to understand there are no more government or central bank “white horses” to ride in and save them. We live in a computerized world, what used to take days or even weeks …now only takes seconds.
One last tidbit, Singapore and China are racing against each other to create a cash gold market and to have their very own “fix” price. A new Asian fix will begin March 12, this will obviously strike at the hearts of both COMEX and LBMA, not to mention London itself which is where the “fix” price has been quoted from for over 100 years. Ask yourself “why” does China want a cash market and to set the fix each day? This is simple, China is THE largest producer of gold and they are also THE biggest consumer, if you own the car, why wouldn’t you want to drive it? “Times they are a changing”!
We live in a world where truth is a scarce commodity, consequences are a different duck. Consequences are many and becoming more plentiful with each passing day. God forbid the potential consequences of this banking situation. The old saying goes “sometimes the truth hurts”, I tend to disagree. It is not the truth that hurts …it is the consequences!