Mystery Gold Buyers Want It All for Themselves

From Peter Reagan for Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving precious metals and the economy. Stories include: Who’s the mystery gold buyer making big waves in the market?, gold hasn’t yet gained as much as the dollar has lost and how you know without a doubt that gold is being reintroduced to the monetary system.

New major buyer in the gold market has analysts puzzled

Even before it was trendy, we noted over and over how gold’s moves up are seemingly happening without obvious causes. (The fundamentals are there, of course – but based on them, gold price should have been much higher long ago.)

Gold has historically surged in the wake of black swans (not the Natalie Portman movie, but Nassim Taleb’s shorthand for “rare and unpredictable outlier events, their extreme impact and the human tendency to find simple explanations for those events”). Example black swan events would be the 2007-2008 Great Financial Crisis, the Covid-19 pandemic and associated global lockdowns, Russia’s invasion of Ukraine and so on.

But this time is different…

The mainstream media, in a curious turn of events, has gone from ignoring this story to now asserting that gold has a “mystery buyer.” It makes sense, since a mystery buyer would explain a lot of gold’s price rise since the start of the year – and explain the invisible force that’s supporting gold’s all-time high prices. See, people hate mysteries without a satisfying conclusion.

Recently, we discussed DoubleLine CEO Jeffrey Gundlach’s report that the turn of the year has seen some highly aggressive and unusual buying. He thinks that explains the surprise price jump around New Year’s. He said one or more big money investors are not only covering their short positions, but perhaps switching sides and buying gold instead.

This leads us to a story that’s been making headlines over the past week: Who is gold’s big mystery buyer? It seems to have almost become a consensus explanation. Analyst Lobo Tiggre says that central banks, the “usual suspects” so to speak, aren’t the culprit.

Check it out:

This alone is enough to get the imagination going…

Who rivals sovereign nations in terms of capital?

And if “they” are now also loading up on gold, shouldn’t we all be paying attention?

The World Economy Editor at The Daily Telegraph, Ambrose Evans-Pritchard, starts his analysis like a thriller novel:

A powerful force is stalking the world’s gold market. It is operating in the shadows.

None of the normal footprints are visible on the London bullion market or the Chicago Mercantile…

Is somebody preparing for an escalation of the shadow Third World War?

He puts forth two possible explanations. Maybe it’s China building up a war chest ahead of a Russia-China-Iran alliance. This is plausible! China has a number of sovereign wealth funds and state-sponsored corporations with their own, semi-independent balance sheets. Even the People’s Liberation Army has a hand in the gold market – did you know there’s a special PLA detachment dedicated to gold exploration, mining and transportation? It’s called 武警黄金部队 or Gold Armed Police.

So yes, it’s plausible.

But the second explanation is far more interesting:

Covid finally broke our spendthrift governments. The talk in hedge fund land is that some big beasts are taking bets against ‘fiscal dominance’ across the West.

It is a collective judgment that too many countries have pushed public debt beyond 100 per cent of GDP and beyond the point of no return under prevailing economic ideologies and political regimes. Budget deficits have broken out of historical ranges and are running at structurally untenable levels for this stage of the cycle.

In essence, he stipulates that the multi-trillion dollar stimulus and the accompanying debt trap have fully ensnared Western governments. And that, in turn, big money are making big bets against Western monetary hegemony.

Or, more dramatically:

We are living through a fundamental convulsion of the global order, and the dollarised financial system will not be the same at the end of it. Gold is the hedge against dystopia.

One doesn’t need much in the way of convincing or explanations as to why this might be the case. Cash has always treated its holders poorly. The more cash you own, the greater the inflation tax you pay.

In that sense, it’s not surprising to see an increasing flood of money moving out of cash, into a safe-haven store of value. The real mystery might be why didn’t this happen sooner?

Deeper insights into the U.S. dollar’s erosion and general economic weakness

After all the attempts to convince us that this might be the driver of gold prices by the mainstream since the start of the year, we now have the first signs of a war-related fear trade. Somewhat defying expectations of an immediate correction, gold has been rekindling its relationship with $2,400 as Israel fired back on Iran.

This might be the strongest correlation gold has shown with the conflict since the start of it, but Alasdair MacLeod explains how there is a lot more going on behind the scenes. While it might now be tempting to go ahead and attribute all of gold’s gains to the Gaza conflict, MacLeod gives us a reality check: the reasons are far deeper and more systemic.

He starts us off with some technical notes, pointing out how the same bullion banks attempting to manipulate gold’s price downwards are now suffering massive losses due to shorting. MacLeod argues that further gains could put them in trouble, but also that the gains so far have shown their ability to limit gold’s price is dwindling. Basel III, anyone?

Clearly a fan of reframing, MacLeod puts China’s actions as follows:

And when we are told that China’s Peoples Bank is buying gold, the reporters have it the wrong way round: the PBOC is selling fiat dollars and other fiat currencies for real money.

