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The Move Out of Treasuries And Into Gold Continues

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Published : August 20th, 2018
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Category : Gold and Silver

Written by Chris Marcus for the Miles Franklin blog.

When Russia dumped the majority of its U.S. treasury holdings over the past few months,  I noted how it was interesting to wonder what the other holders of U.S. treasuries must be thinking.

“Because the reasons that Russia would sell its holdings are not a complete mystery. The U.S. debt has crossed $20 trillion, and rather than hearing any discussion of how that’s ever going to be repaid, instead the talk is just about how long it will take until the debt hits $30 trillion.”

So for any nation that’s sitting there holding a large U.S. treasury position, there’s an incentive to move first in order to avoid being left without a chair when the music stops.

Now sure enough, the rest of the world has noticed.

Perhaps the most notable seller of US paper was Japan, which dumped $18.4BN, bringing its total from 1048.8BN to 1030.4BN, the lowest since October 2011 as Japanese investors sold off US paper as a result of rising hedging costs which made holding European, or even Japanese bonds, more economical.

Continuing its trend of gradual divestment, Chinese holdings of US Treasury’s dropped by $4.4BN from $1183.1BN to $1178.7BN, a modest drop following last month’s $1.2BN increase.

German holdings also dipped, fro $78.3BN to $71.2BN, with few other notable sellers.

Additionally, the effort to develop trade infrastructure that allows foreign nations to circumvent the dollar system has also continued.

Moscow and Ankara may circumvent the US Dollar amid an exploding currency crisis and trade directly with each other using the Russian ruble and Turkish lira, according to Kremlin spokesman Dmitry Peskov.

Both the Lira and the Ruble have been crushed under the weight of US sanctions.

The news hardly comes as a surprise.

Both Presidents Vladimir Putin (Russia) and Recep Tayyip Erdoğan (Turkey) have publicly vocalized their frustration with U.S. political and monetary policy. And now given a new round of sanctions on each nation by the U.S., the foreign response is just to further walk away from dollar infrastructure.

And as Turkey is now facing its own currency crisis, what are its citizens turning to as protection?

The 90-day average daily volume (of gold contracts) more than doubled to 40,000 contracts, from about 17,000 in March. During the same time, the value of an ounce of gold in lira rocketed more than 30 percent.

“It definitely would make sense to own gold now in Turkey given the depreciation of the lira,” Jonathan Butler, precious metals strategist at Mitsubishi Corp U.K. Plc, said by phone.

“This is consistent with gold’s status as a safe haven and will likely be mirrored on the physical market with demand increasing for jewelry and gold bars.”

Earlier this year the Turkish central bank repatriated its gold, and fellow analyst Dave Kranzler has been reporting for months how Turkey has been adding to its gold holdings.

So none of what’s happening now comes as a complete surprise.

As all of the clues are there to indicate that the long-awaited move out of U.S. paper assets and into precious metals may be at hand. Of course, that’s if it hasn’t already begun.

Chris Marcus

To buy or sell gold and silver call Miles Franklin today at (1-800-822-8080).

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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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