Big gold bricks are leaving the United States bound for Switzerland.
Once in Switzerland, they’re being melted down.
What’s presently happening represents a “tectonic shift” in power, according to Frank Holmes.
Frank is the CEO of U.S. Global Investors, Inc., an investment management firm with a longstanding history of expertise in gold, natural resources and emerging markets.
I had the luxury of discussing this evolving situation with Frank on Thursday.
Frank, who lives directly on the frontline of the gold market, says it’s important for investors to realize that gold is exiting the United States.
America has never witnessed a mass exodus of gold like this before.
In January alone, 57 metric tons of gold bullion fled the country.
Scarier still, China recently opened a brand-new vault. It’s a beast, with the capacity to store 2,000 metric tons, or roughly $82.5 billion at today’s prices.
(Is this Chinese super-vault the gold’s final destination?)
I asked Frank to connect all the dots, which he was happy to do for our readers.
Why is Switzerland melting down gold?
Where is the gold headed next?
Is this a potentially lucrative situation for investors?
As it turns out, the answers are rooted in two very powerful emotions, fear and love.
Onward and Upward,
More Storylines Impacting Markets
Fungus Causing Banana Emergency
A fungal disease, Fusarium oxysporum, is well on its way to wiping out the world’s supply of Cavendish bananas – the world’s most popular banana. With no widespread remedies to the naturally occurring fungus available, the prospects are dire to contain the disease from destroying the fourth-largest agricultural product on Earth.
The news is reminiscent of the devastation wrought by the same fungus six decades ago against the Gros Michel banana – previously the world’s bestselling banana.
The Cavendish replaced the Gros Michel due to their similar tastes, and because of greater disease resistance. Currently, there are no replacement bananas available to fill in for the Cavendish, thus if the Cavendish goes the way of the Gros Michel, bananas could be nothing more than a sweet memory.
Banana prices continue to inch nearer to their record highs from March 2012.
Corporate Insiders Bearish
Corporate executives are more bearish than at any other time in the last 25 years.
According to University of Michigan finance professor, Nejat Seyhun, insiders are selling six shares of their company’s stock for every share purchased – a level that’s twice the historic average.
To add credibility to the report, Seyhun’s data contained information by actual insiders, thus eliminating any impact on the numbers by quasi-insiders, such as institutional investors. This report stands in stark contrast to the 2013 report, which was solidly bullish, and portends a more aggressive bearish period ahead for stocks.
Yellen Ready to Take the Punchbowl Away
Janet Yellen’s recent statement to raise interest rates in as little as six months from the end of the taper may have inadvertently given a glimpse into normal Fed behavior.
Since the time of Paul Volcker in the 1970s, monetary tightening has been the over-riding policy agenda when a new Fed chairperson takes over. Bowing to Fed tradition, each new chairperson has taken swift actions to tighten money supply to fulfill the Federal Reserve’s most important mandate to fight inflation.
It has happened when each of Yellen’s predecessors took their place at the head of the Fed table since the time of Volcker, and it’s important to note that only Volcker escaped a stock market crash when the spigots were turned off. With Yellen’s arrival, the stock market is significantly overvalued – due almost entirely to Fed policy. And Yellen will be unlikely to dodge the bullet of a future market crash. It’s really a matter of time, now.
China to Allow Bank Defaults
China’s title of the only major economy in the world without deposit insurance for its citizens is ending. The country’s recent announcement to institute deposit insurance is designed to alleviate depositors’ fears of bank failures, such as the recent run on Sheyang Rural Commercial Bank in eastern China.
The push is also a strong signal of the government’s willingness to allow non-systemic banks to fail or be consolidated, while also letting Chinese savers understand that the Chinese government will no longer implicitly protect their deposits automatically.
This decision will make it harder for smaller banks to compete, further complicating Beijing’s attempts to meet its 7.5% growth target – thus affecting global stock and commodity markets.
Beef… It May NOT Be What’s for Dinner Anymore
The western drought continues to affect commodity prices, as ranchers send their herds to slaughter in increasing numbers due to the lack of available water.
The number of cattle in the United States currently stands at less than 88 million. That’s the lowest level since 1951 – when the population of the United States was 154 million (about half the size of today).
As the record drought continues, beef prices could rise 7% to 8% in 2014, and roughly the same amount in 2015. Ground beef may see especially steep price hikes, upwards 10% to 15% this year alone. All of this means consumers will experience food inflation not seen in decades, and will force consumers to be more careful about spending – at a time the economy can least afford a pullback in demand.