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He notes that gold has been gaining against other currencies while falling against gold. This is a curious and somewhat unusual development. It suggests that the U.S. dollar is strong, but that all currencies are weak, since gold is now posting all-time highs in virtually every currency.

Last week, we went against the grain, covering some notable voices who believe that the hiking cycle is not over and that the Federal Reserve’s next move might be to hike, not cut interest rates. This almost seems obvious: how can they cut rates in response to rising inflation?

We also said that this would be supportive of gold, but MacLeod has now greatly bolstered this idea. More than just gaining massively when the rate cuts do start, MacLeod is of the opinion gold will benefit even more because of the systemic risk high rates pose.

As he notes, higher rates destabilize the economy, the banking system, asset valuations and the U.S. dollar. But the Fed needs them. The flip side is hyperinflation.

It has been said since the start that mimicking the 1970s hiking schedule won’t do this time around. The market conditions aren’t comparable, but more than that, rates could and did go much higher back than now.

Even with the comparatively low rates that we have now, MacLeod expects a credit crisis due to the length and strength of this hiking schedule. We’ve seen it already in recessionary warnings. While inflation has beaten down the purchasing power of everyone, the tool to fight it has placed a great strain on large corporations and citizens alike. To put it in unpleasantly simple terms, inflation means you need to borrow money, but hikes make it so that you can’t.

The rise in interest payments on credit is what MacLeod believes will worsen the debt trap. Remember, with higher rates, governments need to pay more interest, worsening their debt. The only way they ever deal with debt, of course, is through inflation.

So it’s quite the cycle, and it should come as no surprise that MacLeod, too, is a proponent of the mystery buyer idea.

Kentucky 45th state to end sales tax on gold in what should be a clear signal to everyone

In the background of explosive, head-turning price action, there has been a story developing in the gold market that is just as important. One could argue without much difficulty that it’s even more important. And that story is the quiet and not-so-quiet abolishment of sales tax on gold and other precious metals in all 50 states.

With everyone talking about $2,400 gold and forecasting it to go anywhere between $3,000 to $10,000, you could have easily missed that Kentucky recently became the 45th state to do away with sales tax on gold, silver, platinum and palladium in bullion form.

We will start by quoting Gov. Andy Beshear, who attempted to veto the bill by saying:

[If] you own gold, you can afford to pay sales tax.

That is worth an assessment on its own. Because with that statement, Beshear has both buried the current financial system and made one of the best gold advertisements in recent times.

A little digging through history reveals that the minimum weekly wage in 19th century America moved between $5-$10 depending on how skilled the labor was. A blacksmith might have earned $40 a month, which would have translated to two double eagles, or two ounces of gold (okay, technically 1.935 oz but close enough).

With a savings-oriented mindset, our blacksmith could have soon enough accumulated a pile of eagle or half-eagle gold coins. They have not only retained their purchasing power since then, but are worth a whole lot more than contemporary gold coins.

Owning gold when gold was money was not a luxury!

If you had any kind of money, you had gold and silver. Today, Governor Beshear is implying that gold ownership is only for the wealthy! Which is unfortunately true more often than not. But it’s true for one reason: The end of the gold standard.

The tradesman of today is paid in currency with no real value. Unlike his 19th century counterpart, he can’t just pile U.S. dollar bills for the future, because inflation will make sure they’re practically worthless.

What will a tradesman’s savings be worth 150 years down the line in the currency he was paid in? All too likely, zero. Attempting to avoid this, the tradesman might try to put those savings in gold and be punished by a sales tax.

This is our slightly long-winded way of saying that changes are clearly happening in the monetary system, even though they are being ignored, undersold or slowed down. There are now just five states “holding out” with a sales tax on precious metals, and we don’t imagine they will do that for much longer.

When there is no sales tax in any of the states, America has again fully admitted that gold is money. The inclusion of other precious metals shows that the issue moves past gold, and into the realm of tangible value.

Once we have that admission, necessary questions will have to be asked. If gold is money, what is the U.S. dollar and why is it untethered from gold? We have said time and again that gold has made its way into the mainstream, but the reason isn’t the price gains.

Rather, it is a slow and steady realization on behalf of the populace that currency is intrinsically worthless. Furthermore, the economy is rigged against anyone holding currency. Pay the inflation tax forever, or pay sales tax now on gold and silver? At least the latter choice only punishes the buyer once…

For reasons known only to him, Beshear argues we should keep the poor even poorer by denying them access to real money and instead giving them government IOUs with an invisible expiration date printed on every note.

Fortunately, the sound money movement is making great strides year after year. It can’t happen soon enough!

With global instability increasing and election uncertainties on the horizon, protecting your retirement savings is more important than ever. And this is why you should consider diversifying into a physical gold IRA. Because they offer an easy and tax-deferred way to safeguard your savings using tangible assets. To learn more, click here to get your FREE info kit on Gold IRAs from Birch Gold Group.

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